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, 1997 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.)
89 Arkay Drive, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 952-2288
- -----------------------------------------------------------------------------
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 15, 1997 was approximately $19,300,000.
The number of shares outstanding of the registrant's Common Stock as of December
15, 1997 was 3,001,108.
<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 broad 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 1997, 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 system, including video cameras, display units
(monitors), video 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. 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.
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<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 an in-house technical services
group which provides application engineering, system design and project
management.
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 surveillance is often mandated by local regulation; 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 Hauppauge, 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 to dealers
and distributors. In fiscal 1997, the operating profit and identifiable assets
of the Company's U.K. subsidiary amounted to approximately $363,000 and $4.8
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
$17.8 million, $16.2 million and $17.5 million or 35%, 38% and 40% of
consolidated revenues in fiscal years 1997, 1996, and 1995, 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 80 percent of international sales in fiscal 1997. Additional
information is contained in the discussion of foreign currency activity included
in Item 7.
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<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 production and sale of CCTV systems and components (excluding cameras,
monitors and video 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. 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 and existing products. Changes in CCTV technology have
incorporated the use of advanced electronic components and new materials which
add to product life and performance. Nineteen professional employees devote full
time to the development of new products and to improving the qualities and
capabilities of existing products. Periodically, the Company engages the
services of others to assist in the development of new products. Expenditures
for research and development amounted to approximately $2,000,000 in 1997,
$1,800,000 in 1996, and $1,900,000 in 1995 or approximately 3.9% of revenues in
1997, 4.2% of revenues in 1996, and 4.2% of revenues in 1995.
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 1997, the Company procured
indirectly approximately 22% of its product purchases from Chun Shin
Electronics, Inc., its South Korean joint venture company (see Item 13 for
further discussion of this 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.
Intellectual Property
The Company owns a limited number of design and utility patents expiring at
various times. The Company has certain trademarks registered and several other
trademark applications pending both in the United States and in Europe. Many of
the Company's products employ proprietary software which is protected by
copyright. The Company has no licenses, franchises or concessions with respect
to any of its products or business dealings. The Company does not deem its lack
of patents, licenses, franchises and concessions, to be of substantial
significance or to have a material effect on its business. The Company does,
however, consider its proprietary software to be unique and valuable and is a
principal element in the differentiation of the Company's products from its
competition.
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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, 1997 and 1996 was
approximately $7.0 million and $3.1 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, 1997, the Company employed 187 full-time employees, of whom
five are officers, 44 administrative personnel, 77 employed in sales capacities,
29 in engineering, and 32 production employees. At September 30, 1996, the
Company employed 176 persons categorized in similar proportions to those of
1997. 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
The Company operates from a 56,000 square foot leased facility in Hauppauge,
Long Island, New York which it occupied in April 1997. The five year lease
includes a five year renewal option which, if exercised, would expire in
December 2006. The Company is currently in the process of acquiring the facility
from the landlord. The Company also operates, under short term leases, an 8,500
square foot warehouse in Hauppauge, and a 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 Europe.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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:
Quarter
Ended High Low
Fiscal 1997
December 2-3/4 1- 3/4
March 3-7/16 1- 15/16
June 4-1/4 3
September 8-11/16 4
Fiscal 1996
December 2-3/8 1-3/16
March 2 1-1/4
June 2-3/4 1-11/16
September 5-7/16 2-1/16
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 15, 1997 was 1,500.
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<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
FISCAL YEAR 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $51,519 $ 43,191 $ 43,847 $ 47,714 $ 45,923
Gross profit 14,475 10,957 9,546 10,714 9,274
Pretax income (loss) 1,647 385 (1,267) 74 (1,858)
Net income (loss) 1,565 300 (1,347) 45 (1,875)
Income (loss) per share:
Primary .52 .11 (.49) .02 (.68)
Fully diluted .48 .10 (.49) .02 (.68)
Total assets 31,200 28,085 26,423 28,857 26,069
Long-term debt 8,344 6,429 5,339 6,059 5,621
Working capital 15,351 12,064 10,721 13,359 13,420
Property, plant and
equipment (net) 3,492 3,034 3,262 3,180 3,245
Cash dividends - - - - -
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<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 1997 Compared with 1996
Net sales for 1997 were $51.5 million, an increase of 19%, compared with $43.2
million in 1996. The increase was principally due to incremental sales worldwide
of certain new products. The backlog of orders was $7.0 million at September 30,
1997 compared with $3.1 million at September 30, 1996.
Gross profit margins for 1997 increased 11% to 28.1% compared with 25.4% in
1996. The margin improvement was principally attributable to capacity gains from
increased sales, higher margins on certain new products and lower costs for
video products.
Operating expenses increased $2.0 million to $11.7 million in 1997 compared with
$9.7 million in 1996. The increase is the result of payroll and related costs as
the Company added sales, technical support and engineering personnel to support
increased sales and product development activities. The Company also incurred
$225,000 of costs and expenses to relocate to a new principal operating
facility. Interest expense increased by $261,000 to $1,144,000 as a result of
increased bank borrowings to support higher levels of working capital.
The increase in income of approximately $1.3 million was due to higher sales and
gross margins, offset in part by increased operating expenses.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared with 1995
Net sales for 1996 were $43.2 million, a decrease of 1.5%, compared with $43.8
million in 1995. The sales decline was principally the result of the termination
of low margin video product sales (cameras and VCR's) to a Far East distributor.
Lower sales in Europe due to delays in new product introduction were offset by
increased other export sales. Domestic revenue levels were essentially unchanged
from 1995. The backlog of orders was $3.1 million at September 30, 1996 compared
with $2.7 million at September 30, 1995.
Gross profit margins were 25.4% of net sales in 1996, compared with 21.8% in
1995. The margin improvement was due principally to a beneficial sales mix of
higher margin products, particularly new proprietary digital video products and
control systems. The Company also shifted sourcing of a major portion of its
video product line to lower cost suppliers outside of Japan. In addition, during
1996, the value of the dollar increased against the Japanese yen which increased
margins for those few products still sourced in Japan.
Operating expenses totaled $9.7 million in 1996 compared with $9.8 million in
1995. Operating expenses, as a percent of sales, amounted to 22.5% and 22.4% in
1996 and 1995, respectively. The decline in expenses was due primarily to
ongoing cost control measures.
During 1996, the Company recorded an unrealized foreign exchange gain of
$42,000. 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.
Interest expense declined $131,000 due principally to the lower cost of new bank
borrowings.
Income improved approximately $1.6 million principally as a result of the higher
gross margins discussed above.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND FINANCIAL CONDITION
September 30, 1997 Compared with 1996
Working capital increased approximately $3.3 million to $15.4 million at
September 30, 1997 principally as a result of higher receivables and inventories
financed by long term bank borrowings.
Accounts receivable increased approximately $.9 million to $9.6 million at
September 30, 1997, as a result of a 30% increase in 1997 fourth quarter sales.
Inventories increased $1.9 million to $16.6 million at September 30, 1997 due
principally to increased levels of parts and work-in-process for a new line of
domed camera products. Total current liabilities decreased $.6 million as cash
generated from operations was used to pay down current debt. Long term debt
increased $1.9 million to support higher levels of inventory and receivables as
a result of a 19% or $8.3 million growth in 1997 sales.
Capital expenditures totaled $1,202,000 in fiscal 1997. The expenditures were
principally for leasehold improvements and furniture and fixtures related to the
Company's move to a new principal operating facility. In December 1997, the
Company entered into negotiations to acquire the new facility for $3.3 million
and finance it with a bank mortgage loan of $2.9 million.
The Company maintains a bank overdraft facility of 600,000 pounds sterling
(approx. $960,000) in the U.K. to support local working capital requirements. At
September 30, 1997, borrowings under this facility were approximately $169,000.
The Company's domestic bank loan agreement permits borrowings up to a maximum of
$6.5 million, subject to an availability formula based on accounts receivable
and inventories. The agreement expires on January 31, 1999. Borrowings under
such agreement amounted to approximately $6.0 million and $4.1 million at
September 30, 1997 and 1996, respectively. The Company purchases certain
products from a related party, Chugai Boyeki Co., Ltd. and its affiliates
(Chugai) whose extended trade payables bear interest and are due on demand. The
Company historically has made trade payable payments to Chugai as cash
availability permits. The Company believes that its sources of credit provide
adequate funding to meet its near term cash requirements.
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<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.
Japanese sourced products denominated in Japanese yen accounted for
approximately 7% of product purchases in fiscal 1997 and 1996. Although the
dollar strengthened against the Japanese yen during fiscal 1997 and 1996, in
past years the dollar had 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. The Company's
purchases from Japan are denominated in Japanese yen. At the Company's
direction, Chugai Boyeki Co., Ltd., its Japanese supplier, has entered into
foreign exchange contracts on behalf of the Company to hedge the currency risk
on these product purchases.
Sales by the Company's U.K. subsidiary to customers in Europe are made in
pounds sterling. In fiscal 1997 approximately $3.3 million of products were
sold by the Company to its U.K. subsidiary for resale. In the years when the
pound weakened significantly against the U.S. dollar, the cost of U.S. sourced
product sold by the Company's U.K. subsidiary increased. When market
conditions permitted, such cost increases were passed on to the customer
through price increases. The Company attempts to control its currency
exposure on intercompany sales through the purchase of forward exchange
contracts.
In general, the Company attempts to increase prices and seek lower costs 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 remains low. However, inflation continues to increase costs to the
Company. As operating expenses and production costs increase, the Company seeks
price increases to its customers to the extent permitted by competition.
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
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<PAGE>
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND OFFICERS OF THE REGISTRANT
The Directors, Executive Officers and Officers of the Company are as follows:
Donald N. Horn, age 68 Chairman of the Board (since 1967);
term ends April 1999
Kenneth M. Darby, age 51 President, Chief Executive Officer,
Assistant Secretary, and Director
(since 1987); term ends April, 2000
Arthur D. Roche, age 59 Executive Vice President, Chief
Financial Officer, Secretary, Member
of the Office of the President and
Director (since 1992); term ends
April 1999
Peter F. Barry, age 69 Director since 1984; term ends April
1999
Milton F. Gidge, age 68 Director since 1987; term ends April
1998
Michael D. Katz, age 59 Director since 1993; term ends April
1998
Peter F. Neumann, age 63 Director since 1987; term ends April
2000
W. Gregory Robertson, age 53 Director since 1991; term ends April
1998
Kazuyoshi Sudo, age 55 Director since 1987; term ends April
2000
Arthur V. Wallace, age 72 Director since 1974; term ends April
1998
John L. Eckman, age 48 Vice President, U.S. Sales
Peter A. Horn, age 42 Vice President, Compliance and Quality
Assurance
Yacov A. Pshtissky, age 46 Vice President, Technology and Develop.
