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, 1998 Commission File No. 1-7939
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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, 1998 was approximately $32,200,000.
The number of shares outstanding of the registrant's Common Stock as of December
15, 1998 was 4,483,193.
<PAGE>
PART I
ITEM 1 - BUSINESS
General
Vicon Industries, Inc. ("the Company"), incorporated in 1967, designs,
manufactures, assembles and markets a wide range of closed circuit television
("CCTV") systems and system components used for security, surveillance, safety
and control purposes by a broad group of end users. A CCTV system is a private
video system that can transmit and receive video, audio and data signals in
accordance with the operational needs of the user. The Company's primary focus
is the design of software-based engineered CCTV systems and components that it
sells worldwide, primarily to installing dealers, system integrators, government
entities and distributors.
The Company operates within the electronic protection segment of the security
industry, which includes fire and burglary alarm systems, access control, CCTV
and article surveillance. The U.S. security industry consists of thousands of
individuals and businesses (exclusive of public sector law enforcement) that
provide products and services for the protection and monitoring of life,
property and information. The security industry includes fire and burglary alarm
systems, access control, CCTV, article surveillance, guard services and
equipment, locks, safes, armored vehicles, security fencing, private
investigations and others. The Company's products are typically utilized for
visual crime deterrence, for visual documentation, for observation of
inaccessible or hazardous areas, to enhance safety, to obtain cost savings (such
as lower insurance premiums), to manage control systems and to improve the
efficiency and effectiveness of personnel. The Company's products are used in
office buildings, manufacturing plants, apartment complexes, large retail
stores, government facilities, transportation operations, prisons, casino gaming
facilities, sports arenas, health care facilities and financial institutions.
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, video
encoding, multi screen display, video insertion, intrusion detection, source
identification and alarm processing), motorized zoom lenses, remote camera
positioning units, manual and computer based system controls, environmental
camera enclosures and consoles for system assembly. The Company provides a full
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, the Company at times produces to specification or will
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 marketing emphasizes engineered CCTV systems solutions which
incorporate system design, project management and technical training and
support. The Company markets its products through industry trade shows
worldwide, product brochures and catalogues, direct mailings to existing and
prospective customers, product videos, in-house training seminars for customers
and end users, road shows which preview new systems and system components, and
advertising through trade and end user magazines and the Company's internet web
site. The Company's products are sold principally to approximately 2,000
independent dealers, system integrators and distributors. Sales are made
principally by field sales engineers, independent sales representatives and
customer service representatives. The Company's sales effort is supported by
in-house customer service and technical support groups which provide product
information, application engineering, system design, project management and
hardware and software technical support.
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. In fiscal 1998, indirect sales to the United States Postal
Service under a national supply contract approximated $12.0 million.
The Company's principal sales offices are located in Hauppauge, New York;
Atlanta, Georgia; Fareham, England; New Territories, Hong Kong; and Shanghai,
China.
International Sales
The Company sells its products in Europe through its United Kingdom (U.K.)
subsidiary; in China through its Hong Kong subsidiary and elsewhere outside the
U.S. by direct export. Sales are made to installing dealers or independent
distributors which, outside of Europe and China, typically assume the
responsibility for warranty repair as well as sales and marketing costs to
promote the Company's product line. The Company has territorial exclusivity
agreements with customers in Japan but uses a wide range of installation
companies and distributors in other international markets. In Australia, Japan,
Norway and South Korea, the Company permits independent sales representatives to
use the Company's name for marketing purposes. In 1998, the Company acquired a
majority (60%) interest in an independent sales company in China, which
commenced operations in July 1997.
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<PAGE>
In fiscal 1998, the operating profits and identifiable assets of the Company's
foreign subsidiaries amounted to approximately $589,000 and $6.5 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 foreign subsidiaries amounted to $19.0
million, $18.7 million and $16.2 million or 30%, 36% and 38% of consolidated net
sales in fiscal years 1998, 1997, and 1996, 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 Pacific Rim, which together accounted for
approximately 82 percent of international sales in fiscal 1998. Since December
1997, the Company has experienced a decrease in demand for its products in
certain Asian countries, due principally to the deterioration of local
economies. Additional information is contained in the discussion of foreign
currency activity included in Item 7.
Competition
The Company operates in a highly competitive marketplace both domestically and
internationally. The Company competes by providing engineered systems and system
components that incorporate broad capability together with high levels of
customer service and technical support. Generally, the Company does not compete
based on price alone.
The Company's principal engineered CCTV systems competitors include the
following companies or their affiliates: Checkpoint Systems, Inc., Matsushita
(Panasonic), Pelco Sales Company, Philips Communications and Security Systems,
Inc. (formerly Burle Industries, Inc.), Sensormatic Electronics Corporation, and
Ultrak, Inc. Many additional companies, both domestic and international, produce
products that compete against one or more of the Company's product lines. In
addition, some consumer video electronic companies or their affiliates,
including Matsushita (Panasonic), Mitsubishi Electric Corporation, Sanyo
Electric Co., Ltd. and Sony Corporation, compete with the Company for the sale
of video products and systems. Most of the Company's competitors are larger
companies whose financial resources and scope of operations are substantially
greater than the Company's.
Research and Development
The Company's research and development ("R&D") is focused on new and improved
CCTV systems and system components. In recent years, a trend of product
development and demand within the CCTV industry has been toward the application
of digital technology, specifically toward the compression, storage and display
of digitized video signals. As the demands of the Company's target market
segment requires the Company to keep pace with changes in technology, the
Company intends to focus its R&D effort in these developing areas. R&D projects
are chosen and prioritized based on direct customer feedback, the Company's
analysis as to the needs of the marketplace and technological advances and
marketing research.
The Company employs a total of 23 engineers in the following areas: seven in
software development, nine in mechanical design, and seven in electrical and
circuit design. R&D expenditures have averaged approximately 4% of net sales for
each of the past three years.
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Source and Availability of Raw Materials
The Company is substantially dependent upon outside manufacturers and suppliers
to manufacture and assemble its products and will continue to be dependent on
such entities in the future. In 1998, approximately 23% of the Company's
purchases of components and finished products were from Chun Shin Electronics,
Inc. ("CSE"), a 50% owned South Korean joint venture company (see Item 13).
Additionally, in 1998, the Company purchased approximately 15% of its components
and finished products from Chugai Boyeki Company, Ltd., a supplier and sourcing
agent for the Company (see Item 13). The Company's relationships with outside
manufacturers, assemblers and suppliers are not covered by formal contractual
agreements. The Company is presently in negotiations with a related party to
acquire its 50% interest in CSE (see Item 13).
Raw materials and components purchased by the Company and its suppliers are
generally readily available in the market, subject to market lead times at the
time of order. The Company is not dependent upon any single source for a
significant amount of its raw materials and components.
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. However, the laws of certain foreign countries do not protect
intellectual property rights to the same extent or in the same manner as the
laws of the U.S. 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.
Inventories
The Company carries substantial finished goods inventory levels to respond to
unanticipated customer demand, since most sales are to installing dealers and
contractors who normally do not carry large inventory stocks. The Company
principally builds inventory to known and anticipated customer demand. In
addition to normal safety stock levels, certain additional inventory levels are
maintained for products with long purchase and manufacturing lead times. The
Company has also increased its raw material and work-in-process inventory as it
has shifted certain of its production from contract manufacturers to labor
subcontractors. The Company believes that it is important to carry adequate
inventory levels of parts, components and products to avoid production and
delivery delays that detract from its sales effort.
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<PAGE>
Backlog
The backlog of orders believed to be firm as of September 30, 1998 and 1997 was
approximately $12.4 million and $7.0 million, respectively. Orders are generally
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, 1998, the Company employed 217 full-time employees, of whom
five are officers, 44 administrative personnel, 101 employed in sales
capacities, 33 in engineering, and 34 production employees. At September 30,
1997, the Company employed 187 persons. 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 owns and operates a 56,000 square-foot facility located on
approximately five acres at 89 Arkay Drive, Hauppauge, New York to which it
relocated its principal offices in April 1997. The Company purchased the
property in January 1998. The Company also operates, under short-term leases, an
8,500 square foot warehouse in Hauppauge, and a sales office in Atlanta,
Georgia. The Company owns and operates a 14,000 square-foot sales, service and
warehouse facility in southern England which services the U.K. and Europe. The
Company also leases sales, service and warehouse facilities in Hong Kong and
Shanghai, China. Due to recent growth in operations, the Company is planning to
expand its principal operating facility to approximately 79,000 square feet.
Construction of the addition is expected to commence in the Spring of 1999.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's stock is traded on the American Stock Exchange (AMEX) 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 AMEX:
Quarter
Ended High Low
Fiscal 1998
December 8-11/16 5-9/16
March 13-15/16 6-3/16
June 12-1/8 6-3/16
September 9-1/4 6
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
The last sale price of the Company's Common Stock on December 15, 1998 as
reported on AMEX was $7-3/16 per share. As of December 15, 1998, there were
approximately 307 shareholders of record.
The Company has never declared or paid cash dividends on its Common Stock and
anticipates that any earnings in the foreseeable future will be retained to
finance the growth and development of its business. In addition, the Company's
bank credit agreements prohibit the payment of cash dividends on its Common
Stock.
