SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
September 30, 1995 Commission File No. 1-7939
- ---------------------------------------------- -------
VICON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2160665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
525 Broad Hollow Road, Melville, New York 11747
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 293-2200
- -----------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $.01
(Title of class)
American Stock Exchange
(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of December 22, 1995 was approximately $3,500,000.
The number of shares outstanding of the registrant's Common Stock as of December
22, 1995 was 2,762,828.
<PAGE>
PART I
ITEM 1 - BUSINESS
General
Vicon Industries, Inc. (the "Company"), incorporated in New York in October,
1967, designs, manufactures, assembles and markets a wide range of closed
circuit television ("CCTV") components and CCTV systems for security,
surveillance, safety, process and control applications by end users. The Company
sells CCTV components and systems directly to distributors, dealers and original
equipment manufacturers, principally within the security industry. The U.S.
security industry is a multi-billion dollar industry which includes guard
services, armored carrier, electronic alarms and sensing equipment, safes,
locking devices and access systems, as well as CCTV. The nature of the Company's
business and the general security market it serves has not changed materially in
the past five years.
Users of the Company's products typically utilize them as a visual crime
deterrent, for visual documentation, observing inaccessible or hazardous areas,
enhancing safety, obtaining cost savings (such as lower insurance premiums),
managing control systems, and improving the efficiency and effectiveness of
personnel. The Company's products are marketed under its own brand names and
registered trademarks. In fiscal 1995, no customer represented more than 10% of
consolidated revenues.
Products
The Company's product line consists of approximately 600 products, of which
about a third represent model variations. The Company's product line consists of
various elements of a video surveillance system, including video cameras,
display units (monitors), cassette recorders, switching equipment for video
distribution, digital video and signal processing units (which perform character
generation, multi screen display, video insertion, intrusion detection, source
identification and alarm processing), motorized zoom lenses, remote camera
positioning devices, manual and computer based system controls, environmental
camera enclosures and consoles for system assembly. In 1995, the Company
introduced a new product called ProTech which is a Windows based command and
control software package. ProTech allows personal computers (p.c.) users to
graphically program and operate from a P.C. all of the Company's digital control
and video processing systems. The Company expects to further enhance the
capabilities of ProTech. The Company maintains a large line of products due to
the many varied climatic and operational environments under which the products
are expected to perform. In addition to selling from a standard catalog line,
for significant orders, the Company will produce to specification or modify an
existing product to meet a customer's requirements. The Company's products range
in price from $10 for a simple camera mounting bracket to approximately one
hundred thousand dollars (depending upon configuration) for a large digital
control and video switching system.
- 2 -
<PAGE>
Marketing
The Company's products are sold worldwide, principally to independent
distributors, dealers and integrators of various types of security-related
systems. Sales are made by in-house customer service representatives, field
sales engineers and by independent sales representatives in certain areas of the
United States. The sales effort is supported by several in-house application
engineers.
Although the Company does not sell directly to end users, much of its sales
promotion and advertising is directed at end user markets. The Company's
products are employed in video system installations by: (1) commercial and
industrial users, such as office buildings, manufacturing plants, warehouses,
apartment complexes, shopping malls and retail stores; (2) federal, state, and
local governments for national security purposes, municipal facilities, prisons,
and military installations; (3) financial institutions, such as banks, clearing
houses, brokerage firms and depositories, for security purposes; (4)
transportation departments for highway traffic control, bridge and tunnel
monitoring, and airport, subway, bus and seaport surveillance; (5) gaming
casinos, where video security is often mandated by local statute; and (6) health
care facilities, such as hospitals, particularly psychiatric wards and intensive
care units. The Company estimates that approximately 50 percent of its total
revenues are sales for commercial and industrial uses.
The Company's principal sales offices are located in Melville, New York;
Atlanta, Georgia and Segensworth, England.
International Sales
The Company sells internationally by direct export to dealers and distributors,
and, in Europe through the Company's United Kingdom (U.K.) subsidiary. In fiscal
1995, the operating profit and identifiable assets for the Company's U.K.
subsidiary amounted to approximately $573,000 and $5.2 million, respectively.
For more information regarding foreign operations, see Note 7 of Notes to
Consolidated Financial Statements included elsewhere herein. Direct export sales
and sales from the Company's U.K. subsidiary amounted to $17.5 million, $16.7
million and $16.1 million or 40%, 35% and 35% of consolidated revenues in fiscal
years 1995, 1994, and 1993, respectively. Export sales are made through a
wholly-owned subsidiary, Vicon Industries Foreign Sales Corporation, a tax
advantaged foreign sales corporation. The Company's principal foreign markets
are Europe and the Far East, which together accounted for approximately 83
percent of international sales in fiscal 1995. Additional information is
contained in the discussion of foreign currency activity included in Item 7.
- 3 -
<PAGE>
Competition
The Company competes in areas of price, service, product performance and
availability with several large and small public and privately-owned companies
in the manufacture and distribution of CCTV systems and components (excluding
cameras, monitors and video cassette recorders "Video Products") within the
security industry. The Company's Video Products compete with many large
companies whose financial resources and scope of operations are substantially
greater than the Company's. The Company is one of a few domestic market
suppliers that design, assemble, manufacture, market and support an extensive
line of products offering a comprehensive system capability in a wide range of
applications. Many competitors, including manufacturers of cameras, monitors and
recorders, typically produce a limited product line since components and
accessories are low volume items. The Company believes a broad product line is
desirable since many customers prefer to obtain a complete video system from one
supplier with the assurance of product compatibility and reliability. In recent
years, price competition has intensified limiting the amount of cost increases
the Company can pass on to customers and in some instances requiring price
reductions.
Research and Development
The Company is engaged in ongoing research and development activities in
connection with new or existing products. Changes in CCTV technology have
incorporated the use of advanced electronic components and new materials which
add to product life and performance. Twenty-one professional employees devote
full time to the development of new products and to improving the qualities and
capabilities of existing products. Further, the Company engages the services of
others to assist in the development of new products. Expenditures for research
and development amounted to approximately $1,900,000 in 1995, $1,600,000 in
1994, and $1,600,000 in 1993 or approximately 4.2% of revenues in 1995, 3.4% of
revenues 1994, and 3.5% of revenues in 1993.
Source and Availability of Raw Materials
The Company has not experienced shortages or significant difficulty in obtaining
its raw materials, components or purchased finished products. Raw materials are
principally aluminum, steel and plastics, while components are mainly motors,
video lenses and standard electronic parts. In 1995, the Company procured
directly and indirectly approximately 19% of its product purchases from Chun
Shin Electronics, Inc., its Korean joint venture (see Item 13 for further
discussion of the Korean joint venture). The Company is not dependent upon any
other single source for a significant amount of its raw materials, components or
purchased finished products.
Patents and Trademarks
The Company owns a limited number of design and utility patents expiring at
various times and has several patent applications pending with respect to the
design and/or mechanical function of its products. The Company has certain
trademarks registered and several other trademark applications pending both in
the United States and in Europe. The Company has no licenses, franchises or
concessions with respect to any of its products or business dealings. The
Company does not deem its patents and trademarks, or the lack of licenses,
franchises and concessions, to be of substantial significance or to have a
material effect on its business.
- 4 -
<PAGE>
Inventories
The Company maintains an inventory of finished products sufficient to
accommodate its customers' requirements, since most sales are to
dealer/contractors who do not carry large stock inventories. Parts and
components inventories are also carried in sufficient quantities to permit
prompt delivery of certain items. The Company would rather carry adequate
inventory quantities than experience shortages which detract from the production
process and sales effort. The Company's business is not seasonal.
Backlog
The backlog of orders believed to be firm as of September 30, 1995 and 1994 was
approximately $2.7 million and $3.0 million, respectively. All orders are
cancelable without penalty at the option of the customer. The Company prefers
that its backlog of orders not exceed its ability to fulfill such orders on a
timely basis, since experience shows that long delivery schedules only encourage
the Company's customers to look elsewhere for product availability.
Employees
At September 30, 1995, the Company employed 175 full-time employees, of whom
five are officers, 50 administrative personnel, 65 employed in sales capacities,
25 in engineering, and 30 production employees. At September 30, 1994, the
Company employed 185 persons categorized in similar proportions to those of
1995. There are no collective bargaining agreements with any of the Company's
employees and the Company considers its relations with its employees to be good.
ITEM 2 - PROPERTIES
In January 1988, the Company sold and subsequently leased back its 108,000
square foot headquarters facility in Melville, New York, which accommodates the
Company's sales, distribution, administration, product development and limited
assembly and manufacturing operations. Currently, the Company subleases 28,000
sq. ft. of its facility under an agreement which expires on February 28, 1997.
In November 1994, the Company entered into a sublease agreement dated as of
January 1, 1993, which gives a company affiliated with its landlord the right to
occupy approximately 25,000 sq. ft. of its primary operating facility with two
months notice in exchange for specified rent payments through the expiration of
the primary lease in 1998. In connection with such agreement, the landlord and
the subtenant were each granted an option to ask the Company to vacate the
entire premises with six months notice and the landlord agreed to release the
Company from all future obligations under its lease in exchange for a lease
termination payment by the Company. (See Notes 3 and 10 of Notes to Consolidated
Financial Statements included elsewhere herein for further information). The
Company believes that this facility is adequate to support its near term
operating plans. The Company also operates, under lease, a regional sales office
in Atlanta, Georgia. In addition, the Company owns a 14,000 square foot sales,
service and warehouse facility in southern England which services the U.K. and
European Community markets.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
- 5 -
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's stock is traded on the American Stock Exchange under the symbol
(VII). The following table sets forth for the periods indicated, the range of
high and low prices for the Company's Common Stock on the American Stock
Exchange:
<TABLE>
<CAPTION>
Quarter
Ended High Low
<S> <C> <C>
Fiscal 1995
December 2-1/16 1-1/2
March 2-15/16 1-1/2
June 2-1/2 1-3/8
September 2-1/8 1-9/16
Fiscal 1994
December 2-1/8 1- 3/4
March 2-3/16 1- 7/8
June 2-3/16 1-11/16
September 2 1-11/16
</TABLE>
The Company has not declared or paid cash dividends on its Common Stock for any
of the foregoing periods. Additionally, under the current loan agreement, the
Company may not declare dividends. The approximate number of holders of Common
Stock at December 22, 1995 was 1,500.
- 6 -
<PAGE>
<TABLE>
<CAPTION>
ITEM 6 - SELECTED FINANCIAL DATA
FISCAL YEAR 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 43,847 $ 47,714 $ 45,923 $ 45,041 $ 42,055
Gross profit 9,546 10,714 9,274 8,150* 10,505
Pretax income (loss) (1,267) 74 (1,858) (3,317) (478)
Net income (loss) (1,347) 45 (1,875) (3,906) (377)
Income (loss) per share (.49) .02 (.68) (1.42) (.14)
Total assets 26,423 28,857 26,069 26,701 30,325
Long-term debt 5,339 6,059 5,621 6,273 6,648
Working capital 10,721 13,359 13,420 15,741 18,957
Property, plant and
equipment (net) 3,262 3,180 3,245 3,913 4,251
Cash dividends - - - - -
</TABLE>
* Includes a provision of $2.7 million for discontinuance of certain products
and product lines.
- 7 -
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 1995 Compared with 1994
Net sales for 1995 were $43.8 million, a decrease of 8.1%, compared with $47.7
million in 1994. The sales decline was the result of lower domestic shipments,
while foreign sales increased $.8 million to $17.5 million. Domestic sales were
affected by several factors such as direct end user selling by competition; lack
of competitiveness of certain products whose cost is denominated in yen; and
shortened product life cycles which made certain of the Company's key control
systems less competitive. The backlog of orders was $2.7 million at September
30, 1995 compared with $3.0 million at September 30, 1994.
Gross profit margins were 21.8% of net sales in 1995, compared with 22.5% in
1994. The margin decline was due principally to the impact of lower sales in
relation to a substantially fixed overhead structure. In addition, the value of
the dollar declined significantly against the Japanese yen for most of the year
which lowered margins of those products sourced in Japan.
Operating expenses in 1995 totaled $9.8 million compared with $9.9 million in
1994. Operating expenses, as a percent of sales, amounted to 22.4% and 20.7% in
1995 and 1994, respectively. The increase in expenses as a percent of sales is
due in part to higher bad debt expense, severance pay, bank and professional
fees.
During 1994, the Company incurred an unrealized foreign exchange gain of
$45,000. This gain resulted from the Company's revaluation of its yen
denominated mortgage obligation into U.S. dollars as the value of the British
pound sterling gained against the Japanese yen during the year.
Interest expense increased $230,000 as a result of higher interest rates.
The net loss of $1.3 million compared with a profit of $45,000 was the result of
lower sales and gross margins and higher interest expenses as discussed above.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fiscal Year 1994 Compared with 1993
Net sales for 1994 were $47.7 million, an increase of 3.9%, compared with $45.9
million in 1993. The sales growth resulted primarily from increased sales in
Europe. The backlog of orders was $3.0 million at September 30, 1994 compared
with $4.1 million at September 30, 1993. This decline is the result of lower
domestic and export sales bookings in 1994.
Gross profit margins were 22.5% of net sales in 1994, compared with 20.2% in
1993. In 1993, the Company's cost of products sourced in Japan increased
significantly as a result of a severe decline in the value of the U.S. dollar
compared with the Japanese yen. Also, a decline in the value of the British
pound versus the U.S. dollar further reduced margins on U.S. sourced product
sales in Europe. In 1994, the value of the dollar continued to weaken against
the Japanese yen but to a lesser extent than in 1993. The Company was able to
substantially offset the effects of this further decline by securing U.S. dollar
based purchase agreements to cover most of the year's yen based product purchase
commitments. During 1994, the Company began shifting product sourcing to
suppliers transacting in more stable and favorable currencies. Further, the
value of the British pound increased against the U.S. dollar in 1994 which
increased margins on U.S. sourced product sales in Europe. The Company was also
able to reduce its indirect manufacturing expenses in 1994 while increasing
product production, thus increasing product margins. Finally, prior year margins
were adversely impacted by the recognition of a $450,000 provision to the
estimated realizable value of certain discontinued product parts and components.
Such provision accounted for approximately 1% of the 1994 increase in gross
profit margins.
Operating expenses in 1994 totaled $9.9 million compared with $10.3 million in
1993. Operating expenses, as a percent of sales, amounted to 20.7% and 22.5% in
1994 and 1993, respectively. The decline in expenses was principally the result
of an ongoing cost control program.
During 1994, the Company incurred an unrealized foreign exchange gain of $45,000
compared with a loss of $262,000 in 1993. This gain or loss results from the
Company's revaluation of its yen denominated mortgage obligation into U.S.
dollars. The decrease in the loss was due to the relative stability of the
British pound sterling against the Japanese yen during the year.
Interest expense increased by $224,000 in 1994 as a result of higher interest
rates and higher borrowing levels.
Pretax income improved approximately $1.9 million as a result of increased
sales, higher gross margins and lower operating expenses as discussed above.
- 9 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND FINANCIAL CONDITION
September 30, 1995 Compared with 1994
Total shareholders' equity was approximately $8.6 million at September 30, 1995,
despite a net loss of $1.3 million in fiscal 1995. Working capital declined by
approximately $2.6 million to $10.7 million at September 30, 1995. The decline
was principally due to the operating loss and accelerated paydown of $.9 million
of long term bank debt.
Accounts receivable decreased approximately $1.4 million to $8.4 million at
September 30, 1995. The decrease was the result of lower fourth quarter sales
and improved receivable turnover. Inventories declined $1.4 million to $12.1
million at September 30, 1995. Finished products at the Company's U.K.
subsidiary decreased $.8 million while raw material and component inventories
accounted for the remaining inventory decline as the Company moved production to
its off-shore plant and domestic contract manufacturers. Accounts payable to a
related party, Chugai Boyeki Co., Ltd., increased approximately $1.2 million to
$6.9 million at September 30, 1995 in support of the Company's repayment of bank
debt.
The Company has a revolving line of credit of 700,000 pounds sterling (approx.
$1.1 million) in the U.K. to support local cash requirements. At September 30,
1995, borrowings under this agreement were approximately $907,000, which was
used for general working capital purposes.
In December 1994, the Company extended its bank revolving credit agreement to
October 1995. Borrowings under such agreements amounted to approximately $2.8
million and $4.5 million, respectively, at September 30, 1995 and 1994, which
was used principally for U.S. working capital purposes. At September 30, 1995,
the Company was in default of certain covenants under the agreement and on
December 28, 1995 repaid the entire loan with the proceeds of a new bank loan.
The new two year loan agreement provides for maximum borrowings of $3,250,000
through June 30, 1996 and $4,000,000 thereafter, subject to an availability
formula based on accounts receivable and inventories. Concurrent with the new
loan agreement, the Company amended its $2,000,000 secured promissory note with
Chugai Boyeki Co., Ltd., a related party, to defer all scheduled installments to
July 1998. The Company believes that the new loan agreement and its other
sources of credit provide adequate funding to meet its near term cash
requirements.
- 10 -
<PAGE>
Foreign Currency Activity
The Company's foreign exchange exposure is principally limited to the
relationship of the U.S. dollar to the Japanese yen and the British pound
sterling.
Japan sourced products denominated in Japanese yen accounted for approximately
19 percent of product purchases in fiscal 1995. In recent years the dollar has
weakened dramatically in relation to the yen, resulting in increased costs for
such products. When market conditions permit, cost increases due to currency
fluctuations are passed on to customers through price increases. The Company
also attempts to reduce the impact of an unfavorable exchange rate condition
through cost reductions from its suppliers, lowering production cost through
product redesign, and shifting product sourcing to suppliers transacting in more
stable and favorable currencies. During the period from the second half of 1993
through July 1994, the Company was granted dollar based pricing through Chugai
Boyeki Co., Ltd., its Japanese supplier. Subsequent to this period, the
Company's purchases have been denominated in Japanese yen. However, this
supplier, at the Company's direction, has entered into foreign exchange
contracts on behalf of the Company to hedge the currency risk on these product
purchases.
Sales to the Company's U.K. subsidiary, which approximated $4.3 million in
fiscal 1995, are made in pounds sterling and include products sourced from the
Far East. In the years when the pound has weakened significantly against the
U.S. dollar and Japanese yen, the cost of U.S. and Japanese sourced product sold
by the Company's U.K. subsidiary has increased. When market conditions
permitted, such cost increases were passed on to the customer through price
increases. The Company attempts to minimize its currency exposure on
intercompany sales through the purchase of forward exchange contracts to cover
unpaid receivables.
The Company intends to increase prices and seek lower prices from suppliers to
mitigate exchange rate exposures, however, there can be no assurance that such
steps will be effective in limiting foreign currency exposure.
Inflation
The impact of inflation on the Company has lessened in recent years as the rate
of inflation declined. However, inflation continues to increase costs to the
Company. As operating expenses and production costs increase, the Company, to
the extent permitted by competition, recovers these increased costs by
increasing prices to its customers.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14, for an index to consolidated financial statements and
financial statement schedules.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
- 11 -
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of the Company are as follows:
Directors and Executive Officers
Donald N. Horn, age 66 Chairman of the Board (since 1967);
term ends April 1996
Kenneth M. Darby, age 49 President, Chief Executive Officer,
Assistant Secretary, and Director
(since 1987); term ends April, 1997
Arthur D. Roche, age 57 Executive Vice President, Chief
Financial Officer, Secretary, Member of
the Office of the President and Director
(since 1992); term ends April 1996
Peter F. Barry, age 66 Director since 1984; term ends April
1996
Milton F. Gidge, age 66 Director since 1987; term ends April
1998
Michael D. Katz, age 57 Director since 1993; term ends April
1998
Peter F. Neumann, age 61 Director since 1987; term ends April
1997
W. Gregory Robertson, age 51 Director since 1991; term ends April
1998
Kazuyoshi Sudo, age 53 Director since 1987; term ends April
1997
Arthur V. Wallace, age 70 Director since 1974; term ends April
1998
Peter A. Horn, age 40 Vice President, Compliance and Quality
Assurance
Yacov A. Pshtissky, age 44 Vice President, Engineering
Kevin D. Whitley, age 39 Vice President, U.S. Sales
Mr. D. Horn founded the Company in 1967 and has served as Chairman of the Board
since its inception. He also served as Chief Executive Officer from the
Company's inception until April 1992 and as President to September, 1991.
Mr. Darby has served as Chief Executive Officer since April, 1992 and as
President since October, 1991. Mr. Darby also served as Chief Operating Officer
and as Executive Vice President, Vice President, Finance and Treasurer of the
Company. He first joined the Company in 1978 as Controller after more than nine
years at KPMG Peat Marwick, a major public accounting firm.
Mr. Roche joined the Company as Executive Vice President and co-participant in
the Office of the President in August 1993. For the six months earlier, Mr.
Roche provided consulting services to the Company. In October, 1991 Mr. Roche
retired as a partner of Arthur Andersen & Co., an international accounting firm
whom he joined in 1960.
Mr. Barry is a retired executive of Grumman Corp., an aerospace manufacturer,
for whom he served from August 1988 to March 1991 as Senior Vice President of
Washington D.C. operations. Previously, he served since 1974 as President of
Hartman Systems, Inc., a manufacturer of electronic controls and display devices
for military applications. Mr. Barry currently acts as a consultant to private
industry on government relations.
- 12 -
<PAGE>
Mr. Gidge is a retired executive officer of Lincoln Savings Bank (1976-1994) and
served as its Chairman, Credit Policy. He has also served as a director since
1980 of Interboro Mutual Indemnity Insurance Co., a general insurance mutual
company and since 1988 as a director of Intervest Corporation of New York, a
mortgage banking company.
Mr. Katz is a physician practicing in New York. He is the President of Katz,
Rosenthal, Ganz, Snyder & PDC. He has served in that capacity for 25 years.
Mr. Neumann has been President of Flynn-Neumann Agency, Inc. an insurance
brokerage firm, since 1971. He has also served since 1978 as a director of
Reliance Federal Savings Bank.
Mr. Robertson is President of TM Capital Corporation, a financial services
company, an organization he founded in 1989. From 1985 to 1989, he was employed
by Thomson McKinnon Securities, Inc. as head of investment banking and public
finance.
Mr. Sudo has been Treasurer of Chugai Boyeki (America) Corp., a distributor of
electronic, chemical and optical products, for the past ten years.
Mr. Wallace, who joined the Company in 1970, was Executive Vice President from
1979 until he retired in September, 1990.
Mr. P. Horn joined the Company in January, 1974 and has been employed in various
technical capacities. In 1986 he was appointed as Vice President, Engineering;
in May, 1990 as Vice President, New Products and Technical Support Services; in
September 1993, he was appointed Vice President, Marketing; in 1994 as Vice
President, Product Management; and in 1995 as Vice President, Compliance and
Quality Assurance.
Mr. Pshtissky, who joined the Company in September 1979, as an Electrical Design
Engineer, was promoted to Director of Electrical Product Development in March,
1988 and to Vice President, Engineering in May, 1990.
Mr. Whitley joined the Company in March, 1987 as a Sales Engineer. He was
promoted to Midwest Regional Manager in 1989 and Vice President, U.S. Sales in
August, 1993.
There are no family relationships between any director, executive officer or
person nominated or chosen by the Company to become a director or officer except
for the relationship between Peter A. Horn, an officer of the Company, and
Donald N. Horn, Chairman of the Board. Peter A. Horn is the son of Donald N.
Horn.
- 13 -
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company during the year ended September 30, 1995 and Form 5 and amendments
thereto furnished to the Company with respect to the year ended and certain
written representations, no person, who, at any time during the year ended
September 30, 1995, was a director, officer or beneficial owner of more than 10
percent of any class of equity securities of the Company registered pursuant to
Section 12 of the Exchange Act failed to file on a timely basis, as disclosed in
the above forms, reports required by Section 16 of the Exchange Act during the
year ended September 30, 1995.
ITEM 11 - EXECUTIVE COMPENSATION
The following information is set forth with respect to all compensation paid by
the Company to its Chief Executive Officer and its most highly compensated
executive officers other than the CEO whose annual compensation exceeded
$100,000, for each of the past three fiscal years.
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
Fiscal
Name and Year Ended Options All Other
Principal Position September 30, Salary No. of Shares Compensation
<S> <C> <C> <C> <C>
Kenneth M. Darby 1995 $195,000 - $ 3,000 (1)
Chief Executive Officer 1994 $195,000 59,194 $ 3,000 (1)
1993 $192,000 19,838 $31,000 (2)
Arthur D. Roche 1995 $150,000 - -
Executive Vice President 1994 $150,000 50,000 -
1993 $ 25,000 - -
</TABLE>
No listed officer received other non-cash compensation amounting to more than
10% of salary.
(1) Represents life insurance policy payment.
(2) Includes a $28,000 cash distribution pursuant to the cancellation of a
deferred compensation agreement and a $3,000 life insurance policy payment.
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Stock Options
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Individual Grants Value at Assumed
Annual Rates of Stock
% of Total Price Appreciation
No. of Granted to Exercise For Option Term
Options Employees In Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
- ----------------- ---------- ------------- --------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
None
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised In-
Number of Unexercised Options the-Money Options at
As of September 30, 1995 September 30, 1995 (1)
----------------------------- ------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Kenneth M. Darby 112,214 23,678 - -
Arthur D. Roche 30,000 20,000 - -
</TABLE>
No options were exercised by any of the above-named officers during the year
ended September 30, 1995.
(1) Calculated based on $1.875 per share closing market value at September 30,
1995.
- 15 -
<PAGE>
Mr. Darby has entered into an employment contract with the Company that entitles
him to receive an annual salary of $195,000 through fiscal year 2000.
Additionally, Mr. Darby's agreement provides for payment in an amount up to
three times his average annual compensation for the previous five years if there
is a change in control (as defined in the agreement).
Mr. Roche, who joined the Company on August 1, 1993, has an agreement with the
Company that provides an annual salary of $150,000 through September 30, 1997.
The agreement also provides for a payment, at Mr. Roche's option, if there is a
change in control, as defined, equal to the unpaid salary under his agreement.
Messrs. D. Horn and Wallace (a former executive and a current director) each
have insured deferred compensation agreements with the Company which provide
that upon reaching retirement age total payments of $917,000 and $631,000,
respectively, will be made in monthly installments over a ten year period. The
full deferred compensation payment is subject to such individuals' adherence to
certain non-compete covenants. Mr. Wallace, who retired in September 1990, began
receiving payments under the agreement in October, 1990 and Mr. Horn began
receiving payments under the agreement in January, 1994.
Directors, except the Chairman of the Board and employee directors, are each
compensated at the rate of $600 per Board meeting and $300 per committee meeting
attended in person. The Chairman of the Board is compensated at the rate of
$1,000 per Board meeting and $300 per committee meeting attended in person.
- 16 -
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Neumann, Robertson and Wallace, none of whom are or ever have been officers of
the Company, except Mr. Wallace who retired in 1990 as Executive Vice President.
See the section entitled "Certain Relationships and Related Transactions"
included elsewhere herein, for a discussion of certain other relationships
maintained by Mr. Neumann and Mr. Robertson with the Company.
BOARD COMPENSATION COMMITTEE REPORT
The Compensation Committee's compensation policies applicable to the Company's
executive officers for the last completed fiscal year were to pay a competitive
market price for the services of such officers, taking into account the overall
performance and financial capabilities of the Company and the officer's
individual level of performance.
Mr. Darby makes recommendations to the Compensation Committee as to the base
salary and incentive compensation of all executive officers other than Mr.
Darby. The Committee reviews these recommendations with Mr. Darby, and after
such review, determines compensation. In the case of Mr. Darby, the Compensation
Committee makes its determination after direct negotiation with such officer.
For each executive officer, the Committee's determinations are based on the
committee's conclusions concerning each officer's performance and comparable
compensation levels in the CCTV Industry and the Long Island area for similarly
situated officers at other companies. The overall level of performance of the
Company is taken into account but is not specifically related to the base salary
of these executive officers. Also, the Company has established an incentive
compensation plan for all of its executive officers, which provides a specified
bonus to each officer upon the Company's achievement of certain annual
profitability targets.
The Compensation Committee grants options to executive officers to connect
compensation to the performance of the Company. Options are exercisable in the
future at the fair market value at the time of grant, so that an officer granted
an option is rewarded by the increase in the price of the Company's stock. The
Committee grants options based on significant contributions of an executive
officer to the performance of the Company.
In addition, in determining the salary compensation of Mr. Darby as CEO, the
Committee considered the responsibility assumed by him in formulating and
implementing a management and operating restructuring plan.
Compensation Committee
Peter F. Neumann, Chairman, W. Gregory Robertson
and Arthur V. Wallace
- 17 -
<PAGE>
This graph compares the return of $100 invested in the Company's stock on
October 1, 1990, with the return on the same investment in the AMEX Market Value
Index and the AMEX High Technology Index.
<TABLE>
<CAPTION>
(The following table was represented by a chart in the printed material)
AMEX High
Vicon AMEX Market Technology
Date Industries, Inc. Value Index Index
<S> <C> <C> <C>
10/01/90 100 100 100
10/01/91 82 122 160
10/01/92 109 122 150
10/01/93 64 150 178
10/01/94 66 149 186
10/01/95 68 177 247
</TABLE>
- 18 -
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information as to each person, known to the Company to
be a "beneficial owner" (as defined in regulations of the Securities and
Exchange Commission) of more than five percent of the Company's Common Stock
outstanding as of December 1, 1995 and the shares beneficially owned by the
Company's Directors and by all Officers and Directors as a group.
<TABLE>
<CAPTION>
Name and Address Amount of
of Beneficial Owner Beneficial Ownership (1) % of Class
------------------- ------------------------ ----------
<S> <C> <C>
Chugai Boyeki (America) Corp.
55 Mall Drive
Commack, NY 11725
and
Chugai Boyeki Company, Ltd.
2-15-13 Tsukishima
Chuo-ku
Tokyo, Japan 104 548,715 18.0%
Chu Chun
C/O I.I.I. Companies, Inc.
915 Hartford Turnpike
Shrewsbury, MA 01545 168,957 5.5%
Hanshin Securities Co., Ltd.
34-7, Yoido-Dong
Youngdungpo-Gu
Seoul 150-010, Korea 143,000 4.7%
*******************************************************************************
C/O Vicon Industries, Inc.
Michael D. Katz 279,400 (2) 9.2%
Kenneth M. Darby 203,988 (3) 6.7%
Donald N. Horn 156,003 (2) 5.1%
Arthur V. Wallace 66,238 (4) 2.2%
Arthur D. Roche 47,500 (5) 1.6%
Kazuyoshi Sudo 12,000 (2) .4%
Peter F. Barry 5,600 (2) .2%
Milton F. Gidge 5,000 (2) .2%
Peter F. Neumann 3,000 .1%
W. Gregory Robertson -- --
Total all officers and
directors as a group
(13 persons) 823,024 (6) 27.0%
</TABLE>
(1) The nature of beneficial ownership of all shares is sole voting and
investment power.
(2) Includes currently exercisable options to purchase 5,000 shares.
(3) Includes currently exercisable options to purchase 140,714 shares.
- 19 -
<PAGE>
(4) Includes currently exercisable options to purchase 4,543 shares.
(5) Includes currently exercisable options to purchase 37,500 shares.
(6) Includes currently exercisable options to purchase 250,302 shares.
- 20 -
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Chugai Boyeki Company, Ltd. (Chugai), a Japanese corporation,
which owns 19.9% of the outstanding shares of the Company, have been conducting
business with each other for approximately sixteen years whereby the Company
imports certain video products and lenses through Chugai and also sells its
products to Chugai who resells the products in certain Asian and European
markets. In fiscal 1995, the Company purchased approximately $11.6 million of
products through Chugai and sold products to Chugai for resale totaling
approximately $3.4 million. Kazuyoshi Sudo, a director, is Treasurer of Chugai
Boyeki (America) Corp., a U.S. subsidiary of Chugai.
Chu S. Chun, who controls 6.1% of the outstanding shares of the Company, also
owns Chun Shin Industries, Inc. (CSI). CSI is a 50% partner with the Company in
Chun Shin Electronics, Inc. (CSE), a joint venture company which manufactures
and assembles certain Vicon products in South Korea. In fiscal 1995, CSE sold
approximately $5.1 million of product to the Company through I.I.I. Companies,
Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun. The Company entered
into a supplier agreement with I.I.I. during 1994 whereby I.I.I. arranges the
importation and provides short term financing on all the Company's product
purchases from CSE. CSE also sold approximately $1.2 million of product to CSI
which sells Vicon product exclusively in Korea. In addition, I.I.I. purchased
approximately $900,000 of products directly from the Company during fiscal 1995
for resale to CSI.
Peter F. Neumann, a director of the Company, is President and the principal
shareholder of Flynn-Neumann Agency, Inc., an insurance brokerage firm, which is
the agent for a majority of the Company's commercial insurance. The premium paid
for such insurance amounted to approximately $94,000 in fiscal 1995.
W. Gregory Robertson, a director of the Company, is President of TM Capital
Corporation, an investment banking firm which provides investment banking
services to the Company on a periodic basis. Services rendered to the Company
during fiscal 1995 but paid subsequent to year end amounted to $25,000.
During 1995, the Company purchased approximately $50,000 of products from
Pro/Four Video Products, Inc., in which Donald N. Horn and Arthur V. Wallace,
directors of the Company, have an ownership interest.
- 21 -
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) (1) Financial Statements
Included in Part IV, Item 14:
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Operations, fiscal years ended
September 30, 1995, 1994, and 1993
Consolidated Balance Sheets at September 30, 1995 and 1994
Consolidated Statements of Shareholders' Equity, fiscal years ended
September 30, 1995, 1994, and 1993
Consolidated Statements of Cash Flows, fiscal years ended September 30,
1995, 1994, and 1993
Notes to Consolidated Financial Statements, fiscal years ended
September 30, 1995, 1994, and 1993
(a) (2) Financial Statement Schedule
Included in Part IV, Item 14:
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 1995, 1994, and 1993
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and, therefore,
have been omitted.
- 22 -
<PAGE>
14(a)(3) Exhibits
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
3 Articles of Incorporation and Incorporated by reference
By-Laws, as amended to the 1985 Annual Report
on Form 10-K; Form S-2
filed in Registration
Statement No. 33-10435 and
Exhibit A, B and C of the
1987 Proxy Statement
10 Material Contracts
(.1) Credit and Security Agreement 10.1
dated December 27, 1995
between the Registrant and
IBJ Schroder Bank and Trust
Company
(.2) Promissory Note dated 10.2
October 5, 1993 as amended
between Registrant and Chugai
Boyeki Company, Ltd.
(.3) Mortgage Loan Agreement dated Incorporated by
June 2, 1989 between the reference to the 1989
Registrant and Chugai Boyeki Annual Report on
Company, Ltd. Form 10-K
(.4) Employment contract dated 10.4
October 1, 1995 between the
Registrant and Kenneth M. Darby
(.5) Letter Agreement dated October 10.5
1, 1995 between Registrant
and Arthur D. Roche
(.6) Employment Agreement dated June 10.6
1, 1995 between Registrant and
Peter Horn
(.7) Employment Agreement dated June 10.7
1, 1995 betwen Registrant and
Yacov Pshtissky
(.8) Deferred Compensation Agreements Incorporated by
dated November 1, 1986 between the reference to the 1992
Registrant and Donald N. Horn and Annual Report on
Arthur V. Wallace Form 10K
(.9) Agreement of lease dated Incorporated by
January 18, 1988 between the reference to the 1988
Registrant and Allan V. Rose Annual Report on Form
10-K
- 23 -
<PAGE>
(.10) Sublease Agreement dated Incorporated by reference
as of January 1, 1993 between to the 1994 Annual Report
the Registrant and AVR on Form 10-K
Mart Inc.
(.11) Consent of Overlandlord and Incorporated by reference
Release Agreement (undated) to the 1994 Annual Report
between the Registrant and on Form 10-K
Allan V. Rose
(.12) Sublease Agreement dated 10.12
as of September 1, 1995 between
the Registrant and New York
Blood Center
(.13) Amended and restated 1986 Incorporated by
Incentive Stock Option Plan reference to the 1990
Annual Report on Form
10-K
(.14) 1994 Incentive Stock Incorporated by reference
Option Plan to the 1994 Annual Report
on Form 10-K
(.15) 1994 Non-Qualified Stock Option Incorporated by reference
Plan for Outside Directors to the 1994 Annual Report
on Form 10-K
22 Subsidiaries of the Registrant Incorporated by
reference to the Notes
to the Consolidated
Financial Statements
24 Independent Auditors' Consent 24
No other exhibits are required to be filed.
14(b) - REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed during the last quarter of the
period covered by this report.
- 24 -
<PAGE>
Other Matters - Form S-8 Undertaking
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form S-8 Nos. 33-7892
(filed June 30, 1986), 33-34349 (filed April 1, 1990) and 33-90038 (filed
February 24, 1995):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
- 25 -
<PAGE>
KPMG PEAT MARWICK LLP
Independent Auditors' Report
The Board of Directors and Shareholders
Vicon Industries, Inc.:
We have audited the consolidated financial statements of Vicon Industries, Inc.
and subsidiaries as listed in Part IV, item 14(a)(1). In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in Part IV, item 14(a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vicon Industries,
Inc. and subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Jericho, New York
November 16, 1995, except as
to note 6, which is as of
December 28, 1995
- 26 -
<PAGE>
<TABLE>
<CAPTION>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $43,846,571 $47,713,892 $45,922,832
Cost of sales 34,300,638 37,000,055 36,648,513
----------- ----------- -----------
Gross profit 9,545,933 10,713,837 9,274,319
Operating expenses:
General and administrative expense 3,366,662 3,188,183 3,487,616
Selling expense 6,433,483 6,712,436 6,827,256
----------- ----------- -----------
9,800,145 9,900,619 10,314,872
----------- ----------- -----------
Operating (loss) profit (254,212) 813,218 (1,040,553)
Unrealized foreign exchange (gain) loss (550) (44,748) 261,804
Interest expense 1,013,383 783,731 555,453
----------- ----------- -----------
(Loss) income before income taxes (1,267,045) 74,235 (1,857,810)
Income tax expense 80,000 29,000 17,547
----------- ----------- -----------
Net (loss) income $(1,347,045) $ 45,235 $(1,875,357)
=========== =========== ===========
(Loss) income per share $(.49) $.02 $(.68)
===== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
- 27 -
<PAGE>
<TABLE>
<CAPTION>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994
ASSETS 1995 1994
- ------ ---- ----
<S> <C> <C>
Current
Cash $ 1,151,850 $ 910,400
Accounts receivable (less allowance
of $542,000 in 1995 and
$309,000 in 1994) 8,352,845 9,733,383
Other receivables 261,864 301,548
Inventories:
Parts, components, and materials 1,594,462 2,458,840
Work-in-process 1,686,287 1,267,344
Finished products 8,831,852 9,739,832
----------- -----------
12,112,601 13,466,016
Prepaid expenses 309,288 322,953
----------- -----------
Total current assets 22,188,448 24,734,300
Property, plant and equipment:
Land 292,298 292,298
Building and improvements 1,512,601 1,512,601
Machinery, equipment, and vehicles 11,417,598 10,671,340
----------- ----------
13,222,497 12,476,239
Less accumulated depreciation
and amortization 9,960,558 9,296,420
----------- -----------
3,261,939 3,179,819
Other assets 973,107 943,107
----------- -----------
$26,423,494 $28,857,226
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Borrowings under revolving credit agreement 906,955 936,466
Current maturities of long-term debt 220,739 1,260,158
Accounts payable:
Related party 6,895,073 5,711,951
Other 1,335,935 1,812,756
Accrued wages and expenses 1,697,732 1,289,511
Income taxes payable 78,583 32,270
Deferred gain on sale and leaseback 332,100 332,100
----------- -----------
11,467,117 11,375,212
Total current liabilities
Long-term debt:
Related party 2,437,259 2,332,632
Other 2,901,490 3,726,270
Deferred gain on sale and leaseback 433,993 766,093
Other long-term liabilities 550,609 614,487
Commitments and contingencies - Note 10
Shareholders' equity
Common Stock, par value $.01 per share
Authorized - 10,000,000 shares
Issued 2,788,228 shares 27,882 27,882
Capital in excess of par value 9,396,890 9,396,890
Retained (deficit) earnings (583,789) 763,256
----------- -----------
8,840,983 10,188,028
Less treasury stock at cost, 25,400 shares (82,901) (82,901)
Foreign currency translation adjustment (125,056) (62,595)
----------- -----------
Total shareholders' equity 8,633,026 10,042,532
----------- -----------
$26,423,494 $28,857,226
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
- 28 -
<PAGE>
<TABLE>
<CAPTION>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended September 30, 1995, 1994, and 1993
Earnings Foreign Total
Capital in retained currency share-
Common excess of in the Treasury translation holders'
Shares Stock par value business Stock adjustment equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1992 2,788,228 $27,882 $9,396,890 $2,593,378 $(82,901) $(23,714) $11,911,535
Foreign currency translation
adjustment - - - - - (155,908) (155,908)
Net loss - - - (1,875,357) - - (1,875,357)
--------- ------- ---------- ---------- --------- --------- ----------
Balance September 30, 1993 2,788,228 $27,882 $9,396,890 $ 718,021 $(82,901) $(179,622) $ 9,880,270
--------- -------- ---------- ---------- -------- --------- -----------
Foreign currency translation
adjustment - - - - - 82,267 82,267
Net loss - - - 45,235 - - 45,235
--------- ------- ---------- ---------- --------- -------- ----------
Balance September 30, 1994 2,788,228 $27,882 $9,396,890 $ 763,256 $(82,901) $ (62,595) $10,042,532
--------- ------- ---------- ---------- -------- --------- -----------
Foreign currency translation
adjustment - - - - - (62,461) (62,461)
Net loss - - - (1,347,045) - - (1,347,045)
--------- ------- ---------- ---------- --------- --------- ----------
Balance September 30, 1995 2,788,228 $27,882 $9,396,890 $ (583,789) $(82,901) $(125,056) $8,633,026
========= ======= ========== ========== ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE>
<TABLE>
<CAPTION>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,347,045) $ 45,235 $(1,875,357)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 704,900 722,488 907,572
Amortization of deferred gain
on sale and leaseback (332,100) (332,100) (332,100)
Unrealized foreign exchange
(gain) loss (550) (44,748) 261,804
Change in assets and liabilities:
Accounts receivable 1,377,405 (422,815) 565,474
Other receivables 39,684 230,259 262,587
Inventories 1,358,533 (2,201,508) (402,703)
Prepaid expenses 13,513 (17,618) 116,407
Other assets (30,000) (359,547) (53,826)
Accounts payable 708,591 572,724 2,301,289
Accrued wages and expenses 409,285 (22,020) 22,583
Income taxes payable 48,077 8,220 (1,540)
Other liabilities (63,878) (35,277) 180,764
---------- ---------- ----------
Net cash (used in) provided
by operating activities 2,886,415 (1,856,707) 1,952,954
---------- ----------- ----------
Cash flows from investing activities:
Capital expenditures, net of
minor disposals (608,808) (573,100) (514,934)
----------- ---------- ----------
Net cash used in
investing activities (608,808) (573,100) (514,934)
----------- ---------- ----------
Cash flows from financing activities:
Increase (decrease) in borrowings
under U.K. revolving credit
agreement (29,511) 941,365 (14,615)
Issuance of promissory note
to related party - 2,000,000 -
Repayments of debt (1,937,723) (625,506) (730,873)
---------- ---------- -----------
Net cash provided by (used
in) financing activities (1,967,234) 2,315,859 (745,488)
---------- ---------- -----------
Effect of exchange rate changes on cash (68,923) (14,765) (85,103)
---------- ---------- -----------
Net increase (decrease) in cash 241,450 (128,713) 607,429
Cash at beginning of year 910,400 1,039,113 431,684
---------- ---------- -----------
Cash at end of year $1,151,850 $ 910,400 $ 1,039,113
========== ========== ===========
Non-cash investing and financing activities:
Capital lease obligations entered into $ 178,151 - -
Cash paid during the fiscal year for:
Income taxes, net $ 32,097 $ 17,431 $ 20,727
Interest $ 974,640 $ 707,357 $ 519,223
</TABLE>
See accompanying notes to consolidated financial statements.
- 30 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 1995, 1994, and 1993
NOTE 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Vicon Industries,
Inc. (the Company) and its wholly owned subsidiaries, Vicon Industries Foreign
Sales Corp., a Foreign Sales Corporation (FSC) and Vicon Industries (U.K.), Ltd.
after elimination of intercompany accounts and transactions.
Revenue Recognition
Revenues are recognized when products are sold and title is passed to a third
party, generally at the time of shipment.
Inventories
Inventories are valued at the lower of cost (on a moving average basis which
approximates a first-in, first-out method) or market. When it is determined that
a product or product line will be sold below carrying cost, affected on hand
inventories are written down to their estimated net realizable values.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost and include expenditures for
replacements or major improvements. Depreciation, which includes amortization of
assets under capital leases, is computed by the straight-line method over the
estimated useful lives of the related assets for financial reporting purposes
and on an accelerated basis for income tax purposes. Machinery, equipment and
vehicles are being depreciated over periods ranging from 2 to 10 years. The
Company's building is being depreciated over a period of 40 years and leasehold
improvements are amortized over the lesser of their estimated useful lives or
the remaining lease term.
