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, 1999 Commission File No. 1-7939
- ---------------------------------------------- -------
VICON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2160665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
89 Arkay Drive, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 952-2288
- -------------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $.01
(Title of class)
American Stock Exchange
(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of December 15, 1999 was approximately $24,700,000.
The number of shares outstanding of the registrant's Common Stock as of December
15, 1999 was 4,586,512.
<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 video systems
("CCVS") and system components used for security, surveillance, safety and
control purposes by a broad group of end users. A CCVS 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 CCVS 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 that includes, among others: fire and burglar alarm systems, access
control, CCVS 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 burglar alarm systems, access control, CCVS, article surveillance,
guard services and equipment, locks, safes, armored vehicles, security fencing,
private investigations and others. The Company's products are typically used for
crime deterrence, visual documentation, observation of inaccessible or hazardous
areas, enhancing safety, obtaining cost savings (such as lower insurance
premiums), managing control systems and improving the efficiency and
effectiveness of personnel. The Company's products are used in office buildings,
manufacturing plants, apartment complexes, large retail stores, government
facilities, transportation operations, prisons, casinos, 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 robotic
cameras, system controls, environmental camera enclosures and consoles for
system assembly. In August 1999, the Company acquired TeleSite U.S.A., Inc.
("TeleSite"), which designs, produces and sells remote video surveillance
systems. The Company intends to substantially increase the product development
efforts of TeleSite in order to maximize the potential of its core digital video
compression technology. 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.
- 2 -
<PAGE>
Marketing
The Company's marketing emphasizes engineered CCVS 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, design detail, field 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 1999 and 1998, indirect sales to the United
States Postal Service under a national supply contract approximated $22.7
million and $12.0 million, respectively.
The Company's principal sales offices are located in Hauppauge, New York;
Atlanta, Georgia; Fareham, England; Zaventem, Belgium; New Territories, Hong
Kong; and Shanghai, China.
International Sales
The Company sells its products in Europe through its U.K. based 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 a few territorial exclusivity agreements with customers
but primarily uses a wide range of installation companies and distributors in
international markets. In Australia, Japan, Norway and South Korea, the Company
permits independent sales representatives to use the Company's name for
marketing purposes.
- 3 -
<PAGE>
Direct export sales and sales from the Company's foreign subsidiaries amounted
to $15.4 million, $19.0 million and $18.7 million or 21%, 30% and 36% of
consolidated net sales in fiscal years 1999, 1998, and 1997, respectively.
Export sales are generally 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 85 percent of international
sales in fiscal 1999. Since fiscal 1998, the Company has experienced a decrease
in demand for its products in certain Asian and European countries, due
principally to the deterioration of local economies. For more information
regarding foreign operations, see Note 8 of Notes to Consolidated Financial
Statements included in Item 14.
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 CCVS competitors include the following
companies or their affiliates: Checkpoint Systems, Inc., Matsushita (Panasonic),
Pelco Sales Company, Philips Communications and Security Systems, 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
CCVS and system components. In recent years, a trend of product development and
demand within the video security and surveillance market 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 43 engineers in the following areas: 12 in
software development, 10 in mechanical design, 9 in manufacturing/testing and 12
in electrical and circuit design. R&D expenditures have averaged approximately
4% of net sales for each of the past three years.
- 4 -
<PAGE>
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 fiscal 1999, approximately 13% of the Company's
purchases of components and finished products were from Chun Shin Electronics,
Inc. ("CSE"), a 34% owned South Korean company (see Item 13). Additionally, in
1999, the Company purchased approximately 13% of its components and finished
products from CBC Company, Ltd., a supplier and sourcing agent for the Company
(see Item 13). The Company's relationships with outside manufacturers,
assemblers and suppliers are generally not covered by formal contractual
agreements.
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, and has pending, 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.
- 5 -
<PAGE>
Backlog
The backlog of orders believed to be firm as of September 30, 1999 and 1998 was
approximately $11.3 million and $12.4 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, 1999, the Company employed 252 full-time employees, of whom 7
are officers, 61 administrative, 101 in sales and technical service capacities,
42 in engineering, and 41 production employees. At September 30, 1998, the
Company employed 217 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 an 80,000 square-foot facility located at 89 Arkay
Drive, Hauppauge, New York, which it purchased in January 1998. The Company also
owns and operates a 14,000 square-foot sales, service and warehouse facility in
southern England which services the U.K. and Europe. In addition, the Company
operates, under short-term leases, sales offices in Atlanta, Georgia and
Zaventem, Belgium. The Company also leases sales, service and warehouse
facilities in Tenafly, New Jersey; Yavne, Israel; Hong Kong and Shanghai, China.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
- 6 -
<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 1999
December 8-13/16 4-5/8
March 9-9/16 6-3/4
June 10-3/8 6-1/2
September 9-7/16 6-3/4
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
The last sale price of the Company's Common Stock on December 15, 1999 as
reported on AMEX was $5-3/8 per share. As of December 15, 1999, there were
approximately 300 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.
- 7 -
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
FISCAL YEAR 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $73,414 $63,310 $51,519 $43,191 $43,847
Gross profit 24,699 20,832 14,475 10,957 9,546
Income (loss) before
income taxes 7,442 5,810 1,647 385 (1,267)
Net income (loss) 4,760 5,810 1,565 300 (1,347)
Earnings (loss) per share:
Basic 1.05 1.61 .56 .11 (.49)
Diluted 1.01 1.50 .52 .11 (.49)
Total assets 49,899 44,386 31,200 28,085 26,423
Long-term debt 5,799 7,002 8,344 6,429 5,339
Working capital 29,049 27,642 15,351 12,064 10,721
Property, plant and
equipment (net) 8,053 7,137 3,492 3,034 3,262
- 8 -
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 1999 Compared with 1998
Net sales for 1999 increased $10.1 million or 16% to $73.4 million compared with
$63.3 million in 1998. The sales growth was experienced principally in the U.S.
as domestic sales increased $13.7 million or 31% to $58.0 million principally as
a result of increased system sales supplied under a contract with the U.S.
Postal Service. International sales decreased 19% to $15.4 million principally
as a result of the discontinuation of sales to a private label European reseller
and lower sales in Asia. The backlog of unfilled orders was $11.3 million at
September 30, 1999 compared with $12.4 million at September 30, 1998.
Gross profit margins for 1999 increased to 33.6% compared with 32.9% in 1998.
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 1999 were $16.8 million or 22.9% of net sales compared
with $14.0 million or 22.1% of net sales in 1998. The increase in operating
expenses was principally the result of higher selling expenses associated with
the sales growth.
Operating income increased to $7.9 million for 1999 compared with $6.9 million
for 1998 principally as a result of increased sales.
Interest expense decreased $515,000 to $592,000 for 1999 compared with $1.1
million in 1998 as $9.3 million of interest-bearing debt was repaid in May 1998
with the net proceeds from a secondary stock offering.
Income tax expense for 1999 was $2.7 million, or a 36% effective tax rate. There
was no income tax expense for 1998 due to the utilization of available U.S.
federal and state net operating tax loss carryforwards and the reinstatement of
previously reserved deferred income tax assets.
As a result of the foregoing, net income decreased to $4.8 million for 1999
compared with net income of $5.8 million for 1998. However, results for 1998
benefitted from the utilization of net operating tax loss carryforwards which
affect the comparability of operating results. Assuming that income taxes had
been incurred in 1998 at the same effective tax rate as in 1999, net income for
1998 would have been $3.7 million ($.96 per share diluted) compared with $4.8
million ($1.01 per share diluted) reported for 1999.
- 9 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
- 10 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating activities was $2.2 million for 1999 due
primarily to the $4.8 million net income reported for the year, offset in part
by an increase in inventories to support higher sales activity. Net cash used in
investing activities was $3.8 million for 1999 due primarily to the Company's
acquisition of TeleSite U.S.A., Inc. for $2.1 million, the expenditure of $1.0
million for expansion of the Company's principal operating facility and other
general capital expenditures. Net cash used in financing activities was $1.2
million due primarily to the scheduled repayments of U.S. bank term and mortgage
loans and a decrease in borrowings under the Company's short-term revolving
credit agreement. As a result of the foregoing, the net decrease in cash was
$2.9 million for 1999 after the nominal effect of exchange rate changes on the
cash position of the Company.
In July 1998, the Company entered into a $14 million unsecured revolving credit
and term loan agreement with a bank. Such agreement includes a $7.5 million
revolving credit facility that 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 6.30%, respectively, at September
30, 1999). At September 30, 1999, 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 Company maintains a bank overdraft facility of 600,000 Pounds Sterling
(approximately $990,000) in the U.K. to support local working capital
requirements of Vicon Industries Limited. At September 30, 1999, borrowings
under this facility amounted to approximately $375,000.
In October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility. The
loan is payable in equal monthly principal installments through January 2008,
with a $460,000 payment due at the end of the term. The loan bears interest at
the bank's prime rate minus 160 basis points or, at the Company's option, LIBOR
plus 100 basis points and contains the same covenants as included in the
existing mortgage loans.
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 has completed the
upgrade of 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
- 11 -
<PAGE>
will solve those year 2000 problems that could affect its operating software.
The costs for such upgrades were not 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 continues to assess 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, the Company will seek alternative
suppliers. However, delays may occur which could have a material adverse effect
on the Company.
New Accounting Standard Not Yet Adopted
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. In June 1999, the FASB issued SFAS No. 137, deferring the required
implementation of SFAS No. 133. This SFAS will be adopted by the Company in the
first quarter of fiscal 2001. 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 9% and 11% of product purchases in fiscal 1999 and 1998,
respectively. In 1999, the U.S. dollar had significantly weakened in relation to
the yen, resulting in increased costs for such products. The Company attempts to
minimize its currency exposure on these purchases through the purchase of
foreign exchange contracts. 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.
Sales by the Company's U.K. based subsidiary to customers in Europe are
made in pounds sterling and euros. In fiscal 1999, approximately $4.0 million of
products were sold by the Company to its U.K. based subsidiary for resale. The
U.S. dollar was relatively stable against the pound sterling in 1999. In years
when the pound weakened significantly against the U.S. dollar, the cost of U.S.
sourced product sold by this subsidiary increased. The Company attempts to
minimize its currency exposure on intercompany sales through the purchase of
forward exchange contracts.
- 12 -
<PAGE>
In general, the Company seeks lower costs from suppliers and enters into forward
exchange contracts to mitigate exchange rate exposures. However, there can be no
assurance that such steps will be effective in limiting foreign currency
exposure.
Market Risk Factors
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. The Company has a policy that
prohibits the use of currency derivatives or other financial instruments for
trading or speculative purposes.
The Company enters into forward exchange contracts to hedge certain foreign
currency exposures and minimize the effect of such fluctuations on reported
earnings and cash flow (see "Foreign Currency Activity" and Note 1 "Derivative
Instruments" and "Fair Value of Financial Instruments" to the accompanying
financial statements). At September 30, 1999, the Company's foreign currency
exchange risks included a $1.8 million intercompany accounts receivable balance
due from the Company's U.K. based subsidiary and a $534,000 Japanese Yen
denominated trade accounts payable liability due to inventory suppliers. Such
assets and liabilities are short term and will be settled in fiscal 2000. The
following sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables held
constant.
At September 30, 1999, a 10% strengthening or weakening of the U.S. dollar
versus the British Pound would result in a $179,000 decrease or increase,
respectively, in the intercompany accounts receivable balance. Such foreign
currency exchange risk at September 30, 1999 has been substantially hedged by
forward exchange contracts. A 10% strengthening of the U.S. dollar versus the
Japanese Yen would result in a $49,000 decrease in the trade accounts payable
liability, while a 10% weakening of the dollar would result in a $59,000
increase in such liability.
At September 30, 1999, the Company had $6.2 million of outstanding floating rate
bank debt and corresponding interest rate swap agreements which effectively
convert the foregoing floating rate debt to stated fixed rates (see "Note 7.
Long-Term Debt" to the accompanying financial statements). Thus, the Company has
substantially no net interest rate exposures on these instruments.
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.
- 13 -
<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
- 14 -
<PAGE>
PART III
ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT
The Directors and Officers of the Company are as follows:
Name Age Position
Kenneth M. Darby 53 Chairman of the Board, President and
Chief Executive Officer
John M. Badke 40 Vice President, Finance and Chief
Financial Officer
John L. Eckman 50 Vice President, Sales
Robert D. Grossman 39 Vice President, Customer and
Technical Services
Peter A. Horn 44 Vice President, Operations
Yacov A. Pshtissky 48 Vice President, Technology and Development
Chu S. Chun 64 Director
Milton F. Gidge 70 Director
Peter F. Neumann 65 Director
W. Gregory Robertson 55 Director
Arthur D. Roche 61 Director
Kazuyoshi Sudo 57 Director
The business experience, principal occupations and employment, as well as period
of service, of each of the directors and officers of the Company during at least
the last five years are set forth below.
Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer.
Mr. Darby has served as Chairman of the Board since April 1999, 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 2002.
John M. Badke - Vice President, Finance and Chief Financial Officer. Mr.
Badke has been Chief Financial Officer since December 1999 and Vice President,
Finance since 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, Sales. Mr. Eckman has been Vice President,
Sales since April 1999. He joined the Company in August 1995 as Eastern Regional
Manager and was promoted to Vice President, U.S. Sales in July 1996. Prior to
joining the Company, he was Director of Field Operations for Cardkey Systems,
Inc., an access control security products manufacturer for which he was employed
for 12 years.
- 15 -
<PAGE>
Robert D. Grossman - Vice President, Customer and Technical Services. Mr.
Grossman has been Vice President, Customer and Technical Services since June
1999. He joined the Company in 1996 as Director of Technical Services. Prior to
joining the Company, he was Senior Project Manager for Sensormatic Electronics
Corporation, a CCTV and electronic article surveillance products manufacturer,
for which he was employed for 6 years.
Peter A. Horn - Vice President, Operations. Mr. Horn has been Vice President,
Operations since June 1999. From 1995 to 1999, he was Vice President, Compliance
and Quality Assurance. Prior to that time, he served as Vice President in
various capacities since his promotion in May 1990.
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.
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.
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.
- 16 -
<PAGE>
Arthur D. Roche - Director. Mr. Roche has been a director of the Company since
1992. He served as Executive Vice President and co-participant in the Office of
the President of the Company from August 1993 until his retirement in November
1999. For the six months prior to that time, 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.
His current term on the Board ends in April 2002.
Kazuyoshi Sudo - Director. Mr. Sudo has been a director of the Company since
1987. Mr. Sudo is Chief Executive Officer of CBC (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 CBC Company, Ltd.
since 1997. Mr. Sudo's current term on the Board ends in April 2000.
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.
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, 1999 and certain written
representations, no person, who, at any time during the year ended September 30,
1999 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, 1999.
- 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 1999, 1998 and 1997 by the Chief
Executive Officer and the Company's most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during any such year.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Awards Payouts
------------------------ -------
Annual Compensation Restricted Securities
Name and All Other Stock Underlying LTIP
Principal Position Year Salary ($) Bonus ($) Compensation Award Options (#) Payouts
- ------------------ ---- ---------- ----------- ------------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth M. Darby 1999 $275,000 $261,690 (1) $ 3,000 (3) $111,814 (4) - -
Chief Executive 1998 225,000 297,525 (2) 3,000 (3) $344,640 (5) - -
Officer 1997 225,000 84,017 (2) 3,000 (3) - 58,000 -
Arthur D. Roche 1999 180,000 140,910 (1) - - - -
Executive 1998 170,000 160,206 (2) - - - -
Vice President 1997 170,000 45,240 (2) - - 35,000 -
<FN>
(1) Represents cash bonus equal to 3.25% and 1.75% 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 1999 by the Board
of Directors upon the recommendation of its Compensation Committee.
(2) 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.
(3) Represents life insurance policy payment.
(4) Represents deferred compensation benefit of 16,565 shares of Common Stock
held by the Company in Treasury which vests upon the expiration of Mr.
Darby's employment agreement in October 2004, or earlier upon certain
occurrences including his death, involuntary termination or a change in
control of the Company. The value of such stock is based on the fair market
value on the date of grant. At September 30, 1999, the quoted market value
of such shares approximated $116,000. No dividends can be paid on such
shares.
(5) Represents deferred compensation benefit of 45,952 shares of Common Stock
held by the Company in Treasury which vests upon the expiration of Mr.
Darby's employment agreement in October 2004, or earlier upon certain
occurrences including his death, involuntary termination or a change in
control of the Company. The value of such stock is based on the fair market
value on the date of grant. At September 30, 1999, the quoted market value
of such shares approximated $322,000. No dividends can be paid on such
shares.
</FN>
</TABLE>
- 18 -
<PAGE>
Stock Options
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------ Annual Rates of Stock
% of Total Price Appreciation
No. of Granted to Exercise for Option Term
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
- ------------- ------- ------------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth M. Darby 25,000 17% 6.7500 4/05 $57,400 $130,200
25,000 17% 8.1875 6/05 $69,600 $157,900
Arthur D. Roche 5,000 3% 8.1875 6/05 $13,900 $ 31,600
</TABLE>
Options granted in the year ended September 30, 1999 were issued under the 1999
Incentive Stock Option Plan and the 1999 Non-Qualified Stock Option Plan. The
options granted above are exercisable as follows: up to 30% of the shares on the
second anniversary of the grant date, an additional 30% of the shares on the
third anniversary of the grant date, and the balance of the shares on the fourth
anniversary of the grant date, except that no option is exercisable after the
expiration of six years from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
At September 30, 1999
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options (2) Options (2)
Shares
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized (1) Unexercisable Unexercisable
- ---------------- ----------- ------------- ------------- -------------
Kenneth M. Darby 23,200 $115,850 -0- /50,000 -0-/$6,250
Arthur D. Roche - - 14,000/5,000 $60,750/-0-
(1) Calculated based on the difference between the closing quoted market prices
per share at the dates of exercise and the exercise prices.
(2) Calculated based on the difference between the closing quoted market price
($7.00) and the exercise price.
- 19 -
<PAGE>
Employment Agreements
Mr. Darby has entered into an employment agreement with the Company that
provides for an annual salary of $285,000 through fiscal 2004. This agreement
provides for payment in an amount up to three times his average annual
compensation for the previous five years if there is a change in control of the
Company without Board of Director approval (as defined in the agreement). In
addition, Mr. Darby is eligible to receive cash bonuses based on performance of
the Company. In 2000, his bonus arrangement provides for a cash bonus equal to
3.25% 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 8,130 shares of
Common Stock held by the Company in treasury. Such benefit vests upon the
expiration of his employment agreement in October 2004, or earlier upon certain
occurrences including his death, involuntary termination or a change in control
of the Company. The market value of such benefit approximated $51,000 at the
date of grant.
Donald N. Horn and Arthur V. Wallace, both retired directors, each have deferred
compensation agreements with the Company which provide retirement benefits
totaling $917,000 and $631,000, respectively, and are payable in monthly
installments over a 10-year period from date of retirement. These payments are
subject to their adherence to certain noncompete covenants. Mr. Wallace and Mr.
Horn began receiving payments under these agreements in October 1990 and January
1994, respectively.
Directors' Compensation and Term
Non-employee directors are compensated at an annual rate of $6,000 for regular
meetings, and for committee membership, receive $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.
- 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 1999 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
10/01/94 100 100
10/01/95 103 119
10/01/96 138 125
10/01/97 462 152
10/01/98 393 135
10/01/99 386 172
- 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, 1999 and the shares beneficially owned by the
Company's Directors and by all Officers and Directors as a group.
Name and Address Amount of
of Beneficial Owner Beneficial Ownership (1) % of Class
------------------- ------------------------ ----------
CBC Company, Ltd.
and affiliates
2-15-13 Tsukishima
Chuo-ku
Tokyo, Japan 104 543,715 11.4%
******************************************************************************
C/O Vicon Industries, Inc.
Kenneth M. Darby 250,092 5.2%
Chu S. Chun 204,507 (2) 4.3%
Arthur D. Roche 153,967 (3) 3.2%
W. Gregory Robertson 19,025 (4) *
Kazuyoshi Sudo 16,125 (5) *
Milton F. Gidge 15,825 (5) *
Peter F. Neumann 15,125 (4) *
Total all Officers and
Directors as a group (12 persons) 801,115 (6) 16.7%
* 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) 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.
(3) Includes currently exercisable options to purchase 14,000 shares.
(4) Includes currently exercisable options to purchase 12,125 shares.
(5) Includes currently exercisable options to purchase 7,125 shares.
(6) Includes currently exercisable options to purchase 141,500 shares.
- 23 -
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and CBC Company, Ltd.(CBC), a Japanese corporation which
beneficially owns 11.4% of the outstanding shares of the Company, have been
conducting business with each other for approximately twenty years. During this
period, CBC has served as a lender, a product supplier and sourcing agent, and a
private label reseller of the Company's products. Historically, CBC has provided
a significant amount of funding to the Company in the form of extended accounts
payable related to product purchases. CBC has also acted as the Company's
sourcing agent for the purchase of certain video products. In 1999, the Company
purchased approximately $5.4 million of video products from or through CBC. CBC
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 CBC under
private label for resale in Europe and Russia. Sales of all products to CBC were
$1.3 million in 1999. Kazuyoshi Sudo, a director of the Company and of CBC, is
Chief Executive Officer of CBC (America) Corp., a U.S.
subsidiary of CBC.
Mr. Chu S. Chun, a director who has beneficial voting control over 4.3% of the
Common Stock of the Company, also beneficially owns a controlling interest in
Chun Shin Electronics, Inc., (CSE), a 34% owned South Korean company that
manufactures and assembles certain Vicon products. CSE also sells various
security products, including the Company's products, principally within the
South Korean market. Mr. Chun is the President and has operating control of CSE.
In 1999, CSE sold approximately $5.7 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 all the Company's product purchases
from CSE. In addition, I.I.I. purchased approximately $535,000 of products
directly from the Company during 1999 for resale to CSE.
- 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, 1999, 1998, and 1997
Consolidated Balance Sheets at September 30, 1999 and 1998
Consolidated Statements of Shareholders' Equity, fiscal years ended
September 30, 1999, 1998, and 1997
Consolidated Statements of Cash Flows, fiscal years ended September
30, 1999, 1998, and 1997
Notes to Consolidated Financial Statements, fiscal years ended
September 30, 1999, 1998, and 1997
(a) (2) Financial Statement Schedule
Included in Part IV, Item 14:
Schedule I - Valuation and Qualifying Accounts for the years
ended September 30, 1999, 1998, and 1997
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) Employment Contract dated 10.1
October 1, 1999 between the
Registrant and Kenneth M. Darby
(.2) Employment Contract dated October Incorporated by reference
1, 1996 between Registrant to the 1996 Annual Report
and Arthur D. Roche on Form 10-K
(.3) Employment Agreement dated October 10.3
1, 1999 between Registrant and
John L. Eckman
(.4) Employment Agreement dated October 10.4
1, 1999 between Registrant and
Peter Horn
(.5) Employment Agreement dated October 10.5
1, 1999 between Registrant and
Yacov Pshtissky
(.6) 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
(.7) Amended and restated 1986 Incorporated by
Incentive Stock Option Plan reference to the 1990
Annual Report on Form
10-K
(.8) 1994 Incentive Stock Option Plan Incorporated by
reference to the
1994 Annual Report
on Form 10-K
(.9) 1994 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1994 Annual Report
on Form 10-K
- 26 -
<PAGE>
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
(.10) 1996 Incentive Stock Option Plan Incorporated by
reference to the
1997 Annual Report
on Form 10-K
(.11) 1996 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1997 Annual Report
on Form 10-K
(.12) 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
(.13) 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
(.14) 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
(.15) 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
(.16) 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
(.17) 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
(.18) 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
- 27 -
<PAGE>
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ----------------
(.19) 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
(.20) 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
(.21) 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
(.22) Advice of borrowing terms Incorporated by
between the Registrant and reference to the
National Westminster Bank PLC June 30, 1999 filing
dated February 22, 1999 on Form 10-Q
(.23) 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
(.24) Swap transaction confirmation with Incorporated by
a notional amount of $4,425,000 reference to the
between the Registrant and KeyBank 1998 Annual Report
National Association dated on Form 10-K
September 9, 1998
(.25) Stock purchase agreement between 10.25
the Registrant and Isaac Gershoni
dated August 12, 1999
(.26) Escrow agreement among the 10.26
Registrant, Isaac Gershoni and
European American Bank dated
August 12, 1999
(.27) Loan Agreement between the 10.27
Registrant and KeyBank National
Association dated October 12, 1999
(.28) Mortgage Note between the 10.28
Registrant and KeyBank National
Association dated October 12, 1999
- 28 -
<PAGE>
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
- ------- ----------- ---------------
(.29) Mortgage and Security Agreement 10.29
in the amount of $1,200,000 between
the Registrant and KeyBank National
Association dated October 12, 1999
(.30) 1999 Incentive Stock Option Plan 10.30
(.31) 1999 Non-Qualified Stock Option 10.31
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1999, 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 LLP
Melville, New York
November 30, 1999
- 30 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Net sales $73,414,046 $63,310,466 $51,518,940
Cost of sales 48,714,749 42,478,384 37,043,750
------------ ------------ ------------
Gross profit 24,699,297 20,832,082 14,475,190
Operating expenses:
Selling expense 12,201,943 9,536,988 7,957,340
General and administrative expense 4,604,702 4,426,107 3,767,529
----------- ----------- -----------
16,806,645 13,963,095 11,724,869
----------- ----------- -----------
Operating income 7,892,652 6,868,987 2,750,321
Interest expense 591,826 1,107,196 1,143,699
Other income (141,003) (48,190) (39,896)
----------- ----------- -----------
Income before income taxes 7,441,829 5,809,981 1,646,518
Income tax expense 2,681,628 - 82,000
----------- ----------- ------------
Net income $4,760,201 $5,809,981 $ 1,564,518
=========== =========== ============
Earnings per share:
Basic $1.05 $1.61 $ .56
===== ===== =====
Diluted $1.01 $1.50 $ .52
===== ===== =====
See accompanying notes to consolidated financial statements.