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<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
FISCAL YEAR 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $63,310 $51,519 $43,191 $43,847 $47,714
Gross profit 20,832 14,475 10,957 9,546 10,714
Income (loss) before
income taxes 5,810 1,647 385 (1,267) 74
Net income (loss) 5,810 1,565 300 (1,347) 45
Earnings (loss) per share:
Basic 1.61 .56 .11 (.49) .02
Diluted 1.50 .52 .11 (.49) .02
Total assets 44,386 31,200 28,085 26,423 28,857
Long-term debt 7,002 8,344 6,429 5,339 6,059
Working capital 27,642 15,351 12,064 10,721 13,359
Property, plant and
equipment (net) 7,137 3,492 3,034 3,262 3,180
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 1998 Compared with 1997
Net sales for 1998 increased $11.8 million or 23% to $63.3 million compared with
$51.5 million in 1997. The sales growth was experienced principally in the U.S.
as domestic sales increased $11.5 million or 35% to $44.3 million principally as
a result of system sales supplied under a contract with the U.S. Postal Service
entered into in July 1997 and sales from a new line of dome cameras introduced
in February 1997. International sales increased 2% to $19.0 million.
International growth was limited as a result of lower sales in Asia offset by
higher sales in Europe, including sales to a private label reseller. The backlog
of unfilled orders was $12.4 million at September 30, 1998 compared with $7.0
million at September 30, 1997.
Gross profit margins for 1998 increased to 32.9% compared with 28.1% in 1997.
The margin improvement was primarily the result of a favorable sales mix of
higher margin products, lower procurement costs and greater fixed cost
absorption associated with the sales growth.
Operating expenses for 1998 were $14.0 million or 22.1% of net sales compared
with $11.7 million or 22.8% of net sales in 1997. The increase in operating
expenses was principally the result of higher selling expenses associated with
the sales growth and profit related bonus expense.
Operating income rose to $6.9 million for 1998 compared with $2.8 million for
1997 as a result of increased sales, higher gross margins and greater absorption
of fixed operating expenses.
Interest expense decreased slightly to $1.1 million in 1998. Such decrease
occurred subsequent to the public offering as $9.3 million of interest bearing
debt was repaid.
There was no income tax expense for 1998 due to the full utilization of a U.S.
net operating loss carryforward (NOL) and the reinstatement of previously
reserved deferred income tax assets. Beginning with the first quarter of 1999,
the Company will incur income taxes at a normal effective rate. In 1997, income
tax expense was $82,000 relating primarily to foreign subsidiary income.
As a result of the foregoing, net income increased to $5.8 million for 1998
compared with net income of $1.6 million for 1997.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating activities was $3.3 million for 1998 due
primarily to the $5.8 million net income reported for the year, offset in part
by an increase in accounts receivable due to higher sales activity. Net cash
used in investing activities was $4.4 million for 1998 as a result of the
Company's purchase of its principal operating facility for $3.3 million and
capital expenditures for tooling and office equipment. Net cash provided by
financing activities was $5.6 million, which includes $10.8 million of net
proceeds received from a public stock offering in May 1998, $2.9 million of
proceeds from mortgage loans used to finance the facility purchase and $4.5
million of proceeds received under the July 1998 term loan agreement. These
inflows were partially offset by a $6.0 million reduction of borrowings under
the U.S. Bank Credit Agreement and the repayment of a $1.8 million term loan and
$5.0 million of interest-bearing accounts payable to a related party. As a
result of the foregoing, the net increase in cash was $4.6 million for 1998
after the nominal effect of exchange rate changes on the cash position of the
Company.
The Company maintains a bank overdraft facility of 600,000 Pounds Sterling
(approximately $1,020,000) in the U.K. to support local working capital
requirements of Vicon U.K. At September 30, 1998, borrowings under this facility
amounted to approximately $634,000.
In July 1998, the Company entered into a $14 million unsecured revolving credit
and term loan agreement with a new bank. Such agreement includes a $7.5 million
revolving credit facility which expires in July 2002, with an option to increase
the facility to $9.5 million at any time through July 2000. Borrowings under the
facility bear interest at the bank's prime rate minus 2% or, at the Company's
option, LIBOR plus 90 basis points (6.25% and 6.275%, respectively, at September
30, 1998). At September 30, 1998, there were no revolving credit borrowings
outstanding under this agreement. The agreement also provides for a $4.5 million
five-year term loan payable in equal monthly installments through July 2003 with
interest at 6.74%. The proceeds of the term loan were used to repay all
remaining interest-bearing accounts payable to a related party. The agreement
contains restrictive covenants which, among other things, require the Company to
maintain certain levels of earnings and ratios of debt service coverage and debt
to tangible net worth.
The Company believes that cash flow from operations and funds available under
its credit agreements will be sufficient to meet its anticipated operating,
capital expenditures and debt service requirements for at least the next twelve
months.
Year 2000
The Company's software-based products have been tested for year 2000 compliance
and the Company believes that such products are year 2000 compatible. With
respect to its own computer operating systems, the Company is in the process of
upgrading its principal operating computer software to the most recent available
revisions sold by its software suppliers, which the suppliers have represented
to be year 2000 compliant. The Company believes that such upgrades
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<PAGE>
will identify and solve those year 2000 problems that could affect its operating
software and can be accomplished before the year 2000. The costs for such
upgrades are not expected to be material. It is possible that certain computer
systems or software products of the Company's customers or suppliers may
experience year 2000 problems and that such problems could adversely affect the
Company. The Company is in the process of assessing the status of its principal
suppliers' year 2000 readiness and their plans to address problems that their
computer systems may face in correctly processing date information as the year
2000 approaches. However, since the ultimate success of the Company's customers
and suppliers to become compliant is largely outside of the Company's control,
no assurances can be made that the Company will be unaffected by the year 2000.
Should the Company's suppliers fail to achieve year 2000 compliance, the supply
of product to the Company may be interrupted resulting in possible lost revenue
to the Company due to its inability to supply finished product to its customers.
If such interruptions are prolonged, it could have a material adverse effect on
the Company. The Company intends to consider contingency plans to address the
risk its principal suppliers will not be year 2000 compliant during fiscal 1999.
New Accounting Standards Not Yet Adopted
In June 1997, the Financial Accounting Standards Board (FASB) issued two
new disclosure standards. Management believes that the results of operations and
financial position of the Company will be unaffected by implementation of these
new standards.
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and displaying
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated.
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<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity." This statement establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities and will be adopted by the Company in the first quarter of fiscal
2000. Implementation of this statement is not expected to affect the Company's
financial position or results of operations.
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 11% and 7% of product purchases in fiscal 1998 and 1997,
respectively. Although the U.S. Dollar strengthened against the Japanese Yen
during 1998, in past years the U.S. 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.
Depending on market conditions, the Company will enter into foreign exchange
contracts 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 1998, approximately $3.5 million of products were sold by
the Company to its U.K. subsidiary for resale. The U.S. Dollar was relatively
stable against the Pound Sterling in 1998. 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 market conditions.
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<PAGE>
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
Statements in this Report on Form 10-K and other statements made by the Company
or its representatives that are not strictly historical facts including, without
limitation, statements included herein under the captions "Liquidity and
Financial Condition" and "Year 2000" are "forward-looking" statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that should be
considered as subject to the many risks and uncertainties that exist in the
Company's operations and business environment. The forward-looking statements
are based on current expectations and involve a number of known and unknown
risks and uncertainties that could cause the actual results, performance and/or
achievements of the Company to differ materially from any future results,
performance or achievements, express or implied, by the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, and that in light of the significant uncertainties
inherent in forward-looking statements, the inclusion of such statements should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. The Company also assumes no
obligation to update its forward-looking statements or to advise of changes in
the assumptions and factors on which they are based.
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:
Name Age Position
Donald N. Horn 69 Chairman of the Board
Kenneth M. Darby 52 President, Chief Executive Officer
and Director
Arthur D. Roche 60 Executive Vice President, Chief
Financial Officer, Secretary, Member
of the Office of the President and
Director
John M. Badke 39 Vice President, Finance
John L. Eckman 49 Vice President, U.S. Sales
Peter A. Horn 43 Vice President, Compliance and Quality
Assurance
Yacov A. Pshtissky 47 Vice President, Technology and Development
Peter F. Barry 70 Director
Chu S. Chun 63 Director
Milton F. Gidge 69 Director
Peter F. Neumann 64 Director
W. Gregory Robertson 54 Director
Kazuyoshi Sudo 56 Director
The business experience, principal occupations and employment, as well as period
of service, of each of the directors, executive officers and officers of the
Company during at least the last five years are set forth below.
Donald N. Horn, Chairman of the Board. Mr. Horn was the founder of the Company
in 1967 and has served as its Chairman of the Board since that time. He also
served as Chief Executive Officer from 1967 until April 1992 and as President
until September 1991. Mr. Horn will retire from the Board in April 1999 at the
end of his current term.
Kenneth M. Darby, President, Chief Executive Officer and Director. Mr. Darby has
served as Chief Executive Officer since April 1992 and as President since
October 1991. He has served as a director since 1987. Mr. Darby also served as
Chief Operating Officer and as Executive Vice President, Vice President, Finance
and Treasurer of the Company. He joined the Company in 1978 as Controller after
more than nine years at Peat Marwick Mitchell & Co., a public accounting firm.
Mr. Darby's current term on the Board ends in April 2000.
Arthur D. Roche, Executive Vice President, Chief Financial Officer, Secretary,
Member of the Office of the President and Director. Mr. Roche has been Executive
Vice President and co-participant in the Office of the President of the Company
since 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 which he joined in 1960.
Mr. Roche has served as a director since 1992. His current term on the Board
ends in April 1999.
- 15 -
<PAGE>
John M. Badke, Vice President, Finance. Mr. Badke was promoted to Vice
President, Finance in October 1998. Previously, he served as Controller
since joining the Company in 1992. Prior to joining the Company, Mr. Badke
was Controller for NEK Cable, Inc. and an audit manager with the
international accounting firms of Arthur Andersen & Co. and Peat Marwick Main
& Co.