Research and Development
Product research and development costs are charged to cost of sales as incurred,
and amounted to approximately $1,900,000, $1,600,000 and $1,600,000 in fiscal
1995, 1994, and 1993, respectively.
Earnings Per Share
Earnings per share are computed based on the weighted average number of shares
outstanding and equivalent shares from dilutive stock options, if any, of
2,763,000 in 1995, 1994, and 1993, respectively.
Foreign Currency Translation
Foreign currency translation is performed utilizing the current rate method
under which assets and liabilities are translated at the exchange rate on the
balance sheet date, while revenues, costs, and expenses are translated at the
average exchange rate for the reporting period. The resulting translation
adjustment of $(125,056) and $(62,595) at September 30, 1995 and 1994,
respectively, is recorded as a component of shareholders' equity. Intercompany
balances not deemed long-term in nature at the balance sheet date resulted in a
translation gain of $46,893, $46,216, and $43,527 in 1995, 1994, and 1993,
respectively, which is reflected in cost of sales.
- 31 -
<PAGE>
Income Taxes
In fiscal 1992, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled (see Note 5).
Reclassification
Certain prior year amounts have been reclassified to conform with current year
presentation.
NOTE 2. Investment in Affiliate
The Company's 50 percent ownership in Chun Shin Electronics, Inc., a joint
venture company which assembles certain Vicon products in South Korea, is
accounted for using the equity method which reflects the cost of the Company's
investment adjusted for the Company's proportionate share of earnings or losses.
Such earnings or losses have been insignificant during each of the three years
ended September 30, 1995. Assets and sales of the joint venture were
approximately $2.6 million and $6.6 million, respectively, for the fiscal year
ended September 30, 1995. The significant portion of joint venture product sales
were to related parties including approximately $19,000 directly to the Company;
approximately $5.1 million indirectly to the Company through I.I.I. Companies,
Inc., a related party; and approximately $1.2 million to Chun Shin Industries,
Inc., also a related party (see Note 11).
NOTE 3. Deferred Gain on Sale and Leaseback
In fiscal 1988, under a sale and leaseback agreement, the Company sold its
principal operating facility in Melville, New York for approximately $11 million
and leased it back under a ten-year lease agreement. The transaction resulted in
a net gain of $3,321,000 which was deferred and is being amortized over the
ten-year lease period.
NOTE 4. Short-Term Borrowings
Borrowings under the Company's revolving credit agreement represent short term
borrowings by the Company's U.K. subsidiary. Maximum borrowings during 1995,
1994 and 1993 amounted to approximately $1,083,000, $1,123,000, and $494,000,
respectively. The weighted-average interest rate on borrowings during these
years was 8 1/2% in 1995, 7 1/4% in 1994, and 8 1/4% in 1993.
At September 30, 1995 and 1994, Accounts Payable - related party included
approximately $4.5 million and $4.3 million, respectively, of extended accounts
payable balances due Chugai Boyeki Company, Ltd. The extended accounts payable
balance at September 30, 1995 includes approximately $4.0 million of purchases
denominated in Japanese yen which bear interest at the related party's internal
lending rate (4.25% at September 30, 1995). The remaining balances are
denominated in U.S. dollars and bear interest at their U.S. bank's prime rate
(8.75% at September 30,1995).
- 32 -
<PAGE>
NOTE 5. Income Taxes
<TABLE>
<CAPTION>
The components of income tax expense (recovery) for the fiscal years indicated
are as follows:
Current Deferred Total
<S> <C> <C> <C>
1995
Federal $ - $ - $ -
State - -
Foreign 80,000 - 80,000
------------- ------------ -------------
$ 80,000 $ - $ 80,000
============= ============ =============
1994
Federal $ - $ - $ -
State - - -
Foreign 29,000 - 29,000
------------- ------------ -------------
$ 29,000 $ - $ 29,000
============= ============ =============
1993
Federal $ - $ - $ -
State - - -
Foreign 17,547 - 17,547
------------- ------------ -------------
$ 17,547 $ - $ 17,547
============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate
follows:
1995 1994 1993
---- ---- ----
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax rate $(431,000) 34.0% $ 25,000 34.0 % $(632,000) (34.0)%
U.S. net operating
loss carryforward 532,000 42.0 (21,000) (28.3) 549,000 29.6
Foreign subsidiary
operations (42,000) (3.3) 6,000 8.0 81,547 4.4
Officers' life insurance 17,000 1.3 17,000 22.8 17,000 0.9
Other 4,000 0.3 2,000 2.6 $ 2,000 -
-------- ------ -------- ----- --------- ---
Effective Tax Rate $ 80,000 6.3% $ 29,000 39.1% $ 17,547 0.9 %
======== ====== ======== ===== ========== ======
</TABLE>
- 33-
<PAGE>
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at September 30, 1995 and 1994 are
presented below:
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred gain on sale and leaseback $ 259,000 $ 371,000
Inventory obsolescence and
disposition reserves 328,000 337,000
Deferred compensation accruals 221,000 243,000
Allowance for doubtful
accounts receivable 177,000 95,000
Net operating loss carryforwards 1,943,000 1,352,000
General business credit carryforwards 186,000 186,000
Other 8,000 9,000
---------- ----------
Total deferred tax assets 3,122,000 2,593,000
Less valuation allowance (3,034,000) (2,501,000)
---------- ----------
Net deferred tax assets 88,000 92,000
---------- ----------
Deferred tax liabilities:
Cash surrender value of officers'
life insurance 65,000 54,000
Rental income on sublease - 12,000
Other 23,000 26,000
---------- -----------
Total deferred tax liabilities 88,000 92,000
---------- -----------
Net deferred tax assets and liabilities $ -0- $ -0-
---------- -----------
</TABLE>
At September 30, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $5,700,000 which are available to
offset future federal taxable income, if any, through 2010. The Company also had
general business tax credit carryforwards for federal income tax purposes of
approximately $186,000 which are available to reduce future federal income
taxes, if any, through 2003. Pretax domestic and foreign (loss) income in fiscal
1995 amounted to approximately $(1,626,000) and $291,000, respectively.
- 34 -
<PAGE>
NOTE 6. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt is comprised of the following:
1995 1994
---- ----
<S> <C> <C>
Related party:
Mortgage loan denominated in Japanese
yen at a formula interest rate
(6.1% and 7.4% at September 30, 1995
and 1994) with annual installments of
14,400,000 yen to December 1998 $ 583,010 $ 728,290
Term loan with interest rate of 1%
above the prevailing prime rate
(10.0% and 8.75% at September 30, 1995
and 1994) due July 1998 2,000,000 2,000,000
---------- ----------
2,583,010 2,728,290
Less installments due within one year 145,751 395,658
---------- ----------
$2,437,259 $2,332,632
Banks and other:
Revolving credit loan (see below) $2,800,000 $4,500,000
Capital lease obligations 146,048 -
Other 30,430 90,770
---------- ----------
2,976,478 4,590,770
Less installments due within one year 74,988 864,500
---------- ----------
$2,901,490 $3,726,270
========== ==========
</TABLE>
In October 1993, the Company issued a $2,000,000 secured promissory note to
Chugai Boyeki Co., Ltd., a related party. The note is subordinated to senior
bank debt with regard to liens and interest under certain conditions. Subsequent
to year end, the Company amended the note to defer all scheduled installments to
July 1998. Accordingly, such amounts have been classified as long-term in the
accompanying Consolidated Balance Sheets.
At September 30, 1995, the Company was a party to a secured Revolving Credit
Agreement with two banks which provided for aggregate maximum borrowings of
$2,800,000 subject to an availability formula based on accounts receivable.
Borrowings under the Credit Agreement were due in October, 1995, with interest
at 3% above the banks' prime rate (11.75% at September 30, 1995), and required
no compensating balances. At September 30, 1995, the Company was in default of
certain financial covenants under this agreement. Such debt was repaid on
December 28, 1995 with the proceeds received under a new two year credit
agreement with another bank which provides for maximum borrowings of $3,250,000
through June 30, 1996 and $4,000,000 thereafter, subject to an availability
formula based on accounts receivable and inventory balances. Borrowings under
the agreement bear interest at the bank's prime rate plus 1.25% (9.75% at
December 27, 1995).
The bank debt contains restrictive covenants which, among other things, require
the Company to maintain certain levels of net worth, earnings and ratios of
interest coverage and debt to net worth. Borrowings under these agreements are
secured by substantially all assets of the Company.
Long-term debt maturing in each of the four years subsequent to September 30,
1995 approximates $221,000 in 1996, $220,000 in 1997, $4,973,000 in 1998 and
$145,000 in 1999, respectively.
- 35 -
<PAGE>
At September 30, 1995, future minimum annual rental commitments under the
non-cancellable capital lease obligations were as follows: $68,556 in 1996,
$68,556 in 1997, and $28,308 in 1998, which includes imputed interest of $12,235
in 1996, $6,355 in 1997 and $782 in 1998.
NOTE 7. Foreign Operations
The Company operates one foreign entity, Vicon Industries (U.K.), Ltd., a wholly
owned subsidiary which markets and distributes the Company's products
principally within the United Kingdom and Europe.
<TABLE>
<CAPTION>
The following summarizes certain information covering the Company's operations in the
U.S. and U.K. for fiscal years 1995, 1994, and 1993:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales
U.S. $34,294,000 $39,342,000 $38,960,000
U.K. 9,553,000 8,372,000 6,963,000
----------- ----------- -----------
Total $43,847,000 $47,714,000 $45,923,000
Operating profit (loss)
U.S. $ (827,000) $ 542,000 $(1,176,000)
U.K. 573,000 271,000 135,000
----------- ----------- -----------
Total $ (254,000) $ 813,000 $(1,041,000)
Identifiable assets
U.S. $21,213,000 $23,388,000 $22,365,000
U.K. 5,210,000 5,469,000 3,704,000
----------- ----------- -----------
Total $26,423,000 $28,857,000 $26,069,000
Net assets-- U.K. $ 711,000 $ 499,000 $ 418,000
</TABLE>
U.S. sales include $7,987,000, $8,358,000, and $9,144,000 for export in fiscal
years 1995, 1994, and 1993, respectively. Operating profit (loss) excludes
unrealized foreign exchange gain/loss, interest expense and income taxes. U.S.
assets include $1,127,000, $888,000, and $826,000 in fiscal years 1995, 1994,
and 1993, respectively, of cash for general corporate use.
NOTE 8. Stock Options and Stock Purchase Rights
Stock option plans include both incentive and non-qualified options covering a
total of 554,174 shares of common stock reserved for issuance to key employees,
including officers and directors. Such amount includes a total of 200,000
options reserved for issuance in 1994 under an Incentive Stock Option Plan, as
well as a total of 50,000 options reserved for issuance in 1994 under a
Non-Qualified Stock Option Plan for Outside Directors. Both of these plans were
approved by the Company's shareholders in April 1994. All options are issued at
fair market value at the grant date and are exercisable in varying installments
according to the plans. There were 254,513 and 123,000 shares available for
grant at September 30, 1995 and 1994, respectively. As of September 30, 1995,
1994, and 1993, options exercisable pursuant to the plans amounted to 198,783,
268,054 and 291,738, respectively.
- 36 -
<PAGE>
<TABLE>
<CAPTION>
Changes in outstanding stock options for the three years ended September 30,
1995, are presented below:
Shares Price Range Per Share
<S> <C> <C> <C> <C>
Balance-September 30, 1992 312,256 $ 2.12 -- 4.88
Granted 23,482 $ 2.25 -- 2.875
Cancelled (22,564) $ 2.12 -- 2.875
-------
Balance-September 30, 1993 313,174 $ 2.12 -- 4.88
-------
Granted 221,694 $ 1.88 -- --
Cancelled (103,694) $ 2.12 -- 4.88
-------
Balance-September 30, 1994 431,174 $ 1.88 -- 2.38
-------
Granted 25,000 $ 1.94 -- --
Cancelled (156,513) $ 1.88 -- 2.25
-------
Balance-September 30, 1995 299,661 $ 1.88 -- 2.38
-------
</TABLE>
In November 1986, the Board of Directors declared a dividend of one Stock
Purchase Right for each share of common stock outstanding on December 1, 1986.
In addition, 385,715 Rights were distributed with certain new shares
subsequently issued by the Company. The Rights entitle the holder to purchase
for $15 one share of common stock subject to adjustment under certain
conditions. The Rights are redeemable by the Company until the occurrence of
certain events at $.05 per Right.
NOTE 9. Industry Segment and Major Customer
The Company operates in one industry and is engaged in the design, manufacture,
assembly, and marketing of closed-circuit television (CCTV) equipment and
systems for the CCTV segment of the security products industry. The Company's
products include all components of a video surveillance system such as remote
positioning devices, cameras, monitors, video switchers, housings, mounting
accessories, recording devices, manual and motorized lenses, controls, video
signal equipment, and consoles for system assembly. No customer represented
sales in excess of ten percent of consolidated revenues during any of the three
fiscal years presented.
NOTE 10. Commitments
In January 1988, the Company entered into a sale and leaseback agreement
involving its principal operating facility (see Note 3). The ten-year lease
provides for rent of $1,128,000 in the first year, increasing 4 percent annually
through 1998.
In November 1994, the Company entered into a sublease agreement, dated January
1, 1993, with an affiliated company of the landlord which provides for minimum
sublease payments to the Company of $120,000 in calendar year 1993; $180,000 in
1994; $240,000 in 1995 and $300,000 per year from January 1, 1996 through
January 19, 1998, in exchange for the right to occupy a total of approximately
25,000 sq. ft. of office and warehouse space in the Company's primary operating
facility. At the same time, the Company entered into an agreement with its
landlord and subtenant whereby the Company has agreed to vacate its principal
operating facility at anytime after January 1995, at the landlord's or
subtenant's option, and the landlord has agreed to release the Company from its
future lease obligations in consideration of a lease termination payment by the
Company to the landlord of $1,000,000. Such option, if exercised, would also
require the landlord to provide the Company with at least six months notice
prior to the required vacate date. The lease termination payment will be reduced
by $27,778 for each month after January 31, 1995 that the Company remains
obligated under the primary lease. Should the landlord or subtenant exercise its
option, the potential charge to earnings will consist of relocation costs and
the write-off of abandoned leasehold improvements. The lease termination payment
will be substantially offset by the then remaining carrying value of the
deferred sale and leaseback gain.
- 37 -
<PAGE>
Additionally, the Company occupies certain other facilities, or is contingently
liable, under long-term operating leases which expire at various dates through
1998. The leases, which cover periods from one to four years, generally provide
for renewal options at specified rental amounts. The aggregate operating lease
commitment (net of sublease rental) at September 30, 1995 was $2,406,000 with
minimum rentals for the fiscal years shown as follows: 1996--$900,000;
1997--$1,121,000; 1998--$385,000.
The Company is a party to employment agreements with four executives which
provide for, among other things, the payment of compensation if there is a
change in control (as defined in the agreements). The contingent liability under
these change in control provisions at September 30, 1995 was approximately
$1,485,000. The total compensation payable under these agreements aggregated
$1,675,000 at September 30, 1995. The Company is also a party to insured
deferred compensation agreements with two retired officers. The aggregate
remaining compensation payments of approximately $1,114,000 as of September 30,
1995 are subject to the individuals adherence to certain non-compete convenants,
and are payable over a ten year period commencing upon retirement.
Sales to the Company's U.K. subsidiary are denominated in British pounds
sterling. The Company attempts to minimize its currency exposure on these
intercompany sales through the purchase of forward exchange contracts to cover
unpaid receivables. These contracts generally involve the exchange of one
currency for another at a future date and specified exchange rate. At September
30, 1995, the Company had approximately $872,000 of outstanding forward exchange
contracts to sell British pounds. Such contracts expire at varying dates and
exchange rates through December 27, 1995.
The Company's purchases of Japanese sourced products through Chugai Boyeki Co.,
Ltd., a related party, are denominated in Japanese yen. At September 30, 1995,
Chugai had purchased, on the Company's behalf, forward exchange contracts to
purchase approximately 380 million Japanese yen to hedge the currency risk on
accounts payables denominated in Japanese yen. Such contracts expire at varying
dates and exchange rates through June 1996.
- 38 -
<PAGE>
NOTE 11: Related Party Transactions
As of September 30, 1995 and 1994, Chugai Boyeki Company, Ltd. ("Chugai") owned
548,715 shares of the Company's common stock (19.9% of the total outstanding
shares). The Company, which has been conducting business with Chugai for
approximately 16 years, imports certain finished products and components through
Chugai and also sells its products to Chugai who resells the products in certain
Asian and European markets. The Company purchased approximately $11.6, $14.1,
and $14.6 million of products and components from Chugai in fiscal years 1995,
1994, and 1993, respectively, and the Company sold $3.4, $3.5, and $4.5 million
of product to Chugai for distribution in fiscal years 1995, 1994, and 1993,
respectively. At September 30, 1995 and 1994, the Company owed $6.9 million and
$5.8 million, respectively, to Chugai and Chugai owed $92,000 and $157,000,
respectively, to the Company resulting from purchases of products. The amounts
owed to Chugai are secured by a subordinated lien on substantially all the
Company's assets. During fiscal 1989, Chugai made a mortgage loan to the Company
in the amount of $1,026,000 to partially finance the construction of a new
sales/distribution facility in the U.K. In October 1993, the Company borrowed $2
million from Chugai under a promissory note agreement. See Note 6 for a further
discussion of this transaction.
As of September 30, 1995, Mr. Chu S. Chun controlled 168,957 shares of the
Company's common stock (6.1% of the total outstanding shares). Mr. Chun owns
Chun Shin Industries, Inc., the Company's 50% Korean joint venture partner, and
Chun Shin Electronics. (CSE) which purchases product from the joint venture (see
Note 2). During 1994, the Company entered into a supplier agreement with I.I.I.
Companies, Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun, whereby
I.I.I. arranges the importation and provides short term financing on all the
Company's product purchases from Chun Shin Electronics, Inc. During fiscal years
1995 and 1994, the Company purchased approximately $5.1 million and $3.1 million
of products from I.I.I. under this agreement. Further, the Company sold
approximately $900,000 and $1.1 million of its products to I.I.I. during fiscal
years 1995 and 1994, respectively. At September 30, 1995 and 1994, I.I.I. owed
the Company approximately $422,000 and $289,000, respectively.
- 39 -
<PAGE>
<TABLE>
<CAPTION>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Net
Earnings
Quarter Net Gross Net (Loss)
Ended Sales Profit Profit (Loss) Per Share
<S> <C> <C> <C> <C>
Fiscal 1995
December $11,828,000 $2,698,000 $ 16,000 $ .01
March 10,952,000 2,351,000 (467,000) (.17)
June 10,287,000 2,247,000 (540,000) (.20)
September 10,780,000 2,250,000 (356,000) (.13)
----------- ---------- ----------- -------
Total $43,847,000 $9,546,000 $(1,347,000) $ (.49)
=========== ========== =========== =======
Fiscal 1994
December $11,617,000 $2,529,000 $ (92,000) $ (.03)
March 12,326,000 2,694,000 34,000 .01
June 12,005,000 2,742,000 31,000 .01
September 11,766,000 2,749,000 72,000 .03
----------- ----------- ----------- -------
Total $47,714,000 $10,714,000 $ 45,000 $ .02
=========== =========== =========== =======
</TABLE>
The Company has not declared or paid cash dividends on its common stock for any
of the foregoing periods. Additionally, certain loan agreements restrict the
payment of any cash dividends in future periods.
Because of changes in the number of common shares outstanding and market price
fluctuations affecting outstanding stock options, the sum of quarterly earnings
per share may not equal the earnings per share for the full year.
- 40 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 1995, 1994, and 1993
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
<S> <C> <C> <C> <C>
Reserves and allowances
deducted from asset
accounts:
Allowance for uncollectible
accounts:
September 30, 1995 $309,000 $381,000 $148,000 $542,000
======== ======== ======== ========
September 30, 1994 $295,000 $180,000 $166,000 $309,000
======== ======== ======== ========
September 30, 1993 $303,000 $181,000 $189,000 $295,000
======== ======== ======== ========
</TABLE>
- 41 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VICON INDUSTRIES, INC.
By Kenneth M. Darby By Arthur D. Roche By John M. Badke
------------------------- ------------------------- -------------------
Kenneth M. Darby Arthur D. Roche John M. Badke
President Executive Vice President Controller
(Chief Executive Officer) (Chief Financial Officer) (Chief Acctg.Offr.)
January 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
Donald N. Horn January 12, 1996
- --------------------- ----------------
Donald N. Horn Chairman of the Board Date
Kenneth M. Darby Director January 12, 1996
- --------------------- ----------------
Kenneth M. Darby Date
Arthur D. Roche Director January 12, 1996
- --------------------- ----------------
Arthur D. Roche Date
Arthur V. Wallace Director January 12, 1996
- --------------------- ----------------
Arthur V. Wallace Date
Peter F. Barry January 12, 1996
- --------------------- ----------------
Peter F. Barry Director Date
Milton F. Gidge January 12, 1996
- --------------------- ----------------
Milton F. Gidge Director Date
Michael D. Katz January 12, 1996
- --------------------- ----------------
Michael D. Katz Director Date
Peter F. Neumann January 12, 1996
- --------------------- ----------------
Peter F. Neumann Director Date
W. Gregory Robertson January 12, 1996
W. Gregory Robertson Director Date
Kazuyoshi Sudo January 12, 1996
Kazuyoshi Sudo Director Date
- 42 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VICON INDUSTRIES, INC.
By ------------------------ By ------------------------ By ---------------------
Kenneth M. Darby Arthur D. Roche John M. Badke
President Executive Vice President Controller
(Chief Executive Officer) (Chief Financial Officer) (Chief Acctg. Officer)
January 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
January 12, 1996
Donald N. Horn Chairman of the Board Date
Director January 12, 1996
Kenneth M. Darby Date
Director January 12, 1996
Arthur D. Roche Date
Director January 12, 1996
Arthur V. Wallace Date
January 12, 1996
Peter F. Barry Director Date
January 12, 1996
Milton F. Gidge Director Date
January 12, 1996
Michael D. Katz Director Date
January 12, 1996
Peter F. Neumann Director Date
January 12, 1996
W. Gregory Robertson Director Date
January 12, 1996
Kazuyoshi Sudo Director Date
- 42 -
EXHIBIT 10.1
CREDIT AND SECURITY AGREEMENT
between
VICON INDUSTRIES, INC.
and
IBJ SCHRODER BANK & TRUST COMPANY
Dated as of
December 27, 1995
<PAGE>
TABLE OF CONTENTS
Preamble................................................... 1
ARTICLE 1. DEFINITIONS
Section 1.01 Certain Defined Terms.................. 1
Section 1.02 Accounting Terms....................... 15
ARTICLE 2. THE CREDIT FACILITIES
Section 2.01 The Credit Facilities.................. 15
Section 2.02 Loans.................................. 16
Section 2.03 Procedure for Borrowing................ 16
Section 2.04 Interest............................... 17
Section 2.05 Indemnity.............................. 17
Section 2.06 Mandatory Prepayments.................. 18
Section 2.07 Optional Prepayments................... 18
Section 2.08 Payments; Debiting Accounts............ 19
Section 2.09 Loans Made By Bank..................... 19
Section 2.10 Use of Loan Proceeds................... 19
Section 2.11 Fees................................... 19
Section 2.12 Increased Costs........................ 20
ARTICLE 2A. LETTER OF CREDIT FACILITY
Section 2.01A Letters of Credit...................... 21
Section 2.02A Reimbursement Obligation............... 21
Section 2.03A Letter of Credit Fees.................. 22
Section 2.04A General Instructions; Limitation
on Responsibility.................... 22
Section 2.05A Reimbursement Obligation Absolute...... 22
Section 2.06A Non-Conforming Documents............... 24
ARTICLE 3. SECURITY INTERESTS
Section 3.01. Grant of Security Interest............. 24
Section 3.02. Security for Obligations............... 26
Section 3.03. Borrower Remains Liable................ 27
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
General
Section 4.01 Organization and Powers................ 27
Section 4.02 Power and Authorization................ 28
Section 4.03 No Legal Bar........................... 28
i
<PAGE>
Section 4.04 Litigation............................. 29
Section 4.05 Solvency............................... 29
Section 4.06 Assets and Properties.................. 29
Section 4.07 The Collateral......................... 29
Section 4.08 Capitalization and Corporate
Structure............................ 30
Section 4.09 No Default............................. 30
Section 4.10 No Secondary Liabilities............... 30
Section 4.11 Taxes.................................. 30
Section 4.12 Financial Statements and
Conditions........................... 31
Section 4.13 Compliance with ERISA.................. 31
Section 4.14 Retiree Health and Life
Insurance Benefits................... 32
Section 4.15 Patents and Trademarks................. 32
Section 4.16 Environmental Matters.................. 32
Section 4.17 Investment Company Act................. 33
Section 4.18 Margin Regulations..................... 33
Section 4.19 Subsequent Funding Representations
and Warranties....................... 33
Section 4.20 Labor Relations........................ 33
Concerning the Collateral
Section 4.21 Collateral: Instruments, etc........... 33
Section 4.22 Receivables............................ 34
Section 4.23 Name................................... 34
ARTICLE 5. CONDITIONS PRECEDENT
Section 5.01 Conditions Precedent to Initial
Funding.............................. 34
Section 5.02 Conditions Precedent to Initial
and Subsequent Funding .............. 37
ARTICLE 6. AFFIRMATIVE COVENANTS
Section 6.01 Maintenance of Corporate
Existence and Properties............. 37
Section 6.02 Insurance.............................. 38
Section 6.03 Punctual Payment....................... 39
Section 6.04 Payment of Liabilities................. 39
Section 6.05 Compliance with Laws................... 39
Section 6.06 Payment of Taxes, Etc.................. 39
Section 6.07 Financial Statements and
Certificates......................... 39
ii
<PAGE>
Section 6.08 Accounts and Reports................... 41
Section 6.09 Inspection; Audit...................... 41
Section 6.10 Auditors............................... 41
Section 6.11 ERISA.................................. 42
Section 6.12 Notice of Default, Litigation.......... 42
Section 6.13 Bank Accounts.......................... 42
Section 6.14 UCC Filings............................ 42
ARTICLE 7. NEGATIVE COVENANTS
Section 7.01 Indebtedness........................... 43
Section 7.02 Liens.................................. 43
Section 7.03 Investments............................ 43
Section 7.04 Contingent Obligations................. 44
Section 7.05 Fundamental Changes.................... 44
Section 7.06 Disposition of Assets.................. 44
Section 7.07 Sale and Leaseback..................... 44
Section 7.08 Issuances and Disposition of
Securities........................... 45
Section 7.09 Dividends and Redemptions.............. 45
Section 7.10 Amendment of Charter................... 45
Section 7.11 Transactions with Affiliates and
Certain Other Persons................ 45
Section 7.12 Compensation........................... 45
Section 7.13 Certain Other Transactions............. 46
Section 7.14 Fiscal Year............................ 46
Section 7.15 Formula Amount......................... 46
Section 7.16 ERISA.................................. 46
Section 7.17 Regulations G, T, U and X.............. 46
Section 7.18 Subsidiaries........................... 46
Section 7.19 Supplier Contracts..................... 46
Section 7.20 Minimum Payables to Subordinated Lenders 46
Section 7.21 Minimum Availability................. 46
ARTICLE 8. COVENANTS CONCERNING COLLATERAL
Section 8.01 Maintenance of Collateral............. 47
Section 8.02 Taxes................................. 47
Section 8.03 Collections and Verifications......... 47
Section 8.04 Power of Attorney..................... 48
Section 8.05 Further Assurances.................... 49
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ARTICLE 9. FINANCIAL COVENANTS
Section 9.01 Interest Coverage Ratio................ 50
Section 9.02 Maximum Indebtedness to
Net Worth Ratio...................... 50
Section 9.03 Net Income............................. 50
Section 9.04 Minimum Net Worth...................... 50
Section 9.05 Maximum Capital Expenditures........... 51
ARTICLE 10. EVENTS OF DEFAULT
Section 10.01 Events of Default...................... 51
Section 10.02 Remedies Upon an Event of
Default.............................. 53
ARTICLE 11. MISCELLANEOUS
Section 11.01 Notices................................ 56
Section 11.02 Survival of this Agreement............. 56
Section 11.03 Indemnity.............................. 57
Section 11.04 Costs, Expenses and Taxes.............. 57
Section 11.05 Further Assurances..................... 59
Section 11.06 Amendment and Waiver................... 59
Section 11.07 Marshalling; Recourse to Security;
Payments Set Aside................... 59
Section 11.08 Dominion Over Cash; Setoff............. 60
Section 11.09 Binding Effect......................... 60
Section 11.10 Applicable Law......................... 60
Section 11.11 Consent to Jurisdiction and Service
of Process; Waiver of Jury Trial..... 60
Section 11.12 Performance of Obligations............. 61
Section 11.13 Assignments, Participations............ 61
Section 11.14 Entire Agreement....................... 61
Section 11.15 Severability........................... 61
Section 11.16 Execution of Counterparts.............. 61
TESTIMONIUM 62
EXHIBITS:
Exhibit A Form of Lock-Box Agreement
Exhibit B Form of Notice of Revolving Loan
Borrowing
Exhibit C Form of Note
Exhibit D Form of Pledge Agreement
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Exhibit E Form of Landlord Waiver
Exhibit F Form of Opinion of counsel
SCHEDULES:
Schedule 4.04 Litigation
Schedule 4.06 Liens and Security Interests
Schedule 4.07 Name of Borrower and Location of Collateral
Schedule 4.14 Health and Life Insurance Benefits
Schedule 4.15 Patents and Trademarks
Schedule 4.16 Environmental Matters
Schedule 6.02(a) Insurance Policies
Schedule 7.01(g)
Schedule 7.08 Securities
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CREDIT AND SECURITY AGREEMENT
THIS CREDIT AND SECURITY AGREEMENT dated as of December 27, 1995 between
Vicon Industries, Inc., a New York corporation (the "Borrower"), as borrower,
and IBJ SCHRODER BANK & TRUST COMPANY, a New York corporation (the "Bank"),
having its principal office at One State Street, New York, New York 10004, as
lender,
W I T N E S S E T H:
WHEREAS, the Borrower and Chemical Bank and National Westminster Bank
USA (collectively, the "Existing Lenders") have entered into a certain loan
facility (the "Existing Facility") evidencing loans extended by the Existing
Lenders to the Borrower (the "Existing Loans");
WHEREAS, the Borrower has requested that the Bank extend certain
financial accommodations to the Borrower in connection with the pay off and
termination of the Existing Loans and the financing of the working capital needs
of the Borrower; and
WHEREAS, the Bank is willing to extend the financial accom modations
contemplated hereby to the Borrower on the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1. DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Accounts Receivable" or "Accounts" or "Receivables" shall have the
meaning given in Section 3.01(a) hereof.
"Affiliate" shall mean any person that, directly or indirectly, owns or
controls, on an aggregate basis, including all beneficial ownership and
ownership or control as a trustee, guardian or other fiduciary, at least 5% of
the outstanding capital stock having ordinary voting power to elect a majority
of the board of directors of any other person (including, without limitation,
the Borrower) or that is controlled by or is under common control with such
other person or any 5% stockholder of such other person. In no event shall the
Bank be deemed to be an Affiliate of the Borrower.
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"Agreement" and "Credit Agreement" shall mean this Credit and Security
Agreement, as the same from time to time may be amended, modified, supplemented
or extended.
"Applicable Margin" shall mean, with respect to any Loan, one and
one-quarter of one percent (1.25%) per annum.
"Available Commitment" shall mean, as at any date at which the same is
to be determined, the excess, if any, of (a) the lesser of the Commitment and
the amount of the Formula Amount then in effect (disregarding for purposes of
such determination the actual aggregate principal amount of any Loans then
outstanding), over (b) the sum of (i) the aggregate principal amount of the
Loans then outstanding plus (ii) the face amount of any Letters of Credit then
outstanding.
"Bank" shall have the meaning given to it in the preamble of this
Agreement, and its successors, participants and assigns.
"Bankruptcy Code" shall mean Title 11 of the United States
Code (11 U.S.C. 101 et seq.), as amended from time to time, and
any successor statute.
"Base Rate" shall mean the per annum fluctuating rate of interest
announced by the Bank as its Dollar base rate from time to time in New York, New
York.
"Beneficiary" shall have the meaning given in Section 2.01A.
"Borrower" shall mean Vicon Industries, Inc., a New York corporation,
and its successors and assigns.
"Borrowing Date" shall mean with respect to any Loan, the Business Day
on which the Bank makes such Loan.
"Business Day" shall mean any day on which dealings in currencies and
exchange between banks may be carried on in New York, New York, other than a
Saturday or Sunday or any other day on which banks in New York, New York are
authorized or required by law to close.
"Capital Asset" shall mean any asset of the Borrower that is intended by
the Borrower to be used or usable in subsequent Fiscal Years and is properly
classifiable as property, plant or equipment, the cost of which may not be
deducted in its entirety from income in the year of acquisition, in accordance
with GAAP.
"Capital Expenditures" shall mean, for any period for which the same is
to be determined, the aggregate amount of any expend itures made by the Borrower
for Capital Assets, plus the aggre gate amount of Capitalized Lease Obligations
first incurred for such period, determined in accordance with GAAP.
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<PAGE>
"Capitalized Lease" shall mean a lease of, or other agreement conveying
the right to use, real or personal property, or both, which obligation is, or in
accordance with GAAP is required to be, classified and accounted for as a
capital lease on a balance sheet of the Borrower.
"Capitalized Lease Obligations" shall mean the obligations of the
Borrower, as lessee, under all Capitalized Leases and, for purposes of this
Agreement, the amount of such obligations shall be the aggregate capitalized
amount thereof determined in accordance with GAAP.
"Cash Equivalents" shall mean (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), and (b) time deposits,
certificates of deposit and bankers' acceptances of the Bank, in each case with
maturities of not more than twelve months from the date of acquisition.
"Change in Control" shall mean (a) the occurrence of any event (whether
in one or more transactions) which results in a transfer of control of Borrower
or (b) any merger or consolidation of or with Borrower other than a merger with
a Subsidiary in which Borrower is the surviving entity or sale of all or
substantially all of the property or assets of Borrower. For purposes of this
definition, "control of Borrower" shall mean the power, direct or indirect, as
determined in the reasonable discretion of the Bank, to control the election of
directors of Borrower or to direct or cause the direction of the management and
policies of Borrower by contract or otherwise.
"Collateral" shall mean all property and interest in property in or
against which the owner thereof shall have granted, or purported to have
granted, a security interest or Lien in favor of the Bank as security for the
obligations of the Borrower to the Bank and, if such owner is a Person other
than the Borrower, for such owner's obligations to the Bank.
"Commitment" shall mean the Bank's commitment to make Loans prior to the
Commitment Expiration Date up to the maximum aggregate principal amount equal to
$4,000,000 at any time outstanding, as referred to in Section 2.01(a).
"Commitment Expiration Date" shall mean December 31, 1997.
"Commitment Period" shall mean the period from and including the date
hereof to but not including the Commitment Expiration Date.
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<PAGE>
"Commitment Reduction Fee" shall have the meaning given in Section
2.07(b) hereof.
"Common Stock" shall mean the common stock of the
Borrower,$.01 par value.
"Customary Permitted Liens" shall mean:
(a) Liens (other than any Lien imposed under Environ mental Laws
or ERISA) arising as a matter of law to secure payment of taxes,
assessments or charges owing to any governmental authority but which are
not yet due or which are being contested in good faith by appropriate
proceedings or other appropriate actions and with respect to which
adequate reserves or other appropriate provisions are being maintained
in accordance with GAAP;
(b) non-material statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens (other
than any Lien imposed under Environmental Laws or ERISA) imposed by law
or created in the ordinary course of business;
(c) Liens incurred or deposits made in the ordinary course of
business (including, without limitation, security deposits for leases,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to
secure the performance of tenders, bids, contracts (other than for the
repayment or guarantee of borrowed money or purchase money obligations),
statutory obligations and other similar obligations;
(d) easements (including, without limitation, recipro cal
easement agreements and utility agreements), rights-of-way, covenants,
consents, reservations, encroachments, minor defects or irregularities
in title, variations and other restrictions, charges or encumbrances
(whether or not recorded) affecting the use of real property, which
individually or in the aggregate are not material; and
(e) extensions, renewals or replacements of any Lien referred to
in clauses (a) through (d) above; provided, however, that (i) in the
case of paragraphs (a) through (d) above, the principal amount of the
obligation secured thereby is not increased, except as otherwise
permitted by such paragraphs in the first instance, and (ii) any such
extension, renewal or replacement is limited to the property originally
encumbered thereby.
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<PAGE>
"Default" shall mean any event which is, or with the lapse of time or
giving of notice, or both, would be, an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of
America. Any reference in this Agreement to payment in "Dollars" or "$" shall
mean payment in Dollar funds immediately available for use by the Bank in New
York, New York.
"Eligible Accounts Receivable" shall mean, with respect to the Borrower,
as at any date on which the same is to be deter mined, all Accounts Receivable
of the Borrower created in the ordinary course of business arising out of the
sale of goods or rendition of services by the Borrower which are, and at all
times shall continue to be, acceptable to the Bank in all respects. Standards of
eligibility may be fixed and revised from time to time by the Bank in the Bank's
sole discretion without limiting the generality of the foregoing. Without
limitation of the immediately preceding sentence, an Account Receivable shall in
no event be deemed to be an Eligible Account Receivable unless such Account
Receivable:
(a) is an Account Receivable to which the Borrower has lawful and
absolute title and the full and unqualified right to assign and grant a security
interest therein to the Bank,
(b) is covered by the security interest granted hereby and
in which the Bank has a perfected first security interest,
(c) is payable to the Borrower at any principal office
identified in Schedule 4.07 hereto,
(d) arises in the normal course of the business of the
Borrower,
(e) is evidenced by invoices or other documentation in form
acceptable to the Bank, and
(f) is due and payable according to invoice terms providing for payment
no more than ninety (90) days after the date of the invoice;
But shall not mean any Account Receivable of the Borrower:
(a) which is subject to any offset or other defense on the part of the
account debtor thereon or to any claim on the part of such account debtor
denying liability thereunder,
(b) which is collectible on a cash-on-delivery basis,
(c) which is subject to any Lien except for (A) the security
interest granted in favor of the Bank pursuant hereto and (B)
5
<PAGE>
security interests in favor of the Subordinated Lenders which
security interests are subject to the terms of the Subordination
Agreement,
(d) which has remained unpaid for a period of ninety (90)
days after the date of the relevant invoice,
(e) which, if arising in connection with the sale of goods, the subject
goods shall not have been shipped or delivered to the account debtor, or with
respect to bill and hold sales only for which a bill and hold agreement is
existing (which agreement will be made available to the Bank upon request), the
subject goods shall not be deliverable, or shall not have been shipped or
delivered, to the account debtor within 90 days after the date of the relevant
invoice, and, in all cases, when shipped or delivered, the subject goods shall
not have been shipped or delivered to the account debtor thereon (A) on
consignment, (B) on a sale-on-approval or sale-or-return basis, or (C) subject
to any other repurchase or return agreement (not including any ordinary product
warranties) and no material part of the subject goods shall have been
repossessed, returned, rejected, lost or damaged,
(f) which has arisen out of any transaction with an employee, officer,
director, stockholder, Subsidiary (including, without limitation, Vicon
Industries (UK) Limited), or Affiliate of the Borrower or with Chun Shin
Electronics, Inc.,
(g) which is not denominated in Dollars,
(h) which is an Account Receivable on which the account
debtor is insolvent or the subject of any bankruptcy or
insolvency proceeding of any kind,
(i) which is an Account Receivable on which the account debtor is
located outside of the United States of America, other than any such Account
Receivable backed by an irrevocable commercial letter of credit issued to the
Borrower by a bank or other financial institution acceptable to the Bank,
(j) which is an Account Receivable on which the account debtor is the
United States of America, or any department, body, agency, subdivision or
instrumentality thereof; provided, however, that such Account Receivable will
become an Eligible Accounts Receivable so long as (i) the Bank has provided
written consent to the Borrower, given in the Bank's sole discretion, that it
will deem such Account Receivable an Eligible Account Receivable, and (ii) all
requirements and provisions of the Assignment of Claims Act of 1940, as amended,
have been complied with so that the Bank has a perfected, first priority
security interest in such Accounts Receivable,
6
<PAGE>
(k) if more than 50 per cent of the aggregate of all Accounts Receivable
owed by the account debtor would be disqualified as "Eligible Accounts
Receivable", for any reason, including without limitation aging, or
(l) any Account Receivable specified to the Borrower by the Bank as
ineligible because of the unsatisfactory credit worthiness of the account debtor
thereon or another circumstance that would materially adversely affect the
collectability of such Account Receivable.
For all purposes of this Agreement, the amount of each Eligible Account
Receivable shall be deemed to be the invoice amount thereof, less unearned
customer deposits, taxes charged thereon and cash, trade and other discounts and
allowances, and less any reserves with respect thereto which may from time to
time be established by the Bank.
"Eligible Inventory" shall mean, with respect to the Bor rower, as at
any date on which the same is to be determined, all Inventory of the Borrower in
good saleable condition which is not, in the commercially reasonable opinion of
the Bank, obsolete or unmerchantable and is, and at all times shall continue to
be, acceptable to the Bank in all respects. Standards of eligibility may be
fixed and revised from time to time by the Bank in the Bank's commercially
reasonable discretion. Without limiting the generality of the foregoing,
Inventory shall in no event be deemed to be Eligible Inventory unless such
Inventory:
(a) is covered by the security interest granted hereby and
in which the Bank has a perfected first security interest,
(b) is a completed product, in good condition, meets all material
applicable standards imposed by any governmental authority and is either
currently useable or currently saleable in the normal course of the business of
the Borrower,
(c) is subject to no Lien, other than the security interest granted in
favor of the Bank pursuant to this Agreement, the security interests granted in
favor of the Subordinated Lenders which security interests are subject to the
terms of the Subordination Agreement, or materialmen's, warehousemen's or
similar liens imposed by law and incurred in the ordinary course of business
with respect to obligations not yet due (or which are being contested in good
faith by appropriate proceedings or other appropriate actions and with respect
to which adequate reserves or other appropriate provisions are being maintained
in accordance with GAAP), and
(d) is located at a manufacturing facility or other facility owned,
leased or used by the Borrower and identified in Schedule 4.07 hereto at which
there exists at least $1,000 of Eligible
7
<PAGE>
Inventory of the Borrower in the aggregate, or otherwise at any
facility consented to in writing by the Bank;
But shall not include:
(a) raw materials in the custody of the Borrower or third
parties for processing or manufacture,
(b) items that have been consigned to the Borrower or are
otherwise in the Borrower's custody or possession,
(c) any Inventory consisting of work-in-process or is
otherwise unfinished, or
(d) any Inventory which otherwise meets the standards of eligibility set
forth in this definition but which is not likely to be sold within one year of
the date of its manufacture.
In each case, the value of Inventory shall be calculated on the basis of
the lower of such Person's cost utilizing the average which approximates the
FIFO (first-in-first-out) method or market value, less any reserves which may
from time to time be established by the Bank.
"Environmental Laws" shall mean any federal, state, local and foreign
laws or regulations, codes, plans, orders, decrees, judgments, injunctions,
notices or demand letters issued, promulgated or entered thereunder by any
governmental authority or subdivision thereof relating to pollution or
protection of the environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemical or industrial, toxic or hazardous
substances or wastes, or otherwise relating to worker health and safety or
public health and safety.
"Equipment" shall have the meaning given in Section 3.01(c)
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean each Person (as defined in Sec tion 3(9) of
ERISA) that is a member of any "controlled group" (as defined in Section
4001(14) of ERISA) that includes the Borrower.
"ERISA Termination Event" means (a) any Reportable Event, (b) the
withdrawal of the Borrower or any of its ERISA Affiliates from a Plan during a
Plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or
to treat any
8
<PAGE>
Plan amendment as a termination under Section 4041 of ERISA, (d) any Plan
amendment or the occurrence of any event that consti tutes a "partial
termination" (within the meaning of Section 411(d)(3) of the IRC) with respect
to any Plan, (e) the institu tion of proceedings to terminate a Plan or the
appointment of a trustee by the PBGC pursuant to Section 4044 of ERISA or (f)
any event or condition that might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall mean any event specified as such in
Section 10.01.
"Existing Facility" shall have the meaning given to it in
the preamble.
"Existing Lenders" shall have the meaning given to it in the
preamble.
"Existing Loans" shall have the meaning given to it in the
preamble.
"Fiscal Quarter" shall mean each of the four consecutive periods of
three months of each year, ending on December 31, March 31, June 30 and
September 30, which in the aggregate constitute a Fiscal Year.
"Fiscal Year" shall mean each 12 month calendar year ending on September
30.