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.
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<PAGE>
Mr. Gidge is a retired executive officer of Lincoln Savings Bank (1976-1994) and
served as its Chairman, Credit Policy. He 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 since 1970.
Mr. Neumann is the retired President of Flynn-Neumann Agency, Inc. an
insurance brokerage firm. 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 is Chief Executive Officer of Chugai Boyeki (America) Corp., a
distributor of electronic, chemical and optical products. From 1985 to 1997
he was Treasurer of such company.
Mr. Wallace, who joined the Company in 1970, was Executive Vice President from
1979 until he retired in September, 1990.
Mr. Eckman joined the Company in August 1995 as Eastern Regional Manager. He
was promoted to Vice President, U.S. Sales in July, 1996. Prior to joining
the Company, he was Director of Field Operations for Cardkey Systems, Inc.
with whom he was employed for twelve years.
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.
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.
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<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, 1997 and certain written
representations, no person, who, at any time during the year ended September 30,
1997 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, 1997.
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.
Annual Long Term
Compensation Compensation
Fiscal
Name and Year Ended Options All Other
Principal Position September 30, Salary No. of Shares Compensation
Kenneth M. Darby 1997 $225,000 58,000 $87,017 (4)
Chief Executive Officer 1996 $195,000 95,000 $34,750 (2)
1995 $195,000 - $ 3,000 (1)
Arthur D. Roche 1997 $170,000 35,000 $45,240 (5)
Executive Vice President 1996 $150,000 25,000 $15,875 (3)
1995 $150,000 - -
No listed officer received other non-cash compensation amounting to more than
10% of salary.
(1) Represents life insurance policy payment.
(2) Represents life insurance policy payment of $3,000 and bonus in the form
of 16,933 shares of common stock issued from Treasury.
(3) Represents bonus in the form of 8,467 shares of common stock issued
from Treasury.
(4) Represents life insurance policy payment of $3,000 and cash bonus of
$84,017.
(5) Represents cash bonus.
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<PAGE>
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%
- ---------------- -------- ----------- --------- ---------- ------- -------
Kenneth M. Darby 38,000 16% 2.5000 10/01 $26,200 $58,000
20,000 8% 3.0625 4/02 $16,900 $37,400
Arthur D. Roche 25,000 10% 2.5000 10/01 $17,300 $38,200
10,000 4% 3.0625 4/02 $ 8,500 $18,700
Options granted in the year ended September 30, 1997 were issued under the 1996
Incentive Stock Option Plan. The options granted above are exercisable as
follows: up to 30% of the shares at the grant date, an additional 30% of the
shares on the first anniversary of the grant date, and the balance of the shares
on the second anniversary of the grant date, except that no option is
exercisable after the expiration of five years from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
At September 30, 1997
Number of Value of
Shares Unexercisable Unexercisable
Acquired Value In-the-Money In-the-Money
Name On Exercise Realized (1) Options (3) Options (2)
- ---------------- ----------- ------------ ------------- -----------
Kenneth M. Darby 153,432 $698,621 78,600 $484,775
Arthur D. Roche 75,500 $343,750 34,500 $206,875
(1)Calculated based on the difference between the closing quoted market value
($6.50) per share at the date of exercise and the exercise price.
(2) Calculated based on the closing quoted market value ($8.375).
(3) No options were exercisable by the above named officers at September 30,
1997.
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<PAGE>
Mr. Darby and Mr. Roche have each entered into employment agreements with the
Company that provide for annual salaries of $225,000 and $170,000, respectively
through fiscal years 2002 and 1999, respectively. Each of these agreements
provides for payment in an amount up to three times their average annual
compensation for the previous five years if there is a change in control without
Board of Director approval (as defined in the agreements). Mr. Darby's agreement
also provides for a deferred compensation benefit of 45,952 shares of common
stock held by the Company in treasury. Such benefit vests upon retirement of the
executive or earlier, under certain conditions. The quoted market value
of such benefit approximated $345,000 at the date of grant.
Messrs. D. Horn and A. Wallace (current directors) 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, were each
compensated at the rate of $600 per Board meeting and $300 per committee meeting
attended in person while the Chairman of the Board was compensated at the rate
of $1,000 per Board meeting and $300 per committee meeting attended in person
through December 31, 1996. Since January 1, 1997, the directors and Chairman
have been compensated at annual rates of $6,000 and $10,000, respectively, while
committee fees have been $500 per meeting attended in person. Employee directors
are not compensated for Board or committee meetings.
- 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 himself.
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, 1992, with the return on the same investment in the AMEX Market Value
Index.
(The following table was represented by a chart in the printed material)
Vicon AMEX Market
Date Industries, Inc. Value Index
10/01/92 100 100
10/01/93 58 122
10/01/94 60 122
10/01/95 63 145
10/01/96 83 152
10/01/97 279 191
- 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 15, 1997 except for Mr. Chu Chun, and the shares
beneficially owned by the Company's Directors and by all Officers and Directors
as a group.
Name and Address Amount of
of Beneficial Owner Beneficial Ownership (1) % of Class
------------------- ------------------------ ----------
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 16.8%
Chu Chun
C/O I.I.I. Companies, Inc.
915 Hartford Turnpike
Shrewsbury, MA 01545 204,507 (7) 6.2%
******************************************************************************
C/O Vicon Industries, Inc.
Michael D. Katz 257,700 (2) 7.9%
Kenneth M. Darby 246,087 (3) 7.5%
Arthur D. Roche 136,967 (4) 4.2%
Donald N. Horn 101,003 (2) 3.1%
Arthur V. Wallace 26,695 (2) .8%
Kazuyoshi Sudo 14,000 (2) .4%
Milton F. Gidge 10,000 (5) .3%
Peter F. Neumann 8,000 (2) .2%
Peter F. Barry 5,600 (2) .2%
W. Gregory Robertson 5,000 (2) .2%
Total all officers and
directors as a group
(13 persons) 900,502 (6) 27.5%
(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 49,400 shares.
(4) Includes currently exercisable options to purchase 17,500 shares.
(5) Includes currently exercisable options to purchase 8,000 shares.
(6) Includes currently exercisable options to purchase 198,600 shares.
(7) Mr. Chun has voting and dispositive power over 204,507 shares but
disclaims beneficial ownership as to all but 48,400 shares. 100,707
shares are owned by the International Industries, Inc. Profit Sharing
Plan and 55,400 shares are owned by immediate family members.
- 19 -
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Chugai Boyeki Company, Ltd. (Chugai), a Japanese corporation,
which owns 18.3% of the outstanding shares of the Company, have been conducting
business with each other for approximately eighteen 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 1997, the Company purchased approximately $7.1 million of
products through Chugai and sold products to Chugai for resale totaling
approximately $2.7 million. Kazuyoshi Sudo, a director, is Chief Executive
Officer of Chugai Boyeki (America) Corp., a U.S. subsidiary of Chugai.
Chu S. Chun, who controls 6.8% 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
1997, CSE sold approximately $7.0 million of product to the Company through
International Industries, Inc. (I.I.I.), a U.S. based company controlled by
Mr. Chun. I.I.I. arranges the importation and provides short term financing
on all the Company's product purchases from CSE. CSE also sold approximately
$1.7 million of product to CSI which sells Vicon product exclusively in Korea.
In addition, I.I.I. purchased approximately $1.1 million of products directly
from the Company during fiscal 1997 for resale to CSI.
Peter F. Neumann, a director of the Company, is a former principal in the
insurance brokerage firm of Bradley & Parker, Inc. which is the agent for
certain of the Company's commercial insurance. The premium paid for such
insurance amounted to approximately $61,000 in fiscal 1997.
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 1997 amounted to approximately $5,000.
- 20 -
<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, 1997, 1996, and 1995
Consolidated Balance Sheets at September 30, 1997 and 1996
Consolidated Statements of Shareholders' Equity, fiscal years ended
September 30, 1997, 1996, and 1995
Consolidated Statements of Cash Flows, fiscal years ended September
30, 1997, 1996, and 1995
Notes to Consolidated Financial Statements, fiscal years ended
September 30, 1997, 1996, and 1995
(a) (2) Financial Statement Schedule
Included in Part IV, Item 14:
Schedule I - Valuation and Qualifying Accounts for the years
ended September 30, 1997, 1996, and 1995
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.
- 21 -
<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 Incorporated by reference
dated December 27, 1995 to the 1995 Annual Report
between the Registrant and on Form 10-K
IBJ Schroder Bank and Trust
Company
(.2) Credit and Security Agreement Incorporated by reference
between the Registrant and IBJ to the 1996 Annual Report
Schroder Bank and Trust Company, on Form 10-K
First Amendment dated August 19,
1996.
(.3) Credit and Security Agreement Incorporated by reference
between the Registrant and IBJ to the March 31, 1997
Schroder Bank and Trust Company, filing on Form 10-Q
Second Amendment dated
February 5, 1997.
(.4) Promissory Note dated 10.4
October 5, 1993 between
Registrant and Chugai Boyeki
Company, Ltd., first amendment
dated February 5, 1997.
(.5) Employment Contract dated 10.5
October 1, 1997 between the
Registrant and Kenneth M. Darby
(.6) Employment Contract dated October Incorporated by reference
1, 1996 between Registrant to the 1996 Annual Report
and Arthur D. Roche on Form 10-K
(.7) Employment Agreement dated October 10.7
1, 1997 between Registrant and
John L. Eckman
(.8) Employment Agreement dated October 10.8
1, 1997 between Registrant and
Peter Horn
(.9) Employment Agreement dated October 10.9
1, 1997 between Registrant and
Yacov Pshtissky
- 22 -
<PAGE>
(.10) 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
(.11) Lease agreement dated December Incorporated by
24, 1996 between the Registrant reference to the 1996
and RREEF MIDAMERICA/EAST-V Annual Report on Form
NINE, INC. 10-K
(.12) Amended and restated 1986 Incorporated by
Incentive Stock Option Plan reference to the 1990
Annual Report on Form 10-K
(.13) 1994 Incentive Stock Option Plan Incorporated by
reference to the
1994 Annual Report
on Form 10-K
(.14) 1994 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1994 Annual Report
on Form 10-K
(.15) 1996 Incentive Stock Option Plan 10.15
(.16) 1996 Non-Qualified Stock Option 10.16
Plan for Outside Directors
(.17) Advice of borrowing terms Incorporated by
between the Registrant and reference to the
National Westminster Bank PLC June 30, 1997 filing
dated April 22, 1997 on Form 10-Q
(.18) Commercial fixed rate loan Incorporated by
agreement between the Registrant reference to the
and National Westminster Bank PLC June 30, 1997 filing
dated April 8, 1997 on Form 10-Q
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.