John L. Eckman, Vice President, U.S. Sales. Mr. Eckman has been Vice
President, U.S. Sales of the Company since July 1996. He joined the Company
in August 1995 as Eastern Regional Manager. Prior to joining the Company, he
was Director of Field Operations for Cardkey Systems, Inc., an access control
security products manufacturer, with which he was employed for 12 years.
Peter A. Horn, Vice President, Compliance and Quality Assurance. Mr. Horn has
been Vice President, Compliance and Quality Assurance of the Company since 1995.
He joined the Company in January 1974 and has been employed in various technical
capacities. From 1994 to 1995, Mr. Horn served as Vice President, Product
Management. From September 1993 to 1994, he was Vice President, Marketing. From
May 1990 through August 1993, Mr. Horn served as Vice President, New Products
and Technical Support Services. Prior to that time, Mr. Horn was Vice President,
Engineering.
Yacov A. Pshtissky, Vice President, Technology and Development. Mr. Pshtissky
has been Vice President, Technology and Development since May 1990. Mr.
Pshtissky was Director of Electrical Product Development from March 1988 through
April 1990. Prior to that time he was an Electrical Design Engineer.
Peter F. Barry, Director. Mr. Barry has been a director of the Company since
1984. From August 1988 to March 1991, he served as Senior Vice President of
the Washington, D.C. operations of Grumman Corp, an aerospace manufacturer.
Prior to such time, he served 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. Mr. Barry will retire from the Board in April 1999 at
the end of his current term.
Chu S. Chun, Director. Mr. Chun has been a director of the Company since
April 1998. He has been the President of CSI, Chairman of the Board and Chief
Executive Officer of International Industries, Inc. ("I.I.I.") and President
of Chun Shin Electronics, Inc. since at least 1988 (see Item 13). Mr. Chun's
current term on the Board ends in April 2001.
Milton F. Gidge, Director. Mr. Gidge has been a director of the Company since
1987. He is a retired director and executive officer of Lincoln Savings Bank for
which he served from 1976 to 1994 as Chairman, Credit Policy. He has also been a
director since 1980 of Interboro Mutual Indemnity Insurance Co., a general
insurance mutual company, and a director of Intervest Bancshares Corporation of
New York, a mortgage banking holding company, and another affiliated company of
Intervest since 1988. His current term on the Board ends in April 2001.
- 16 -
<PAGE>
Peter F. Neumann, Director. Mr. Neumann has been a director of the Company since
1987. He is the retired President of Flynn-Neumann Agency, Inc., an insurance
brokerage firm. Since 1978, Mr. Neumann has been serving as a director of
Reliance Federal Savings Bank. Mr. Neumann's current term on the Board ends in
April 2000.
W. Gregory Robertson, Director. Mr. Robertson has been a director of the Company
since 1991. He is President of TM Capital Corporation, a financial services
company which he founded in 1989. From 1985 to 1989, he was employed by Thomas
McKinnon Securities, Inc. as head of investment banking and public finance. Mr.
Robertson's current term on the Board ends in April 2001.
Kazuyoshi Sudo, Director. Mr. Sudo has been a director of the Company since
1987. Mr. Sudo is Chief Executive Officer of Chugai Boyeki (America) Corp., a
distributor of electronic, chemical and optical products. From 1981 to 1996, he
was Treasurer of such company. He has also been a director of Chugai Boyeki
Company, Ltd. since 1997. Mr. Sudo's current term on the Board ends in April
2000.
Except for the relationship between Peter A. Horn, an officer of the Company,
and Donald N. Horn, Chairman of the Board, there are no family relationships
between any director, executive officer, officer or person nominated or chosen
by the Company to become a director or officer. Peter A. Horn is the son of
Donald N. Horn.
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, 1998 and certain written
representations, no person, who, at any time during the year ended September 30,
1998 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(a) of the Exchange Act during the year
ended September 30, 1998.
- 17 -
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or paid
for all services rendered to the Company during 1998, 1997 and 1996 by the Chief
Executive Officer and the Company's most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during any such year.
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Restricted Securities
Name and All Other Stock Underlying
Principal Position Year Salary ($) Bonus ($) Compensation Award Options (#)
- ----------------------- ---- --------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth M. Darby 1998 $225,000 $297,525 (1) $ 3,000 (3) $344,640 (4) -
Chief Executive Officer 1997 225,000 84,017 (1) 3,000 (3) - 58,000
1996 195,000 31,750 (2) 3,000 (3) - 95,000
Arthur D. Roche 1998 170,000 160,206 (1) - - -
Executive Vice President 1997 170,000 45,240 (1) - - 35,000
1996 150,000 15,875 (2) - - 25,000
</TABLE>
(1) Represents cash bonus equal to 4.55% and 2.45% of the sum of consolidated
pre-tax income and provision for officers' bonuses for Mr. Darby and
Mr.Roche, respectively, which bonus formula was adopted for years
1998 and 1997 by the Board of Directors upon the recommendation of its
Compensation Committee.
(2) Represents bonus in the form of 16,933 and 8,467 shares of Common Stock
issued from Treasury to Mr. Darby and Mr. Roche, respectively.
(3) Represents life insurance policy payment.
(4) Represents deferred compensation benefit of 45,952 shares of Common
Stock held by the Company in Treasury which vests upon Mr. Darby's
retirement. The value of such stock is based on the fair market value on
the date of grant.
- 18 -
<PAGE>
Stock Options
There were no option grants during fiscal year 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
At September 30, 1998
Number of
Number of Securities Value of
Shares Underlying Unexercisable
Acquired Value Unexercisable In-the-Money
Name On Exercise Realized (1) Options (2) Options (3)
Kenneth M. Darby 55,400 $257,725 23,200 $102,800
Arthur D. Roche 20,500 $ 93,688 14,000 $ 62,500
(1) Calculated based on the difference between the closing quoted market prices
per share at the dates of exercise and the exercise prices.
(2) No options were exercisable by the above named officers at September 30,
1998.
(3) Calculated based on the difference between the closing quoted market price
($7.125) and the exercise price.
- 19 -
<PAGE>
Employment Agreements
Mr. Darby and Mr. Roche have each entered into employment agreements with
the Company that provide for annual salaries of $275,000 and $180,000,
respectively, through 2003 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 of the
Company without Board of Director approval (as defined in the agreements). In
addition, Messrs. Darby and Roche are eligible to receive cash bonuses based on
performance of the Company. In 1999, their bonus arrangements provide for cash
bonuses equal to 3.25% and 1.75%, respectively, of the sum of consolidated
pre-tax income and provision for officers' bonuses, which bonus formula was
adopted by the Board of Directors upon the recommendation of its Compensation
Committee. Mr. Darby's agreement also provides for an additional deferred
compensation benefit of 16,565 shares of Common Stock held by the Company in
treasury. Such benefit vests upon his retirement, or earlier under certain
conditions. The market value of such benefit approximated $112,000 at the date
of grant.
Donald N. Horn, a director, and Arthur V. Wallace, a retired director, each have
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 10-year period. The full deferred
compensation payment is subject to such individuals' adherence to certain
noncompete covenants. Mr. Wallace began receiving payments under the agreement
in October 1990 and Mr. Horn began receiving payments under the agreement in
January 1994.
Directors' Compensation and Term
Since January 1, 1997, the directors and the Chairman of the Board 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. Directors may not stand for
reelection after age 70.
Immediately prior to the annual meeting of shareholders to be held on April 22,
1999, Mr. Donald Horn, founder and Chairman of the Board since the Company's
inception and Mr. Peter Barry, a member of the Board since 1984, will retire
from the Board upon reaching the mandatory retirement age. Management intends to
propose to the Board of Directors that the number of directors be reduced from
nine to seven effective as of such annual meeting. Management also intends to
propose to the Board of Directors, and to the shareholders at such meeting, that
the certificate of incorporation be amended to provide that the directors be
divided into two classes instead of three classes, and that their respective
terms expire after two years, instead of after three years.
- 20 -
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Messrs.
Neumann, Gidge and Robertson, none of whom has ever been an officer of the
Company.
Board Compensation Committee Report
The Compensation Committee's compensation policies applicable to the Company's
officers for 1998 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 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 him. For each officer, the
committee's determinations are based on its conclusions concerning each
officer's performance and comparable compensation levels in the CCTV industry
and the Long Island area for similarly situated officers at comparable
companies. The overall level of performance of the Company is taken into account
but is not specifically related to the base salary of these officers. Also, the
Company has established an incentive compensation plan for all of the 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 officers to link 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 to officers based on significant contributions of such officer to
the performance of the Company. In addition, in determining Mr. Darby's salary
for service as Chief Executive Officer, the committee considered the
responsibility assumed by him in formulating and implementing a management and
long-term strategic plan.
- 21 -
<PAGE>
This graph compares the return of $100 invested in the Company's stock on
October 1, 1993, 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
10/01/93 100 100
10/01/94 104 100
10/01/95 107 118
10/01/96 143 124
10/01/97 479 152
10/01/98 407 135
- 22 -
<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, 1998 and the shares beneficially owned by the
Company's Directors and by all Executive Officers, Officers and Directors as a
group.
Name and Address Amount of
of Beneficial Owner Beneficial Ownership (1) % of Class
------------------- ------------------------ ----------
Chugai Boyeki Company, Ltd.
and affiliates
2-15-13 Tsukishima
Chuo-ku
Tokyo, Japan 104 548,715 11.5%
******************************************************************************
C/O Vicon Industries, Inc.