"Formula Amount" shall mean, as at any date at which the same is to be
determined, an amount equal to the sum of (a) 80 per cent of the amount of
Eligible Accounts Receivable as at such date, plus (b) 25 per cent of the value
of Eligible Inventory consisting of finished goods of the Borrower, provided,
however, that the amount calculated pursuant to (b) shall not exceed $1,000,000;
and minus such reserve as deemed necessary or appropriate by the Bank to reflect
any contingencies, or the consequences of any breach or contravention of laws,
including without limitation, Environmental Laws and laws related to OSHA, by
the Borrower. The Bank may, in its sole discretion, at any time or times upon
three Business Days' prior notice to the Borrower, increase or decrease the
ratio of its advances against Eligible Accounts Receivable or Eligible
Inventory, or both, and, in the event that any such ratio shall be decreased for
any reason, such decrease shall become effective immediately for purposes of
calculating the maximum amount of new Loans hereunder and the maximum amount of
Loans which may be outstanding hereunder. The Borrower acknowledges that such
changes in the ratio of advances against Eligible Accounts Receivable and
Eligible Inventory may require the immediate prepayment of Loans by the
Borrower.
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<PAGE>
"F/X Commitments" shall mean foreign exchange hedging instruments,
purchased solely through the Bank, in connection with the Borrower's foreign
exchange exposure.
"GAAP" shall mean generally accepted accounting principles (i) in the
United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of the Certified Public Accountants and the statements and pronounce
ments of the Financial Accounting Standards Board, or in such other statements
by such other entity as may be in general use by significant segments of the
accounting profession, which are applicable to the circumstances as of the date
of determination, (ii) which are consistently applied in form and substance.
"General Intangibles" shall have the meaning given in
Section 3.01(d) hereof.
"Indebtedness" shall mean, with respect to the Borrower, all
obligations, contingent and otherwise, which, in accordance with GAAP, would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet of the Borrower as at any date at which the amount thereof is to
be determined, but in any event and as well including, the Note, any contingent
obligations arising due to the Letters of Credit, all other amounts due under
this Agreement, all guarantees, endorsements (other than endorsements for
collection or deposits in the ordinary course of business) and all other
contingent obligations whether or not in respect of any Indebtedness of others,
deferred taxes and accrued obligations, all liabilities secured by any mortgage,
pledge or lien existing on property owned or acquired subject to such mortgage,
pledge or lien, whether or not the liability secured thereby shall have been
assumed, and all lease obligations, including, without limitation, Capitalized
Lease Obligations. For the purposes of calculating the financial covenants set
forth in Section 9 hereof, Indebtedness shall not include the liabilities of the
Borrower as set forth on Schedule 7.01(g) hereto; provided; however; that (i)
with respect to item 1 on Schedule 7.01(g), when a demand is made on the
Borrower with respect to such Guaranty of the Mortgage, such liability of the
Borrower under this Guaranty of the Mortgage will immediately be included as
part of the definition of Indebtedness for all purposes hereunder including the
calculation of the financial covenants set forth in Section 9 hereof, (ii) with
respect to the Borrower receiving the Vacate Notice and the demand for the
Release Fee as noted in item 2 on Schedule 7.01(g), such liability of the
Borrower with respect to such release fee will immediately be included as part
of the definition of Indebtedness for all purposes hereunder including the
calculation of the financial covenants set forth in Section 9 hereof, and (iii)
with respect to item 3 on Schedule 7.01(g) hereto, when a demand is made on the
Borrower with respect to such Guaranty of the Loan
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<PAGE>
Agreement, such liability of the Borrower under this Guaranty of the Loan
Agreement will immediately be included as part of the definition of Indebtedness
for all purposes hereunder including the calculation of the financial covenants
set forth in Section 9 hereof.
"Indebtedness to Net Worth Ratio" shall mean, on any date for which the
same is to be determined, the ratio of (a) Indebtedness of the Borrower less the
amount of (i) contingent liabilities incurred due to the Letters of Credit and
(ii) operating leases permitted by this Agreement to (b) Net Worth determined as
at such date.
"Initial Borrowing Date" shall mean the first Borrowing Date on which
any Loan is made hereunder.
"Interest Coverage Ratio" shall mean, for any period for which the same
is to be determined, the ratio of (a) earnings from continuing operations of the
Borrower before interest, taxes, depreciation and amortization (excluding
amortization of gain on sale and leaseback transactions) for such period, to (b)
the interest expense of the Borrower for such period net of all intercompany
items, determined in accordance with GAAP.
"Inventory" shall have the meaning given in Section 3.01(b)
hereof.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute.
"Landlords" shall mean, collectively:
T. Rowe Price Realty Income Fund I, a No-Load Limited
Partnership
Allan V. Rose
"Landlord Waiver" shall mean each Landlord Waiver delivered to the Bank
by each Landlord, each dated as of the date hereof and in the form of Exhibit E
hereto, as the same may from time to time be amended, modified, supplemented or
extended.
"Leased Property" shall mean, collectively, the office, plant and
showroom properties located at:
3030 Business Park Drive, Suite G
Norcross, Georgia
525 Broad Hollow Road
Melville, New York 11747
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<PAGE>
"Lending Office" shall mean the office of the Bank located at One State
Street, New York, New York 10004, or, such other office as the Bank may
hereafter specify to the Borrower.
"Letters of Credit" shall have the meaning given in Section 2.01A of
this Agreement.
"Lien" shall mean, with respect to any Person, (a) any lien (including,
without limitation, any statutory lien), mortgage, hypothecation, privilege,
security interest, pledge, encumbrance, charge (general or special, floating or
fixed) or conditional sale or other title retention arrangement (including,
without limitation, the rights of a lessor under a capital lease to the property
leased thereunder) or other security interest of any kind upon any property or
assets of any character of such Person, whether now owned or hereafter acquired
by such Person, or upon the income or profits therefrom, (b) the transfer,
pledge or assignment by such Person of any of its property or assets for the
purpose of subjecting the same to the payment of any indebtedness of such Person
or others in priority to the payment by such Person of its general creditors,
(c) any sale, assignment, pledge or other transfer by such Person of its
accounts receivable, contract rights, general intangibles or chattel paper with
recourse, and (d) any agreement to give or do any of the foregoing.
"LOC Reimbursement Obligation" shall have the meaning given in Section
2.02A of this Agreement.
"LOC Utilization Fee" shall have the meaning given in Section 2.03A of
this Agreement.
"Loans" shall mean the loans made pursuant to Section 2.02.
"Lock-Box Agreement" shall mean the Lock-Box Agreement between the
Borrower and the Bank, substantially in the form of Exhibit A to be delivered
pursuant to Section 5.01(a)(iii), as the same may from time to time be amended,
modified, supplemented or extended.
"Maximum F/X Commitment" shall mean $1,000,000.
"Maximum Letter of Credit Commitment" shall mean $1,000,000.
"Net Assets" shall mean, as at any date at which the same is to be
determined, all of the assets as carried on the balance sheet of the Borrower
and after appropriate deduction for any minority interests of any Subsidiaries,
all as determined in accordance with GAAP.
"Net Cash Flow" shall be determined at the end of each Fiscal Year,
commencing with the Fiscal Year ending September 30,
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<PAGE>
1995, on the basis of the Borrower's audited financial statements for such
Fiscal Year and shall mean, for any Fiscal Year for which the same is to be
determined, an amount equal to (i) its Net Income, plus (ii) consolidated
depreciation and amortization expense for such Fiscal Year and other non-cash
items of the Borrower and its Subsidiaries, in each case to the extent deducted
in determining consolidated net income, plus (iii) any net increase in
consolidated deferred tax liabilities of the Borrower and its Subsidiaries as
measured it the end of such Fiscal Year in comparison to the end of the
preceding Fiscal Year, less (iv) aggregate payments of principal of the Loan
made during such Fiscal Year, less (v) all Capital Expenditures made in cash
during such Fiscal Year (but excluding any interest paid with respect to any
Capital Expenditure which has been capitalized on the financial statements of
the Borrower and its Subsidiaries, plus (the amount of any decreases) or less
(the amount of any increases) in (vii) the "change in net working assets" during
such Fiscal Year. For such purposes, "change in net working assets" shall mean
the change, as determined at the end of such Fiscal Year, in the amount by which
(a) the sum of Accounts Receivable and Inventory of the Borrower and its
Subsidiaries exceeds (b) the sum of accounts payable and accruals of the
Borrower and its Subsidiaries.
"Net Income" shall mean, for any period for which the same is to be
determined, the consolidated net income of the Borrower and its Subsidiaries,
calculated in accordance with GAAP.
"Net Worth" shall mean, as at any date at which the same is to be
determined, the amount by which (a) Net Assets exceeds (b) all Indebtedness of
the Borrower less the amount of (i) contingent liabilities incurred due to the
Letters of Credit and (ii) operating leases permitted by this Agreement.
"Note" shall mean the revolving promissory note of the Borrower
delivered pursuant to Section 2.03(b), as the same from time to time may be
amended, modified, supplemented or extended.
"Obligations" shall have the meaning given in Section 3.02
hereof.
"Permitted Affiliates" shall mean collectively the
Subordinated Lenders, International Industries, Inc. and Pro Four
Video Products, Inc.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
or any successor thereto.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
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"Plan" shall mean any "Employee Benefit Plan" (as defined in Section
3(3) of ERISA) as covered by any provision of ERISA and as maintained, or
otherwise contributed to, or at any time during the five calendar year period
immediately preceding the date of this Agreement was maintained or otherwise
contributed to, by the Borrower, or any ERISA Affiliate of the Borrower for the
benefit of the employees of the Borrower, or an ERISA Affiliate of the Borrower.
"Pledge Agreement" shall mean the Pledge Agreement dated as of the date
hereof between the Borrower and the Bank, in the form of Exhibit D hereto, as
the same may from time to time be amended, modified, supplemented, restated or
extended, wherein the Borrower secures the Obligations to the Bank.
"Prohibited Transaction" shall mean any "prohibited trans action"
(within the meaning of Section 406 of ERISA or Section 4975 of the IRC) with
respect to any Plan for which transaction no statutory exemption is not
available.
"Regulations D, G, T, U and/or X" shall mean Regulations D, G, T, U
and/or X of the Board of Governors of the Federal Reserve System, as in effect
from time to time.
"Regulatory Change" shall mean the introduction of, or any change in,
United States federal, state or local laws or regula tions (including Regulation
D) or treaties or foreign laws or regulations after the date of this Agreement
or the adoption or making after such date of any interpretations, directives,
guide lines or requests applying generally to a class of banks includ ing the
Bank of or under any United States federal, state, or local rules or regulations
or any treaties or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Related Documents" shall mean, collectively, the Note, the Pledge
Agreement, the Landlord Waiver, the Subordination Agreement, the Lock-Box
Agreement and the Letters of Credit, and all documents entered into in
connection therewith.
"Reportable Event" shall mean any "reportable event" des cribed in
Section 4043(b) of ERISA with respect to which the thirty-day notice requirement
set forth in Section 4043(a) of ERISA has not been waived by the PBGC that
occurs or has occurred in connection with any Plan.
"Securities" shall mean all shares, options, interests, par ticipations
or other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or non-voting, including, without limitation,
common stock, pre ferred stock, warrants, convertible debentures and all agree
ments, instruments and documents convertible, in whole or in part, into any one
or more of or all of the foregoing.
"Subordinated Indebtedness" shall mean the indebtedness as
defined in the Subordination Agreement.
"Subordinated Lenders" shall mean collectively, Chugai
Boyeki Company Limited, Chugai Boyeki (America) Corp., and their successors and
assigns.
"Subordinated Note" shall mean the $2,000,000 Secured Promissory Note,
dated as of October 5, 1993 from the Borrower to Chugai Boyeki Company Limited.
"Subordination Agreement" shall mean the Subordination Agreement dated
as of the date hereof, among the Bank, the Borrower and the Subordinated
Lenders, as the same from time to time may be amended, modified, supplemented,
restated or extended.
"Subsidiary" shall mean, with respect to any Person, any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation is at
the time directly or indirectly owned by such Person, or by one or more other
Subsidiaries of such Person.
"Subsidiary Guaranty" shall mean the guaranty of each Subsidiary to
which the Bank consents, delivered pursuant to Section 7.19, as the same may
from time to time be extended, amended, modified or supplemented.
"Transaction Costs" shall mean the fees, costs and expenses payable by
the Borrower pursuant to this Agreement or in connec tion herewith, including,
without limitation, attorney's fees and expenses.
Section 1.02. Accounting and Banking Terms. All accounting and banking
terms not specifically defined herein shall be con strued in the case of
accounting terms, in accordance with GAAP and, in the case of banking terms, in
accordance with general practice among commercial banks in New York, New York.
ARTICLE 2. THE CREDIT FACILITIES
Section 2.01. The Credit Facilities. At all times prior to the
Commitment Expiration Date (or earlier termination of the Commitment Period
hereunder), subject to the terms and conditions hereinafter set forth, the Bank
agrees to make the following credit facilities available to the Borrower:
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(a) Facility. Subject to Section 2.02 hereof, a revolving credit
facility under which the Borrower may request Loans from time to time on any
Business Day during the Commitment Period in an aggregate principal amount
which, together with the then outstanding aggregate principal amount of Loans to
the Borrower and the aggregate face amount of all Letters of Credit then
outstanding, would not exceed at any time outstanding the Commitment. The amount
available for Loans at any time shall be determined in accordance with Section
2.02 hereof.
(b) Letter of Credit Facility. A letter of credit
facility in accordance with the terms of Article 2A hereof.
Section 2.02. Loans. Subject to the terms and conditions hereof, the
Bank agrees to make Loans to the Borrower from its Lending Office from time to
time during the Commitment Period as provided in this Agreement in an aggregate
principal amount at any one time outstanding, together with the then outstanding
aggregate principal amount of all Letters of Credit, not to exceed (i) the
Commitment, or (ii) if less, the Formula Amount. The Borrower may use the
Commitment during the Commitment Period by borrowing, repaying Loans in whole or
in part and reborrowing Loans; provided, however, that the aggregate principal
amount of the Loans at any one time outstanding together with the then
outstanding aggregate principal amount of all Letters of Credit, shall not
exceed the amount permitted under the first sentence of this Section 2.02. The
Loans shall mature on the Commitment Expiration Date and bear interest for the
period from the respective Borrowing Dates thereof to the date of payment in
full thereof on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rates per annum determined and payable as
specified in Section 2.04 hereof.
Section 2.03. Procedure for Borrowings. (a) Each Loan shall be made on
the request made by the Borrower to the Bank. Each such request shall be, should
the Bank request, confirmed immediately in writing, by delivery of a Notice of
Revolving Loan Borrowing, in the form of Exhibit B hereto, specifying therein
(i) the requested Borrowing Date and (ii) the aggregate amount of the Loans
therein requested to be made. Upon receipt of the request for borrowing, the
Bank shall make the proceeds of the requested Loan available to the Borrower by
crediting the account of the Borrower on the books of its Lending Office with
the requested amount. The Bank shall render to the Borrower monthly a loan
account statement. Each statement shall be considered correct and binding upon
Borrower, except to the extent that the Bank receives, within thirty (30) days
after the mailing of such statement, written notice from Borrower of any
specific exceptions by Borrower to that statement.
(b) The obligations of the Borrower to pay the principal
of and interest on all Loans shall be evidenced by the Note duly
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executed and delivered by the Borrower substantially in the form of Exhibit C
hereto. At the time of each Loan, and upon each payment of principal of each
Loan, the Bank shall, and is hereby authorized to, make a notation on the
schedule annexed to and constituting a part of the Note of the Borrower to which
such Loan is being made, and any such notation shall be conclusive and binding
for all purposes absent manifest error; provided, however, that failure by the
Bank to make any such notation shall not affect the obligations of the Borrower
under the Note or this Agreement.
Section 2.04. Interest.
(a) Rate of Interest. Each Loan shall bear interest on the unpaid
principal amount thereof from the date such Loan is extended to the Borrower
until such principal amount is paid in full at a rate or rates per annum
determined in accordance with this Section 2.04. Each Loan shall bear interest
at a rate per annum equal to the sum of (A) the Base Rate in effect from time to
time, plus (B) the Applicable Margin, payable monthly, in arrears, on the last
Business Day of each such month, commencing with the first of such dates to
occur after the date of such Base Rate Loan and on the date the principal amount
of such Loan shall be paid or prepaid, to the extent of the interest accrued on
the principal amount of such Base Rate Loan so paid or prepaid. From and after
the occurrence of any Event of Default under Section 10.01(a) hereof, and for so
long as such Event of Default shall continue, the unpaid principal amount of
each Loan and any other amount then due and payable but not yet paid hereunder
shall bear interest at a rate per annum equal to the rate per annum in effect
from time to time with respect to the Loan, plus two percent (2%) per annum,
payable on demand.
(b) Calculation of Interest. Interest shall be calculated on the daily
outstanding amount of the Loans on the basis of a 360-day year for the actual
number of days elapsed. Any change in the interest rate on the Loans shall
become effective as of the opening of business on the day on which such change
in the Base Rate becomes effective. The Bank shall, as soon as practicable,
notify the Borrower of the effective date and the amount of each such change in
the Base Rate; provided, however, that any failure by the Bank to give the
Borrower any such notice shall not affect the application of such change in the
Base Rate. Each determination of an interest rate by the Bank pursuant to any
provision of this Agreement shall be, absent manifest error, presumed to be
correct.
Section 2.05 Indemnity. The Borrower agrees to indemnify the Bank and to
reimburse and hold the Bank harmless from any loss, liability, cost or expense
(including, without limitation, reasonable in-house and outside attorney's fees
and expenses incurred in connection with any action or proceeding between the
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Borrower and the Bank or between the Bank and any third party or otherwise),
that the Bank may sustain or incur as a consequence of (a) default by the
Borrower in the payment of principal of, or interest on, any Loan, (b) default
by the Borrower in borrowing (or in fulfilling on or before the request
Borrowing Date the applicable conditions set forth in Article 5 hereof with
respect to such borrowing), or (c) default by the Borrower in making any
prepayment after notice thereof has been given in accordance with Section 2.06
or 2.07 hereof; including, but not limited to, all losses, costs and expenses
incurred by reason of liquidation or reemployment of deposits or other funds
acquired by the Bank in connection with such matters (including loss of
anticipated profits caused by such liquidation or redeployment of such deposits
or funds); provided; however; that the Borrower shall not have any obligation to
the Bank under this Section 2.05 for any losses, costs or expenses directly
caused by or resulting solely form the willful misconduct or gross negligence of
the Bank. The Bank shall deliver to the Borrower a certificate as to the amount
of such loss, liability, cost or expense, which certificate shall be conclusive
in absence of manifest error. This covenant shall survive payment of the Loans
and termination of this Agreement.
Section 2.06. Mandatory Prepayments of Loans. If at any time the
aggregate unpaid principal amount of the Loans outstanding plus the aggregate
face amount of any Letters of Credit outstanding exceeds the lessor of the
Commitment or the Formula Amount, the Borrower shall immediately repay such
Loans, without premium or penalty, in a principal amount at least equal to such
excess, together with accrued interest on the amount prepaid to the date of
repayment. Prepayments of Loans may be reborrowed as Loans in accordance with
the terms hereof. If at any time following the repayment in full of the Loans
pursuant to this paragraph 2.06 the aggregate face amount of any Letters of
Credit outstanding exceeds the Formula Amount, the Borrower shall immediately
pay to the Bank a principal amount equal to such excess as cash collateral for
such Letters of Credit.
Section 2.07. Optional Prepayments of the Loans.
(a) The Borrower may voluntarily prepay any Loan in whole at any time or
in part from time to time, without premium or penalty.
(b) The Borrower may, upon at least ten Business Days' prior written
notice to the Bank, elect to terminate or permanently reduce the Commitment not
more than once during any Fiscal Quarter in an amount not less than $250,000
with such additional increments in integral multiples of $100,000; provided,
however, that (i) any reduction of the Commitment shall be accompanied by
prepayment of Loans, together with accrued interest on the amount prepaid to the
date of such prepayment, to
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the extent (if any) that the aggregate principal amount of the Loans then
outstanding exceeds the amount of the Commitment as then reduced, (ii) any such
termination of the Commitment shall be accompanied by prepayment in full of all
Loans then outstanding; together with accrued interest thereon to the date of
such prepayment and any unpaid commitment fee then accrued under Section 2.11(b)
hereof, and by payment of a fee ("Commitment Reduction Fee") equal to two per
cent of the amount so reduced or terminated in the first twelve months following
the date of execution and delivery of this Agreement, and equal to one-half of
one per cent of the amount so reduced or terminated in the second twelve months
following the date of execution and delivery of this Agreement.
Section 2.08. Payment; Debiting Accounts. All payments (including
prepayments) to be made by any Borrower under this Agreement shall be made to
the Bank at its Lending Office in New York, New York, in Dollars and in
immediately available funds. All payments to be made hereunder by the Borrower
shall be made without setoff, counterclaim or defense. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the applicable rate during such
extension; provided, however, that no such payments shall extend beyond the
Commitment Expiration Date. The Borrower hereby authorizes the Bank to charge
any account of the Borrower maintained at any office of the Bank with the amount
of any principal, interest, fee, expense or other monetary obligation of the
Borrower hereunder, including without limitation attorney's fees and expenses,
and including principal and interest payable under the Note when it becomes due
and payable under the terms hereof or thereof.
Section 2.09. Loans Made By Bank. The Borrower hereby authorizes the
Bank to make Loans to the Borrower and to use the proceeds thereof to pay any
amount owed by the Borrower under this Article 2, or to pay the Borrower's
debits to any accounts of the Borrower at the Bank.
Section 2.10. Use of Loan Proceeds. The Borrower shall use the proceeds
of the Loans to (i) refinance the Existing Loans; (ii) to fund the continuing
working capital requirements of the Borrower and (iii) to purchase F/X
Commitments, in an amount not to exceed any one time outstanding, the Maximum
F/X Commitment.
Section 2.11. Fees.
(a) Commitment Fee. The Borrower agrees to pay the
Bank a commitment fee from and including the date hereof to the
Commitment Expiration Date, computed at the rate of one-half of
one per cent (1/2%) per annum on the average daily amount by
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which the Commitment exceeds the aggregate amount of Loans outstanding, payable
quarterly, in arrears, on the last Business Day of each month, commencing with
the first such day following the date hereof, and on the Commitment Expiration
Date; provided; however; that for purposes of this section 2.11(a), from the
date hereof until June 30, 1996 only, the Commitment shall be deemed to be
$3,250,000. Such fee shall be calculated on the basis of a 360-day year and
actual days elapsed.
(b) Collateral Maintenance Fee. The Borrower shall pay the Bank
(i) a collateral maintenance fee of $1,000 per month, payable in advance on the
Initial Borrowing Date and on each month thereafter, plus (ii) $600 per man-day
and all expenses for any audits conducted by the Bank at its discretion;
provided, however, that prior to the occurrence of an Event of Default, the Bank
may only conduct four audits per Fiscal Year at the Borrower's expense.
(c) Closing Fees The Borrower and the Bank hereby acknowledge
that the Borrower (A) has paid the Bank a deposit fee of $25,000 and (B)the
Borrower will pay the Bank a non-refundable closing fee of $40,000, payable on
the date hereof.
Section 2.12. Increased Costs. If any Regulatory Change:
(a) subjects the Bank to any tax of any kind whatsoever with
respect to this Agreement, the Note, the Letters of Credit or any Loan or
changes the basis of taxation of payments to the Bank of principal, interest,
commitment fees, or any other amount payable hereunder in any of the foregoing
(except for changes in the rate of tax on the overall net income of the Bank);
(b) imposes, modifies or holds applicable to the Bank (or any
corporation controlling the Bank) any reserve or capital adequacy requirements
or liquidity ratios or requires the Bank or any corporation controlling the
Bank) to make special deposits against or in respect of assets or liabilities
of, deposits with or for the account of, or credit extended by, the Bank; or
(c) imposes on the Bank any other condition affecting
this Agreement, the Note, the Letters of Credit or the Loans;
and the result of any of the foregoing is (i) to increase the cost to the Bank
of making or maintaining Loans or the Letters of Credit therein or to reduce any
amount received or receivable by the Bank hereunder, (ii) to require the Bank
(or any corporation controlling the Bank) to make any payment to any fiscal,
mone tary, regulatory or other authority calculated on or by reference to any
amount received or receivable by the Bank under this agreement, the Letters of
Credit or the Note, or (iii) to reduce the rate of return on the Bank's capital
as a consequence of its
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obligations hereunder to a level below that which the Bank could have achieved
but for such adoption, change or compliance (taking into consideration the
Bank's policies with respect to capital adequacy), in any case by an amount
deemed by the Bank to be material, then, in any such case, the Borrower shall
promptly pay the Bank (or such corporation controlling the Bank), on its written
demand, any additional amount necessary to compensate the Bank (or such
corporation) for such additional cost, reduced amount receivable or reduction in
rate of return with respect to this Agreement, the Note, the Letters of Credit
or the Loans, to gether with interest on such amount from the date demanded
until payment in full thereof at the rate per annum applicable to Loans,
calculated on the basis of a 360-day year for the actual days elapsed.
ARTICLE 2A. LETTERS OF CREDIT FACILITY
Section 2.01A. Letters of Credit. At all times prior to the Commitment
Expiration Date (or earlier termination of the Commitment Period hereunder),
subject to the terms and conditions hereinafter set forth, the Bank agrees to
issue for the account of the Borrower, (i) irrevocable documentary and/or
standby letters of credit in the aggregate face amount not to exceed the Maximum
Letter of Credit Commitment (such letters of credit individually being a "Letter
of Credit" and collectively being the "Letters of Credit"; the beneficiaries
under the Letters of Credit being the "Beneficiaries"). Payment under a Letter
of Credit shall be available by drafts or demands for payment when accompanied
by the documents specified by such Letter of Credit. Drawings under the Letters
of Credit shall be payable solely in accordance with the terms thereof. The
Letters of Credit shall provide that drawings thereunder must be presented to
the Bank on or before the expiration date thereof and that the Bank may defer
for three Business Days payment of any drawing made thereunder.
Section 2.02A. Reimbursement Obligation. The Borrower agrees to
reimburse the Bank for any amount paid by the Bank on drafts or demands for
payment drawn or made or purporting to be drawn or made under the Letters of
Credit (the Borrower's obligation so to reimburse the Bank hereinafter called
the "LOC Reimbursement Obligation"). Each LOC Reimbursement Obligation owing to
the Bank shall automatically be converted into, and shall be deemed to have been
paid with the proceeds of a Loan made by the Bank on the date such LOC
Reimbursement Obligation arises, whether or not an Event of Default or Default
then exists or would be caused thereby, which Loan shall be subject to the
prepayment provisions of this Agreement; provided, however, that upon the
occurrence of an Event of Default the Bank may require by a notice to the
Borrower immediate payment to the Bank of the amount of the LOC Reimbursement
Obligation which would then exist if all outstanding Letters of Credit were
drawn upon at that
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time. Any LOC Reimbursement Obligation which is not paid when due or converted
into a Loan in accordance with the terms hereof shall bear interest, payable on
demand, for each day on which said LOC Reimbursement Obligation remains unpaid,
at a rate per annum equal to the interest rate borne by Loans, or if the
Borrower is in default under the provisions of this sentence of Section 2.02A at
the default rate stated in Section 2.04(a)(ii). The Borrower's obligation to
reimburse the Bank in accordance with the terms hereof for all payments made by
the Bank under each Letter of Credit and to pay interest on the unpaid amount of
each LOC Reimbursement Obligation shall be absolute, irrevocable and
unconditional under any and all circumstances whatsoever and shall not be
terminated for any reason whatsoever.
Section 2.03A. Letter of Credit Fees. As consideration for the issuance
of the Letters of Credit, the Borrower shall pay to the Bank a fee (the "LOC
Utilization Fee") on the face amount of all Letters of Credit at a rate per
annum equal to one-eighth of one percent (1/8%) for each thirty day period or
any portion thereof in which the LOC Reimbursement Obligation is outstanding.
The LOC Utilization Fee shall be calculated on the basis of a year of 360 days
for the actual number of days from the issuance of the Letters of Credit to the
expiration date of each in arrears on the last Business Day of each month and
shall be payable in arrears on the last Business Day of each month.
Section 2.04A. General Instructions: Limitation on
Responsibility. The Borrower hereby agrees that:
(a) The Bank may accept or pay, as complying with the terms of a Letter
of Credit, any drafts or other documents otherwise in order which may be signed
or issued by a trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, liquidator, receiver, successor or other legal
representative of the party who is authorized under such Letter of Credit to
draw or issue any drafts or other documents; and
(b) The Bank may, without limiting any other provisions of this
Agreement, accept documents of any character which comply with the provisions,
definitions, interpretations and practices contained in The Uniform Customs and
Practice for Documentary Credits (1983 Revision), International Chamber of
Commerce Publication No. 400, and accept or pay any draft dated on or before the
expiration of any time limit expressed in a Letter of Credit, regardless of when
drawn and when or whether negotiated, provided the other required documents are
dated prior to the expiration date of such Letter of Credit.
Section 2.05A. Reimbursement Obligation Absolute. The
Borrower's obligation to pay the full amount of each LOC
Reimbursement Obligation, or to discharge the same with the
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proceeds of a Borrowing hereunder, is absolute and unconditional, under all
circumstances whatsoever, and shall not be affected by:
(a) any lack of validity or enforceability of any Letter of
Credit; or
(b) any lack of validity or enforceability of this
Agreement, the Note or any Related Document; or
(c) any amendment or waiver of, or any consent to departure
from this Agreement, the Note or any Related Document; or
(d) any exchange, release or non-perfection of any col
lateral or any release of any guarantor; or
(e) the existence of any claim, set-off, defense or other right which
the Borrower may have at any time against a Beneficiary, any transferee of a
Letter of Credit (or any person for whom any such transferee may be acting), the
Bank or any other Person, whether in connection with such Letter of Credit, this
Agreement, the transactions contemplated herein or any unrelated transaction; or
(f) any statement or any other document (including insurance), or
endorsements thereof, presented under a Letter of Credit proving to be forged,
fraudulent, invalid or uncollectible in any respect or any statement therein
being untrue or inaccurate in any respect whatsoever; or
(g) any irregularity in the transactions with respect to
which a Letter of Credit is issued, including, without
limitation, any fraud by a Beneficiary; or
(h) breach of contract between the Bank or the Borrower and
a Beneficiary or any other third party; or
(i) consequences of compliance with laws, orders, regulations or customs
in effect in places of negotiation or payment of drafts under a Letter of
Credit; or
(j) failure of drafts to bear reference or adequate references to a
Letter of Credit, or failure of any person to surrender a Letter of Credit or
failure of any person to note the amount of any draft of a Letter of Credit, or
forward documents as may be required by the terms of a Letter of Credit (each of
which requirements the Borrower hereby waives even if included in such Letter of
Credit); or
(k) errors, omissions, interruptions or delays in trans mission or
delivery of any messages, however sent and whether plain or in code or cipher,
or errors in translation or in inter pretation of technical or other terms; or
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(l) any failure by any the Bank to honor its obligation to
make Loans; or
(m) without limiting the foregoing, any act or omission not
done or omitted in bad faith.
Section 2.06A. Non-Conforming Documents. In case of any variation
between the documents called for by a Letter of Credit or the Borrower's
instructions and documents accepted by the Bank, the Borrower shall be
conclusively deemed to have waived any right to object to such variation with
respect to any action of the Bank relating to such documents, and to have
ratified and approved such action as having been taken at the Borrower's
direction, unless the Bank has acted in bad faith or with gross negligence.
ARTICLE 3. SECURITY INTERESTS
Section 3.01. Grant of Security Interest. The Borrower, to secure the
Obligations (as said term is defined in Section 3.02 hereof), hereby assigns,
pledges and grants to the Bank a continuing first and prior security interest in
all of its rights, title and interests in and to all of the following property
of the Borrower whether now owned or existing or hereafter acquired or arising
and regardless of where located and all proceeds, products and substitutions
thereof (all of the same being herein collectively referred to as the
"Collateral"):
(a) ACCOUNTS: All present and future accounts, receivables,
contract rights, including, but not limited to, the Borrower's rights
(including, without limitation, any and all rights to receive any payments)
under any and all leases and/or agreements to which the Borrower is a party,
chattel paper, instruments, documents, general intangibles and other rights to
payment of any kind now or hereafter existing arising out of or in connection
with the sale or lease of goods, merchandise or inventory or the rendering of
services, including, without limitation, those which are not evidenced by
instruments or chattel paper and whether or not they have been earned by
performance; all proceeds of any letters of credit or insurance policies on
which the Borrower is now (or may hereafter be) named as beneficiary; all claims
against any third parties for advances or other financial accommodations or any
other obligations whatsoever owing to the Borrower; all rights now or hereafter
existing in and to all security agreements, leases, documents of title and other
contracts securing, evidencing or otherwise relating to any such accounts,
contract rights, chattel paper, instruments, documents, general intangibles,
other rights of payment or proceeds or to any such claims against third parties,
together with all rights in any returned or repossessed goods, merchandise and
inventory and all right, title, security and
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guaranties with respect to each of the foregoing, including, without limitation,
any right of stoppage in transit (any and all such accounts, contract rights,
chattel paper, instruments, documents, rights of payment, proceeds, claims and
rights being hereinafter referred to as the "Accounts")
(b) INVENTORY: All goods, merchandise and other personal property
furnished or to be furnished under any contract of service or intended for sale
or lease, including, without limitation whole goods, spare parts, components,
supplies, mate rials and consigned goods; all raw materials, work-in-process,
finished goods or materials or supplies of any kind, nature or description, used
or consumed in the Borrower's businesses or which might be used in connection
with the manufacture, assembling, packing, shipping, advertising, selling or
finishing of such goods, merchandise and personal property; all returned or
repossessed goods; and all documents of title or documents evidencing the same;
in each instance whether now owned or hereafter acquired by the Borrower and
wherever located, whether in the possession of the Borrower or of a bailee or
other person for sale, storage, transit, processing, use or otherwise (all of
the foregoing, collectively, being the "Inventory");
(c) EQUIPMENT: All machinery, equipment and fixtures, including,
without limitation, all manufacturing, assembling, packaging, distribution,
selling, data processing and office equipment, all furniture, furnishings,
appliances, trade fix tures, tools, tooling, molds, vehicles, vessels and all
other goods of every type and description (other than Inventory), and all parts
thereof and all accessions thereto, and all substitutions therefor and
replacements thereof, in each instance whether now owned or hereafter acquired
by the Borrower and wherever located (all of the foregoing, collectively, being
the "Equipment");
(d) GENERAL INTANGIBLES: All rights, interests, choses in action,
causes of actions, claims and all other intangible property of the Borrower of
every kind and nature (other than Accounts) in each instance whether now owned
or hereafter acquired by the Borrower, including, without limitation, all
corporate and other business records; all loans, royalties, and other
obligations receivable; all trademarks, non-compete agreements, service marks,
trademark applications, patents, patent applications, tradenames, fictitious
names, inventions, designs, trade secrets, computer programs, software,
printouts and other computer materials, goodwill, registrations, copyrights,
copyright applications, permits, licenses, franchises, customer lists, credit
files, correspondence, and advertising materials; all customer and supplier
contracts, firm sale orders, rights under license and franchise agreements, and
other contracts and contract rights ; all interests in partnerships and joint
ventures; all tax refunds and tax refund
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claims; all right, title and interest under leases, subleases, licenses and
concessions and other agreements relating to real or personal property; all
payments due or made to the Borrower in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any property by any person
or governmental authority; all deposit accounts (general or special) with any
bank or other financial institution; all credits with and other claims against
third parties (including carriers and shippers); all rights to indemnification;
all reversionary interests in pension and profit sharing plans and reversionary,
beneficial and residual interest in trusts; all proceeds of insurance of which
the Borrower is a beneficiary; and all letters of credit, guaranties, liens,
security interests and other security held by or granted to the Borrower; and
all other intangible property, whether or not similar to the foregoing; in each
instance, whether now or hereafter existing and however and wherever arising and
all renewals thereof (all of the foregoing, collectively, being the "General
Intangibles");
(e) CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All
chattel paper, all instruments, all bills of lading, warehouse
receipts and other documents of title and documents, in each
instance whether now owned or hereafter acquired by the Borrower;
and
(f) OTHER PROPERTY: All property or interests in property now
owned or hereafter acquired by the Borrower which now may be owned or hereafter
may come into the possession, custody or control of the Bank, or any agent or
affiliate of the Bank, in any way or for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise); and all rights
and interests of the Borrower, now existing or hereafter arising and however and
wherever arising, in respect of any and all (i) notes, drafts, letters of
credit, stocks, bonds, and debt and equity securities, whether or not
certificated (other than the capital stock of the Borrower), and warrants,
options, puts and calls and other rights to acquire or otherwise relating to the
same; (ii) money; (iii) proceeds of loans, advances and other financial
accommodations, including, without limitation, loans, advances and other
financial accommodations, made or extended under the Credit Agreement; and (iv)
insurance proceeds and books and records relating to any of the Collateral
covered by this Agreement; together, in each instance, with all accessions and
additions thereto, substitutions therefor, and replacements, proceeds and
products thereof.
Section 3.02. Security for Obligations. This Agreement secures the full
and prompt payment and performance of (a) all obligations and liabilities of the
Borrower to the Bank now or hereafter existing under this Agreement, the Note
and any other Related Document to which it is a party, and any other future
loan, advance or financial accommodation made by the Bank in
25
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favor of the Borrower or any other person whose indebtedness to the Bank is
guaranteed by the Borrower, whether for principal, interest, LOC Reimbursement
Obligations, fees, indemnification, expenses or otherwise, and (c) all other
obligations, liabilities, covenants and duties owing to the Bank from or by the
Borrower of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under the Credit
Agreement or any of the other Related Documents or under any other agreement,
instrument or document, whether or not for the payment of money, whether direct
or indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising and however acquired
(all such obligations and liabilities described in the foregoing clauses (a),
(b), (c) and (d) above being hereinafter collectively referred to as the
"Obligations"). The Borrower and the Bank agree that they intend the security
interest hereby granted to attach upon the execution of this Agreement.
Section 3.03. Borrower Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Borrower shall remain liable under any contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Bank of any of the
rights hereunder shall not release the Borrower from any of its duties or
obligations under any contracts and agreements included in the Collateral, and
(c) the Bank shall have no obligation or liability under any contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Bank be obligated to perform any of the obligations or duties of the Borrower
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to extend
the financial accommodations hereunder, the Borrower represents and warrants to
the Bank on the Initial Borrowing Date, unless otherwise specified, that:
Section 4.01. Organization and Powers. (a) The Borrower is a
corporation, duly organized and validly existing and in good standing under the
laws of the jurisdiction of its incorporation. The Borrower is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction (other than the state of its incorporation) in which the conduct of
its business or the ownership or operation of its properties or assets makes
such qualification necessary and in which the
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failure to be so qualified would have a material adverse effect on its
management, business, assets, properties, operations, prospects or condition
(financial or other) or on the ability of the Borrower to perform its
obligations under this Agreement or any of the Related Documents to which it is
a party. The Borrower has full power and authority to own its properties and
assets and carry on its business as now conducted.
Section 4.02. Power and Authorization. (a) The Borrower has full power,
right and legal authority to execute, deliver and perform its obligations under
this Agreement, the Note and such of the other Related Documents to which it is
a party. The Borrower has taken all corporate action necessary to authorize the
execution and delivery of, and the performance of its respective obligations
under such documents and to make Borrowings under this Agreement. This
Agreement, the Note and such of the other Related Documents to which it is a
party, constitute legal, valid and binding obligations of the Borrower
enforceable against it in accordance with their respective terms subject to the
effect of any applicable bankruptcy, insolvency, reorganization or moratorium or
similar laws affecting the rights of creditors generally. No consent of any
person, and no consent, license, approval or authorization, or registration or
declaration with, any governmental authority, bureau or agency, which is
material to the ability of the Borrower to perform its obligations under this
Agreement, the Note or any of the Related Documents to which it is a party, is
required in connection with the execution, delivery or performance by the
Borrower of this Agreement, the Note or the other Related Documents to which it
is a party, or the making of borrowings by the Borrower under this Agreement.
Section 4.03. No Legal Bar. The execution, delivery and performance by
the Borrower of this Agreement, the Note and such of the other Related Documents
to which it is a party, and the making of borrowings hereunder by the Borrower,
do not and will not (i) violate or contravene any provisions of any existing
law, statute, rule, regulation or ordinance or of the Articles of Incorporation
or By-Laws of the Borrower, (ii) violate or contravene any provision of any
order or decree of any court, governmental authority, bureau or agency to which
the Borrower or any of its properties or assets is subject, or of any mortgage,
indenture, security agreement, contract, undertaking or other agreement or
instrument to which the Borrower is a party or which purports to be binding upon
it or any of its properties or assets, the violation or contravention of which
would have a material adverse effect on the management, business, assets,
properties, operations, prospects or condition (financial or other) of the
Borrower or (iii) result in the creation or imposition of any Lien, charge or
encumbrance on, or security interest in, any of the properties of the Borrower
(other than as created pursuant to the Related Documents) pursuant to the
27
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provisions of any mortgage, indenture, security agreement, contract, undertaking
or other agreement or instrument.
Section 4.04. Litigation. Except as disclosed in Schedule 4.04 hereto,
no litigation or administrative proceeding of or before any court or
governmental body or agency is now pending, nor, to the best knowledge of the
Borrower following reasonable inquiry, is any such litigation or proceeding now
threatened, against the Borrower or any of its properties, involving an
individual claim in excess of $50,000 or claims in the aggregate in excess of
$100,000, nor, to the best knowledge, upon due inquiry, of the Borrower is there
a valid basis for the initiation of any such litigation or proceeding.
Section 4.05. Solvency. Immediately after giving effect to the financing
transactions contemplated hereby, the Borrower is solvent. For purposes of this
Section 4.05, the term "solvent" shall mean that, at the time of said
determination, (i) the fair value of the Borrower's assets exceeds the aggregate
sum of its liabilities (including, without limitation, contingent liabilities),
(ii) the Borrower is able to pay its debts as they mature, (iii) the property
owned by the Borrower has a value in excess of the total aggregate sum required
to pay its debts, and (iv) the Borrower has capital sufficient to carry on its
business.
Section 4.06. Assets and Properties. The Borrower has good title to all
of its assets (tangible and intangible) owned by it, including without
limitation the Collateral, and all such assets are free and clear of all Liens
other than (i) Customary Permitted Liens, (ii) Liens in favor of the Bank and
(iii) Liens disclosed in Schedule 4.06 hereto. Substantially all of the assets
and properties owned by, leased to or used by the Borrower are in adequate
operating condition and repair, ordinary wear and tear excepted, are free and
clear of any known defects except such defects as do not substantially interfere
with the continued use thereof in the conduct of normal operations, and are able
to serve the function for which they are currently being used, except in each
case where the failure of such asset to meet such requirements would not have or
is not reasonably likely to have a material adverse effect on the management,
business, properties, assets, operations or condition (financial or other) of
the Borrower.
Section 4.07. The Collateral. The chief place of business and chief
executive office of the Borrower, and the office where the Borrower keeps its
records concerning its Accounts Receiv able, and each location where the
Borrower keeps any of the Collateral is located at the addresses specified on
Schedule 4.07 hereto. The Borrower owns the Collateral in which it has granted a
security interest in favor of the Bank pursuant to the Related Documents, free
and clear of any lien, security interest charge
28
<PAGE>
or encumbrance, except as otherwise expressly permitted by this Agreement or the
Related Documents or as otherwise disclosed in Schedule 4.06 hereto. All
financing statements and filings required to be filed, and all other steps
required to be taken, pursuant to this Agreement and the Related Documents, have
been filed in the proper offices or have been taken, as the case may be, in all
jurisdictions and offices where such filings or other steps are necessary to
have been filed or taken, in order to cause the Bank to have, and the Bank has a
valid, perfected, continuing and enforceable security interest in and Lien on
the Collateral and such security interest and Lien ranks prior to any other
security interest in or Lien upon the Collateral, except as set forth on
Schedule 4.06 hereto and pursuant to this Agreement or the Related Documents or
as otherwise permitted hereunder.
Section 4.08. Capitalization and Corporate Structure. The authorized
capital stock of (i) the Borrower consists of 10,000,000 shares of Common Stock,
and 2,788,228 shares of Common Stock are validly issued, fully paid and
nonassessable, (ii) Vicon Industries (UK) Limited consists of 75,000 shares of
ordinary stock and 25,000 shares of non-voting stock, of which 75,000 shares of
ordinary stock are validly issued, fully paid and nonassessable, and 100% of
such common stock is owned of record and beneficially by the Borrower, and (iii)
Vicon Industries Foreign Sales Corporation consists of 1,000 shares of Common
Stock of which 100 shares of common stock are validly issued, fully paid and
nonassessable. There are no outstanding subscriptions, warrants, options,
convertible securities or other rights (contingent or other), or commitments
therefor, to subscribe for, purchase or acquire any shares of Common Stock or to
pay any dividends on any shares of Common Stock, except in accordance with
Section 7.08 and 7.09, or to distribute to any holders of Common Stock any
properties or assets of the Borrower. The Borrower has no Subsidiaries other
than Vicon Industries (UK) Limited and Vicon Industries Foreign Sales
Corporation.