- 23 -
<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), 33-90038 (filed February
24, 1995) and 333-30097 (filed June 26, 1997):
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.
- 24 -
<PAGE>
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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1997, 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 12, 1997
- 25 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Net sales $51,518,940 $43,191,446 $43,846,571
Cost of sales 37,043,750 32,234,192 34,300,638
------------ ---------- -----------
Gross profit 14,475,190 10,957,254 9,545,933
Operating expenses:
General and administrative expense 3,542,400 2,931,333 3,366,662
Selling expense 7,957,340 6,800,361 6,433,483
Relocation expense 225,129 - -
---------- --------- -----------
11,724,869 9,731,694 9,800,145
---------- --------- -----------
Operating profit (loss) 2,750,321 1,225,560 (254,212)
Other (39,896) (41,908) (550)
Interest expense 1,143,699 882,290 1,013,383
---------- ----------- -----------
Income (loss) before income taxes 1,646,518 385,178 (1,267,045)
Income tax expense 82,000 85,000 80,000
---------- ----------- -----------
Net income (loss) $1,564,518 $ 300,178 $(1,347,045)
========== =========== ===========
Earnings (loss) per share:
Primary $ .52 $ .11 $(.49)
===== ===== =====
Fully diluted $ .48 $ .10 $(.49)
===== ===== =====
See accompanying notes to consolidated financial statements.
- 26 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
ASSETS 1997 1996
- ------ ---- ----
Current Assets:
Cash $ 287,580 $ 205,876
Accounts receivable (less allowance
of $493,000 in 1997 and
$396,000 in 1996) 9,578,297 8,706,839
Inventories:
Parts, components, and materials 3,399,133 2,175,408
Work-in-process 2,046,174 1,391,552
Finished products 11,188,217 11,135,798
---------- ----------
16,633,524 14,702,758
Prepaid expenses 307,580 529,631
---------- ----------
Total current assets 26,806,981 24,145,104
Property, plant and equipment:
Land 299,698 290,448
Building and improvements 1,653,503 1,507,630
Machinery, equipment, and vehicles 6,409,729 11,842,120
---------- ----------
8,362,930 13,640,198
Less accumulated depreciation
and amortization 4,870,717 10,606,013
---------- ----------
3,492,213 3,034,185
Other assets 900,417 905,327
---------- ----------
$31,199,611 $28,084,616
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Borrowings under revolving credit agreement $ 169,006 $ 959,583
Current maturities of long-term debt 515,092 203,719
Accounts payable:
Related party 7,146,985 7,457,482
Other 1,407,917 1,811,730
Accrued wages and expenses 2,111,670 1,229,087
Income taxes payable 105,188 87,205
Deferred gain on sale and leaseback - 332,100
----------- ----------
Total current liabilities 11,455,858 12,080,906
Long-term debt:
Related party 1,440,000 2,262,005
Banks and other 6,904,368 4,166,881
Deferred gain on sale and leaseback - 101,893
Other long-term liabilities 485,402 504,776
Commitments and contingencies - Note 10
Shareholders' equity
Common Stock, par value $.01 per share
Authorized - 10,000,000 shares
Issued 3,047,060 and 2,802,728 shares 30,470 28,027
Capital in excess of par value 9,868,063 9,423,089
Retained earnings (deficit) 1,280,907 (283,611)
---------- ----------
11,179,440 9,167,505
Less treasury stock at cost, 45,952 shares
in 1997 and 25,400 shares in 1996 (298,686) (82,901)
Foreign currency translation adjustment 33,229 (116,449)
---------- ----------
Total shareholders' equity 10,913,983 8,968,155
---------- ----------
$31,199,611 $28,084,616
See accompanying notes to consolidated financial statements.
- 27 -
<PAGE>
<TABLE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended September 30, 1997, 1996, and 1995
<CAPTION>
Foreign Total
Capital in Retained currency share-
Common excess of earnings Treasury translation holders'
Shares Stock par value (deficit) Stock adjustment equity
<S> <C> <C> <C> <C> <C> <C> <C>
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
Foreign currency translation
adjustment - - - - - 8,607 8,607
Exercise of stock options 14,500 145 26,199 - - - 26,344
Net income - - - 300,178 - - 300,178
--------- ------ ---------- ---------- -------- ---------- -----------
Balance September 30, 1996 2,802,728 $28,027 $9,423,089 $ (283,611) $(82,901) $ (116,449) $ 8,968,155
Foreign currency translation
adjustment - - - - - 149,678 149,678
Stock bonus awarded from
treasury - - (28,926) - 82,901 - 53,975
Exercise of stock options 244,332 2,443 473,900 - (298,686) - 177,657
Net income - - - 1,564,518 - - 1,564,518
--------- ------ ---------- ---------- --------- ---------- -----------
Balance September 30, 1997 3,047,060 $30,470 $9,868,063 $1,280,907 $(298,686) $ 33,229 $10,913,983
========= ======= ========== ========== ========= ========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 28 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 1,564,518 $ 300,178 $(1,347,045)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 783,859 699,211 704,900
Amortization of deferred gain
on sale and leaseback (433,993) (332,100) (332,100)
Stock bonus award 53,975 - -
Foreign exchange gain (39,896) (41,908) (550)
Change in assets and liabilities:
Accounts receivable (820,556) (122,162) 1,417,089
Inventories (1,880,543) (2,593,382) 1,358,533
Prepaid expenses 230,371 (218,762) 13,513
Other assets 4,910 67,780 (30,000)
Accounts payable (727,574) 1,045,453 708,591
Accrued wages and expenses 875,673 (460,350) 409,285
Income taxes payable 14,762 7,517 48,077
Other liabilities (19,374) (45,833) (63,878)
----------- ----------- ----------
Net cash (used in) provided
by operating activities (393,868) (1,694,358) 2,886,415
----------- ---------- -----------
Cash flows from investing activities:
Capital expenditures, net of
minor disposals (925,024) (482,111) (608,808)
----------- ----------- ----------
Net cash used in
investing activities (925,024) (482,111) (608,808)
----------- ----------- ----------
Cash flows from financing activities:
Net borrowings under U.S.
credit and security agreement 1,860,518 4,142,898 -
Repayments of U.S. revolving
credit agreement - (2,800,000) (1,700,000)
Proceeds from exercise of
stock options 177,657 26,344 -
Decrease (increase) in borrowings
under U.K. revolving credit
agreement (831,275) 57,251 (29,511)
Borrowings under U.K. term loan 810,000 - -
Repayments of U.K. mortgage (353,112) (140,846) (145,280)
Repayment of term loan (200,000) - -
Repayments of other debt (127,280) (79,779) (92,443)
---------- ---------- ----------
Net cash provided by (used
in) financing activities 1,336,508 1,205,868 (1,967,234)
---------- ---------- ----------
Effect of exchange rate changes on cash 64,088 24,627 (68,923)
---------- ---------- ----------
Net increase (decrease) in cash 81,704 (945,974) 241,450
Cash at beginning of year 205,876 1,151,850 910,400
---------- ---------- ----------
Cash at end of year $ 287,580 $ 205,876 $1,151,850
========== ========== ==========
Non-cash investing and financing activities:
Capital lease obligations $ 276,624 - $ 178,151
Cash paid during the fiscal year for:
Income taxes $ 29,203 $ 78,121 $ 32,097
Interest $1,118,963 $ 888,061 $ 974,640
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 1997, 1996, and 1995
NOTE 1. Summary of Significant Accounting Policies
Nature of Operations
The Company designs, manufactures, assembles and markets closed circuit
television components and systems for use in security, surveillance, safety,
process and control applications by end users. The Company markets its products
worldwide directly to distributors, dealers and original equipment
manufacturers, principally within the security industry.
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.
Long-Lived Assets
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. In connection with the Company's move to a new
principal operating facility in 1997, approximately $6.3 million of fully
depreciated abandoned assets and leasehold improvements were written off.
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long- Lived Assets to be Disposed Of," effective October 1, 1996. The Company
reviews its long-lived assets (property, plant and equipment) for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected cash flows, undiscounted and
without interest, is less than the carrying amount of the asset, an impairment
loss is recognized as the amount by which the carrying amount of the asset
exceeds its fair value. The adoption of Statement No.121 had no impact on the
Company's financial position or results of operations.
Research and Development
Product research and development costs are charged to cost of sales as incurred,
and amounted to approximately $2,000,000, $1,800,000 and $1,900,000 in fiscal
1997, 1996, and 1995, respectively.
- 30 -
<PAGE>
Earnings Per Share
Earnings per share are computed based on the weighted average number of shares
outstanding and equivalent shares from dilutive stock options. The number of
shares used to compute primary earnings/(loss) per share were 3,022,000 in 1997,
2,841,000 in 1996 and 2,763,000 in 1995, respectively.
Fully diluted earnings per share reflect the maximum dilution that would have
resulted from the exercise of stock options. The number of shares used to
compute fully diluted earnings per share were 3,257,000 in 1997, 2,874,000 in
1996 and 2,763,000 in 1995, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" which will
require companies to present basic and diluted earnings per share (EPS), instead
of primary and fully diluted EPS that is currently required. The new standard
simplifies the computation of EPS and is required to be adopted by the Company
when it reports its operating results for the first quarter ended December 31,
1997 of fiscal year ended 1998. The standard requires restatement of EPS for all
prior periods reported. Under the requirements of SFAS No. 128, the Company's
EPS would be as follows:
1997 1996 1995
---- ---- ----
Basic earnings (loss) per share $.56 $.11 $(.49)
Diluted earnings (loss) per share $.48 $.10 $(.49)
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 $33,000 and $(116,000) at September 30, 1997 and 1996,
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 $35,000, $14,000 and $47,000 in 1997, 1996, and 1995,
respectively, which is reflected in cost of sales. Gains and losses on contracts
which hedge specific foreign currency denominated commitments, primarily
inventory purchases, are included in cost of sales.