- 31 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and 1998
ASSETS 1999 1998
- ------ ---- ----
Current Assets:
Cash $ 1,998,767 $4,854,557
Accounts receivable (less allowance of
$818,000 in 1999 and $694,000 in 1998) 13,771,411 12,758,080
Inventories:
Parts, components, and materials 2,647,781 2,944,303
Work-in-process 5,298,862 2,374,769
Finished products 13,381,900 12,079,335
----------- -----------
21,328,543 17,398,407
Deferred income taxes 1,303,791 1,079,736
Prepaid expenses 630,716 332,241
----------- -----------
Total current assets 39,033,228 36,423,021
Property, plant and equipment:
Land 1,195,248 1,204,498
Buildings and improvements 5,156,490 4,185,298
Machinery, equipment, and vehicles 8,188,688 7,312,594
----------- -----------
14,540,426 12,702,390
Less accumulated depreciation and amortization 6,486,937 5,565,352
8,053,489 7,137,038
Goodwill, net of accumulated amortization 1,768,056 37,724
Deferred income taxes 264,218 116,973
Other assets 780,028 671,645
----------- ----------
$49,899,019 $44,386,401
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Borrowings under revolving credit agreement $ 374,806 $ 634,388
Current maturities of long-term debt 1,212,316 1,179,367
Accounts payable 4,022,892 3,133,505
Accrued compensation and employee benefits 2,233,441 1,955,462
Accrued expenses 1,749,395 1,316,855
Unearned service revenue 224,711 -
Income taxes payable 167,013 561,173
----------- -----------
Total current liabilities 9,984,574 8,780,750
Long-term debt 5,798,641 7,001,819
Unearned service revenue 639,169 -
Other long-term liabilities 728,284 767,528
Commitments and contingencies - Note 11
Shareholders' equity
Common stock, par value $.01 per share
authorized - 10,000,000 shares
issued 4,654,760 and 4,534,710 shares 46,547 45,347
Capital in excess of par value 21,343,676 20,947,515
Retained earnings 11,851,089 7,090,888
----------- -----------
33,241,312 28,083,750
Less treasury stock at cost, 74,948 shares
in 1999 and 62,517 shares in 1998 (508,745) (409,687)
Accumulated other comprehensive income 15,784 162,241
----------- ------------
Total shareholders' equity 32,748,351 27,836,304
----------- -----------
$49,899,019 $44,386,401
=========== ===========
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, 1999, 1998, and 1997
<CAPTION>
Accumulated Total
Capital in Retained other share-
Common excess of earnings Treasury comprehensive holders'
Shares Stock par value (deficit) Stock income equity
------ ------ ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1996 2,802,728 $28,027 $9,423,089 $ (283,611) $(82,901) $ (116,449) $ 8,968,155
Comprehensive income:
Net income - - - 1,564,518 - - 1,564,518
Foreign currency
translation adjustment - - - - - 149,678 149,678
Total comprehensive income - - - - - - 1,714,196
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
------------ ------ ---------- ----------- ----------- ------- -----------
Balance September 30, 1997 3,047,060 30,470 9,868,063 1,280,907 (298,686) 33,229 10,913,983
Comprehensive income:
Net income - - - 5,809,981 - - 5,809,981
Foreign currency
translation adjustment - - - - - 129,012 129,012
Total comprehensive income - - - - - - 5,938,993
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
------------ ------ ---------- ----------- ----------- ------- -----------
Balance September 30, 1998 4,534,710 45,347 20,947,515 7,090,888 (409,687) 162,241 27,836,304
Comprehensive income:
Net income - - - 4,760,201 - - 4,760,201
Foreign currency
translation adjustment - - - - - (146,457) (146,457)
Total comprehensive income - - - - - - 4,613,744
Exercise of stock options 120,050 1,200 270,036 - (99,058) - 172,178
Tax benefit from exercise
of stock options - - 126,125 - - - 126,125
----------- ------- ----------- ----------- ----------- ------- -----------
Balance September 30, 1999 4,654,760 $46,547 $21,343,676 $11,851,089 $ (508,745) $15,784 $32,748,351
=========== ======= =========== =========== =========== ======= ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 33 -
<PAGE>
<TABLE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years
Ended September 30, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,760,201 $ 5,809,981 $1,564,518
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 913,977 788,349 783,859
Amortization of deferred gain
on sale and leaseback - - (433,993)
Deferred income taxes (371,300) (1,196,709) -
Stock bonus award - - 53,975
Foreign exchange gain - - (39,896)
Change in assets and liabilities:
Accounts receivable (403,392) (3,187,475) (820,556)
Inventories (3,668,388) (382,087) (1,880,543)
Prepaid expenses (301,590) (10,068) 230,371
Other assets (108,383) 228,772 4,910
Accounts payable 399,202 (403,060) (1,355,267)
Accrued compensation and employee benefits 166,317 842,476 731,397
Accrued expenses 414,896 188,370 144,276
Unearned service revenue 863,880 - -
Income taxes payable (482,201) 450,979 14,762
Other liabilities 60,976 179,256 (19,374)
--------- --------- ----------
Net cash provided by (used in)
operating activities 2,244,195 3,308,784 (1,021,561)
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures, net of
minor disposals (1,747,030) (4,231,674) (925,024)
Acquisition, net of cash acquired (2,064,857) (158,925) -
----------- ----------- ------------
Net cash used in
investing activities (3,811,887) (4,390,599) (925,024)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of U.S. term loan (900,000) - -
Proceeds from exercise of stock options 172,179 143,227 177,657
Increase (decrease) in borrowings under
short-term revolving credit agreement (238,003) 443,596 (831,275)
Repayments of long-term debt (275,016) (310,692) (480,392)
Borrowings under term loans - 4,500,000 810,000
Borrowings under mortgage loans - 2,900,000 -
Repayments of term loan to related party - (1,800,000) (200,000)
Net proceeds from sale of common stock - 10,800,916 -
(Decrease) increase in borrowings under
U.S. bank credit agreement - (6,003,416) 1,860,518
(Decrease) increase in interest-bearing
accounts payable to related party - (5,031,919) 627,693
----------- ----------- -----------
Net cash (used in) provided by
financing activities (1,240,840) 5,641,712 1,964,201
----------- ----------- -----------
Effect of exchange rate changes on cash (47,258) 7,080 64,088
----------- ----------- -----------
Net (decrease) increase in cash (2,855,790) 4,566,977 81,704
Cash at beginning of year 4,854,557 287,580 205,876
----------- ----------- -----------
Cash at end of year $ 1,998,767 $ 4,854,557 $ 287,580
=========== =========== ===========
Non-cash investing and financing activities:
Capital lease obligations - - $ 276,624
Cash paid during the fiscal
year for:
Income taxes $ 3,517,498 $ 64,523 $ 29,203
Interest $ 608,673 $ 1,265,243 $ 1,118,963
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 34 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 1999, 1998, and 1997
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) and its wholly owned subsidiaries: Vicon Industries Limited
(formerly Vicon Industries (U.K.), Ltd.), TeleSite U.S.A., Inc. and subsidiary
(Q.S.R. 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. Advance service billings under a
national supply contract with one customer are deferred and recognized as
revenues on a pro rata basis over the term of the service agreement.
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.
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.
- 35 -
<PAGE>
Goodwill
Goodwill represents the excess of purchase price over the fair value assigned to
net assets acquired and is being amortized on a straight-line basis over 10
years. Periodically, the Company reviews the recoverability of goodwill. The
measurement of possible impairment is based primarily on the ability to recover
the balance of goodwill from expected future operating cash flows on an
undiscounted basis. Accumulated amortization amounted to $41,668 and $5,389 at
September 30, 1999 and 1998, respectively.
Research and Development
Product research and development costs are principally charged to cost of sales
as incurred, and amounted to approximately $2,600,000, $2,200,000 and $2,000,000
in fiscal 1999, 1998, and 1997, respectively.
Earnings Per Share
The Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" requires companies to present
basic and diluted earnings per share (EPS). 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 10).
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 $16,000 and $162,000 at September 30, 1999 and 1998, respectively,
is recorded as a component of shareholders' equity.
Income Taxes
The Company accounts for income taxes under the provisions of 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 6).
Derivative Instruments
The Company's derivative financial instruments consist of foreign currency
forward exchange contracts and interest rate swap agreements. The Company enters
into forward exchange contracts to hedge intercompany accounts receivable with
its U.K. based subsidiary and Japanese Yen denominated trade accounts payable
liabilities due inventory suppliers. The forward exchange contracts have
maturities of less than one year and require the Company to exchange currencies
at specified dates and rates. Gains and losses on these contracts are recorded
in cost of sales generally when incurred.
- 36 -
<PAGE>
The Company entered into interest rate swap agreements with its bank to
effectively convert its floating rate long-term debt to fixed interest rates
(see Note 7). Such agreements mature in the same amounts and over the same
periods as the related debt. Outstanding notional amounts under such agreements
approximated $6.2 million at September 30, 1999. Gains and losses on these
contracts are recorded in interest expense when incurred.
Fair Value of Financial Instruments
SFAS 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 carrying amounts of the Company's interest rate swap agreements
approximated their fair market value at September 30, 1999. This value
represents the estimated amount the Company would have to pay or would receive
if such agreements were terminated before maturity, principally resulting from
market interest rate changes. The fair value of forward exchange contracts is
estimated by obtaining quoted market prices. The contracted exchange rates on
committed forward exchange contracts at September 30, 1999 and 1998 approximated
market rates for similar term contracts (see Note 11).
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).
Segment Data
On September 30, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their business segments in financial statements. The adoption of SFAS 131
did not have an effect on the Company's primary financial statements, but did
affect the disclosure of segment information contained in Note 8 of the Notes to
the Consolidated Financial Statements.
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.
- 37 -
<PAGE>
NOTE 2. Business Acquisitions
In August 1999, the Company acquired all of the outstanding shares of TeleSite
U.S.A., Inc., a manufacturer and distributor of remote video surveillance
systems, for $2.1 million. As additional compensation, the Company is liable to
pay the sellers an amount equal to 30% of the acquired operation's yearly
incremental consolidated sales for a three-year period commencing January 1,
2000. The acquisition has been accounted for as a purchase, and the results of
the operations of the acquired business have been included in the consolidated
financial statements since the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired of approximately $1.8
million has been recorded as goodwill and is being amortized on a straight-line
basis over 10 years.
Assuming this acquisition had occurred on October 1, 1997, consolidated net
sales would have been approximately $75.9 million for 1999 and $65.6 million for
1998. Consolidated pro forma net income and earnings per share would not have
been materially different from the reported amounts for 1999 and 1998. Such
unaudited pro forma amounts are not indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1998.
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 1999 were not material.
NOTE 3. Investment in Affiliate
In September 1999, the Company's 50% ownership interest in Chun Shin
Electronics, Inc. (CSE), a South Korean company which manufactures and assembles
certain Vicon products, decreased to 34% with the merger of Chun Shin
Industries, Inc. (CSI) into CSE. CSI is the former 50% shareholder of CSE and
sells various security products, including the Company's products, principally
within the South Korean market. 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 of CSE were approximately $5.6 million at
September 30, 1999.
Note 4. 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 certain interest bearing borrowings.
- 38 -
<PAGE>
NOTE 5. Short-Term Borrowings
Borrowings under the Company's short-term revolving credit agreement represent
borrowings by the Company's U.K. based subsidiary under a bank overdraft
facility. Such credit agreement provides for maximum borrowings of 600,000
pounds ($990,000) and is secured by all the assets of the subsidiary. Maximum
borrowings during 1999, 1998 and 1997 amounted to approximately $852,000,
$676,000 and $1,282,000, respectively. The weighted-average interest rate on
borrowings during these years was 7.80% in 1999, 9.33% in 1998 and 8.27% in
1997.
NOTE 6. Income Taxes
The components of income tax expense for the fiscal years indicated are as
follows:
1999 1998 1997
---- ---- ----
Federal $ 2,392,000 $ (515,000) $ 24,000
State 200,000 380,000 5,000
Foreign 90,000 135,000 53,000
------------- ----------- ------------
$ 2,682,000 $ - $ 82,000
============= =========== ============
A reconciliation of the U.S. statutory tax rate to the Company's effective tax
rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax $ 2,530,000 34.0% $1,975,000 34.0% $ 560,000 34.0%
Change in valuation
allowance - - (2,560,000) (44.0) (467,000) (28.3)
State tax, net of
federal benefit 132,000 1.8 251,000 4.3 - -
Other 20,000 0.2 334,000 5.7 (11,000) (0.7)
----------- ------ ---------- ------ --------- ------
Effective Tax Rate $ 2,682,000 36.0% $ - - % $ 82,000 5.0%
=========== ====== ========== ====== ========= ======
</TABLE>
- 39 -
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at September 30, 1999 and 1998 are
presented below:
1999 1998
---- ----
Deferred tax assets:
Inventory reserves $1,009,000 $ 865,000
Deferred compensation accruals 179,000 186,000
Allowance for doubtful
accounts receivable 256,000 226,000
Unearned service revenue 128,000 -
Other 88,000 9,000
---------- ----------
Total deferred tax assets 1,660,000 1,286,000
Deferred tax liabilities:
Cash surrender value of officers'
life insurance 46,000 58,000
Other 46,000 31,000
---------- -----------
Total deferred tax liabilities 92,000 89,000
---------- -----------
Net deferred tax assets and liabilities $1,568,000 $ 1,197,000
---------- -----------
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 $7,385,000,
$5,462,000 and $1,414,000 in fiscal years 1999, 1998 and 1997, respectively.
Pretax foreign income amounted to approximately $57,000, $348,000 and $233,000
in fiscal years 1999, 1998 and 1997, respectively.
NOTE 7. Long-Term Debt
Long-term debt is comprised of the following at September 30, 1999 and 1998:
1999 1998
---- ----
U.S. bank term loan $3,525,000 $4,425,000
U.S. bank mortgage loan 2,679,000 2,820,900
U.K. bank term loan 625,626 729,584
Other 181,331 205,702
---------- ----------
7,010,957 8,181,186
Less installments due within one year 1,212,316 1,179,367
---------- ----------
$5,798,641 $7,001,819
========== ==========
In July 1998, the Company entered into a $14 million unsecured revolving credit
and term loan agreement with a 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 6.30% at September 30,
1999). At September 30, 1999 and 1998, there were no revolving credit borrowings
outstanding under this agreement.
- 40 -
<PAGE>
The agreement also provided for a $4.5 million five-year term loan payable in
equal monthly installments through July 2003, with interest at LIBOR plus 100
basis points. 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 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 October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility. The
loan is payable in equal monthly principal installments through January 2008,
with a $460,000 payment due at the end of the term. The loan bears interest at
the bank's prime rate minus 160 basis points or, at the Company's option, LIBOR
plus 100 basis points and contains the same covenants as included in the
existing mortgage loans.
In April 1997, the Company's U.K. based subsidiary entered into a ten-year
500,000 pound sterling (approximately $825,000) bank term loan. The term loan is
payable in equal monthly installments with interest at a fixed rate of 9%. The
loan is secured by a first mortgage on the subsidiary's property and contains
restrictive covenants which, among other things, require the subsidiary to
maintain certain levels of net worth, earnings and debt service coverage.
Long-term debt maturing in each of the fiscal years subsequent to September 30,
1999 approximates $1,212,000 in 2000, $1,216,000 in 2001, $1,199,000 in 2002,
$1,197,000 in 2003, $438,000 in 2004 and $1,749,000 thereafter.
At September 30, 1999, future minimum annual rental commitments under
non-cancelable capital lease obligations were as follows: $69,334 per year in
2000 and 2001, and $33,454 in 2002.
- 41 -
<PAGE>
NOTE 8. Segment and Related Information
The Company adopted SFAS 131, "Disclosures About Segments of an Enterprise and
Related Information" in 1999, which changes the way the Company reports
information about its operating segments. The information for 1998 and 1997 has
been restated from the prior year's presentation in order to conform to the 1999
presentation.
The Company operates in one industry which encompasses the design, manufacture,
assembly and marketing of closed-circuit video systems and system components for
the electronic protection segment of the security industry. The Company manages
its business segments primarily on a geographic basis. The Company's principal
reportable segments are comprised of its United States (U.S.) and United Kingdom
(U.K.) based operations. Its U.S. based operations consist of Vicon Industries,
Inc., the Company's corporate headquarters and principal operating entity. Its
U.K. based operations consist of Vicon Industries Limited, a wholly owned
subsidiary which markets and distributes the Company's products principally
within Europe. Other segments include the operations of Vicon Industries (H.K.),
Ltd., a Hong Kong based majority owned subsidiary which markets and distributes
the Company's products principally within Hong Kong and mainland China and
TeleSite U.S.A., Inc. and subsidiary, a U.S. and Israeli based manufacturer and
distributor of remote video surveillance systems.
The Company evaluates performance and allocates resources based on, among other
things, the net profit for each segment, which excludes intersegment sales and
profits. Segment information for the fiscal years ended September 30, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1999 U.S. U.K. Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Net sales to
external customers $62,939,000 $8,515,000 $1,960,000 $ - $73,414,000
Intersegment
net sales 5,334,000 - 36,000 - 5,370,000
Net income (loss) 4,787,000 217,000 (194,000) (50,000) 4,760,000
Interest expense 506,000 174,000 7,000 (95,000) 592,000
Interest income 227,000 - - (86,000) 141,000
Depreciation and
amortization 680,000 163,000 35,000 36,000 914,000
Total assets 45,025,000 5,912,000 2,904,000 (3,942,000) 49,899,000
Capital expenditures $ 1,469,000 $ 177,000 $ 101,000 - $ 1,747,000
</TABLE>
<TABLE>
<CAPTION>
1998 U.S. U.K. Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Net sales to
external customers $54,184,000 $8,542,000 $ 584,000 $ - $63,310,000
Intersegment
net sales 4,668,000 - - - 4,668,000
Net income (loss) 5,597,000 349,000 41,000 (177,000) 5,810,000
Interest expense 1,024,000 187,000 - (104,000) 1,107,000
Interest income 164,000 - - (99,000) 65,000
Depreciation and
amortization 652,000 131,000 - 5,000 788,000
Total assets 40,214,000 5,575,000 1,181,000 (2,584,000) 44,386,000
Capital expenditures $ 4,037,000 $ 191,000 $ 4,000 - $ 4,232,000
</TABLE>
- 42 -
<PAGE>
<TABLE>
<CAPTION>
1997 U.S. U.K. Other Consolidating Totals
- ---- ---------- ---------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Net sales to
external customers $43,605,000 $7,914,000 $ - $ - $51,519,000
Intersegment
net sales 3,344,000 - - - 3,344,000
Net income (loss) 1,385,000 183,000 - (3,000) 1,565,000
Interest expense 1,041,000 191,000 - (88,000) 1,144,000
Interest income 79,000 - - (79,000) -
Depreciation and
amortization 639,000 145,000 - - 784,000
Total assets 28,209,000 4,938,000 - (1,947,000) 31,200,000
Capital expenditures $ 819,000 $ 106,000 $ - - $ 925,000
</TABLE>
The consolidating segment presented above includes the elimination and
consolidation of intersegment transactions. Net sales and long-lived assets
related to operations in the United States and other foreign countries for the
fiscal years ended September 30, 1999, 1998, and 1997 are as follows:
1999 1998 1997
---- ---- ----
Net sales
U.S. $63,236,000 $54,184,000 $43,605,000
Foreign 10,178,000 9,126,000 7,914,000
----------- ----------- ----------
Total $73,414,000 $63,310,000 $51,519,000
Long-lived assets
U.S. $ 6,234,000 $ 5,443,000 $ 2,059,000
Foreign 1,819,000 1,694,000 1,433,000
---------- ----------- ----------
Total $ 8,053,000 $ 7,137,000 $ 3,492,000
U.S. sales include $5,236,000, $9,853,000 and $10,747,000 for export in fiscal
years 1999, 1998, and 1997, respectively. Indirect sales to the United States
Postal Service under a national supply contract approximated $22.7 million and
$12.0 million in fiscal 1999 and 1998, respectively.
NOTE 9. Stock Options and Stock Purchase Warrants
The Company maintains stock option plans which include both incentive and
non-qualified options covering a total of 430,532 shares of common stock
reserved for issuance to key employees, including officers and directors. Such
amount includes a total of 100,000 options reserved for issuance under the 1999
Incentive Stock Option Plan, as well as a total of 100,000 options reserved for
issuance under the 1999 Non-Qualified Stock Option Plan, approved by the
shareholders in April 1999. 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 1999 and 1998, a total of 12,431 and 16,565
common shares, respectively, were surrendered pursuant to stock option
exercises, which are held in treasury. There were 59,885 shares available for
grant at September 30, 1999.
- 43 -
<PAGE>
Changes in outstanding stock options for the three years ended September 30,
1999 are as follows:
Weighted
Number Average
of Exercise
Shares Price
- -------------------------------------------------------------------
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
Options granted 143,000 $7.50
Options exercised (120,050) $2.26
Options forfeited (2,200) $7.00
- -------------------------------------------------------------------
Balance - September 30, 1999 370,647 $4.89
Price range $1.69 - $3.06
(weighted-average contractual 183,897 $2.36
life of 1.9 years)
Price range $6.75 - $8.19
(weighted-average contractual 186,750 $7.38
life of 5.2 years)
- -------------------------------------------------------------------
Exercisable options -
September 30, 1997 149,838 $1.96
September 30, 1998 253,123 $2.47
September 30, 1999 210,147 $2.94
- -------------------------------------------------------------------
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 1999,
1998 and 1997:
1999 1998 1997
---- ---- ----
- ------------------------------------------------------------------------------
Risk-free interest rate 5.0% 5.0% 6.0%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 59.0% 67.3% 52.7%
Weighted average expected life 4 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.
- 44 -
<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:
1999 1998 1997
---- ---- ----
Net income:
As reported $4,760,201 $5,809,981 $1,564,518
Pro forma $4,646,938 $5,638,166 $1,364,368
Earnings per share:
As reported
Basic $1.05 $1.61 $ .56
Diluted $1.01 $1.50 $ .52
Pro forma
Basic $1.03 $1.56 $ .49
Diluted $ .98 $1.46 $ .45
Weighted average fair value
of options granted $3.74 $3.34 $1.13
Pro forma earnings reflect only options granted since October 1, 1995.
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 through May 2003 at a price of $10.50 per share.
NOTE 10. Earnings Per Share
The following table provides the components of the basic and diluted earnings
per share (EPS) computations:
1999 1998 1997
---- ---- ----
Basic EPS Computation
Net income $4,760,201 $5,809,981 $1,564,518
Weighted average shares
outstanding 4,519,344 3,605,307 2,803,805
Basic earnings per share $ 1.05 $ 1.61 $ .56
========== ========== ==========
Diluted EPS Computation
Net income $4,760,201 $5,809,981 $1,564,518
Weighted average shares
outstanding 4,519,344 3,605,307 2,803,805
Stock options 185,940 260,425 218,191
Stock compensation arrangement 13,075 7,343 -
--------- --------- ---------
Diluted shares outstanding 4,718,358 3,873,075 3,021,996
Diluted earnings per share $ 1.01 $ 1.50 $ .52
========== ========== ==========
- 45 -
<PAGE>
NOTE 11. Commitments
The Company occupies certain facilities, or is contingently liable, under
operating leases that expire at various dates through 2008. The leases, which
cover periods from three to nine years, generally provide for renewal options at
specified rental amounts. The aggregate operating lease commitment at September
30, 1999 was $522,000 with minimum rentals for the fiscal years shown as
follows: 2000 - $158,000; 2001 - $136,000; 2002 - $73,000; 2003 - $27,000; 2004
- - $25,000; 2005 and thereafter - $103,000.
The Company is a party to employment agreements with four executives that
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 such change in control provisions at
September 30, 1999 was approximately $1,605,000. The total compensation payable
under these agreements, absent a change in control, aggregated $2,215,000 at
September 30, 1999. The Company is also a party to insured deferred compensation
agreements with two retired officers. The aggregate remaining compensation
payments of approximately $495,000 as of September 30, 1999 are subject to the
individuals' adherence to certain non-compete covenants, and are payable in
monthly installments through December 2003. In October 1997, 1998 and 1999, the
Company's Chief Executive Officer was provided a deferred compensation benefit
of 45,952, 16,565 and 8,130 shares, respectively, of common stock currently held
by the Company in treasury. Such shares vest upon the expiration of the
executive's employment agreement in October 2004, or earlier under certain
occurrences including his death, involuntary termination or a change in control
of the Company. The market value of such shares approximated $507,000 at the
dates of grant, which is being amortized on the straight-line method over the
term of the employment agreement.
Sales to customers from the Company's U.K. based 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, 1999 and 1998, the Company had approximately $1,550,000 and
$2,200,000, respectively, of outstanding forward exchange contracts to sell
British pounds. Such contracts have maturities of less than one year.
The Company's purchases of Japanese sourced products through CBC Company, Ltd.,
a related party, are denominated in Japanese yen. At September 30, 1999, the
Company had approximately $1,059,000 of outstanding forward exchange contracts
to purchase Japanese yen. At September 30, 1998, the Company did not have any
forward exchange contracts to purchase Japanese yen.
The Company received notice from a competitor asserting that certain of the
Company's products infringe upon a patent it allegedly owns and is seeking
royalties on the Company's sales of such products. The Company is reviewing
the claim and believes that it has good defenses in this matter. No assurance
can be given that this matter will be resolved in the Company's favor and no
reasonable estimate of potential loss, if any, can be made at this time.
- 46 -
<PAGE>
NOTE 12. Related Party Transactions
As of September 30, 1999, CBC Company, Ltd. and affiliates ("CBC") owned
approximately 12.0% of the Company's outstanding common stock. The Company,
which has been conducting business with CBC for approximately 20 years, imports
certain finished products and components through CBC and also sells its products
to CBC who resells the products in certain Asian and European markets. The
Company purchased approximately $5.4 million, $5.3 million and $7.1 million of
products and components from CBC in fiscal years 1999, 1998, and 1997,
respectively, and the Company sold $1.3 million, $4.1 million and $2.7 million
of product to CBC for distribution in fiscal years 1999, 1998, and 1997,
respectively. At September 30, 1999 and 1998, the Company owed $955,000 and
$652,000, respectively, to CBC and CBC owed $27,000 and $491,000, respectively,
to the Company resulting from purchases of products.