Section 4.09. No Default. The Borrower is not in default in any material
respect in the payment or performance of any of its respective material
obligations for the payment of money or under any franchise, license or
leasehold interest and no Default has occurred and is continuing with respect to
the Borrower, the effect of any of which would have a material adverse effect on
the management, business, properties, assets, operations, prospects or condition
(financial or other) of the Borrower.
Section 4.10. No Secondary Liabilities. There are no out standing
contracts of guaranty or suretyship made by the Bor rower, nor is the Borrower
subject to any other material contingent liability or obligation required to be
shown on the financial statements of the Borrower, except (a) as shown on such
financial statements previously furnished to the Bank, (b) the endorsement of
negotiable instruments for deposit or collection
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or similar transactions in the ordinary course of business and
(c) as set forth on Schedule 7.01(g) hereto.
Section 4.11. Taxes. The Borrower has filed, or caused to be filed, all
federal, state, local and foreign tax returns that are required to be filed by
it and has paid, or caused to be paid, all taxes, and interest and penalties
thereon, on or before the due dates thereof. Except to the extent that reserves,
determined in accordance with GAAP, therefor are reflected in the most recent
audited financial statements of the Borrower: (a) there are no material federal,
state or local tax liabilities of the Borrower due or to become due for any tax
year ended on or prior to the date of the balance sheet included in the most
recent financial statements of the Borrower, whether incurred in respect of or
measured by the income of such entity, which are not properly reflected in the
such balance sheet, and (b) there are no material claims pending or, to the best
knowledge of the Borrower, proposed or threatened against the Borrower for past
federal, state or local taxes, except those, if any, as to which proper
reserves, determined in accordance with GAAP, are reflected in the most recent
audited financial statements.
Section 4.12. Financial Statements and Condition. The audited financial
statements of the Borrower as of September 30, 1993, September 30, 1994 and
September 30, 1995 present fairly the financial position of the Borrower as of
the dates of said statements, and the results of operations of the Borrower for
the periods covered by said statements of earnings are in accordance with GAAP,
except as disclosed therein. As of September 30, 1995, there are no material
obligations or liabilities, direct or indirect, fixed or contingent, which are
not reflected in such financial statements and that are required to be so
reflected thereon under GAAP. No material adverse change in the manage ment,
business, assets, properties, operations, prospects or condition (financial or
otherwise) of the Borrower has occurred since September 30, 1995.
Section 4.13. Compliance with ERISA. Each Plan that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC either (i) has been
determined by the Internal Revenue Service to be so qualified and each trust
created thereunder has been determined by the Internal Revenue Service to be
tax-exempt under Section 501(a) of the IRC or (ii) has been or will be timely
submitted to the Internal Revenue Service for such determinations, and the
Borrower knows of any fact that would indicate that the qualified status of any
such Plan, or the tax-exempt status of any trust created thereunder, has been
materially adversely affected. No material "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the IRC) or
"waived funding deficiency" (within the meaning of Section 303 of ERISA or
Section 412 of the IRC) has been incurred by any Plan. No material Reportable
Event or
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material Prohibited Transaction has occurred with respect to any Plan. There are
no "multiemployer plans" (within the meaning of Section 3(37) of ERISA) which
are "pension plans" (within the meaning of Section 3(2) of ERISA) that are
maintained, or otherwise contributed to, or have ever been maintained or
otherwise contributed to, by the Borrower. The Borrower has neither incurred any
material liability under Title IV of ERISA arising in connection with the
termination of, or withdrawal from, any Plan covered or previously covered by
Title IV of ERISA nor has any outstanding liability or obligation to the PBGC
(other than for premiums). No Plan is currently under investigation, audit or
review by the Internal Revenue Service or any other federal or state agency.
Section 4.14. Retiree Health and Life Insurance Benefits. Except as
described in Schedule 4.14, no retiree health or retiree life insurance benefits
are provided under the terms of any Plan that is maintained, or otherwise
contributed to, by the Borrower for the benefit of employees (including, without
limi tation, any retired employees), except as may be required by law.
Section 4.15. Patents and trademarks. The Borrower possesses sufficient
valid patents, patent rights or licenses, trademark rights or trade name and
trade rights to conduct its business as now operated, with no known conflict
with valid patent rights or licenses, trademarks, trademark rights and trade
names or trade rights of others which may reasonably be expected to have a
material adverse effect on the management, business, properties, assets,
operations or condition (financial or other) of the Borrower. Each such patent,
patent right, license, trademark right, trade name and trade right is listed in
Schedule 4.15 hereto.
Section 4.16. Environmental Matters. Except as disclosed in Schedule
4.16 hereto, the Borrower and each parcel of real property owned or leased by it
are in material compliance with all Environmental Laws; there are no conditions
existing currently or likely to exist that would subject the Borrower to
damages, penalties, injunctive relief or cleanup costs in an aggregate amount
exceeding $50,000 under any Environmental Laws or assertions thereof, or which
require or are likely to require cleanup, removal, remedial action or other
response pursuant to Environmental Laws by the Borrower; the Borrower is not a
party to any litigation, governmental, regulatory or administrative proceedings
involving an individual claim in excess of $50,000 or claims in the aggregate in
excess of $50,000, nor so far as is known by it, is any such litigation or
administrative proceeding threatened against it, which asserts or alleges that
the Borrower has violated or is violating Environmental Laws or that the
Borrower is required to clean up, remove or take remedial or other responsive
action due to the disposal, depositing, storage, discharge, leaking or other
release of any hazardous substances
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<PAGE>
or materials; the Borrower has obtained all applicable permits, licenses or
authorizations from governmental authorities required under Environmental Laws
relative to each parcel of real property owned or leased by it; the Borrower is
in compliance with all terms and conditions of such permits, licenses and
authoriza tions; and there are not now, nor to the best knowledge of the
Borrower have there ever been, materials stored, spilled, deposited, treated,
recycled or disposed of on, under or at any parcel of real property owned or
leased by the Borrower, or stored, spilled, deposited, treated, recycled or
disposed of at the direction of the Borrower, present in soils or ground water,
that would require cleanup, removal or some other remedial action under
Environmental Laws.
Section 4.17. Investment Company Act. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or subject to any other
statute that regulates the incurring of indebtedness for borrowed money.
Section 4.18. Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying "margin
stock" or "margin securities" (within the meaning of Regulation U), none of the
obligations or liabilities of the Borrower are secured, directly or indirectly,
by "margin stock" or "margin securities", and no part of the pro ceeds of any
extension of credit hereunder will be used for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock" or "margin
securities", or in a manner which would breach of contravene any of Regulations
G, T, U, or X.
Section 4.19. Subsequent Funding Representations and Warranties. In
order to induce the Bank to make any Loans after the Initial Borrowing Date, the
Borrower hereby represents and warrants that, on and as of the date of the
making of each Loan (a) the representations and warranties set forth in this
Article 4 are true and correct as if made on and as of such date, except for
changes which occur and which are not prohibited by the terms of this Agreement.
Section 4.20. Labor Relations. There are no material controversies
pending between the Borrower and any of its employees, which in the aggregate,
might have a material adverse effect on the management, business, assets,
properties, operations, prospects or conditions (financial or other) of the
Borrower.
Representations Concerning the Collateral
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Section 4.21. Collateral: Instruments, Etc. (a) None of
the Collateral is evidenced by a promissory note or other
instrument, except such promissory notes or other instruments as
have been delivered to the Bank hereunder or will be delivered to
the Bank prior to the initial borrowing date under the Credit
Agreement.
Section 4.22. Receivables. All Receivables (i) represent
complete bona fide transactions (except for minimal training and
installation) which require no further act under any circumstances on Borrower's
part to make such Receivables payable by the account debtors, (ii) to the best
of Borrower's knowledge, are not subject to any present, future or contingent
offsets or counterclaims, and (iii) do rot represent consignment sales,
guaranteed sales, sale or return or other similar understanding or obligations
of any Affiliate or Subsidiary of Borrower.
Section 4.23. Name. The correct corporate name of the Borrower is Vicon
Industries, Inc. and, except as set forth on Schedule 4.07 attached hereto and
made a part hereof, the Borrower has no other corporate name or fictitious name
and has not, during the immediately preceding five (5) years, been known under
or used any other corporate or fictitious name.
ARTICLE 5. CONDITIONS PRECEDENT
Section 5.01. Conditions Precedent to Initial Funding. The obligation of
the Bank to make any Loan to the Borrower on the Initial Borrowing Date is
subject to the fulfillment of the following conditions precedent:
(a) The Bank shall have received on or before the Ini tial
Borrowing Date each of the following documents and instru ments, each dated such
date, in form and substance reasonably satisfactory to the Bank:
(i) (a) a certificate of the Secretary of the Borrower
dated the Initial Borrowing Date, certifying that (I) attached thereto
are true and complete copies of the resolutions of the Board of
Directors of the Borrower authorizing the execution, delivery and
performance by the Borrower of this Agreement, the borrowings hereunder
by the Borrower and the execution, delivery and performance by the
Borrower of the Note and such of the Related Documents to which it is a
party, and (II) said resolutions are all the resolutions adopted by the
Board of Directors of the Borrower in connection with the transactions
contemplated thereby and are in full force and effect without
modification as of such date;
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(ii) (a) a copy of the Certificate of Incorporation of the
Borrower certified as of a recent date by the Secretary of State of the
jurisdiction of its incorporation; (b) a certificate of said Secretary
of State as to the due organization, corporate existence and good
standing of the Borrower as of a recent date; (c) certificates of good
standing of the Secretary of State of each jurisdiction in which the
Borrower is qualified to do business; and (d) a certificate of the
Secretary or Assistant Secretary of the Borrower dated the Initial
Borrowing Date, certifying (I) that attached thereto is a true and
complete copy of its By-laws as in effect on the date of such
certification, (II) that its Certificate of Incorporation has not been
amended since the date of the last amendment thereto indicated in the
certificate of the Secretary of State furnished pursuant to clause (a)
above, and (III) as to the incumbency and signatures of each of its
officers executing this Agreement, the Note and such of the other
Related Documents to which it is a party;
(iii) this Agreement, the Note, the Letters of Credit, if
any, the Pledge Agreement, the Landlord Waivers, the Subordination
Agreement and the Lock-Box Agreement, duly executed by all the parties
thereto (other than the Bank) and the Borrower shall have established a
lock-box account at the Bank and all steps shall have been taken to
commence operation thereof;
(iv) evidence that all actions necessary or, in the
opinion of the Bank and its counsel, desirable, to create and perfect
the security interests and other Liens granted under the Related
Documents, have been duly taken and that there are no security interests
senior to the security interests granted in favor of the Bank;
(v) an opinion of Schoeman, Marsh & Updike, LLP, counsel
to the Borrower, or other counsel satisfactory to the Bank,
substantially in the form of Exhibit G hereto;
(vi) such consents, approvals or acknowledgments with
respect to such of the transactions hereunder as may be necessary or as
the Bank or its counsel may deem appropriate;
(vii) a certificate of the Borrower signed on its behalf
by its president or chief financial officer that (A) each of the
Financial Covenants contained in Article VII is complied with by the
Borrower, and calculating such covenants, (B) no material adverse change
in the business, assets, properties, operations, prospects or the
condition (financial or otherwise) of the Borrower has occurred since
September 30, 1995, (C) no material litigation or
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<PAGE>
administrative proceeding of or before any court or governmental body or
agency is pending or threatened against the Borrower or any of its
properties other than as disclosed in Schedule 4.04 hereto, and (D) the
Borrower is in compliance with all pertinent federal, state and local
laws, rules and regulations, including, without limitation, those with
respect to ERISA, OSHA and all Environmental Laws;
(viii) the completed field audit of the Borrower by the
Bank or a Person designated by the Bank of the Accounts Receivable,
Inventory and accounting systems of the Borrower;
(ix) a certificate showing that, (A) after giving effect
to (I) the issuance of the Letters of Credit, if any, requested by the
Borrower (II) the consummation of all other transactions contemplated by
this Agreement, and (III) all Transaction Costs, and (B) after
subtracting trade payables (excluding trade payables to the Subordinated
Lenders) 60 days or more past due and any uncovered book overdrafts, the
Available Commitment is not less than $1,000,000;
(x) satisfactory review, in the Bank's sole sole
discretion, of the books and records of the Borrower, all material
contracts of the Borrower, including, but not limited to, vendor supply
agreement, and all trade references of the Borrower;
(xii) evidence that the Existing Credit Facility has been
satisfied in full (and all UCC termination statements signed by the
appropriate Existing Lender which terminate all financing statement
filed in favor of the Existing Lenders have been delivered to the Bank);
(xii) evidence that, as of the date hereof, the Borrower
has paid all past and current premiums due and payable on its existing
insurance policies, together with copies of insurance policies required
hereby and all loss payee/additional insured endorsements, duly
executed, required under the terms of this Agreement, to be delivered no
later than the Initial Borrowing Date; and
(xiii) such other and further documents as the Bank and
its counsel may have reasonably requested and all legal matters,
incident to this Agreement, the transactions contemplated hereby, the
Letters of Credit and the Loans shall be reasonably satisfactory to the
Bank and its counsel;
(b) At the time of the Initial Borrowing Date, the
following statements shall be true and correct and the Bank shall
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have received a certificate of the Borrower signed on its behalf by a duly
authorized officer of the Borrower, dated such date, stating that (i) the
representations and warranties contained in this Agreement and in the Related
Documents are true and correct on and as of such date before and after giving
effect to the initial funding hereunder and to the application of the proceeds
therefrom, as though made on or as of such date; and (ii) before and after
giving effect to the initial funding hereunder, no Event of Default or Default
shall have occurred or would result in such Event of Default.
(c) The Bank shall have received, concurrently with the making of
any Loan hereunder on the Initial Borrowing Date, payment in full of all amounts
then due and payable under the terms of this Agreement, including, without
limitation, (i) all of the fees payable to the Bank pursuant to Section 2.11
hereof, and (ii) all of the Bank's out-of-pocket expenses (including, without
limitation, the reasonable fees and disbursements of the Bank's in-house and
outside counsel).
Section 5.02. Conditions Precedent to Initial and Subsequent Fundings.
The obligation of the Bank to make or convert any Loan (including any Loans to
be made on the Initial Borrowing Date) shall be subject to the fulfillment of
the following conditions precedent on or before the relevant Borrowing Date:
(a) (i) the representations and warranties set forth in Section
4.21 of this Agreement and in the Related Documents shall be true and correct on
and as of such Borrowing Date or Conversion Date as though made on and as of
such date, (ii) the Borrower shall then be in compliance with all the terms and
provisions of this Agreement and the Note and the other Related Documents to
which it is a party, (iii) no Event of Default or Default shall have occurred
and be continuing, and (iv) the Bank, if the Bank requests the same, shall have
received a certificate of the Borrower signed on its behalf by its president or
its chief financial officer to such effect;
(b) the Bank shall have received, if it so requests, the legal
opinion of counsel to the Borrower, in form and substance satisfactory to the
Bank, as to the continuing accuracy of prior opinions, and as to any other
matters on which the Bank may reasonably request a legal opinion;
(c) the Bank shall have received such other and further
documents, certificates, reports and other information and assurances with
respect to the Borrower as the Bank may reasonably request; and
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(d) the Bank shall have received all fees payable pursuant to
Section 2.11 hereof and all other amounts due hereunder.
ARTICLE 6. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that, from and after the date
of execution of this Agreement and so long as any amount may be borrowed
hereunder or remains unpaid on account of the Note, or is otherwise due to the
Bank under this Agreement or any Related Document, and for a period of 91 days
thereafter, the Borrower shall comply with each of the following covenants:
Section 6.01. Maintenance of Corporate Existence and Prop erties. The
Borrower shall do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence and all of its other rights and
franchises and comply with all laws applicable to it in all material re spects;
continue to conduct its business substantially as now and proposed to be
conducted; and, in all material respects, at all times, maintain, preserve and
protect all franchises and trade names and preserve all the remainder of its
property in use or useful in the conduct of its business and keep the same in
good repair, working order and condition and from time to time make, or cause to
be made, all necessary and proper repairs, renewals and replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
Section 6.02. Insurance. (a) The Borrower shall maintain or cause to be
maintained with financially sound reputable insurers reasonably acceptable to
the Bank, the insurance policies and programs listed on Schedule 6.02(a) hereto
(including liability insurance) (which Schedule shall contain the information in
clauses (i)-(iv) below) or substantially similar programs or policies and
amounts or other programs, policies and amounts reasonably acceptable to the
Bank. Such policies shall provide for 30 days prior notice to the Bank of any
amendment, modification, cancellation or termination thereof. Not later than
thirty (30) days prior the renewal, replacement or material modification of any
policy or program, the Borrower shall deliver or cause to be delivered to the
Bank a detailed schedule setting forth for each such policy or program: (i) the
amount of such policy, (ii) the risks and amounts (with deductibles) insured
against by such policy, (iii) the name of the insurer and each insured party
under such policy, (iv) the policy number of such policy and (v) a comparison of
such policy with the policy so renewed, replaced or modified. Not later than the
Initial Bor rowing Date, the Borrower shall cause the Bank to be named as
beneficiary or loss payee on any such property insurance.
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(b) Within one Business Day after receipt by the Bor rower of any
insurance proceeds or a condemnation award in excess of $100,000, the Borrower
shall provide to the Bank written notice (or telephone notice promptly confirmed
in writing) thereof and a description of the property damaged, lost or taken.
Such notice shall specify whether or not the property damaged, lost or taken
will be restored or replaced, and if so, such notice shall also include a
description of the plans, if any, to restore or replace such property; provided,
however, that in the event that the amount of any such insurance proceeds or
condemnation award exceeds $250,000, and if the Bank in its commercially
reasonable discretion deems the subject property unrestorable or irreplaceable,
the Borrower shall not restore or replace such property without the prior
written consent of the Bank, and absent such consent, such insurance proceeds or
condemnation award shall forthwith be paid to the Bank and applied to the
Obligations of the Borrower then outstanding in such order as the Bank shall
determine.
Section 6.03. Punctual Payment. The Borrower shall duly
and punctually pay the principal of and interest on the Note and
any other amount due under this Agreement or any of the Related
Documents to which it is a party.
Section 6.04. Payment of Liabilities. The Borrower shall pay and
discharge in the ordinary course of business, all of its obligations and
liabilities (including, without limitation, tax liabilities and other
governmental charges), except where the same may be contested in good faith by
appropriate proceedings, and maintain in accordance with GAAP appropriate
reserves for any of the same.
Section 6.05. Compliance with Laws. The Borrower shall observe and
comply with all applicable laws, statutes, rules, regulations or other
requirements having the force of law, including, without limitation, all
Environmental Laws, except where the failure to comply therewith will not have,
and is not reasonably likely to have, a material adverse effect upon its
management, business, assets, properties, operations, prospects or condition
(financial or other) of such Person.
Section 6.06. Payment of Taxes, Etc. The Borrower shall pay and
discharge all lawful taxes, assessments, and governmental charges or levies
imposed upon it, or upon its income or profits, or upon any of its property
(including the Collateral), before the same shall become in default, as well as
all lawful claims for labor, materials, and supplies which, if unpaid, might
become a Lien or charge upon such property or any part thereof; provided,
however, that no such tax, assessment, charge, levy, claim need be paid and
discharged so long as the validity thereof shall be contested in good faith by
appropriate proceedings and there shall have been set aside on the books of such
Person
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adequate reserves in accordance with GAAP applied with respect thereto, but such
tax, assessment, charge, levy, or claim shall be paid before the property
subject thereto shall be sold to satisfy any Lien which had attached as security
therefor.
Section 6.07. Financial Statements and Certificates. The
Borrower shall furnish to the Bank:
(a) within 90 days after the end of each Fiscal Year, audited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Year and the related audited
consolidated and consolidating statements of income and changes in financial
position of the Borrower and its Subsidiaries for such Fiscal Year, prepared in
accordance with GAAP, including consolidated and consolidating financial reports
with all related schedules and notes attached thereto, including comparative
statements from the prior Fiscal Year, and prepared by, and with an unqualified
certification of, independent public accountants satisfactory to the Bank,
together with a (i) statement (A) stating whether or not such accountants have
any knowledge that the Borrower and its Subsidiaries is then or has been in
violation of any covenants pertaining to this Agreement or pertaining to any
other debt covenant of the Borrower or its Subsidiaries and that, to the best of
their knowledge, no event has occurred which, with the passage of time or the
giving of notice or both, would constitute any such violation, and (B)
certifying the amount of Net Cash Flow for such Fiscal Year, and (ii)
accompanied by a certificate signed by the chief financial officer of the
Borrower calculating and stating each of the financial covenants contained in
Article 9 and commenting upon the financial statements to an extent reasonably
satisfactory to the Bank, as requested by the Bank;
(b) within 45 days after the end of each Fiscal Quarter (other
than the Fiscal Quarter ending on the last day of the Fiscal Year), quarterly
unaudited consolidated and consolidating financial statements of the Borrower
and its Subsidiaries, each certified by the chief financial officer of the
Borrower and prepared in accordance with GAAP (but without footnotes) subject to
normal year-end adjustments, including comparative statements from the prior
Fiscal Year, and accompanied by a certificate signed by the chief financial
officer of the Borrower calculating and stating each or the financial covenants
contained in Article 9 and commenting upon the financial statements to an extent
reasonably satisfactory to the Bank, as requested by the Bank;
(c) within 45 days after the end of each Fiscal Quarter, a
certificate signed by the chief financial officer of the Borrower to the effect
that, to the best of his knowledge, no Event of Default or Default has occurred
and is continuing, or, if the Borrower or any Subsidiary shall be so in default
or any
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such condition, event or act shall have occurred and be continuing, specifying
each such default, condition, event or act and the nature and status thereof;
(d) within 45 days after the end of each month, monthly unaudited
consolidated and consolidating balance sheets and income statements of the
Borrower and its Subsidiaries;
(e) within 45 days prior to the end of each Fiscal Year, an
annual updated long-range business and strategic plan, including cash flow and
other financial projections (setting forth in detail the assumptions therefor)
on a month-to-month basis for the Borrower and its Subsidiaries for the
immediately following Fiscal Year;
(f) as soon as available, a true copy of any "management letter"
or other communication to the Borrower (or any of its Subsidiaries), its
officers or its Board of Directors by its accountants regarding matters which
arose or were ascertained during the course of the audit and which said
accountants determined ought to be brought to management's attention;
(g) appraisals of any of the assets of the Borrower as
the Bank from time to time may reasonably request; and
(h) as soon as practicable, such other information concerning the
financial affairs and condition of the Borrower as the Bank may from time to
time reasonably request.
Section 6.08. Accounts and Reports. The Borrower shall keep accurate
records and books of account in which full, accurate and correct entries will be
made of all dealings or transactions in relation to its business and affairs.
Section 6.09. Inspection; Audit. (A) The Borrower shall permit any
authorized representative or agent designated by the Bank, to visit, inspect,
audit and make extracts and/or copies of the properties and condition of the
Borrower, including its books of account and accounts receivable, and the other
Collateral, including, but not limited to, management letters prepared by
independent accountants; and to discuss its affairs, finances and accounts with
its officers and independent accountants at such times and as often as may be
requested by the Bank, and to make and obtain such confirmations and
examinations of the books and records of the Borrower as the Bank deems
appropriate (including without limitation by means of verifications from the
Borrower's account debtors). Borrower will deliver to the Bank any instrument
necessary for the Bank to obtain records from any service bureau maintaining
records for Borrower.
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(B) The Borrower shall provide to the Bank, at the request of the
Bank made from time to time, environmental audit reports in form and substance
satisfactory to the Bank.
Section 6.10. Auditors. The Borrower shall at all times retain a firm of
independent public accountants satisfactory to the Bank to act as the auditors
of the Borrower, including, without limitation, to perform the auditing
functions required under the terms of this Article 6.
Section 6.11. ERISA. The Borrower shall (a) maintain each Plan so as to
satisfy the qualification requirements of Section 401(a) of the IRC in all
material respects, (b) contribute in a timely manner to each Plan amounts
sufficient to satisfy in all material respects, the minimum funding requirements
of Section 302 of ERISA and Section 412 of the IRC without any application for a
waiver from any such funding requirements, (c) cause each Plan to comply in all
material respects with applicable law (d) pay in a timely manner all required
premiums to the PBGC, and (e) furnish to the Bank (i) as soon as possible and in
any event within 30 days after the Borrower knows thereof, notice of the
occurrence or expected occurrence of any ERISA Termination Event, waiver of the
minimum funding requirement for any Plan or any material Prohibited Transaction
with respect to any Plan.
Section 6.12. Notice of Default, Litigation. The Borrower shall promptly
give notice in writing to the Bank of (a) the occurrence of any Event of Default
or any Default, or (b) the occurrence of any material litigation or proceedings
affecting the Borrower or of any dispute between the Borrower or any Affiliate
and any governmental regulatory body or any other person involving an individual
claim in excess of $50,000 or claims in the aggregate in excess of $100,000.
Section 6.13. Bank Accounts; Lockbox. The Borrower shall maintain at all
times all corporate operating demand deposit and checking accounts with the
Bank. The Lockbox Agreement will remain continuously in effect and will provide
that all remittances from account debtors of the Borrower shall be credited to
the Borrower's account one (1) Business Day after the Business Day that the Bank
receives such remittances by wire transfer, electronic depository check or
otherwise in immediately available funds
Section 6.14. UCC Filings. Within 30 days of the Initial Borrowing Date,
the Borrower shall deliver to the Bank UCC search reports evidencing (i) UCC
filings made in each jurisdiction required pursuant to the terms of this
Agreement on behalf of the Bank, and (ii) that such filings were made within 10
days of the Initial Borrowing Date.
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ARTICLE 7. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, from and after the date
of execution of this Agreement and so long as any amount may be borrowed
hereunder or remains unpaid on account of the Note, or is otherwise due to the
Bank under this Agreement or any Related Document, the Borrower shall comply
with each of the following covenants:
Section 7.01. Indebtedness. The Borrower shall not,
directly or indirectly, create, incur, assume or otherwise become
or remain liable with respect to any Indebtedness other than:
(a) Indebtedness of the Borrower to the Bank incurred
pursuant to this Agreement or the Related Documents;
(b) Indebtedness of the Borrower to the Subordinated
Lenders incurred secured by liens which are subject to the terms
of the Subordination Agreement;
(c) Indebtedness of the Borrower which is unsecured (or secured
by the Liens referred to in Section 7.02(c) and (d)) and incurred in the normal
course of business in connection with installment purchases or Capitalized
Leases of equipment or fixed assets, in an aggregate amount not exceeding
$100,000 at any time outstanding;
(d) taxes, assessments, and governmental charges with respect to
the Borrower to the extent that payment thereof shall not at the time be
required to be made pursuant to the provisions of Section 6.06 hereof;
(e) current trade accounts payable or accrued, operating lease
obligations and deferred liabilities other than for borrowed money, all incurred
and continuing in the ordinary course of business, exclusive of trade accounts
payable and operating lease obligations which shall remain unpaid for a period
longer than six months after the same shall have become due and payable, unless
they shall be contested in good faith and, where appropriate, by appropriate
proceedings;
(f) Indebtedness expressly permitted by Section 7.04;
and
(g) Indebtedness set forth on Schedule 7.01(g); provided;
however; that (i) such Indebtedness shall be reduced, as scheduled on the date
hereof, as set forth in the agreements evidencing such Indebtedness as noted in
Schedule 7.01(g) and (ii) with respect to item 3 on Schedule 7.01(g), the Loan
Agreement shall never exceed $700,000 pounds sterling without the prior written
consent of the Bank.
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Section 7.02. Liens. The Borrower shall not, directly or indirectly,
create, incur, assume or permit to exist any Lien on or with respect to any of
its property or assets, whether now owned or hereafter acquired (including the
Collateral), except Liens arising under the Related Documents, and (a) Liens in
favor of the Bank; (b) Customary Permitted Liens; (c) Liens in favor of the
Subordinated Lenders which is subject to the terms of the Subordination
Agreement; (d) Liens incurred in connection with the purchase or acquisition of
equipment or fixed assets, as security for the deferred purchase or acquisition
price of such equipment or assets, each of which Liens shall extend only to the
equipment or fixed assets so purchased or acquired and shall secure only up to
100% of the deferred purchase or acquisition price thereof; provided, however,
that the aggregate amount of all Indebtedness (excluding all Indebtedness owed
by the Borrower to the Subordinated Lenders secured by liens which are subject
to the terms of the Subordination Agreement) secured by such Liens shall not
exceed at any time $250,000; and (e) Liens disclosed on Schedule 4.06.
Section 7.03. Investments. The Borrower shall not, directly or
indirectly, except as otherwise expressly permitted by Section 7.11, purchase or
otherwise acquire any Securities of any Person, or make any direct or indirect
loan, advance or other financial accommodation or any capital contribution to
any Person, or make any investment in any Person, except investments in Cash
Equivalents.
Section 7.04. Contingent Obligations. The Borrower shall not, directly
or indirectly, create, incur, assume or otherwise become or remain liable with
respect to any Indebtedness or other obligation or liability of any Person other
than, (a) guaranties resulting from endorsement of negotiable instruments for
collection in the ordinary course of business; (b) warranties with respect to
performance, and not relating to Indebtedness of any Person, which have been or
are made in the ordinary course of business of such Person to its customers; and
(c) such contingent obligations as set forth on Schedule 7.01(g); provided;
however; that (i) such Indebtedness set forth on Schedule 7.01(g) shall be
reduced, as scheduled on the date hereof, as set forth in the agreements
evidencing such Indebtedness as noted in Schedule 7.01(g) and (ii) with respect
to item 3 on Schedule 7.01(g), the Loan Agreement shall never exceed $700,000
pounds sterling without the prior written consent of the Bank..
Section 7.05. Fundamental Changes. (a) The Borrower shall not enter into
any merger or consolidation, or liquidate, wind-up or dissolve, or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or substantially all of its business, property or assets,
whether now or hereafter acquired.
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(b) The Borrower shall not purchase or acquire all or
substantially all of the business, properties, assets or Securities of any
Person, or create or form any Subsidiary.
(c) The Borrower shall not change the nature of its business as
currently conducted or engage in any new business which is not an integral part
of its business as currently conducted.
(d) The Borrower shall not undergo any Change in
Control.
Section 7.06. Dispositions of Assets. The Borrower shall not assign,
sell, lease or otherwise dispose of, whether by sale, merger, consolidation,
liquidation, dissolution or otherwise, any of its assets, without the prior
written consent of the Bank, except dispositions of (a) Inventory in the
ordinary course of business; and (b) obsolete or replaced Equipment in an
aggregate amount not to exceed $50,000 during each Fiscal Year.
Section 7.07. Sales and Leasebacks. The Borrower shall not become liable
directly or indirectly, with respect to any lease, whether a Capital Lease or
any other lease, of any property (whether real or personal or mixed), whether
now owned or here after acquired, which the Borrower has sold or transferred or
is to sell or transfer to any other Person.
Section 7.08. Issuances and Dispositions of Securities. The Borrower
shall not make any change in its capital structure or issue any Securities,
excluding any Securities issued pursuant to stock options set forth on Schedule
7.08 hereto, without the prior written consent of the Bank, which consent shall
not be unreasonably withheld.
Section 7.09. Dividends and Redemptions. (a) The Borrower
shall not declare, pay or make any dividend or other distribution
of assets, properties, cash, rights, obligations or Securities on
account of any shares of its Securities.
(b) The Borrower shall not, directly or indirectly, purchase,
redeem or retire or otherwise acquire any shares of its Securities, without the
prior written consent of the Bank, which consent shall not be unreasonably
withheld.
Section 7.10. Amendment of Charter. The Borrower shall not
make any amendment to its charter documents.
Section 7.11. Transactions with Affiliates and Certain Other Persons.
The Borrower shall not, directly or indirectly, enter into or permit to exist
any transaction (including, without limitation, the purchase, sale, lease, or
exchange of any property and guarantees and assumptions of obligations of an
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Affiliate) with any stockholder, officer, director, employee or Affiliate of the
Borrower, other than (a) as otherwise expressly permitted by Sections 7.08, 7.09
and 7.12; (b) with the Permitted Affiliates provided such transactions are on an
arm's-length, third-party basis; and (c) loans or advances to employees of the
Borrower in an aggregate amount not exceeding $25,000 at any time outstanding.
Section 7.12. Compensation. The Borrower shall not make any loans or
other advances of money (other than salary to its officers and employees) to any
stockholder, officer, director, employee or Affiliate of the Borrower, except as
expressly permitted by Section 7.09 and 7.11.
Section 7.13. Certain other Transactions. The Borrower
shall not enter into any transaction that materially adversely
affects the Collateral.
Section 7.14. Fiscal Year. The Borrower shall not change
its Fiscal Year.
Section 7.15. Formula Amount. (A) The Borrower shall not request any
Loan hereunder, which after giving effect to the making of such Loan, would
cause at any time the aggregate principal amount outstanding under the Note to
exceed the lesser of the Commitment or the Formula Amount, (B) the Borrower
shall not purchase any F/X Commitment such that the principal amount of F/X
Commitments outstanding at any one time shall exceed the Maximum F/X Commitment.
Section 7.16. ERISA. The Borrower shall not be or become obligated to
PBGC in excess of $50,000 or be or become obligated to the Internal Revenue
Service with respect to excise or other penalty taxes provided for in Section
4975 of the Code in excess of $50,000. The Borrower shall not seek any waiver
from the minimum funding standard set forth under Section 302 of ERISA or
Section 412 of the IRC or engage in any material Prohibited Transaction with
respect to any Plan.
Section 7.17. Regulations G, T, U and X. The Borrower shall not apply,
directly or indirectly, any part of the proceeds of the Loans for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any "margin
security" as defined in Regulation U or for the purpose of reducing or retiring
any Indebtedness which was originally incurred for any such purpose, or in
violation of Regulation G, T, U or X.
Section 7.18. Subsidiaries. The Borrower shall not form any new
Subsidiary without the prior written consent of the Bank, and any such
Subsidiary shall execute and deliver a Subsidiary Guaranty in form and substance
satisfactory to the Bank.
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Section 7.19. Supplier Contracts. No change shall occur in any of
material supplier contracts and arrangements of the Borrower which would have a
material adverse effect on the financial condition of the Borrower.
Section 7.20. Minimum Payables to Subordinated Lenders.
The Borrower shall not permit its accounts payable to the
Subordinated Lenders to be less than $5,000,000.
Section 7.21. Minimum Availability. From the date hereof through and
including June 30, 1996, the Borrower shall not permit, after subtracting trade
payables (excluding trade payables to the Subordinated Lenders) 60 days or more
past due and any uncovered book overdrafts, the Available Commitment to be less
than $750,000.
ARTICLE 8. COVENANTS CONCERNING COLLATERAL
Section 8.01. Maintenance of Collateral. (a) The
--------------------------
Borrower shall preserve and maintain the security interest
created by this Agreement and will protect and defend its title
to the Collateral so that the security interest so granted shall
be and remain a continuing first and prior perfected security
interest in the Collateral. The Borrower will not create, assume
or suffer to exist any security interest or other lien or
encumbrance in the Collateral except Permitted Liens.
(b) The Borrower shall maintain books and records pertaining to
the Collateral in such detail, form and scope as the Bank may reasonably
require.
Section 8.02. Taxes, Etc. The Borrower shall pay all taxes, assessments
and other charges lawfully levied or assessed upon its properties or upon any of
the Collateral when due as and to the extent required by the Credit Agreement.
If any such tax or other charge or assessment remains unpaid after the date
fixed for its payment (except where the same may be contested in good faith by
appropriate proceeding and the Borrower maintains in accordance with generally
accepted accounting principles appropriate reserves for any of the same), or if
any lien shall be claimed which in the Bank's opinion may possibly create a
valid obligation having priority over the security interest granted hereby, the
Bank may pay such taxes, assessments, charges or claims, without notice to the
Borrower, and the amount of such payment shall be charged to the Borrower and
the Borrower shall repay the entire amount of such payment within five business
days of its receipt of a notice to do so given by the Bank. The amount of any
payment made pursuant to this Section shall become an obligation of the Borrower
secured by the security interest granted hereby.
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Section 8.03. Collection and Verifications of Collateral and Records.
The Bank may at any time verify Borrower's Receivables utilizing an audit
control company or any other agent of the Bank, which verification may include
direct requests for verifications from the Borrower's customers and account
debtors. At any time following the occurrence and continuance of an Event of
Default, the Bank or the Bank's designee may notify customers or account debtors
of the Bank's security interest in Receivables, collect them directly and charge
the collection costs and expenses to Borrower's account, but, unless and until
the Bank does so or gives Borrower other instructions, Borrower shall collect
all Receivables for the Bank, receive all payments thereon for the Bank's
benefit in trust as the Bank's trustee and immediately deliver them to the Bank
in the original form with all necessary endorsements or, as directed by the
Bank, deposit such payments as directed by the Bank. Promptly after the creation
of any Receivables, Borrower shall provide the Bank with schedules describing
all Receivables created or acquired by Borrower and shall execute and deliver
confirmatory written assignments of such Receivables to the Bank, Borrower's
failure to execute and deliver such schedules or written confirmatory
assignments of such Receivables shall not affect or limit the Bank's security
interest or other rights in and to the Receivables. Borrower shall furnish, at
the Bank's request, copies of contracts, invoices or the equivalent, and any
original shipping and delivery receipts for all merchandise sold or services
rendered and such other documents and information as the Bank may require.
Borrower shall also provide the Bank on a monthly (within thirty (30) days after
the end of each month) or more frequent basis, as requested by the Bank, a
detailed or aged trial balance of all of Borrower's existing Receivables
specifying the names and balances due for each account debtor and such other
information pertaining to the Receivables as the Bank may request. Borrower
shall provide the Bank on a monthly (within thirty (30) days after the end of
each month), or more frequent basis, as requested by the Bank, a summary report
of Borrower's current Inventory, certified as true and accurate by Borrower's
President or Chief Financial Officer, as well as an aged trial balance of
Borrower's existing accounts payable. Borrower shall provide the Bank, as
requested by the Bank, such other schedules, documents and/or information
regarding the Collateral as the Bank may require.
Section 8.04. Power of Attorney. Borrower hereby appoints the Bank or
any other Person whom the Bank may designate as Borrower's attorney, with power
to: (i) endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into the Bank's
possession; (ii) sign Borrower's name on any invoice or bill of lading relating
to any Receivables, drafts against customers, schedules and assignments of
Receivables, notices of assignment, financing statements and other public
records, verifications of
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account and notices to or from customers; (iii) verify the validity, amount or
any other matter relating to any Receivable by mail, telephone, telegraph or
otherwise with account debtors; (iv) on or after the occurrence of an Event of
Default, execute customs declarations and such other documents as may be
required to clear Inventory through Customs; (v) do all things necessary to
carry out this Agreement and any Related Document; and (vi) on or after the
occurrence and during the continuation of an Event of Default, notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by the Bank, and to receive, open and dispose of all mail
addressed to Borrower. Borrower hereby ratifies and approves all acts of the
attorney. Neither the Bank nor the attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law. This power,
being coupled with an interest, is irrevocable so long as any Receivable which
is assigned to the Bank or in which the Bank has a security interest remains
unpaid and until the Obligations have been fully satisfied.
Section 8.05. Further Assurances. (a) The Borrower agrees that from time
to time, at the expense of the Borrower, the Borrower will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or appropriate, or that the Bank may request, in order to
create, evidence, perfect or preserve any security interest granted or purported
to be granted hereby or to enable the Bank to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Borrower will: (i) at the request of the Bank,
mark conspicuously each chattel paper included in the Collateral and each of its
records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Bank, indicating that such chattel paper is subject to the
security interest granted hereby; (ii) if any account shall be evidenced by a
promissory note or other instrument or chattel paper, deliver and pledge to the
Bank hereunder such note, instrument or chattel paper duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Bank; (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Bank may request, in order
to create, evidence, perfect or preserve the security interests granted or
purported to be granted hereby; and (iv) immediately deliver to the Bank, duly
endorsed over to the Bank, all payments received from the City of New York, or
any agency, instrumentality, department or branch thereof, whether they are in
the form of checks, money orders, drafts, notes, bills of exchange, commercial
paper or otherwise.
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(b) The Borrower hereby authorizes the Bank to file one or more
financing or continuation statements, and amendments thereto, (including,
without limitation, any filings with the United States Copyright Office and/or
United States Patent and Trademark Office or in any similar office or agency of
the United States thereof or in any other appropriate jurisdiction) relative to
all or any part of the Collateral without the signature of the Borrower where
permitted by law. The Borrower hereby agrees that a carbon, photographic,
photostatic or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement where permitted by law.
(c) The Borrower will furnish to the Bank from time to time, in
addition to the information required to be delivered to the Bank by the other
provisions of this Agreement, such statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Bank may reasonably request, all in reasonable detail.
ARTICLE 9. FINANCIAL COVENANTS
The Borrower covenants and agrees that, from and after the date of
execution of this Agreement and so long as any amount may be borrowed hereunder
or remains unpaid on account of the Note or is otherwise due to the Bank under
this Agreement or any Related Document, it shall comply with each of the
following covenants which shall be calculated for the Borrower based on a non-
consolidating, stand alone basis:
Section 9.01. Interest Coverage Ratio. The Interest Coverage Ratio shall
be equal to or exceed as at the end of each Fiscal Quarter commencing with the
Fiscal Quarter ending June 30, 1996, for such Fiscal Quarter, 1.0 to 1.0.
Section 9.02. Maximum Indebtedness to Net Worth Ratio. As of the end of each
Fiscal Quarter commencing March 31, 1996, the Indebtedness to Net Worth Ratio
shall not exceed 2.25 to 1.0.
Section 9.03. Net Income. Net Income shall not be less than
the following amounts (which represent losses), for the following
periods:
(A) Period: Amount:
1/1/96 - 3/31/96 [$220,000]
4/1/96 - 6/30/96 [$60,000]
7/1/96 - 9/30/96 [$60,000]
10/1/96 - 12/31/96 $0
1/1/97 - 3/31/97 $0
4/1/97 - 6/30/97 $0
7/1/97 - 9/30/97 $0
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For each Fiscal $0
Quarter thereafter
(B) In addition, for the Fiscal Year ending September 30, 1996, the Net
Income shall not be less than, in the aggregate, a loss of $200,000.
Section 9.04. Minimum Net Worth. Net Worth shall not be less
than, the following amount for the following periods:
Period: Amount:
1/1/96 - 3/31/96 $8,100,000
4/1/96 - 6/30/96 $8,100,000
7/1/96 - 9/30/96 $8,200,000
10/1/96 - 12/31/96 $8,200,000
1/1/97 - 3/31/97 $8,200,000
4/1/97 - 6/30/97 $8,300,000
7/1/97 - 9/30/97 $8,400,000
For each Fiscal $8,450,000
Quarter thereafter
Section 9.05. Maximum Capital Expenditures. During each of
the Fiscal Years specified below, Capital Expenditures shall not
exceed $500,000 per Fiscal Year.
ARTICLE 10. EVENTS OF DEFAULT
Section 10.01. Events of Default. Each of the following
events or conditions shall constitute an Event of Default under
this Agreement:
(a) the Borrower shall fail to pay (i) when due any principal of any
Loan (including mandatory prepayments), (ii) any interest on any Loan or any LOC
Reimbursement Obligation within two Business Days after its due date, (iii) any
Loans in excess of the lesser of the Commitment or the Formula Amount within two
Business Days, or (iv) any other amount due and payable hereunder or with
respect to any Loan within five Business Days after its due date, in each case
in the manner provided herein;
(b) any representation, warranty or statement given in this Agreement or
in any Related Document by any party thereto or in any certificate, opinion,
report, financial statement or other written statement furnished at any time
pursuant to this Agreement shall prove to be or have been untrue or misleading
in any material respect as of the date on which it is made or deemed to be made;
(c) the Borrower shall fail to perform, keep or observe in
any respect any covenant or condition contained in Articles 5, 6
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or 7 of this Agreement or in the Lock-Box Agreement or Pledge Agreement, or the
Bank shall not have at any time a prior, sole, first perfected lien and security
interest (subject to Customary Permitted Liens) in all of the Collateral;
(d) (i) the Borrower or any other party to a Related Document shall fail
to perform, keep or observe in any respect any other term, provision, condition,
covenant, waiver, warranty or representation contained in this Agreement or in
any Related Document to which it is a party that is required to be performed,
kept or observed by the Borrower, or any party to a Related Document other than
the Bank, and such failure shall continue for a period of 30 days;
(e) any of the Related Documents shall at any time for any reason
cease to be in full force and effect or shall be declared to be null and void,
or the validity or enforceability thereof shall be contested by any of the
parties thereto (other than the Bank) or any of such parties shall deny that it
has any or further liability or obligation thereunder;
(f) a default shall occur and be continuing and not be waived in
writing upon the expiration of any applicable grace period under any debt or
lease agreement, document, or instrument (other than this Agreement or any
Related Document) to which the Borrower is a party or by which the Borrower is
bound, and such default has, or if continued would have, a material adverse
effect on the management, business, assets, properties, operations, prospects or
condition (financial or other) of the Borrower;
(g) the Borrower permits one or more judgments against it in
excess of $250,000 in the aggregate (to the extent that such amount is not
covered by insurance) to remain unstayed, unbonded or not discharged for a
period of more than 60 days, unless such judgment is being contested in good
faith and the Borrower has established reserves in accordance with GAAP that are
satisfactory to the Bank;
(h) a substantial part of any of the operations or business of
the Borrower is suspended other than in the ordinary course of its business,
which suspension has a material adverse effect on the management, business,
assets, properties, operations, prospects or condition (financial or other) of
the Borrower;
(i) the Borrower commences any case, proceeding or other action
relating to it in bankruptcy or seeking reorganization, liquidation,
dissolution, winding-up, arrangement, composition, compromise, readjustment of
its debts or any other relief under any bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement,
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composition, compromise, readjustment of debt or similar act or law of any
jurisdiction, now or hereafter existing, or consents to; approves of, or
acquiesces in, any such case, proceeding or other action, or applies for a
receiver, trustee or custodian for itself or for all or a substantial part of
its properties or assets, or makes an assignment for the benefit of creditors,
or fails generally to pay its debts as they mature or admits in writing its
inability to pay its debts as they mature, or is adjudicated insolvent or
bankrupt; or
(j) there is commenced against the Borrower any case or
proceeding or any other action is taken against the Borrower in bankruptcy or
seeking reorganization, liquidation, dissolution, winding-up, arrangement,
composition, compromise, readjustment of its debts or any other relief under any
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement,
composition, compromise, readjustment of debt or similar act or law of any
jurisdiction, now or hereafter exist ing; or there is appointed a receiver,
trustee or custodian for the Borrower or for all or a substantial part of its
properties or assets; or there is issued a warrant of attachment, execution or
similar process against any substantial part of the properties or assets of the
Borrower; and any such event continues for 60 days undismissed, unbonded or
undischarged; or
(k) the occurrence of any Change in Control
An Event of Default shall be deemed "continuing" until cured (if
curable) or waived in writing in accordance with Section 11.06. For purposes of
this Section 10.01 and Section 10.02, any Event of Default under Section
10.01(c) and (j) shall not be curable.