Income Taxes
The Company accounts for income taxes under the provisions 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).
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments. The carrying amounts for accounts and other
receivables, accounts payable and accrued expenses approximate fair value
because of the short-term maturity of these instruments. The carrying amounts of
the Company's long-term debt and extended term related party accounts payable
approximates fair value since the interest rates are prime-based and,
accordingly, are adjusted for market rate fluctuations. The fair value of
forward exchange contracts is estimated by obtaining quoted market prices. The
exchange rates on committed forward exchange contracts at September 30, 1997
approximated market rates for similar term contracts.
- 31 -
<PAGE>
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 interest in Chun Shin Electronics, Inc., a
joint venture company which assembles certain Vicon products in South Korea, is
accounted for using the equity method of accounting which reflects the cost of
the Company's investment adjusted for the Company's proportionate share of
earnings or losses. Such earnings or losses were not material during each of the
three years ended September 30, 1997. Assets and sales of the joint venture were
approximately $4.9 million and $8.8 million, respectively, for the fiscal year
ended September 30, 1997. A significant portion of joint venture product sales
were to related parties including approximately $7.0 million indirectly to the
Company and approximately $1.7 million to a company owned by the other joint
venture partner (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 was amortized over the ten-year
lease period. The Company terminated this lease in 1997 and wrote off the
unamortized balance against the cost of relocation.
NOTE 4. Short-Term Borrowings
Borrowings under revolving credit agreement represent short term borrowings by
the Company's U.K. subsidiary under a bank overdraft facility. In April 1997,
such credit agreement was amended to provide for maximum borrowings of 600,000
pounds ($972,000) and is secured by all the assets of the subsidiary. Maximum
borrowings during 1997, 1996 and 1995 amounted to approximately $1,282,000,
$1,045,000 and $1,083,000, respectively. The weighted-average interest rate on
borrowings during these years was 8.27% in 1997, 8.00% in 1996 and 8.50% in
1995.
At September 30, 1997 and 1996, Accounts Payable - related party included
approximately $5.0 million and $4.4 million, respectively, of extended accounts
payable balances due Chugai Boyeki Company, Ltd., a shareholder of the Company.
The extended accounts payable balance at September 30, 1997 and 1996, includes
approximately $4.7 million and $4.1 million, respectively, of purchases
denominated
- 32 -
<PAGE>
in U.S. dollars which bear interest at the prime rate of the related party's
U.S. bank (8.50% and 8.25% at September 30, 1997 and 1996, respectively). The
remaining balances are denominated in Japanese yen and bear interest at the
related party's internal lending rate (4.0% at September 30, 1997 and 1996).
NOTE 5. Income Taxes
The components of income tax expense for the fiscal years indicated are as
follows:
1997 1996 1995
---- ---- ----
Federal $ 24,000 $ - $ -
State 5,000 - -
Foreign 53,000 85,000 80,000
------------- ----------- -------------
$ 82,000 $ 85,000 $ 80,000
============= =========== =============
There were no deferred taxes in any of the years presented above.
A reconciliation of the U.S. statutory tax rate to the Company's effective tax
rate follows:
1997 1996 1995
---- ---- ----
Amount Percent Amount Percent Amount Percent
U.S. statutory tax $560,000 34.0% $131,000 34.0 % $(431,000) 34.0%
Change in valuation
allowance (467,000) (28.3) (56,000) (14.5) 532,000 42.0
Foreign subsidiary
operations 3,000 0.2 - - (42,000) (3.3)
Officers' life insurance 4,000 0.2 5,000 1.3 17,000 1.3
Other (18,000) (1.1) 5,000 1.3 $ 4,000 0.3
-------- ------ ------ ----- --------- -----
Effective Tax Rate $ 82,000 5.0% $85,000 22.1% $ 80,000 6.3%
======== ====== ======== ===== ========= =====
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<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at September 30, 1997 and 1996 are
presented below:
1997 1996
---- ----
Deferred tax assets:
Deferred gain on sale and leaseback $ - $ 146,000
Inventory obsolescence and
disposition reserves 457,000 418,000
Deferred compensation accruals 199,000 206,000
Allowance for doubtful
accounts receivable 162,000 123,000
Net operating loss carryforwards 1,726,000 2,001,000
General business credit carryforwards 186,000 186,000
Other 8,000 8,000
---------- ----------
Total deferred tax assets 2,738,000 3,088,000
Less valuation allowance (2,525,000) (2,992,000)
---------- ----------
Net deferred tax assets 213,000 96,000
---------- ----------
Deferred tax liabilities:
Cash surrender value of officers'
life insurance 73,000 73,000
Other 140,000 23,000
---------- -----------
Total deferred tax liabilities 213,000 96,000
---------- -----------
Net deferred tax assets and liabilities $ -0- $ -0-
---------- -----------
The Company has provided a valuation allowance of $2,525,000 for deferred tax
assets since realization of these assets was not assured. At September 30, 1997,
the Company had net operating loss carryforwards for federal income tax purposes
of approximately $5,100,000 which are available to offset future federal taxable
income, if any, through 2011. 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 income (loss) amounted to approximately $1,414,000, $136,000 and
($1,626,000) in fiscal years 1997, 1996 and 1995, respectively. Pretax foreign
income amounted to approximately $236,000, $311,000 and $291,000 in fiscal years
1997, 1996 and 1995, respectively.
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<PAGE>
NOTE 6. Long-Term Debt
Long-term debt is comprised of the following at September 30, 1997 and 1996:
1997 1996
---- ----
Related party:
Mortgage loan denominated in Japanese
yen at a formula interest rate
(6.3% at September 30, 1996) $ - $ 393,008
Term loan with interest rate of 1%
above the prevailing prime rate
(9.50% and 9.25% at September 30, 1997
and 1996) 1,800,000 2,000,000
---------- ----------
1,800,000 2,393,008
Less installments due within one year 360,000 131,003
---------- ----------
$1,440,000 $2,262,005
Banks and other:
Revolving credit loan $6,003,416 $4,142,898
Bank term loan 776,250 -
Capital lease obligations 279,794 86,520
Other - 10,179
---------- ----------
7,059,460 4,239,597
Less installments due within one year 155,092 72,716
---------- ----------
$6,904,368 $4,166,881
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. The
remaining balance at September 30, 1997 is due in installments of $360,000 on
July 1, 1998 and $1,440,000 on July 1, 1999.
In December 1995, the Company entered into a two year Credit and Security
Agreement with a bank which currently provides for maximum borrowings of
$6,500,000, subject to an availability formula based on accounts receivable and
inventory balances. In February 1997, the term of the agreement was extended to
January 31, 1999. Borrowings under the agreement bear interest at the bank's
prime rate plus 1.00% (9.50% at September 30, 1997). The Credit and Security
Agreement 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 this agreement are secured by
substantially all assets of the Company.
In April 1997, the Company repaid its U.K. related party mortgage loan with the
proceeds of a new ten year 500,000 pound sterling (approx. $810,000) bank term
loan. The term loan is payable in equal monthly installments with interest at a
fixed rate of 9%. The loan is secured by a first mortgage on the subsidiary's
property and contains restrictive covenants which, among other things, require
the subsidiary to maintain certain levels of net worth, earnings and debt
service coverage.
Long-term debt maturing in each of the fiscal years subsequent to September 30,
1997 approximates $515,000 in 1998, $7,577,000 in 1999, $139,000 in 2000,
$144,000 in 2001, $113,000 in 2002 and $371,000 thereafter.
At September 30, 1997, future minimum annual rental commitments under
non-cancelable capital lease obligations were as follows: $100,090 in 1998,
$69,334 per year in 1999 through 2001, and $33,454 in 2002.
- 35 -
<PAGE>
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.
The following summarizes certain information concerning the Company's operations
in the U.S. and U.K. for fiscal years 1997, 1996, and 1995:
1997 1996 1995
---- ---- ----
Net sales
U.S. $43,605,000 $35,468,000 $34,294,000
U.K. 7,914,000 7,723,000 9,553,000
----------- ----------- -----------
Total $51,519,000 $43,191,000 $43,847,000
Operating profit (loss)
U.S. $ 2,387,000 $ 805,000 $ (827,000)
U.K. 363,000 421,000 573,000
----------- ----------- -----------
Total $ 2,750,000 $ 1,226,000 $ (254,000)
Identifiable assets
U.S. $26,372,000 $23,260,000 $21,213,000
U.K. 4,828,000 4,825,000 5,210,000
----------- ----------- -----------
Total $31,200,000 $28,085,000 $26,423,000
Net assets-- U.K. $ 1,515,000 $ 935,000 $ 711,000
U.S. sales include $9,930,000, $8,531,000 and $7,987,000 for export in
fiscal years 1997, 1996, and 1995, respectively. Operating profit (loss)
excludes foreign exchange gain/loss, interest expense and income taxes. U.S.
assets include $162,000, $117,000 and $1,127,000 in fiscal years 1997, 1996 and
1995, respectively, of cash for general corporate use.
NOTE 8. Stock Options and Stock Purchase Rights
The Company maintains stock option plans which include both incentive and
non-qualified options covering a total of 467,032 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 under the 1996
Incentive Stock Option Plan, as well as a total of 50,000 options reserved for
issuance under the 1996 NonQualified Stock Option Plan for Outside Directors,
approved by the shareholders in April 1997. All options are issued at fair
market value at the grant date and are exercisable in varying installments
according to the plans. The plans allow for the payment of option exercises
through the surrender of previously owned shares based on the fair market value
of such shares at the date of surrender. During fiscal 1997, a total of 45,952
common shares were surrendered pursuant to stock option exercises, which are
held in treasury. There were 47,535 and 32,935 shares available for grant at
September 30, 1997 and 1996, respectively. As of September 30, 1997, 1996, and
1995, options exercisable pursuant to the plans amounted to 149,838, 289,471 and
198,783, respectively.