As of September 30, 1999, Mr. Chu S. Chun had voting control over approximately
4.5% of the Company's outstanding common stock. Mr. Chun beneficially owns a
controlling interest in Chun Shin Electronics, Inc. (CSE), a South Korean
supplier of certain of the Company's products (see Note 3). Mr. Chun also
controls International Industries, Inc. (I.I.I.), a U.S. based company, which
arranges the importation of all the Company's products purchased directly or
indirectly from CSE. During fiscal years 1999 and 1998, the Company purchased
approximately $5.7 million and $8.0 million of products from CSE through I.I.I.
under this agreement. In addition, the Company sold approximately $535,000 and
$344,000 of its products to I.I.I. in 1999 and 1998, respectively, for resale to
CSE. At September 30, 1999 and 1998, I.I.I. owed the Company approximately
$238,000 and $59,000, respectively.
- 47 -
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Earnings Per Share
------------------
Quarter Net Gross Net
Ended Sales Profit Income Basic Diluted
------- ----- ------ ------ ----- -------
Fiscal 1999
December $17,128,000 $ 5,609,000 $ 1,060,000 $ .24 $ .23
March 17,500,000 5,895,000 1,161,000 .26 .25
June 19,493,000 6,614,000 1,346,000 .30 .28
September 19,293,000 6,581,000 1,193,000 .26 .25
----------- ----------- ----------- ----- -----
Total $73,414,000 $24,699,000 $ 4,760,000 $1.05 $1.01
=========== =========== =========== ===== =====
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
=========== =========== =========== ===== =====
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.
- 48 -
<PAGE>
SCHEDULE I
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 1999, 1998, and 1997
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, 1999 $694,000 $290,000 $166,000 $818,000
======== ======== ======== ========
September 30, 1998 $493,000 $285,000 $ 84,000 $694,000
======== ======== ======== ========
September 30, 1997 $396,000 $273,000 $176,000 $493,000
======== ======== ======== ========
- 49 -
<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 John M. Badke
------------------------- -------------------------
Kenneth M. Darby John M. Badke
Chairman Vice President, Finance
(Chief Executive Officer) (Chief Financial Officer)
December 29, 1999
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.
Kenneth M. Darby December 29, 1999
- --------------------- ---------------------
Kenneth M. Darby Chairman and CEO Date
Chu S. Chun December 29, 1999
- --------------------- ---------------------
Chu S. Chun Director Date
Milton F. Gidge December 29, 1999
- --------------------- ---------------------
Milton F. Gidge Director Date
Peter F. Neumann December 29, 1999
- --------------------- ---------------------
Peter F. Neumann Director Date
W. Gregory Robertson December 29, 1999
- --------------------- ---------------------
W. Gregory Robertson Director Date
Arthur D. Roche December 29, 1999
- --------------------- ---------------------
Arthur D. Roche Director Date
Kazuyoshi Sudo December 29, 1999
- --------------------- ---------------------
Kazuyoshi Sudo Director Date
- 50 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VICON INDUSTRIES, INC.
By By
Kenneth M. Darby John M. Badke
Chairman Vice President, Finance
(Chief Executive Officer) (Chief Financial Officer)
December 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
VICON INDUSTRIES, INC.
December 29, 1999
- --------------------- ---------------------
Kenneth M. Darby Chairman and CEO Date
December 29, 1999
- --------------------- ---------------------
Chu S. Chun Director Date
December 29, 1999
- --------------------- ---------------------
Milton F. Gidge Director Date
December 29, 1999
- --------------------- ---------------------
Peter F. Neumann Director Date
December 29, 1999
- --------------------- ---------------------
W. Gregory Robertson Director Date
December 29, 1999
- --------------------- ---------------------
Arthur D. Roche Director Date
December 29, 1999
- --------------------- ---------------------
Kazuyoshi Sudo Director Date
- 50 -
<PAGE>
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT
AGREEMENT, dated as of October 1, 1999, 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, 2004.
3. Compensation.
A. The Company shall pay Darby a base salary of $285,000 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 full fee for service family
medical, dental, and hospital coverage and long term disability insurance.
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 with office space, secretary,
telephones and other office facilities appropriate to his duties.
E. Darby shall be entitled to one month's paid vacation per
annum.
5. 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, Europe and Asia. 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.
B. A "Change of Control" shall be deemed to have
occurred if (i) any entity shall directly or indirectly acquire a beneficial
ownership of 20% (or in the case of Chugai Boyeki Co., Ltd. and its affiliates
35%) or more of the outstanding shares of capital stock of the Company or (ii) a
majority of the members of the Board of Directors of the Company or any
successor by merger or
- 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.
B. "Company Sale Agreement" means an agreement to
which the Company is a party that contemplates that more than half of the
assets of the Company are transferred to another entity or
- 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.
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. 70,647 shares of the Company's common 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).
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.
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 -
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1999, 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
- - 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, 2001 unless terminated earlier by the
Company for cause.
3. Compensation.
A. The Company shall pay Eckman a base salary
of $135,000 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.
<PAGE>
B. Eckman's base salary shall be payable monthly or bi-weekly.
C. Eckman shall also be entitled to participate in any life
insurance, medical, dental, hospital, disability, 401(k) or other benefit plans
as may from time to time be made available to non-executive 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 a
written release of this provision.
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
- 2 -
<PAGE>
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.
C. 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.
D. 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.
E. 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 consent of
- 3 -
<PAGE>
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 any
entity shall directly or indirectly acquire beneficial ownership of 50% or more
of the outstanding shares of capital stock of the Company.
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.
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
- 4 -
<PAGE>
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 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.
C. This Agreement shall be governed by the laws of New York State
applicable to contracts between New York State residents and made and to be
entirely performed in New York State.
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.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
VICON INDUSTRIES, INC.
By
John Eckman Kenneth M. Darby
Vice President - Sales President
Vicon Industries, Inc.
- 6 -
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1999, 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, 2001, unless terminated earlier by the
Company for cause.
3. Compensation.
A. The Company shall pay Horn 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. 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 life
insurance, medical, dental, hospital, disability or other benefit plans as may
from time to time be made available to non-executive 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 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 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 any
entity shall directly or indirectly acquire beneficial ownership of 50% or more
of the outstanding shares of capital stock of the Company.
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.
The Company shall be the sole judge of whether Horn is disabled or not.
- 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 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 State
applicable to contracts between New York State residents and made and to be
entirely performed in New York State.
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 - Operations President
Vicon Industries, Inc.
Date: Date:
- 6 -
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 1999, 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, 2001, unless terminated earlier by the
Company for cause.
3. Compensation.
A. The Company shall pay Pshtissky 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. 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. Pshtissky's base salary shall be payable monthly or bi-weekly.
C. Pshtissky shall also be entitled to participate in any life
insurance, medical, dental, hospital, disability or other benefit plans as may
from time to time be made available to non-executive 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 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 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 any
entity shall directly or indirectly acquire beneficial ownership of 50% or more
of the outstanding shares of capital stock of the Company.
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.
The Company shall be the sole judge of whether Pshtissky is disabled or not.
- 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 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 State
applicable to contracts between New York State residents and made and to be
entirely performed in New York State.
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 - New Technology President
and Development Vicon Industries, Inc.
Date: Date:
- 6 -
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of July 30, 1999, between VICON
INDUSTRIES, INC., a New York corporation whose address is 89 Arkay Drive,
Hauppauge, New York 11788 ("Purchaser") and ISAAC GERSHONI, whose address is 97
Taylor Drive, Closter, New Jersey 07624 ("Seller").
The parties agree as follows:
1. Purchase and Sale of Stock Based upon the representations,
warranties, and agreements contained in this Agreement and subject to the terms
and conditions set forth in this Agreement, at the Closing Date, as defined in
Section 3, Seller shall sell, transfer and deliver to Purchaser, and Purchaser
shall purchase and accept from Seller, all of the issued and outstanding shares
of TeleSite U.S.A., Inc. ("TeleSite"), free and clear of all claims, liens and
encumbrances.
The shares to be sold, transferred and delivered to Purchaser are
referred to as the "TeleSite Stock." TeleSite and Q.S.R. Ltd., an Israeli
corporation ("QSR"), are referred to as the "Acquired Companies."
2. Purchase Price and Method of Payments. The purchase price to
be paid by Purchaser to Seller for the TeleSite Stock shall be $2,000,000
payable and adjusted as follows:
(a) At the Closing, Purchaser will pay $1,000,000 to
Seller, by certified check, or by wire transfer to a bank account in New York
designated by Seller at least 3 days prior to the Closing.
(b) At the Closing, Purchaser will pay $1,000,000, in
escrow, pursuant to an escrow agreement as provided in Section 3B(c), to the
escrow agent specified therein.
(c) Purchaser will also pay to Seller an amount equal to
30% of the Sales Increase for each of the Measuring Periods.
(d) For purposes of Section 2(c):
(i) Sales Increase for any Measuring Period shall
mean the amount by which Consolidated Sales of the Acquired Companies in any
Measuring Period exceeds Consolidated Sales of the Acquired Companies in the
immediately proceeding 12 month period.
<PAGE>
(ii) Consolidated Sales shall be the sum of:
(a) Sales of the Acquired Companies
(exclusive of all intercompany sales, and exclusive of sales to Purchaser); and
(b) the amount obtained by multiplying
Purchaser's unit sales of the Acquired Companies' products by 85% of the
Purchaser's best published dealer price for such products (currently Dealer VIP
level).
(iii) The Measuring Periods shall be each of three
successive 12 month periods.
(iv) The first Measuring Period shall start on the
first day of the calendar quarter that begins nearest the date that is six
months after the Closing Date.
(v) Payments in respect of any Measuring Period
shall be made within 90 days after the end of such period.
(vi) Seller has no obligation to pay Purchaser if
the Sales Increase is a negative amount.
3. The Closing.
A. The Closing shall be held on the date hereof
immediately following the execution hereof at the offices of Purchaser's
attorneys, Schoeman, Updike & Kaufman, LLP, 60 East 42nd Street, New York, New
York 10165, or at such other time and place as may be fixed by mutual written
agreement of Purchaser and Seller. The date and event of closing are
respectively referred to in this Agreement as the "Closing Date" and "Closing."
B. At the Closing:
(a) Seller shall deliver to Purchaser:
(i) the stock certificates for all of the
outstanding stock of TeleSite duly endorsed for transfer to Purchaser and
with all requisite stock transfer stamps attached;
(ii) written resignations, effective as of the
Closing, of all directors of the Acquired Companies;
<PAGE>
(iii) employment agreements in the form attached as
Exhibit 3B(a)(iii) executed by Seller and Yigal Abiri, respectively;
(iv) the certificates, opinions and other matters
required by Section 6.
(b) Purchaser shall deliver to Seller:
(i) option grant letter to be issued pursuant to
Purchaser's 1999 Non-Qualified Stock Option Plan for Seller to purchase
10,000 shares of Purchaser's Common Stock at fair market value on the Closing
Date; and
(ii) the wire transfer or check required by Section
2(a);
(iii) the employment agreement in the form attached
as Exhibit 3(b)(iii) executed by Purchaser; and
(iv) the other matters required by Section 7.
(c) Purchaser and Seller shall deliver to each other an
Escrow Agreement (the "Escrow Agreement") in the form of Exhibit 3B(c)
executed by them and by the Escrow Agent named therein (the "Escrow Agent") and
Purchaser shall deliver the payment required by Section 2(b) to the Escrow
Agent.
4. Representations and Warranties of Seller. To induce Purchaser
to enter into this Agreement, Seller makes the representations and warranties
set forth below in subparagraphs (a) through (ee). Each of such representations
and warranties shall be deemed to be independently material and relied upon by
Purchaser, regardless of any investigation made by, or information known to,
Purchaser. Except as specifically indicated, none of such representations and
warranties is conditioned on or limited by Seller's knowledge or reason to know,
or the its lack of knowledge of reason to know, as to the fact so represented
and warranted.
<PAGE>
(a) Corporate Existence and Qualification. TeleSite is
a corporation duly organized validly existing and in good standing under
the laws of the State of New Jersey. QSR is a corporation duly organized,
validly existing and in good standing under the laws of Israel. Each of the
Acquired Companies has all requisite power and authority and all material
governmental licenses, authorizations, consents and approvals required to own
its properties and to conduct its business as presently conducted and as
presently proposed to be conducted. Each of the Acquired Companies is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, which
jurisdictions are listed on Exhibit 4(a) to, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on its condition (financial or
otherwise), business, assets, results of operation or prospects (a "Material
Adverse Effect"). Seller has delivered to the Purchaser true, correct and
complete copies of the Certificate of Incorporation and the Bylaws of each of
the Acquired Companies.
(b) Capitalization. Except as disclosed in Exhibit 4b(i):
(i) the authorized capital stock of TeleSite
consists solely of 2,500 shares of common stock, no par value, all of which
are issued and outstanding, all of which are owned by Seller, free and clear of
all claims, liens and encumbrances.
(ii) As of the Closing, the authorized capital
stock of QSR shall consist solely of 27,000 Ordinary and 100 Management
Shares, par value NIS1 per share, of which 10 Management Shares and 251 Ordinary
Shares shall be issued and outstanding and 100% of which oustanding shares shall
be owned by TeleSite free and clear of all claims, liens and encumbrances
(except for 1 Ordinary Share owned by Yigal Abiri free and clear of all claims,
liens and encumbrances).
(iii) TeleSite has not (and as of the Closing, QSR
will not have) issued any securities except as set forth above. All
outstanding shares of TeleSite have been, and, as of the Closing, all
outstanding shares of QSR will be, duly authorized and validly issued and fully
paid and nonassessable and none was or will be issued in violation of any U.S.,
Israeli or state securities law or any other legal requirement. As of the
Closing Date, there will be no outstanding subscriptions, rights, options,
warrants, conversion rights, agreements or other claims for the purchase or
acquisition of any shares of stock of any of the Acquired Companies or any other
securities or obligating any of the Acquired Companies to issue, repurchase or
otherwise acquire any shares of stock or any other securities or any securities
convertible into, exercisable or exchangeable for, or otherwise entitling the
holder to acquire any shares of stock or any other securities of any of the
Acquired Companies, except as disclosed on Exhibit 4b(iii).
(c) Right to Transfer. Seller has good and valid legal
title to the TeleSite Stock and full beneficial ownership thereof and full
legal right and power to transfer and deliver to Purchaser the TeleSite Stock in
the manner provided in this Agreement, and upon delivery of the TeleSite Stock
against payment therefor at the Closing pursuant to the terms of this Agreement,
Purchaser will receive good and valid legal title thereto and full beneficial
ownership thereof, free and clear of all claims, liens or encumbrances.
<PAGE>
(d) No Violation. The execution and delivery of this
Agreement by Seller and the consummation of the transactions contemplated
hereby will not violate any provision of law, order or regulation of any
governmental authority, or the corporate charter or by-laws of any of the
Acquired Companies or constitute a default under any judgment, order or decree
of any court of governmental agency or instrumentality, or conflict or
constitute a breach or a default under any agreement to which any of the
Acquired Companies is a party or by which it is bound.
(e) Financial Information. Attached as Exhibit 4(e)
are unaudited balance sheets and statements of income, as of and for the
fiscal year ended December 31, 1998 and the six month period ended June 30, 1999
for TeleSite, and audited balance sheets and statements of loss as of and for
the fiscal years ended December 31, 1998 and 1997, and an unaudited balance
sheet and income statement for the six month period ended June 30, 1999 for QSR
(collectively, the "Financial Statements"). The Financial Statements:
(1) Have been prepared in accordance with the
respective books of account and records of the Acquired Companies.
(2) Fairly present and are true, complete and
correct statements of financial condition and the results of operations of the
respective Acquired Companies, as the case may be, as of and for the periods
therein specified.
(3) Have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied.
(4) Do not include or omit to state any fact which
renders them misleading.
(5) Make full and adequate disclosure of
obligations and liabilities (fixed or contingent, known or unknown) of the
respective Acquired Companies.
(f) Title to Assets, Real Property. Each of the
Acquired Companies owns and has good and marketable title to all of its
assets, in each case, free and clear of liens, claims or restrictions, except as
shown in Exhibit 4(f). Neither of the Acquired Companies owns any real property.
<PAGE>
(g) Agreements, Contracts, etc. Exhibit 4(g) lists all
agreements, leases, contracts, commitments and obligations relating to or
affecting the assets or business of any of the Acquired Companies and Seller has
delivered a true copy of each such document to Purchaser. All such agreements,
leases, contracts, commitments and obligations are legally valid and binding and
are in full force and effect and there are no defaults or breaches thereunder,
and Seller is aware of any notice of default relating thereto.
(i) Notes, Loans, etc. Exhibit 4(i) lists all notes,
loans or revolving credit agreements, indentures, mortgages, deeds of
trust, security agreements, guaranty agreements, repurchase agreements, sale and
lease back agreements, installment purchases, capital leases, informal banking
arrangements and any other documents relating to long-term or short-term
indebtedness of each of the Acquired Companies, and Seller has delivered a true
copy of each such document to Purchaser. All such documents are legally valid
and binding and are in full force and effect and there are no defaults or
breaches thereunder, and Seller is aware of any notice of default relating
thereto.
(j) Condition of Assets. All assets of each of the
Acquired Companies conform in all material respects with all applicable
building, zoning, environmental health and safety rules and other governmental
rules and regulations. All assets of each of the Acquired Companies including
all their components and parts, are ready for operation, and taking into account
their ages, are in normal operating condition and good order and repair. There
are no conditions or events, except for normal wear and tear and the age of the
assets of any of the Acquired Companies, which would prevent the continued
normal operation thereof, or would otherwise materially and adversely affect the
operation and/or use of the same as currently used.
(k) Patent and Trade Rights. QSR owns free and clear of
all claims, liens, encumbrances and restrictions the intellectual property
described on Exhibit 4(k). Each of the Acquired Companies owns or has adequate
licenses or other rights to all intangible property which are necessary to
conduct its business as presently conducted. To the best of Seller's knowledge,
no product manufactured or sold by any manufacturing process employed by any of
the Acquired Companies conflicts with or infringes upon any United States or
Israeli or other foreign patent of others. No claim, suit or action is pending,
or to Seller's knowledge and belief threatened, alleging that any of the
Acquired Companies is infringing upon the asserted and tangible rights of
others, or that the use of any intangible companies infringes or conflicts with
the asserted rights of others.
<PAGE>
(l) Liabilities; Receivables. The liabilities of each
of the Acquired Companies as of December 31, 1998 are set forth on Exhibit
4(l). The accounts receivable of each of the Acquired Companies as of December
31, 1998 and as of June 30, 1999 are stated in accordance with GAAP. All of the
accounts receivable arose from bona fide sales transactions, and no portion of
such account is subject to counterclaim or offset or is otherwise in dispute.
All of such accounts receivable are good and collectible in full in the ordinary
course of business.
(m) Inventories. The inventories of each of the Acquired
Companies reflected on the Financial Statements are accurately valued in
accordance with GAAP consistently applied. The Inventories, in the aggregate, of
the Acquired Companies are usable and salable in the ordinary course of business
and contain no slow-moving or obsolete items. No inventories have been consigned
to others.
(n) Contracts. Exhibit 4(n) describes all contract
rights to which any of the Acquired Companies is a party or to which it is
bound and which arose out of, or relate to, assets or liabilities of any of the
Acquired Companies, which extend beyond the Closing Date. True and correct
copies of all such documents evidencing the contract rights have been delivered
by Seller to Purchaser.
(o) Litigation. Except as disclosed in Exhibit 4(o), there
are no actions, suits, proceedings or investigations pending or threatened
against Seller or any of the Acquired Companies at law or in equity, or before
any federal, state or municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign, which involves a demand
for any judgment or liability, affecting any of the TeleSite Stock or the
transactions contemplated by this Agreement. None of the Acquired Companies is
in default with respect to any order, writ, injunction, or decree of any court
or federal, state, or municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign, and that there are no
such orders, decrees, injunctions or regulations issued specifically against
Seller which may affect, limit or control the method or manner of use of the
TeleSite Stock or the assets of any of the Acquired Companies, or any
transactions contemplated by this Agreement.
(p) Compliance with Law. Each of the Acquired Companies
has complied with all applicable laws, orders and regulations of any
federal, state or municipal or other governmental department, commission, board,
agency or instrumentality, domestic or foreign, having jurisdiction, including
but not limited, to laws, orders, and regulations thereof relating to antitrust,
wage, hours, collective bargaining, environmental protection, employee safety,
or legislation pertaining to illegal bribes or kickbacks. To the knowledge of
Seller, no director, officer or employee of any of the Acquired Companies has
engaged in any act which has violated any local rules, regulations or laws
relating to foreign exchange, customs and excise and corporate income tax, and
there has been no misappropriation, fraud, embezzlement or misuse in any way of
company assets or monies by any director, officer or employee of the Acquired
Companies.
<PAGE>
(q) Payment of Taxes. Each of the Acquired Companies have
timely filed all required declarations, returns and reports with foreign,
federal, state and local taxing authorities, and all taxes, interest and
penalties required to be paid pursuant to those returns have been or are being
paid when due. The income tax returns of TeleSite have never been audited by the
Internal Revenue Service. There is no tax audit or examination now pending or
threatened with respect to the Acquired Companies.
(r) No Adverse Changes. Since June 30, 1999, there has
been no material adverse change in the condition, financial or otherwise,
of any of the Acquired Companies other than changes (not in the aggregate
adverse) occurring in the ordinary course of business.
(s) Warranties and Product Liability Seller has
previously delivered to Purchaser copies of all outstanding standard
product warranties and guaranties given by any of the Acquired Companies now in
effect with respect to products manufactured or sold by any of the Acquired
Companies. Except as fully described in Exhibit 4(o), there are no pending
claims or actions against any of the Acquired Companies for breach of warranty
or based upon product liability (whether based on tort or contract principles)
and, to the best of Seller's knowledge, no such claims or actions are
threatened. Seller knows of no defects in craftsmanship, design or engineering
with respect to any product now or heretofore sold or manufactured by any of the
Acquired Companies which may constitute the basis for any such claim against any
of the Acquired Companies or Purchaser.
(t) Contingent and Undisclosed Liabilities. None of the
Acquired Companies has any debts, obligations or liabilities in excess of
$1,000, fixed or contingent, of any nature whatsoever, not disclosed in the
Exhibits to this Agreement. Seller knows of no basis for any assertion of any
material claim against Seller or Purchaser for any material liability relating
to the TeleSite Stock, or against any of the Acquired Companies with respect to
its assets, except those disclosed in the Exhibits to this Agreement.
<PAGE>
(u) Performance of Contracts. Except as disclosed in
Exhibit 4(u), (i) none of the Acquired Companies is in material default,
nor has it breached any material provision of, any contract, agreement, lease,
obligation or license or permit with regard to all agreements to which it is a
party or by which it is bound; (ii) each of the Acquired Companies has fully
performed each material term, condition and covenant of each such contract,
agreement, lease, obligation, license or permit required to be performed on or
prior to the date thereof; (iii) Seller knows of no state of facts which, with
the giving of notice or the passing of time, or both, would give rise to any
material default or revocation; and (iv) none of the Acquired Companies is
subject to any penalty, discount or liquidated damages due to the delayed
delivery of products, goods or services, nor has it received any notice that any
of the customer relations are in jeopardy because of such late deliveries or
otherwise.
(v) Events Subsequent to December 31, 1998 Except as
disclosed in Exhibit 4(v), none of the Acquired Companies has, since December
31, 1998:
(1) Incurred Liabilities. Incurred any obligation
or liability (absolute, contingent, accrued or otherwise) or guaranteed or
become a surety of any debt, except in connection with the performance of this
Agreement or in the ordinary course of business;
(2) Discharged Debt. Discharged or satisfied any
lien or encumbrance, or paid or satisfied any obligation or liability
(absolute, contingent, accrued or otherwise) other than liabilities incurred
since the date thereof in the ordinary course of business;
(3) Encumbrances. Mortgaged, pledged or subjected
to any lien, charge, security interest or other encumbrance any of its assets;
(4) Disposition of Assets. Sold or transferred
any of its assets or canceled any debts or claims or waived any rights,
except in the ordinary course of business;
(5) Sale of Business. Entered into any contract for
the sale of its TeleSite Stock, or any part thereof, or for the purchase of
another business, whether by merger, consolidation, exchange of capital stock or
otherwise (other than negotiations with respect to this Agreement);
(6) Accounting Procedure. Changed or modified the
accounting methods or practices; or
(7) Capital Expenditure. Purchased or made a
commitment for the purchase of capital assets.
<PAGE>
(w) Customer Relations. Seller knows of no state of
facts, nor have any communications been made to it, which would indicate
that (i) any current customer of any of the Acquired Companies which accounted
for more than 5% of each entity's sales for the most recent fiscal year ending
or (ii) any current supplier of any of the Acquired Companies (if such supplier
could not be replaced at comparable cost), will terminate its business relations
with any of the Acquired Companies.
(x) Brokerage. Seller has not made any commitments
for a brokerage finders or similar fee in connection with the transactions
contemplated by this Agreement.
(y) Books and Records. The books of account of each of the
Acquired Companies are complete and correct in all material respects and reflect
all of the transactions entered into by or on behalf of such Acquired Company,
to which it is a party, or by which it is affected.
(z) Binding effect. The Agreement and all related
documents has been duly executed, made and delivered by Seller and
constitute a legal, valid and binding obligation of Seller enforceable against
him in accordance with their respective terms, subject to the laws of general
application affecting creditors' rights.
(aa) Employee Relations. Exhibit 4(aa) sets forth a list
of all of the officers, employees and agents of each of the Acquired
Companies and, for each individual, indicates his or her position, salary or
wage rate and respective fringe benefits and any other remuneration paid or
payable. Except as disclosed on Exhibit 4(aa):
(1) There is not now in existence or pending, nor
has there been within the last three years, any grievance, arbitration,
administrative hearing, claim of unfair labor practice, wrongful discharge,
employment discrimination or sexual harassment or other employment dispute of
any nature pending or, to the best of Seller's knowledge, threatened against any
of the Acquired Companies.
(2) Each of the Acquired Companies is, and
during all applicable limitation periods have been, in material compliance
with all applicable laws, executive orders and regulations respecting
employment, and employment practice, terms and conditions of employment,
occupational safety, wages and hours and there is no existing but unassented
claim for violation of any such laws, executive orders or regulations nor, to
the best of Seller's knowledge, is there any factual basis upon which such a
claim could be asserted.
(3) None of the Acquired Companies has any
collective bargaining agreements or is a party to any written or oral,
express or implied, other contract, agreement or arrangement with any labor
union or any other similar arrangement that is not terminable at will by the
employer without cost, liability or penalty.