Section 10.02. Remedies upon an Event of Default. (a) If any Event of
Default shall have occurred and be continuing, the Bank may by notice to the
Borrower (i) declare the commitment of the Bank to make Loans hereunder to be
terminated, whereupon the same shall forthwith terminate, and (ii) declare the
Loans, all interest thereon, any accrued and unpaid fees and all other amounts
payable hereunder or in respect of the Loans to be forthwith due and payable,
whereupon they shall become and be forthwith due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by the Borrower. Notwithstanding the foregoing, upon the
occurrence of any of the events or conditions described in Section 10.01(i) or
(j) above, the commitment of the Bank to make Loans shall automatically be
terminated and the Loans, all interest thereon and all accrued and unpaid fees
and all other amounts payable hereunder or in respect of the Loans shall im
mediately become due and payable, without any requirement on the part of the
Bank to give notice, or make declaration, of any kind regarding such Event of
Default and without presentment, demand,
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protest or any other requirement on the part of the Bank, all of which are
hereby expressly waived by the Borrower.
(b) The Bank may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party under applicable law and also may do
any or all of the following:
(i) In the name of the Bank or in the name of the
Borrower or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but the Bank shall be under no obligation so
to do, and the Bank may extend the time of payment, arrange for payment
in installments, or otherwise modify the terms of, or release, any of
the Collateral without thereby incurring responsibility to, or
discharging or otherwise affecting any liability of, the Borrower.
(ii) Enter upon the premises, or wherever the Collateral
may be, and take possession thereof, and maintain such possession on the
Borrower's premises, or demand and receive such possession from any
person who has possession thereof, or remove the Collateral or any part
thereof, to such other places as the Bank may desire, without any obli
gation to pay the Borrower for any use and occupancy of such premises.
(iii) Without notice except as specified below and with or
without taking the possession thereof, sell, lease, assign, grant an
option or options to purchase or otherwise dispose of the Collateral or
any part thereof in one or more parcels at public or private sale, at
any location chosen by the Bank, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Bank may deem commercially reasonable. The Borrower agrees that, to the
extent notice of sale shall be required by law, at least five days'
notice to the Borrower of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification, but notice given in any other reasonable manner
or at any other reasonable time shall constitute reasonable
notification. The Bank shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Bank may
adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. The
Borrower agrees that the Bank shall have no obligation to preserve
rights in the
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Collateral against prior parties or to marshal any Col lateral for the
benefit of any Person. The Bank is hereby granted a license or other
right to use, without charge, the Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing advertising for the sale
of, and the selling of any Collateral, and the Borrower's rights under
all licenses and franchise agreements shall inure to the Bank's benefit.
(iv) The Bank may, in addition to any other rights it
may have under this Agreement or otherwise, appoint by instrument in
writing a receiver or receiver and manager (both of which are herein
called a "Receiver") of all or any part of the Collateral or may
institute proceedings in any court of competent jurisdiction for the
appointment of such a Receiver. Any such Receiver is hereby given and
shall have the same powers and rights as the Bank has under this
Agreement, at law or in equity. In exercising any such powers, any such
Receiver shall act as and for all purposes shall be deemed to be the
agent of the Borrower and the Bank shall not be responsible for any act
or default of any such Receiver absent the gross negligence or wilful
misconduct of the Bank or the Receiver. The Bank may appoint one or more
Receivers hereunder and may remove any such Receiver or Receivers and
appoint another or other in his or their stead from time to time. Any
Receiver so appointed may be an officer or employee of the Bank. The
Borrower agrees that any Receiver appointed by the Bank need not be
appointed by, nor is his appointment required to be ratified by nor his
actions in any way supervised by, a court.
(v) Apply, without notice, any cash or cash items
constituting Collateral in the possession of the Bank (constructive or
otherwise) to payment of any of the obligations.
(vi) The Bank may carry on or concur in the carrying on
of, all or any part of the business or under takings of the Borrower and
may, to the exclusion of all others, including the Borrower, enter upon,
occupy and use all or any of the premises, buildings, plants and
undertakings of or occupied or used by the Borrower and may use all or
any of the Collateral of the Borrower for such time as the Bank sees
fit, free of charge, to carry on the business of the Borrower and, if
applicable, to manufacture or complete the manufacture of any Inventory
and to pack and ship any Inventory. The Bank shall not be liable to the
Borrower for any negligence in so doing or in respect of any
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rent, charges, depreciation or damages incurred in
connection with such actions.
The Borrower waives, to the extent permitted by applicable law, all
rights of the Borrower to prior notice and hearing under any other
applicable statute or constitution.
(c) All cash proceeds received by the Bank in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Bank, be held by the Bank as Collateral for,
and/or then or at any time thereafter applied in whole or in part by the Bank
against all or any part of the Obligations in such order as the Bank shall
elect. Any surplus of such cash or cash proceeds held by the Bank and remaining
after payment in full of all the Obligations shall be paid over to the Borrower
or to whomsoever may be lawfully entitled to receive such surplus.
ARTICLE 11. MISCELLANEOUS
Section 11.01. Notices. All notices hereunder shall be in writing and
shall be conclusively deemed to have been received and shall be effective except
as explicitly noted hereinabove (a) on the day on which delivered if delivered
personally, or transmitted by telex or telegram or telecopier, or (b) three
business days after the date on which the same is mailed, and shall be
addressed:
(a) in the case of the Borrower, to:
Vicon Industries, Inc.
525 Broad Hollow Road
Melville, New York 11747
Attention: Arthur D. Roche
With a copy:
Schoeman, Marsh & Updike, LLP
60 East 42nd Street, Suite 3906
New York, New York 10165
Attention: Michael Schoeman, Esq.
(b) in the case of the Bank, to:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Kevin M. Madigan
With a copy:
Pryor, Cashman, Sherman & Flynn
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410 Park Avenue
New York, New York 10022
Attention: Lawrence Remmel
or at such other address as the party giving such notice shall have been advised
of in writing for such purpose by the party to which the same is directed.
Section 11.02. Survival of this Agreement. All covenants, agreements,
representations and warranties made herein, or in the Related Documents or in
any certificate delivered pursuant hereto or thereto shall survive the execution
by the Borrower and deliv ery to the Bank of this Agreement, the Note and the
other Related Documents and the making and repayment of the Loans hereunder, and
shall continue in full force and effect so long as any Obligations of any
Borrower remain outstanding and unpaid or this Agreement remains in effect.
Section 11.03. Indemnity. The Borrower agrees to defend, protect,
indemnify and hold harmless the Bank and each of its Affiliates, officers,
directors, employees, agents, attorneys and consultants (collectively called the
"Indemnitees") from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel for such indemnities whether or
not such Indemnitees shall be designated a party thereto), imposed on, incurred
by, or asserted against such Indemnitees (whether direct, indirect or
consequential and whether based on any Federal, state or local, or foreign, laws
or other statutory regulations, including, without limitation, Environmental
Laws, securities and commercial laws and regulations, under common law or at
equitable cause, or on contract or otherwise) in any manner relating to or
arising out of this Agreement or any of the Related Documents, or any act, event
or transaction related or attendant thereto or contemplated hereby, or any
action or inaction by any Indemnitee under or in connection therewith, any
commitment of the Bank hereunder, or the making of the Loans, or the management
of such Loans, or the use or intended use of the proceeds of any Loan, advance
or other financial accommodation provided hereunder including, in each such
case, any allegation of any such matters, whether meritorious or not
(collectively, the "Indemnified Matters"); provided, however, that the Borrower
shall have any obligation to any Indemnitee hereunder with respect to
Indemnified Matters directly caused by or resulting primarily from the willful
misconduct or gross negligence of such Indemnitee. The covenants of the Borrower
contained in this Section 11.03 shall survive the payment in full of all amounts
due and payable under this Agreement or any of the Related
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Documents and the full satisfaction of all other Obligations of the Borrower.
Section 11.04. Costs, Expenses and Taxes. (a) The Borrower agrees to pay
on demand (i) all reasonable costs and expenses in connection with the
preparation, execution, delivery, filing, recording, and administration of this
Agreement, each of the Related Documents, and any other documents, instruments
or agreements which may be delivered in connection with this Agreement,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Bank, and local counsel who may be retained by said counsel,
with respect thereto and with respect to advising the Bank as to its rights and
responsibilities under this Agreement; provided; that the costs, fees and
expenses in this clause (i) shall be limited to $15,000 excluding disbursements,
(ii) all costs and expenses in connection with the audit, appraisal, valuation,
investigation, and the creation, perfection, priority or protection of the
Bank's Liens against the Collateral, including, without limitation, all costs
and expenses (A) to pay or discharge taxes, liens, security interests or other
encumbrances levied, placed or threatened against the Collateral and (B) for
title and lien searches, filing and recording fees and taxes, duplication costs
and corporate search fees, and (iii) all costs and expenses (including
reasonable counsel fees and expenses) in connection with the enforcement and
administration of this Agreement and each of the Related Documents and such
other documents, instruments or agreements which may be delivered in connection
with this Agreement.
(b) Any and all payments by the Borrower under this Agreement or
the Note shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of the Bank,
taxes imposed on or in respect of its income (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the Bank,
(i) the sum payable shall be increased as may be necessary so that, after making
all required deductions (including deductions applicable to additional sums
payable under this Section 11.04), the Bank receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower shall
make such deductions, and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(c) The Borrower further agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges, or
similar levies which arise in connection with
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the execution and delivery of this Agreement, any of the Related Documents or
any of the other instruments, documents or agreements executed and/or delivered
in connection herewith or therewith, or any payment made hereunder or in
connection herewith (hereinafter collectively referred to as "Other Taxes").
(d) The Borrower shall indemnify the Bank for the full amount of
Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable by the Borrower under this
Section 11.04) paid by the Bank and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted.
(e) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 11.04 shall survive the payment in full of all amounts due and
payable under this Agreement or any of the Related Documents and the full
satisfaction of all other Obligations of the Borrower.
Section 11.05. Further Assurances. (a) At any time and from time to
time, upon the request of the Bank, the Borrower shall execute, deliver and
acknowledge, or cause to be executed, delivered and acknowledged, such further
documents and instruments and do such other acts and things as the Bank may
reasonably request in order to effect fully the intent and purposes of this
Agreement and the Related Documents, and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the making of the
Loans, in proper form for recording and otherwise in form and substance
reasonably satisfactory to the Bank and its counsel.
(b) The Borrower agrees that from time to time, at its expense,
it shall promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or appropriate, or that the Bank
may request, in order to create, evidence, perfect or preserve any security
interest granted or purported to be granted hereby or by any Related Document or
to enable the Bank to exercise and enforce its rights and remedies hereunder or
under any Related Document with respect to any Collateral.
Section 11.06. Amendment and Waiver. No amendment or waiver of any
provision of this Agreement or any of the Related Documents, or any consent to
any departure by the Borrower therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Bank, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. Neither any failure nor any delay on the part of the Bank in
exercising any right, power or privilege hereunder or under any of the Related
Documents shall
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operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in the same,
similar or other circumstances.
Section 11.07. Marshalling, Recourse to Security: Payments Set Aside.
The Bank shall not be under any obligation to marshal any assets in favor of the
Borrower or any other party or against or in payment of any or all of the
Obligations of the Borrower to the Bank hereunder or under the Related Documents
or otherwise. Recourse to security shall not be required at any time. To the
extent that the Borrower makes a payment or payments to the Bank, or the Bank
enforces its security interests or exercises its rights of setoff, and such
payment or payments or the proceeds of such enforcement or setoff or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall be
revised and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
Section 11.08. Dominion Over Cash; Setoff. (A) The Bank shall, at all
times, have sole dominion and control over all bank accounts of the Borrower
established pursuant to the Lock-Box Agreement pursuant to the terms thereof.
The Borrower shall take all action requested from time to time by the Bank as
necessary or appropriate to carry out the provisions of this Section (A).
(B) In addition to any rights and remedies of the Bank now or
hereafter provided by law, the Bank shall have the right, without prior notice
to the Borrower, any such notice being ex pressly waived by the Borrower to the
extent permitted by applicable law, on the occurrence and during the
continuation of any Event of Default to set off and apply against any
Obligation, whether matured or unmatured, of the Borrower, any amount owing from
the Bank to the Borrower, at or at any time after the hap pening of any such
Event of Default, and such right of setoff may be exercised by the Bank against
the Borrower or against any trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, receiver or execution, judgment or attach
ment creditor, notwithstanding the fact that such right of setoff shall not have
been exercised by the Bank before the making, fil ing or issuance, or service on
the Bank of, or of notice of, any such event or proceeding.
Section 11.09. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and
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the Bank, and thereafter shall be binding upon and inure to the benefit of the
Borrower and the Bank and their respective successors and assigns; provided,
however, that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the Bank.
Section 11.10. Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed and
interpreted in accordance with, the substantive law of the State of New York,
without regard to its choice of law provisions.
Section 11.11. Consent to Jurisdiction and Service of Process; Waiver of
Jury Trial. All judicial proceedings brought against the Borrower with respect
to this Agreement or any Related Document may be brought in any state or federal
court of competent jurisdiction in the State of New York and, by its execution
and delivery of this Agreement, the Borrower accepts, for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts. The Borrower irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to its notice address specified in Section 11.01 hereof, such
service to become effective five (5) days after such mailing. The Borrower
irrevocably waives (a) trial by jury in any action or proceeding with respect to
this Agreement or any Related Document, and (b) any objection (including,
without limitation, any objection to the laying of venue or based on the grounds
of forum non conveniens) which it may now or hereafter have to the bringing of
any such action or proceeding with respect to this Agreement or any Related
Document in any jurisdiction set forth above.
Section 11.12. Performance of Obligations. The Borrower acknowledges and
agrees that the Bank may, but shall have no obligation to, make any payment or
perform any act required of the Borrower under this Agreement or any Related
Document or take any other action which the Bank in its discretion deems
necessary or desirable to protect or preserve the Collateral, including, without
liquidation, any action to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threaten any Collateral.
Section 11.13. Assignment, Participations. The Bank may, at any time or
times, assign (by novation), participate or syndicate its interests in the Loans
and/or Letters of Credit without restriction. The Borrower agrees to cooperate
with the Bank to effect assignments and/or participations made with respect
hereto.
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Section 11.14. Entire Agreement. This Agreement, taken together with all
of the Related Documents and all certificates and other documents delivered by
the Borrower to the Bank, embodies the entire agreement and supersedes all prior
agreements, written and oral, relating to the subject matter hereof.
Section 11.15. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 11.16. Execution of Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
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VICON INDUSTRIES, INC.
By:
Name: Kenneth M. Darby
Title: President
IBJ SCHRODER BANK & TRUST COMPANY
By:
Name: Kevin M. Madigan
Title: Vice President
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Schedule 7.01(g) (Indebtedness)
1. Borrower's Guaranty of the Mortgage of Vicon Industries (UK) Limited to
Chugai Boyeki Company Limited, dated , which as of December 27, 1995,
approximately $369,000 pounds sterling remains outstanding under the
Mortgage.
2. $1,000,000 Release Fee, which has been reduced to
approximately $666,000 as of December 27, 1995, payable by
the Borrower, pursuant to Paragraph 9 of the Consent of
Overlandlord/Release Agreement between the Borrower and
Allan V. Rose, dated January 1, 1993 which Release Fee
becomes due pursuant to the Borrower's receipt of a Vacate
Notice in connection with AVR Mart, Inc.'s option under
paragraph 5 of the sublease dated as of January 1, 1993
between the Borrower and AVR Mart, Inc. or Allan V. Rose's
right of termination under paragraph 8 of such Consent of
Overlandlord/Release Agreement.
3. Borrower's Guaranty of the $700,000 pounds sterling Loan Agreement
between Vicon Industries (UK) Limited and National Westminster Bank,
PLC, to National Westminster Bank, PLC, dated .
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of December 27, 1995 made by VICON
INDUSTRIES, INC. (the "Pledgor"), in favor of IBJ SCHRODER BANK & TRUST COMPANY,
a New York banking corporation (the "Pledgee"),
W I T N E S S E T H:
WHEREAS, the Pledgor is the beneficial and record owner of all of the
issued and outstanding shares (the "Shares") of Vicon Industries (UK) Limited
("Vicon UK") and Vicon Industries Foreign Sales Corporation ("Vicon Foreign",
and together with Vicon UK, the "Companies"), which Shares are set forth on
Schedule 1 hereto (the "Pledged Shares"); and
WHEREAS, the Pledgor has entered into a Credit and Security Agreement
dated as of the date hereof (as it may hereafter be amended, extended,
supplemented, modified or restated form time to time, the "Credit Agreement";
with the capitalized terms used herein, and not otherwise defined herein, having
the meanings ascribed to them in the Credit Agreement) between the Pledgor and
the Pledgee, pursuant to which the Pledgor has executed a $4,000,000 Note dated
as of the date hereof in favor of the Pledgee (collectively, the "Note"); and
WHEREAS, as a condition precedent to the Pledgee entering into the
Credit Agreement, the Pledgee has required the Pledgor to grant, assign and
pledge, and the Pledgor has agreed to grant, assign and pledge, to the Pledgee,
a continuing first priority security interest in and to all its rights, title
and interests in the Pledged Collateral (as hereinafter defined) to secure all
of the obligations of the Pledgor to the Pledgee under the Credit Agreement, the
Note and the other Related Documents;
NOW, THEREFORE, the Pledgor, intending to be bound hereby, in
consideration of the premises hereof, in order to induce the Pledgee to provide
the Loans under and in accordance with the terms of the Credit Agreement and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, hereby agrees with, and for the benefit of, the Pledgee as
follows:
SECTION 1. Pledge. The Pledgor hereby pledges and assigns to the Pledgee
and grants to the Pledgee a continuing first and prior security interest in all
of its rights, title and interests in and to the Pledged Shares of the
Companies, whether now owned or existing or hereafter acquired or arising,
including, without limitation, all income, cash, dividends or other
distributions received therefrom, and all proceeds thereof, including, without
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limitation, proceeds received from any sale, financing or refinancing above the
existing amount of debt so refinanced, and all products, substitutions,
additions, changes and replacements thereof (all of the same being herein
referred to as the "Pledged Collateral").
SECTION 2. Security for Obligations. This Agreement secures (a) the
indefeasible payment of all liabilities, obligations and indebtedness of any and
every kind and nature heretofore, now or hereafter owing, arising, due or
payable from the Pledgor to the Pledgee pursuant to the Credit Agreement, the
Note and all other Related Documents to which the Pledgor is a party, however
evidenced, created, incurred, acquired or owing, whether for principal,
interest, fees, indemnification, expenses or otherwise, whether primary or
secondary, direct or indirect, joint or several, contingent or fixed, or
otherwise, including, without limitation, obligations of performance, now or
hereafter given by the Pledgor to the Pledgee and whether arising by book entry,
oral agreement or operation of law (all such obligations and liabilities
described in the foregoing clauses (a) and (b) above being hereinafter
collectively referred to as the "Obligations"). The Pledgor and the Pledgee
hereby agree that they intend the security interest hereby granted to attach
upon the execution of this Agreement.
SECTION 3. Delivery of Pledged Collateral. (A) All certificates or
instruments representing or evidencing the Pledged Collateral as of the date
hereof or should the Pledged Collateral at any time be represented or evidenced
by a certificate or instrument, such certificates or instruments shall be
delivered to and held by or on behalf of the Pledgee pursuant hereto and shall
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. Upon the maturity of the Loans or upon
the occurrence and continuation of an Event of Default under the Credit
Agreement and/or the other Related Documents (any such event being an
"Acceleration Default"), the Pledgee shall have the right, at any time in its
discretion and without notice to the Pledgor, to transfer to or to register in
the name of the Pledgee or any of its nominees any or all of the Pledged
Collateral. In addition, the Pledgee shall have the right at any time to
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
(B) Should the Pledged Collateral at any time not be represented or
evidenced by a certificate or instrument, the books and records of the Companies
shall be marked to reflect the pledge and security interests granted to the
Pledgee under this Agreement.
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SECTION 4. Representations and Warranties. The Pledgor
hereby represents and warrants to the Pledgee as follows:
(a) The Pledged Shares have been duly authorized and validly
issued, are fully paid and non-assessable and represent, as of the date hereof,
100% of the issued and outstanding capital stock of the Companies; and the
Companies have no other outstanding securities, and no warrants, subscription
rights or options are outstanding with respect thereto.
(b) The Pledgor is the legal and beneficial owner of the Pledged
Collateral, free and clear of any Liens, adverse claims, security interests,
options or other charges or encumbrances, except for the security interests
created by this Agreement and security interests permitted pursuant to the terms
of the Credit Agreement.
(c) The pledge of the Pledged Collateral pursuant to this
Agreement creates a valid and perfected continuing first priority security
interest in the Pledged Collateral, securing the indefeasible payment and
performance of the Obligations.
(d) No authorization, consent, approval or other action by, and
no notice to or filing with, any governmental authority, regulatory body or
other Persons is required to be obtained or made by the Pledgor either (i) for
the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement
or for the execution, delivery or performance of this Agreement by the Pledgor,
or (ii) for the exercise by the Pledgee of the voting or other rights provided
for in this Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Agreement, subject to applicable state and federal securities
laws.
(e) There are no restrictions on the transfer of the Pledged
Collateral, except such, if any, as are imposed by operation of law or court
order, and there are no options, warrants or rights pertaining thereto. The
Pledgor has the right to transfer the Pledged Collateral free of any
encumbrances and without the consent of the creditors of the Pledgor (other than
the Pledgee), any persons or any governmental agency whatsoever.
(f) Neither the execution or delivery of this Agree ment, nor the
consummation of the transactions contemplated here by, nor the compliance with
or performance of the terms and con ditions of this Agreement by the Pledgor is
prevented by, limited by, conflicts with or will result in the breach or
violation of or a default under the terms, conditions or provisions of (i) the
by-laws or the certificate of incorporation (or an equivalent organizational
document) of the Pledgor or the Companies or any agreement among the
shareholders of the Pledgor or the Companies, (ii) any mortgage, security
agreement, indenture, evidence of
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indebtedness, loan or financing agreement, trust agreement or other agreement or
instrument to which the Pledgor is a party or by which it is bound, or (iii) any
provision of law, any order of any court or administrative agency or any rule or
regulation applicable to the Pledgor, subject to applicable state and federal
securities laws.
(g) This Agreement constitutes the legal, valid and binding
obligation of the Pledgor, enforceable in accordance with its terms, subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
moratorium or similar laws affecting the rights of creditors generally.
(h) Any assignee of all or any portion of the Pledged Collateral
is entitled to receive payments with respect thereto without any defense,
counterclaim, setoff, abatement, reduction, recoupment or other claim arising
out of the actions of the Pledgor.
(i) There are no actions, suits or proceedings (whether or not
purportedly on behalf of the Pledgor) pending or, to the best knowledge of the
Pledgor, threatened affecting the Pledgor that involve the Pledged Collateral,
this Agreement, the Credit Agreement, the Note or any of the other Related
Documents.
(j) All consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution, delivery and
performance by the Pledgor of this Agreement have been obtained, subject to
applicable state and federal securities laws.
SECTION 5. Further Assurances. The Pledgor hereby agrees that at any
time and from time to time, at its expense, the Pledgor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be reasonably necessary or desirable, or that the Pledgee may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Pledgee to exercise
and enforce its rights and remedies hereunder, subject to applicable state and
federal securities laws, with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Distributions, Etc. (a) So long
as no Acceleration Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral or any
part thereof for any purpose not inconsistent with the terms of this
Agreement, the Credit Agreement or any other Related Document to which
the Pledgor is a party; provided, however, that the Pledgor shall give
the Pledgee prior written notice whenever the Pledgor shall
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exercise or refrain from exercising any such voting or other consensual
right if such action would have a material adverse effect on the value
of the Pledged Collateral or any part thereof.
(ii) The Pledgor shall be entitled to receive and retain any and
all income, dividends and interest paid in respect of the Pledged
Collateral; provided, however, that any and all:
(A) income, dividends and distributions paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect
of, or in exchange for, any Pledged Collateral;
(B) income, dividends and other distributions paid or
payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or
in connection with a reduction of contributed capital, capital
surplus or paid-in-surplus; and
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any
Pledged Collateral,
shall be forthwith delivered to the Pledgee to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust
for the benefit of the Pledgee, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to the Pledgee as
Pledged Collateral in the same form as so received (with all necessary
endorsements).
(iii) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights which it is
entitled to exercise pursuant to clause (i) above and to receive the
income, dividends or interest payments which it is authorized to receive
and retain pursuant to clause (ii) above.
(b) Upon the occurrence and during the continuance of an
Acceleration Default:
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 6(a)(i) hereof and to receive the income, dividends
and interest payments which they would otherwise be authorized to
receive and retain
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pursuant to Section 6(a)(ii) hereof shall cease, and all such rights
shall thereupon become vested in the Pledgee who shall thereupon have
the sole right to exercise such voting and other consensual rights and
to receive and hold as Pledged Collateral such income, dividends and
interest payments.
(ii) All income, dividends and interest payments which are
received by the Pledgor contrary to the provisions of clause (i) of this
Section 6(b) shall be received in trust for the benefit of the Pledgee,
shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Pledgee as Pledged Collateral in the same
form as so received (with all necessary endorsements).
SECTION 7. Transfers and Other Liens; Additional Interests. The Pledgor
hereby agrees that it will not (i) sell or otherwise transfer or dispose of, or
grant any interest in or option with respect to, any of the Pledged Collateral,
or (ii) create or permit to exist any Lien, security interest, or other charge
or encumbrance upon or with respect to any of the Pledged Collateral, except for
the security interests under this Agreement and if allowed pursuant to the terms
of the Credit Agreement.
SECTION 8. Litigation Respecting the Pledged Collateral. In the event
any action, suit or other proceeding at law, in equity, in arbitration or before
any other authority involving or affecting the Pledged Collateral becomes known
to or is contemplated by the Pledgor, the Pledgor shall give the Pledgee
immediate notice thereof and if the Pledgor is contemplating such action, suit
or other proceeding, the Pledgor shall be required to receive the written
consent of the Pledgee prior to commencing any such action, suit or other
proceeding, which consent shall not be unreasonably withheld or delayed.
SECTION 9. Pledgee Appointed Attorney-in-Fact. (a) The Pledgor hereby
appoints the Pledgee (and any officer or agent of the Pledgee with full power of
substitution and revocation) the Pledgor's true and lawful attorney-in-fact,
coupled with an interest, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Pledgee's discretion to (i) if an Acceleration Default is continuing, take any
action and to execute any instrument which the Pledgee may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, (I) to receive, endorse and collect all instruments made payable to
the Pledgor representing any income, dividend or other distribution in respect
of the Pledged Collateral or any part or proceeds thereof and to give full
discharge for the same; and (II) to transfer the Pledged Collateral, in whole or
in part, to the name of the Pledgee or such other Person or Persons as the
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Pledgee may designate; take possession of and endorse any one or more checks,
drafts, bills of exchange, money orders or any other documents received on
account of the Pledged Collateral; collect, sue for and give acquittances for
moneys due on account of the foregoing; withdraw any claims, suits, or
proceedings pertaining to or arising out of the foregoing; take any other action
contemplated by this Agreement; and sign, execute, acknowledge, swear to,
verify, deliver, file, record and publish any one or more of the foregoing, and
(ii) at any time execute and record or file on behalf of the Pledgor any
evidence of a security interest contemplated by this Agreement and any
refilings, continuations or extensions thereof.
(b) The powers of attorney which shall be granted pur suant to
Section 9(a) hereof and all authority thereby conferred shall be granted and
conferred solely to protect the Pledgee's interests in the Pledged Collateral
and shall not impose any duty upon the attorney-in-fact to exercise such powers.
Such powers of attorney shall be irrevocable prior to the indefeasible payment
and performance in full of the Obligations and shall not be terminated prior
thereto or affected by any act of the Pledgor or by operation of law, including,
but not limited to, dissolution, death, disability or incompetency of any
Person, the termination of any trust, or the occurrence of any other event, and
if the Pledgor should become bankrupt, insolvent, or come under the direct
regulation of similar laws which affect the rights of creditors generally or any
other event should occur before the indefeasible payment and performance in full
of the Obligations and termination of the Credit Agreement, the Note and the
other Related Documents, such attorney-in-fact shall nevertheless be fully
authorized to act under such powers of attorney as if such event had not
occurred and regardless of notice thereof.
SECTION 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the expenses of the Pledgee incurred in connection
therewith shall be payable by the Pledgor under Section 13 hereof.
SECTION 11. Reasonable Care. The Pledgee shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Col lateral is accorded treatment
substantially equal to that which the Pledgee accords its own property, it being
understood that the Pledgee shall not have any responsibility for (i) ascertain
ing or taking action with respect to calls, conversions, ex changes, maturities,
tenders or other matters relative to any Pledged Collateral, whether or not the
Pledgee has or is deemed to have knowledge of such matters, or (ii) taking any
necessary steps to preserve rights against any parties with respect to any
Pledged Collateral.
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SECTION 12. Remedies Upon Acceleration Default.
(a) If any Acceleration Default shall have occurred
and be continuing:
(i) The Pledgee may notify the obligors or other parties,
if any, interested in any items of Pledged Col lateral of the interests
of the Pledgee therein and of any action proposed to be taken with
respect thereto, and inform any of those parties that all payments
otherwise payable to the Pledgor with respect thereto shall be made by
the Pledgee until all amounts due under the Credit Agreement, the Note
and the other Related Documents have been indefeasibly paid in full;
(ii) The Pledgee may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured
party on default under the Uniform Commercial Code (the "Code") in
effect in the State of New York at that time, and the Pledgee may also,
without notice except as specified below, sell the Pledged Collateral or
any part thereof in one or more parcels at public or private sale, at
any exchange, broker's board or at any of the Pledgee's offices or
elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Pledgee may deem commercially reasonable. The Pledgor
hereby agrees that, to the extent notice of sale shall be required by
law, at least five days' notice to the Pledgor of the time and place of
any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Pledgee shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Pledgee may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned;
(iii) Any cash held by the Pledgee as Pledged Collateral
and all cash proceeds received by the Pledgee in respect of any sale of,
collection from, or other realization upon all or any part of the
Pledged Collateral may, in the discretion of the Pledgee, be held by the
Pledgee as collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Pledgee pursuant to Section
13 hereof) in whole or in part by the Pledgee against, all or any part
of the Obligations in such order as the Pledgee shall elect. Any surplus
of such cash or cash proceeds held by the Pledgee and remaining after
the indefeasible payment in full of all the Obligations shall be paid
over to the Pledgor or to
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whomsoever may lawfully entitled to receive such surplus;
and
(iv) The Pledgee may otherwise use or deal from time to
time with the Pledged Collateral, in whole or in part, in all respects
as if the Pledgee were the outright owner thereof.
(b) Except as set forth in Section 12(a)(iii) hereof, the Pledgee
shall have the sole right to determine the order in which Obligations shall be
deemed discharged by the application of the Pledged Collateral or any other
property or money held hereunder or any amount realized thereon. Any requirement
of reasonable notice imposed by law shall be deemed met if such notice is in
writing and is mailed, teletransmitted or hand delivered to the Pledgor at least
five days prior to the sale, disposition or other event giving rise to such
notice requirement.
(c) The Pledgee shall collect the cash proceeds received from any
sale or other disposition or from any other source contemplated by and in
accordance with Subsection (a) above and shall apply the full proceeds in
accordance with the provisions of this Agreement.
(d) Notwithstanding the foregoing, none of the provi sions of
this Section 12 shall confer on the Pledgee any rights or privileges that are
not permissible under applicable law.
(e) In connection with the provisions of this Agree ment, the
Pledgor from time to time shall promptly execute and deliver, or cause to be
executed and delivered, to the Pledgee such documents and instruments, shall
join in such notices and shall take, or cause to be taken, such other lawful
actions as the Pledgee shall deem necessary or desirable to enable it to
exercise any of the rights with respect to the Pledged Collateral granted to it
pursuant to this Agreement.
SECTION 13. Expenses. The Pledgor will, upon demand, pay to the Pledgee
the amount of all expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Pledgee may incur in connection
with (i) the perfection, custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Pledged Collateral, (ii) the
exercise or enforcement of any of the rights of the Pledgee hereunder, (iii) the
failure by the Pledgor to perform or observe any of the provisions hereof, or
(v) any actual or attempted sale, assignment of rights or interests, or exchange
of, or any enforcement, collection, compromise or settlement respecting the
Pledged Collateral or any other property or money held hereunder, or any other
action taken by the Pledgee hereunder whether directly or as attorney-in-fact
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pursuant to the power of attorney herein conferred, and all such expenses shall
be deemed a part of the Obligations for all purposes of this Agreement and the
Pledgee may apply the Pledged Collateral or any other property or money held
hereunder to payment of or reimbursement of itself for such expenses. The
Pledgor shall pay all such expenses on demand, together with interest thereon
from the date the expense is paid or incurred by the Pledgee at an interest rate
equal to that under the Note (computed on the basis of the actual number of days
elapsed over a 360-day year).
SECTION 14. Waivers and Amendments, Etc. The rights and remedies given
hereby are in addition to all others however arising, but it is not intended
that any right or remedy be exer cised in any jurisdiction in which such
exercise would be pro hibited by law. No action, failure to act or knowledge of
the Pledgee shall be deemed to constitute a waiver of any power, right or remedy
hereunder, nor shall any single or partial exer cise thereof preclude any
further exercise thereof or the exer cise of any other power, right or remedy.
Any waiver or consent respecting any covenant, representation, warranty or other
term or provision of this Agreement shall be effective only in the specified
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Pledgee at any time or times to require performance
of, or to exercise its rights with respect to, any representation, war ranty,
covenant or other term or provision of this Agreement in no manner shall affect
its rights at a later time to enforce any such provision. No notice to or demand
on a party in any case shall entitle such party to any other or further notice
or demand in the same, similar or other circumstances. Any right or power of the
Pledgee hereunder respecting the Pledged Collateral and any other property or
money held hereunder may at the option of the Pledgee be exercised as to all or
any part of the same and the term the "Pledged Collateral" wherever used herein,
unless the context clearly requires otherwise, shall be deemed to mean (and
shall be read as) the "Pledged Collateral and any other property or money held
hereunder or any part thereof". This Agreement shall not be amended nor shall
any right hereunder be deemed waived except by a written agreement expressly
setting forth the amendment or waiver and signed by the party against whom or
which such amendment or waiver is sought to be charged.
SECTION 15. Notices. Any notice or other communication to
be given or made to the Pledgee hereunder shall be sent or
otherwise communicated to the Pledgee at: IBJ Schroder Bank &
Trust Company, One State Street, New York, New York 10004,
attention: Kevin M. Madigan, with a copy to Messrs. Pryor,
Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York
10022, attention: Lawrence Remmel, or such other address and/or
for such other attention as may be notified to the Pledgor in
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accordance with this Section 15. Any notice or other communication to be given
to the Pledgor shall be sent or otherwise communicated to the Pledgor at: Vicon
Industries, Inc., 525 Broad Hollow Road, Melville, New York 11747, attention:
Arthur D. Roche, with a copy to Schoeman, Marsh & Updike, LLP, 60 East 42nd
Street, Suite 3906, New York, New York 10165 attention: Michael Schoeman, Esq.,
or such other address and/or for such other attention as may be notified to the
Pledgee in accordance with this Section 15. Any notice or other communication to
be given or made pursuant to this Agreement may be given or made by personal
delivery, or by overnight courier, or by postage prepaid, registered or
certified first class mail, return receipt requested, or by telecopy. All
notices or other communications to be given or made pursuant to this Agreement
shall be deemed to have been given or made when received as established, in the
case of delivery by overnight courier, on the next Business Day and, in the case
of delivery by mail, five Business Days after mailing.
SECTION 16. Continuing Security Interest. This Agreement shall create a
continuing first priority security interest in the Pledged Collateral and shall
(i) remain in full force and effect until the indefeasible payment in full or
performance of the Obligations, (ii) be binding upon the Pledgor, its successors
and assigns and (iii) inure to the benefit of the Pledgee and its successors,
transferees and assigns. Upon the indefeasible payment in full or performance of
the Obligations, the Pledgor shall be entitled to the return, upon its request
and at its expense, of such of the Pledged Collateral as shall not have been
sold or otherwise applied pursuant to the terms of this Agreement.
SECTION 17. Severability. In the event that any provision of this
Agreement shall be determined to be superseded, invalid or otherwise
unenforceable pursuant to applicable law, such determination shall not affect
the validity of the remaining provisions of this Agreement, and the remaining
provisions of this Agreement shall be enforced as if the invalid provision were
deleted.
SECTION 18. Survival of Representations, etc. All representations,
warranties, covenants and other agreements made herein shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until all amounts due under the Credit Agreement, the Note and the other
Related Documents have been indefeasibly paid in full. This Agreement shall
remain and continue in full force and effect without regard to any modification,
execution, renewal, amendment or waiver of any provision of any of the Credit
Agreement, the Note and the other Related Documents.
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SECTION 19. Termination and Miscellaneous Provisions. This Agreement
shall continue in full force and effect until all of the Obligations shall have
been indefeasibly paid and satisfied. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, and assigns. Section headings used herein are for convenience only
and shall not affect the meaning or construction of any of the provisions
hereof. This Agreement may be executed in any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 20. Entire Agreement. This Agreement, the Credit Agreement and
the other Related Documents contain the entire agreement of the parties and
supersedes all other agreements, understandings and representations, oral or
otherwise, between the parties with respect to the matters contained herein.
SECTION 21. Governing Law; Terms. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to its conflict of laws provisions. Unless otherwise defined
herein or in the Credit Agreement, terms defined in Article 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
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IN WITNESS WHEREOF, the Pledgor, and the Pledgee have each caused this
Agreement to be duly executed and delivered as of the date first above written.
VICON INDUSTRIES, INC.
By:
Name: Kenneth M. Darby
Title: President
IBJ SCHRODER BANK & TRUST COMPANY
By:
Name: Kevin M. Madigan
Title: Vice President
The undersigned hereby acknowledges receiving notice of, and consents
to, the foregoing Pledge Agreement and agrees to recognize all of the rights
granted to the Pledgee therein and, to the full extent of its ability, to take
all actions reasonably necessary to effectuate said rights and the purposes of
the Pledge Agreement, as requested by the Pledgee pursuant to the terms thereof.
Date: December 27, 1995
VICON INDUSTRIES (UK) LIMITED
By:
Name: Kenneth M. Darby
Title: Secretary
VICON INDUSTRIES FOREIGN SALES
CORPORATION
By:
Name: Kenneth M. Darby
Title: President
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SCHEDULE 1
PLEDGED SHARES
I. VICON INDUSTRIES (UK) LIMITED
Name of Holder: No. of Shares: Certificate No.: Issue Date:
Vicon Industries, Inc. 750 1 June 24, 1981
Vicon Industries, Inc. 74,250 2 October 10, 1981
II. VICON INDUSTRIES FOREIGN SALES CORPORATION
Name of Holder: No. of Shares: Certificate No.: Issue Date:
Vicon Industries, Inc. 100 1 January 1, 1985
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VICON INDUSTRIES, INC.
OFFICER'S CERTIFICATE
Pursuant to the terms of the Credit and Security Agreement dated as of
December 27, 1995, between Vicon Industries, Inc. (the "Borrower") and IBJ
Schroder Bank & Trust Company (the "Agreement"), the undersigned officer of the
Borrower hereby certifies, in his capacity as Executive Vice President of the
Borrower, as set forth below. Terms used herein which are defined in the
Agreement have the respective meanings specified in the Agreement.
1. The representations and warranties of the Borrower contained
in the Agreement and in each of the other Related Documents are true
and correct on and as of the date hereof.
2. The Borrower has duly performed and complied with all the terms,
provisions and conditions set forth in the Agreement , including, without
limitation, each of the financial covenants contained in Article IX, or in any
other Related Document to which it is a party on its part to be observed or
performed.
3. No Default or Event of Default has occurred and is continuing, or
would result from the execution, delivery and performance by the Borrower of the
Agreement or any of the other Related Documents to which they are a party.
4. Neither the Borrower nor any of its Subsidiaries are in default in
the payment or performance of any of their respective obligations under any
mortgage, indenture, security agreement, contract, undertaking or other
agreement or instrument to which they are a party or which purports to be
binding upon them or any of their respective properties or assets, which default
would have a material adverse effect on the management, business, operations,
properties, assets or condition (financial or otherwise) of the Borrower or such
Subsidiary, as applicable.
5. The Borrower and each of its Subsidiaries are in compliance with all
applicable statutes, laws, rules, regulations, orders and judgements, the
contravention or violation of which would have a material adverse effect on the
management, business, operations, properties, assets or condition (financial or
otherwise) of the Borrower or such, as applicable.
6. There has occurred no material adverse change in the business or
assets, or in the condition (financial or otherwise) of the Borrower since
November 24, 1995, the date of the last financial statements previously
delivered to the Bank.
7. There are no litigation or administrative proceedings, of or
before any court or governmental body or agency now pending, nor, to
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the best knowledge of the undersigned upon reasonable inquiry, now threatened
against the Borrower or any of its respective properties, nor, to the best
knowledge of the undersigned upon reasonable inquiry, is there a valid basis for
the initiation of any such litigation or proceeding, which if adversely
determined would have a material adverse effect on the business, assets or
condition (financial or otherwise) of the Borrower.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th
day of December, 1995.
VICON INDUSTRIES, INC.
By:
Name: Arthur D. Roche
Title: E.V.P.
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VICON INDUSTRIES, INC.
RESOLUTIONS OF THE BOARD OF DIRECTORS
The undersigned, being the sole members of the Directors of Vicon
Industries, Inc., a New York corporation (the "Corporation") do hereby adopt the
following resolutions:
RESOLVED, that (i) the Credit and Security Agreement dated as of
the date hereof (the "Credit Agreement") between the Corporation and IBJ
Schroder Bank & Trust Company (the "Bank"), (ii) the $4,000,000
Promissory Note (the "Note") from the Corporation to the Bank, (iii) the
Pledge Agreement dated as of the date hereof (the "Pledge Agreement")
between the Corporation and the Bank, (iv) the Lock-Box Agreement dated
as of the date hereof (the "Lock-Box Agreement") between the Corporation
and the Bank, and (v) any other documents or certificates required
pursuant to the terms and conditions of the Credit Agreement, each in a
substantially final form previously delivered to the Directors of the
Corporation, are hereby approved; and further
RESOLVED, that the appropriate officers of the Corporation be,
and they hereby are, authorized and directed to execute and deliver for
and on behalf of the Corporation the Credit Agreement, the Note, the
Pledge Agreement, the Lock-Box Agreement and other documents and
certificates required pursuant to the terms and conditions of the Credit
Agreement, with such further changes therein and modifications thereof
as the officers executing the same shall, in their sole discretion,
approve, and all instruments, documents, agreements or financing
statements which such officers determine are necessary or desirable to
effectuate the performance of such Credit Agreement, Note, Pledge
Agreement, Lock-Box Agreement and other documents and certificates
required pursuant to the terms and conditions of the Credit Agreement,
such approval to be conclusively evidenced by their execution and
deliver thereof, and to affix the corporate seal of the Corporation
thereto, where applicable; and further
RESOLVED, that this Resolution be filed with the minutes of
proceedings of the Board of Directors of the Corporation.