- 36 -
<PAGE>
Changes in outstanding stock options for the three years ended September 30,
1997 are as follows:
Weighted
Number Average
of Exercise
Shares Price
Balance - September 30, 1994 431,174 $2.03
Options granted 25,000 $1.94
Options exercised - -
Options forfeited (156,513) $2.07
- ------------------------------------------------------------
Balance - September 30, 1995 299,661 $2.01
Options granted 245,397 $1.72
Options exercised (14,500) $1.82
Options forfeited (85,909) $2.13
- ------------------------------------------------------------
Balance - September 30, 1996 444,649 $1.83
Options granted 241,000 $2.77
Options exercised (244,332) $1.95
Options forfeited (21,820) $2.35
- ------------------------------------------------------------
Balance - September 30, 1997 419,497 $2.27
Price range $1.69 - $2.24
(weighted-average contractual 206,897 $1.78
life of 2.7 years)
Price range $2.25 - $3.06
(weighted-average contractual 212,600 $2.76
life of 4.3 years)
- ---------------------
Exercisable options -
September 30, 1995 198,783 $2.07
September 30, 1996 289,471 $1.89
September 30, 1997 149,838 $1.96
- ------------------------------------------------------------
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of this Statement. The fair
value for options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1997
and 1996.
1997 1996
Risk-free interest rate 6.0% 6.0%
Dividend yield 0.0% 0.0%
Volatility factor 52.7% 46.2%
Weighted average expected life 3 years 3 years
- ---------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
- 37 -
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income and earnings per share are as follows:
1997 1996
---- ----
Net income:
As reported $1,564,518 $300,178
Pro forma $1,364,368 $213,848
Net earnings per share:
As reported
Primary $.52 $.11
Fully diluted $.48 $.10
Pro forma
Primary $.45 $.08
Fully diluted $.42 $.07
Weighted average fair value
of options granted $1.13 $0.64
Pro forma net earnings reflect only options granted in fiscal 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net earnings amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to October 1, 1995 was
not considered.
NOTE 9. Industry Segment and Major Customer
The Company operates in one industry which encompasses 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 December 1996, the Company entered into a five year lease agreement for a new
principal operating facility. The aggregate remaining commitment under such
agreement amounted to $1,614,000 at September 30, 1997 with minimum rentals for
the fiscal years shown as follows: 1998 -- $370,000; 1999 -- $377,000; 2000 --
$385,000; 2001 -- $392,000; and 2002 -- $90,000. Additionally, the Company
occupies certain other facilities, or is contingently liable, under operating
leases which expire at various dates through 2000. The leases, which cover
periods from one to three years, generally provide for renewal options at
specified rental amounts. The aggregate operating lease commitment at September
30, 1997 was $106,000 with minimum rentals for the fiscal years shown as
follows: 1998 - $79,000; 1999 - $18,000; and 2000- $9,000.
The Company is a party to employment agreements with five executives which
provide for, among other things, the payment of compensation if there is a
change in control without Board of Director approval (as defined in the
agreements). The contingent liability under these change in control provisions
at September 30, 1997 was approximately $2,115,000. The total compensation
payable under these agreements aggregated $2,085,000 at September 30, 1997. The
Company is also a party to insured deferred compensation agreements with two
retired officers. The aggregate remaining
- 38 -
<PAGE>
compensation payments of approximately $813,000 as of September 30, 1997 are
subject to the individuals' adherence to certain non-compete covenants, and are
payable in monthly installments through December 2003.
In October 1997, the Company's Chief Executive Officer was provided a deferred
compensation benefit of 45,952 shares of common stock currently held by the
Company in treasury. The issuance of such shares occurs upon retirement of the
executive or earlier, under certain conditions. The market value of
such shares approximated $345,000 at the date of agreement, which will be
amortized over the expected minimum service period of the executive.
Sales to customers from the Company's U.K. subsidiary are denominated in British
pounds sterling. The Company attempts to minimize its currency exposure on these
sales through the purchase of forward exchange contracts to cover its U.S.
dollar denominated product cost. These contracts generally involve the exchange
of one currency for another at a future date and specified exchange rate. At
September 30, 1997, the Company had approximately $1,350,000 of outstanding
forward exchange contracts to sell British pounds. Such contracts expire at
varying dates and exchange rates through January 26, 1998.
The Company's purchases of Japanese sourced products through Chugai Boyeki Co.,
Ltd., a related party, are denominated in Japanese yen. At September 30, 1997,
the Company did not have any forward exchange contracts to purchase Japanese
yen.
NOTE 11: Related Party Transactions
As of September 30, 1997 and 1996, Chugai Boyeki Company, Ltd. and affiliates
("Chugai") owned 548,715 shares of the Company's common stock (18.3% of the
total outstanding shares). The Company, which has been conducting business with
Chugai for approximately 18 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 $7.1, $9.2 and $11.6 million of products and components from
Chugai in fiscal years 1997, 1996, and 1995, respectively, and the Company sold
$2.7, $2.1, and $3.4 million of product to Chugai for distribution in fiscal
years 1997, 1996, and 1995, respectively. At September 30, 1997 and 1996, the
Company owed $7.1 million and $7.5 million, respectively, to Chugai and Chugai
owed $276,000 and $148,000, 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 1997, the Company repaid
a mortgage loan made by Chugai. 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, 1997, Mr. Chu S. Chun controlled 204,507 shares of the
Company's common stock (6.8% of the total outstanding shares). Mr. Chun owns
Chun Shin Industries, Inc., the Company's 50% South Korean joint venture partner
in Chun Shin Security which purchases product from the joint venture (see Note
2). Mr. Chun also controls International Industries, Inc. (I.I.I.), a U.S. based
company, which arranges the importation and provides short term financing on all
the Company's product purchases from the joint venture company, Chun Shin
Electronics, Inc. During fiscal years 1997 and 1996, the Company purchased
approximately $7.0 million and $5.8 million of products from I.I.I. under this
agreement. In addition, the Company sold approximately $1,100,000 and $900,000
of its products to I.I.I. in 1997 and 1996, respectively. At September 30, 1997
and 1996, I.I.I. owed the Company approximately $279,000 and $368,000,
respectively.
- 39 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Net Earnings Per Share
Quarter Net Gross Net
Ended Sales Profit Profit Primary Fully Diluted
Fiscal 1997
December $11,298,000 $3,181,000 $ 215,000 $ .08 $ .08
March 12,328,000 3,392,000 166,000 .06 .06
June 13,726,000 3,910,000 543,000 .18 .18
September 14,167,000 3,992,000 641,000 .20 .19
----------- ---------- ----------- ----- -----
Total $51,519,000 $14,475,000 $ 1,565,000 $ .52 $ .48
=========== ========== =========== ===== =====
Fiscal 1996
December $10,512,000 $2,706,000 $ 102,000 $ .04 $ .04
March 10,856,000 2,748,000 125,000 .05 .05
June 10,902,000 2,735,000 41,000 .01 .01
September 10,921,000 2,768,000 32,000 .01 .01
----------- ----------- ----------- ----- -----
Total $43,191,000 $10,957,000 $ 300,000 $ .11 $ .10
=========== =========== =========== ===== =====
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>
SCHEDULE I
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 1997, 1996, and 1995
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
Reserves and allowances
deducted from asset
accounts:
Allowance for uncollectible
accounts:
September 30, 1997 $396,000 $273,000 $176,000 $493,000
======== ======== ======== ========
September 30, 1996 $542,000 $186,000 $332,000 $396,000
======== ======== ======== ========
September 30, 1995 $309,000 $381,000 $148,000 $542,000
======== ======== ======== ========
- 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.Officer)
December 24, 1997
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 December 24, 1997
- --------------------- -----------------
Donald N. Horn Chairman of the Board Date
Kenneth M. Darby Director December 24, 1997
- --------------------- -----------------
Kenneth M. Darby Date
Arthur D. Roche Director December 24, 1997
- --------------------- -----------------
Arthur D. Roche Date
Arthur V. Wallace Director December 24, 1997
- --------------------- -----------------
Arthur V. Wallace Date
Peter F. Barry December 24, 1997
- --------------------- -----------------
Peter F. Barry Director Date
Milton F. Gidge December 24, 1997
- --------------------- -----------------
Milton F. Gidge Director Date
Michael D. Katz December 24, 1997
- --------------------- -----------------
Michael D. Katz Director Date
Peter F. Neumann December 24, 1997
- --------------------- -----------------
Peter F. Neumann Director Date
W. Gregory Robertson December 24, 1997
W. Gregory Robertson Director Date
Kazuyoshi Sudo December 24, 1997
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)
December , 1997
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.
December , 1997
Donald N. Horn Chairman of the Board Date
Director December , 1997
Kenneth M. Darby Date
Director December , 1997
Arthur D. Roche Date
Director December , 1997
Arthur V. Wallace Date
December , 1997
Peter F. Barry Director Date
December , 1997
Milton F. Gidge Director Date
December , 1997
Michael D. Katz Director Date
December , 1997
Peter F. Neumann Director Date
December , 1997
W. Gregory Robertson Director Date
December , 1997
Kazuyoshi Sudo Director Date
- 42 -
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 1 AND CONSENT
TO
SUBORDINATION AGREEMENT
AMENDMENT NO.1 AND CONSENT (this "Amendment and
Consent"), dated as of February 5, 1997, to the Subordination
Agreement (the "Subordination Agreement") dated as of December
27, 1995 among Chugai Boyeki Company Limited (the "Subordinated
Lender"), Chugai Boyeki (America) Corp., Vicon Industries, Inc.
(the "Borrower") and IBJ Schroder Bank & Trust Company (the
"Bank"). Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed thereto in the
Subordination Agreement.
WHEREAS, the Borrower has delivered to the Subordinated
Lender the Subordinated Note;
WHEREAS, the Borrower and the Bank have requested that
the schduled amortization of the principal amount of the
Subordinated Note be amended as provided in the form of the
Secured Promissory Note attached hereto as Exhibit A (the "New
Note"); and
WHEREAS, the Subordinated Lender is willing to so amend
the Subordinated Note on the terms and conditions provided
herein.
NOW, THEREFORE, the parties hereto, being the parties
to the Subordination Agreement, hereby agree as follows:
1. Upon (i) the due execution and delivery by the
borrower to the Subordinated Lender of the New Note and the
payment in full to the Subordinated Lender of the first scheduled
amortization of principal provided thereby and (ii) the due
execution and delivery by the borrower to the Subordinated Lender
of the letter agreement attached hereto as Exhibit B, the
Subordinated Lender shall surrender to the Borrower for
cancellation the Subordinated Note as delivered by the Borrower
as of October 5, 1993 (the "Old Note"). The parties hereto
acknowledge and agree that the New Note shall thereupon replace
the Old Note for all purposes (including, without limitation, as
#20164625.2
<PAGE>
the Subordinated Note contemplated by the Subordination
Agreement), and the New Note shall be deemed for all purposes
(including, without limitation, for the purposes of the first
sentence of Section 2 of the Subordination Agreement) to have
been executed and delivered by the Borrower to the Subordinated
Lender as of October 5, 1993.