Kenneth M. Darby 250,722 (2) 5.3%
Chu S. Chun 204,507 (3) 4.3%
Arthur D. Roche 149,967 (4) 3.1%
Donald N. Horn 88,328 1.9%
Kazuyoshi Sudo 21,125 (5) *
W. Gregory Robertson 19,025 (5) *
Milton F. Gidge 17,125 (6) *
Peter F. Neumann 15,125 (5) *
Peter F. Barry 12,725 (5) *
Total all Executive Officers, Officers
and Directors as a group (13 persons) 892,399 (7) 18.7%
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power over the shares of stock
owned.
(2) Includes currently exercisable options to purchase 15,200 shares.
(3) 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.
(4) Includes currently exercisable options to purchase 10,000 shares.
(5) Includes currently exercisable options to purchase 12,125 shares.
(6) Includes currently exercisable options to purchase 15,125 shares.
(7) Includes currently exercisable options to purchase 201,825 shares.
- 23 -
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Chugai Boyeki Company, Ltd. (Chugai), a Japanese corporation
which beneficially owns 11.5% of the outstanding shares of the Company, have
been conducting business with each other for approximately nineteen years.
During this period, Chugai has served as a lender, a product supplier and
sourcing agent, and a private label reseller of the Company's products.
Historically, Chugai has provided a significant amount of funding to the Company
in the form of extended accounts payable related to product purchases. In 1998,
the Company incurred approximately $427,000 in interest expense on amounts it
owed to Chugai with respect to extended accounts payable. In the second half of
1998, all extended accounts payable were repaid with proceeds from the May 1998
public offering and July 1998 bank term loan agreement. Chugai also acts as the
Company's sourcing agent for the purchase of certain video products. In 1998,
the Company purchased approximately $5.3 million of video products from or
through Chugai. Chugai has the exclusive right to sell Vicon brand products in
Japan and competes with the Company in various markets, principally in the sale
of video products and systems. Additionally, the Company sells certain finished
products to Chugai under private label for resale in Europe and Russia. Sales of
all products to Chugai were $4.1 million in 1998. Kazuyoshi Sudo, a director of
the Company and of Chugai, is Chief Executive Officer of Chugai Boyeki (America)
Corp., a U.S. subsidiary of Chugai.
Mr. Chu S. Chun, a director who has beneficial voting control over 4.3% of the
Common Stock of the Company, also owns Chun Shin Industries, Inc. (CSI). CSI is
the Company's 50% partner in Chun Shin Electronics, Inc., (CSE), a joint venture
company that manufactures and assembles certain Vicon products in South Korea.
Mr. Chun is the President and has operating control of CSE. In 1998, CSE sold
approximately $8.0 million of products 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 of, and provides short-term financing on, all the
Company's product purchases from CSE. CSE also sold approximately $748,000 of
products to CSI, which resells the Company's products in South Korea. In
addition, I.I.I. purchased approximately $344,000 of products directly from the
Company during 1998 for resale to CSI. Although the Company believes its
relationships with CSE, CSI and I.I.I. have been beneficial to the Company on an
overall basis, the terms provided to the Company by I.I.I. for importation
financing may be less favorable than those the Company may be able to obtain
from unaffiliated third parties.
The Company has had discussions with Mr. Chun regarding the acquisition of CSI
and its 50% holding in CSE. In addition, CSI owns and operates a sales company
that sells various security products, including the Company's products,
principally within the South Korean market. The Company and Mr. Chun have not
agreed upon the terms of such an acquisition.
- 24 -
<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, 1998, 1997, and 1996
Consolidated Balance Sheets at September 30, 1998 and 1997
Consolidated Statements of Shareholders' Equity, fiscal years ended
September 30, 1998, 1997, and 1996
Consolidated Statements of Cash Flows, fiscal years ended September
30, 1998, 1997, and 1996
Notes to Consolidated Financial Statements, fiscal years ended
September 30, 1998, 1997, and 1996
(a) (2) Financial Statement Schedule
Included in Part IV, Item 14:
Schedule I - Valuation and Qualifying Accounts for the years
ended September 30, 1998, 1997, and 1996
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.
- 25 -
<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
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.
(.2) Promissory Note dated Incorporated by reference
October 5, 1993 between to the 1997 Annual Report
Registrant and Chugai Boyeki on Form 10-K
Company, Ltd., first amendment
dated February 5, 1997.
(.3) Employment Contract dated 10.3
October 1, 1998 between the
Registrant and Kenneth M. Darby
(.4) Employment Contract dated October Incorporated by reference
1, 1996 between Registrant to the 1996 Annual Report
and Arthur D. Roche on Form 10-K
(.5) Employment Agreement dated October 10.5
1, 1998 between Registrant and
John L. Eckman
(.6) Employment Agreement dated October 10.6
1, 1998 between Registrant and
Peter Horn
(.7) Employment Agreement dated October 10.7
1, 1998 between Registrant and
Yacov Pshtissky
(.8) Deferred Compensation Agreements Incorporated by
dated November 1, 1986 between the reference to the 1992
Registrant and Donald N. Horn and Annual Report on
Arthur V. Wallace Form 10K
(.9) Amended and restated 1986 Incorporated by
Incentive Stock Option Plan reference to the 1990
Annual Report on Form
10-K
- 26 -
<PAGE>
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
(.10) 1994 Incentive Stock Option Plan Incorporated by
reference to the
1994 Annual Report
on Form 10-K
(.11) 1994 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1994 Annual Report
on Form 10-K
(.12) 1996 Incentive Stock Option Plan Incorporated by
reference to the
1997 Annual Report
on Form 10-K
(.13) 1996 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1997 Annual Report
on Form 10-K
(.14) 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
(.15) 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
(.16) Agreement of Purchase and Sale Incorporated by
betweent the Registrant and RREEF reference to the
Midamerica/East-V Nine, Inc. December 31, 1997
Dated January 29, 1998 filing on Form 10-Q
(.17) Loan Agreement between the Incorporated by
Registrant and KeyBank National reference to the
Association dated January 29, 1998 December 31, 1997
filing on Form 10-Q
(.18) Mortgage Note between the Incorporated by
Registrant and KeyBank National reference to the
Association dated January 29, 1998 December 31, 1997
filing on Form 10-Q
(.19) Term Loan Note between the Incorporated by
Registrant and KeyBank National reference to the
Association dated January 29, 1998 December 31, 1997
filing on Form 10-Q
- 27 -
<PAGE>
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
(.20) Mortgage and Security Agreement Incorporated by
in the amount of $2,512,000 between reference to the
the Registrant and KeyBank National December 31, 1997
Association dated January 29, 1998 filing on Form 10-Q
(.21) Mortgage and Security Agreement Incorporated by
in the amount of $388,000 between reference to the
the Registrant and KeyBank National December 31, 1997
Association dated January 29, 1998 filing on Form 10-Q
(.22) Interest rate master swap agreement Incorporated by
between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
(.23) Schedule to the master agreement Incorporated by
between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
(.24) Swap transaction confirmation with Incorporated by
a notional amount of $2,512,000 reference to the
between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.25) Swap transaction confirmation with Incorporated by
a notional amount of $388,000 reference to the
between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.26) Advice of borrowing terms Incorporated by
between the Registrant and reference to the
National Westminster Bank PLC June 30, 1998 filing
dated March 27, 1998 on Form 10-Q
(.27) Credit Agreement between the Incorporated by
Registrant and KeyBank reference to the
International dated June 30, 1998 filing
July 20, 1998 on Form 10-Q
(.28) Swap transaction confirmation with 10.28
a notional amount of $4,425,000
between the Registrant and KeyBank
National Association dated
September 9, 1998
- 28 -
<PAGE>
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
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.
Other Matters - Form S-8 and S-2 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) and on Form S-2 No. 333-46841
(effective May 1, 1998):
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.
- 29 -
<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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1998, 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
Melville, New York
December 4 1998
- 30 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Net sales $63,310,466 $51,518,940 $43,191,446
Cost of sales 42,478,384 37,043,750 32,234,192
------------ ------------ -----------
Gross profit 20,832,082 14,475,190 10,957,254
Operating expenses:
Selling expense 9,536,988 7,957,340 6,800,361
General and administrative expense 4,426,107 3,542,400 2,931,333
Relocation expense - 225,129 -
----------- ----------- ----------
13,963,095 11,724,869 9,731,694
----------- ----------- ----------
Operating income 6,868,987 2,750,321 1,225,560
Interest expense 1,107,196 1,143,699 882,290
Other income, net (48,190) (39,896) (41,908)
----------- ----------- ---------
Income before income taxes 5,809,981 1,646,518 385,178
Income tax expense - 82,000 85,000
----------- ----------- -----------
Net income $5,809,981 $1,564,518 $ 300,178
=========== =========== ===========
Earnings per share:
Basic $1.61 $ .56 $ .11
===== ===== =====
Diluted $1.50 $ .52 $ .11
===== ===== =====
See accompanying notes to consolidated financial statements.