<PAGE>
(4) None of the Acquired Companies is a party to
any written or oral contract, agreement or arrangement with any of its
present or former directors, officers, employees or agents with respect to
length, duration or conditions of employment (or the termination thereof),
salaries, bonuses, percentage compensation, deferred compensation or any other
form of remuneration, or with respect to any matter not disclosed on Exhibit
4(aa)(4).
(5) There is no pending claim or, to the best of
Seller 's knowledge, threatened or existing but unasserted claim, against
any of the Acquired Companies for violation of any contract, agreement or
arrangement described in Exhibit 4(aa)(5), nor to the best of Seller's
knowledge, is there any factual basis upon which such a claim could be asserted.
(6) The consummation of the transactions
contemplated by this Agreement will not result in any severance or other
employee compensation or benefit obligation coming due and Seller has no reason
to believe that such consummation will result in the termination of any employee
of the Acquired Companies.
(bb) Employee Benefit Plans.
(1) Exhibit 4(bb) sets forth a description of
employee benefit plans, employee welfare benefit plans and multi-employer
plans, all incentive compensation plans, benefit plans for retired employees and
all other employee benefit plans maintained by each of the Acquired Companies or
to which any entity has made payments or contributions on behalf of employees,
including, without limitation, all plans or contracts providing for bonuses,
pensions, profit-sharing, stock options, stock purchase rights, deferred
compensation, insurance and retirement benefits of any nature, whether formal or
informal, and whether legally binding or not (each such plan is referred to
individually as a "Plan", collectively as the Plans").
(2) To the best of Seller's knowledge, and except
for any multi-employer plans, all Plans are, and during all applicable
limitation periods have been, in material compliance with all applicable
governmental regulations and, in the case of TeleSite, all retirement or pension
Plans and welfare benefit plans are qualified plans under the Internal Revenue
Code and each Plan is in material compliance with the applicable provisions of
the Internal Revenue Code.
(3) There has been no transaction in connection
with which any of the Acquired Companies or any of its directors, agents,
officers, or employees could be a subject to either a civil penalty or a tax.
<PAGE>
(4) To the best of Seller's knowledge, there are no
payments that have become due from any Plan, the trusts created thereunder,
or from any of the Acquired Companies which have not been paid through normal
administrative procedures to the plan participants or beneficiaries entitled
thereto.
(5) Each of the Acquired Companies has made full
and timely payment of all required and discretionary contributions to the
Plans, and no unfunded liability exists with respect to any Plan.
(6) None of the Acquired Companies nor any of their
respective directors, officers, employees or agents have any outstanding
liabilities of any nature in any way relating to the Plans.
(7) None of the Acquired Companies is a party to or
otherwise subject to any express or implied agreement or plan to provide health
coverage or other benefits to retired or current employees except as set forth
in Exhibit 4(cc).
(8) None of the Acquired Companies is a party to or
otherwise subject to any express or implied agreement or plan to provide any
employee benefits, wages, deferral compensation or any other form of benefit or
enumeration beyond the date of Closing.
(9) With respect to all of its employees, former
employees, and qualified beneficiaries as of the Closing Date, each of the
Acquired Companies has or will comply with all applicable health care
continuation requirements.
(cc) Environmental Matters.Except as disclosed on Exhibit
4(cc):
(1) No hazardous substances have been or are
currently generated, stored, transported, utilized, disposed of, managed,
released or located on, under or from any premises any of the Acquired Companies
has occupied (the "Premises") (whether or not in reportable quantities) by any
of the Acquired Companies or its agents or invites, or in any manner introduced
onto the Premises by any of the Acquired Companies or its agents or invites,
including without limitation, the septic, sewage or other waste disposal systems
except in accordance with all applicable laws relating to the environment.
(2) Seller has no knowledge of any threat of
release of any hazardous substances on, under or from the property of any
of the Acquired Companies.
<PAGE>
(3) None of the Acquired Companies has received any
notice from the United States Environmental Protection Agency or any other
domestic or foreign authority claiming that (i) any of its property or any use
thereof violates any of the environmental laws, (ii) none of the Acquired
Companies or of any of its employees or agents have violated any such laws.
(dd) Insurance. Exhibit 4(dd) lists all policies of
liability, property damage, fire, workers' compensation/employer's
liability, title or other forms of insurance owned or carried by each of the
Acquired Companies (the "Policies") and insurance agents or brokers providing
such insurance coverage. None of the Acquired Companies has received notice from
any insurance carrier regarding the possible cancellation of or premium increase
with respect to the Policies. None of the Acquired Companies has any claim
pending or anticipated against any of the insurance carriers under any of the
Policies and there has been no actual or alleged occurrence of any kind which
may give rise to any such claim.
(ee) Representations and Warranties True and Correct. The
representations and warranties contained herein, and all statements or
information disclosed by any of the Exhibits, do not include any untrue
statement or material fact nor omit to state a material fact required to be
stated herein or therein or necessary in order to make the statement herein or
therein, in light of the circumstances under which they are made, not
misleading.
5. Representations and Warranties of Purchaser. To induce Seller
to enter into this Agreement, Purchaser makes the representations and warranties
set forth below in subparagraphs (a) through (e). Each of such representations
and warranties shall be deemed to be independently material and relied upon by
Seller, regardless of any investigation made by, or information known to,
Seller. Except as specifically indicated, each of such representations and
warranties is conditioned on or limited by Purchaser's knowledge or reason to
know, or its lack of knowledge or reason to know, as to the fact so represented
and warranted.
(a) Organization. Purchaser is a corporation validly
existing and in good standing under the laws of the State of New York.
(b) Authorization. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly
authorized by the Board of Directors of Purchaser and on the Closing Date all of
the necessary corporate action to authorize the execution and delivery of this
Agreement and the purchase hereby will have been taken.
<PAGE>
(c) No Violation. The execution and delivery of this
Agreement by the Purchaser and the consummation of the transactions
contemplated hereby, will not violate any law, order or regulation of any
governmental authority, or corporate charter or bylaws of Purchaser or
constitute a default under any judgment, order or decree of any court or
governmental agency or instrumentality, or conflict with or constitute a breach
or default under any agreement to which Purchaser is a party or by which it is
bound.
(d) Brokerage. Purchaser has not made any commitment for
a brokerage, finders or similar fees in connection with the transactions
contemplated by this Agreement.
(e) Binding Effect. This Agreement, and all related
documents have been duly executed, made and delivered by Purchaser, as
appropriate, and constitute a legal, valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with their respective terms, subject
to the laws of general application affecting creditors' rights.
(f) Representations and Warranties True and Correct.
The representations and warranties contained herein do not include any untrue
statement or material fact nor omit to state a material fact required to be
stated herein or therein or necessary in order to make the statements herein or
therein, in light of the circumstances under which they are made, not
misleading.
6. Conditions of Purchaser's Obligation to Close. The obligations
of Purchaser under this Agreement are subject to the following conditions having
been met, or waived in writing by Purchaser, at or prior to the Closing Date:
(a) Representations and Warranties. The representations
and warranties made by Seller in Section 4 shall be true and correct in all
material respects on and as of the Closing Date, and Seller shall has delivered
to Purchaser a certificate to that effect executed by Seller.
(b) Approvals and Consents. All necessary approvals and
consents with respect to the transactions contemplated hereby, the absence of
which would have a material and adverse effect on Purchaser's rights under this
Agreement, or which would result in the forfeiture or breach of any material
rights acquired by the Purchaser pursuant to the provision of any material
contract or agreement assumed by and hereunder. Such approvals shall include,
without limitation, all required approvals by the office of the Chief Scientist
of Israel to the transfer of control to TeleSite and to Purchaser of the
intellectual property described in Exhibit 4(k).
<PAGE>
(c) Delivery of Instruments of Conveyance of the TeleSite
Stock. Seller shall has delivered to Purchaser, satisfactory to Purchaser
in form and substance, conveyancing documents to transfer title to the TeleSite
Stock to Purchaser.
(d) No Litigation. No investigation, suit, action or other
proceedings shall be threatened or pending before any court or governmental
agency in which it is sought to restrain, prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
(e) No Adverse Change. There shall have been no change or
development related to the TeleSite Stock or the results of operations or in the
condition, financial or otherwise, of any of the Acquired Companies, which has
had or may reasonably be expected to have a material adverse effect on their
condition.
(f) Opinions of Counsel. Purchaser shall have received (i)
an opinion of Seller's counsel, dated the Closing Date, satisfactory in
form and substance to Purchaser and its counsel substantially in the form of
Exhibit 6(f)(i) and (ii) an Opinion of Purchaser's counsel substantially in the
form of Exhibit 6(f)(ii).
(g) Abiri Employment Agreement. Yigal Abiri and QSR shall
have executed and delivered an employment agreement substantially in the
form of Exhibit 6(g) and such Agreement shall be in full force and effect.
(h) Escrow Agreement. The Escrow Agent named in the
Escrow Agreement shall have executed and delivered the Escrow Agreement.
(i) QSR Shares Abiri and Video Cam, Ltd. shall have
excued and delivered the Representations as to QSR in the form attached as
Exhibit 6(i). Abiri shall have transferred his 1 Ordinary Share of QSR Stock to
such person as Purchaser shall designate at or prior to the Closing, free and
clear of all claims, liens and encumbrances.
(j) Conversion of Shareholder Loans. All shareholder
loans to any of the Acquired Companies shall have been converted to
contributions to capital and Seller and Yigal Abiri shall have delivered a
Purchaser a certificate dated the Closing Date, to that effect.
7. Conditions to Seller's Obligation to Close. The obligations of
Seller under this Agreement are subject to the following conditions having been
met, or waived in writing by Seller, at or prior to the Closing Date:
<PAGE>
(a) Representations and Warranties. The representations
and warranties made by Purchaser in Section 5 shall be true and correct in
all material respects on and as of the Closing Date.
(b) Payment of Purchase Price. Purchaser shall have
delivered to Seller the purchase price payable at Closing as required by
Sections 2(a) and (b).
(c) No Litigation. No investigation, suit, action or
other proceedings shall be threatened or pending before any court or
governmental agency in which it is sought to restrain, prohibit or obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby.
(d) Opinion of Counsel. Seller shall have received an
opinion of Purchaser's counsel, dated the Closing Date, satisfactory in
form and substance to Seller and its counsel substantially in the form of
Exhibit (d).
(e) Escrow Agreement. The Escrow Agent named in the
Escrow Agreement shall have executed and delivered the Escrow Agreement.
8. Survival of Representations and Indemnification.
(a) Survival of Representations. All representations,
warranties and covenants of Seller (the "Representations") shall survive
the execution and delivery of this Agreement, the Closing Date and any
investigation or audit made by Purchaser, and shall expire upon the third
anniversary of the Closing Date.
(b) Indemnification
(i) Indemnification by Seller. Seller agrees
promptly to indemnify, defend and hold harmless Purchaser from and against
any and all assessments, judgments, debts, obligations, liabilities, losses,
costs, damages or expenses (including interest, penalties and reasonable
out-of-pocket fees, expenses and disbursements in connection with any claim,
action, suit or proceeding) (collectively, "Damages") suffered, paid or incurred
by Purchaser or any of the Acquired Companies resulting from or caused by or
arising out of any one or more of the following:
A. any breach of the representations
and warranties made by Seller to Purchaser in this Agreement or any
certificate delivered hereunder;
<PAGE>
B. any failure by Seller to perform any
of his covenants or agreements contained in this Agreement;
C. any claim, contingent or otherwise,
that was in existence on December 30, 1998, whether or not then payable,
that was not recorded in the books and records of TeleSite or QSR and was not
reflected in the Financial Statements;
D. any claim under the Royalty
Agreement referred to in Exhibit 4(t) in excess of $474,000 minus the
amount paid thereunder to the State of Israel since December 31, 1998 to the
Date of Closing.
E. Any claim of Electronics Line, Ltd.,
including without limitation any claim by such company under the
Cooperation Agreement dated February 5, 1997;
F. Any claim of any shareholders or
secured or unsecured creditors, or of part or present employees (other than
for severance pay to the aggregate extent described in Section 8(b)(ii)(C)), of
TeleSite, Ltd.;
G. Any claim of Doron Parianta, as
Receiver or as Permanent Manager of TeleSite, Ltd.'s assets, or any other
entity (including without limitation any governmental official) appointed or
authorized by any court, government or government agency to collect or
administer any assets of TeleSite, Ltd.;
H. Any permanent income tax deduction
disallowance for any period prior to December 31, 1998; or
I. Any claim arising out of any
transfer to TeleSite of shares of QSR.
(ii) Limitation on Indemnification by Seller.
Notwithstanding any other provision of this Agreement, Seller shall not be
liable under Section 8(b) for:
A. Any liabilities included in the
Financial Statements of the Acquired Companies as of December 31, 1998 and
June 30, 1999.
B. Any good faith liability of any of
the Acquired Companies incurred in the normal course of its business
between June 30, 1999 and the Closing Date provided that Seller shall not have
breached away representations and warranties, in Section 4 (r) ;
<PAGE>
C. Any liabilities to former employees
of TeleSite, Ltd. for severance pay based on the length of their employment
with TeleSite, Ltd. up to an aggregate maximum of $40,000; or
D. Liabilities of any of the Acquired
Companies not included in paragraphs A, B C or D, up to an aggregate
maximum of $50,000.
In no event will Seller be liable under Section 8 for any Damages
in excess of total of the purchase price under Sections 2(b) and (c) and the
compensation earned, if any, under section 3D of the Employment Agreement
between Purchaser and Seller.
(iii) Indemnification by Purchaser Purchaser
agrees to indemnify and hold harmless Seller from and against any and all
Damages suffered, paid or incurred by Seller resulting from or caused by or
arising out of:
A. any breach of the representations
and warranties made by Purchaser in this Agreement or any certificate delivered
hereunder; or
B. any failure by the Purchaser to
perform any covenant or agreement contained in this Agreement.
(iii) Indemnity Procedure for Third Party Claims.
A. Promptly after receipt by a party
seeking indemnification hereunder (an "Indemnified Party) of notice (a
"Third Party Claim Notice") of any claim, or of the commencement by any third
party of any action, suit or proceeding, which might result in the other party
hereto (the "Indemnifying Party") becoming obligated to indemnify or make any
other payment to the Indemnified Party under this Agreement, the Indemnified
Party shall notify the Indemnifying Party forthwith in writing of the
commencement thereof or of the claim. The failure of the Indemnified Party to so
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have on account of this indemnification or otherwise,
except and only to the extent that the Indemnifying Party is prejudiced thereby.
B. The Indemnifying Party shall have
the right, within thirty (30) days after being so notified, to assume the
defense of such claim, litigation or proceeding with counsel reasonably
satisfactory to the Indemnified Party in good faith and at the Indemnifying
Party's own expense.
<PAGE>
C. Unless and until the Indemnifying
Party shall assume such defense pursuant to the foregoing sentence, the
Indemnified Party shall have the right to conduct and control the defense of
such claim, litigation or proceeding (including the settlement thereof) without
the Indemnifying Party's consent and, without limiting any other indemnification
obligation, shall be entitled to payment from the Indemnifying Party of all
reasonable costs of such defense (including attorneys' fees and expenses).
D. In any such claim, litigation or
proceeding the defense of which the Indemnifying Party shall have so
assumed, the Indemnified Party shall have the right to participate therein and
retain its or his own counsel at its or his own expense, unless
(a) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of the
same counsel, or
(b) the named parties to any such
litigation or proceeding (including impleaded parties) include both the
Indemnifying Party and the Indemnified Party, and representation of such parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them in which case, such separate counsel may be retained by
the Indemnified Party at the expense of the Indemnifying Party.
E. The Indemnifying Party may elect to
settle any claim, action or proceeding defended by it or him without the
written consent of the Indemnified Party provided that such settlement is
limited to payment of monetary damages which are payable in full by the
Indemnifying Party and the Indemnified Party is fully discharged at the time of
the settlement from any liability with respect to the claim, action or
proceeding. The Indemnifying Party may not enter into any settlement that is not
limited to payment of monetary damages without the Indemnified Party's prior
written consent which will not be unreasonably withheld.
F. Seller and Purchaser covenant to use
all reasonable efforts to cooperate fully with respect to the defense of
any claim, action or proceeding covered by this section.
9. Offset. In the event that seller is liable to Purchases
pursuant to Section 8 or Purchaser receives a Third Party Claim Notice,
Purchaser may (but shall not be obligated to) offset all or a portion of such
liability or potential liability against any other payment owing to Seller under
Sections 2(b) and (c) of this Agreement and section 3D of the Employment
Agreement between Purchaser and Seller.
<PAGE>
10. Purchaser's Covenants. After the Closing, Purchaser shall
lend to TeleSite the sum of $750,000 in accordance with a future business plan
reasonably satisfactory to Purchaser.
11. Further Assurances. Purchaser and Seller agree that, from
time to time after Closing, and upon request, they shall execute, acknowledge,
and deliver such other instruments as reasonably may be required to more
effectively transfer and vest in Purchaser the TeleSite Stock or to otherwise
carry out the terms and conditions of this Agreement.
12. Expenses. Each party will pay all of his or its own expenses
in connection with the negotiation of this Agreement, the performance of his or
its obligations hereunder and the consummation of the transactions contemplated
hereby.
13. Amendment and Waiver. This Agreement may be amended only in
writing signed by the parties hereto. Any provision of this Agreement may be
waived by the party entitled to the benefit thereof only in a writing executed
by the party against whom such waiver is sought to be enforced. No waiver shall
be deemed a waiver of any other provision of this Agreement, and no waiver of a
breach hereunder shall be deemed a waiver of any other or subsequent breach of
this Agreement.
14. Notice. All notices, demands and other communications to be
given or delivered hereunder shall be in writing and will be deemed to have been
given if personally delivered or sent by overnight courier (in each such case
delivery will be effective upon receipt) to the addresses indicated below or to
such other addresses as the parties may specify or notice as herein provided:
If to Purchaser, to:
Vicon Industries, Inc.
89 Array Drive
Hauppauge, New York 11788
Attention: The President
with a copy to:
<PAGE>
Schoeman, Updike & Kaufman, LLP
60 East 42nd Street
New York, New York 10165
Attention: Michael E. Schoeman, Esq.
If to Gershoni to:
Mr. Isaac Gershoni
97 Taylor Drive
Closter, New Jersey 07624
with a copy to:
Mark Eliott Gold, Esq.
19 Phelps Avenue
Tenafly, New Jersey 07670
15. Survival of Representations, Warranties and Covenants. Each
of the representation and warranties of the parties that are set forth in this
Agreement or in any certificate delivered hereunder shall survive the Closing
Date until the third anniversary of the Closing Date (the "Expiration Date").
Delivery to one party to the other of notice of a breach of any representation
or warranty, specifying the breach in reasonable detail, and making a formal
claim with respect thereto, on or prior to the Expiration Date, or the
expiration of the applicable statute of limitations, as the case may be, shall
be deemed to preserve such party's claim. Those covenants contained in this
Agreement that contemplate or may involve actions to be taken or obligations in
effect after the Closing Date shall survive the Closing Date until the
expiration of the applicable statute of limitations.
16. Binding Agreement; Assignment. This Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the parties
hereto and their respective successors. Seller may not assign his rights or
delegate his duties hereunder without the prior written consent of the
Purchaser, which consent may be granted, withheld or conditioned in the sole and
absolute discretion of the Purchaser. Purchaser may assign all it part of its
rights under this Agreement, including, without limitation, the right to
purchase the TeleSite Stock, to a wholly owned subsidiary of Purchaser.
<PAGE>
17. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provision of this
Agreement.
18. Captions. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
will not be deemed to limit, characterize or in any way affect any provision of
this Agreement and all provisions of this Agreement will be enforced and
construed as if no captions had been used in this Agreement.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which need not contain signatures of more than one party,
but all such counterparts taken together will constitute one and the same
instrument. Signatures may be exchanged by telecopy, with original signatures to
follow. Each party to this Agreement agrees that it will be bound by its own
telecopied signature and that it accepts the telecopied signatures of the other
party to this Agreement.
20. Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York, without
reference to its choice of law provisions. Each party agrees that service of
notice or process in any legal action or proceeding with respect to this
Agreement or any transaction related hereto may be made on such party by
delivery of such process by certified mail, return receipt requested, to such
party at its address for notice pursuant Section 14 of this Agreement with the
same effect as if such process were personally served on such party within the
State of New York. Each of the parties hereto hereby irrevocably waives, to the
extent permitted by applicable law, any objection, including, but not limited
to, any objection to the laying of venue or based on the ground of forum non
conveniens, with it or he may now or hereafter have to the bringing of any
proceeding in respect of this Agreement or any transaction related hereto.
Nothing contained herein shall affect the right of any party hereto serve
process in any other manner permitted by law.
<PAGE>
21. Remedies. All rights, remedies or powers hereby conferred
shall, to the extent no prohibited by law, be deemed cumulative and not
exclusive or any other thereof, or of any other rights, remedies or powers
available. No single or partial exercise of any right, remedy or power by a
party shall preclude further exercise thereof. No delay or omission to exercise
any right, power or remedy accruing to a party upon the occurrence of any breach
of any warranty, covenant or agreement contained in this Agreement shall impair
any such right, power or remedy or be construed to be a waiver of any such
breach or any acquiescence therein or to any similar breach thereafter
occurring.
22. Arbitration. Any controversy between the parties, arising
out, in relation to, or in connection with, this Agreement shall be resolved
exclusively by binding arbitration in New York City conducted in accordance with
the then existing commercial arbitration rules of the American Arbitration
Association. The award in such arbitration shall be in writing and shall include
separate finding facts and conclusions of law. Judgment upon the award may be
entered in any court having jurisdiction thereof and for that purpose the
parties consent to the jurisdiction of all state and federal courts located in
the City of New York.
23. Public Announcements. No public announcement concerning the
transactions contemplated hereby may be made by either party without the consent
of the other except as may be required by law or the rules of any applicable
securities exchange.
24. Entire Agreement. This Agreement (including the Exhibits,
documents and instruments referred to herein) constitutes the entire agreement
and understanding of the parties hereto and thereto with respect to the subject
matter hereof and thereof. No party shall be entitled to rely upon any
representation or warranty of the other except to the extent such representation
or warranty is included in this Agreement or any Exhibit hereto or document or
instrument delivered hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered on their behalf as of the date first above written.
VICON INDUSTRIES, INC.
By:
President
Isaac Gershoni
<PAGE>
Third Party Representations, Warranties and Indemnification
To induce Vicon Industries, Inc. ("Purchaser") to enter into the foregoing
Agreement, and in consideration thereof, each of the undersigned, jointly and
severally, agrees as follows:
(a) each of the undersigned represents and warrants to Purchaser
that the representations and warranties set forth in section 4 of the foregoing
Agreement, each of which shall be deemed to be independently material and relied
upon by Purchaser, regardless of any investigation made by, or information known
to, Purchaser, are true and correct on the date of such Agreement and will be
true and correct as of the Closing thereunder, and
(b) each of the undersigned indemnifies Purchaser against all
Damages as defined in section 8(b) thereof to the same extent as if each of the
undersigned were separately defined as Seller in such section
Yigal Abiri
Yaakov Drori
ESCROW AGREEMENT dated as of July 30, 1999 (the "Escrow
Agreement") among Vicon Industries, Inc., a New York corporation ("Purchaser"),
Isaac Gershoni ("Seller"), and European American Bank, a New York banking
corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Purchaser and Seller have entered into a Stock
Purchase Agreement dated as of July 3028, 1999 (the "Stock Purchase Agreement"),
providing for the sale by Seller to Purchaser of all of the shares of TeleSite
U.S.A., Inc.; and
WHEREAS, Seller has agreed that Purchaser shall deposit with
the Escrow Agent a portion of the Purchase Price (as defined in the Purchase
Agreement) with the Escrow Agent;
NOW, THEREFORE, the parties agree as follows:
1. Creation of Escrow and Deposit of Escrow Amount.
<PAGE>
Purchaser herewith deposits with the Escrow Agent the amount of $1,000,000.00
(such amount, including all income and interest thereon, is hereinafter referred
to as the "Escrow Amount"). The Escrow Agent hereby acknowledges the receipt of
the Escrow Amount hereby deposited, and the Escrow Agent agrees to hold the
Escrow Amount for the purposes and upon the terms and conditions hereinafter set
forth.
2. Distribution of Escrow Amount.
A. Escrow Agent shall make the following
distributions from the Escrow Amount to Purchaser:
(i) within 15 days after the first
anniversary hereof, 100% of all interest earned prior to such anniversary
(ii) within 15 days after the second
anniversary hereof, 66_% of all interest earned between the first and second
anniversaries; and
(iii) within 15 days after the third
anniversary hereof, 33_% of all interest earned between the second and third
anniversaries.
B. Within 10 days after the third anniversary of this
Agreement, the Escrow Agent shall distribute the balance of the Escrow
Amount to Seller, or such payee(s) in the United States as Seller may designate
by written notice to the Escrow Agent unless prior to such third anniversary,
Escrow Agent shall have received from Purchaser a notice of claim as provided in
section 3.
C. If prior to such third anniversary, the Escrow
Agent shall have received such a notice of claim, the Escrow Agent shall
continue to retain from the Escrow Amount the aggregate sum specified in such
notice of claim, and the excess, if any, shall be paid as provided in section
2B.
<PAGE>
D. Amounts retained pursuant to section 2C shall
continue to be held in escrow under this Agreement and shall be distributed
only in accordance with (a) an instruction signed and notarized by Purchaser and
Seller and delivered to the Escrow Agent, or (b) an arbitration award pursuant
to section 22 of the Stock Purchase Agreement, a copy of which award shall have
been delivered to the Escrow Agent, together with a certificate signed by the
party presenting such award and an opinion of such party's counsel satisfactory
to Escrow Agent, each stating that such award was made pursuant to such section
and is in full force and effect.
E. In no event shall the aggregate amount of
disbursements made by the Escrow Agreement exceed the actual amount of the
Escrow Amount.
3. Notice of Claim.
If Purchaser in good faith believes that it has any
claim for indemnification or damages against Seller under or relating to
the Stock Purchase Agreement or the transactions contemplated thereby, Purchaser
may deliver to the Escrow Agent a notice of such claim. Such notice shall
specify the nature of the claim and the amount thereof and shall be signed by
Purchaser.