2. (a) The last two sentences of Section 1 of the
Subordination Agreement shall be deleted and, in lieu thereof,
new sentences shall read as follows:
"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, by
acceleration or otherwise) before July 1, 1999,
except for the scheduled payment on February 5,
1997 of $200,000 and the scheduled payment on
July 1, 1998 of $360,000, PROVIDED, HOWEVER, that
no payment of principal of the Subordinated Note
shall be made by the Borrower to the Subordinated
Lender at any time before July 1, 1999 in the
event that, after giving effect to such payment,
the Available Commitment (as defined in the Credit
Agreement) is less than $250,00. Notwithstanding
the foregoing, principal of the Subordinated Note
shall be permitted to become due and payable upon
the occurrance of any Event of Default
contemplated by paragraphs (e) or (i) of the
definition thereof contained in the Subordinated
Note."
(b) The number "$6,000,000" in Section 7 of the
Subordination Agreement shall be deleted and the number
"$6,500,000" shall be substitued in lieu thereof.
3. The Bank hereby consents to transactions
contemplated by Section 1 hereof, including without limitation
the amendment of the scheduled amortization of the principal
amount of the Subordinated Note to be effected thereby,
notwithstanding anything to the contrary contained in the
Subordination Agreement.
4. Except as provided in this Amendment and Consent,
the Subordination Agreement shall not be amended or modified and
shall remain in full force and effect.
5. This Amendment and Consent shall be governed by
and construed in accordance with the laws of the State of New
York.
6. This Amendment and Consent may be executed in one
or more couterparts, all of which taken together shall
constitute one and the same agreement.
#20164625.2 -2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and
delivered this Amendment and Consent as of the date first written
above.
CHUGAI BOYEKI COMPANY LIMITED
By:
Name: Kazuyoshi Sudu
Title:
CHUGAI BOYEKI (AMERICA) CORP.
By:
Name: Kazuyoshi Sudo
Title:
VICON INDUSTRIES, INC.
By:
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:
Name:
Title:
#20164625.1 -3-
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT EXHIBIT 10.5
AGREEMENT, dated as of October 1, 1997, between KENNETH M. DARBY
(hereinafter called "Darby") and VICON INDUSTRIES, INC., a New York corporation,
having its principal place of business at 89 Arkay Drive, Hauppauge, New York
11788 (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 accepts
such employment.
2. Term. The term of this Agreement shall commence as of the date of
this Agreement and end on September 30, 2002.
3. Compensation.
A. The Company shall pay Darby a base salary of $225,000 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
<PAGE>
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.
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 Hauppauge, 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 will office space, secretary,
telephones and other office facilities appropriate to his duties.
E. Darby shall be entitled to one month's vacation per annum.
- 2 -
<PAGE>
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 CCTV security equipment and protection
devices anywhere in the United States and 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.
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 the five years preceding the Change of Control, in either lump sum or
extended payments over three years as Darby shall elect.
- 3 -
<PAGE>
B. A "Change of Control" shall be deemed to have occurred if (i)
any entity shall directly or indirectly acquire a beneficial ownership of 20%
(or in the case of Chugai Boyeki Co., Ltd. and its affiliates 35%) or 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 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,
- 4 -
<PAGE>
in an amount equal to (a) one-twelfth his annual base salary at the time of such
termination 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 Sales 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 duties and 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 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
- 5 -
<PAGE>
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.
G. Payment of termination or severance payment shall not affect
the Company's obligations under any other agreement with Darby.
8. Deferred Compensation.
A. 45,952 shares of the Company's stock now held by the Company
as treasury shares (the "Deferred Compensation Shares") shall be set aside and
held by the Company for future distribution to Darby under this paragraph.
B. As deferred compensation, and in addition to all other
compensation payable to Darby, the Deferred Compensation Shares shall become the
property of Darby, and the Company shall deliver the certificates for the
Deferred Compensation Shares to Darby (or his executor or administrator), on the
Transfer Date, registered in Darby's name, within 10 days thereafter. The
Transfer Date shall be the earliest of (i) the date of Darby's
- 6 -
<PAGE>
death; (ii) the date as of which Darby's employment by the Company involuntarily
terminates; (iii) the date of execution of a Company Sale Agreement as defined
in paragraph 7; (iv) the occurrence of a Change of Control as defined in
paragraph 6; or (v) expiration of this Agreement (including any replacement
agreement).
C. Notwithstanding any other provision of this paragraph, Darby
shall not be entitled to any Deferred Compensation Shares if the Company
terminates this Agreement for Gross Misconduct as defined in paragraph 7.
D. Prior to the Transfer Date, Darby's rights to the Deferred
Compensation Shares shall not be transferrable and the Treasury Shares shall be
the property of the Company.
E. Darby represents that he will be acquiring the Deferred
Compensation Shares for investment only and without a view to the distribution
thereof and that the Deferred Compensation Shares, when delivered to him, may
constitute restricted stock under the Securities Act of 1933, and the
regulations thereunder, and that the certificates therefor shall bear such
legend relating to this subparagraph as the Company shall reasonably require.
9. 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 termination shall not
release the Company from any liability to Darby for compensation earned, or for
termination or severance due in accordance with paragraph 7 herein.
- 7 -
<PAGE>
Agreement termination under this paragraph shall not be deemed a termination of
employment for Gross Misconduct.
10. 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.
11. 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
- 8 -
<PAGE>
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
Kenneth M. Darby Peter F. Neumann
Chairman
Compensation Committee
Date:
- 9 -
<PAGE>
EMPLOYMENT AGREEMENT EXHIBIT 10.7
AGREEMENT, dated as of October 1, 1997, between JOHN ECKMAN
(hereinafter called "Eckman") 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, Eckman has previously been employed by the
Company, and
WHEREAS, the Company and Eckman mutually desire to assure
the continuation of Eckman'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 Eckman as its Vice President
of U.S. Sales throughout the term of this Agreement, and Eckman hereby accepts
such employment.
2. Term. The term of this Agreement shall commence as of the date of
this Agreement and end on March 31, 1999.
3. Compensation.
A. The Company shall pay Eckman a base salary of $120,000 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.
B. Eckman's base salary shall be payable monthly or bi-weekly.
<PAGE>
C. Eckman shall also be entitled to participate in any bonus,
profit sharing, life insurance, medical, dental, hospital, disability, 401(k) 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. Eckman agrees that during the term of
this Agreement and for a period of two 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 CCTV security equipment and protection
devices anywhere in the United States and Europe. Eckman 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 Eckman 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. Eckman acknowledges that he may only be released from
this covenant if the Company materially breach's this agreement or provides to
Eckman a written release of this provision.
- 2 -
<PAGE>
5. Severance Payment on Certain Terminations.
A. If either this Agreement expires, or the Company
terminates Eckman's employment under this Agreement for reasons other than
"Gross Misconduct", then Eckman, at his option, may elect to receive severance
payments except in the case of disability under paragraph 7, without reduction
for any offset or mitigation, in an amount equal to (a) one-twelfth Eckman's
annual base salary at the time of such termination multiplied by (b) the number
of full years of Eckman's employment by the Company which shall be no less than
three years and up to a maximum of 6 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.
Eckman'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 Eckman 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.
- 3 -
<PAGE>
The severance amount determined in 5A above shall be paid in equal
monthly payments over the number of full years of Eckman's employment.
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, Eckman, 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 the five years preceding the Change of Control or
shorter period of actual employment, in either lump sum or extended payments
over three years as Eckman 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. Eckman'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 Eckman receives actual notice of Change of
Control.
- 4 -
<PAGE>
7. Death or Disability. The Company may terminate this Agreement without
liability for severance payments under paragraph 5 if during the term of this
Agreement (a) Eckman dies or (b) Eckman becomes so disabled for a period of six
months that he is substantially unable to perform his duties under this
Agreement for such period. The Company shall be the sole judge of such
disability.
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
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 Eckman.
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.
- 5 -
<PAGE>
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
John Eckman Kenneth M. Darby
Vice President - U.S. Sales President
Vicon Industries, Inc.
- 6 -
<PAGE>
EMPLOYMENT AGREEMENT EXHIBIT 10.8
AGREEMENT, dated as of October 1, 1997, between PETER HORN
(hereinafter called "Horn") and VICON INDUSTRIES, INC., a New York corporation,
having its principal place of business at 89 Arkay Drive, Hauppauge, New York
11788 (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, 1999.
3. Compensation.
A. The Company shall pay Horn a base salary of $110,000 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, 1998 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.
<PAGE>
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 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.
- 2 -
<PAGE>
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.
- 3 -
<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
- 4 -
<PAGE>
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
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
- 5 -
<PAGE>
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.
Date: Date:
- 6 -
<PAGE>
EMPLOYMENT AGREEMENT EXHIBIT 10.9
AGREEMENT, dated as of October 1, 1997, between YACOV PSHTISSKY
(hereinafter called "Pshtissky") and VICON INDUSTRIES, INC., a New York
corporation, having its principal place of business at 89 Arkay Drive,
Hauppauge, New York 11788 (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, 1999.
3. Compensation.
A. The Company shall pay Pshtissky a base salary of $110,000
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, 1998 to the end of this
agreement, the base salary shall be adjusted upward by an amount at least
<PAGE>
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 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
- 2 -
<PAGE>
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.
- 3 -
<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.
- 4 -
<PAGE>
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
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.
- 5 -
<PAGE>
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.
Date: Date:
- 6 -
<PAGE>
EXHIBIT 10.15
1996
INCENTIVE STOCK OPTION PLAN
of
VICON INDUSTRIES, INC.
1. Purpose of the Plan
This Incentive Stock Option Plan (hereinafter called the "Plan"), is
intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter
called the "Company"), by officers and other employees of the Company, and its
subsidiaries, and to provide additional incentive for them to promote the
success of the business.
2. Stock Subject to the Plan
Subject to the provisions of Paragraph "6", the total number of shares of
stock which may be optioned under the Plan is 200,000 shares of the Common Stock
(par value of $.0l per share) of the Company, which shall be either authorized
and unissued stock or reacquired stock.
3. Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company (the "Committee") who may, from time to time, amend
and rescind rules and regulations for carrying out the provisions and purposes
of the Plan. All awards of options by the Committee are subject to approval by
the Board of Directors. The interpretation, construction and application of the
Plan and any provision thereof made by the Committee shall be final and
conclusive. No director shall be liable for any action taken or determination
made in good faith. The Committee shall consist of at least three members of the
Board of Directors. All of whom shall be non-employee directors. The members of
the Committee shall be designated by two-thirds vote of the entire Board of
Directors of the Company and shall serve for a term of one year and thereafter
until their successors are designated.
4. Participants
Participants will be selected by the Committee, in its sole discretion,
from among the officers and other employees of the Company, and its
subsidiaries, including subsidiaries which become such after adoption of the
Plan, to accomplish the purposes of this Plan.
5. Award of Incentive Stock Options
<PAGE>
The Committee may, from time to time and subject to the provisions of the Plan
and such other terms and conditions as the Committee may prescribe, grant to any
participant in the Plan one or more stock options (intended to qualify as
incentive stock options under the provisions of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to purchase for cash or shares
the number of shares of Common Stock allotted by the Committee. The date an
option is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of shares to a participant pursuant to the
Plan.
6. Changes to Capital Structure
In the event that the outstanding shares of common stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason or reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or
dividend payable in capital stock, appropriate adjustment shall be made by the
Board of Directors in the number and kind of shares for the purchase of which
options may be granted under the Plan. In addition, the Board of Directors shall
make appropriate adjustment in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be exercisable
to the end that the optionee's proportionate interest shall be maintained as
before the occurrence of such events; such adjustment in outstanding options
shall be made without change in the total price applicable to the unexercised
portion of the option and with a corresponding adjustment in the option price
per share; provided, however, that each such adjustment in the number and kind
of shares subject to outstanding options, including any adjustment in the option
price, shall be made in such manner as not to constitute a "modification" as
defined in Section 424 of the Code. Any such adjustment made by the Board of
Directors shall be conclusive.
7. Terms and Conditions of Options
The grant of an option shall be evidenced by a written Incentive Stock
Option Agreement, executed by the Company and the holder of an option (the
"optionee"), stating the number of shares of Common Stock subject to the option
evidenced thereby, and in such form as the Committee may from time to time
determine.
a) Option Price - The option price per share of Common Stock
deliverable upon the exercise of an option shall be 100% of the fair market
value of a share of Common Stock on the date the option is granted; however an
optionee who is the record and beneficial owner of more than 10% of the
Company's issued and outstanding common stock shall be awarded options at a
price equivalent to 110% of the fair market value at the date of grant.
b) Method of Exercise - Stock purchased under the options shall, at
the time of purchase, be paid for in full. To the extent that the right to
purchase shares has accrued thereunder, options may be exercised from time to
time by written notice by the optionee to the Company stating the number of
shares with respect to which the option is being exercised, and the time of the
delivery thereof, which time shall be at least 15 days after the giving of such
notice unless an earlier date shall have been mutually agreed upon. At the time
specified in such notice, the Company shall deliver, without transfer or issue
tax to the optionee (or other person entitled to exercise the option), at the
main office of the Company, or such other place as shall be mutually acceptable,
a certificate or certificates for such shares or reacquired shares of its Common
Stock, as the Company may elect, against payment of the option price in full for
the number of shares to be delivered by (i) certified check or the equivalent
thereof acceptable to the Company; or (ii) the delivery to the Company of
issued and outstanding Common Stock of Vicon Industries, Inc., the total fair
market value of which
2
<PAGE>
on such delivery date is equal to the total exercise price of options being
exercised; provided, however, that the time of such delivery may be postponed by
the Company for such period as may be required for it with reasonable diligence
to comply with any applicable listing requirements of any national securities
exchange, if the stock is so listed. If the optionee (or other person entitled
to exercise the option) fails to accept delivery of and pay for all or any part
of the number of shares specified in such notice upon tender of delivery
thereof, his right to exercise the option with respect to such undelivered
shares may be terminated by the Option Committee of the Board of Directors
without any formal notice to the optionee. Anything herein to the contrary
notwithstanding, if any law or any regulation of the Securities and Exchange
Commission or of any other body having jurisdiction shall require the Company or
a participant to take any action in connection with the shares specified in a
notice of election before such shares can be delivered to such participant, then
the date stated therein for the delivery of the shares shall be postponed until
the fifth business day next following the completion of such action.
c) Option Term - No option will be exercisable prior to the date of
shareholder approval of the plan, or at any time after expiration of five years
from the date the option is granted (the "Grant Date").
d) Maximum Amount of Incentive Stock Option Grant
- - The aggregate fair market value (determined on the date the option is granted)
of Common Stock subject to an incentive stock option granted to an optionee
(pursuant to any plan) by the Committee and exercisable for the first time in
any calendar year shall not exceed $100,000.
e) Exercise of Options - As to any option issued under the Plan:
during the first year after the Grant Date, it may be exercised up to 30% of the
total number of shares covered thereby; during the second year after the Grant
Date, it may be exercised up to an additional 30% of the total number of shares
covered thereby; and during the third year after the Grant Date, and thereafter,
the option may be exercised at any time from time to time within its terms, in
whole or in part, but it shall not be exercisable after the expiration of five
years from the Grant Date. Notwithstanding the foregoing, all options granted
under this Plan may be exercised in their entirety should a "Change of Control"
occur. 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 this Plan became effective
(October 10, 1996).
f) Non-Assignability of Option Rights - No option shall be assignable
or transferable by the optionee except by will or by the laws or descent and
distribution. During the life of an optionee, the option shall be exercisable
only by the optionee.
g) Effect of Termination of Employment or Death
- - In the event an optionee ceases to be an employee of the Company for any
reason other than retirement or death, any option or unexercised portion thereof
granted to such optionee shall immediately terminate. In the event of the
retirement of an optionee, any option or unexercised portion thereof granted to
such optionee shall immediately terminate, except that in the event of the
retirement of any optionee any option or unexercised portion thereof granted to
him shall be
3
<PAGE>
exercisable within not more than three months from the date on which the
optionee retires. In the event of the death or the death of an optionee while
such optionee is an employee of the Company, or any subsidiary of the Company,
or within three months from the date of such optionee's retirement, the option
or unexercised portion thereof granted to such optionee may be exercised by such
optionee's personal representative, or a person who acquired the right to
exercise such option by bequest or inheritance at any time prior to the
expiration of one year from the date of death of the optionee. The foregoing
provisions with respect to retirement or death of any optionee shall, in no
event, be deemed to extend the date of expiration of the term provided in any
option held by any such optionee.
i) Restriction on Issuance of Shares - On the date stated in the
notice of election for the payment and delivery of the shares specified in such
notice, the participant shall certify to the Company in such form as it shall
require that such participant will receive and hold such shares for investment
and not with a view to resale or distribution thereof to the public, unless the
issuance of such shares shall have been registered under the Securities Act of
1933, as amended, and the Rules and Regulations promulgated thereunder, or
counsel to the Company shall have advised the Company that for any other reason
such certification is unnecessary.
j) Rights as a Stockholder - The optionee shall have no rights as a
Stockholder with respect to any shares covered by such optionee's option until
the date of issuance of a stock certificate to such optionee for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
h) Successive Options - Options may be exercised in any order.
k) Termination of Options Upon Consent - The Option Committee may
terminate any outstanding option with the consent of the holder thereof.
8. Effective Date and Term of Plan
(a) The Plan, which was adopted by the Board of Directors on October
10, 1996, is subject to the condition that the Stockholders approve the Plan
prior to July 1, 1997. The Plan shall become effective upon adoption by the
Company's Board of Directors.
(b) The Plan shall terminate on October 9, 2006, provided, however,
that the Plan and all awards made under the Plan prior to such date shall remain
in effect until such awards have been satisfied or terminated in accordance with
the Plan and the terms of such awards.
9. Definitions
In this Plan the following definitions shall apply:
(a) "subsidiary" means any corporation or which, at any applicable
time, more than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by Vicon Industries, Inc., or any
subsidiary thereof.
4
<PAGE>
(b) "fair market value" as of any date and in respect of any share of
Common Stock means the closing price on such date or on the next business day,
if such date is not a business day, of a share of Common Stock reflected in the
consolidated trading tables of The Wall Street Journal (presently the
AMEX-Composite Transactions) or any other publication selected by the Committee,
provided that, if shares of Common Stock shall not have been traded on the
American Stock Exchange for more than 10 days immediately preceding such date or
if deemed appropriate by the Committee for any other reason, the fair market
value of shares of Common Stock shall be as determined by the Committee in such
other manner as it may deem appropriate. In no event shall the fair market value
of any share of Common Stock be less than its par value.
10. Amendment of Plan
The Board of Directors may at any time amend the Plan, provided that without
approval of Stockholders there shall be, except by operation of the provisions
of Paragraph "6" above, no increase in the total number of shares covered by the
Plan; there shall be no change in the class of persons eligible to receive
options granted under the Plan; there shall be no change in the limitations on
the option price; and there shall be no extension of the latest date upon which
options may be exercised. Neither the Board of Directors nor the Stockholders by
amendment to this Plan can affect options granted before such amendment or any
unexercised portion thereof. The adoption of this Plan shall not be deemed to
affect the terms and conditions of any unexercised portion of options granted
and outstanding under any prior stock option plan of the Company or its
subsidiaries.
11. Use of Proceeds
The proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
12. Governing Law
Options granted under this Plan shall be construed and shall take effect in
accordance with the laws of the State of New York.
13. Liquidation
Upon the complete liquidation of the Company, any unexercised options
heretofore granted under this Plan shall be deemed canceled. In the event of the
complete liquidation of any employer corporation (other than the Company)
employing the participant or in event such corporation ceases to be an employer
corporation any unexercised part of any option granted hereunder shall be deemed
canceled unless the participant shall become employed by another employer
corporation (including the Company) concurrently with such event.
5
<PAGE>
1996 EXHIBIT 10.16
NON-QUALIFIED STOCK OPTION PLAN FOR
OUTSIDE DIRECTORS
OF
VICON INDUSTRIES, INC.
1. Purpose of the Plan
This Non-Qualified Stock Option Plan For Outside Directors (hereinafter
called the "Plan"), is intended to encourage ownership of stock of VICON
INDUSTRIES, INC. (hereinafter called the "Company"), by non-employee directors
of the Company and to provide additional incentive for them to promote the
success of the business.