- 31 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
ASSETS 1998 1997
- ------ ---- ----
Current Assets:
Cash $ 4,854,557 $ 287,580
Accounts receivable (less allowance of
$694,000 in 1998 and $493,000 in 1997) 12,758,080 9,578,297
Inventories:
Parts, components, and materials 2,944,303 3,399,133
Work-in-process 2,374,769 2,046,174
Finished products 12,079,335 11,188,217
----------- -----------
17,398,407 16,633,524
Deferred income taxes 1,079,736 -
Prepaid expenses 332,241 307,580
----------- -----------
Total current assets 36,423,021 26,806,981
Property, plant and equipment:
Land 1,204,498 299,698
Building and improvements 4,185,298 1,653,503
Machinery, equipment, and vehicles 7,312,594 6,409,729
----------- -----------
12,702,390 8,362,930
Less accumulated depreciation and amortization 5,565,352 4,870,717
7,137,038 3,492,213
Deferred income taxes 116,973 -
Other assets 709,369 900,417
----------- ---------
$44,386,401 $31,199,611
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Borrowings under revolving credit agreement $ 634,388 $ 169,006
Current maturities of long-term debt 1,179,367 515,092
Accounts payable:
Related party 652,487 7,146,985
Other 2,481,018 1,407,917
Accrued compensation and employee benefits 1,955,462 1,109,539
Accrued expenses 1,316,855 1,002,131
Income taxes payable 561,173 105,188
----------- -----------
Total current liabilities 8,780,750 11,455,858
Long-term debt:
Banks and other 7,001,819 6,904,368
Related party - 1,440,000
Other long-term liabilities 767,528 485,402
Commitments and contingencies - Note 11
Shareholders' equity
Common stock, par value $.01 per share
authorized - 10,000,000 shares
issued 4,534,710 and 3,047,060 shares 45,347 30,470
Capital in excess of par value 20,947,515 9,868,063
Retained earnings 7,090,888 1,280,907
----------- -----------
28,083,750 11,179,440
Less treasury stock at cost, 62,517 shares
in 1998 and 45,952 shares in 1997 (409,687) (298,686)
Foreign currency translation adjustment 162,241 33,229
----------- -----------
Total shareholders' equity 27,836,304 10,913,983
----------- -----------
$44,386,401 $31,199,611
=========== ===========
See accompanying notes to consolidated financial statements
- 32 -
<PAGE>
<TABLE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended September 30, 1998, 1997, and 1996
<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, 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
Foreign currency
translation adjustment - - - - - 129,012 129,012
Common stock offering, net
of issuance costs 1,371,200 13,712 10,787,204 - - - 10,800,916
Exercise of stock options 116,450 1,165 253,063 - (111,001) - 143,227
Tax benefit from exercise
of stock options - - 39,185 - - - 39,185
Net income - - - 5,809,981 - - 5,809,981
--------- ------- ----------- ---------- ---------- ---------- -----------
Balance September 30, 1998 4,534,710 $45,347 $20,947,515 $7,090,888 $(409,687) $ 162,241 $27,836,304
========= ======= =========== ========== ========= ========== ===========
See accompanying notes to consolidated financial statements.
- 33 -
</TABLE>
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 5,809,981 $ 1,564,518 $ 300,178
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 788,349 783,859 699,211
Amortization of deferred gain
on sale and leaseback - (433,993) (332,100)
Deferred income taxes (1,196,709) - -
Stock bonus award - 53,975 -
Foreign exchange gain - (39,896) (41,908)
Change in assets and liabilities:
Accounts receivable (3,187,475) (820,556) (122,162)
Inventories (382,087) (1,880,543) (2,593,382)
Prepaid expenses (10,068) 230,371 (218,762)
Other assets 228,772 4,910 67,780
Accounts payable (403,060) (1,355,267) 1,127,355
Accrued compensation and
employee benefits 842,476 731,397 (68,793)
Accrued expenses 188,370 144,276 (391,557)
Income taxes payable 450,979 14,762 7,517
Other liabilities 179,256 (19,374) (45,833)
Net cash provided by (used in) ----------- ----------- -----------
operating activities 3,308,784 (1,021,561) (1,612,456)
----------- ----------- ----------
Cash flows from investing activities:
Capital expenditures, net of
minor disposals (4,231,674) (925,024) (482,111)
Acquisition, net of cash acquired (158,925) - -
----------- ----------- ---------
Net cash used in
investing activities (4,390,599) (925,024) (482,111)
----------- ----------- -----------
Cash flows from financing activities:
(Decrease) increase in borrowings
under U.S. bank credit agreement (6,003,416) 1,860,518 4,142,898
Repayments of U.S. revolving
credit agreement - - (2,800,000)
Net proceeds from sale of common stock 10,800,916 - -
Proceeds from exercise of
stock options 143,227 177,657 26,344
Increase (decrease) in borrowings
under U.K. revolving credit agreement 443,596 (831,275) 57,251
(Decrease) increase in interest-bearing
accounts payable to related party (5,031,919) 627,693 (81,902)
Borrowings under U.S. term loan 4,500,000 - -
Borrowings under U.S. mortgage loan 2,900,000 - -
Borrowings under U.K. term loan - 810,000 -
Repayments of term loan to
related party (1,800,000) (200,000) -
Repayments of long-term debt (310,692) (480,392) (220,625)
----------- --------- ----------
Net cash provided by
financing activities 5,641,712 1,964,201 1,123,966
----------- --------- ----------
Effect of exchange rate changes on cash 7,080 64,088 24,627
--------- -------- --------
Net increase (decrease) in cash 4,566,977 81,704 (945,974)
Cash at beginning of year 287,580 205,876 1,151,850
----------- --------- ----------
Cash at end of year $ 4,854,557 $ 287,580 $ 205,876
=========== ========= ==========
Non-cash investing and financing activities:
Capital lease obligations - $ 276,624 -
Cash paid during the fiscal
year for:
Income taxes $ 64,523 $ 29,203 $ 78,121
Interest $ 1,265,243 $1,118,963 $ 888,061
See accompanying notes to consolidated financial statements.
- 34 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 1998, 1997, and 1996
NOTE 1. Summary of Significant Accounting Policies
Nature of Operations
The Company designs, manufactures, assembles and markets closed circuit
television systems for use in security, surveillance, safety and control
purposes by end users. The Company markets its products worldwide directly to
installing dealers, systems integrators, government entities and distributors.
Principles of Consolidation
The consolidated financial statements include the accounts of Vicon Industries,
Inc. (the Company); its wholly owned subsidiaries, Vicon Industries (U.K.), Ltd.
and Vicon Industries Foreign Sales Corp.; and its majority owned (60%)
subsidiary, Vicon Industries (H.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. Machinery, equipment and vehicles
are being depreciated over periods ranging from 2 to 10 years. The Company's
buildings are being depreciated over periods ranging from 25 to 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 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.
Research and Development
Product research and development costs are principally charged to cost of sales
as incurred, and amounted to approximately $2,200,000, $2,000,000 and $1,800,000
in fiscal 1998, 1997, and 1996, respectively.
- 35 -
<PAGE>
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" which
requires companies to present basic and diluted earnings per share (EPS),
instead of primary and fully diluted EPS that was previously required. Basic EPS
is computed based on the weighted average number of shares outstanding. Diluted
EPS reflects the maximum dilution that would have resulted from the exercise of
stock options, warrants and incremental shares issuable under a deferred
compensation agreement (see Note 9).
The Company adopted the new standard in the first quarter ended December 31,
1997 of fiscal year 1998. EPS data has been restated for each of the prior years
presented to apply the provisions of SFAS No. 128.
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 $162,000 and $33,000 at September 30, 1998 and 1997, 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 and $14,000 in 1997 and 1996, 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 approximate fair value. The aggregate termination
liability on the Company's interest rate swap agreements at September 30, 1998
would have approximated $301,000. This value represents the estimated amount the
Company would have to pay to terminate such agreements before maturity,
principally resulting from market interest rate decreases. 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, 1998
approximated market rates for similar term contracts.
- 36 -
<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 to current year
presentation.
NOTE 2. Investment in Affiliate and Subsidiary
The Company has a 50 percent ownership interest in Chun Shin Electronics, Inc.
(CSE), a joint venture company which assembles certain Vicon products in South
Korea. The Company has not recognized its interest in the accumulated earnings
of CSE since it does not have control over the operations of CSE and does not
have the ability to repatriate any of its accumulated earnings. Net assets and
sales of CSE were approximately $2.1 million and $8.8 million, respectively, for
the fiscal year ended September 30, 1998. A significant portion of CSE sales
were to related parties including approximately $8.0 million indirectly to the
Company and approximately $748,000 to a company owned by the other joint venture
partner (see Note 12).
In July 1998, the Company increased its interest to 60% in Vicon Industries
(H.K.) Ltd., for approximately $197,000 in cash. The acquisition was accounted
for as a purchase with the assets, liabilities and operations of the acquired
business being consolidated with those of the Company since the acquisition
date. The excess cost over the fair value of net assets acquired and the results
of operations for this subsidiary for fiscal 1998 were not material.
Note 3. Public Offering
In May 1998, the Company sold 1,371,200 shares of its common stock in a public
offering, the net proceeds of which were approximately $10.8 million. The
proceeds were principally used to repay borrowings under the U.S. bank credit
agreement, the related party term loan and certain interest-bearing accounts
payable.
- 37 -
<PAGE>
NOTE 4. Short-Term Borrowings
Borrowings under the Company's short-term revolving credit agreement represent
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 ($1,020,000) and is secured by all the assets of the
subsidiary. Maximum borrowings during 1998, 1997 and 1996 amounted to
approximately $676,000, $1,282,000 and $1,045,000, respectively. The
weighted-average interest rate on borrowings during these years was 9.33% in
1998, 8.27% in 1997 and 8.00% in 1996.
At September 30, 1997, accounts payable to related party included approximately
$5.0 million of extended payable balances due Chugai Boyeki Company, Ltd., a
shareholder of the Company. A portion of the proceeds from the public offering
and the proceeds of the bank term loan were used to repay the extended payable
balances. Such payables bear interest at the U.S. prime rate (8.50% at September
30, 1997).