80
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Dated: December 27, 1995
81
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REVOLVING CREDIT NOTE
$4,000,000 DECEMBER 27, 1995
NEW YORK, NEW YORK
FOR VALUE RECEIVED, VICON INDUSTRIES, INC., A NEW YORK CORPORATION
(THE "BORROWER"), PROMISES TO PAY TO THE ORDER OF IBJ SCHRODER BANK & TRUST
COMPANY (THE "BANK") ON THE COMMITMENT EXPIRATION DATE SPECIFIED IN THE
AGREEMENT HEREINAFTER REFERRED TO, AT THE OFFICE OF THE BANK LOCATED AT ONE
STATE STREET, NEW YORK, NEW YORK, OR AT SUCH OTHER PLACE AS THE BANK MAY SPECIFY
FROM TIME TO TIME, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA AND IN
IMMEDIATELY AVAILABLE FUNDS, THE PRINCIPAL SUM OF THE LESSER OF (A) FOUR MILLION
DOLLARS ($4,000,000), AND (B) THE AGGREGATE UNPAID PRINCIPAL AMOUNT OF ALL LOANS
MADE BY THE BANK TO THE BORROWER PUR SUANT TO SECTION 2.02 OF THE AGREEMENT. THE
BORROWER FURTHER PROMISES TO PAY INTEREST IN LIKE MONEY AND FUNDS TO THE BANK AT
ITS OFFICE SPECIFIED ABOVE ON THE UNPAID PRINCIPAL AMOUNT OF THE LOANS FROM AND
INCLUDING THE DATE THEREOF UNTIL PAYMENT IN FULL AT THE RATE OR RATES AND ON THE
DATES DETERMINED IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT. THE BANK IS
HEREBY AUTHORIZED TO RECORD THE DATE, AMOUNT AND INTEREST RATE OF EACH LOAN
EVIDENCED BY THIS NOTE AND THE DATE AND AMOUNT OF EACH PAYMENT OR PREPAYMENT OF
PRINCIPAL HEREOF ON THE SCHEDULE ANNEXED HERETO AND MADE A PART HEREOF, OR ON A
CONTINUATION THEREOF WHICH SHALL BE ATTACHED HERETO AND MADE A PART HEREOF, AND
ANY SUCH NOTATION SHALL BE CONCLUSIVE AND BINDING FOR ALL PURPOSES ABSENT
MANIFEST ERROR; PROVIDED, HOWEVER, THAT FAILURE BY THE BANK TO MAKE ANY SUCH
NOTATION SHALL NOT AFFECT THE OBLIGATIONS OF THE BORROWER HEREUNDER OR UNDER THE
AGREEMENT.
IF ANY PAYMENT ON THIS NOTE BECOMES DUE AND PAYABLE ON A DAY OTHER
THAN A BUSINESS DAY (AS DEFINED IN THE AGREEMENT), THE PAYMENT THEREOF SHALL BE
EXTENDED TO THE NEXT SUCCEEDING BUSINESS DAY, AND, WITH RESPECT TO PAYMENTS OF
PRINCIPAL, INTEREST THEREON SHALL BE PAYABLE AT THE THEN APPLICABLE RATE DURING
SUCH EXTENSION.
THIS NOTE IS THE NOTE REFERRED TO IN THE CREDIT AND SECURITY
AGREEMENT, DATED AS OF THE DATE HEREOF, BETWEEN THE BORROWER AND THE BANK (AS
THE SAME MAY BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED, THE "AGREEMENT"),
AND IS ENTITLED TO THE BENEFITS THEREOF AND IS SUBJECT TO OPTIONAL AND MANDATORY
PREPAYMENT IN WHOLE OR IN PART AS PROVIDED THEREIN. TERMS USED BUT NOT DEFINED
IN THIS NOTE HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN THE AGREEMENT.
THE BORROWER SHALL USE ALL OF THE PROCEEDS OF THE LOANS IN
ACCORDANCE WITH SECTION 2.10 OF THE AGREEMENT.
UPON THE OCCURRENCE OF ANY ONE OR MORE OF THE EVENTS OF
DEFAULT SPECIFIED IN THE AGREEMENT, ALL AMOUNTS THEN REMAINING
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UNPAID ON THIS NOTE MAY BE DECLARED TO BE OR MAY AUTOMATICALLY BECOME
IMMEDIATELY DUE AND PAYABLE AS PROVIDED IN THE AGREEMENT.
PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF DISHONOR, PROTEST, NOTICE
OF PROTEST AND ALL OTHER DEMANDS AND NOTICES IN CONNECTION WITH THE DELIVERY,
PERFORMANCE AND ENFORCEMENT OF THIS NOTE ARE HEREBY WAIVED, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN THE AGREEMENT.
NOTWITHSTANDING ANY PROVISIONS CONTAINED HEREIN OR IN THE AGREEMENT
TO THE CONTRARY, THE INDEBTEDNESS EVIDENCED BY THIS NOTE SHALL NOT (I) BE
SUBORDINATED TO CLAIMS OF ANY TRADE CREDITORS OF THE BORROWER OR (II) BE
SUBORDINATED IN RIGHT OF PAYMENT TO THE PAYMENT OF ANY EXISTING OR FUTURE
UNSECURED INDEBTEDNESS OF THE BORROWER.
THE OBLIGATIONS OF THE BORROWER TO MAKE PAYMENTS WHEN DUE OF ANY
MOUNT OWING UNDER THIS NOTE ARE ENTITLED TO THE BENEFITS OF THE COLLATERAL
SECURITY PROVIDED FOR IN THE AGREEMENT AND THE PLEDGE AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTER PRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE
OF LAW PROVISIONS CONTAINED IN THE AGREEMENT.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO
THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL, AT THE OPTION OF
THE BANK, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
VICON INDUSTRIES, INC.
BY:
NAME: KENNETH M. DARBY
TITLE: PRESIDENT
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SCHEDULE
TO NOTE
DATED DECEMBER 27, 1995 OF
VICON INDUSTRIES, INC. TO
IBJ SCHRODER BANK & TRUST COMPANY
AMOUNT OF UNPAID
AMOUNT PRINCIPAL PRINCIPAL NOTATION
DATE OF LOAN PAID BALANCE MADE BY
84
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VICON INDUSTRIES, INC.
SECRETARY'S CERTIFICATE
I, ARTHUR D. ROCHE, THE DULY ELECTED SECRETARY OF VICON INDUSTRIES,
INC., A NEW YORK CORPORATION (THE "COMPANY"), DO HEREBY CERTIFY THAT:
1. ATTACHED HERETO AS EXHIBIT A IS A TRUE, CORRECT, AND COMPLETE
COPY OF THE CERTIFICATE OF INCORPORATION OF THE COMPANY, DULY CERTIFIED BY THE
SECRETARY OF STATE, WHICH CERTIFICATE OF INCORPORATION HAS NOT BEEN AMENDED
SINCE THE DATE OF THE LAST AMENDMENT THERETO INDICATED IN SUCH CERTIFICATE
ISSUED BY THE SECRETARY OF STATE. THE CERTIFICATE OF INCORPORATION IS IN EFFECT
ON THE DATE HEREOF AND HAS NOT BEEN SUBSEQUENTLY AMENDED.
2. ATTACHED HERETO AS EXHIBIT B IS A TRUE, CORRECT, AND
COMPLETE COPY OF THE BY-LAWS OF THE COMPANY AS IN EFFECT ON THE DATE
HEREOF, TOGETHER WITH ALL AMENDMENTS THERETO.
3. ATTACHED HERETO AS EXHIBIT C IS A CERTIFICATE, DULY CERTIFIED BY
THE SECRETARY OF STATE, AS TO THE DUE ORGANIZATION, CORPORATE EXISTENCE AND GOOD
STANDING OF THE COMPANY, AND CERTIFICATES OF GOOD STANDING FOR THE COMPANY, DULY
CERTIFIED WITHIN 10 DAYS PRIOR TO THE DATE HEREOF BY THE SECRETARY OF STATE OF
EACH JURISDICTION IN WHICH THE COMPANY IS QUALIFIED TO DO BUSINESS.
4. ATTACHED HERETO AS EXHIBIT D IS A TRUE, CORRECT, AND COMPLETE
COPY OF THE RESOLUTIONS DULY ADOPTED BY THE BOARD OF DIRECTORS OF THE COMPANY
DATED AS OF THE DATE HEREOF APPROVING, AMONG OTHER THINGS, THE EXECUTION,
DELIVERY AND PERFORMANCE BY THE COMPANY OF THE CREDIT AND SECURITY AGREEMENT
DATED AS OF THE DATE HEREOF AMONG THE COMPANY AND IBJ SCHRODER BANK & TRUST
COMPANY (THE "CREDIT AGREEMENT"), THE BORROWINGS THEREUNDER, THE NOTE, THE
RELATED DOCUMENTS AND ANY OTHER DOCUMENTS CONTEMPLATED IN CONNECTION THEREWITH
TO WHICH THE COMPANY IS A PARTY. SUCH RESOLUTIONS HAVE NOT BEEN RESCINDED OR
MODIFIED AND ARE IN FULL FORCE AND EFFECT ON THE DATE HEREOF, AND SUCH
RESOLUTIONS CONSTITUTE ALL THE RESOLUTIONS ADOPTED IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED THEREBY.
5. EACH OF THE INDIVIDUALS NAMED BELOW IS A DULY ELECTED, QUALIFIED
AND ACTING OFFICER OF THE COMPANY, HOLDING THE OFFICE SET FORTH OPPOSITE HIS/HER
NAME AND HAS BEEN AUTHORIZED IN THE RESOLUTIONS ATTACHED HERETO AS EXHIBIT D TO
EXECUTE ALL DOCUMENTS MENTIONED IN OR CONTEMPLATED BY SAID RESOLUTIONS,
INCLUDING, WITHOUT LIMITATION, THE CREDIT AGREEMENT, THE NOTE, THE RELATED
DOCUMENTS AND SUCH OTHER DOCUMENTS CONTEMPLATED IN CONNECTION THEREWITH; AND THE
SIGNATURES SET FORTH OPPOSITE THEIR NAMES AS FOLLOWS ARE THEIR GENUINE
SIGNATURES:
<PAGE>
NAME: OFFICE: SIGNATURE:
ARTHUR D. ROCHE SECRETARY/ E.V.P.
KENNETH M. DARBY PRESIDENT/C.E.O.
CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN ARE DEFINED IN THE
CREDIT AGREEMENT AND ARE USED HEREIN WITH THE SAME MEANINGS AS ASCRIBED TO THEM
THEREIN.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS EXECUTED THIS CERTIFICATE
AS OF THE 27TH DAY OF DECEMBER, 1995.
------------------------------
NAME: ARTHUR D. ROCHE
TITLE: SECRETARY
THE UNDERSIGNED, THE DULY ELECTED PRESIDENT OF THE COMPANY, DOES
HEREBY CERTIFY THE OFFICE, AUTHORIZATION AND SIGNATURE OF ARTHUR D. ROCHE,
REFERRED TO IN SECTION 5 ABOVE.
------------------------------
NAME: KENNETH M. DARBY
TITLE: PRESIDENT
<PAGE>
EXHIBIT A
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT B
BY-LAWS
<PAGE>
EXHIBIT C
GOOD STANDING CERTIFICATE(S)
<PAGE>
EXHIBIT D
CORPORATE RESOLUTIONS
<PAGE>
SUBORDINATION AGREEMENT
WHEREAS, VICON INDUSTRIES, INC., A CORPORATION
ORGANIZED UNDER THE LAWS OF NEW YORK HAVING ITS USUAL PLACE OF BUSINESS AT 525
BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747 (HEREINAFTER CALLED THE "BORROWER"),
IS INDEBTED TO THE UNDERSIGNED LENDER (HEREINAFTER CALLED THE "SUBORDINATED
LENDER") IN THE AGGREGATE PRINCIPAL AMOUNT OF TWO MILLION DOLLARS ($2,000,000)
EVIDENCED BY A PROMISSORY NOTE DATED OCTOBER 5, 1993 (THE "SUBORDINATED NOTE");
WHEREAS, THE BORROWER AND THE SUBORDINATED LENDER
HAVE REQUESTED IBJ SCHRODER BANK & TRUST COMPANY (HEREINAFTER CALLED THE "BANK")
TO EXTEND CREDIT TO THE BORROWER BUT THE BANK IS UNWILLING TO GRANT SUCH REQUEST
UNLESS THE SUBORDINATED LENDER SHALL (I) SUBORDINATE IN THE MANNER AND TO THE
EXTENT HEREINAFTER PROVIDED ALL INTEREST PAYMENTS, ON THE ABOVE MENTIONED
INDEBTEDNESS EVIDENCED BY THE SUBORDINATED NOTE OF THE BORROWER TO THE
SUBORDINATED LENDER (ALL OF WHICH INTEREST PAYMENTS ON SUCH INDEBTEDNESS ARE
HEREINAFTER CALLED THE "SUBORDINATED INDEBTEDNESS", IT BEING UNDERSTOOD THAT THE
PRINCIPAL OF THE SUBORDINATED NOTE SHALL NOT BE DEEMED TO BE SUBORDINATED
INDEBTEDNESS), AND (II) TO THE EXTENT THE SUBORDINATED LENDER HAS A SECURITY
INTEREST IN ANY PROPERTY IN WHICH THE BANK HAS A SECURITY INTEREST, THE
SUBORDINATED LENDER SHALL SUBORDINATE SUCH SECURITY INTERESTS IN SUCH PROPERTY
TO THE SECURITY INTERESTS OF THE BANK:
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND
AS AN INDUCEMENT TO THE BANK TO CONTINUE TO EXTEND CREDIT TO THE BORROWER, AND
IN CONSIDERATION THEREOF, THE SUBORDINATED LENDER HEREBY AGREES WITH THE BANK TO
SUBORDINATE, AND DOES HEREBY SUBORDINATE, THE SUBORDINATED INDEBTEDNESS TO ANY
AND ALL INDEBTEDNESS AND OTHER LIABILITIES OF THE BORROWER TO THE BANK ARISING
UNDER THAT CERTAIN CREDIT AND SECURITY AGREEMENT DATED AS OF THE DATED HEREOF
AND EXECUTED BY THE BORROWER AND THE BANK (THE "CREDIT AGREEMENT") AND ALL
DOCUMENTS EXECUTED IN CONNECTION THEREWITH, AND ANY AND ALL EXTENSIONS,
MODIFICATIONS, AMENDMENTS, RENEWALS OR SUBSTITUTIONS THEREOF, INCLUDING
PRINCIPAL, INTEREST AND EXPENSES OF COLLECTION AND ALL OTHER INDEBTEDNESS OF ANY
NATURE NOW OR HEREAFTER OWING FROM THE BORROWER TO THE BANK (ALL OF THE
FOREGOING BEING REFERRED TO AS THE "SENIOR INDEBTEDNESS"), AND, FOR THE
CONSIDERATION AFORESAID, THE SUBORDINATED LENDER FOR ITSELF, ITS EXECUTORS,
ADMINISTRATORS, SUCCESSORS AND ASSIGNS, AGREES WITH THE BANK THAT :
1. NOTWITHSTANDING THE TERMS OF THE INSTRUMENTS
AND AGREEMENTS GIVING RISE TO THE SUBORDINATED INDEBTEDNESS, IT WILL NOT AT ANY
TIME UNTIL ALL SENIOR INDEBTEDNESS SHALL HAVE BEEN PAID IN FULL, DEMAND, ACCEPT
OR RECEIVE ANY COLLATERAL FOR THE SUBORDINATED INDEBTEDNESS, NOR WILL IT ASSERT
AGAINST THE BORROWER ANY RIGHT OF SETOFF OR OF SUBROGATION WITH RESPECT TO THE
SUBORDINATED INDEBTEDNESS, NOR WILL IT TRANSFER OR ASSIGN ANY OR ALL OF THE
SUBORDINATED INDEBTEDNESS UNLESS THE TRANSFEREE OR ASSIGNEE AGREES TO BE BOUND
BY THE TERMS OF THIS SUBORDINATION AGREEMENT;
<PAGE>
PROVIDED; HOWEVER; THAT THE SUBORDINATED INDEBTEDNESS MAY BE SECURED BY
COLLATERAL PURSUANT TO LIENS WHICH ARE JUNIOR AND SUBORDINATED TO THE LIENS OF
THE BANK IN ACCORDANCE WITH THE TERMS HEREOF. EXCEPT AS PROVIDED IN THE NEXT
SENTENCE, IN NO EVENT SHALL THE PRINCIPAL OF THE SUBORDINATED NOTE BE DUE AND
PAYABLE (WHETHER BY ITS TERMS, ACCELERATION OR OTHERWISE) BEFORE JULY 1, 1998.
NOTWITHSTANDING THE FOREGOING, PRINCIPAL OF THE SUBORDINATED NOTE SHALL BE
PERMITTED TO BECOME DUE AND PAYABLE (WHETHER BY ITS TERMS, BY ACCELERATION OR
OTHERWISE) UPON THE FILING OF ANY PETITION IN BANKRUPTCY BY OR AGAINST THE
BORROWER.
2. THE SUBORDINATED LENDER MAY RECEIVE PAYMENTS ON
THE SUBORDINATED INDEBTEDNESS IN ACCORDANCE WITH THE TERMS OF THE SUBORDINATED
NOTE AS IN EFFECT ON THE DATE HEREOF IF AND SO LONG AS NO EVENT OF DEFAULT (AS
DEFINED IN THE CREDIT AGREEMENT), OTHER THAN AN EVENT OF DEFAULT DERIVED FROM
THE BREACH OF THE FINANCIAL COVENANTS SET FORTH IN SECTIONS 9.01, 9.02, 9.03,
9.04 AND 9.05 OF THE CREDIT AGREEMENT, SHALL HAVE OCCURRED AND BE CONTINUING AND
SHALL NOT HAVE BEEN WAIVED BY THE BANK IN WRITING IN RESPECT OF THE SENIOR
INDEBTEDNESS. NOTWITHSTANDING THE TERMS OF ANY INSTRUMENT OR AGREEMENT GIVING
RISE TO THE SUBORDINATED INDEBTEDNESS, THE SUBORDINATED LENDER WILL NOT DEMAND,
ACCEPT OR RECEIVE ANY PRINCIPAL PREPAYMENT IN RESPECT OF THE SUBORDINATED NOTE,
AND IN THE EVENT IT RECEIVES ANY SUCH PAYMENT, THE SUBORDINATED LENDER SHALL
FORTHWITH DELIVER THE SAME TO THE BANK IN PRECISELY THE FORM RECEIVED (EXCEPT
FOR THE SUBORDINATED LENDER'S ENDORSEMENT WHERE NECESSARY) FOR APPLICATION ON
ACCOUNT OF THE BORROWER'S OBLIGATIONS TO THE BANK, AND THE SUBORDINATED LENDER
AGREES THAT, UNTIL SO DELIVERED, SUCH PAYMENTS SHALL BE DEEMED RECEIVED BY THE
SUBORDINATED LENDER AS AGENT FOR THE BANK AND SHALL BE HELD IN TRUST BY THE
SUBORDINATED LENDER AS PROPERTY OF THE BANK. IN THE EVENT OF A FAILURE OF THE
SUBORDINATED LENDER TO ENDORSE ANY INSTRUMENT FOR THE PAYMENT OF MONEY SO
RECEIVED BY THE SUBORDINATED LENDER, PAYABLE TO THE SUBORDINATED LENDER'S ORDER,
THE BANK, OR ANY OFFICER OR EMPLOYEE THEREOF, IS HEREBY IRREVOCABLY CONSTITUTED
AND APPOINTED ATTORNEY- IN-FACT FOR THE SUBORDINATED LENDER WITH FULL POWER TO
MAKE ANY SUCH ENDORSEMENT AND WITH FULL POWER OF SUBSTITUTION. THE SUBORDINATED
LENDER WILL NOT DEMAND OR CONSENT TO ANY AMENDMENT OF THE TERMS OF THE
SUBORDINATED NOTE WITH RESPECT TO THE INTEREST PAYABLE THEREUNDER AND THE
SCHEDULED AMORTIZATION OF THE PRINCIPAL AMOUNT THEREOF WITHOUT THE PRIOR WRITTEN
CONSENT OF THE BANK. THE BANK AGREES TO PROVIDE THE SUBORDINATED LENDER WITH
NOTICE OF EACH EVENT OF DEFAULT, OTHER THAN FOR AN EVENT OF DEFAULT DERIVED FROM
THE BREACH OF THE FINANCIAL COVENANTS SET FORTH IN SECTIONS 9.01, 9.02, 9.03,
9.04 AND 9.05 OF THE CREDIT AGREEMENT.
3. IF AN EVENT OF DEFAULT, OTHER THAN AN EVENT OF
DEFAULT DERIVED FROM THE BREACH OF THE FINANCIAL COVENANTS SET FORTH IN SECTIONS
9.01, 9.02, 9.03, 9.04 AND 9.05 OF THE CREDIT AGREEMENT, SHALL OCCUR AND BE
CONTINUING AND SHALL NOT HAVE BEEN WAIVED BY THE BANK IN WRITING WITH RESPECT TO
THE SENIOR INDEBTEDNESS, THE SUBORDINATED LENDER WILL NOT RECEIVE FROM OR FOR
THE ACCOUNT OF THE
<PAGE>
BORROWER ANY PAYMENT OF THE SUBORDINATED INDEBTEDNESS AND, IN THE EVENT IT
RECEIVES ANY SUCH PAYMENT, THE SUBORDINATED LENDER SHALL FORTHWITH DELIVER THE
SAME TO THE BANK IN PRECISELY THE FORM RECEIVED (EXCEPT FOR THE SUBORDINATED
LENDER'S ENDORSEMENT WHERE NECESSARY) FOR APPLICATION ON ACCOUNT OF THE
BORROWER'S OBLIGATIONS TO THE BANK, AND THE SUBORDINATED LENDER AGREES THAT,
UNTIL SO DELIVERED, SUCH PAYMENTS SHALL BE DEEMED RECEIVED BY THE SUBORDINATED
LENDER AS AGENT FOR THE BANK AND SHALL BE HELD IN TRUST BY THE SUBORDINATED
LENDER AS PROPERTY OF THE BANK. IN THE EVENT OF A FAILURE OF THE SUBORDINATED
LENDER TO ENDORSE ANY INSTRUMENT FOR THE PAYMENT OF MONEY SO RECEIVED BY THE
SUBORDINATED LENDER, PAYABLE TO THE SUBORDINATED LENDER'S ORDER, THE BANK, OR
ANY OFFICER OR EMPLOYEE THEREOF, IS HEREBY IRREVOCABLY CONSTITUTED AND APPOINTED
ATTORNEY-IN-FACT FOR THE SUBORDINATED LENDER WITH FULL POWER TO MAKE ANY SUCH
ENDORSEMENT AND WITH FULL POWER OF SUBSTITUTION.
4. IN THE EVENT THE BORROWER SHALL BECOME
INSOLVENT, THE SUBORDINATED LENDER WILL, IN ANY SUCH CASE, ASSIGN AND PAY OVER
OR DELIVER TO THE BANK, TO THE EXTENT NECESSARY TO SATISFY THE SENIOR
INDEBTEDNESS IN FULL WITH INTEREST (PLUS REASONABLE EXPENSES OF COLLECTION), ANY
AND ALL DIVIDENDS, PAYMENTS AND OTHER DISTRIBUTIONS WITH RESPECT TO THE
SUBORDINATED INDEBTEDNESS TO WHICH IT WOULD BE ENTITLED, OF ANY KIND OR
CHARACTER, EITHER IN CASH, PROPERTY OR SECURITIES TO THE EXTENT SUCH DIVIDENDS,
PAYMENTS OR OTHER DISTRIBUTIONS ARE PAID TO THE SUBORDINATED LENDER, TO BE HELD
BY THE BANK AND APPLIED BY THE BANK FOR ITS OWN ACCOUNT TO THE EXTENT OF ITS
RIGHTS HEREUNDER. FOR PURPOSES HEREOF, THE BORROWER SHALL BE CONSIDERED TO BE
"INSOLVENT" WHEN ANY OF THE FOLLOWING EVENTS SHALL HAVE OCCURRED WITH RESPECT TO
THE BORROWER: ADMISSION IN WRITING OF ITS INABILITY, OR BE GENERALLY UNABLE, TO
PAY ITS DEBTS AS THEY BECOME DUE, DISSOLUTION, TERMINATION OF EXISTENCE,
CESSATION OF NORMAL BUSINESS OPERATIONS, INSOLVENCY, APPOINTMENT OF A RECEIVER
OF ANY PARTY OF, LEGAL OR EQUITABLE ASSIGNMENT, CONVEYANCE OR TRANSFER OF
PROPERTY FOR THE BENEFIT OF CREDITORS BY THE BORROWER; OR THE COMMENCEMENT OF
ANY PROCEEDINGS UNDER ANY BANKRUPTCY OR INSOLVENCY LAWS BY THE BORROWER OR SUCH
A PROCEEDING SHALL HAVE BEEN COMMENCED AGAINST THE BORROWER, IN WHICH AN
ADJUDICATION OR APPOINTMENT IS MADE OR ORDER FOR RELIEF IS ENTERED OR WHICH
PROCEEDING REMAINS UNDISMISSED OR UNSTAYED FOR A PERIOD OF 30 DAYS OR MORE.
5. IN ORDER TO CARRY OUT THE TERMS AND INTENT OF
THIS UNDERTAKING MORE EFFECTIVELY, THE SUBORDINATED LENDER WILL DO ALL ACTS
NECESSARY OR CONVENIENT IN THE REASONABLE JUDGMENT OF THE BANK TO PRESERVE FOR
THE BANK THE BENEFITS OF THIS SUBORDINATION AGREEMENT AND WILL EXECUTE ALL
AGREEMENTS WHICH THE BANK MAY REASONABLY REQUEST FOR THAT PURPOSE, AND IT HEREBY
ASSIGNS, TRANSFERS AND SETS OVER TO THE BANK ITS CLAIMS AGAINST THE BORROWER
ARISING ON ACCOUNT OF THE SUBORDINATED INDEBTEDNESS AND, WITHOUT IMPOSING UPON
THE BANK ANY DUTY WITH RESPECT TO PRESERVATION, PROTECTION OR ENFORCEMENT OF THE
CLAIMS ARISING ON ACCOUNT OF THE SUBORDINATED INDEBTEDNESS, CONSTITUTES AND
APPOINTS THE BANK ITS
<PAGE>
TRUE AND LAWFUL ATTORNEY FOR THE FOLLOWING PURPOSES BUT ONLY WITH RESPECT TO THE
SUBORDINATED INDEBTEDNESS:
(A) TO COLLECT ANY DIVIDENDS, PAYMENTS OR OTHER
DISTRIBUTIONS WHICH WOULD OTHERWISE BE PAYABLE TO, OR RECEIVABLE BY,
IT ON ANY LIQUIDATION, DISSOLUTION OR OTHER WINDING UP OF THE
BORROWER OR ANY LIQUIDATION OR DISTRIBUTION OF ANY PART OF THE
ASSETS OF THE BORROWER (OTHER THAN DISTRIBUTIONS MADE IN THE
ORDINARY COURSE OF THE BORROWER'S BUSINESS) OR IN ANY PROCEEDINGS
AFFECTING HE BORROWER UNDER ANY BANKRUPTCY OR INSOLVENCY LAWS OR ANY
LAWS RELATING TO THE RELIEF OF DEBTORS, READJUSTMENT, COMPOSITION OR
EXTENSION OF INDEBTEDNESS, OR REORGANIZATION OR DISSOLUTION OF THE
BORROWER, OR EXECUTION SALE ON, OR MARSHALING OF, ASSETS OF THE
BORROWER.
(B) TO PROVE ITS CLAIM IN ANY SUCH PROCEEDINGS.
(C) TO ACCEPT OR REJECT, TO THE EXTENT TO WHICH IT SHOULD
BE ENTITLED TO ACCEPT OR REJECT, ANY PLAN OF REORGANIZATION OR
ARRANGEMENT IN ANY SUCH PROCEEDINGS.
(D) TO ACCEPT ANY NEW SECURITIES OR OTHER PROPERTY TO
WHICH IT WOULD BE ENTITLED UNDER ANY SUCH PLAN OR REORGANIZATION OR
ARRANGEMENT OR OTHER PROCEEDINGS.
(E) AND IN GENERAL TO DO ANY ACT IN CONNECTION WITH ANY
SUCH PROCEEDINGS WHICH IT MIGHT OTHERWISE DO, IT BEING UNDERSTOOD
THAT THE BANK SHALL ACCOUNT TO IT FOR ANY DIVIDENDS OR PAYMENTS
RECEIVED IN EXCESS OF THE AMOUNT TO SATISFY THE CLAIMS OF THE BANK
IN FULL WITH INTEREST AND EXPENSES OF COLLECTION.
6. THE SUBORDINATED LENDER AGREES THAT THE
SUBORDINATED NOTE LISTED ABOVE EVIDENCING SUBORDINATED INDEBTEDNESS
SHALL BE CONSPICUOUSLY MARKED WITH A LEGEND PROVIDING AS FOLLOWS:
"THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT,
DATED DECEMBER 27, 1995 EXECUTED BY CHUGAI BOYEKI COMPANY LIMITED,
CHUGAI BOYEKI (AMERICA) CORP. AND VICON INDUSTRIES, INC. IN FAVOR OF
IBJ SCHRODER BANK & TRUST COMPANY.
7. NO ACTION WHICH THE BANK, OR THE BORROWER WITH
OR WITHOUT THE CONSENT OF THE BANK, MAY TAKE, OR REFRAIN FROM TAKING WITH
RESPECT TO THE SENIOR INDEBTEDNESS, OR ANY NOTE OR AGREEMENT REPRESENTING THE
SAME, OR ANY COLLATERAL THEREFOR, OR ANY AGREEMENT OR AGREEMENTS (INCLUDING
GUARANTIES) IN CONNECTION THEREWITH, SHALL AFFECT THIS SUBORDINATION AGREEMENT
OR THE OBLIGATIONS OF THE SUBORDINATED LENDER HEREUNDER; PROVIDED, THAT
OBLIGATIONS CONSISTING OF PRINCIPAL OF THE BORROWER TO THE BANK SHALL NOT
CONSTITUTE SENIOR INDEBTEDNESS TO THE EXTENT IN EXCESS OF $6,000,000 UNLESS THE
SUBORDINATED LENDER HAS CONSENTED IN WRITING THERETO.
<PAGE>
8. IN THE EVENT THAT THE BANK SHALL TRANSFER
SENIOR INDEBTEDNESS TO WHICH THE SUBORDINATED INDEBTEDNESS IS HEREBY
SUBORDINATED THE TRANSFEREE THEREOF AND SUCCESSIVE TRANSFEREES THEREAFTER SHALL
HAVE THE SAME RIGHTS HEREUNDER AS THE BANK, IT BEING INTENDED THAT THE BENEFITS
OF THIS SUBORDINATION AGREEMENT SHALL ATTACH TO AND FOLLOW SAID SENIOR
INDEBTEDNESS IRRESPECTIVE OF
CHANGES IN THE OWNERSHIP THEREOF.
9. TO THE EXTENT THAT THE SUBORDINATED LENDER HAS
A SECURITY INTEREST IN ANY PROPERTY IN WHICH THE BANK HAS A SECURITY INTEREST,
THE SUBORDINATED LENDER AGREES THAT ITS INTEREST IN SUCH PROPERTY SHALL BE, IN
ALL RESPECTS, SUBORDINATED TO THE FULLEST EXTENT PERMITTED BY LAW TO THE
SECURITY INTEREST OF THE BANK AND THAT, UNTIL ALL SENIOR INDEBTEDNESS OF THE
BORROWER TO THE BANK ARE PAID IN FULL, IT SHALL NOT TAKE ANY ACTION TO ENFORCE
ITS SECURITY INTEREST IN SUCH PROPERTY OR TO REALIZE VALUE ON SUCH PROPERTY. IN
FURTHERANCE OF THE FOREGOING, WHERE BOTH THE BANK AND THE SUBORDINATED LENDER
HOLD A SECURITY INTEREST IN THE SAME COLLATERAL, THEN REGARDLESS OF THE ORDER OF
FILING FINANCING STATEMENTS UNDER THE UNIFORM COMMERCIAL CODE, OR THE TAKING OF
POSSESSION OF COLLATERAL AND REGARDLESS OF ANY OTHER PROVISION OF LAW, THE LIENS
OF THE BANK SHALL BE PRIOR LIENS, SENIOR TO THE LIENS OF THE SUBORDINATED
LENDER. IN THE EVENT OF THE DECLARATION OF A DEFAULT BY THE BANK AND AN EXERCISE
OF THEIR REMEDIES, THE BANK SHALL NOT HAVE ANY RESPONSIBILITY, FIDUCIARY OR
OTHERWISE, TO THE SUBORDINATED LENDERS TO REALIZE MAXIMUM VALUE ON THE
COLLATERAL.
10. IN ADDITION TO THE SUBORDINATED NOTE, THE
SUBORDINATED LENDER AND CERTAIN OF ITS AFFILIATES WHOSE SIGNATURES APPEAR BELOW,
HAVE, OR MAY IN THE FUTURE EXTEND CREDIT, HAVE OUTSTANDING TRADE PAYABLES, AND
PROVIDED OTHER FINANCIAL ACCOMMODATIONS (AS NOW OR HEREAFTER INCURRED, AMENDED,
INCREASED, EXTENDED, SUPPLEMENTED OR MODIFIED, "ADDITIONAL INDEBTEDNESS") TO THE
BORROWER AND HAVE TAKEN SECURITY INTERESTS IN SOME OR ALL OF THE BORROWER'S
ASSETS. WITH RESPECT TO THE LIENS SECURING SUCH ADDITIONAL INDEBTEDNESS THE
SUBORDINATED LENDER AND SUCH AFFILIATES AGREE, NOTWITHSTANDING ANY AGREEMENT OR
ARRANGEMENT WHICH THEY MAY NOW HAVE WITH THE BORROWER, OR ANY RULE OF LAW, AND
NOTWITHSTANDING THE TIME, ORDER OR METHOD OF ATTACHMENT, PERFECTION, FILING OR
RECORDING, TO SUBORDINATE TO THE PRIOR LIEN OF THE BANK ANY LIEN, RIGHT, TITLE,
INTEREST AND CLAIMS WHICH THEY MAY NOW OR HEREINAFTER HAVE TO ANY OF THE ASSETS
OF THE BORROWER, WHETHER NOW OR HEREAFTER OWNED BY THE BORROWER, THE CASH AND
NON-CASH PROCEEDS THEREOF AND ANY RETURNED OR REPOSSESSED GOODS RELATING THERETO
(HEREIN COLLECTIVELY CALLED THE "COLLATERAL"). THE SUBORDINATED LENDER AGREES TO
TAKE SUCH ACTIONS AS REQUESTED BY THE BANK TO CAUSE THE BANK TO HAVE A FIRST
LIEN ON ALL THE ASSETS OF THE BORROWER. EACH OF THE SUBORDINATED LENDER AND SUCH
AFFILIATES AGREES THAT, SO LONG AS THE BORROWER MAY BE INDEBTED OR OBLIGATED TO
IT IN ANY MANNER WHATSOEVER, INCLUDING ANY OBLIGATIONS OR INDEBTEDNESS ARISING
FROM THE SALE OF ANY GOODS TO THE BORROWER, IT WILL NOT EXERCISE ANY RIGHTS,
ASSERT ANY CLAIM OR INTEREST, OR TAKE ANY ACTION OR
<PAGE>
INSTITUTE ANY PROCEEDING WITH RESPECT TO THE COLLATERAL WITHOUT PRIOR WRITTEN
NOTICE TO AND THE CONSENT OF THE BANK. EXCEPT AS PROVIDED HEREIN, NOTHING
CONTAINED IN THIS AGREEMENT SHALL PROHIBIT THE SUBORDINATED LENDER AND ITS
AFFILIATES FROM COLLECTING AND RETAINING VOLUNTARY PAYMENTS (PRIOR TO THEIR
EXERCISE OF ANY REMEDIES OR NOTIFICATION TO THE BORROWER OF THEIR INTENTION TO
EXERCISE SUCH REMEDIES) OF THE ADDITIONAL INDEBTEDNESS TO THEM OR ANY PAYMENT OR
DISTRIBUTION IN ANY BANKRUPTCY, INSOLVENCY, RECEIVERSHIP OR SIMILAR PROCEEDING
WITH RESPECT TO THE BORROWER OR ITS ASSETS. SUBJECT TO THE PAYMENT IN FULL OF
THE INDEBTEDNESS DUE TO THE BANK, THE SUBORDINATED LENDER AND ITS AFFILIATES
SHALL BE SUBROGATED TO THE BANK'S RIGHTS TO RECEIVE PAYMENTS OR DISTRIBUTIONS OF
ASSETS OF THE BORROWER APPLICABLE TO THE INDEBTEDNESS DUE TO THE BANK UNTIL THE
INDEBTEDNESS DUE TO THE BANK SHALL BE PAID IN FULL, AND, FOR THE PURPOSES OF
SUCH SUBROGATION, (A) NO PAYMENTS OR DISTRIBUTIONS TO THE BANK OF ANY CASH,
PROPERTIES OR SECURITIES TO WHICH THE SUBORDINATED LENDER AND ITS AFFILIATES
WOULD BE ENTITLED EXCEPT FOR THIS AGREEMENT AND NO PAYMENT BY THE SUBORDINATED
LENDER AND ITS AFFILIATES TO THE BANK OF ANY AMOUNT PURSUANT TO THIS AGREEMENT
SHALL AS BETWEEN THE BORROWER, ITS CREDITORS OTHER THAN THE BANK AND THE
SUBORDINATED LENDER AND ITS AFFILIATES, BE DEEMED TO BE A PAYMENT BY THE
BORROWER TO OR ON ACCOUNT OF THE INDEBTEDNESS DUE TO THE BANK AND (B) NO PAYMENT
OR DISTRIBUTION TO THE SUBORDINATED LENDER OR ITS AFFILIATES PURSUANT TO THIS
SUBROGATION PROVISION WHICH WOULD OTHERWISE HAVE BEEN PAID TO THE BANK SHALL BE
DEEMED TO BE A PAYMENT BY THE BORROWER TO THE SUBORDINATED LENDER AND ITS
AFFILIATES OR ON ACCOUNT OF THE INDEBTEDNESS DUE TO THE SUBORDINATED LENDER AND
ITS AFFILIATES. THIS SECTION 10 SUPERSEDES ALL PRIOR AGREEMENTS BETWEEN THE
SUBORDINATED LENDER AND ITS AFFILIATES OR ANY OF THEM WITH THE BANK WITH RESPECT
TO THE SUBJECT MATTER HEREOF.
11. NO AMENDMENT, MODIFICATION, TERMINATION, OR
WAIVER OF ANY PROVISION OF THIS SUBORDINATION AGREEMENT, NOR CONSENT TO ANY
DEPARTURE BY THE BORROWER FROM ANY PROVISION OF THIS SUBORDINATION AGREEMENT,
SHALL IN ANY EVENT BE EFFECTIVE UNLESS THE SAME SHALL BE IN WRITING AND SIGNED
BY THE BANK, AND THEN SUCH WAIVER SHALL BE EFFECTIVE ONLY IN THE SPECIFIC
INSTANCE AND FOR THE SPECIFIC PURPOSE FOR WHICH GIVEN.
12. NO FAILURE ON THE PART OF THE BANK TO
EXERCISE, NO DELAY IN EXERCISING ANY RIGHT, POWER, OR REMEDY HEREUNDER, OR ANY
SINGLE OR PARTIAL EXERCISE OF ANY RIGHT SHALL OPERATE AS A WAIVER THEREOF.
13. THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
<PAGE>
IN WITNESS WHEREOF, THE UNDERSIGNED, INTENDING THE
SAME TO TAKE EFFECT AS A SEALED INSTRUMENT, HAS EXECUTED THIS INSTRUMENT AS OF
THE 27TH DAY OF DECEMBER, 1995.
CHUGAI BOYEKI COMPANY LIMITED
BY:
NAME: KAZUYOHSI SUDO
TITLE: ATTORNEY-IN-FACT
THE UNDERSIGNED AFFILIATES OF THE SUBORDINATED LENDER HEREBY AGREE
TO BE BOUND BY THE PROVISIONS OF PARAGRAPH 10 HEREOF.
CHUGAI BOYEKI (AMERICA) CORP.
BY:
NAME: KAZUYOSHI SUDO
TITLE: TREASURER AND SECRETARY
THE UNDERSIGNED, DESIGNATED AS THE BORROWER IN THE ABOVE
SUBORDINATION AGREEMENT, HEREBY AGREES NOT TO MAKE ANY PAYMENTS OR TAKE ANY
OTHER ACTION CONTRARY TO THE PROVISIONS OF SAID AGREEMENT.
VICON INDUSTRIES, INC.
BY:
NAME: KENNETH M. DARBY
TITLE: PRESIDENT
ACKNOWLEDGED AND ACCEPTED:
IBJ SCHRODER BANK & TRUST COMPANY
BY:
NAME: KEVIN M. MADIGAN
TITLE: VICE PRESIDENT
<PAGE>
EXHIBIT B
FORM OF NOTICE OF REVOLVING CREDIT BORROWING
DATE:
IBJ SCHRODER BANK
& TRUST COMPANY
ONE STATE STREET
NEW YORK, NEW YORK 10004
ATTENTION: KEVIN M. MADIGAN
RE: VICON INDUSTRIES, INC.
GENTLEMEN:
THE UNDERSIGNED, VICON INDUSTRIES, INC. (THE "BORROWER"), REFERS TO
THE CREDIT AND SECURITY AGREEMENT DATED AS OF DECEMBER 27, 1995 BETWEEN THE
BORROWER AND IBJ SCHRODER BANK & TRUST COMPANY (THE "BANK"), (SAID AGREEMENT, AS
IT MAY BE AMENDED OR OTHERWISE MODIFIED FROM TIME TO TIME, BEING THE "CREDIT
AGREEMENT" AND CAPITALIZED TERMS USED HEREIN BUT NOT OTHERWISE DEFINED HEREIN
BEING DEFINED THEREIN), AND HEREBY GIVE YOU IRREVOCABLE NOTICE PURSUANT TO
SECTION 2.03(A) OF THE CREDIT AGREEMENT THAT THE BORROWER HEREBY REQUESTS A LOAN
UNDER THE CREDIT AGREEMENT, AND IN THAT CONNECTION SET FORTH BELOW THE
INFORMATION RELATING TO SUCH LOAN (THE "PROPOSED LOAN") AS REQUIRED BY SECTION
2.03(A) OF THE CREDIT AGREEMENT:
(I) THE REQUESTED BORROWING DATE OF THE
PROPOSED LOAN IS ____________.
(II) THE AGGREGATE AMOUNT OF THE PROPOSED LOAN
IS $ .
(III) AS OF THE DATE HEREOF, THE FORMULA AMOUNT
UNDER THE CREDIT AGREEMENT IS $ .
-------------
(IV) AS OF THE DATE HEREOF, THE AVAILABLE
COMMITMENT UNDER THE CREDIT AGREEMENT IS $
.
(IV) THE GENERAL PURPOSES FOR WHICH THE PROCEEDS OF THE
PROPOSED LOAN WILL BE USED ARE FOR CONTINUED WORKING
CAPITAL REQUIREMENTS OF THE BORROWER OR TO REFINANCE THE
EXISTING LOANS.
<PAGE>
THE BORROWER HEREBY CERTIFIES THAT THE FOLLOWING STATEMENTS ARE TRUE
ON THE DATE HEREOF, AND WILL BE TRUE ON THE DATE OF THE
PROPOSED LOAN, BEFORE AND AFTER GIVING EFFECT THERETO AND TO THE APPLICATION OF
THE PROCEEDS THEREFROM:
(A) ALL OF THE REPRESENTATIONS AND WARRANTIES CONTAINED
IN ARTICLE 4 OF THE CREDIT AGREEMENT AND IN EACH OF THE RELATED
DOCUMENTS AND THE INFORMATION SET FORTH IN THE SCHEDULES RELATED
THERETO ARE TRUE AND CORRECT AS OF THE DATE HEREOF (EXCEPT (I) TO
THE EXTENT THAT SUCH REPRESENTATIONS AND WARRANTIES RELATE TO AN
EARLIER DATE OR (II) AS ARE AFFECTED BY TRANSACTIONS SPECIFICALLY
CONTEMPLATED BY THE CREDIT AGREEMENT), WITH THE SAME EFFECT AS
THOUGH SUCH REPRESENTATIONS AND WARRANTIES HAD BEEN MADE ON AND AS
OF SUCH DATE;
(B) NO DEFAULT OR EVENT OF DEFAULT EXISTS AS
OF THE DATE HEREOF OR WILL RESULT FROM THE PROPOSED
LOAN; AND
(C) BORROWER IS IN COMPLIANCE WITH ALL OF THE TERMS AND
CONDITIONS OF THE CREDIT AGREEMENT, THE NOTE AND EACH
OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY.
VERY TRULY YOURS,
VICON INDUSTRIES, INC.