<PAGE>
4. Escrow Investments. The Escrow Agent shall invest the
Escrow Amount, and any income and interest thereon and on reinvested income and
interest, by (i) depositing such amounts in interest bearing certificates of
deposit with the Escrow Agent, having maturities of 12 months or less or (ii)
purchasing obligations of the United States of America, or any instrumentality
thereof and fully guaranteed thereby, having maturities of 12 months or less. In
connection with making any distributions pursuant to this Escrow Agreement, the
Escrow Agent may sell, liquidate or dispose of such investments as it deems
necessary to make such distributions.
5. Compensation, Expenses and Liability of the Escrow Agent.
(a) The Escrow Agent shall be entitled to receive reasonable
compensation for its services hereunder as set forth in Schedule A. The
compensation and expenses of the Escrow Agent, and the fees and expenses
incurred in connection with maintaining the escrow, shall be borne 50% by
Purchaser and 50% by Seller in advance of the date on which such payments shall
be due to the Escrow Agent. The Escrow Agent may deduct any amount to which
Seller or Purchaser may be entitled under this Escrow Agreement any unpaid fees,
compensation or expenses of the Escrow Agent for which Seller or Purchaser is,
as the case may be, liable under this Section 5.
<PAGE>
(b) The Escrow Agent shall not be liable for any action taken
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Escrow Agreement, and the
Escrow Agent may rely and shall be protected in acting or refraining from acting
in reliance upon the opinion of counsel or upon any certificate, request or
other document believed by it to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be obligated to make
any inquiry as to the authority, capacity, existence, or identity of any person
purporting to give any such certificate, request or other document. If the
Escrow Agent shall become involved in any litigation by which Seller shall
contest any claim by Purchaser against the Escrow Amount, the Escrow Agent is
authorized to comply with any final order or decree duly entered by any court of
competent jurisdiction in any such litigation. Purchaser and Seller agree to
indemnify the Escrow Agent against, and to hold the Escrow Agent harmless from,
any and all loss, damage or liability, and all expenses (including without
limitation legal fees), except to the extent arising out of the gross negligence
or willful misconduct of the Escrow Agent, incurred by the Escrow Agent arising
out of or in connection with the execution, delivery or performance by the
Escrow Agent of this Escrow Agreement. The Escrow Agent shall not be liable for
any investment losses resulting from the investment, reinvestment, sale or
liquidation of any portion of the Escrow Account, within the agreed upon
investments as referred to in Section 4, "Escrow Investments."
<PAGE>
6. Resignation of the Escrow Agent. The Escrow Agent may
resign and may be discharged from any further duties or obligations hereunder by
giving at least 30 days prior written notice of such resignation to Purchaser
and Seller. On the effective date of such resignation, the Escrow Agent shall
pay the Escrow Amount to such successor escrow agent as Purchaser and Seller
shall have designated in a notice delivered to Escrow Agent or, in the absence
of such notice, to the Clerk's Office of the United States District Court of the
Eastern District of New York or of the New York State Supreme Court for Suffolk
County.
7. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
If to Seller, at:
Mr. Isaac Gershoni
97 Taylor Drive
Closter, New Jersey 07624
Tel: (201) 568-5050
Fax: (201) 568-6444
with a copy to:
Mark Eliott Gold, Esq.
19 Phelps Avenue
Tenafly, New Jersey 07670
Tel: (201) 227-1830
Fax: (201) 227-1831
If to Purchaser, to:
Vicon Industries, Inc.
89 Arkay Drive
Hauppauge, New York 11788
Attention: Kenneth M. Darby
President
Tel: (516) 952-2288
Fax: (516) 951-2288
<PAGE>
with a copy to:
Schoeman, Updike & Kaufman, LLP
60 East 42nd Street
39th Floor
New York, New York 10165
Attention: Michael E. Schoeman, Esq.
Tel: (212) 661-5030
Fax: (212) 687-2123
If to Escrow Agent:
European American Bank
150 Motor Parkway
Hauppauge, New York 11788
Attention: Branch Manager
with a copy to:
European American Bank
730 Veterans Memorial Highway
Hauppauge, New York 11788
Attention: Stuart N. Berman
Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed.
8. Governing Law. This Escrow Agreement shall be governed by
and construed in accordance with the laws of the State of New York exclusive of
its choice of law provisions.
<PAGE>
9. Waivers and Amendments. Any term or provision of this
Escrow Agreement may be waived at any time by the party which is entitled to the
benefits thereof, and any term or provision of this Escrow Agreement may be
amended or supplemented at any time by the mutual consent of the parties hereto,
except that any waiver of any term or condition, or any amendment or
supplementation, of this Escrow Agreement must be in writing. A waiver of any
breach or failure to enforce any of the terms or conditions of this Escrow
Agreement shall not in any way affect, limit or waive a party's right hereunder
at any time to enforce strict compliance thereafter with every term or condition
of this Escrow Agreement.
10. Descriptive Headings. The descriptive headings of this
Escrow Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Escrow Agreement.
11. Entire Agreement. This Escrow Agreement contains the
entire agreement among Purchaser, Seller and the Escrow Agent with respect to
the transactions contemplated by this Escrow Agreement and supersedes all prior
arrangements or understandings with respect thereto.
<PAGE>
12. Counterparts. This Escrow Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
13. Illegality. In the event that any one or more of the
provisions contained in this Escrow Agreement shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in any other respect and the remaining
provisions of this Escrow Agreement shall not, at the election of the party for
whom the benefit of the provision exists, be in any way impaired.
IN WITNESS WHEREOF, the undersigned have caused this Escrow
Agreement to be executed on their behalf as of the date first above written.
VICON INDUSTRIES, INC.
By:
Kenneth M. Darby
President
Isaac Gershoni
EUROPEAN AMERICAN BANK
as Escrow Agent
By:
LOAN AGREEMENT
Dated: October 12, 1999
NAME OF BORROWER:
VICON INDUSTRIES, INC.
PRINCIPAL PLACE OF BUSINESS:
89 Arkay Drive Hauppauge Suffolk NY 11788
Street & No. City/Town County State Zip
Code
STATE OF INCORPORATION:
New York State
1. PREAMBLE
The Borrower has requested KEYBANK NATIONAL ASSOCIATION (the "Bank" or
"Lender"), a national banking association, with an office for the transaction of
business located at 1377 Motor Parkway, Islandia, New York 11788 to grant (i) a
mortgage loan in the amount of ONE MILLION TWO HUNDRED THOUSAND ($1,200,000)
DOLLARS (the "Loan") to the Borrower, and the Bank is willing to do so but only
upon the terms and conditions of:
(a) this Loan Agreement (the "Agreement"),
(b) a Mortgage Note (the "Mortgage Note"), dated on even date herewith,
(c) a third Mortgage and Security Agreement dated on even date herewith
covering the Premises (hereinafter defined)(collectively, the "Mortgage"),
(d) an Assignment of Leases and Rents covering the Premises
(the "Assignment of Rents"),
<PAGE>
(e) and other documents executed or provided by Borrower in connection
with this transaction (this Agreement, the Note, the Mortgage, the Assignment of
Rents, and the other documents are hereinafter collectively referred to as, the
"Loan Documents").
2. USE OF LOAN PROCEEDS
The Borrower will use the Loan proceeds in connection with the propert
located at 89 Arkay Drive, Hauppauge, New York 11788 (the "Premises").
3. LOAN PAYABLE IN ACCORDANCE WITH NOTE.
The Loan shall be payable as provided for in the Note. The Bank, in
addition to its legal right of setoff shall be entitled to debit any accounts
maintained by Borrower with the Bank for payment due under the Note.
4. INTEREST
The Loan shall bear interest computed at a rate (the "Interest Rate")
as set forth in the Note.
5. SECURITY
As collateral security for the payment of all present and future debts,
obligations and liabilities of the Borrower to the Bank, including but not
limited to those set forth in the Note (collectively, the "Obligations"), the
Borrower will grant to the Bank a security interest in all of the following (the
"Collateral"):
(a) a security interest in and assignment and pledge of all monies,
deposits or other sums now or hereafter held by the Bank on deposit, in
safekeeping, transit or otherwise, at any time credited by or due from the Bank
to the Borrower, or in which the Borrower shall have an interest;
(b) a third mortgage lien on the property located 89 Arkay Drive,
Hauppauge, New York 11788 evidence by the Mortgage; and
(c) an assignment of leases and rents from the Premises.
<PAGE>
From time to time, the Borrower will execute and deliver to the Bank
such assignments, agreements, documents, Uniform Commercial Code ("UCC") forms
and other papers as the Bank may request in connection with the granting,
perfection or continuation of the security interests granted hereunder. Borrower
hereby authorizes the Bank to file at any time UCC forms signed only by the Bank
or copies thereof or of this Agreement.
6. CONDITIONS TO LOAN
(a) Conditions Precedent. Borrower agrees that prior to or in any event
no later than the time of the closing of the Loan under this Agreement, it will
deliver to the Bank:
(1) Certified copies of corporate resolutions authorizing the
execution and delivery of all Loan Documents;
(2) Certificate of good standing from the Secretary of State
of New York and any other state or foreign country where
Borrower is doing business as to Borrower;
(3) Proof satisfactory to the Bank that the Borrower is
authorized to do business in the State of New York;
(4) New York State franchise tax search as to Borrower;
(5) A Certificate of incumbency as to Borrower;
(6) Certificates of insurance for any insurance required
pursuant to this Agreement or any of the Loan Documents;
(7) UCC searches satisfactory to the Bank;
(8) Duly executed UCC financing statements;
(9) Duly executed Loan Documents;
(10) An opinion from counsel for the Borrower as to such
matters as may be deemed appropriate by the Bank and its
counsel;
(11) Payment by the Borrower of all costs and expenses
incurred by the Bank in establishing the Loan.
<PAGE>
(b) Financial Reporting Requirements. The Borrower agrees as
follows:
(1) Borrower shall furnish annually to the Bank, audited
Financial Statements of Assets and Liabilities, together with
Profit and Loss Statements and Borrower's Form 10K, not later
than ninety (90) days following the close of the Borrower's
Fiscal Year, which Financial Statements shall be prepared on a
consolidated basis by an independent Certified Public
Accountant (CPA), reasonably satisfactory to the Bank, in
accordance with Generally Accepted Accounting
Principles(GAAP), including the report/letter, all statements
and all footnotes.
(2) Annually, within 90 days of its Fiscal Year End and
quarterly within 60 days of each quarter end, Borrower shall
submit compliance certificates setting forth Borrower's
calculations of and demonstrating compliance with its
Financial Covenants pursuant to this Agreement and further
certifying that, to the best of its knowledge, no Event of
Default has occurred hereunder or is occurring or, if a
default or Event of Default has occurred or is occurring, then
how same shall be cured within thirty (30) days. The
compliance certificates must be duly executed by the Borrower.
(3) Annually, within 90 days of each fiscal year end and
quarterly, within 60 days of each quarter end, Borrower shall
submit management prepared consolidating financial statements.
(4) The Borrower shall, within 60 days following each quarter
end, furnish to the Bank a copy of its Form 10-Q and
consolidated Financial Statements.
<PAGE>
(5) Annually, Borrower shall submit its budget for the
upcoming year including projected Profit and Loss Statements
and a Balance Sheet, said budget to be delivered with
Borrower's Year End Financial Statements.
(6) Borrower shall submit such other financial documentation
to the Bank as the Bank may reasonably require so long as the
Loan is outstanding.
(7) Failure to deliver financial information within fifteen
(15) days of the date specified will constitute an Event of
Default hereunder.
(c) Financial Covenants. Except for Section 6(c)5 below, the following
financial covenants are intended to duplicate those contained in the
$14,000,000.00 credit agreement (the "Credit Agreement") between the Lender and
Borrower dated July 20, 1998. For so long as the Credit Agreement remains in
effect, including all extension and renewal periods, all modifications or
waivers of financial covenants under the Credit Agreement will also modify or
waive the corresponding financial covenants under this Loan Agreement. At the
termination of the Credit Agreement if prior to the termination of the Loan
Agreement, the then effective and governing financial covenants under the Credit
Agreement will be deemed to be the effective financial covenants under the Loan
Agreement and same will be confirmed in writing by an agreement to be executed
by the Borrower and the Lender.
The Borrower covenants and agrees that, from and after the date of execution of
this Agreement, and so long as any amount may be borrowed hereunder or remains
unpaid on account of the Note or is otherwise due to the Bank under this
Agreement or any related document, Borrower shall comply with each of the
following covenants:
(1) Net Income. Borrower shall on a consolidated
basis (i) maintain a positive Net Income on a fiscal year
basis, (ii) not have two consecutive fiscal quarters in which
it has net losses that total in excess of $500,000.00 and
(iii) not have net losses for four consecutive fiscal quarters
that total in excess of $800,000.00.
(2) Maximum Liabilities to Worth Ratio. Borrower
shall maintain on a consolidated basis at all times a ratio of
Total Liabilities to Tangible Net Worth of not more than
1.50:1.0.
<PAGE>
(3) Debt Coverage Ratio. Borrower shall maintain on a
consolidated basis at all times a Debt Coverage Ratio of not
less than 1.25:1.0, to be tested quarterly on a rolling four
quarter basis.
(4) Capital Expenditures. Borrower shall not make any
Capital Expenditures in excess of $2,000,000.00 during any
fiscal year, excluding Capital Expenditures incurred in
Borrower's one time expansion of its facility on Arkay Drive,
Hauppauge, New York and Acquisitions identified as Permitted
Acquisitions under section 9.07 of the Credit Agreement,
including acquisitions permitted by waiver or modification to
such Credit Agreement.
(5) Modification/Release of Financial Covenants.
Notwithstanding anything to the contrary herein, upon the
written request of Borrower to the Lender, (i) the Debt
Coverage Ratio set forth above shall be increased to 1.3:1.0
to be tested as hereinafter set forth, and (ii) Capital
Expenditures, the Maximum Liabilities to Worth Ratio and Net
Income financial covenants set forth above shall be released
PROVIDED Borrower has complied with all of the following:
(a) The Loan to Value Ratio must be
decreased to sixty-five (65%) percent or less(either
by normal amortization and/or a partial prepayment);
(b) Borrower has provided a new appraisal of
the Premises to the Bank evidencing a Loan to Value
Ratio of sixty-five (65%) percent or less prepared by
a Bank approved appraiser and in form satisfactory to
the Bank; and
(c) Borrower is not in default under any of
the Loan Documents (as defined in the Loan
Agreement).
<PAGE>
(6) Determination of Compliance. Compliance with
these financial covenants shall be determined by reference to
the financial statements of Borrower calculated for Borrower
and its Subsidiaries delivered to Lender and shall exclude any
balance sheet information or results of operations of any
Subsidiary which is not also a Guarantor. All financial
covenants shall be applicable at all times and shall be tested
at the end of each fiscal quarter except as set forth in
paragraph 6(c)(1) above.
(7) DEFINITIONS.
"Acquisition" means any transaction pursuant to which
Borrower or any of its Subsidiaries (i) acquires equity
securities (or warrants, option or other rights to acquire
such securities) of any corporation, partnership, limited
liability company or other business organization, or any
Person which is not then a Subsidiary of Borrower, pursuant to
a solicitation of tenders thereof, or in one or more
negotiated block, market or other transactions not involving a
tender offer, or a combination of any of the foregoing, or
(ii) makes any Person not then a Subsidiary of Borrower a
Subsidiary of Borrower, or causes any such Person to be merged
into or purchased by Borrower or any of its Subsidiaries, in
any case pursuant to a merger, purchase of assets or any
reorganization providing for the delivery or issuance to the
holders of such Person's then outstanding securities, in
exchange for such securities, of cash or securities of
Borrower or any of its Subsidiaries, or a combination thereof,
or (iii) purchases all or substantially all of the business or
assets of any Person.
"Affiliate" means, with respect to any Person, any
Person (i) that directly or indirectly controls, or is
controlled by, or is under common control with, such Person,
(ii) that directly or indirectly beneficially owns or holds 5%
or more of any class of voting stock of such Person, (iii) 5%
or more of the voting stock of which is directly or indirectly
beneficially owned or held by such Person, (iv) which is a
partnership or limited liability company in which such Person
is respectively a general partner or manager or (v) who is
among such Person's officers, directors joint venturers,
managers or partners. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or
otherwise.
<PAGE>
"Amortization" means amortization as determined in
accordance with GAAP.
"Capital Expenditures" means expenditures for any
fixed assets or improvements, replacements, substitutions, or
additions thereto which have a useful life of more than one
year.
"Capital Lease" means any lease which is required to
be capitalized on the balance sheet of the lessee in
accordance with GAAP.
"Chun Shin" means Chun Shin Industries, Inc., a
corporation formed under the laws of the Republic of Korea.
"Current Debt" means, on the date of determination
with respect to any Person, that portion of such Person's long
term debt, including Capital Leases and the outstanding
principal balance of the Term Loan, that is due and payable
within the next 12 months. Current Debt shall exclude all
Revolving Credit Loans.
"Debt" means, with respect to any Person (i)
indebtedness of such Person for borrowed money, (ii)
indebtedness relating to the acquisition of property where the
full purchase price is not paid at the time such property is
acquired but is required to be paid, in whole or in part,
thereafter (excluding trade debt and accounts payable), (iii)
the face amount of any outstanding letters of credit issued
for the account of such Person, (iv) obligations arising under
acceptance facilities, (v) guaranties and endorsements (other
than endorsements for collection in the ordinary course of
business) under which such Person has a direct, non-contingent
payment or performance obligation, (vi) other direct,
non-contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person, or otherwise
to assure a creditor against loss, (vii) obligations secured
by any Lien on property of such Person, (viii) obligations of
such Person as lessee under Capital Leases and (ix)
indebtedness of such Person evidenced by a note, bond,
indenture or similar instrument.
<PAGE>
"Debt Coverage Ratio" means (i) the consolidated
EBITDA of Borrower and its Subsidiaries, minus any cash
Dividends paid or declared to be paid to shareholders of
Borrower for the prior 12 month period, (ii) divided by the
sum of the Current Debt (including Current Chun Shin
Acquisition Debt, except as provided below) and Interest
Expense of Borrower and its Subsidiaries all on a consolidated
basis, as determined at the end of each fiscal quarter, based
upon Borrower's financial statements delivered in accordance
with the Loan Agreement. If Borrower completes an Acquisition
of Chun Shin under terms where all or part of the Acquisition
price is payable following consummation of the Acquisition
("Chun Shin Acquisition Debt"), and if, at the date of
determination of Debt Coverage Ratio, the amount of the
Revolving Credit Commitment then available to Borrower
hereunder equals or exceeds that portion of the Chun Shin
Acquisition Debt which is due and payable within the next 12
months ("Current Chun Shin Acquisition Debt"), then 50% of the
Current Chun Shin Acquisition Debt shall be excluded from
Current Debt for the purposes of computing the Debt Coverage
Ratio.
"Depreciation" means depreciation as determined in
accordance with GAAP.
"Dividends" means, for any period, dividends paid by
Borrower or any Subsidiary during such period.
"EBITDA" means, for any period, the sum of (i) Net
Income, (ii) income taxes paid or payable to any government or
government instrumentality, (iii) all Interest Expense paid or
accrued on any Debt, (iv) Depreciation and (v) Amortization
during such period.
"GAAP" means generally accepted accounting principles
in the United States of America as in effect from time to
time, applied on a basis consistent with those used in the
preparation of the Borrower's financial statements.
<PAGE>
"Guarantors" means Vicon Industries International
Sales Corp., Vicon Industries Foreign Sales Corp. and
each future Subsidiary which is required to become a party to
the Guaranty in accordance with the Credit Agreement.
"Interest Expense" means interest expense of Borrower
and its Subsidiaries on a consolidated basis for a particular
period as reflected in its financial statements and calculated
in accordance with GAAP.
"Lien" means any lien (statutory or otherwise),
security interest, mortgage, deed of trust, priority, pledge,
charge, conditional sale, title retention agreement, Capital
Lease or other encumbrance or similar right of others, or any
agreement to give any of the foregoing.
"Net Income" means with respect to any Person for any
period, such Person's net income after taxes for such period
as reflected on such Person's financial statements.
"Person" means an individual, partnership,
corporation, business trust, joint stock company, trust,
limited liability company, unincorporated association, joint
venture, governmental authority or other entity of whatever
nature.
"Revolving Credit Commitment" means the obligation of
the Lender to extend revolving credit to Borrower in
accordance with the terms of a certain credit agreement (the
"Credit Agreement") dated July 20, 1998 in the aggregate
principal amount not to exceed $7,500,000.00, or if Borrower
elects to increase the Revolving Credit Commitment,
$9,500,000.00, as such amount may be reduced or otherwise
modified from time to time in accordance with the terms of
said Credit Agreement.
"Revolving Credit Loans" mean any Revolving Credit
Loan made by the Lender to the Borrower under the Credit
Agreement.
<PAGE>
"Revolving Credit Termination Date" means the earlier
of (i) the date on which the Revolving Credit Loan is paid in
full and the Revolving Credit Commitments shall terminate and
the obligations of Borrower in connection therewith have been
satisfied or (ii) the date four years from the date of the
Revolving Credit Commitment unless such date is not a Banking
Day, then the next succeeding Banking Day.
"Subsidiary" means, as to any Person, any
corporation, partnership, limited liability company or other
business organization or entity of which at least a majority
of the securities or other ownership interests having ordinary
voting power (absolutely or contingently) for the election of
directors or other persons performing similar functions are at
the time owned directly or indirectly by such Person. For the
purposes of the financial covenants set forth in Article 10
under the Credit Agreement and in the Modification Agreement
and the definitions of Current Debt, Debt, Debt Coverage
Ratio, EBITDA, Interest Expense, Net Income, Tangible Net
Worth, Total Assets and Total Liabilities, the balance sheet
information and results of operations of Vicon U.K. and any
other Subsidiary which is not a Guarantor under the Credit
Agreement shall be excluded.
"Tangible Net Worth" means, at any particular date,
the amount of excess of Total Assets over Total Liabilities
which would, in accordance with GAAP, be included under
shareholders' equity on a consolidated balance sheet of
Borrower and its Subsidiaries as at such date. There shall be
excluded from the determination of Total Assets all intangible
assets, including, without limitation, organization expenses,
patents, trademarks, copyrights, goodwill, covenants not to
compete, research and developmental costs, training costs,
treasury stock, deferred charges and any loans receivable from
officers or Affiliates, other than loans receivable from
Affiliates incurred as a result of sales of goods in the
ordinary course of business.
"Term Loan" means the Term Loan made to Borrower by
Lender under the Credit Agreement.
"Total Assets" means, at a particular date, all
amounts which would, in accordance with GAAP, be included
under assets on a consolidated balance sheet of Borrower and
its Subsidiaries as at such date.
<PAGE>
"Total Liabilities" means, at a particular date, all
amounts which would, in accordance with GAAP, be included
under liabilities on a consolidated balance sheet of Borrower
and its Subsidiaries as at such date.
7. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
(a) The Borrower is a corporation duly organized and existing under the
laws of the State of New York and is authorized to do business in the State of
New York and, that it has full corporate power to execute this Agreement, the
Note and all other Loan Documents and do all things required of it hereunder,
and that the Borrower's main office for doing business is as indicated at the
beginning of this Agreement;
(b) The Borrower maintains offices at the following location(s):
89 Arkay Drive, Hauppauge, New York 11788;
(c) The Borrower's most recent financial statement as submitted to the
Bank fairly represents the Borrower's financial condition as of the dates shown;
that the Borrower is the owner of all of the assets and property as shown in the
financial statement, subject to no liens, encumbrances or charges whatever other
than as set forth in said financial statement, and that the Borrower has no
liabilities other than shown on said financial statement;
(d) The Borrower is the owner of the Collateral, free and clear of any
liens, claims or rights of any other party, except as listed in Schedule A;
(e) There is no action, litigation, suit, proceeding, inquiry or
investigation, at law or in equity, or before or by any court, public board or
body, pending, threatened against or affecting the Borrower which involves the
possibility of materially adversely affecting the property, business, profits or
conditions (financial or otherwise) of the Borrower;
(f) The Borrower has filed all required federal, state and local tax
returns and has paid all taxes shown on such returns as they become due;
<PAGE>
(g) The execution and delivery of this Agreement, and all other Loan
Documents will not violate any provision of this Agreement or of any other
agreement or instrument to which the Borrower is a party for which waivers of
same have not been obtained;
(h) All necessary corporate action to authorize the Borrower's entry
into this Agreement and the execution of the Loan Documents has been taken and
that the Loan Documents when executed by the Borrower shall be valid and binding
obligations of the Borrower enforceable in accordance with their terms;
(i) The execution, delivery and performance of the Loan Documents, the
consummation of the transactions therein contemplated and compliance with the
provisions of each by the Borrower does not and will not (i) conflict with,
violate or result in a breach of any of the terms or provisions of the
certificate of incorporation or by-laws of the Borrower, (ii) require consent
which has not hereto been received or will result in a breach or default of any
credit agreement, indenture, purchase agreement, mortgage, deed of trust,
commitment, guaranty agreement, or any other instrument to which the Borrower is
a party, or by which the Borrower may be bound or affected for which waivers of
same have not been obtained, or (iii) conflict with or violate any existing law,
rule, regulation, judgment, order or decree of any government, governmental
instrumentality, or court, domestic or foreign, having jurisdiction over the
Borrower or any of its properties;
(j) The Borrower possesses all licenses, trademarks, trademark rights,
and tradenames which are required for the conduct of its business without
conflict with the rights of others.
8. NEGATIVE COVENANTS
While the Loan remains outstanding, the Borrower agrees that it will
not, without prior written consent of the Bank:
(a) Merge or consolidate with any other person, firm, corporation or
business if (i) Borrower is not the surviving corporation, or (ii) the surviving
entity has a lower credit rating than Borrower; or
(b) Sell, lease, assign, transfer or otherwise dispose of any
significant assets or property, except in the normal course of business as
presently conducted, and for full and adequate consideration.