NOTE 5. Income Taxes
The components of income tax expense for the fiscal years indicated are as
follows:
1998 1997 1996
---- ---- ----
Federal $ (515,000) $ 24,000 $ -
State 380,000 5,000 -
Foreign 135,000 53,000 85,000
------------- ----------- -------------
$ - $ 82,000 $ 85,000
============= =========== =============
A reconciliation of the U.S. statutory tax rate to the Company's effective tax
rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Amount Percent Amount Percent Amount Percent
----------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax $ 1,975,000 34.0% $ 560,000 34.0% $ 131,000 34.0%
Change in valuation
allowance (2,560,000) (44.0) (467,000) (28.3) (56,000) (14.5)
State tax, net of
federal benefit 251,000 4.3 - - - -
Other 334,000 5.7 (11,000) (0.7) $ 10,000 2.6
----------- ------ -------- ------ --------- -----
Effective Tax Rate $ - - % $ 82,000 5.0% $ 85,000 22.1%
=========== ====== ======== ====== ========= ======
</TABLE>
- 38 -
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at September 30, 1998 and 1997 are
presented below:
1998 1997
---- ----
Deferred tax assets:
Inventory reserves $ 865,000 $ 457,000
Deferred compensation accruals 186,000 199,000
Allowance for doubtful
accounts receivable 226,000 162,000
Net operating loss carryforwards - 1,753,000
General business credit carryforwards - 80,000
Other 9,000 9,000
---------- ----------
Total deferred tax assets 1,286,000 2,660,000
Less valuation allowance - (2,560,000)
---------- ----------
Net deferred tax assets 1,286,000 100,000
---------- ----------
Deferred tax liabilities:
Cash surrender value of officers'
life insurance 58,000 68,000
Other 31,000 32,000
---------- -----------
Total deferred tax liabilities 89,000 100,000
---------- -----------
Net deferred tax assets and liabilities $1,197,000 $ -
---------- -----------
The Company had provided a valuation allowance of $2,560,000 for deferred tax
assets at September 30, 1997 since realization of these assets was not assured.
During fiscal year 1998, the Company fully utilized its remaining federal net
operating loss carryforward and reversed the remaining valuation allowance based
on management's assessment that it is reasonably assured that all net deferred
income tax assets will be realized in the future given the Company's present
level of earnings. Pretax domestic income amounted to approximately $5,462,000,
$1,414,000 and $136,000 in fiscal years 1998, 1997 and 1996, respectively.
Pretax foreign income amounted to approximately $525,000, $236,000 and $311,000
in fiscal years 1998, 1997 and 1996, respectively.
- 39 -
<PAGE>
NOTE 6. Long-Term Debt
Long-term debt is comprised of the following at September 30, 1998 and 1997:
1998 1997
---- ----
Banks and other:
U.S. bank credit and security agreement $ - $6,003,416
U.S. bank term loan 4,425,000 -
U.S. bank mortgage loan 2,820,900 -
U.K. bank term loan 729,584 776,250
Capital lease obligations 205,702 279,794
---------- ----------
8,181,186 7,059,460
Less installments due within one year 1,179,367 155,092
---------- ----------
$7,001,819 $6,904,368
Related party:
Term loan with interest rate of 1%
above the prevailing prime rate
(9.50% at September 30, 1997) - 1,800,000
---------- ----------
- 1,800,000
Less installments due within one year - 360,000
---------- ----------
$ - $1,440,000
========== ==========
In July 1998, the Company entered into a $14 million unsecured revolving credit
and term loan agreement with a new bank. Such agreement includes a $7.5 million
revolving credit facility, which expires in July 2002, with an option to
increase the facility to $9.5 million at any time through July 2000. Borrowings
under this facility bear interest at the bank's prime rate minus 2% or, at the
Company's option, LIBOR plus 90 basis points (6.25% and 6.275% at September 30,
1998). At September 30, 1998, there were no revolving credit borrowings
outstanding under this agreement.
The agreement also provides for a $4.5 million five-year term loan payable in
equal monthly installments through July 2003, with interest at LIBOR plus 1%.
The proceeds of this term loan were used to repay interest-bearing accounts
payable to a related party. The agreement contains restrictive covenants which,
among other things, require the Company to maintain certain levels of earnings
and ratios of debt service coverage and debt to tangible net worth. In September
1998, the Company entered into an interest rate swap agreement with the same
bank to effectively convert the foregoing floating rate long-term loan to a
fixed rate loan. This agreement fixes the Company's interest rate on its $4.5
million term loan at 6.74%. The interest rate swap agreement matures in the same
amounts and over the same periods as the related term loan.
In December 1995, the Company entered into a two-year Credit and Security
Agreement with a bank that provided 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 included interest at the bank's prime
rate plus 1.00% (9.50% at September 30, 1997). In May 1998, the outstanding
balance of approximately $5,100,000 was repaid with proceeds from the public
offering and the agreement was terminated.
- 40 -
<PAGE>
In January 1998, the Company entered into an aggregate $2.9 million mortgage and
term loan agreement with a bank to finance the purchase of its principal
operating facility. Such agreement includes a $2,512,000 ten-year mortgage loan
payable in monthly installments through January 2008, with a $1,188,000 payment
due at the end of the term. The agreement also provides a $388,000 five-year
term loan payable in monthly installments through January 2003, with a $138,500
payment due at the end of the term. Both loans bear interest at the bank's prime
rate minus 1.35%. The loans are secured by a first mortgage on the property and
fixtures and contain restrictive covenants that, among other things, require the
Company to maintain certain levels of earnings and ratios of debt service
coverage and debt to tangible net worth. At the same time, the Company entered
into interest rate swap agreements with the same bank to effectively convert the
foregoing floating rate long-term loans to fixed rate loans. These agreements
fix the Company's interest rate on its $2,512,000 mortgage loan at 7.79% and its
$388,000 term loan at 7.7%. The interest rate swap agreements mature in the same
amounts and over the same periods as the related mortgage and term loans.
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. $850,000) 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.
In October 1993, the Company issued a $2,000,000 secured promissory note to
Chugai Boyeki Co., Ltd., a related party. The remaining balance of $1,800,000
was repaid in May 1998 with proceeds from the public offering.
Long-term debt maturing in each of the fiscal years subsequent to September 30,
1998 approximates $1,179,000 in 1999, $1,196,000 in 2000, $1,214,000 in 2001,
$1,197,000 in 2002, $1,200,000 in 2003 and $2,195,000 thereafter.
At September 30, 1998, future minimum annual rental commitments under
non-cancelable capital lease obligations were as follows: $69,334 per year in
1999 through 2001, and $33,454 in 2002.
- 41 -
<PAGE>
NOTE 7. Foreign Operations
The Company operates two foreign entities: Vicon Industries (U.K.), Ltd., a
wholly owned subsidiary which markets and distributes the Company's products
principally within the United Kingdom and Europe; and Vicon Industries (H.K.)
Ltd., a majority owned subsidiary which markets and distributes the Company's
products principally within Hong Kong and mainland China.
The following summarizes certain information concerning the Company's operations
in the U.S. and abroad for fiscal years 1998, 1997, and 1996:
1998 1997 1996
---- ---- ----
Net sales
U.S. $54,184,000 $43,605,000 $35,468,000
Foreign 9,126,000 7,914,000 7,723,000
----------- ----------- ----------
Total $63,310,000 $51,519,000 $43,191,000
Operating income
U.S. $ 6,280,000 $ 2,387,000 $ 805,000
Foreign 589,000 363,000 421,000
---------- ----------- ----------
Total $ 6,869,000 $ 2,750,000 $ 1,226,000
Identifiable assets
U.S. $37,859,000 $26,372,000 $23,260,000
Foreign 6,527,000 4,828,000 4,825,000
---------- ----------- ----------
Total $44,386,000 $31,200,000 $28,085,000
Net assets - Foreign $ 2,023,000 $ 1,515,000 $ 935,000
U.S. sales include $9,853,000, $10,747,000 and $8,531,000 for export in
fiscal years 1998, 1997, and 1996, respectively. Operating profits exclude
interest expense, other income and income taxes. U.S. assets include $4,404,000,
$162,000 and $117,000 in fiscal years 1998, 1997 and 1996, respectively, of cash
for general corporate use.
NOTE 8. Stock Options and Stock Purchase Warrants
The Company maintains stock option plans which include both incentive and
non-qualified options covering a total of 350,582 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 Non-Qualified 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 1998 and 1997, a total of
16,565 and 45,952 common shares, respectively, were surrendered pursuant to
stock option exercises, which are held in treasury. There were 685 shares
available for grant at September 30, 1998.
- 42 -
<PAGE>
Changes in outstanding stock options for the three years ended September 30,
1998 are as follows:
Weighted
Number Average
of Exercise
Shares Price
- ---------------------------------------------------------------
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
Options granted 48,250 $6.98
Options exercised (116,450) $2.18
Options forfeited (1,400) $6.50
- ---------------------------------------------------------------
Balance - September 30, 1998 349,897 $2.94
Price range $1.69 - $2.49
(weighted-average contractual 158,397 $1.85
life of 1.7 years)
Price range $2.50 - $7.00
(weighted-average contractual 191,500 $3.84
life of 3.7 years)
- ---------------------------------------------------------------
Exercisable options -
September 30, 1996 289,471 $1.89
September 30, 1997 149,838 $1.96
September 30, 1998 253,123 $2.47
- ---------------------------------------------------------------
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 1998,
1997 and 1996:
1998 1997 1996
---- ---- ----
Risk-free interest rate 5.0% 6.0% 6.0%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 67.3% 52.7% 46.2%
Weighted average expected life 3 years 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.