2. Stock Subject to the Plan
Subject to the provisions of Paragraph "6", the total number of shares of
stock which may be optioned under the Plan is 50,000 shares of the Common stock
(par value of $.01 per share) of the Company, which shall be either authorized
and unissued stock or reacquired stock.
3. Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board
or Directors of the Company (the "Committee") who may, from time to time, with
the approval of the full Board of Directors amend and rescind rules and
regulations for carrying out the provisions and purposes of the Plan. The
interpretation, construction and application of the Plan and any provision
thereof made by the Board shall be final and conclusive. No director
1
<PAGE>
shall be liable for any action taken or determination made in good faith. The
Committee shall consist of at least three members of the Board of Directors. The
members of the Committee ~ be designated by two-thirds vote of the entire Board
of Directors of the Company and shall serve for a term of one year and
thereafter until their successors are designated.
4. Participants
Participants will be recommended by the Committee, in its sole discretion,
from among the non-employee directors of the Company, to accomplish the purposes
of this Plan.
5. Award of Options
The Committee may, in its discretion, recommend options to be granted under
this Plan from time to time, prior to the expiration date of 10 years from the
date on which this Plan is approved by the Stockholders of the Company. A
majority of the full Board shall be required to approve the grant of any options
under this Plan. The shares involved in the unexercised portions of any
terminated or expired options shall be deemed not to have been optioned shares
for the purposes of Paragraph "2"' and may again be subjected to options under
the Plan.
6. Changes to Capital Structure
In the event that the outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason or reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares,
2
<PAGE>
or dividend payable in capital stock, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares for the purchase of
which options may be granted under the Plan. In addition, the Board of Directors
shall make appropriate adjustment in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be exercisable
to the end that the optionee's proportionate interest shall be maintained as
before the occurrence of much events; such adjustment in outstanding options
shall be made without change in the total price applicable to the unexercised
portion of the option and with a corresponding adjustment in the option price
per share; provided, however, that each such adjustment in the number and kind
of shares subject to outstanding options, including any adjustment in the option
price, shall be made in such manner as not to constitute a "modification" as
defined in Section 424 of the Internal Revenue Code of 1986, as amended. Any
such adjustment made by the Board of Directors shall be conclusive.
7. Terms and Conditions of Options
Options shall be evidenced by written Stock-Option Agreements in such form
not inconsistent with the Plan as the Committee shall from time to time
determine, provided that the substance of the following be included therein:
a) Option Price - The option price shall be not less than 100% of the
fair market value on the date the option is granted, which shall be the date on
which the Committee recommends the award of any Option.
b) Method of Exercise - Stock purchased under the options shall, at
the time of purchase, be paid for in full. To the extent that the right to
purchase shares has accrued thereunder, options may be exercised from time to
time by written notice by the optionee to
3
<PAGE>
the Company stating the number of shares with respect to which the option is
being exercised, and the time of the delivery thereof, which time shall be at
least 15 days after the giving of such notice unless an earlier date shall have
been mutually agreed upon. At the time specified in such notice. the Company
shall deliver, without transfer or issue tax to the optionee (or other person
entitled to exercise the option), at the main office of the Company, or such
other place as shall be mutually acceptable a certificate or certificates for
such shares or reacquired shares of its Common Stock, as the Company may elect,
against payment of the option price in full for the number of shares to be
delivered by (i) certified check. or the equivalent thereof acceptable to the
company; or (ii) the delivery to the Company of issued and outstanding Common
Stock of Vicon Industries, Inc., the total fair market value of which on such
delivery date is equal to the total exercise price of options being exercised;
provided, however, that the time of such delivery may be postponed by the
Company for such period as may be required for it with reasonable diligence to
comply with any applicable listing requirements of any national securities
exchange, if the stock is so listed. If the optionee (or other person entitled
to exercise the option) fails to accept delivery of and pay for all or any part
of the number of shares specified in such notice upon tender of delivery
thereof, his right to exercise the option with respect to such undelivered
shares may be terminated by the Committee without any formal notice to the
optionee. Anything herein to the contrary notwithstanding, if any law or any
regulation of the Securities and Exchange Commission or of any other body having
jurisdiction shall require the Company or a participant to take any action in
connection with the shares specified in a notice or election before such shares
can be delivered to such participant, then the date stated therein for the
delivery of the shares shall be postponed until the fifth business day next
following the completion of such action.
4
<PAGE>
c) Option Term - No option will be exercisable after expiration of
five years from the date the option is granted or the date of shareholder
approval of the Plan, whichever date is later (the "Starting Date").
d) Exercise of Options - As to any option issued under the Plan, at
all times after the first anniversary of the Starting Date, the option may be
exercised at any time from time to time within its terms, in whole or in part
but it shall not be exercisable after the expiration of five years from the
Starting Date. No option shall be exercisable prior to the Starting Date.
e) Non-Assignability of Option Rights - No option shall be assignable
or transferable by the optionee except by will or by the laws or descent and
distribution. During the life of an optionee, the option shall be exercisable
only by the optionee.
f) Effect of Termination of Employment or Death - In the event an
optionee ceases to be a director of the Company for any reason other than
retirement or death, any option or unexercised portion thereof granted to such
optionee shall be exercisable within not more than three months from the date on
which the optionee ceases to be a director. In the event of the retirement of an
optionee, any option or unexercised portion thereof granted to such optionee
shall immediately terminate, except that in the event of the retirement of any
optionee any option or unexercised portion thereof granted to him shall be
exercisable within not more than one year from the date on which the optionee
retires. In the event of the death of an optionee while such optionee is a
director of the Company, or within three months from the date of such optionee's
retirement, the option or unexercised portion thereof granted to such optionee
may be exercised by such optionee's personal representative, or a person who
acquired the right to exercise such option by bequest or inheritance at any time
5
<PAGE>
prior to the expiration of one year from the date of death of the optionee. The
foregoing provisions with respect to retirement or death of any optionee shall,
in no event, be deemed to extend the date of expiration of the term provided in
any option held by any such optionee.
g) Restriction on Issuance of Shares - On the date stated in the
notice of election for the payment and delivery or the shares specified in such
notice, the participant shall certify to the Company in such form as it shall
require that such participant will receive and hold such shares for investment
and not with a view to resale or distribution thereof to the public, unless the
issuance of such shares shall have been registered under the Securities Act of
1933, as amended, and the Rules and Regulations promulgated thereunder, or
counsel to the company shall have advised the Company that for any other reason
such certification is unnecessary.
h) Rights as a Stockholder - The optionee shall have no rights as a
Stockholder with respect to any shares covered by such optionee's option until
the date of issuance of a stock certificate to such optionee for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
i) Successive Options - Options may be exercised in any order.
j) Termination of Options Upon Consent - The Option Committee may
terminate any outstanding option with the consent of the holder thereof.
6
<PAGE>
8. Effective Date and Termination of Plan
The Plan, which was adopted by the Board of Directors on December 6, 1996
is subject to the condition that the stockholders approve the Plan prior to July
1, 1997. This Plan shall become effective upon adoption by the Company's Board
of Directors. The Board of Directors may terminate this Plan at any time.
Termination of the Plan will not affect rights and obligations theretofore
granted and then in effect if the Stockholders shall have approved the Plan
prior to termination.
9. Amendment of Plan
The Board of Directors may at any time amend the Plan, provided that
without approval of Stockholders there shall be, except by operation of the
provisions of Paragraph "6" above, no increase in the total number of shares
covered by the Plan; there shall be no change in the class of persons eligible
to receive options granted under the Plan; there shall be no change in the
limitations on the option price; and there shall be no extension of the latest
date upon which options may be exercised. Neither the Board of Directors nor the
Stockholders by amendment to this Plan can affect options granted before such
amendment or any unexercised portion thereof. The adoption of this Plan shall
not be deemed to affect the terms and conditions of any unexercised portion of
options granted and outstanding under any prior stock option plan of the Company
or its subsidiaries.
10. Use of Proceeds
The proceeds from the sale of stock pursuant to options granted under the
plan shall constitute general funds of the Company.
7
<PAGE>
11. Governing Law
Options granted under this plan shall be construed and shall take effect in
accordance with the laws of the State of New York.
12. Liquidation
Upon the complete liquidation of the Company, any unexercised options
heretofore granted under this Plan shall be deemed canceled. In the event of the
complete liquidation of any employer corporation (other than the Company)
employing the participant or in event such corporation ceases to be an employer
corporation any unexercised part of any option granted hereunder shall be deemed
canceled unless the participant shall become employed by another employer
corporation (including the Company) concurrently with such event.
8
<PAGE>
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, 33-90038 and 333-30097) on Form S-8 and No. 33-10435 on Form
S-2 of Vicon Industries, Inc. of our report dated November 12, 1997 relating to
the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of
September 30, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity and cash flows and related schedule for each of
the years in the three-year period ended September 30, 1997, which report
appears in the September 30, 1997 annual report on form 10-K of Vicon
Industries, Inc.
KPMG Peat Marwick LLP
Jericho, New York
December 24, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 287,580 287,580
<SECURITIES> 0 0
<RECEIVABLES> 10,378,676 10,378,676
<ALLOWANCES> (492,799) (492,799)
<INVENTORY> 16,633,524 16,633,524
<CURRENT-ASSETS> 26,806,981 26,806,981
<PP&E> 9,263,347 9,263,347
<DEPRECIATION> (4,870,717) (4,870,717)
<TOTAL-ASSETS> 31,199,611 31,199,611
<CURRENT-LIABILITIES> 11,455,858 11,455,858
<BONDS> 8,829,770 8,829,770
0 0
0 0
<COMMON> 30,470 30,470
<OTHER-SE> 10,883,513 10,883,513
<TOTAL-LIABILITY-AND-EQUITY> 31,199,611 31,199,611
<SALES> 14,167,536 51,518,940
<TOTAL-REVENUES> 0 0
<CGS> 10,175,880 37,043,750
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,985,859 11,443,920
<LOSS-PROVISION> 45,000 241,053
<INTEREST-EXPENSE> 309,492 1,143,699
<INCOME-PRETAX> 651,305 1,646,518
<INCOME-TAX> 11,000 82,000
<INCOME-CONTINUING> 640,305 1,564,518
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 640,305 1,564,518
<EPS-PRIMARY> .20 .52
<EPS-DILUTED> .19 .48
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