BY:
NAME:
TITLE:
EXHIBIT 10.2
THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED DECEMBER 27, 1995 EXECUTED BY CHUGAI BOYEKI COMPANY
LIMITED, CHUGAI BOYEKI (AMERICA) CORP. AND VICON INDUSTRIES, INC.
IN FAVOR OF IBJ SCHRODER BANK & TRUST COMPANY
SECURED PROMISSORY NOTE
$2,000,000 Melville, New York
As of October 5, 1993
FOR VALUE RECEIVED, VICON INDUSTRIES, INC., a New York corporation
(the "Maker") promises to pay to the order of CHUGAI BOYEKI COMPANY LIMITED, a
Japanese corporation (together with its successors and assigns, the "Payee"), on
July 1, 1998 at its office located at 2-15-13 Tsukishima, Chuoku, Tokyo, Japan,
or such other place as the Payee may specify, in lawful money of the United
States of America and in immediately available funds the principal amount of TWO
MILLION U.S. DOLLARS ($2,000,000) or, if less than such principal amount, the
aggregate unpaid principal balance then outstanding of the Note; without setoff
or counterclaim and free and clear of, and without deduction for or on account
of, any present or future stamp or other taxes, withholdings, restrictions or
conditions of any nature.
The Maker further promises to pay interest in like money on the
unpaid principal balance of this Note from time to time outstanding until paid
in full at a rate (computed on the basis of a 360 day year for actual days
elapsed) equal to one percent (1%) in excess of the rate of interest adopted by
Sanwa Bank from time to time as its "prime rate" for loans in U.S. Dollars to
U.S. borrowers, which rate is not intended to be the lowest rate of interest
charged by Sanwa Bank. Interest shall be payable quarterly on the first day of
each calendar quarter commencing the first of such days to occur after the date
hereof, upon prepayment hereof (to the extent accrued on the amount to be
prepaid) and upon payment in full of the unpaid principal balance hereof. The
records of the holder shall constitute prima facie evidence of amounts paid
hereunder and the unpaid principal hereof and accrued interest hereunder.
Whenever any date for payment shall fall on a day that is not a
business day in New York City and Tokyo, such payment shall be made on the next
succeeding business day.
Upon the occurrence of any of the following events (each, an "Event
of Default"):
(a) Failure of the Maker to make any payment of principal or
interest in respect of this Note when due, which shall remain unpaid for a
period of 3 days after notice thereof shall have been given by the Payee
to the
#20127399.1
<PAGE>
Maker; or failure of the Maker to make payment of any other sum arising
under any other obligation incurred under this Note when due, which shall
remain unpaid for a period of 5 days after notice thereof shall have been
given by the Payee to the Maker; or
(b) Failure by the Maker to perform any other term, condition or
covenant of this Note or any other agreement (including, without
limitation, the Security Agreement referred to below), instrument or
document delivered pursuant hereto or in connection herewith or therewith,
which shall remain unremedied for a period of 15 days after notice thereof
shall have been given by the Payee to the Maker; or
(c) (i) Failure of the Maker or any corporation of which the Maker,
alone, or the Maker and/or one or more of its Subsidiaries (as defined
below), owns, directly or indirectly, at least a majority of the
securities having ordinary voting power for the election of directors
(each, a "Subsidiary") to perform any term, condition or covenant of any
bond, note, debenture, loan agreement, indenture, guaranty, trust
agreement, mortgage or other instrument or agreement in connection with
the borrowing of money or the deferred purchase price of a fixed asset to
which the Maker or any Subsidiary is a party or by which it is bound, or
by which any of its properties or assets may be affected (each, a "Debt
Instrument"), so that, as a result of any such failure to perform
(regardless of the satisfaction of any requirement for the giving of
appropriate notice thereof or the lapse of time), such obligation for the
payment of borrowed money ("Indebtedness") included therein or secured or
covered thereby may be declared due and payable prior to the date on which
such Indebtedness would otherwise become due and payable; or
(ii) Any event or condition referred to in any Debt Instrument
shall occur or fail to occur, so that, as a result thereof (regardless of
the satisfaction of any requirement for the giving of appropriate notice
thereof or the lapse of time), the Indebtedness or the deferred purchase
price of a fixed asset included therein or secured or covered thereby may
be declared due and payable prior to the date on which such Indebtedness
would otherwise become due and payable; or
(iii) Any such Indebtedness included in any Debt
Instrument or secured or covered thereby is not paid when
due; or
(d) Any representation or warranty made in writing to the Payee in
the Security Agreement or in connection with this Note or in any
certificate, statement or report made in
#20127399.1
-2-
<PAGE>
compliance with this Note or the Security Agreement, shall have been false
in any material respect when made; or
(e) An order for relief under the Federal Bankruptcy Code as now or
hereafter in effect, shall be entered against the Maker or any Subsidiary;
or the Maker or any Subsidiary shall become insolvent, generally fail to
pay its debts as they become due, make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent or
bankrupt, petition or apply to any tribunal for the appointment of a
receiver or any trustee for it or a substantial part of its assets, or
shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment or debt, dissolution, or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect; or if
there shall have been filed any such petition or application, or any such
proceeding shall have been commenced against it, which remains undismissed
for a period of 30 days or more; or the Maker or any Subsidiary or
endorser or guarantor hereof by any act or omission shall indicate its
consent to approval of or acquiescence in any such petition, application
or proceeding or the appointment of a receiver of or any trustee for it or
any substantial part of any of its properties, or shall suffer any such
receivership or trusteeship to continue undischarged for a period of 30
days or more; or
(f) Any judgment against the Maker or any Subsidiary or any
attachment, levy or execution against any of its properties for any amount
shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 60 days or more; or
(g) Any action or proceeding affecting the Maker shall have been
commenced before any court, governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which may result
in the seizure or forfeiture of any of its property which would cause a
material adverse effect upon the operations, business, properties or
financial condition of the Maker or on the ability of the Maker to perform
its obligations hereunder; or
(h) The Security Agreement shall at any time after its execution and
delivery and for any reason cease: (A) to create a valid and perfected
security interest in and to the property purported to be subject to the
Security Agreement; or (B) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by the Maker or the Maker shall deny that it has any further
liability or obligation under the Security Agreement, or the Maker shall
fail to perform any of its obligations under the Security Agreement; or
#20127399.1
-3-
<PAGE>
(i) The Payee shall have determined, in its sole discretion, that
one or more conditions exist or events have occurred which may result in a
material adverse change in the business, properties or financial condition
of the Borrower;
then, in any such event, the Payee may, by notice of default to the Maker,
declare the principal amount then outstanding hereunder (with accrued interest
thereon) to be immediately due and payable; provided, however, that no such
notice shall be required upon the occurrence of any Event of Default described
in paragraph (e) hereof and upon the occurrence of such an Event of Default the
then outstanding principal amount hereunder shall automatically and, without
notice, become immediately due and payable.
After the stated or any accelerated maturity hereof, the aggregate
unpaid principal balance of this Note shall bear interest at a rate of two
percent (2%) per annum in excess of the rate in effect at such maturity;
provided, however, that no such post-maturity rate so payable hereunder shall be
in excess of the maximum permitted under any applicable law.
The Maker may prepay the full principal amount of this Note or any
portion hereof at any time upon three business days' prior notice to the Payee.
The obligations of the Maker under this Note are secured by a
Security Agreement of even date herewith between the Maker and the Payee (as the
same may be amended from time to time, the "Security Agreement") to which
Security Agreement reference is hereby made for a description of the nature and
extent of the security provided therein and the rights in respect of such
security of any holder of this Note.
The rights of the Payee under this Note are subject to a
Subordination Agreement (the "Subordination Agreement") dated as of December 27,
1995 among the Maker, the Payee, and IBJ Schroder Bank & Trust Company to which
Subordination Agreement reference is hereby made for a description of the nature
and extent of the subordination of the rights of any holder of this Note.
Except as expressly provided herein, notice, demand, presentment,
protest, notice of protest, dishonor, notice of dishonor or notice of any other
kind are hereby expressly waived by the Maker. The Maker further waives its
right to interpose any setoff or counterclaim of any nature or description in,
or to plead any statute of limitations as a defense to, any action commenced by
the Payee to enforce its rights hereunder.
No failure by the Payee or any assignee thereof to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single
#20127399.1
-4-
<PAGE>
or partial exercise by the Payee or such assignee of any right, remedy or power
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
The Maker agrees (i) to pay on demand all legal and other fees,
costs and expenses of the Payee incurred in connection with the collection of
this Note, the Security Agreement and any other instruments and documents to be
delivered hereunder and thereunder, (ii) to pay on demand all legal and other
fees, costs and expenses of the Payee incurred in connection with the
enforcement of this Note, the Security Agreement and any other instruments and
documents to be delivered hereunder and thereunder, and (iii) to pay, indemnify
and hold the Payee harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (including any
reasonable expense incurred by the Payee in employing legal counsel in
connection therewith) which may be imposed on, incurred by or asserted against
the Payee in any way relating to or arising out of, or any action taken or
omitted by the Payee under (including, but not limited to, the administration
and/or enforcement thereof), this Note, the Security Agreement or any other
instrument or document to be delivered hereunder or thereunder. The obligations
of the Maker pursuant to this paragraph shall survive the repayment by the Maker
of all or a portion of the principal amount of this Note and the payment by the
Maker of accrued interest thereon and all other amounts payable hereunder.
The Maker may not assign or otherwise transfer its obligations
hereunder. The Payee may assign, grant participations in or otherwise transfer
all or any portion of its rights hereunder, and any such assignee, participant
or transferee shall have all of the rights of the Payee hereunder to the extent
of the interest conveyed.
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
VICON INDUSTRIES, INC.
By______________________
Title:
By_______________________
Title:
#20127399.1
-5-
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1995, between KENNETH M. DARBY
(hereinafter called "Darby"), and VICON INDUSTRIES, INC., a New York
corporation, having its principal place of business at 525 Broad Hollow Road,
Melville, New York 11747 (hereinafter called the "Company").
WHEREAS, Darby has previously been employed by the Company, and
WHEREAS, the Company and Darby mutually desire to assure the
continuation of Darby's services to the Company,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties covenant and agree as follows:
1. Employment. The Company shall employ Darby as its Chief
Executive Officer and President throughout the term of this Agreement, and Darby
hereby accepts such employment.
2. Term. The term of this Agreement shall commence as of the date
of this Agreement and end on September 30, 2000.
3. Compensation.
A. The Company shall pay Darby a base salary
of $195,000 per annum, subject to adjustment as provided in subsection B.
B. Prior to September 15 of each succeeding year, Darby's base
salary shall be reviewed by the Compensation Committee of the Board of Directors
and shall be fixed for the year commencing October 1 of such year by agreement
between Darby and the Board of Directors, but in any event shall not be less
than the base salary for the one year period then ending.
C. Darby's base salary shall be payable monthly or bi-
weekly.
D. Darby shall also be entitled to participate in any pension,
profit sharing, life insurance, medical, dental, hospital, disability or other
benefit plans as may from time to time be available to officers of the Company.
<PAGE>
4. Extent and Places of Services; Vacation
A. Darby shall establish operating policy and direct, supervise
and oversee the operations of the Company. He shall advise and report to the
Board of Directors. Darby shall also assume and perform such additional
reasonable responsibilities and duties as the Board of Directors and he may from
time to time agree upon.
B. Darby shall devote his full time, attention, and energies
to the business of the Company.
C. Darby shall not be required to perform his services outside the
Melville, New York area or such other area on Long Island, New York as shall
contain the location of the Company's headquarters.
D. The Company shall provide Darby with office space,
secretary, telephones and other office facilities appropriate to his duties.
E. Darby shall be entitled to one month's vacation per
annum.
5. Covenant not to Compete. Darby agrees that during
the term of this Agreement and for a period of three years thereafter, he shall
not directly or indirectly within the United States or Europe engage in, or
enter the employment of or render any services to any other entity engaged in,
any business of a similar nature to or in competition with the Company's
business of designing, manufacturing, and selling security equipment and
protection devices within the United States or Europe. Darby further
acknowledges that the services to be rendered under this Agreement by him are
special, unique, and of extraordinary character and that a material breach by
him of this section will cause the Company to suffer irreparable damage; and
Darby agrees that in addition to any other remedy, this section shall be
enforceable by negative or affirmative preliminary or permanent injunction in
any Court of competent jurisdiction.
- 2 -
<PAGE>
6. Termination Payment on Change of Control.
A. Notwithstanding any provision of this Agreement, if a
"Change of Control" occurs without the prior written consent of the Board of
Directors, Darby, at his option, may elect to terminate his obligations under
this Agreement and to receive a termination payment, without reduction for any
offset or mitigation, in an amount equal to three times his average annual base
salary for five years preceding the Change of Control, in either lump sum or
extended payments over three years as Darby shall elect.
B. A "Change of Control" shall be deemed to have occurred if (i)
any other entity shall directly or indirectly acquire a beneficial ownership of
20%, or any further amount in excess of 20%, of the outstanding shares of
capital stock of the Company or (ii) a majority of the members of the Board of
Directors of the Company or any successor by merger or assignment of assets or
otherwise, shall be persons other than Directors on the date of this Agreement.
C. Darby's option to elect to terminate his obligations and to
receive a termination payment and to elect to receive a lump sum or extended
payments may be exercised only by written notice delivered to the Company within
90 days following the date on which Darby receives actual notice of Change of
Control.
D. If Darby elects to receive lump sum payment, such payment shall
be made within 30 days of the Company's receipt of Darby's notice of election.
7. Severance Payment on Certain Terminations.
A. If either (i) this Agreement expires, or (ii) the Company
terminates Darby's employment under this Agreement for reasons other than "Gross
Misconduct" or (iii) with the consent of the Board of Directors a Change of
Control as defined in paragraph 6 B. shall occur, or (iv) the Company executes a
"Company Sale Agreement" then Darby, at his option, may elect to receive a
severance payment, without reduction for any offset or mitigation, in an amount
equal to (a) one-twelfth his annual base salary at the time of such termination
- 3 -
<PAGE>
multiplied by (b) the number of full years of his employment to the end of this
Agreement by the Company up to a maximum of 24 years, payable in either lump sum
or extended payments as Darby shall elect.
B. "Company Sale Agreement" means an agreement to which the
Company is a party that contemplates that more than half of the assets of the
Company are transferred to another entity or that upon consummation of the
transactions contemplated by such agreement, a Change of Control as defined in
paragraph 6 shall occur or have occurred.
C. In the event of an election under paragraph 7, payment of such
severance payment shall be in lieu of any obligation of the Company for
termination payment or other post-termination compensation under this Agreement,
if any.
D. "Gross Misconduct" shall mean (a) a wilful, substantial and
unjustifiable refusal to perform substantially the services required by this
Agreement to be performed; (b) fraud, misappropriation or embezzlement involving
the Company or its assets; or (c) conviction of a felony involving moral
turpitude.
E. Darby's option to elect to receive a severance payment and to
elect to receive lump sum or extended payments may be exercised only by written
notice delivered to the Company within 90 days following the date on which this
Agreement expires or on which Darby receives actual notice of the existence of
any other condition referred to in paragraph 7A, except that, in the case of the
Company's execution of a Company Sale Agreement, Darby's option may be exercised
at any time prior to the closing under such agreement and such termination shall
be effective as of such closing.
F. If Darby elects to receive lump sum payment, such payment
shall be made within 30 days of the Company's receipt of Darby's notice of such
election, except that, in the case of the Company's execution of a Company Sale
Agreement, the payment shall be made no later than the time of closing under
such agreement.
- 4 -
<PAGE>
G. Payment of termination or severance payment shall not affect
the Company's obligations under any other agreement with Darby.
8. Death or Disability. The Company may terminate this Agreement
if during the term of this Agreement (a) Darby dies or (b) Darby becomes so
disabled for a period of six months that he is substantially unable to perform
his duties under this Agreement for such period. Such a termination shall not
release the Company from any liability to Darby for compensation earned, or for
termination or severance payment elected, prior to such termination; nor shall
it be deemed a termination of employment for Gross Misconduct.
9. Arbitration. Any controversy or claim arising out of, or relating
to this Agreement, or the breach thereof, shall be settled by arbitration in the
City of New York in accordance with the rules of the American Arbitration then
in effect, and judgement upon the award rendered be entered and enforced in any
court having jurisdiction thereof.
10. Miscellaneous.
A. Except for any deferred compensation agreement, retirement plan or
stock options previously granted, this Agreement contains the entire agreement
between the parties and supersedes all prior agreements by the parties relating
to the term of Darby's employment by the Company, however, it does not restrict
or limit such other benefits as the Board of Directors may determine to provide
or make available to Darby.
B. This agreement may not be waived, changed, modified or discharged
orally, but only by agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification, or discharge is sought.
C. This Agreement shall be governed by the laws of New York
applicable to contracts between New York residents and made and to be entirely
performed in New York.
D. If any part of this Agreement is held to be unenforceable by any
court of competent jurisdiction, the remaining provisions of this Agreement
shall continue in full force and effect.
- 5 -
<PAGE>
E. This Agreement shall inure to the benefit of, and be binding
upon, the Company, its successor, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
VICON INDUSTRIES, INC.
By
Kenneth M. Darby Peter F. Neumann
Chairman
Compensation Committee
- 6 -
EXHIBIT 10.5
Mr. Arthur D. Roche
Vicon Industries, Inc.
525 Broad Hollow Road
Melville, NY 11747
October 1, 1995
Dear Arthur:
After the recent discussions between you and the Compensation Committee, it
is mutually agreed that you will be employed by the Company as its Executive
Vice President for a period of no less than two years at an annual salary of
$150,000. plus benefits as previously outlined in the minutes of the Board of
Directors. This agreement will be reviewed by the Compensation Committee of the
Board of Directors at the end of one year, and can be extended for an additional
year at that time.
Should a change of control of the Company occur, you may elect to terminate
your employment and receive a lump sum severance payment. Such severance payment
shall mean the amount that is equal to two times your annual salary reduced by
the salary amounts paid to you from the date of this agreement.
A "Change of Control" shall be deemed to have occurred at such time as (i)
any other entity or "person" (as defined in sections 13 (d) and 14 (d) of the
Securities Exchange Act of 1934) shall become directly or indirectly a
beneficial owner (as defined in Rule 13D-3 under such Act) of securities of the
Company representing 20% or more (or in the case of Chugai Boyeki Co., Ltd., and
its affiliates, 35% more) of the outstanding shares of capital stock of the
Company or (ii) a majority of the members of the Board of Directors of the
Company or any successor by merger or assignment of assets or otherwise, shall
be persons other
<PAGE>
Mr. Arthur D. Roche
Page 2
than members of the Board of Directors of the Company on the date of this
agreement or (iii) the Company executes a "Company Sale Agreement".
"Company Sale Agreement" means an agreement to which the Company is a party
that contemplates that more than half of the assets of the Company are
transferred to another entity or that upon consummation of the transaction
contemplated by such agreement, a Change of Control as defined in clauses (i) or
(ii) of the preceding paragraph shall occur or have occurred.
If you elect to receive lump sum payment, such payment shall be made within
30 days of the Company's receipt of your notice of such election, except that,
in the case of the Company's execution of a Company Sale Agreement, the payment
shall be made no later than the time of closing under such agreement.
I trust this is your understanding of our discussions, and, if so, please
sign where indicated.
Cordially,
Arthur D. Roche Peter F. Neumann
Executive Vice President Chairman, Compensation Committee
PFN/jlw
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 1, 1995, between PETER HORN (hereinafter
called "Horn") and VICON INDUSTRIES, INC., a New York corporation, having its
principal place of business at 525 Broad Hollow Road, Melville, New York 11747
(hereinafter called the "Company").
WHEREAS, Horn has previously been employed by the Company, and WHEREAS,
the Company and Horn mutually desire to assure the
continuation of Horn's services to the Company,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties covenant and agree as follows:
1. Employment. The Company shall employ Horn as its Vice
President of Quality Assurance and Compliance throughout the term of this
Agreement, and Horn hereby accepts such employment.
2. Term. The term of this Agreement shall commence as of the date
of this Agreement and end on September 30, 1997.
3. Compensation.
A. The Company shall pay Horn a base salary of $100,000 per annum,
subject to periodic adjustment as determined by the President of the Company
with Board of Directors approval, but in any event shall not be less than the
base salary so indicated. Beginning October 1, 1996 to the end of this
agreement, the base salary shall be adjusted upward by an amount at least equal
to the Consumer Price Index - All Urban Consumers factor for the previous twelve
months.
B. Horn's base salary shall be payable monthly or bi-weekly.
C. Horn shall also be entitled to participate in any
pension, profit sharing, life insurance, medical, dental, hospital, disability
or other benefit plans as may from time to time be available to officers of the
Company, subject to the general eligibility requirements of such plans.
4. Covenant not to Compete. Horn agrees that during the term of this
Agreement and for a period thereafter equal to the length of severance as
calculated in paragraph 5A, he shall not directly or indirectly within the
United States or Europe engage in, or enter the employment of or render any
services to any other entity engaged in, any business of a similar nature to or
in
<PAGE>
competition with the Company's business of designing, manufacturing, and selling
security equipment and protection devices anywhere in the United States and
Europe. Horn further acknowledges that the services to be rendered under this
Agreement by him are special, unique, and of extraordinary character and that a
material breach by him of this section will cause the Company to suffer
irreparable damage; and Horn agrees that in addition to any other remedy, this
section shall be enforceable by negative or affirmative preliminary or permanent
injunction in any Court of competent jurisdiction. Horn acknowledges that he may
only be released from this covenant if the Company materially breech's this
agreement or provides to Horn a written release of this provision.
5. Severance Payment on Certain Terminations.
A. If either this Agreement expires, or the Company terminates
Horn's employment under this Agreement for reasons other than "Gross
Misconduct", then Horn, at his option, may elect to receive severance payments,
without reduction for any offset or mitigation, in an amount equal to (a)
one-twelfth Horn's annual base
salary at the time of such termination multiplied by (b) the number of full
years of Horn's employment by the Company up to a maximum of 24 years.
B. "Gross Misconduct" shall mean (a) a wilful, substantial and
unjustifiable refusal to perform substantially the duties and services required
of his position; (b) fraud, misappropriation or embezzlement involving the
Company or its assets; or (c) conviction of a felony involving moral turpitude.
Horn's option to elect to receive severance payments may be exercised
only by written notice delivered to the Company within 90 days following the
date on which Horn's receives actual notice of termination or this Agreement
expires, as the case may be.
In the event of an election under this section, payment of such
severance shall be in lieu of any other obligation of the Company for severance
payment or other post-termination compensation under this Agreement if any.
The severance amount shall be paid in equal monthly payments over a 12
month period.
- 2 -
<PAGE>
6. Termination Payment on Change of Control.
A. Notwithstanding any other provision of this
Agreement, if a "Change of Control" occurs without the prior written consent of
the Board of Directors, Horn, at his option, may elect to terminate his
obligations under this Agreement and to receive a termination payment, without
reduction for any offset or mitigation, in an amount equal to three times his
average annual base salary for five years preceding the Change of Control, in
either lump sum or extended payments over three years as Horn shall elect.
B. A "Change of Control" shall be deemed to have occurred if (i) any
other entity shall directly or indirectly acquire beneficial ownership of 20%,
or any further amount in excess of 20%, of the outstanding shares of capital
stock of the Company or (ii) a majority of the members of the Board of Directors
of the Company or any successor by merger or assignment of assets or otherwise,
shall be persons other than Directors on the date of this Agreement.
C. Horn's option to elect to terminate his obligations and to receive a
termination payment and to elect to receive a lump sum or extended payments may
be exercised only by written notice delivered to the Company within 90 days
following the date on which Horn receives actual notice of Change of Control.
7. Death or Disability. The Company may terminate this Agreement if during
the term of this Agreement (a) Horn dies or (b) Horn becomes so disabled for a
period of six months that he is substantially unable to perform his duties under
this Agreement for such period.
8. Arbitration. Any controversy or claim arising out of, or relating
to this Agreement, or the breach thereof, shall be settled by arbitration in the
City of New York in accordance with the rules
of the American Arbitration then in effect, and judgement upon the award
rendered be entered and enforced in any court having jurisdiction thereof.
9. Miscellaneous.
A. Except for stock options previously granted, this Agreement
contains the entire agreement between the parties and supersedes all prior
- 3 -
<PAGE>
agreements by the parties relating to payments by the Company upon involuntary
employment termination with or without cause, however, it does not restrict or
limit such other benefits as the President or Board of Directors may determine
to provide or make available to Horn.
B. This agreement may not be waived, changed, modified or discharged
orally, but only by agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification, or discharge is sought.
C. This Agreement shall be governed by the laws of New York applicable
to contracts between New York residents and made and to be entirely performed in
New York.
D. If any part of this Agreement is held to be unenforceable by
any court of competent jurisdiction, the remaining provisions of this Agreement
shall continue in full force and effect.
E. This Agreement shall inure to the benefit of, and be binding
upon, the Company, its successor, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
VICON INDUSTRIES, INC.
By
Peter Horn Kenneth M. Darby
Vice President - Compliance President
and Quality Assurance Vicon Industries, Inc.
- 4 -
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 1, 1995, between YACOV PSHTISSKY
(hereinafter called "Pshtissky") and VICON INDUSTRIES, INC., a New York
corporation, having its principal place of business at 525 Broad Hollow Road,
Melville, New York 11747 (hereinafter called the "Company").
WHEREAS, Pshtissky has previously been employed by the Company, and
WHEREAS, the Company and Pshtissky mutually desire to assure the
continuation of Pshtissky's services to the Company,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties covenant and agree as follows:
1. Employment. The Company shall employ Pshtissky as its Vice
President of Technology and Development throughout the term of this Agreement,
and Pshtissky hereby accepts such employment.
2. Term. The term of this Agreement shall commence as of the date
of this Agreement and end on September 30, 1997.
3. Compensation.
A. The Company shall pay Pshtissky a base salary of $100,000 per
annum, subject to periodic adjustment as determined by the President of the
Company with Board of Directors approval, but in any event shall not be less
than the base salary so indicated. Beginning October 1, 1996 to the end of this
agreement, the base salary shall be adjusted upward by an amount at least equal
to the Consumer Price Index - All Urban Consumers factor for the previous twelve
months.
B. Pshtissky's base salary shall be payable monthly or bi-
weekly.
C. Pshtissky shall also be entitled to participate in any pension,
profit sharing, life insurance, medical, dental, hospital, disability or other
benefit plans as may from time to time be available to officers of the Company,
subject to the general eligibility requirements of such plans.
4. Covenant not to Compete. Pshtissky agrees that during the term of
this Agreement and for a period thereafter equal to the length of severance as
calculated in paragraph 5A, he shall not directly or indirectly within the
United States or Europe, or enter the employment of or render any services to
any
<PAGE>
other entity engaged in, any business of a similar nature to or in competition
with the Company's business of designing, manufacturing, and selling security
equipment and protection devices in the United States and Europe. Pshtissky
further acknowledges that the services to be rendered under this Agreement by
him are special, unique, and of extraordinary character and that a material
breach by him of this section will cause the Company to suffer irreparable
damage; and Pshtissky agrees that in addition to any other remedy, this section
shall be enforceable by negative or affirmative preliminary or permanent
injunction in any Court of competent jurisdiction. Pshtissky acknowledges that
he may only be released from this covenant if the Company materially breech's
this agreement to Pshtissky or provides a written release of this provision.
5. Severance Payment on Certain Terminations.
A. If either this Agreement expires, or the Company terminates
Pshtissky's employment under this Agreement for reasons other than "Gross
Misconduct", then Pshtissky, at his option, may elect to receive severance
payments, without reduction for any offset or mitigation, in an amount equal to
(a) one-twelfth Pshtissky's annual base salary at the time of such termination
multiplied by (b) the number of full years of Pshtissky's employment by the
Company up to a maximum of 24 years.
B. "Gross Misconduct" shall mean (a) a wilful, substantial and
unjustifiable refusal to perform substantially the duties and services required
of his position; (b) fraud, misappropriation or embezzlement involving the
Company or its assets; or (c) conviction of a felony involving moral turpitude.
Pshtissky's option to elect to receive a severance payment may be
exercised only by written notice delivered to the Company within 90 days
following the date on which Pshtissky receives actual notice of termination or
this Agreement expires, as the case may be.
In the event of an election under this section, payment of such
severance shall be in lieu of any other obligation of the Company for severance
payment or other post-termination compensation under this Agreement if any.
- 2 -
<PAGE>
The severance amount shall be paid in equal monthly payments over a 12
month period.
6. Termination Payment on Change of Control.
A. Notwithstanding any other provision of this Agreement, if a "Change
of Control" occurs without the prior written consent of the Board of Directors,
Pshtissky, at his option, may elect to terminate his obligations under this
Agreement and to receive a termination payment, without reduction for any offset
or mitigation, in an amount equal to three times his average annual base salary
for five years preceding the Change of Control, in either lump sum or extended
payments over three years as Pshtissky shall elect.
B. A "Change of Control" shall be deemed to have occurred if (i) any
other entity shall directly or indirectly acquire beneficial ownership of 20%,
or any further amount in excess of 20%, of the outstanding shares of capital
stock of the Company or (ii) a majority of the members of the Board of Directors
of the Company or any successor by merger or assignment of assets or otherwise,
shall be persons other than Directors on the date of this Agreement.
C. Pshtissky's option to elect to terminate his obligations and to
receive a termination payment and to elect to receive a lump sum or extended
payments may be exercised only by written notice delivered to the Company within
90 days following the date on which Pshtissky receives actual notice of Change
of Control.
7. Death or Disability. The Company may terminate this Agreement if during
the term of this Agreement (a) Pshtissky dies or (b) Pshtissky becomes so
disabled for a period of six months that he is substantially unable to perform
his duties under this Agreement for such period.
8. Arbitration. Any controversy or claim arising out of, or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in the
City of New York in accordance with the rules of the American Arbitration then
in effect, and judgement upon the award rendered be entered and enforced in any
court having jurisdiction thereof.
9. Miscellaneous.
A. Except for stock options previously granted, this Agreement
contains the entire agreement between the parties and supersedes all prior
- 3 -
<PAGE>
agreements by the parties relating to payments by the Company upon involuntary
employment termination with or without cause, however, it does not restrict or
limit such other benefits as the President or Board of Directors may determine
to provide or make available to Pshtissky.
B. This agreement may not be waived, changed, modified or discharged
orally, but only by agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification, or discharge is sought.
C. This Agreement shall be governed by the laws of New York applicable
to contracts between New York residents and made and to be entirely performed in
New York.
D. If any part of this Agreement is held to be unenforceable by any
court of competent jurisdiction, the remaining provisions of this Agreement
shall continue in full force and effect.
E. This Agreement shall inure to the benefit of, and be binding
upon, the Company, its successor, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
VICON INDUSTRIES, INC.
By
Yacov Pshtissky Kenneth M. Darby
Vice President - Technology President
and Development Vicon Industries, Inc.
- 4 -
EXHIBIT 10.12
SUBLEASE, MADE AS OF SEPTEMBER 1, 1995
BETWEEN VICON INDUSTRIES, INC., AS SUBLESSOR,
AND NEW YORK BLOOD CENTER, INC., AS SUBLESSEE
007326/13000/180.6
<PAGE>
TABLE OF CONTENTS
Page
1. Demise of Subleased Premises; Term; etc........................ 1
2. Cafeteria...................................................... 2
3. Rent; Rent-Concession; etc..................................... 2
4. Real Estate Tax and Utility Cost Escalations................... 4
5. [Intentionally Omitted]........................................ 6
6. Use of Subleased Premises/Parking.............................. 6
7. Services Provided By Sublessor................................. 7
8. Subordination to Overlease, etc................................ 8
9. Sublessor's Rights, etc........................................ 9
10. One Time Renewal Option........................................ 9
11. [Intentionally Omitted]........................................ 10
12. Broker......................................................... 10
13. [Intentionally Omitted]........................................ 10
14. Indemnification................................................ 10
15. Insurance...................................................... 11
16. Casualty....................................................... 11
17. Condemnation................................................... 12
18. Notice, etc.................................................... 12
19. Attornment With Respect to Overlease........................... 13
20. Quiet Enjoyment................................................ 14
007326/13000/180.6
<PAGE>
Page
21. Assignment and Subletting...................................... 14
22. [Intentionally Omitted]........................................ 16
23. Additional Covenants Required by Overlease..................... 16
24. Signs.......................................................... 17
25. Alterations.................................................... 17
26. [Intentionally Omitted]........................................ 18
27. Care of the Premises........................................... 18
28. Environmental Hazards.......................................... 19
29. Miscellaneous.................................................. 19
30. Early Termination.............................................. 21
31. [Intentionally omitted]........................................ 22
32. The Americans With Disabilities Act............................ 22
33. Counterparts......................................................... 23
EXHIBIT A Diagram of Subleased Premises............................ 24
EXHIBIT B Diagram of Corridor to Cafeteria......................... 25
EXHIBIT C Overlease (Including Amendments)......................... 26
EXHIBIT D Driveway Construction by Sublessee....................... 27
007326/13000/180.6
<PAGE>
SUBLEASE, MADE AS OF SEPTEMBER 1, 1995
BETWEEN VICON INDUSTRIES, INC., AS SUBLESSOR,
AND NEW YORK BLOOD CENTER, INC., AS SUBLESSEE
SUBLEASE, made as of September 1, 1995, by and between Vicon
Industries, Inc. ("Sublessor"), a New York corporation with offices at 525 Broad
Hollow Road, Melville, New York 11747, and New York Blood Center, Inc.
("Sublessee"), a New York not-for-profit corporation with offices at 310 East
67th Street, New York, New York 10021.
WITNESSETH:
WHEREAS, Sublessor is the tenant under an agreement of lease, dated
January 19, 1988, between Allan V. Rose and Suffolk County Industrial
Development Agency, as landlord, the landlord's interest in which is now held by
Allan V. Rose (hereinafter referred to as "Landlord"), and Sublessor as tenant,
for the land and building known as 525 Broad Hollow Road, Melville, New York
11747 (collectively the "Premises") and amendments dated as of July 18, 1990,
July 18, 1990 (letter agreement) and January 1, 1993 (the "Overlease"); and
WHEREAS, Sublessor desires to sublease a portion of the Premises to
Sublessee; and
WHEREAS, Sublessee desires to sublease a portion of the Premises from
Sublessor;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. Demise of Subleased Premises; Term; etc.
Sublessor hereby sublets to Sublessee and Sublessee subleases from
Sublessor that portion of the Premises (hereinafter referred to as the
"Subleased Premises") consisting of approximately 28,239.4 square feet in the
building (the "Building") known as 525 Broad Hollow Road, Melville, New York, as
shown on the diagrams annexed hereto as Exhibit A, for a term of 1 year and 6
months, which term shall commence on September 1, 1995 (the "Commencement Date")
and terminate on February 28, 1997 (subject to Sublessee's one-time option to
extend set forth in Par. 10). In addition, to the extent that Sublessee has
previously installed or is permitted to install HVAC or other equipment or
facilities that service the Subleased Premises, but are located outside of the
Subleased Premises, Sublessee shall also , during the term of this Sublease,
have the right to maintain such equipment or facilities and shall have a right
of access over and through the Premises outside of the Subleased Premises
1
<PAGE>
to the extent reasonably required for the maintenance, servicing and repair of
such equipment or facilities.
Sublessee shall, upon Sublessor's request, give Sublessor a letter
acknowledging that Sublessee has accepted possession of the Subleased Premises.
2. Cafeteria.
(a) So long as Sublessee is not in default under this Lease,
it may utilize the cafeteria maintained by Sublessor at the Premises, as a
lunch area for Sublessee's employees employed at the Subleased Premises,
in common with the employees of the Sublessor and of any other subtenant,
subject to such reasonable restrictions as Sublessor may impose. If
Sublessor shall discontinue maintenance of a cafeteria at the Premises,
all rights and obligations of Sublessor and Sublessee under this
subparagraph shall terminate as of the date of such discontinuance.
(b) Sublessee has constructed a corridor (the "Corridor")
within the Building, connecting the Subleased Premises to the cafeteria,
in the location shown on Exhibit B annexed hereto. The Corridor is not
included in the Subleased Premises and may be used both by Sublessee's
employees and by Sublessor's employees and invitees, subject to
Sublessor's right to inspect and show as provided herein (through
incorporation of the Overlease). Sublessee shall be responsible for
maintaining the Corridor in good repair and condition and in compliance
with all laws, orders, and regulations of all governmental bodies.
3. Rent; Rent-Concession; etc.
(a) Sublessee shall pay to Sublessor the base rent as
hereinafter provided. Commencing September 1, 1995 and ending February 28,
1997 the annual base rent for the Subleased Premises shall be $416,531.15
per annum ($34,710.93 per month), subject to adjustment as hereinafter
provided. Such base rent was computed by multiplying the Leasable Area
(hereinafter defined) by $14.75 per square foot. The "Leasable Area" means
the gross square footage of the Subleased Premises measured to a point
halfway through each of the perimeter walls of the Subleased Premises.
Sublessee may, on or before September 1, 1995, at Sublessee's expense,
review Sublessor's measurements of the Subleased Premises and, if
Sublessor's determination that the Leasable Area is 28,239.4 square feet
is wrong, the base rent shall be appropriately adjusted. In the event
Sublessee fails to object to Sublessor's measurements by September 1,
1995, Sublessor's measurements shall be deemed binding.
(b) Such base rent shall be paid in equal monthly installments
on the first day of each month during the term of this Lease, in legal
tender of the United States at the office of Sublessor at the Premises,
without any setoff, abatement, or
007326/13000/180.6
2
<PAGE>
deduction whatsoever (except as set forth in Paragraphs 16 and 17 hereof);
provided that the foregoing shall not be deemed a waiver by Sublessee of
any claim against Sublessor based on Sublessor's breach of this Sublease,
which claim(s) may be asserted by Sublessee in any separate action or
proceeding. Sublessee shall pay the first month's base rent upon the
Commencement Date of this Sublease.
(c) [Intentionally omitted]
(d) If Sublessee shall fail to pay (by delivery to and receipt
by Sublessor of a good check for the requisite amount) all or any part of
any installment of rent or additional rent for more than ten days after
the same shall have become due and payable hereunder, Sublessee shall pay
as additional rent hereunder to Sublessor (1) a one-time late charge with
respect to such default equal to four cents for each dollar of the amount
of such rent and additional rent which shall not have been paid to
Sublessor within such ten days and (ii) in the event such default shall
continue for a period in excess of one month, then, in addition to such
late charge, interest on such overdue amount at the prime rate, currently
denominated as the "base rate", of Citibank, N.A. in New York, New York
from that date one month after the due date thereof until the date
Sublessor is paid in full. If Sublessee pays any rent or other charge with
a check that is, for any reason, refused for payment by the bank on which
it is drawn, Sublessee shall pay Sublessor a $50 service charge. The late
charge, interest, and service charge described above shall be payable (A)
within 10 days after demand and (B) without prejudice to any of
Sublessor's rights and remedies hereunder, at law or in equity, for
nonpayment of rent or other sums, but shall be in addition to any such
rights and remedies. No failure by Sublessor to insist upon the strict
performance by Sublessee of Sublessee's obligations to pay late charges,
interest, and service charges as provided in this subparagraph shall
constitute a waiver by Sublessor of its right to enforce the provisions of
this subparagraph in any such instance or in any instance thereafter
occurring.
(e) Any costs or expenses incurred by Sublessor to cure any
default by Sublessee under this Lease which was not cured within the
applicable cure period (except that in an emergency Sublessor shall not be
required to wait for the expiration of the cure period), excluding
attorneys' fees, shall be paid by Sublessee to Sublessor within 10 days
after Sublessor makes demand therefor and shall be treated in all respects
as rent. Any default by Sublessee in the payment of such damages, costs or
expenses shall be treated as a default in the payment of rent, and
Sublessor shall have the same remedies with respect thereto as it has with
respect to any default in payment of rent.
(f) Sublessee's obligations to make payments of additional
rent allocable to the term of this Sublease which are billed after the
expiration of the term of this Sublease, shall survive the expiration or
sooner termination of this Sublease.
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4. Real Estate Tax and Utility Cost Escalations.
(a) For the purposes of this Sublease the following terms
shall have the following meanings:
(i) "Real Estate Taxes" shall mean all "Impositions" (as
defined in section 4.1(A) of the Overlease).
(ii) "Tax Year" shall mean each 12-month fiscal period
commencing December 1 and ending November 30, any portion of which
occurs during the term of this Sublease.
(iii) "Base Tax Year" shall mean the Tax Year
commencing December 1, 1994 and expiring November 30, 1995.
(iv) "Subsequent Year" shall mean (A) with respect to
Real Estate Taxes, each Tax Year (or any portion thereof) commencing
within the term of this Lease which shall be subsequent to the Base
Tax Year; and (B) with respect to Utility Cost (hereinafter
defined), the 1995 calendar year and each subsequent calendar year
which commences during the term of this Sublease.
(v) "Sublessee's Proportionate Share" shall mean
26.148%, the percentage obtained by dividing the Leasable Area by
108,000 (the Leasable Area of the Building). Sublessee may, on or
before September 1, 1995, at Sublessee's expense, review such
measurements and give Sublessor notice of any discrepancy between
Sublessor's and Sublessee's measurements.
(vi) "Utility Cost" shall mean Sublessor's cost for all
fuel (including, but not limited to, oil, gas, steam and coal but
excluding electricity) delivered to the Building.
(vii) "Base Utility Cost" shall mean Sublessor's
Utility Cost for the 1995 calendar year.
(b) If in any Subsequent Year, Real Estate Taxes payable
during such Subsequent Year shall be greater than Real Estate Taxes
payable during the Base Tax Year for any reason whatsoever (including but
not limited to increases in the tax rates and/or the assessed valuation of
the Building, and increases in assessed valuation by reason of
improvements made to the Premises or any part thereof), foreseen or
unforeseen, then Sublessee shall pay Sublessor as additional rent, an
amount (hereinafter called "Sublessee's Tax Payment") equal to Sublessee's
Proportionate Share of such increase. Such additional rent shall be paid
by Sublessee notwithstanding the fact that Sublessee may be exempt, in
whole or in part, from the
007326/13000/180.6
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<PAGE>
payment of any Real Estate Taxes by reason of Sublessee's diplomatic
charitable, or otherwise tax exempt status, or for any other reason
whatsoever. Sublessor shall furnish Sublessee with a statement setting
forth the amount of Real Estate Taxes and Sublessee's Tax Payment payable
for such Subsequent Year, and Sublessee shall pay Sublessee's Tax Payment
in one lump sum within fifteen (15) days of the furnishing of such
statement, but shall not in any event be required to pay Sublessee's Tax
Payment more than five (5) days before the commencement of the Tax Year.
(c) If the Utility Cost payable for any Subsequent Year (any
part or all of which falls within the term of this Sublease) shall
represent an increase above the Base Utility Cost, then Sublessee shall
pay Sublessor as additional rent for such Subsequent Year Sublessee's
Proportionate Share of such increase in one lump sum within 15 days after
Sublessor furnishes to Sublessee a statement of the amount due.
(d) (i) Any statement sent to Sublessee with respect to Real
Estate Taxes shall be binding upon Sublessee unless, within thirty (30)
days after such statement is sent, Sublessee shall send a written notice
to Sublessor objecting to such statement and specifying the respects in
which such statement is claimed to be incorrect. Any statement sent to
Sublessee with respect to Utility Cost shall be binding upon Sublessee
unless, within 30 days after such statement is sent, Sublessee shall
request copies of the fuel bills supporting the Utility Cost computation
(to the extent not previously furnished) and unless, within 30 days after
delivery of copies of such bills, Sublessee shall send written notice to
Sublessor objecting to such statement and specifying the respects in which
such statement is claimed to be incorrect. Pending the determination of
any such dispute Sublessee shall pay all additional rent shown on such
statement, and such payment and acceptance shall be without prejudice to
Sublessee's position.
(ii) Real Estate Tax and Utility Cost escalations shall
be appropriately prorated for any partial Subsequent Year. Any
additional rent due under this Paragraph 4 shall be collectible by
Sublessor in the same manner as the base rent, and Sublessor shall
have all rights with respect thereto as it has with respect to the
base rent.
(iii) If, after Sublessee shall have paid
Sublessee's Proportionate Share of any increase in Real Estate Taxes
with respect to any Subsequent Year, Sublessor shall receive a
refund of any portion of the Real Estate Taxes paid with respect to
such Subsequent Year as a result of a reduction in such Real Estate
Taxes by final determination of legal proceedings, settlement or
otherwise, Sublessor shall promptly, after receiving such refund,
pay Sublessee its Proportionate Share of such refund after deducting
from such refund the expenses (including but not limited to
attorneys' fees, expert's fees and disbursements) incurred by
Sublessor in
007326/13000/180.6
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<PAGE>
connection with any application or proceeding to reduce the assessed
valuation of the Premises for such Subsequent Year.
(e) Notwithstanding the foregoing or any other provision of
this Sublease, Sublessor specifically waives its right to collect the Real
Estate Tax escalation for the tax year commencing December 1, 1994 and
ending November 30, 1995 and to collect the Utility Cost escalation for
the 1995 calendar year. The parties confirm that Sublessee's Proportional
Share is 26.148%.