- 43 -
<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:
1998 1997 1996
---- ---- ----
Net income:
As reported $5,809,981 $1,564,518 $300,178
Pro forma $5,638,166 $1,364,368 $213,848
Earnings per share:
As reported
Basic $1.61 $.56 $.11
Diluted $1.50 $.52 $.11
Pro forma
Basic $1.56 $.49 $.08
Diluted $1.46 $.45 $.08
Weighted average fair value
of options granted $3.34 $1.13 $.64
Pro forma earnings reflect only options granted in fiscal 1998, 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 income 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.
In connection with the public offering, the Company granted the Underwriters
warrants to purchase up to 145,000 shares of Common Stock. The warrants are
exercisable at any time commencing May 1999 through May 2002 at a price of
$10.50 per share.
NOTE 9. Earnings Per Share
The following table provides the components of the basic and diluted
earnings per share (EPS) computations:
1998 1997 1996
---- ---- ----
Basic EPS Computation
Net income $5,809,981 $1,564,518 $ 300,178
Weighted average shares
outstanding 3,605,307 2,803,805 2,765,245
Basic earnings per share $ 1.61 $ .56 $ .11
========== ========== ==========
Diluted EPS Computation
Net income $5,809,981 $1,564,518 $ 300,178
Weighted average shares
outstanding 3,605,307 2,803,805 2,765,245
Stock options 260,425 218,191 75,341
Stock compensation arrangement 7,343 - -
--------- --------- ---------
Diluted shares outstanding 3,873,075 3,021,996 2,840,586
Diluted earnings per share $ 1.50 $ .52 $ .11
========== ========== ==========
- 44 -
<PAGE>
NOTE 10. 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. During fiscal 1998, indirect
sales to the United States Postal Service under a national supply contract
approximated $12 million. No customer represented sales in excess of ten percent
of consolidated sales during fiscal 1997 and fiscal 1996.
NOTE 11. Commitments
The Company occupies certain facilities, or is contingently liable, under
operating leases which expire at various dates through 2001. 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, 1998 was $201,000 with minimum rentals for the fiscal years shown as
follows: 1999 - $88,000; 2000 - $72,000; and 2001 - $41,000.
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, 1998 was approximately $2,205,000. The total compensation
payable under these agreements, absent a change in control, aggregated
$2,345,000 at September 30, 1998. The Company is also a party to insured
deferred compensation agreements with two retired officers. The aggregate
remaining compensation payments of approximately $656,000 as of September 30,
1998 are subject to the individuals' adherence to certain non-compete covenants,
and are payable in monthly installments through December 2003.
In October 1997 and 1998, the Company's Chief Executive Officer was provided a
deferred compensation benefit of 45,952 and 16,565 shares, respectively, 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 $456,000 at the date of
agreement, which is being 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 billings
to this subsidiary. These contracts generally involve the exchange of one
currency for another at a future date and specified exchange rate. At September
30, 1998, the Company had $2,200,000 of outstanding forward exchange contracts
to sell British pounds. Such contracts expire at varying dates and exchange
rates through March 26, 1999.
The Company's purchases of Japanese sourced products through Chugai Boyeki Co.,
Ltd., a related party, are denominated in Japanese yen. At September 30, 1998,
the Company did not have any forward exchange contracts to purchase Japanese
yen.
- 45 -
<PAGE>
NOTE 12: Related Party Transactions
As of September 30, 1998, Chugai Boyeki Company, Ltd. and affiliates ("Chugai")
owned approximately 12.3% of the Company's outstanding common stock. The
Company, which has been conducting business with Chugai for approximately 19
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 $5.3 million, $7.1 million
and $9.2 million of products and components from Chugai in fiscal years 1998,
1997, and 1996, respectively, and the Company sold $4.1 million, $2.7 million
and $2.1 million of product to Chugai for distribution in fiscal years 1998,
1997, and 1996, respectively. At September 30, 1998 and 1997, the Company owed
$652,000 and $7.1 million, respectively, to Chugai and Chugai owed $491,000 and
$276,000, respectively, to the Company resulting from purchases of products. In
October 1993, the Company borrowed $2 million from Chugai under a promissory
note agreement. In May 1998, the Company repaid the remaining balance with
proceeds from the public offering.
As of September 30, 1998, Mr. Chu S. Chun had voting control over
approximately 4.6% of the Company's outstanding common stock. Mr. Chun owns Chun
Shin Industries, Inc., the Company's 50% South Korean joint venture partner in
Chun Shin Electronics, Inc. (CSE) (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 products
purchased directly or indirectly from CSE. During fiscal years 1998 and 1997,
the Company purchased approximately $8.0 million and $7.0 million of products
from CSE through I.I.I. under this agreement. In addition, the Company sold
approximately $344,000 and $1,100,000 of its products to I.I.I. in 1998 and
1997, respectively. At September 30, 1998 and 1997, I.I.I. owed the Company
approximately $59,000 and $279,000, respectively.
- 46 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Earnings Per Share
Quarter Net Gross Net
Ended Sales Profit Profit Basic Diluted
------- ------ -------- --------- ------ -------
Fiscal 1998
December $14,874,000 $4,628,000 $ 1,009,000 $ .34 $ .31
March 14,731,000 4,826,000 1,154,000 .38 .35
June 16,106,000 5,451,000 1,575,000 .40 .38
September 17,599,000 5,927,000 2,072,000 .46 .44
----------- ----------- ----------- ----- -----
Total $63,310,000 $20,832,000 $ 5,810,000 $1.61 $1.50
=========== =========== =========== ===== =====
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 .19 .18
September 14,167,000 3,992,000 641,000 .23 .20
----------- ----------- ----------- ----- -----
Total $51,519,000 $14,475,000 $ 1,565,000 $ .56 $ .52
=========== =========== =========== ===== =====
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.
- 47 -
<PAGE>
SCHEDULE I
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 1998, 1997, and 1996
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, 1998 $493,000 $285,000 $ 84,000 $694,000
======== ======== ======== ========
September 30, 1997 $396,000 $273,000 $176,000 $493,000
======== ======== ======== ========
September 30, 1996 $542,000 $186,000 $332,000 $396,000
======== ======== ======== ========
- 48 -
<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 V.P. Finance
(Chief Executive Officer) (Chief Financial Officer) (Chief Acctg. Officer)
December 24, 1998
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, 1998
- --------------------- -----------------
Donald N. Horn Chairman of the Board Date
Kenneth M. Darby Director December 24, 1998
- --------------------- -----------------
Kenneth M. Darby Date
Arthur D. Roche Director December 24, 1998
- --------------------- -----------------
Arthur D. Roche Date
Peter F. Barry Director December 24, 1998
- --------------------- -----------------
Peter F. Barry Date
Chu S. Chun December 24, 1998
- --------------------- -----------------
Chu S. Chun Director Date
Milton F. Gidge December 24, 1998
- --------------------- -----------------
Milton F. Gidge Director Date
Peter F. Neumann December 24, 1998
- --------------------- -----------------
Peter F. Neumann Director Date
W. Gregory Robertson December 24, 1998
- --------------------- -----------------
W. Gregory Robertson Director Date
Kazuyoshi Sudo December 24, 1998
- --------------------- -----------------
Kazuyoshi Sudo Director Date
- 49 -
EXHIBIT 10.3
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT
AGREEMENT, dated as of October 1, 1998, 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 expire on September 30, 2003.
3. Compensation.
A. The Company shall pay Darby a base salary
of $275,000 per annum, subject to adjustment as provided in subsection B.
B. Prior to September 15 of each succeeding year,
Darby's base salary shall be reviewed by the Compensation Committee of the
Board of Directors and shall be fixed for the year commencing October 1 of such
year by agreement between Darby and the Board of Directors, but in any event
shall not be less than the base salary for the one year period then ending.
<PAGE>
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.
Covenant not to Compete. Darby agrees that during the term of this
Agreement and for a period of five years thereafter unless the Company shall
breach this agreement, he shall not directly or indirectly anywhere in the world
engage in, or
- 2 -
<PAGE>
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 other 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.
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
- 3 -
<PAGE>
assignment of assets or otherwise, shall be persons other than Directors on the
date of this Agreement.
C. Darby's option to elect to terminate his obligations and to
receive a termination payment and to elect to receive a lump sum or extended
payments may be exercised only by written notice delivered to the Company
within 90 days following the date on which Darby receives actual notice of
Change of Control.
D. If Darby elects to receive lump sum payment, such payment
shall be made within 30 days of the Company's receipt of Darby's notice of
election.
7. Severance Payment on Certain Terminations.
A. If either (i) this Agreement expires, or (ii) the Company
terminates Darby's employment under this Agreement for reasons other than
"Gross Misconduct",or (iii) with the consent of the Board of Directors a
Change of Control as defined in paragraph 6 B. shall occur, or (iv) the Company
executes a "Company Sale Agreement" then Darby, at his option, may elect to
receive a severance payment, without reduction for any offset or mitigation,
in an amount equal to (a) one-twelfth his annual base salary at the time of
such termination 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.
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
- 4 -
<PAGE>
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 a severance payment
and to elect to receive lump sum or extended payments may be exercised only by
written notice delivered to the Company within 90 days following the date on
which this Agreement expires or on
which Darby receives actual notice of the existence of any other condition
referred to in paragraph 7A, except that, in the case of the Company's execution
of a Company Sale Agreement, Darby's option may be exercised at any time prior
to the closing under such agreement and such termination shall be effective as
of such closing.
F. If Darby elects to receive lump sum payment, such payment
shall be made within 30 days of the Company's receipt of Darby's notice of such
election, except that, in the case of the Company's execution of a Company Sale
Agreement, the payment shall be made no later than the time of closing under
such agreement.