9. AFFIRMATIVE COVENANTS
<PAGE>
While the Loan remains outstanding, the Borrower agrees that it will:
(a) Make all payments required under the Note;
(b) Furnish the Bank with copies of Financial Statements and other
financial documentation as set forth herein;
(c) Pay and discharge any and all taxes, assessments and governmental
charges on the due date thereof, unless the same are being contested by the
Borrower in good faith and provided such contest does not impair the Bank's
security;
(d) Timely comply with all of the terms and conditions of the Loan
Documents;
(e) Keep all of its property insured by insurance companies licensed to
do business in New York and in such other state(s) where the property is located
against loss or damage by fire or other risk usually insured against by other
owners or users of such properties in similar businesses under extended coverage
endorsement and against theft, burglary, and pilferage together with such other
hazards as the Bank may from time to time reasonably request, in amounts
satisfactory to the Bank. The Borrower shall deliver the policy or policies of
such insurance to the Bank. All such insurance shall contain endorsements in
form satisfactory to the Bank providing that the insurance shall not be
cancelable except upon thirty (30) days prior written notice to the Bank and
showing the Bank as a party insured as its interest may appear. The Borrower
shall promptly notify the Bank of any event or occurrence causing a material
loss or decline in value of property insured or the existence of an event
justifying a material claim under any insurance and the estimated amount
thereof;
(f) Keep the Bank fully informed as to all matters that may affect the
Loan;
(g) Preserve and maintain its assets and keep the same in good order
and condition;
(h) If the Bank so reasonably requires, provide the Bank with an
appraisal or appraisals of the Premises subsequent to the closing of the Loan
but not more often than once every twelve (12) months except as otherwise set
forth herein.
<PAGE>
All costs of such future appraisals shall be paid by the Borrower.
10. DEFAULT
Each of the following shall be an "Event of Default" under this
Agreement:
(a) The occurrence of an Event of Default under the Note, any of the
Loan Documents; or
(b) Borrower shall fail to perform any other obligation required to be
performed under this Agreement or any other Loan Document, for thirty (30) days
after receipt of notice from the Bank of such failure; or
(c) Any warranty, representation or other statement by or on behalf of
Borrower in any Loan Document or instrument furnished in compliance with or in
reference to any Loan Document proves in the Bank's reasonable opinion to be
false or misleading in any material respect; or
(d) Borrower shall generally not be paying debts as they become due or
file a petition or seek relief under or take advantage of any insolvency law;
make an assignment for the benefit of creditors; commence a proceeding for the
appointment of a receiver, trustee, liquidator, custodian or conservator of
Borrower or of the whole or substantially all of Borrower's property or of any
collateral pledged as security for the Note; or if Borrower shall file a
petition or an answer to a petition under any chapter of the Bankruptcy Reform
Act of 1978, as amended (or any successor statute thereto), or file a petition
or seek relief under or take advantage of any other similar law or statute of
the United States of America, any State thereof, or any foreign country or
subdivision thereof; or
<PAGE>
(e) A Court of competent jurisdiction shall enter an order, judgment or
decree appointing or authorizing a receiver, trustee, liquidator, custodian or
conservator of Borrower or of the whole or substantially all of Borrower's
property, or any portion of the collateral pledged as security for the Note, or
enter an order for relief against Borrower in any case commenced under any
chapter of the Bankruptcy Reform Act of 1978, as amended (or any successor
statute thereto), or grant relief under any other similar law or statute of the
United States of America, any State thereof, or any foreign country or
subdivision thereof and the same is not stayed or discharged within sixty (60)
days of entry; or
(f) Under the provisions of any law for the relief or aid of debtors, a
court of competent jurisdiction or a receiver, trustee, liquidator, custodian or
conservator shall assume custody or control or take possession from Borrower of
all or substantially all of Borrower's property or any portion of any collateral
pledged as security for the Note; or
(g) There is commenced against Borrower any proceeding for any of the
foregoing relief or if a petition is filed against Borrower under any chapter of
the Bankruptcy Reform Act of 1978, as amended (or any successor statute
thereto), or under any other similar law or statute of the United States of
America, any State thereof, or any foreign country or subdivision thereof, and
such proceeding or petition remains undismissed for a period of sixty (60) days
or if Borrower by any act indicates consent to, approval of or acquiescence in
any such proceeding or petition; or
(h) The Bank receives a notice to creditors with regard to a bulk
transfer by Borrower pursuant to Article VI of the Uniform Commercial Code; or
(i) In the event that (a) any entity then having a lesser credit rating
than Borrower shall acquire beneficial ownership of a majority interest in the
voting stock of Borrower, or (b) the Borrower shall merge with such an entity
and shall not be the surviving corporation; or
(j) Borrower shall fail to satisfy a final judgment entered against it
for the payment of money within thirty (30) days from entry or affirmance, and
in any event, prior to any execution or enforcement thereof; or
(k) Borrower shall be in default under any other agreement or document
with the Bank; or
(l) Borrower shall fail to obtain and deliver to Lender a certificate
of occupancy (or certificate of compliance) for the open permit on the Premises
identified as Permit number 101969 with the Town of Smithtown within one hundred
twenty (120) days of the date hereof.
<PAGE>
If an Event of Default occurs or, if an event which, but for the
passage of time, the giving of notice or both (unless same is required under the
Loan Documents), would constitute an Event of Default, the Bank may declare the
Loan and any other Obligations to be immediately due and payable and the Bank
shall have, in addition to all other rights and remedies including those set
forth in the Mortgage and in the Assignment of Leases and Rents, those of a
secured party under the Uniform Commercial Code of the State of New York
including without limitation, the right to institute foreclosure proceedings and
the right to take possession of all Collateral, and for that purpose the Bank
may enter the Premises where the Collateral may be situated and remove the same
therefrom without legal process. At the request of the Bank, if applicable,
Borrower (i) will disclose the exact location of any personal property
Collateral, (ii) assist in the collection of any personal property Collateral,
and (iii) assemble any personal property Collateral at a place to be designated
by the Bank. The requirements of reasonable notice shall be met if the Bank
gives to the Borrower at least five (5) days prior written notice of the time
and place of any public sale of any personal property Collateral or if the time
after which any private sale or any other intended disposition is to be made.
For the purpose of realizing the Bank's rights in the Collateral, the Bank may
endorse notes, checks, drafts, money orders, documents of title or other
evidences of payment, shipment or storage or endorse any other forms of
Collateral on behalf of and in the name of Borrower and may compromise and
settle claims and otherwise generally deal with the Collateral. The Borrower
hereby irrevocably appoints the Bank as its lawful attorney-in-fact with full
power of substitution for the Borrower in its name, place and stead to take all
actions with respect to the Collateral permitted hereunder.
Any sale or disposition of Collateral by the Bank shall be done in a
commercially reasonable manner. All decisions with respect to sale or
disposition of the Collateral shall be made solely by the Bank.
All proceeds received from the disposition and/or collection of
Collateral shall be applied by the Bank, in its discretion and in such order as
it elects, to (i) the payment of all expenses incurred in connection with the
sale and/or collection of the Collateral, including reasonable attorney's fees
and other expenses and disbursements and the reasonable expenses of retaking,
collecting, holding, preparing for sale, sale and the like and (ii) the payment
of all interest, principal and other sums due under the Loan Documents.
<PAGE>
11. INDEMNIFICATION
The Bank by virtue of the pledge and assignment of the Collateral to it
hereunder shall not be deemed to have assumed the Borrower's obligations under
the Collateral or be responsible for servicing the Collateral and the Borrower
shall and does hereby agree to defend, indemnify and hold the Bank harmless of
and from any and all liability of any name, nature or kind which may arise or be
alleged to have arisen as a result of the pledge and assignment of the
Collateral to the Bank hereunder.
12. FEES AND EXPENSES
All filing fees, recording costs and all other fees or charges,
including reasonable attorneys fees, incurred by the Bank in connection with the
preparation of this Agreement and the other Loan Documents and in perfecting and
defending the Bank's security interests in the Collateral and its rights
hereunder, shall be deemed to be sums payable under the Note and secured by the
Collateral and shall be paid by the Borrower on demand.
13. GENERAL PROVISIONS
(a) Inspection. The Bank may examine the Borrower's books and records
with respect to the Collateral and this Agreement at all reasonable times to
insure compliance with the terms of the Loan Documents. Additionally, the
Borrower hereby agrees to allow the Bank, its personnel and representatives,
access to the Borrower's books and records for the purpose of conducting
periodic audits. Such audits shall be done as frequently as the Bank may
reasonably determine is necessary and Borrower shall pay the Bank an audit fee
of $650.00 per audit, it being understood that audit fees shall be charged only
at such times as an Event of Default has occurred and is continuing.
(b) Notice To Others. The Bank may, upon the occurrence of an Event of
Default or upon the occurrence of an event which, but for the passage of time,
the giving of notice or both unless same is required under the Loan Documents,
would constitute an Event of Default, notify any party obligated to make
payments to Borrower under any lease of the Premises or portion , to make
payment directly to the Bank.
<PAGE>
(c) Paragraph Headings. Paragraph headings are for convenience and
shall not operate to change or modify any of the terms of this Agreement.
(d) Partial Invalidity. The invalidity or unenforceability of any
clause or part of this Agreement or any other Loan Documents shall not affect
the validity or enforceability of any other clause or part hereof.
(e) Waiver. Any waiver by the Bank of any breach or of any Event of
Default shall not be deemed a waiver of any other breach or Event of Default of
the same or any other provision.
(f) Rights Cumulative. All of the Bank's rights, remedies and powers,
whether pursuant to this Agreement or any other Loan Document or otherwise
("Rights") shall be cumulative and may be exercised independently or
concurrently, partially or wholly, and as often as the Bank deems expedient. No
delay or omission in exercising such Right or any other Right shall be construed
as a waiver or acquiescence to an Event of Default. Waiver of a Right or an
Event of Default on any one occasion shall not bar or be a waiver of such Right
or Event of Default on any future occasion.
(g) Governing Law. This Agreement shall be governed by the laws of the
State of New York.
(h) Waiver Of Jury Trial. The parties hereto hereby waive trial by jury
in any litigation in any court with respect to, in connection with, or arising
out of this Agreement, any other Loan Document or the Loan, or any instrument or
document delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and the Bank.
(i) Notices. All notices and communications under this Agreement,
except those communications permitted by the terms of this Agreement to be made
by telephone, shall be: (i) personally delivered or (ii) forwarded by overnight
courier service, in each instance addressed to the addresses hereinafter set
forth, or such other addresses as the parties may for themselves designate in
writing as provided herein for the purpose of receiving notices hereunder. All
notices shall be in writing and shall be deemed given, in the case of notice by
personal delivery, upon actual delivery, and in the case of courier service,
upon delivery to the courier service as follows:
<PAGE>
If to Bank:
KeyBank National Association
1377 Motor Parkway
Islandia, New York 11788
Attn: James V. Maiorino, Vice President
If to Borrower:
Vicon Industries, Inc.
89 Arkay Boulevard
Hauppauge, New York 11788
Attn: Kenneth M. Darby, President
(j) Bank Approval. All Loan Documents and all other documents delivered
by Borrower to the Bank must be acceptable to the Bank and its Counsel.
(k) Entire Agreement. This Agreement and the other Loan Documents
constitute the complete agreement of the parties with respect to the subject
matters referred to herein and supersede all prior or contemporaneous
negotiations, promises, covenants, agreements or representations of every nature
whatsoever with respect thereto, all of which have become merged and finally
integrated into this Agreement. Each of the parties understands that in the
event of any subsequent litigation, controversy or dispute concerning any of the
terms, conditions or provisions of this Agreement, neither shall be permitted to
offer or introduce any oral evidence concerning any other oral promises or oral
agreements between the parties relating to the subject matter of this Agreement
not included or referred to herein and not reflected by a writing signed by the
Bank.
(l) Counterparts. This Agreement may be executed in counterparts and
any combination or group of counterparts bearing, in the aggregate, the
signatures of all of the parties hereto shall be deemed one Agreement and
sufficient execution of the within Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VICON INDUSTRIES, INC. KEYBANK NATIONAL ASSOCIATION
By:____________________ By:_________________________
John Badke James V. Maiorino
Vice President-Finance Vice President
STATE OF NEW YORK )
) SS.:
COUNTY OF SUFFOLK )
On the 12th day of October, 1999, before me, the undersigned,
personally appeared JOHN BADKE, personally known to me or proved to me on the
basis of satisfactory evidence to be the individual whose name is subscribed to
the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
NOTARY
STATE OF NEW YORK )
) SS.:
COUNTY OF SUFFOLK )
On the 12th day of October, 1999, before me, the undersigned,
personally appeared JAMES V. MAIORINO, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
NOTARY
<PAGE>
SCHEDULE "A"
PRIOR LIENS, CLAIMS OR RIGHTS OF
OTHERS IN AND TO COLLATERAL
KEYBANK NATIONAL ASSOCIATION
KEYBANK NATIONAL ASSOCIATION
MORTGAGE NOTE
BORROWER: VICON INDUSTRIES, INC.
PRINCIPAL: $1,200,000 Date: October 12, 1999
PROMISE TO PAY: The undersigned (the "Borrower"), jointly and severally if more
than one signer, does hereby promise to pay to the order of KEYBANK NATIONAL
ASSOCIATION (the "Bank") at its offices at 1377 Motor Parkway, Islandia, New
York 11788, or at any of its branches, the sum of ONE MILLION TWO HUNDRED
THOUSAND ($1,200,000) DOLLARS plus interest thereon, from the date hereof in the
manner set forth below.
COMPUTATION OF INTEREST: Interest on the outstanding principal balance of this
Note shall be computed on the basis of "a 360-day year for the actual number of
days elapsed" (such phrase, as used throughout this Note shall mean that in
computing interest for the subject period, the interest rate shall be multiplied
by a fraction, the denominator of which is 360 and the numerator of which is the
actual number of days elapsed from the date of the first disbursement of the
Loan or the date of the preceding interest and/or principal due date, as the
case may be, to the date of the next interest and/or principal due date).
Interest shall accrue until the date of receipt of payment.
RATE AND PAYMENT: The unpaid principal balance hereof shall bear interest at a
variable rate equal to, at Borrower's option, either (i) the 30, 60, or 90 day
LIBOR Rate (at Borrower's option) plus One Hundred (100) Basis Points, or (ii)
the Prime Rate minus one hundred sixty (160) Basis Points, payable monthly on
the first day of the first month following the date hereof and on the first day
of each month thereafter until this Note is paid in full. The option selected by
Borrower shall be the applicable "Interest Rate" for such Interest Period
(hereinafter defined).
"LIBOR Rate" shall mean the rate of interest per annum (rounded upwards if
necessary to the nearest 1/16 of 1%) that is equal to the rate quoted by the
Bank, or its successors or assigns, for a LIBOR Period of one (1) month, two (2)
months or three (3) months (each, a "LIBOR Period"), as adjusted for statutory
requirements, two (2) Business Days prior to the first day of the Interest
Period for which the LIBOR Rate is calculated, for the offering to leading banks
in the London interbank market of U.S. dollar deposits in immediately available
funds, for a period, and in an amount, comparable to such Interest Period
(hereinafter defined) and principal amount of the Loan which shall be
outstanding during such Interest Period.
"Interest Period" means each period during which the Interest Rate is a LIBOR
Rate, commencing on the date the Loan bears such LIBOR Rate based Interest Rate
and ending, as Borrower has elected, on the 30th, 60th, or 90th day thereafter,
providing that no Interest Period shall extend beyond the Maturity Date.
<PAGE>
"LIBOR Loan" means this Loan when the interest rate therefor is determined on
the basis of a LIBOR Rate.
"Prime Rate shall mean that rate set forth in Federal Reserve Publication
H15(519) under the heading "Prime Interest Rate". If such rate does not appear
in the Federal Reserve Publication H15(519) the rate shall be the Prime Rate as
published in the "Money Rates" column of the Wall Street Journal. Each change in
the Interest Rate shall take effect simultaneously with the corresponding change
in the Prime Rate. The Prime Rate may not be the lowest rate of interest charged
by the Bank for commercial or other extensions of credit.
"Prime Rate Loan" means this Loan when the interest rate therefor is determined
on the basis of the Prime Rate.
The term "Business Day" means any day other than (i) Saturday or Sunday; or (ii)
a day on which commercial banks in New York are authorized to close.
In the event Borrower elects a LIBOR Rate based Interest Rate for an Interest
Period, Borrower shall select an Interest Period of a duration in accordance
with the definition of Interest Period above, except that if an Interest Period
would end on a day which is not a Business Day, such Interest Period shall be
extended to the next Business Day, unless such Business Day would fall in the
next calender month, in which event such Interest Period shall end on the
immediately preceding Business Day. Any Interest Period which would otherwise
extend beyond the Maturity Date shall end on the Maturity Date.
Upon the expiration of an Interest Period bearing a LIBOR Rate based Interest
Rate, the Loan shall be automatically converted to a "Prime Rate Loan" unless
Borrower shall have notified the Bank of its intention to continue such LIBOR
Rate or elect a different LIBOR Rate at least two (2) Business days prior to the
end of the Interest Period and subject to the following conditions and to the
terms and conditions of this Note:
(i) the Interest Rate on the Loan may not be converted to a LIBOR
Rate less than one month before the Maturity Date;
(ii) the Loan may be converted to a Prime Rate Loan only on the
last day of an Interest Period;
(iii) if the Loan is a Prime Rate Loan, the Loan may be converted
to a LIBOR Loan only upon at least two (2) Business Day's prior notice to the
Bank;
(iv) the Loan may not be converted to a LIBOR Loan during the
occurrence and continuance of an Event of Default; and
<PAGE>
(v) the Interest Period selected shall apply to the entire Loan
balance for such Interest Period.
In the event that the LIBOR Rate quoted by the Bank, its successors or
assigns, is no longer available, the Interest Rate shall automatically convert
to the Prime Rate minus one hundred sixty (160) Basis Points.
The LIBOR Rate may not be the lowest rate of interest charged by the Bank for
commercial or other extensions of credit. Each change in the applicable LIBOR
Rate shall effect a simultaneous and corresponding change in the interest rate
hereunder without notice to the Borrower. Interest shall be calculated on a
three hundred sixty (360) day year and actual number of days elapsed.
Principal repayment shall begin on December 1, 1999 when Borrower shall begin
making equal consecutive monthly installments of principal, each in an amount
sufficient to fully amortize the outstanding principal balance hereof over an
one hundred fifty-nine (159) month period, plus accrued interest at the Interest
Rate. On February 1, 2008 (the "Maturity Date") (or such earlier date in the
event Borrower defaults hereunder), the entire unpaid principal balance of this
Note and all accrued but unpaid interest and any other sums due hereunder shall
be due and payable.
Each installment payment shall be applied first to interest at the Interest Rate
with the balance, if any, applied to principal. If any monthly installment
payment is insufficient to pay the interest due at the Interest Rate, KeyBank
will notify the Borrower of the amount of additional interest due and the
Borrower will remit said sum to KeyBank or KeyBank shall offset such amount (as
hereinafter provided) within five (5) business days.
PREPAYMENT: The Loan may be prepaid in whole or in part in multiples of at least
$100,000 on the first of each month following not less than ten (10) days prior
written notice, provided Borrower is not then in default beyond any applicable
cure period.
Partial prepayment shall be credited in inverse order of maturity. Prepayments
of borrowings covered by an interest rate swap agreement or other rate
protection mechanism may require termination or adjustment of the swap and will
be subject to the terms and conditions of the swap agreement with respect to
prepayment/termination.
DEFAULT INTEREST RATE: After maturity hereof (whether by acceleration or
otherwise) the principal amount hereof and the unpaid interest and fees thereon
shall bear interest at a rate per annum equal to the greater of three (3%)
percent in excess of the highest applicable interest rate provided for herein or
sixteen (16%) percent per annum, but in no event shall the rate either be for or
after the occurrence of any event of default or acceleration exceed the highest
rate of interest, if any, permitted under applicable New York or Federal Law.
<PAGE>
RIGHT OF OFFSET: If any payment is not made when due inclusive of any applicable
grace period, or if the entire balance becomes due and payable and is not paid,
all or part of the amount due may be offset out of any account or other property
which the Borrower has at the Bank or any affiliate of the Bank without prior
notice or demand.
LATE CHARGES: The Borrower shall pay to the Bank, prior to maturity, for each
payment of principal and interest not paid in full within ten (10) days after
its due date, a late fee equal to the greater of five (5%) percent of the amount
of such payment or fifty ($50) dollars, but not more than one thousand ($1,000)
dollars.
SECURITY: This Note is secured by:
(1) a security interest in and assignment and pledge of all monies,
deposits, or other sums now or hereafter held by the Bank on deposit, in
safekeeping, transit or otherwise, at any time credited by or due from Bank to
the Borrower, or in which the Borrower shall have an interest; and
(2) a third mortgage on property located at 89 Arkay Drive, Hauppauge,
New York 11788 and known on the Suffolk County Tax Map as District 0800 Section
181.00 Block 03.00 Lot 002.013 (the "Mortgage"); and
(3) an Assignment of All Leases and Rents from the premises that is the
subject of the Mortgage.
DEFAULT: The Bank may declare the entire unpaid balance of this Note due and
payable on the happening of any of the following events ("Events of Default"):
(a) Failure to pay any amount required by this Note when due and
Borrower fails to cure such default within five (5) business days or, if
applicable, failure to have sufficient funds in its account for loan payments to
be debited on the due date and Borrower fails to cure such default within five
(5) business days;
(b) Failure to perform or keep or abide by any term, covenant or
condition contained in this Note, the Mortgage, or any other document or
instrument given to the Bank in connection with this loan (collectively, the
"Loan Documents") within any applicable cure period;
(c) The filing of a bankruptcy proceeding, assignment for the
benefit of creditors, issuance of any execution, garnishment, or levy against,
or the commencement of any proceeding for relief from indebtedness by or against
the Borrower;
(d) The happening of any event which, in the judgment of the
Bank, materially adversely affects the Borrower's ability to repay or the value
of any collateral;
<PAGE>
(e) If any material written representation or statement made to
the Bank by the Borrower is untrue;
(f) If any material written representation, covenant or warranty
made to the Bank by the Borrower is breached;
(g) The occurrence of a default under the Mortgage, or any other
document or instrument given to the Bank in connection with this loan and
Borrower fails to cure such default within any applicable cure period;
(h) Failure to provide any reasonable financial information on
request upon reasonable notice or permit an examination of books and records
upon reasonable notice.
Notwithstanding the foregoing, the balance of this Note shall become
immediately due and payable upon the occurrence of any of the events set forth
in (c) above.
ATTORNEYS FEES: In the event the Bank retains counsel with respect to
enforcement of this Note or any other document or instrument given to the Bank
by reason of Borrower's default, the Borrower agrees to pay the Bank's
reasonable attorneys fees (whether or not an action is commenced and whether or
not in the court of original jurisdiction, appellate court, bankruptcy court, or
otherwise).
SUBSEQUENT AGREEMENTS: The Borrower shall be bound by any agreement extending
the time or modifying the above terms of payment made by the Bank and any
owner(s) of the property covered by the mortgage referred to herein, without
notice to the Borrower, and the Borrower shall continue to be liable to pay all
amounts due hereunder, but at an interest rate not exceeding the rate set forth
herein, according to the terms of any such agreement of extension or
modification.
MISCELLANEOUS: Delay or failure of the Bank to exercise any of its rights under
this Note shall not be deemed a waiver thereof. No waiver of any condition or
requirement shall operate as a waiver of any other or subsequent condition or
requirement. The Bank or any other holder of this Note does not have to present
it before requiring payment. The Borrower waives trial by jury, offset, and
counterclaim with respect to any action arising out of or relating to this Note.
This Note may not be modified or terminated orally. This Note shall be governed
by the laws of the State of New York without regard to its conflicts of laws
rules. The Borrower irrevocably consents to the jurisdiction and venue of the
New York State Supreme Court, Suffolk County in any action concerning this Note.
This Note is binding upon the Borrower, its heirs, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Borrower has signed this Note as of the
12th day of October, 1999.
VICON INDUSTRIES, INC.
By:___________________________
John Badke, Vice President-Finance
STATE OF NEW YORK )
) SS.:
COUNTY OF SUFFOLK )
On the 12th day of October, 1999, before me, the undersigned,
personally appeared JOHN BADKE, personally known to me or proved to me on the
basis of satisfactory evidence to be the individual whose name is subscribed to
the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
NOTARY
MORTGAGE
and
SECURITY AGREEMENT
Dated: October 12, 1999
in the amount of
$1,200,000
(the "Mortgage Amount")
from
VICON INDUSTRIES, INC.
having an office at:
89 Arkay Drive
Hauppauge, New York 11788
(the "Mortgagor")
to
KEYBANK NATIONAL ASSOCIATION
A National Banking Association
having an office at:
1377 Motor Parkway
Islandia, New York 11788
(the "Mortgagee")
LOCATION OF PREMISES:
Street Address : 89 Arkay Drive, Hauppauge
County of : Suffolk
State of : New York
District : 0800
Section : 181.00
Block : 03.00
Lot : 002.013
After recording, please return to:
GANDIN, SCHOTSKY, RAPPAPORT, GLASS & GREENE, LLP
445 Broad Hollow Road
Melville, N. Y. 11747
This instrument was prepared by the above-named attorneys.
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
$1,200,000
THIS MORTGAGE AND SECURITY AGREEMENT, made the 12th day of October,
1999, by VICON INDUSTRIES, INC., a New York State corporation with an office for
the transaction of business located at 89 Arkay Drive, Hauppauge, New York , the
MORTGAGOR to KEYBANK NATIONAL ASSOCIATION, a national banking association, with
an office for the transaction of business located at 1377 Motor Parkway,
Islandia, New York 11788, the MORTGAGEE.
WITNESSETH, that to secure the payment of an indebtedness evidenced by a
certain note bearing even date herewith in the principal sum of ONE MILLION TWO
HUNDRED THOUSAND ($1,200,000) Dollars lawful money of the United States, as the
same may be modified, renewed or extended (the "Note") which sum, with interest
thereon is to be paid by Mortgagor to Mortgagee in accordance with the terms of
said Note, and also to secure the payment by Mortgagor to Mortgagee of all sums
expended or advanced by Mortgagee pursuant to any covenant, term or provision of
this Mortgage or any other Loan Document (as that term is defined in the Note),
and to secure the performance of each covenant, term and provision by Mortgagor
to be performed pursuant to this Mortgage or any other Loan Document, Mortgagor
hereby mortgages to Mortgagee, its successors and assigns, the following
described property (the "Mortgaged Property") whether now owned or held or
hereafter acquired:
ALL THAT TRACT OR PARCEL OF LAND situate in the County of Suffolk, State
of New York, and being the same premises described in Schedule "A" hereto
annexed and made a part hereof (the "Premises").
ALL RIGHT, TITLE AND INTEREST of Mortgagor in and to any and all
buildings, structures and improvements, including without limitation, the
foundations and footings thereof, now or at any time hereafter erected,
constructed or situated upon the Premises or any part thereof (the
"Improvements").