5. [Intentionally Omitted]
6. Use of Subleased Premises/Parking.
(a) Sublessee shall use and occupy the Subleased Premises for
(i) office use and (ii) incidental to such office use, for storage of
supplies (but not for storage of blood or blood products or medical waste
except as hereinafter specifically provided) and for telephone
solicitations and (iii) to collect blood from donors provided that no more
than 13.5% of the Leasable Area shall be used for blood collection; and
for no other purpose. Without limiting the foregoing, except as provided
below, Sublessee agrees that it shall not use the Subleased Premises as a
laboratory to process blood or blood products or to store blood or blood
products or medical waste (hereinafter defined) or for any pornographic
purposes or any sort of commercial sex establishment.
(b) Notwithstanding the provisions of Par. 6(a) or any other
provision of this Sublease, Sublessee shall have the right to use an area
of 3,964 square feet, as identified on Exhibit A (the "Option Area"), for:
(i) the purposes described in subpar. (a) above and (ii) in addition, as a
laboratory to process blood or blood products or to store blood or blood
products and, further, as a "stat" lab for emergency testing of blood, it
being agreed that the uses listed in this clause (ii) may not be operated
in any portion of the Subleased Premises outside of the Option Area.
(c) Sublessor shall assign 155 parking spaces in the parking
lot around the Building for Sublessee's use, and Sublessee shall clearly
mark such spaces for its use. Sublessee's employees and invitees shall not
use other parking spaces on the Premises. In the event that the volume of
traffic through the parking lot on the Premises or the streets or
intersections bordering the Premises is increased (or claimed to be
increased by any government authority) by reason of Sublessee's use of the
Subleased Premises (for example, if the volume of the traffic increases by
reason of Sublessee's donor collection activities) and if the Town of
Huntington or any other federal, state, municipal, county, or local
government, department, commission, board or agency, makes any objection
or issues any direction with respect to such condition, then Sublessee, at
its own cost and expense, shall comply with any such direction and shall
be responsible for removing any such objection and shall be
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<PAGE>
responsible for any costs or penalties that are imposed on the Building,
the Premises, Landlord, Sublessor or Sublessee with respect to such
matters, which payment(s) shall be deemed additional rent hereunder.
7. Services Provided By Sublessor.
(a) As long as Sublessee is not in default, Sublessor will
provide (i) heat to the Subleased Premises when and as required by law on
business days,from 7 a.m. to 7 p.m. and on Saturdays from 8 a.m. to 1 p.m.
(collectively, "Business Hours"); (ii) parking lot snow removal; and (iii)
water as required up to the amount that would be required for executive
lavatory purposes but, if Sublessee uses or consumes water beyond
executive lavatory use, Sublessor may install a water meter at Sublessee's
expense which Sublessee shall thereafter maintain at Sublessee's expense
in good working order and repair for the purpose of measuring such water
consumption and Sublessee shall pay for water consumed as shown on said
meter as additional rent as and when bills are rendered; and (iv)
groundskeeping. Sublessor may interrupt such services when necessary by
reason of accident or for repairs, alterations, replacements or
improvements necessary or desirable in Sublessor's judgment so long as
reasonably required therefor or by reason of strike or labor troubles or
any cause whatsoever beyond Sublessor's sole control.
(b) Sublessor shall service the HVAC system serving the
Subleased Premises on a routine basis by starting the equipment in the
spring, providing regular service and maintenance inspections, installing
filters as needed, and shutting down the system for the winter. Sublessor
shall make routine, minor repairs to the system as part of such service.
Sublessee, however, shall be responsible for making all other necessary
repairs and replacements.
(c) (i) Sublessee shall obtain electric service, at its own
cost and expense, directly from the utility servicing the Building.
(ii) [Intentionally Omitted]
(iii) Sublessee's use of electric current in the
Subleased Premises shall not at any time exceed the capacity of any
of the electrical conductors and equipment in or otherwise serving
the Subleased Premises. In order to ensure that such capacity is not
exceeded and to avert possible adverse effect upon the Building's
electric service, Sublessee shall not without Sublessor's prior
written consent, which consent shall not be unreasonably withheld,
in each instance, connect any additional electrical fixtures,
appliances or equipment (other than lamps, typewriters, and other
electrical equipment with electric consumption equivalent to that of
standard office machines) to the Building's electric distribution
system or make any alteration or addition to the electrical system
of the Subleased Premises. Should
007326/13000/180.6
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<PAGE>
Sublessor grant such consent and if additional risers or equipment
shall be required therefor, same shall be installed by the
Sublessor, and the cost thereof shall be paid by Sublessee.
Sublessor shall not be liable in any way to Sublessee for any
failure or defect in supply or character of electric current
furnished to the Subleased Premises (other than such as may result
from Sublessor's gross negligence or wrongful act or wrongful
omission), including but not limited to any failure or defect in the
supply or character of electric service furnished to the Subleased
Premises by reason of any requirement, act or omission of the
utility serving the Building.
(iv) [Intentionally Omitted]
8. Subordination to Overlease, etc.
(a) Except as hereinafter otherwise provided, this Sublease is
expressly subject and subordinate to the covenants, terms and conditions
of the Overlease and the rights of the landlord thereunder and to the lien
of any mortgages which may now or hereafter encumber or otherwise affect
the real estate of which the Subleased Premises form a part. Sublessee
hereby acknowledges and represents that it has read the Overlease and is
familiar with all of the provisions thereof. A copy of the Overlease, with
certain provisions deleted, is annexed hereto as Exhibit C.
(b) Except as set forth in subparagraph (d) below and except
to the extent that such terms are inconsistent with the terms of this
Sublease, Sublessee shall be bound by and comply with all of the terms,
covenants and conditions to be observed and performed by the tenant under
the Overlease, as they relate to the Subleased Premises and to the term of
this Sublease, and Sublessee shall not do or permit to be done any act or
thing, or create or permit to be created any condition, which may
constitute a breach, default or violation of any of the terms, covenants
or conditions of the Overlease, or which may render Sublessor liable for
any charge or expense thereunder.
(c) Sublessor shall have the same rights and remedies with
respect to this Sublease and Sublessee as the Landlord has with respect to
the Overlease and the tenant thereunder as though such rights and remedies
set forth in the Overlease in favor of Landlord were set forth in this
Sublease in favor of Sublessor, including without limiting the foregoing
all of the rights and remedies provided in the Overlease for non-payment
of rent and the right to cure defaults of Sublessee. Except as herein
provided, all of the terms, covenants and conditions of the Overlease are
incorporated herein with the same force and effect as if herein set forth
in full and the rights and obligations contained in the Overlease are
hereby imposed on the respective parties hereto. References in the
Overlease to "Landlord" or "Sublessor", to "Tenant", to "Lease", and to
"premises" or "demised premises" are deemed to refer to Sublessor,
Sublessee, this Sublease and the Subleased Premises, respectively; any
references to
007326/13000/180.6
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<PAGE>
Base Rent or Fixed Net Rent in the Overlease shall be deemed to be to the
rent payable hereunder, and references to the expiration date of the
Overlease shall be deemed made to the expiration date of this Sublease;
and where the sense of the text requires it, references to specific
paragraphs and terms in the Overlease shall be deemed made to the
corresponding paragraph and terms hereunder. Without limiting the
foregoing, Article 16 (Default Provisions) of the Overlease, including the
cure periods set forth therein, shall become a part of this Sublease as
provided above, with the following modifications: (i) Section 16.1(d) is
modified to delete the words "for five days after written notice thereof
from Landlord" and to substitute therefor the following language: "for ten
days after the due date thereof"; and (ii) all references in the last
paragraph of Section 16.1 to "three (3) days" shall be changed to "five
(5) days" unless such extension of time would cause Sublessor to be in
breach of the Overlease.
(d) The following Articles and sections contained in the
Overlease shall not be deemed incorporated in this Sublease (except as
herein specifically provided): 1; 2; 4 (except to the extent such
Impositions are payable by Sublessee as part of Real Estate Tax
escalation); 5; the first sentence of 6.1; 6.2; 6.4; 7; 8; the first
sentence of 11.1; 11.2; 11.3; 12.1(b), (d) and (e) (except to the extent
payable as part of escalations and additional rent hereunder); the second
sentence of 12.3; 13; 14; 19.3; 20 (except to the extent noted in Par. 21
of this Sublease); 22; 23; 24; 28; 32; 37 and 40; Amendment dated July 18,
1990; Amendment dated July 18, 1990 (letter agreement); and Amendment
dated as of January 1, 1993. Notwithstanding anything to the contrary
contained in Article 10 of the Overlease, Sublessee shall not be required
to discharge any lien, encumbrance or charge against the Premises created
by or imposed on account of Sublessor or Overlandlord.
9. Sublessor's Rights, etc.
Except with respect to those obligations of Sublessor specifically
set forth in this Sublease, Sublessor does not undertake any obligation to
perform the terms, covenants and conditions contained in the Overlease on the
Landlord's part to be performed thereunder.
10. One Time Renewal Option.
If Sublessee is not then in default beyond any notice and grace
period provided for in this Sublease, Sublessee may renew this Sublease upon all
of the terms, covenants and conditions set forth herein for an additional term
of 11 months commencing March 1, 1997 and ending on January 30, 1998, by written
notice of such renewal delivered to Sublessor no later than October 31, 1996. In
the event this Sublease is timely renewed as provided in this Paragraph, the
base rent payable during the first year of the renewal term shall be $416,531.15
per annum ($34,710.93 per month). During such extended term Sublessee shall,
among other things, continue to pay Real Estate/Tax and Utility Cost escalations
utilizing the same Base Tax Year and Base Utility Cost set forth in Paragraph 4.
This
007326/13000/180.6
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<PAGE>
Paragraph 10 shall be deemed void and of no further force or effect if Sublessee
or Sublessor exercises any right to cancel this Sublease, including under
Paragraphs 16, 17 and 30. Time is of the essence with respect to the date by
which Sublessee is to give Sublessor notice hereunder.
11. [Intentionally Omitted]
12. Broker.
Sublessee represents and warrants to Sublessor that it has had no
dealings or communications with any broker or agent in connection with this
Sublease. Sublessee dealt with Cooperman Associates in connection with a prior
sublease between the parties for a portion of the Subleased Premises. Sublessee
agrees to indemnify and hold Sublessor harmless from and against any and all
costs, expenses (including reasonable attorneys' fees and disbursements) and
liabilities for any compensation, commissions or charges claimed by any broker
or agent with whom Sublessee has dealt with respect to this Sublease. The
foregoing indemnity does not extend to Cooperman Associates, except to the
extent Cooperman Associates may make a claim based on dealings or communications
Sublessee has had with Cooperman Associates with respect to this Sublease.
Sublessor agrees to indemnify and hold Sublessee harmless from and against any
and all costs, expenses (including reasonable attorneys' fees and disbursements)
and liabilities for any compensation, commissions or charges claimed by (a) any
broker or agent with whom Sublessor, but not Sublessee, has dealt with respect
to this Sublease, and (b) Cooperman Associates (except to the extent Cooperman
Associates may make a claim based on dealings or communications Sublessee has
had with Cooperman Associates with respect to this Sublease).
13. [Intentionally Omitted]
14. Indemnification.
Sublessee hereby agrees to indemnify and hold Sublessor harmless
from and against any and all losses, liabilities, damages and expenses
(including reasonable attorneys' fees and disbursements) for which Sublessor
shall not be reimbursed by insurance, which Sublessor may suffer or incur (i) in
connection with Sublessee's breach of this Sublease and/or failure to comply
with the applicable terms and conditions of the Overlease, or (ii) arising out
of damage or injury to persons or property in the Subleased Premises or on the
driveway constructed by Sublessee pursuant to Par. 25(b) during the term of this
Sublease, unless injury or damage is caused by the negligence of Sublessor, its
agents, servants, employees or invitees. Sublessor hereby agrees to indemnify
and hold Sublessee harmless from and against any and all losses, liabilities,
damages and expenses (including reasonable attorneys' fees and disbursements)
for which Sublessee shall not be reimbursed by insurance, which Sublessee may
suffer or incur (i) in connection with Sublessor's breach of this Sublease or
(ii) arising out of damage or injury to persons or property occurring on the
Premises, but outside of the Subleased Premises or such driveway unless such
injury or
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<PAGE>
damage is caused by the negligence of Sublessee, its agents, servants, employees
or invitees. The provisions of this Paragraph and Sublessee's and Sublessor's
obligations hereunder shall survive the expiration or other termination of this
Sublease.
15. Insurance.
During the term of this Sublease, Sublessee shall maintain in full
force and effect the comprehensive public liability insurance required by the
Overlease, except that such policy shall be in a combined single limit of
$2,000,000. Sublessor and Landlord shall be named as additional insured on such
policy, in addition to those persons and entities required to be named as
insured and additional insured under the Overlease. Such policy shall not be
cancelable with respect to Sublessor or Landlord, except upon at least ten days
prior written notice to Sublessor and the Landlord under the Overlease. Two
duplicate originals or certificates of such policies shall be delivered to
Sublessor, together with proof of payment of the premiums thereon, upon the
commencement date of this Sublease and, thereafter, at least thirty days before
each expiration thereof, two duplicate originals or certificates of the renewals
or replacements of such policies shall be delivered to Sublessor. Nothing
contained in this paragraph shall be deemed to limit in any way the
indemnification provisions of Paragraph 14.
16. Casualty.
(a) If the Subleased Premises shall be partially damaged by
fire or other insured casualty, the damages shall be repaired by and at
the expense of Sublessor and the base rent shall be abated from the day
following the casualty until the date such repairs are substantially
completed according to the part of the Subleased Premises which are
untenantable. Notwithstanding the foregoing, Sublessor may terminate this
Sublease upon notice to Sublessee given within ninety (90) days following
the date of such casualty and upon the date specified in such notice,
which date shall be not less than one hundred twenty (120) days nor more
than one hundred fifty (150) days following the giving of such notice,
this Sublease shall terminate and Sublessee shall vacate and surrender the
Subleased Premises to Sublessor.
(b) If this Sublease shall not be terminated as provided above
in subparagraph (a), Sublessor shall proceed with the restoration of the
Subleased Premises, provided that Sublessor's restoration obligations
shall be subject to building and zoning laws then in effect. Sublessor
shall make such repairs with reasonable expedition, subject to delays due
to adjustment of insurance claims, availability of materials, labor
troubles and other causes beyond Sublessor's reasonable control. Sublessee
shall cooperate with Sublessor's restoration by removing from the
Subleased Premises, as promptly as reasonably possible, all of Sublessee's
salvageable and movable equipment, furniture and other property. If
Sublessor shall restore the Subleased Premises, Sublessee shall diligently
repair, restore and redecorate the Subleased Premises and re-open for
business from the Subleased Premises, promptly
007326/13000/180.6
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<PAGE>
following notice of restoration, in a manner and to the condition existing
prior to the occurrence of such casualty, except to the extent that
Sublessor is obligated to make such repairs as provided above.
(c) In the event of a casualty not caused by Sublessee,
Sublessee's agents, employees, servants, invitees or contractors,
Sublessee may, if Sublessor fails to substantially complete restoration of
the Subleased Premise within 5 months of the date of the casualty, give
Sublessor 30 days' notice of intent to terminate and, if substantial
restoration of the Subleased Premises has not been effected within such
30- day period, then this Sublease shall terminate effective 30 days after
such notice of termination is given to Sublessor.
17. Condemnation.
If "materially all" (as such term is defined in Article 14 of the
Overlease) of the Premises or if any portion of the Subleased Premises such that
Sublessee shall no longer be able to operate its business at the Subleased
Premises shall be acquired or condemned by eminent domain for any public or
quasi-public use or purpose, then and in such event, the term of this Sublease
shall cease and terminate from the date of title vesting in such proceeding. If
a portion of the Subleased Premises is so acquired or condemned and Sublessee
shall notify Sublessor within 30 days of having learned of such event that
Sublessee is able to continue to operate its business in the remaining portion
of the Subleased Premises, then, this Sublease shall continue as to such portion
and the base rent shall be proportionately abated. Sublessee shall be entitled
to any portion of an award made to Sublessee for the value of Sublessee's trade
fixtures and moving expenses provided such award does not diminish Sublessor's
or Overlandlord's award. As between Sublessor and Sublessee, all compensation
awarded for the taking of the Building, the Premises, the fee and the leasehold
shall belong to and be the property of the Sublessor, and Sublessee shall not be
entitled to any damages for the unexpired portion of the term of this Sublease
or injury to its subleasehold interest.
18. Notice, etc.
Any notice, demand, consent or other communication which, under the
terms of this Sublease, must or may be given or made by the parties hereto,
shall be in writing to be effective and shall be given or made by mailing the
same by registered or certified mail, return receipt requested, addressed to the
party for whom intended at its address as set forth on the first page of this
Sublease. Either party may designate such new or other addresses to which such
communications thereafter shall be given, made or mailed by notice given to the
other party in the manner prescribed herein. Any such communication shall be
deemed given or served, as the case may be, on the date of the posting thereof.
Notwithstanding the foregoing, Sublessor may deliver any bill to Sublessee by
leaving such bill at the Subleased Premises and such bill shall be deemed given
on the date of delivery.
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<PAGE>
19. Attornment With Respect to Overlease.
Sublessee recognizes and acknowledges that the Sublessor hereunder
is the tenant under the Overlease. The Sublessee covenants and agrees that if
the leasehold estate of the Sublessor (as tenant under the Overlease) is
terminated or surrendered for any reason whatsoever including, without
limitation pursuant to Article 30, it will attorn to the Landlord under the
Overlease, upon the request of the Landlord, or any successor thereto, as the
case may be, and will recognize such landlord or such successor, as the case may
be, as the Sublessee's landlord under this Sublease. The Sublessee agrees to
execute and deliver at any time and from time to time, upon the request of the
Sublessor or of the landlord under the Overlease or any successor thereto, as
the case may be, any instrument which may be necessary or appropriate to
evidence such attornment. If the leasehold estate of the Sublessor as tenant
under the Overlease is terminated or surrendered, the Sublessee covenants and
agrees upon request of the landlord under the Overlease or any successor thereto
to enter into a lease with such landlord under the Overlease or any successor
thereto on the same terms and conditions as this Sublease, except as hereinafter
set forth. The Sublessee further waives the provision of any statute or rule of
law now or hereafter in effect which may give or purport to give the Sublessee
any right of election to terminate this Sublease or to surrender possession of
the Subleased Premises in the event of the termination or surrender of the
Overlease and agrees that this Sublease shall not be affected in any way
whatsoever thereby. If the Overlease terminates for any reason and Sublessee
becomes the direct tenant of the landlord under the Overlease, such landlord
shall not be (i) liable for any previous act or omission of Sublessor under this
Sublease, (ii) subject to any credit, offset, claim, counterclaim, demand or
defense which Sublessee may have against Sublessor, (iii) bound by any previous
modification of this Sublease that was not consented to by Landlord or that is
inconsistent with this Sublease or the Consent to Sublease, among Landlord,
Sublessor and Sublessee, dated as of the date hereof (the "Consent"), or by any
previous prepayment of more than one month's rent, (iv) bound by any covenant of
Sublessor to undertake or complete any construction of the Subleased Premises or
any portion thereof, (v) required to account for any security deposit of the
Sublessee other than any security deposit actually delivered to Landlord by
Sublessor, (vi) bound by any obligation to make any payment to Sublessee or
grant any credits, except for services, repairs, maintenance and restoration
provided for under this Sublease to be performed after the date of Sublessee's
attornment to Landlord, (vii) responsible for any monies owing by Landlord to
the credit of Sublessor, (viii) required to remove any person occupying the
Subleased Premises or any part thereof, (ix) required to afford Sublessee any
cafeteria rights or access rights through the corridor as defined in Paragraph 2
of this Sublease (and such Paragraph shall be deemed deleted and Landlord shall
have the right to eliminate such Cafeteria and corridor), and (x) required to
provide any parking for Sublessee's use, except for providing the spaces set
forth in the Consent. Further, if the Overlease is terminated for any reason and
this Sublease becomes a direct lease pursuant to the terms of this Sublease or
the Consent, this Sublease shall be deemed modified from the date of such
termination as provided in the Consent, which modifications shall include
Landlord's right to terminate the direct lease upon 120 days notice.
007326/13000/180.6
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<PAGE>
20. Quiet Enjoyment.
Sublessor covenants and agrees with Sublessee that upon Sublessee
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions on Sublessee's part to be observed and performed,
giving regard to any cure periods provided herein, Sublessee may peaceably and
quietly enjoy the premises hereby demised, subject, nevertheless, to the terms,
and conditions of this Sublease.
21. Assignment and Subletting.
(a) Sublessee shall not assign this Sublease or sublet all or
any part of the Subleased Premises or grant any concessions or licenses in
respect thereof or in any way encumber Sublessee's interest in this
Sublease or the Subleased Premises without the written consent of
Sublessor and Landlord, subject to the provisions of this Par. 21.
(b) Sublessor covenants and agrees that it will not
unreasonably withhold its consent to Sublessee's assignment of this
Sublease or subletting of all or part of the Subleased Premises to any
other person, firm, or corporation, provided such assignee or subtenant
shall use and occupy the Subleased Premises for offices and not for
storage of blood or blood products or medical wastes, or to collect blood
from donors, or as a laboratory to process blood or blood products or as a
"stat" lab for emergency testing of blood. Notwithstanding the foregoing,
if such assignment or sublet is proposed to be made to an affiliate of New
York Blood Center, Inc, (an affiliate being any person or entity
controlling, controlled by or under common control with New York Blood
Center, Inc.), such assignee or subtenant may use the Subleased Premises
for the uses described in Paragraph 6 of this Sublease. At the time of
such assignment and/or sublet, this Sublease must be in full force and
effect without any breach or default thereunder on the part of the
Sublessee which is not cured in the applicable time period. A copy of the
assignment and the original assumption agreement or sublease (both in form
and content satisfactory to Sublessor), fully executed and acknowledged by
the assignee and/or sublessee shall be delivered to Sublessor within ten
(10) days from the date of execution of such assignment or sublease. In
the event of an assignment or sublet, Sublessee shall remain liable for
the performance of all of the terms, covenants and conditions of this
Sublease, including the payment of base rent and additional rent. Any such
sublet or assignment shall be subject to consent of Landlord, subject to
the provisions of the Consent.
(c) Notwithstanding anything contained in this Sublease to the
contrary and notwithstanding any consent by Sublessor to any assignment or
sublease of the Subleased Premises, no assignee or subtenant who enters
into such an assignment or sublease, shall further assign this Sublease or
further sublet all or part of the Subleased Premises or assign any
subsublease of the Subleased Premises
007326/13000/180.6
14
<PAGE>
without the prior written consent of Sublessor in each such case, which
consent Sublessor in its sole discretion may withhold.
(d) Notwithstanding anything to the contrary set forth in this
Paragraph 21, or elsewhere in this Sublease, in the event Sublessee
requests Sublessor's consent to a sublease of all of the Subleased
Premises or to an assignment of the Sublease as set forth in subparagraph
(b), then Sublessor shall have the right to cancel and terminate the
Sublease, as of a date chosen by Sublessor, no earlier than two (2) months
and no later than four (4) months after the date of Sublessee's
notification to Sublessor of Sublessee's request to sublease or assign. If
Sublessor exercises its option to terminate this Sublease, then this
Sublease shall cease and terminate on the date set forth by Sublessor in
its notice without any further liability on the part of either party to
the other, except for accrued obligations to the date of termination.
Sublessor's right to cancel shall not apply to a request to sublet or
assign to an affiliate of Sublessee, provided that the permitted uses
under the Sublease shall remain the same.
(e) In the event of an assignment of this Sublease or sublet
of more than 30% of the Subleased Premises consented to by Sublessor, 75%
of any Net Profit for each calendar year shall be paid quarterly to
Sublessor. "Net Profit" for any calendar year shall mean the amount by
which "Gross Receipts" actually paid to Sublessee in connection with any
and all sublettings or assignments exceed "Gross Expenses" of Sublessee
with respect to the portion of the Subleased Premises so sublet (or the
entire Subleased Premises if the Sublease is assigned) for such calendar
year, such apportionment to be made on the basis of the percentage of the
actual net usable square footage of the Subleased Premises. "Gross
Receipts" of Sublessee shall mean all rentals and any other sums paid to
Sublessee including, without limitation of the foregoing, rent and
additional rent, sums paid to acquire the Sublease or subsublease, fixture
fees, electricity charges, "key money", and any other consideration paid
by any subtenant or assignee to Sublessee during the calendar year in
question. "Gross Expenses" of Sublessee with respect to the Subleased
Premises for any calendar year shall mean all rent, additional rent, and
other sums payable by Sublessee to Sublessor under the Sublease for such
calendar year and shall not include any other expenditures paid or
incurred by Sublessee except customary brokerage fees and reasonable
attorneys' fees actually paid by Sublessee in connection with such
subletting or assignment.
Within thirty (30) days after the end of each quarter of
each calendar year of the Sublease, Sublessee shall deliver to Sublessor a
statement sworn to by an officer of Sublessee setting forth the Gross
Receipts and Gross Expenses for such quarter and the computation of the
Net Profit, if any, for such quarter, together with any payment for any
Net Profit which may be due hereunder. In the event any such statement
intentionally contains an untrue statement or intentionally fails to
include a complete statement of Gross Receipts, Sublessee shall be deemed
to be in
007326/13000/180.6
15
<PAGE>
material default of this Sublease and Sublessor shall be entitled to
terminate this Sublease in addition to exercising any other remedy
available to it in law or in equity. For the period of two (2) years after
any statement required by this Paragraph 21 has been sent by Sublessee to
Sublessor, Sublessor shall have the opportunity to examine the books of
Sublessee in order to determine the accuracy of such statements).
(f) A form of transfer or conveyance that would be deemed an
assignment or sublease under the Overlease shall be deemed an assignment
or sublet hereunder and subject to the terms hereof. In addition, any
transfer, by operation of law or otherwise, of Sublessee's (or any
subtenant's or assignee's) interest in this Sublease or the Subleased
Premises (in whole or in part) or of a 50% or greater interest in
Sublessee (whether stock, partnership interest, or otherwise) shall be
deemed an assignment of this Sublease and subject to the provisions
hereof. It is understood and agreed that if Sublessee is a corporation, a
transfer by the corporation or any shareholders) thereof of a majority of
the issued or outstanding capital stock of Sublessee, however accomplished
(including a transfer accomplished by the corporation's issuance of shares
in an amount greater than 50% of the outstanding shares), and whether in a
single transaction or in a series of related or unrelated transactions,
shall be deemed an assignment of this Sublease requiring Sublessor's
consent.
22. [Intentionally Omitted]
23. Additional Covenants Required by Overlease.
(a) Sublessee shall remove reasonably promptly after notice
all liens which might affect the landlord under the Overlease's fee estate
in the Premises or any portion thereof as a result of any changes,
alterations, new construction, renovation, demolition or remodeling of the
Building or any portion thereof made, or claimed to have been made, at the
request of Sublessee.
(b) The landlord under the Overlease shall be permitted entry
to the Subleased Premises for the purposes and at the times set forth in
Article 9 of the Overlease.
(c) Sublessor shall remove or otherwise discharge any
mechanics liens placed against the Premises by reason of a claim against
Sublessor in accordance with its obligations as tenant under the
Overlease.
The foregoing Subpar. (c) shall not be deemed to eliminate any
obligation of Sublessee to Sublessor under this Sublease (including by
reason of the incorporation of the terms of the Overlease) to remove any
mechanics liens.
007326/13000/180.6
16
<PAGE>
24. Signs.
Sublessee may continue to maintain the existing sign on the exterior
of the Building by the entrance to the Subleased Premises and may install one
additional sign on the monument located in front of the Building and one sign on
the west wall of the Building (in the southwest corner). Sublessor shall
cooperate with Sublessee and, if necessary, join in any application for a sign
permit, at Sublessee's expense. Such signs shall only contain the name of the
Sublessee (and/or any permitted assignees or sub-sublessee). Sublessee shall
obtain all permits, certificates and licenses required for the installation of
each sign installed by Sublessee; shall comply with all present and future laws,
orders and regulations of all state, federal, municipal, county, and local
governments, departments, commissions and boards and any direction of any public
officer pursuant to law with respect to such sign(s); and shall pay all fees,
including but not limited to any annual permit fees, required to be paid in
connection with such sign(s).
25. Alterations.
(a) Sublessee shall make no changes in or to the Subleased
Premises of any nature without the prior consent of Landlord and
Sublessor. Sublessee shall furnish Sublessor and Landlord with detailed
plans and specifications covering all proposed changes. Sublessor agrees
not to unreasonably withhold its consent to any such changes to the
Subleased Premises which are non-structural and which do not affect
utility services or plumbing and electrical lines in or to the interior of
the Subleased Premises; provided Sublessee complies with the provisions of
Section 11.1(a)-(h) and 11.3 of Article 11 of the Overlease. Sublessor's
consent shall be granted or denied within 5 working days of receipt of
such plans and specifications. Sublessee shall use contractors and
mechanics first approved by Sublessor, and Sublessor shall grant or deny
such approval within 3 working days after receipt of Sublessee's request.
If any mechanic's lien is filed against the Subleased Premises or the
Building for work claimed to have been done for or materials furnished to
Sublessee, whether or not done pursuant to this Paragraph, the same shall
be discharged by Sublessee within ten days thereafter at Sublessee's
expense by filing the bond required by law or otherwise. All improvements,
alterations and additions to the Subleased Premises and all fixtures,
panelling, partitions, railings and like installations, installed in the
Subleased Premises at any time, either by Sublessee or by Sublessor on
Sublessee's behalf, shall, upon installation, become the property of
Sublessor and shall remain upon and be surrendered with the Subleased
Premises. Nothing in this Paragraph shall be construed to give Sublessor
title to or to prevent Sublessee's removal of trade fixtures, moveable
office furniture and equipment, but upon removal of any such from the
Subleased Premises or upon removal of such other installations as may be
required by Sublessor, Sublessee shall immediately and at its expense,
repair and restore the Subleased Premises to the condition existing prior
to installation and repair any damage to the Subleased Premises or the
Building due to such removal. All property permitted or required to be
removed by Sublessee
007326/13000/180.6
17
<PAGE>
at the end of the term remaining in the Subleased Premises after
Sublessee's removal shall be deemed abandoned and may, at the election of
Sublessor, either be retained as Sublessor's property or removed from the
Subleased Premises by Sublessor, at Sublessee's expense.
(b) Sublessee has built, at Sublessee's sole cost and expense,
a driveway from the property owned by Sublessee adjacent to the Premises
(the "Adjacent Building") to the parking lot on the Premises in the
location indicated on Exhibit D annexed hereto. Sublessee shall remove
such driveway and shall restore the Premises to their original condition
existing prior to the construction of such driveway upon the earlier to
occur of the following: (a) the expiration or sooner termination of the
term of this Sublease (as such term may be extended or shortened pursuant
to the terms of this Sublease), or (b) the date Sublessee discontinues
conducting its blood bank operations from the Adjacent Building. Sublessee
shall be solely responsible for and shall maintain and keep such driveway
in good order and repair, shall be responsible for snow and ice removal,
and shall comply with all present and future laws, orders and regulations
of all state, federal, municipal, county, and local governments,
departments, commissions and boards and any direction of any public
officer pursuant to law with respect to such driveway and shall discharge
any violation, order or duty upon Sublessor, Landlord or Sublessee with
respect to the driveway.
26. [Intentionally Omitted]
27. Care of the Premises.
Sublessor shall maintain and repair the exterior of, grounds and the
public portions of the Building. Sublessee shall throughout the term of this
Sublease take good care of the Subleased Premises, including the bathrooms and
lavatory facilities and the windows and window frames and the fixtures and
appurtenances therein; and shall at Sublessee's sole cost and expenses promptly
make all repairs thereto and to the Building, whether structural or
non-structural in nature, caused by or resulting from the negligence or improper
conduct of Sublessee, Sublessee's servants, employees, invitees, or licensees.
Further, Sublessee shall, at Sublessee's sole cost and expense, promptly comply
with all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards and
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters or the Insurance Services
Office or any similar body which shall impose any order, violation or duty upon
Sublessor, Landlord or Sublessee with respect to the Subleased Premises, or with
respect to the Building if arising out of Sublessee's use or manner of use of
the Building; provided that nothing herein shall require Sublessee to make
structural repairs or alterations unless Sublessee has by its manner of use of
the Subleased Premises or method of operation therein violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
007326/13000/180.6
18
<PAGE>
28. Environmental Hazards.
(a) Sublessee shall not store, use, sell, or bring onto, the
Premises any Ultra Hazardous Material (hereinafter defined) in violation
of any environmental laws or regulations imposed by any competent
Governmental Authority. As used herein, the term "Ultra Hazardous
Material" shall be as defined in 42 U.S.C. 9601 et seq., as amended from
time to time, and any hazardous material or toxic waste the use, sale or
storage of which may make Sublessor, Landlord, or Sublessee liable to
remove same from the Premises in accordance with any applicable
environmental clean-up law. In the event any Ultra Hazardous Material is
used, sold or stored by Sublessee on the Premises, Sublessee shall remove
same and make the Premises clean of same within twenty (20) days after
notice from Sublessor or if such removal and clean-up shall require more
than twenty (20) days, Sublessee shall commence such work within twenty
(20) days and thereafter expeditiously and without interruption complete
same. Failure to remove and/or clean up same within said twenty (20) day
period (as same may be extended pursuant to the preceding sentence) shall
be deemed a default of this Sublease giving Sublessor the same remedies as
for nonpayment of Rent. In the event Sublessee fails to comply with the
obligations of this Paragraph 28, Sublessor shall have the right, in
accordance with the provisions of this Sublease, to remove same and clean
up the Premises at Sublessee's cost and expense, and Sublessee shall, upon
demand, reimburse Sublessor for such cost, together with interest at the
Interest Rate (as such term is defined in Section 2.7 of the Overlease).
Sublessee's obligation to reimburse Sublessor pursuant to this Paragraph
28 shall survive the expiration or sooner termination of this Sublease.
(b) A provision identical with the provisions of this
Paragraph 28 running for the benefit of Sublessor and Landlord shall be
included in each subsublease by Sublessee, and the failure of Sublessee to
include such a provision shall be deemed a default of this Sublease.
29. Miscellaneous.
(a) This Sublease may not be changed or terminated orally, but
only by an agreement in writing signed by both parties hereto.
(b) This Sublease constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and all other
representations and understandings have been merged herein.
(c) The covenants, conditions and terms of this Sublease shall
bind and inure to the benefit of both parties hereto, their successors and
permitted assigns.
007326/13000/180.6
19
<PAGE>
(d) In case of any conflict or inconsistency between the
provisions of the Overlease and those of this Sublease, the provisions
hereof, as between Sublessor and Sublessee, shall control.
(e) This Sublease shall be governed by and construed in
accordance with the laws of the State of New York. If any provision of
this Sublease or the application thereof to any person or circumstances,
shall to any extent be invalid or unenforceable, such provision shall be
adjusted rather than voided, if possible, in order to achieve the intent
of the parties to the extent possible; and, in any event, all other
provisions of this Sublease shall be deemed valid and enforceable to their
full extent.
(f) Whenever provision is made in this Sublease for the
consent or approval of the Sublessor, the Sublessor shall not capriciously
or without reasonable cause refuse to grant such consent or approval and
failure to disapprove within thirty (30) days after receipt of a written
request for approval or consent shall be deemed an approval or consent, as
the case may be. The foregoing provision shall not apply to requests for
the approval of Sublessor with respect to proposed structural
improvements, alterations, additions or repairs.
(g) Except as provided in the next sentence, Sublessee shall
not permit any medical waste to be stored or disposed of at the Subleased
Premises. Sublessee may store blood in the Subleased Premises in cold
storage units occupying no more than 1000 square feet within the Option
Area, provided Sublessee complies with all applicable governmental laws,
ordinances, rules and regulations. Sublessee shall furnish all equipment,
labor, utilities and supplies required for the generation, custody, and
disposal of medical waste at the Subleased Premises, including boxes,
labels and manifests and shall promptly remove from the Subleased Premises
and the Premises all medical wastes generated at the Subleased Premises.
Sublessee shall comply with all applicable governmental laws, ordinances,
rules, regulations and orders of any federal, state, county or local
government, governmental agency, department, board or authority imposed
with respect to any medical waste generated at the Subleased Premises (the
"Medical Waste Regulations") and shall pay any fines, penalties or other
charges levied against Sublessee, Landlord, Sublessor, the Building or the
Premises as a result of Sublessee's failure to handle, remove, transport
or dispose of medical waste in compliance with the Medical Waste
Regulations. Sublessee shall initiate, maintain and supervise all
appropriate safety precautions and programs in connection with the
custody, transport and proper disposal of medical wastes; and shall take
all reasonable precautions to prevent damage, injury or loss to any
persons or property in connection with its generation of, custody,
transport and disposal of medical wastes. The term "medical wastes" shall
mean blood, blood products, and any wastes or other substance which may
cause an infectious disease or reasonably be suspected of harboring
pathogenic organisms, including any wastes described as medical wastes by
any appropriate federal, state, or local statutory or
007326/13000/180.6
20
<PAGE>
regulatory authorities. Sublessee agrees to indemnify and hold harmless
Sublessor and Landlord against and from all liabilities, claims, damages,
loss, costs and expenses, including reasonable attorneys' fees, arising
out of any breach by Sublessee of its obligations under this Subparagraph
(g).
(h) In any action or proceeding for breach of this Sublease or
for holdover or dispossess proceedings, the party which does not prevail
shall pay the other party's reasonable attorneys' fees.
Sublessor shall provide up to two persons designated by Sublessee
with keys and security codes to Sublessor's phone room so that Sublessee shall
have telephone use after Sublessor's normal business hours. Sublessee shall be
responsible for the security of the Building when using the phone room after
normal business hours. Sublessee shall indemnify, defend and hold Sublessor and
Landlord harmless from and against all claims, loss, damages, cost and expense
Sublessor may incur by reason of such after-hours access, including, but not
limited to (a) any loss or damage to property and (b) any injury or death
occurring in or about the Building in connection with such after-hours use of
the phone room.
30. Early Termination.
Sublessee has been advised that Sublessor has granted the Landlord
and Landlord's affiliate the right, upon 180 days prior notice, to require
Sublessor to terminate and/or vacate the Premises, pursuant to a sublease with
AVR Mart, Inc. and/or a consent and release agreement, dated as of January 1,
1993 (collectively and individually, the "Release Agreement"). In the event
Sublessor receives such notice under the Release Agreement and such notice to
Sublessor requires by its terms that Sublessor give notice to Sublessee that
Sublessee is required to vacate the Subleased Premises, than Sublessor shall
give such notice to Sublessee (accompanied by a copy of the AVR Mart, Inc.'s or
Landlord's notice to Sublessor) and, upon receipt of such notice, Sublessee
shall vacate the Subleased Premises, leaving the Subleased Premises vacant,
broom clean, with all personal property and trade fixtures removed and otherwise
complying with its obligations under this Sublease (including but not limited to
Art. 25(b)) as of the end of the term of this Sublease or earlier termination,
upon the earlier of: (a) that date 150 days after a copy of such notice is given
to Sublessee, or (b) the end of the term of this Sublease (or the end of the
renewal term, if Sublessee has exercised its renewal option prior to the date
such notice is given to Sublessee). The renewal option contained in Article 10
of this Sublease shall be deemed void and of no further force and effect if this
Sublease is so terminated prior to exercise of the renewal option. If Sublessee
fails to timely vacate the Subleased Premises as set forth above, Sublessor may
be exposed to substantial damages, including but not limited to liability to
Landlord for the payment of rent for the balance of the term of the Overlease
(as if the Overlease had not been terminated). Accordingly, Sublessee agrees to
indemnify and hold Sublessor harmless from and against all claims, loss,
damages, liability, and costs Sublessor may incur, including but not limited to
reasonable attorneys' fees and consequential damages, by reason of Sublessee's
failure to timely vacate. Such indemnity shall not apply and
007326/13000/180.6
21
<PAGE>
Sublessee shall not be liable to Sublessor to the extent Sublessor's damages are
caused by its own failure to timely vacate. Notwithstanding the foregoing,
Sublessee acknowledges that Sublessor shall have the right to negotiate with the
Landlord under the Overlease to shorten the 180 day period for vacating the
Premises. Sublessee agrees that if Sublessor and Landlord enter into an
agreement to shorten such period, the 150 day period provided in this Paragraph
shall be correspondingly shortened on a day for day basis, to the extent that it
is applicable; provided that, in no event shall Sublessee have less than 120
days after notice to vacate the Subleased Premises. Sublessor shall promptly and
continually advise Sublessee of any discussions between Sublessor and the
Landlord regarding any such proposed agreement, provided that the failure of
Sublessor to do so shall not invalidate any notice that complies with the
foregoing requirements. If Sublessor receives any consideration from Landlord in
connection with such a shortening of the period for vacating including, without
limitation, any payment, rebate or credit, Sublessor shall share such
consideration with Sublessee based on Sublessee's Proportionate Share. If the
notice to Sublessor under the Release Agreement (described in the second
sentence of this paragraph 30) is given and does not require Sublessor to give
such notice to Sublessee, then, upon termination of the Overlease, the Sublease
shall become a direct lease pursuant to Article 19 of the Sublease and the
Consent and subject to Landlord's right to terminate the lease upon 120 days
notice.
31. [Intentionally omitted]
32. The Americans With Disabilities Act.
The Americans with Disabilities Act of 1990, together with the rules
and regulations promulgated thereunder, as such law, rules and regulations may
now or hereafter be amended or restated, are hereinafter referred to as the
"ADA". If the Subleased Premises or any portion thereof are used by Sublessee,
its subtenants, successors and/or assigns as a "place of public accommodation,"
as such term is defined in the ADA, Sublessee shall (a) comply with all present
and future requirements of the ADA as they relate to the Subleased Premises,
whether or not such compliance requires structural or non-structural alterations
to be made; and (b) reimburse Sublessor for all costs Sublessor may incur to
bring the common areas of the Premises into compliance with all present and
future requirements of the ADA; and (c) indemnify and hold harmless Sublessor
from and against all claims, actions, costs, damages, penalties, losses and
liabilities Sublessor may incur by reason of any action or proceeding instituted
against Sublessor and/or Sublessee by reason of the use of all or part of the
Subleased Premises as a place of public accommodation. If, at the time any claim
or demand is made by Sublessor upon Sublessee under this Paragraph, other space
in the Building is also used as a place of public accommodation, Sublessee
shall, with respect to its liability under clause (b), be responsible only for
its share of such costs. Such share shall equal a fraction, the numerator of
which is the leasable area of the Subleased Premises and the denominator of
which is the sum of the leasable areas of the Subleased Premises and of the
other space used as a place of public accommodation. All changes, alterations,
additions, improvements, and repairs made by Sublessee to the Subleased Premises
shall be performed in compliance with all applicable requirements of the ADA.
007326/13000/180.6
22
<PAGE>
33. Counterparts.
This Sublease may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Sublease as of
the day and year first above written.
VICON INDUSTRIES, INC.
By:_________________________________
NEW YORK BLOOD CENTER, INC.
By:_________________________________
007326/13000/180.6
23
<PAGE>
EXHIBIT A
Diagram of Subleased Premises
007326/13000/180.6
24
<PAGE>
EXHIBIT B
Diagram of Corridor to Cafeteria
007326/13000/180.6
25
<PAGE>
EXHIBIT C
Overlease (Including Amendments)
007326/13000/180.6
26
<PAGE>
EXHIBIT D
Driveway Construction by Sublessee
007326/13000/180.6
27
EXHIBIT 24
KPMG PEAT MARWICK LLP
Independent Auditors' Consent
The Board of Directors
Vicon Industries, Inc.:
We consent to incorporation by reference in the Registration Statements (No. 33-
7892, 33-34349 and 33-90038) on Form S-8 and No. 33-10435 on Form S-2 of Vicon
Industries, Inc. of our report dated November 16, 1995, except as to note 6,
which is as of December 28, 1995, relating to the consolidated balance sheets of
Vicon Industries, Inc. and subsidiaries as of September 30, 1995 and 1994 and
the related consolidated statements of operations, shareholders' equity and cash
flows and related schedules for each of the years in the three-year period ended
September 30, 1995, which report appears in the September 30, 1995 annual report
on Form 10-K of Vicon Industries, Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
January 12, 1996
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,151,850
<SECURITIES> 0
<RECEIVABLES> 9,466,462
<ALLOWANCES> (542,465)
<INVENTORY> 12,112,601
<CURRENT-ASSETS> 22,188,448
<PP&E> 14,195,604
<DEPRECIATION> (9,960,558)
<TOTAL-ASSETS> 26,423,494
<CURRENT-LIABILITIES> 11,467,117
<BONDS> 6,323,351
0
0
<COMMON> 27,882
<OTHER-SE> 8,605,144
<TOTAL-LIABILITY-AND-EQUITY> 26,423,494
<SALES> 43,846,571
<TOTAL-REVENUES> 0
<CGS> 34,300,638
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,424,595
<LOSS-PROVISION> 375,000
<INTEREST-EXPENSE> 1,013,383
<INCOME-PRETAX> (1,267,045)
<INCOME-TAX> 80,000
<INCOME-CONTINUING> (1,347,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,347,045)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
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