- 5 -
<PAGE>
G. Payment of termination or severance payment shall not affect
the Company's obligations under any other agreement with Darby.
8. Deferred Compensation.
A. 62,517 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 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.
- 6 -
<PAGE>
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. 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.
Except for any deferred compensation agreement, retirement plan
or stock options previously granted, this Agreement contains the entire
agreement between the parties
- 7 -
<PAGE>
and supersedes all prior agreements by the parties relating to the term of
Darby's employment by the Company, however, it does not restrict or limit such
other benefits as the Board of Directors may determine to provide or make
available to Darby.
B. This agreement may not be waived, changed, modified or
discharged orally, but only by agreement in writing, signed by the party against
whom enforcement of any waiver, change, modification, or discharge is sought.
C. This Agreement shall be governed by the laws of New
York applicable to contracts between New York residents and made and to be
entirely performed in New York.
D. If any part of this Agreement is held to be unenforceable
by any court of competent jurisdiction, the remaining provisions of this
Agreement shall continue in full force and effect.
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:
- 8 -
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1998, between JOHN ECKMAN
(hereinafter called "Eckman") 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, 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 North American 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 September 30, 2000.
3. Compensation.
A. The Company shall pay Eckman a base salary
of $130,000 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 or inability due to drug or alcohol impairment 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 entity shall directly or indirectly acquire beneficial ownership of 20%
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. 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 at its
sole option and determination 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 - President
North American Sales Vicon Industries, Inc.
- 6 -
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1998, 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, 2000.
3. Compensation.
A. The Company shall pay Horn a base salary
of $125,000 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, 1999
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 or inability due to drug or alcohol impairment 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 the 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 entity shall directly or indirectly acquire beneficial ownership of 20%,
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. 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 at its
sole option and determination if during the term of this Agreement (a) Horn dies
or (b) Horn becomes so disabled for a period of six months that he is
substantially unable to perform his duties under this Agreement for such period.
- 4 -
<PAGE>
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 provisions of this
Agreement shall continue in full force and effect.
- 5 -
<PAGE>
E. This Agreement shall inure to the benefit of, and be
binding upon, the Company, its successor, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
VICON INDUSTRIES, INC.
By
Peter Horn Kenneth M. Darby
Vice President - Compliance President
and Quality Assurance Vicon Industries, Inc.
Date: Date:
- 6 -
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1998, 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, 2000.
3. Compensation.
A. The Company shall pay Pshtissky a base salary
of $125,000 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. 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 agreement to Pshtissky or provides a written release of
this provision.
- 2 -
<PAGE>
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 or inability due to drug or alcohol impairment 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.
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, 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 the 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 entity shall directly or indirectly acquire beneficial ownership of 20%
of the outstanding shares of capital stock of the Company or (ii) a majority of
the members of the Board of Directors of the Company or any successor by merger
or assignment of assets or otherwise, shall be persons other than Directors on
the date of this Agreement.
C. Pshtissky's option to elect to terminate his obligations
and to receive a termination payment and to elect to receive a lump sum or
extended payments may be exercised only by written notice delivered to the
Company within 90 days following the date on which Pshtissky receives actual
notice of Change of Control.
7. Death or Disability. The Company may terminate this Agreement at its
sole option and determination 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.
- 4 -
<PAGE>
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.
D. If any part of this Agreement is held to be unenforceable
by any court of competent jurisdiction, the remaining provisions of this
Agreement shall continue in full force and effect.
- 5 -
<PAGE>
E. This Agreement shall inure to the benefit of, and be
binding upon, the Company, its successor, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
VICON INDUSTRIES, INC.
By
Yacov Pshtissky Kenneth M. Darby
Vice President - Technology President
and Development Vicon Industries, Inc.
Date:
Date:
- 6 -
EXHIBIT 10.28
KEYBANK NATIONAL ASSOCIATION
CONFIRMATION
To: VICON INDUSTRIES INC.
89 ARKAY DRIVE
HAUPPAUGE, NEW YORK 11788
Attn: JOHN BADKE
Fax: 516-951-2288
Duplicate
Confirm to:
Client ID: 01622BEITZEL
From: KEYBANK NATIONAL ASSOCIATION
Date: 09-Sep-98
Our Ref: 29676
The purpose of this letter agreement is to set forth the terms and conditions
of the Swap Transaction entered into between KEYBANK NATIONAL ASSOCIATION and
VICON INDUSTRIES INC on the Trade Date specified below (the "Swap Transaction").
This letter agreement constitutes a "Confirmation" as referred to in the Swap
Agreement Specified below.
1. The definintions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swap Dealers Association, Inc.) (the
"Definitions") are incorporated into this Confirmation.
If you and we are parties to a Master Agreement that sets forth the general
terms and conditions applicable to Swap Transactions between us ( a "Swap
Agreement"), this confirmation supplements, forms a part of, and is subject to,
such Swap Agreement. If you and we are not yet parties to a Swap Agreement,
this Confirmation will supplement, form a part of, and be subject to, a Swap
Agreement upon its execution and delivery by you and us. All provisions
contained or incorporated by reference in such Swap Agreement shall govern
this Confirmation except as expressly modified below. In the event of any
inconsistency between this Confirmation and the Definitions or the Swap
Agreement, this Confirmation will govern. In addition, if a Swap Agreement
has not been executed, this Confirmation will itself evidence a complete
binding agreement between you and us as to the terms and conditions of the
Swap Transaction to which this Confirmation relates.
This Confirmation will be governed by and construed in accordance with
the laws of the State of New York, without reference to choice of law doctrine,
provided that this provision will be superseded by any choice of law provision
in the Swap Agreement.
2. This Confirmation constitutes a Rate Swap Transaction under the Swap
Agreement and the terms of the Rate Swap Transaction to which this Confirmation
relates are as follows:
<PAGE>
VICON INDUSTRIES INC
Our Ref: 29676
- --------------
Notional Amount: $4,425,000.00 USD Amortizing $75,000.00 per month
Trade Date: 09-Sep-98
Effective Date: 11-Sep-98
Termination Date: 01-Aug-03
Fixed Amounts:
Fixed Rate Payer: VICON INDUSTRIES INC
Fixed Rate Payer Commencing 01-Oct-98 and monthly thereafter on
Payment Dates: the 1st calendar day of the month up to and
including the Termination Date, subject to
adjustment in accordance with Following Business
Day Convention.
Period End Dates: 1st of each month commencing 01-Oct-98.
Fixed Rate: 6.7400%
Fixed Rate Day
Count Fraction: Act/360
Floating Amounts:
Floating Rate Payer: KEYBANK NATIONAL ASSOCIATION
Floating Rate Payer Commencing 01-Oct-98 and monthly thereafter on
Payment Dates: the 1st calendar day of the month up to and
including the Termination Date, subject to
adjustment in accordance with Following Business
Day Convention.
Period End Dates: 1st of each month commencing 01-Oct-98.
Floating Rate for
Initial Calculation
Period: To Be Determined
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 1-Month
Spread: 1.0000%
Floating Rate Day
Count Fraction: Act/360
Reset Dates: The first day of each Floating Rate Payer
Calculation Period.
<PAGE>
VICON INDUSTRIES INC
Our Ref: 29676
- --------------
Calculation Agent: KEYBANK NATIONAL ASSOCIATION
Other Terms
and Conditions: None
Payment Method: DDA
Please pay us at: KEYBANK NATIONAL ASSOCIATION
WE DEBIT YOUR A/C #323680013097
We will pay you at: KEYBANK NATIONAL ASSOCIATION
WE CREDIT YOUR A/C #323680013097
Please confirm the foregoing correctly sets forth the terms of our Agreement
by executing the copy of this Confirmation enclosed for that purpose and
returning it to us.
Regards,
KEYBANK NATIONAL ASSOCICATION
By:
Name: Jodi L Howe
Accepted and Confirmed as
of the Trade Date:
VICON INDUSTRIES INC
Name: John M. Badke
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. 333-46841 on Form
S-2 of Vicon Industries, Inc. of our report dated December 4, 1998 relating to
the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of
September 30, 1998 and 1997 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, 1998, which report
appears in the September 30, 1998 annual report on Form 10-K of Vicon
Industries, Inc.
KPMG Peat Marwick LLP
Jericho, New York
December 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 4,854,557 4,854,557
<SECURITIES> 0 0
<RECEIVABLES> 14,864,393 14,864,393
<ALLOWANCES> (694,336) (694,336)
<INVENTORY> 17,398,407 17,398,407
<CURRENT-ASSETS> 36,423,021 36,423,021
<PP&E> 13,528,732 13,528,732
<DEPRECIATION> (5,565,352) (5,565,352)
<TOTAL-ASSETS> 44,386,401 44,386,401
<CURRENT-LIABILITIES> 8,780,750 8,780,750
<BONDS> 7,769,347 7,769,347
0 0
0 0
<COMMON> 45,347 45,347
<OTHER-SE> 27,790,957 27,790,957
<TOTAL-LIABILITY-AND-EQUITY> 44,386,401 44,386,401
<SALES> 17,599,360 63,310,466
<TOTAL-REVENUES> 0 0
<CGS> 11,672,732 42,478,384
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,890,401 13,697,095
<LOSS-PROVISION> 54,000 266,000
<INTEREST-EXPENSE> 134,728 1,059,006
<INCOME-PRETAX> 1,847,499 5,809,981
<INCOME-TAX> (225,000) 0
<INCOME-CONTINUING> 2,072,499 5,809,981
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,072,499 5,809,981
<EPS-PRIMARY> .46 1.61
<EPS-DILUTED> .44 1.50
</TABLE>