TOGETHER with all fixtures, chattels and articles of personal property
now or hereafter attached to or used in connection with the Premises, together
with any and all replacements thereof and additions thereto (the "Chattels").
This Mortgage shall be considered a financing statement pursuant to the
provisions of the Uniform Commercial Code, covering fixtures which are affixed
to the Premises. The types of collateral covered hereby are described in this
paragraph. The debtor is VICON INDUSTRIES, INC. The secured party is KEYBANK
NATIONAL ASSOCIATION. Their addresses are set forth above.
TOGETHER with all right, title and interest, if any, of Mortgagor of, in
and to the bed of any street, road or avenue, opened or proposed, in front of,
adjoining or abutting upon the Premises to the center line thereof.
<PAGE>
TOGETHER with any and all awards heretofore and hereafter made to the
present and all subsequent owners of the Premises by any governmental or other
lawful authorities for the taking by eminent domain of the whole or any part of
the Premises, or any easement therein, including any awards for any changes of
grade of streets, which said awards are hereby assigned to Mortgagee, who is
hereby authorized to collect and receive the proceeds of any such awards from
such authorities and to give proper receipts and acquittances therefor, and to
apply the same toward the payment of the amount owing on account of this
Mortgage and the Note, notwithstanding the fact that the amount owing thereon
may not then be due and payable.
TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its
successors and assigns, PROVIDED ALWAYS that if Mortgagor shall pay or cause to
be paid to Mortgagee, its successors and assigns, said principal sum of money
and other charges mentioned and set forth in this Mortgage and in the Note,
together with interest thereon, then and from thence forth, the Mortgage and the
estate hereby granted shall cease, determine and be void.
AND Mortgagor covenants with Mortgagee as follows:
1. REPRESENTATIONS. Mortgagor hereby represents and warrants to
Mortgagee as follows:
(a) That the Loan Documents (as that term is defined in the Note)
are in all respects valid and legally binding obligations, enforceable in
accordance with their respective terms.
(b) That the execution and delivery of the Loan Documents by
Mortgagor does not, and the performance and observance by Mortgagor of its
obligations thereunder will not, contravene or result in a breach of (i) if
Mortgagor purports to be a corporation, any provision of Mortgagor's corporate
charter or by-laws, or, if Mortgagor purports to be partnership, any provision
of Mortgagor's partnership agreement or certificate, or (ii) any governmental
requirements, or (iii) any decree or judgement binding on Mortgagor, or (iv) any
agreement or instrument binding on Mortgagor for which waivers of the same have
not been obtained or any of their respective properties, nor will the same
result in the creation of any lien or security interest under any such agreement
or instrument.
(c) That there are no actions, suits, investigations or
proceedings pending, or, to the knowledge of Mortgagor, threatened against or
affecting Mortgagor (or any general partner of Mortgagor), or the Mortgaged
Property, or involving the validity or enforceability of any of the Loan
Documents or the priority of the lien thereof, or which will affect Mortgagor's
ability to repay the Note, at law or in equity or before or by any governmental
authority.
(d) That Mortgagor has no knowledge of any violations or notices
of violations of any requirements for which waiver(s) of same have not been
obtained.
<PAGE>
(e) If Mortgagor (or any general partner of Mortgagor if
Mortgagor is a partnership) purports to be a corporation, that (i) it is a
corporation duly organized, validly existing and in good standing under the laws
of the state or foreign country in which it is incorporated, (ii) if required by
the laws of the state in which the Premises is located, it is duly qualified to
do business and is in good standing therein, (iii) it has the corporate power,
authority and legal right to own and operate its properties and assets, carry on
the business now being conducted and proposed to be conducted by it, and to
engage in the transactions contemplated by the Loan Documents, and (iv) the
execution and delivery of the Loan Documents to which it is a party and the
performance and observance of the provisions thereof have been duly authorized
by all necessary corporate actions.
If Mortgagor (or any general partner of Mortgagor if
Mortgagor) is a partnership, that (i) it is duly formed and validly
existing under the laws of the state in which it is formed, (ii) if required by
the laws of the state in which the Premises is located, it is fully qualified to
do business therein, (iii) it has the power, authority and legal right to own
and operate its properties and assets, to carry on the business conducted and
proposed to be conducted by it, and to engage in the transactions contemplated
by the Loan Documents, and (iv) the execution and delivery of the Loan Documents
to which it is a party and the performance and observance of the provisions
thereof have all been duly authorized by all necessary actions of its partners.
(f) That all utility services necessary and sufficient for the
construction, development and operation of the Mortgaged Property for its
intended purposes are presently available to the Premises (or the boundaries
thereof if this Mortgage is executed in conjunction with a construction loan)
through dedicated public rights of way or through perpetual private easements,
approved by Mortgagee, with respect to which the Mortgage creates a valid,
binding and enforceable first lien, including, but not limited to, water supply,
storm and sanitary sewer, gas, electric and telephone facilities, and drainage.
(g) That neither the Mortgaged Property nor any portion thereof
is now damaged or injured as result of any fire, explosion, accident, flood or
other casualty or has been the subject of any taking, and to the knowledge of
Mortgagor, no taking is pending or contemplated.
(h) That any brokerage commissions payable by Mortgagor due in
connection with the transactions contemplated hereby have been paid in full and
that any such commissions coming due in the future will be promptly paid by
Mortgagor. Mortgagor agrees to and shall indemnify Mortgagee from any liability,
claims or losses arising by reason of any such brokerage commissions. This
provision shall survive the repayment of the Note and shall continue in full
force and effect so long as the possibility of such liability, claims or losses
exists.
<PAGE>
(i) That the financial statements of Mortgagor previously
delivered to Mortgagee are true and correct in all respects, have been prepared
in accordance with generally accepted accounting principles consistently
applied, and fairly present the respective financial conditions of Mortgagor as
of the respective dates thereof and the results of their operations for the
periods covered thereby; that no materially adverse change has occurred in the
assets, liabilities, or financial conditions reflected therein since the
respective dates thereof; and that no additional borrowings (except for
borrowings under existing line of credit with IBJ Schroeder as disclosed to the
Mortgagee) have been made by Mortgagor since the date thereof other than the
borrowing contemplated hereby.
(j) That all federal, state and other tax returns of Mortgagor
required by law to be filed have been filed, that all federal, state and other
taxes, assessments and other governmental charges upon Mortgagor or its
respective properties which are due and payable have been paid, and that
Mortgagor has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods for which such
returns have been filed.
(k) That Mortgagor has made no contract or arrangement of any
kind or type whatsoever (whether oral or written, formal or informal), the
performance of which by the other party thereto could give rise to a lien or
encumbrance on the Mortgaged Property, except for contracts (all of which have
been disclosed in writing to Mortgagee) made by Mortgagor with parties who will
execute and deliver lien waivers to Mortgagor within one hundred twenty (120)
days of the date hereof, copies of which Mortgagor shall deliver to Mortgagee,
and which will not create rights in existing or future lien claimants which may
be superior to the lien of the Mortgage.
(l) That the rights of way for all roads necessary for the full
utilization of the Improvements for their intended purposes have either been
acquired by the Mortgagor, the appropriate governmental authority or have been
dedicated to public use and accepted by such governmental authority, and all
such roads shall have been completed, or all necessary steps shall have been
taken by Mortgagor and such governmental authority to assure the complete
construction and installation thereof prior to the date upon which access to the
Mortgaged Property via such roads will be necessary. All curb cuts, driveway
permits and traffic signals necessary for access to the Mortgaged Property are
existing or have been fully approved by the appropriate governmental authority.
(m) That no Event of Default (hereinbelow defined) exists and no
event which but for the passage of time, the giving of notice or both would
constitute an Event of Default has occurred.
2. THE INDEBTEDNESS. Mortgagor will pay the indebtedness as provided in
the Note or in any modification, renewal or extension of the Note.
<PAGE>
3. INSURANCE. At all times that the Note is outstanding, including
without limitation during any construction period (a "Construction Period"),
Mortgagor shall maintain insurance with respect to the Premises the Improvements
and the Chattels against such risks and for such amounts as are customarily
insured against by businesses of like size and type paying, as the same become
due and payable, all premiums in respect thereto, including but not limited to:
(a) Prior to completion of construction of the Improvements, if
the same have not been completed, builder's risk all risk (or equivalent
coverage) insurance upon any work done or material furnished in connection with
construction of the Improvements, issued to Mortgagor and Mortgagee and written
in non-reporting completed form to cover the replacement cost of the
Improvements and at such time that builder's risk insurance shall not be
available due to completion of the construction of the Improvements, or if all
Improvements have been completed, insurance protecting the interests of the
Mortgagor and Mortgagee as their interests may appear against loss or damage to
the Improvements by fire, lightning, flood and other casualties normally insured
against, with a uniform standard extended coverage endorsement, such insurance
at all times to be in an amount of the Note or the total cash replacement value
of the Improvements not covered by builder's risk insurance, as determined at
least once every three years by a recognized appraiser or insurer selected by
the Mortgagor and approved by the Mortgagee.
(b) Boiler and machinery insurance covering physical damage to
the Improvements and to the major components of any central heating, air
conditioning or ventilation systems and such other equipment as Mortgagee shall
designate.
(c) Workers' compensation insurance, disability benefits
insurance, and such other form of insurance which the Mortgagor is required by
law to provide, covering loss resulting from injury, sickness, disability or
death of employees of Mortgagor who are located at or assigned to the Premises
or who are responsible for the construction of the Improvements.
(d) Insurance protecting Mortgagor and Mortgagee against loss or
losses from liabilities imposed by law or assumed in any written contract and
arising from personal injury and death or damage to the property of others
caused by accident or occurrence, in such amounts as may be reasonably
designated from time to time by Mortgagee, excluding liability imposed upon the
Mortgagor by any applicable workers' compensation law, or such other amounts as
may be required in writing by the Mortgagee; and a blanket excess liability
policy in an amount reasonably satisfactory to the Mortgagee protecting
Mortgagor and Mortgagee against any loss or liability or damage for personal
injury or property damage.
<PAGE>
4. OTHER INSURANCE PROVISIONS. All insurance required under this
Mortgage shall be procured and maintained in financially sound and generally
recognized responsible insurance companies selected by the Mortgagor and
authorized to write such insurance in the State of New York and acceptable to
the Mortgagee. Such insurance may be written with deductible amounts comparable
to those on similar policies carried by other entities engaged in businesses
similar in size, character and other respects to those in which the Mortgagor is
engaged. All policies evidencing such insurance shall provide for (i) payment of
the losses to Mortgagor and Mortgagee as their respective interests may appear,
and (ii) at least thirty (30) days written notice to Mortgagor and Mortgagee
prior to cancellation, reduction in policy limits or material change in coverage
thereof. The insurance required by Section 3(a) shall contain a New York
Standard mortgagee endorsement in favor of Mortgagee. All insurance required
hereunder shall be in form, content and coverage satisfactory to the Mortgagee.
The original policy, or a certified duplicate copy thereof, for all insurance
required hereby shall be delivered to Mortgagee. The proceeds of any insurance
which are paid to the Mortgagee, if less than $100,000, shall be paid over to
the Mortgagor in whole or in part for the repair of the Improvements, or, if
equal to $100,000 or more, may be applied by the Mortgagee toward the payment of
any monies secured by this Mortgage, or, may be paid over, wholly or in part, to
the Mortgagor for the repair of the Improvements or for any other purpose or
object satisfactory to the Mortgagee. Mortgagor shall deliver to Mortgagee at
least thirty (30) days prior to the expiration date of any insurance coverages
required hereunder, a certificate reciting that there is in full force and
effect, with a term covering at least the next succeeding year, insurance in the
amounts and of the types required hereunder.
5. ALTERATIONS. No Improvements shall be structurally altered, removed
or demolished without the prior written consent of Mortgagee which consent shall
not be unreasonably withheld.
6. APPOINTMENT OF RECEIVER. Mortgagee in any action to foreclose this
Mortgage shall be entitled, without notice and as a matter of right and without
regard to the adequacy of any security of the indebtedness or the solvency of
Mortgagor, upon application to any court having jurisdiction, to the appointment
of a receiver of the rents, income and profits of the Mortgaged Property.
If an Event of Default (hereinbelow defined) occurs under this
Mortgage, as a matter of right and without regard to the adequacy of any
security for the Note, the Mortgagor, upon demand of the Mortgagee, shall
surrender the possession of, and it shall be lawful for Mortgagee, by such
officer or agent as it may appoint, to take possession, of all or any part of
the Mortgaged Property together with the books, papers, and accounts of the
Mortgagor pertaining thereto, and to hold, operate and manage the same, and from
time to time to make all needed repairs and improvements as Mortgagee shall deem
wise; and, if Mortgagee deems it necessary or desirable, to complete
construction and equipping of any Improvements and in the course of such
construction or equipping to make such changes to the same as it may deem
desirable; and Mortgagee may sell the Mortgaged Property or any part thereof, or
institute proceedings for the complete or partial foreclosure of the lien of
this Mortgage on the Mortgaged Property, or lease the Premises or any part
thereof in the name and for the account of the Mortgagor or Mortgagee and
collect, receive and sequester the rents, revenues, earnings, income, products
and profits therefrom, and out of the same and any other monies received
hereunder pay or provide for the payment of, all proper costs and expenses of
taking, holding, leasing, selling and managing the same, including reasonable
compensation to Mortgagee, its agents and counsel, and any charges of Mortgagee
hereunder, and any taxes and other charges prior to the lien of this Mortgage
which Mortgagee may deem it wise to pay.
<PAGE>
7. PAYMENT OF TAXES. Mortgagor will pay all taxes, assessments, sewer
rents or water rates or sums due under any payment in lieu of tax agreement
("Pilot Agreement") and in default thereof, Mortgagee may pay the same. In the
event that Mortgagee shall pay any such tax, assessment, sewer rent or water
rate, Mortgagee shall have the right, among other rights, to declare the amount
so paid with interest thereon immediately due and payable, and upon default of
Mortgagor in paying any such amount with interest thereon, Mortgagee shall have
the right to foreclose for such amount subject to the continuing lien of this
Mortgage for the balance of the mortgage indebtedness not then due.
In the event that the Mortgagor should fail to pay any sum the
Mortgagor has agreed to pay pursuant to this covenant for a period in excess of
sixty (60) days after the same is due and payable, in addition to any other
remedies available to the Mortgagee hereunder, the Mortgagee may, at its option,
require that the Mortgagor deposit with the Mortgagee, monthly, one-twelfth
(1/12th) of the annual charges for taxes and any other sums the Mortgagor is
obligated to pay pursuant to this covenant and the Mortgagor shall make such
deposits with the Mortgagee. The Mortgagor shall simultaneously therewith
deposit with the Mortgagee a sum of money which together with the monthly
installments aforementioned will be sufficient to make payment of all sums
required to be paid hereunder at least thirty (30) days prior to the due date of
such payments, it being understood that the Mortgagee shall calculate the amount
of such deposits and notify the Mortgagor of the sum due. Should an Event of
Default (hereinbelow defined) occur, the funds deposited with the Mortgagee
pursuant to this provision may be applied in payment of the charges for which
said funds shall have been deposited or to the payment of any other sums secured
by this Mortgage as the Mortgagee sees fit.
8. PAYMENT OF MORTGAGE TAXES. Mortgagor shall pay all taxes imposed
pursuant to Article 11 of the Tax Law or any other statute, order or regulation,
whether said tax is imposed at the time of recording or subsequent thereto. This
obligation shall survive the satisfaction or other termination of this Mortgage.
Mortgagee shall pay the tax imposed by Section 253 1-a(a), if applicable, if the
Mortgaged Property consists of real property principally improved or to be
improved by one or more structures containing in the aggregate not more than six
residential units, each dwelling unit having its own separate cooking
facilities.
9. STATEMENT OF AMOUNT DUE. Mortgagor, within five (5) days upon request
in person or within fifteen (15) days upon request by mail, will furnish a
written statement duly acknowledged of the amount due on this Mortgage and
whether any offsets or defenses exist against the said indebtedness.
10. NOTICES. Any notices required or permitted to be given hereunder
shall be: (i) personally delivered or (ii) forwarded by overnight courier
service, in each instance addressed to the addresses set forth at the head of
this Mortgage, or such other addresses as the parties may for themselves
designate in writing as provided herein for the purpose of receiving notices
hereunder. All notices shall be in writing and shall be deemed given, in the
case of notice by personal delivery, upon actual delivery, and in the case of
courier service, upon delivery to the courier service.
<PAGE>
11. WARRANTY OF TITLE. Mortgagor warrants the title to the Premises,
Improvements and Chattels.
12. SALE IN ONE PARCEL. In case of a sale, the Premises may be sold in
one parcel together with the Improvements and Chattels. Should the Premises
consist of more than one parcel, in the event of a foreclosure of this Mortgage
or any mortgage at any time consolidated with this Mortgage, Mortgagor agrees
that Mortgagee shall be entitled to a judgment directing the referee appointed
in the foreclosure proceeding to sell all of the parcels constituting the
Premises at one foreclosure sale, either as a group or separately and that the
Mortgagor expressly waives any right that it may now have or hereafter acquire
to (i) request or require that the parcels be sold separately or (ii) request,
if Mortgagee has elected to sell parcels separately, that there be a
determination of any deficiency amount after any such separate sale or otherwise
require a calculation of whether said parcel or parcels separately sold were
conveyed for their "fair market value".
13. NEGATIVE COVENANTS. Mortgagor will not (i) execute an assignment of
the rents, income or profits, or any part thereof from the Mortgaged Property
except to Mortgagee, or (ii) except where the tenant is in default thereunder,
terminate or consent to the cancellation or surrender of any lease of the
Premises or Improvements or of any part thereof, now existing or hereafter to be
made, having an unexpired term of two (2) years or more, except that any lease
may be canceled provided that promptly after the cancellation or surrender
thereof a new lease is entered into with a new tenant having a credit standing,
in the judgment of the Mortgagee, at least equivalent to that of the tenant
whose lease was canceled, on substantially the same terms as the terminated or
canceled lease, or modify any such lease so as to shorten the unexpired term
thereof or so as to decrease the amount of the rents payable thereunder, or
(iii) accept prepayments of any sums to become due under such leases, except
prepayments of rent for more than one (1) month in advance or prepayments in the
nature of security for the performance of the tenants thereunder, (iv) in any
other manner impair the value of the Mortgaged Property or the security of this
Mortgage or (v) further encumber, alienate, hypothecate, grant a security
interest in or grant any other interest whatsoever in the Mortgaged Property.
Restrictions (ii) and (iii) are made with reference to Section 291-f of the Real
Property Law and actions in violation of those provisions shall be voidable at
the option of the Mortgagee. No rent reserved under any lease of the Premises or
Improvements has been assigned or anticipated, and no rent for any period
subsequent to the date hereof has been collected in advance of the due date
thereof. Mortgagor will not execute any lease of all or a substantial portion of
the Premises or Improvements except for actual occupancy by the tenant
thereunder, and will at all times promptly and faithfully perform, or cause to
be performed, all of the covenants, conditions and agreements contained in all
leases of the Premises or Improvements now or hereafter existing, on the part of
the landlord thereunder to be kept and performed and will at all times do all
things necessary to compel performance by the tenant under each lease of all
obligations, covenants and agreements by such tenant to be performed thereunder.
If any of such leases provide for the giving by the tenant of certificates with
respect to the status of such leases, Mortgagor shall exercise its right to
request such certificates within five (5) days of any demand therefor by
Mortgagee. Mortgagor shall furnish to Mortgagee, upon request of Mortgagee to do
so, a written statement containing the names of all tenants of the Premises or
Improvements, the terms of their respective leases, the space occupied and the
rentals payable thereunder.
<PAGE>
14. APPRAISAL. For the purposes of this Section, the following terms
shall be defined as follows:
(a) "Appraisal" shall mean an appraisal of the fair market value
of the Mortgaged Property prepared by an Appraiser.
(b) "Appraiser" shall mean an appraiser selected by Mortgagor and
approved by Mortgagee.
Within ninety (90) days from the date Mortgagee has mailed a written
notice to Mortgagor requesting the same, Mortgagor shall provide Mortgagee, at
Mortgagor's expense, with an Appraisal of the Mortgaged Property. An Appraisal
may be required not more frequently than once every twelve (12) months except
that it may also be required prior to any extension or renewal of the Note or as
otherwise set forth in the Loan Agreement executed on even date.
15. FINANCIAL STATEMENTS. In addition to any requirements elsewhere in
the Loan Documents, Mortgagor shall provide the Mortgagee with the following
financial statements during the term hereof:
(a) Annual audited financial statements of the Mortgagor prepared
on a consolidated basis within 90 days after the end of each applicable fiscal
year by an independent CPA satisfactory to Mortgagee, in accordance with GAAP;
(b) Annual Form 10K of Mortgagor within 90 days of each fiscal
year end;
(c) Quarterly review quality consolidated financial statements
and Form 10Q within 60 days of each quarter end;
(d) Management prepared annual, within ninety (90) days of each
fiscal year end, and quarterly, within sixty (60) days of each quarter end,
consolidating financial statements;
(e) Simultaneous with the delivery of the annual and quarterly
financial statements referred to above, a certificate will be furnished to
Mortgagee by Mortgagor executed by a duly authorized officer of the Mortgagor
setting forth computations in detail reasonably satisfactory to Mortgagee
demonstrating compliance with the financial covenants set forth in that certain
Loan Agreement executed by Mortgagor and Mortgagee dated on even date herewith
and certifying that, to the best of its knowledge, no default or Event of
Default has occurred or is occurring or, in the event a default or Event of
Default has occurred or is occurring, then how same will be cured within thirty
(30) days. For purposes of the Loan covenants, all accounting terms shall be
defined according to generally accepted accounting principles (GAAP)
definitions;
(f) An annual budget for the upcoming year to include projected
Profit and Loss Statements and a Balance Sheet, such budget to be delivered with
the year-end financial statements;
(g) Such other financial documentation as Mortgagee may
reasonably require.
<PAGE>
16. BOOKS AND RECORDS.
(a) In addition to any requirements elsewhere in the Loan
Documents, Mortgagor shall keep and maintain at all times at Mortgagors'
addresses stated in this Mortgage, or such other place as Mortgagee may approve
in writing, complete and accurate books of accounts and records adequate to
reflect correctly the results of the operation of the Mortgaged Property and
copies of all written contracts, leases and other instruments which affect the
Mortgaged Property. Such books, records, contracts, leases and other instruments
shall be subject to examination and inspection at any reasonable time by
Mortgagee.
(b) Upon request of Mortgagee in writing, Mortgagor shall
promptly provide Mortgagee with all documents reasonably requested by Mortgagee
prepared in the form and manner called for in such request and as may reasonably
relate to the operation or condition thereof, or the financial condition of
Mortgagor or any party obligated on the Note, including, without limitation, all
leases or leasehold interests granted to or by Mortgagor, rent rolls and tenant
lists, rent and damage deposit ledgers, operating statements, profit and loss
statements and balance sheets, personal financial statements of Mortgagor or
income tax returns (including quarterly returns), any or all of which documents
shall be audited or certified as true and accurate by a certified public
accountant, if requested by Mortgagee, and shall cover such period or periods as
may be specified by Mortgagee.
(c) In addition, Mortgagor shall promptly furnish or cause to be
furnished to Mortgagee, to the extent any tenant prepares the same or the same
are required by any tenant's lease, annual financial statements of any tenant of
the Mortgaged Property where such tenant leases fifteen (15%) percent or more of
the gross leasable area of the Improvements, each such statement to be delivered
as soon as practicable following the end of each fiscal year of such tenant, but
in any event within one hundred twenty (120) days thereafter, and each such
statement to include balance sheets, statements of operations and statements of
changes in financial position as of the end of such year.
17. FUTURE LAWS. In the event of the passage after the date of this
Mortgage of any federal, state or municipal law, deducting from the value of
land for the purposes of taxation any lien thereon, or changing in any way, the
laws for the taxation of mortgages or debts secured by mortgages, or the manner
of collection of any such taxes, so as to affect Mortgagee, this Mortgage, or
said indebtedness, Mortgagee shall have the right to give thirty (30) days'
written notice to Mortgagor requiring the payment of said indebtedness. If such
notice be given, said indebtedness shall become due, payable and collectible at
the expiration of said thirty (30) days.
<PAGE>
18. INTENTIONALLY OMITTED.
19. PROVISIONS REGARDING USE OF MORTGAGED PROPERTY. Mortgagor warrants
and represents that:
(a) Mortgagor is not responsible for any action or omission, and
does not know of any action or omission by any prior owner, that would cause the
Mortgaged Property to be subject to forfeiture pursuant to any law, rule or
regulation (a "Forfeiture").
(b) The Mortgaged Property has not been acquired with any
proceeds from a transaction or an activity that would cause the Mortgaged
Property to be subject to Forfeiture.
Mortgagor covenants that Mortgagor will not use, and will not
permit any third party to use, the Mortgaged Property or any portion thereof or
interest therein for any purpose or activity that would cause a Forfeiture
thereof.
20. ACTIONS AND PROCEEDINGS. If any action or proceeding be commenced to
which action or proceeding Mortgagee is made a party and in which it becomes
necessary in the opinion of Mortgagee to defend or uphold the lien of this
Mortgage, all sums paid by Mortgagee for the expense of any litigation to
prosecute and defend the rights and lien created by this Mortgage, including
reasonable counsel fees, costs and allowances, shall, together with interest
thereon be a lien on the Mortgaged Property and secured by this Mortgage and
shall be collectible in like manner as said indebtedness and shall be paid by
Mortgagor on demand.
21. SECURITY INTEREST UNDER THE UNIFORM COMMERCIAL CODE. Mortgagee is
authorized to sign as the agent of Mortgagor such agreement in addition to this
Mortgage as Mortgagee at any time may deem necessary or proper or require to
grant to Mortgagee a perfected security interest in the Chattels. Mortgagor
hereby authorizes Mortgagee to file financing statements (as such term is
defined in said Uniform Commercial Code) with respect to the Chattels, at any
time, without the signature of Mortgagor. Mortgagor will, however, at any time
upon request of Mortgagee, sign such financing statements. Mortgagor will pay
all filing fees for the filing of such financing statements and for the refiling
thereof at the times required, in the opinion of Mortgagee, by said Uniform
Commercial Code. If the lien of this Mortgage be subject to any security
agreement covering the Chattels, then in the event of any default under this
Mortgage, all the right, title and interest of Mortgagor in and to any and all
of the Chattels is hereby assigned to Mortgagee, together with the benefit of
any deposits or payments now or hereafter made thereof by Mortgagor or the
predecessors or successors in title of Mortgagor in the Mortgaged Property.
<PAGE>
22. CONDEMNATION. Any and all awards heretofore and hereafter made to
Mortgagor and all subsequent owners of the Mortgaged Property by any
governmental or other lawful authorities for the taking by eminent domain of the
whole or any part of the Mortgaged Property or any easement therein, including
any awards for any changes of grade of streets, are hereby assigned to
Mortgagee, who is hereby authorized to collect and receive the proceeds of any
such awards from such authorities, to give proper receipts and acquittances
therefor and to apply the same toward the payment of the amount owing on account
of this Mortgage and said indebtedness, notwithstanding the fact that the amount
owing thereon may not then be due and payable provided, however, if such award
is less than $100,000 it shall be paid over to the Mortgagor for the repair if
any damages resulting from such taking; and Mortgagor hereby covenants and
agrees, upon request, to make, execute and deliver any and all assignments and
other instruments sufficient for the purpose of assigning the aforesaid awards
to Mortgagee free, clear and discharged of any and all encumbrances of any kind
or nature whatsoever. Mortgagor shall continue to make all payments required by
the Note until any such award shall have been actually received by Mortgagee and
any reduction in said indebtedness resulting from the application by Mortgagee
of such award shall be deemed to take effect only on the date of such receipt.
Notwithstanding the foregoing, if any one or more of the portions of the
Mortgaged Property described in subparagraphs (a), (b) and (c) below shall be
damaged or taken through condemnation, either temporarily or permanently, then
the entire balance due under the Note and any other Loan Documents shall, at the
option of Mortgagee, become immediately due and payable:
(a) Any portion or portions of the Improvements or the support or
foundation of any portion or portions of the Improvements; or
(b) Ten (10%) percent or more of any parking area; or
(c) Any portion or portions of the Premises which, when so
damaged or taken, would result either in (i) an impairment of access to the
Improvements from the publicly dedicated rights of way now adjoining the
Premises, or (ii) the failure of the Improvements to comply with any building
code, zoning or other governmental laws or regulations, lease or other agreement
to which the Mortgaged Property is subject.
Mortgagor authorizes Mortgagee, at Mortgagee's option, as attorney in
fact for Mortgagor, to commence, appear in and prosecute in Mortgagor's or
Mortgagee's name, any action or proceeding relating to any condemnation or other
taking of the Mortgaged Property and to settle or compromise any claim in
connection with such condemnation or other taking.
23. TITLE TO MORTGAGED PROPERTY. Mortgagor is now the owner of the
Mortgaged Property upon which this Mortgage is a valid third lien for the amount
above specified, with interest thereon at the rate set forth in the Note and
there are no defenses or offsets to this Mortgage or to the said indebtedness.
<PAGE>
24. LEASES OF THE MORTGAGED PROPERTY. Mortgagor will not lease all or
any portion of the Mortgaged Property or amend, modify or terminate (except to
the extent permitted under paragraph 13(ii) hereof) any now existing or future
lease of the Mortgaged Property without the prior written consent of Mortgagee.
Notwithstanding the foregoing, all leases covering more than fifteen percent
(15%) of the gross leasable area of the Mortgaged Property (if the Mortgaged
Property is improved rental property) must require the tenant thereunder to
provide Mortgagee with annual financial statements of the tenant certified to by
an independent certified public accountant. Mortgagor, at Mortgagee's request,
shall furnish Mortgagee with executed copies of all leases hereafter made of all
or any part of the Mortgaged Property, and all leases now or hereafter entered
into will be in form and substance subject to the approval of Mortgagee. Upon
Mortgagee's request, Mortgagor shall make a separate and distinct assignment to
Mortgagee, as additional security, of all leases hereafter made a part of the
Mortgaged Property.
25. TRANSFER OF MORTGAGED PROPERTY. In the event that (a) any entity
then having a lesser credit rating than Mortgagor shall acquire beneficial
ownership of a majority interest in the voting stock of Mortgagor, (b) the
Mortgagor shall merge with such an entity and shall not be the surviving
corporation, or (c) the Mortgaged Property or a part thereof, while this
Mortgage shall remain a lien thereon, shall be sold, conveyed or transferred by
deed, any other voluntary or involuntary act or by operation of law or
otherwise, the full balance of the indebtedness then remaining unpaid, with
interest, shall at the option of the Mortgagee, or its assigns, be immediately
due and payable without notice or demand unless the prior written consent of the
Mortgagee to such acquisition, merger, or sale, conveyance or transfer shall
have been obtained. A mortgage of the Mortgaged Property to any mortgagee other
than the Mortgagee shall be deemed a conveyance for the purpose of this Section.
26. ACCESS. Mortgagee, by its employees or agents, shall at all times
have the right to enter upon the Mortgaged Property during reasonable business
hours for the purpose of examining and inspecting the same.
27. REAL PROPERTY LAW. All covenants hereof, which are in addition to
those set forth in Sections 254 and 291-f of the Real Property Law, shall be
construed as affording to Mortgagee rights additional to, and not exclusive of,
the rights conferred under the provisions of said Sections 254 and 291-f.
28. PERFORMANCE OF MORTGAGOR'S COVENANTS BY MORTGAGEE. In the event of
any default in the performance of any of the covenants, terms, or provisions of
Mortgagor under this Mortgage, which default is not cured within any applicable
cure period, Mortgagee may, at the option of Mortgagee, perform the same and the
cost thereof, with interest, shall immediately be due from Mortgagor to
Mortgagee and secured by this Mortgage.
<PAGE>
29. REMEDIES NOT EXCLUSIVE. Mortgagee shall have the right from time to
time, to take action to recover any amounts of past due principal indebtedness
and interest thereon, or any installment of either, or any other sums required
to be paid under the covenants, terms and provisions of this Mortgage or the
Note, as the same become due, whether or not the principal indebtedness secured,
or any other sums secured by the Note or this Mortgage shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for default or defaults by Mortgagor existing
at the time such earlier action was commenced.
30. ADDITIONAL ACTS AND DOCUMENTS. Mortgagor covenants that it will do,
execute, acknowledge, deliver, file and/or record, or cause to be recorded every
and all such further acts, deeds, conveyances, advances, mortgages, transfers
and assurances, in law as Mortgagee shall require for the better assuring,
conveying, transferring, mortgaging, assigning and confirming unto Mortgagee all
and singular the Mortgaged Property.
31. REMEDIES CUMULATIVE. The rights and remedies herein afforded to
Mortgagee shall be cumulative and supplementary to and not exclusive of any
other rights and remedies afforded the holder of this Mortgage and the Note.
32. SUCCESSORS. All of the provisions of this Mortgage shall inure to
the benefit of Mortgagee and of any subsequent holder of this Mortgage and shall
be binding upon Mortgagor and each subsequent owner of the Mortgaged Property.
33. EFFECT OF RELEASES. Mortgagee, without notice, may release any part
of the security described herein, or any person or entity liable for any
indebtedness secured hereby without in any way affecting the lien hereof upon
any part of the security not expressly released, and may agree with any party
obligated on said indebtedness or having any interest in the security described
herein to extend the time for payment of any part or all of the indebtedness
secured hereby. Such agreement shall not in any way release or impair the lien
hereof, but shall extend the lien hereof as against the title of all parties
having any interest in said security, which interest is subject to said lien,
and no such release or agreement shall release any person or entity obligated to
pay any indebtedness secured hereby.
<PAGE>
34. WAIVERS. Any failure by Mortgagee to insist upon the strict
performance by Mortgagor of any of the covenants, terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the covenants, terms and
provisions of this Mortgage, and Mortgagee, notwithstanding any such failure,
shall have the right thereafter to insist upon the strict performance by
Mortgagor of any and all of the covenants, terms and provisions of this Mortgage
to be performed by Mortgagor. Neither Mortgagor nor any other person or entity
now or hereafter obligated for the payment of the whole or any part of said
indebtedness shall be relieved of such obligation by reason of (i) the failure
of Mortgagee to comply with any request of Mortgagor, or of any other person or
entity so obligated, (ii) the failure of Mortgagee to take action to foreclose
this Mortgage or otherwise enforce any of the covenants, terms and provisions of
this Mortgage or the Note, (iii) the release, regardless of consideration, of
the whole or any part of the security held for payment of said indebtedness or
(iv) any agreement or stipulation between any subsequent owner or owners of the
Mortgaged Property and Mortgagee modifying the covenants, terms and provisions
of this Mortgage or the Note without first having obtained the consent of
Mortgagor or such other person or entity. In the last mentioned event, Mortgagor
and all such other persons or entities shall continue liable to make such
payments according to the terms and provisions of any such agreement or
extension or modification unless expressly released and discharged in writing by
Mortgagee. Mortgagee may release, regardless of consideration, any part of the
security held for payment of said indebtedness without, as to the remainder of
the security, in any way impairing or affecting the lien of this Mortgage or the
priority of such lien over any subordinate lien. Mortgagee may resort for the
payment of said indebtedness to any other security therefor held by Mortgagee in
such order and manner as Mortgagee may elect.
35. INTEREST ON ADVANCES. Wherever, under the provisions of this
Mortgage or by law, Mortgagee is entitled to interest on advances made or
expenses incurred, such interest shall be computed at a rate per annum which
shall be the interest rate payable under the Note.
36. MORTGAGEE NOT OBLIGATED. Nothing herein contained shall be construed
as making the payment of any insurance premiums, taxes or assessments obligatory
upon Mortgagee, although Mortgagee may pay same, or as making Mortgagee liable
in any way for loss, damage or injury, resulting from the non-payment of any
such insurance premiums, taxes or assessments.
37. LIEN LAW. Mortgagor will, in compliance with Section 13 of the Lien
Law, receive the advances secured by this Mortgage and will hold the right to
receive such advances as a trust fund to be applied first for the purpose of
paying the cost of the improvement and will apply the same first to the payment
of the cost of the improvement before using any part of the total of the same
for any other purpose.
38. ENVIRONMENTAL WARRANTIES AND COVENANTS.
(a) Warranties. Mortgagor makes the following representations and
warranties: (i) Mortgagor (or the present owner of the Mortgaged Property, if
different) is in compliance in all respects with all applicable federal, state
and local laws and regulations, including, without limitation, those relating to
toxic and hazardous substances and other environmental matters (the "Laws"),
(ii) no portion of the Mortgaged Property is being used or, to the best of
Mortgagor's knowledge, has been used at any previous time, for the disposal,
storage, treatment, processing or other handling of any hazardous or toxic
substances, in a manner not in compliance with the Laws, (iii) the soil and any
surface water and ground water which are a part of the Mortgaged Property are
free from any solid wastes, toxic or hazardous substance or contaminant and any
discharge of sewage or effluent; and (iv) neither the federal government nor the
State of New York Department of Environmental Conservation or any other
governmental or quasi governmental entity has filed a lien on the Mortgaged
Property, nor are there any governmental, judicial or administrative actions
with respect to environmental matters pending, or to the best of the Mortgagor's
knowledge, threatened, which involve the Mortgaged Property.
<PAGE>
(b) Inspection. In the event Mortgagee reasonably believes that
an environmental problem may exist, Mortgagor agrees that Mortgagee or its
agents or representatives may, at any reasonable time and at Mortgagor's expense
inspect Mortgagor's books and records and inspect and conduct any tests on the
Mortgaged Property including taking soil samples in order to determine whether
Mortgagor is in continuing compliance with the Laws.
(c) Agreement to Comply. If any environmental contamination is
found on the Mortgaged Property for which any removal or remedial action is
required pursuant to Law, ordinance, order, rule, regulation or governmental
action, Mortgagor agrees that it will at its sole cost and expense, take such
removal or remedial action promptly and to Mortgagee's satisfaction.
(d) Indemnification. Mortgagor agrees to defend, indemnify and
hold harmless Mortgagee, its employees, agents, officers and directors from and
against any claims, actions, demands, penalties, fines, liabilities,
settlements, damages, costs or expenses (including, without limitation,
reasonable attorney and consultant fees, investigations and laboratory fees,
court costs and litigation expenses of whatever kind or nature known or unknown,
contingent or otherwise) arising out of or in any way related to: (i) the past
or present disposal, release or threatened release of any hazardous or toxic
substances on the Mortgaged Property; (ii) any personal injury (including
wrongful death or property damage, real or personal) arising out of or related
to such hazardous or toxic substances; (iii) any lawsuit brought or threatened,
settlement reached or government order given relating to such hazardous or toxic
substances; and/or (iv) any violation of any law, order, regulation,
requirement, or demand of any government authority, or any policies or
requirements of Mortgagee, which are based upon or in any way related to such
hazardous or toxic substances.
(e) Other Sites. Mortgagor knows of no on-site or off-site
locations where hazardous or toxic substances from the operation of any
Improvement or otherwise have been stored, treated, recycled or disposed of.
(f) Leases. Mortgagor agrees not to lease or permit the sublease
of the Mortgaged Property to a tenant or subtenant whose operations may result
in contamination of the Mortgaged Property with hazardous or toxic substances.
(g) Non-Operation by Mortgagee. Mortgagor acknowledges that any
action Mortgagee takes under this Mortgage shall be taken to protect Mortgagee's
security interest only; Mortgagee does not hereby intend to be involved in the
operations of the Mortgagor.
(h) Compliance Determinations. Mortgagor acknowledges that any
determinations Mortgagee makes under this Section regarding compliance with
environmental laws shall be made for Mortgagee's benefit only and are not
intended to be relied upon by any other party.
(i) Survival of Conditions. The provisions of this Section shall
be in addition to any other obligations and liabilities Mortgagor may have to
Mortgagee at common law, and shall survive the transactions contemplated herein.
<PAGE>
(j) Other Insurance. Mortgagor shall carry adequate insurance to
fulfill Mortgagor's obligations under this Section if required by law.
(k) Definitions. The term "hazardous substance" shall include,
without limit, any substance or material defined in 42 U.S.C. Section 9601 (as
the same may be amended from time to time), the Hazardous Materials
Transportation Act (as amended from to time), and the New York Environmental
Conservation Law or the Resource Conservation And Recovery Act (as each may be
amended from time to time) and in any regulations adopted or publications
promulgated pursuant to any of the foregoing.
39 EVENTS OF DEFAULT. The whole of the principal sum of the indebtedness
secured hereby and interest thereon, and all other sums due and payable
hereunder shall become due, at the option of Mortgagee, if one or more of the
following events (an "Event of Default") shall happen:
(a) The occurrence of an "Event of Default" under the Note; or
(b) If Mortgagor defaults in the payment of any tax, water rate
or sewer rent or payment under any Pilot Agreement against the Mortgaged
Property for thirty (30) days after the same become due and payable or fails to
exhibit to Mortgagee, within thirty (30) days after demand, receipts showing
payment of all taxes, water rates or sewer rents; or
(c) The actual or threatened removal, demolition or structural
alteration, in whole or in part, of any Improvement, without the prior written
consent of Mortgagee; or the removal, demolition or destruction in whole or in
part, of any Chattels without replacing the same with Chattels at least equal in
quality and condition to those replaced, free from any security interest or
other encumbrance thereon and free from any reservation of title thereto; or the
commission of any waste in respect to the Mortgaged Property; or
(d) Failure of Mortgagor to pay within thirty (30) days after
notice and demand any installment of any assessment made against the Premises
for local improvements, heretofore or hereafter made, which assessment is, or
may become, a lien on the Premises prior to the lien of this Mortgage,
notwithstanding the fact that such installment be not due and payable at the
time of such notice and demand; or
(e) Failure of Mortgagor to pay the said indebtedness secured by
this Mortgage within (30) days after notice and demand, in the event of the
passage after the date of this Mortgage of any federal, state or municipal law
deducting from the value of land for the purpose of taxation any lien thereon,
or changing in any way the laws now in force for the taxation of mortgages, or
of debts secured by mortgages, or the manner of collection of any such taxes, so
as to affect Mortgagee, this Mortgage or the indebtedness which is secured,
notwithstanding that Mortgagor, before or after such notice, may have the option
to pay or contest the payment of such tax; or
<PAGE>
(f) Failure of Mortgagor to maintain the Improvements on the
Premises in a rentable or tenantable state of repair to the satisfaction of
Mortgagee, for thirty (30) days after notice of such failure has been given to
Mortgagor, or to comply with any order or requirement of any municipal, state,
federal or other governmental authority having jurisdiction of the Premises
within thirty (30) days after such order or requirement shall have been issued
by any such authority; or failure of Mortgagor or of any tenant holding under
Mortgagor, to comply with any and all and singular the statutes, requirements,
orders or decrees of any federal, state or municipal authority relating to the
use of the Mortgaged Property, or of any part thereof; or failure of Mortgagor
to observe and timely perform all of the covenants, terms and provisions
contained in any lease now or hereafter affecting the Premises or the
Improvements or any portion thereof, on the part of the landlord to be observed
and performed; or
(g) Failure of Mortgagor, in the event of the entry of a final
judgment for the payment of money against Mortgagor, to discharge such judgment
or to have it stayed pending appeal within thirty (30) days from the entry
thereof, or if such judgment shall be affirmed on appeal, the failure to
discharge such judgment within thirty (30) days from the entry of such
affirmance; or
(h) Failure of Mortgagor to pay within thirty (30) days after
notice and demand any filing or refiling fees required hereunder; or
(i) Failure of Mortgagor or any occupant of the Mortgaged
Property, to allow or permit Mortgagee, or its duly authorized agent, to inspect
said Mortgaged Property at any time and from time to time during reasonable
business hours; or
(j) Default for thirty (30) days after notice and demand in the
observance or performance of any other covenant or agreement under this
Mortgage; or
(k) Failure of Mortgagor to deliver executed lien waivers from
all parties who supplied labor and materials for the improvements at the
Mortgaged Property within one hundred twenty (120) days of the date hereof.
40 INTEREST TO ACCRUE. If the whole of the principal sum evidenced by
the Note and interest, shall become due by exercise of the option of the
Mortgagee after default by the Mortgagor under any of the terms, covenants and
conditions of this Mortgage and/or the Note, or if the whole of said principal
sum and interest shall mature and become due under the terms, covenants and
conditions of this Mortgage and the Note regardless of default, if any, on the
part of the Mortgagor, then interest on said principal sum shall continue to
accrue at the rate provided for in the Note, and in this Mortgage, until said
principal sum is fully paid.
<PAGE>
41 FLOOD INSURANCE. In addition to the terms and provisions of this
Mortgage with regard to insurance, in the event the Premises are determined to
be in a special flood hazard area as determined by any governmental agency,
Mortgagor further covenants and agrees to fully insure the Premises and
Improvements against loss or damage by flood, with coverage as is therein
provided for by fire and other specified perils to the same extent and effect as
if such flood insurance was therein specifically set forth.
42 COSTS, EXPENSES AND ATTORNEY'S FEES. Should one or more Events of
Default occur hereunder, and should an action be commenced for the foreclosure
of this Mortgage, Mortgagee shall be entitled to recover all sums due hereunder,
statutory costs, and any additional allowances made pursuant to Section 8303(a)
of the Civil Practice Law and Rules of the State of New York, and in addition
thereto, reasonable attorneys' fees in such proceeding and in all proceedings
related thereto necessary to and related to the foreclosing proceeding, and such
amount shall be added to the principal balance and interest then due and shall
be a lien on the Mortgaged Property prior to any right or title to, interest in
or claim upon the Mortgaged Property attaching and accruing subsequent to the
lien of this Mortgage, and shall be deemed to be secured by this Mortgage and
the indebtedness which it secures.
43 INTERVENING LIENS. Should any agreement be hereafter entered into
modifying or changing the terms of this Mortgage or the Note secured hereby in
any manner, the rights of the parties to such agreement shall be superior to the
rights of the holder of any intervening lien.
44 TERMS. It is understood and agreed that the words, "Mortgagor" and
"Mortgagee" herein shall include the respective heirs, successors and assigns of
Mortgagor and Mortgagee.
45 ENTIRE AGREEMENT. This Mortgage and the other Loan Documents
constitute the entire understanding between Mortgagor and Mortgagee as to the
loan evidenced by the Note and to the extent that any writings not signed by
Mortgagee or oral statements or conversations at any time made or had shall be
inconsistent with the provisions of this Mortgage and the other Loan Documents,
the same shall be null and void.
46 GOVERNING LAW; SEVERABILITY. This Mortgage shall be governed by the
law of the jurisdiction in which the Mortgaged Property is located. In the event
that any provision or clause of this Mortgage or the Note conflicts with
applicable law, such conflict shall not affect other provisions of this Mortgage
or the Note which can be given effect without the conflicting provision, and to
this end, the provisions of this Mortgage and the Note are declared to be
severable.
47 TIME OF THE ESSENCE. Time is of the essence with respect to each and
every covenant, agreement and obligation of Mortgagor under this Mortgage, the
Note and any and all other Loan Documents.
48 INDEMNIFICATION; SUBROGATION; WAIVER OF OFFSET.
<PAGE>
(a) Mortgagor shall indemnify, defend and hold Mortgagee harmless
against: (i) any and all claims for brokerage, leasing, finders or similar fees
which may be made relating to the Mortgaged Property or the loan which is the
subject of the Note, and (ii) against any and all liability, obligations,
losses, damages, penalties, claims, actions, suits, costs, and expenses
(including its reasonable attorneys' fees, together with reasonable appellate
counsel fees, if any) of whatever kind or nature which may be imposed on or
incurred by Mortgagee at any time pursuant either to a judgment or decree or
other order entered into by a court or administrative agency or to a settlement
reasonably approved by Mortgagor, which judgment, decree, order or settlement
relates in any way to or arises out of the offer, sale or lease of the Mortgaged
Property and/or the ownership, use, occupation or operation of any portion of
the Mortgaged Property.
(b) If Mortgagee is made a party defendant to any litigation
concerning the loan which is the subject of the Note, this Mortgage, the
Mortgaged Property, or any part thereof, or any interest therein, or the
occupancy thereof, then Mortgagor shall indemnify, defend and hold Mortgagee
harmless from all liability by reason of said litigation, including reasonable
attorneys' fees (together with reasonable appellate counsel fees, if any) and
expenses incurred by Mortgagee in any such litigation, whether or not any such
litigation is prosecuted to judgment. If Mortgagee commences an action against
Mortgagor to enforce any of the terms hereof or to prosecute any breach by
Mortgagor of any of the terms hereof or to recover any sum secured hereby,
Mortgagor shall pay to Mortgagee such reasonable attorneys' fees (together with
reasonable appellate counsel fees, if any) and expenses. The right to such
attorneys fees (together with reasonable appellate counsel fees, if any) and
expenses shall be deemed to have accrued on the commencement of such action, and
shall be enforceable whether or not such action is prosecuted to judgment. If
Mortgagor breaches any term of this Mortgage, Mortgagee may employ an attorney
or attorneys to protect its rights hereunder, and in the event of such
employment following any breach by Mortgagor, Mortgagor shall pay Mortgagee
reasonable attorneys' fees (together with reasonable appellate counsel fees, if
any) and expenses incurred by Mortgagee, whether or not an action is actually
commenced against Mortgagor by reason of such breach.
(c) A waiver of subrogation shall be obtained by Mortgagor from
its property insurance carrier and, consequently, Mortgagor waives any and all
right to claim or recover against Mortgagee, its officers, employees, agents and
representatives, for loss of or damage to Mortgagor, the Mortgaged Property,
Mortgagor's property or the property of others under Mortgagor's control from
any cause insured against or required to be insured against by the provisions of
this Mortgage.
<PAGE>
(d) All sums payable by Mortgagor hereunder shall be paid without
notice (except as may otherwise be provided herein), demand, counterclaim,
set-off, deduction or defense and without abatement, suspension, deferment,
diminution or reduction, and the obligations and liabilities of Mortgagor
hereunder shall in no way be released, discharged or otherwise affected by
reason of: (i) any damage to or destruction of or any condemnation or similar
taking of the Mortgaged Property or any part thereof; (ii) any restriction or
prevention of or interference with any use of the Mortgaged Property or any part
thereof; (iii) any title defect or encumbrance or any eviction from the Premises
or the Improvements or any part thereof by title superior or otherwise; (iv) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation, or other like proceeding relating to Mortgagee, or any action taken
with respect to this Mortgage by any trustee or receiver of Mortgagee, or by any
court, in such proceeding; (v) any claim which Mortgagor has, or might have,
against Mortgagee; (vi) any default or failure on the part of Mortgagee to
perform or comply with any of the terms hereof or of any other agreement with
Mortgagor; or (vii) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing, whether or not Mortgagor shall have notice or
knowledge of any of the foregoing. Mortgagor waives all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension, deferment,
diminution, or reduction of any sum secured hereby and payable by Mortgagor.
49 WAIVER OF JURY TRIAL. The Mortgagor and the Mortgagee hereby waive
trial by jury in any litigation in any court with respect to, in connection
with, or arising out of this Mortgage or any other Loan Document, or any
instrument or document delivered in connection with the loan which is the
subject of the Note, or the validity, protection, interpretation, collection or
enforcement thereof, or the relationship between Mortgagor and Mortgagee as
borrower and lender, or any other claim or dispute howsoever arising between the
Mortgagor and Mortgagee.
50 TAX LAW SECTION 253 STATEMENT. Check one box only.
-----------------------------
[ ] This Mortgage covers real property principally improved or to
be improved by one or more structures containing in the aggregate
not more than six residential dwelling units, each having their
own separate cooking facilities.
[ X ] This Mortgage does not cover real property improved as described
above.
Where used herein, the word, "Mortgagor" may be read "Mortgagors" where
applicable.
51. PRIOR MORTGAGES. This mortgage is subordinate to the following
mortgages:
a) Mortgage made by Mortgagor to Mortgagee in the original
principal amount of $2,512,000 dated January 29, 1998 and
recorded February 11, 1998 in Liber 19299 Page 73 in the
Suffolk County Clerk's Office.
b) Mortgage made by Mortgagor to Mortgagee in the original
principal amount of $388,000 dated January 29, 1998 and
recorded February 11, 1998 in Liber 19299 Page 74 in the
Suffolk County Clerk's Office.
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed by Mortgagor.
VICON INDUSTRIES, INC.
By:___________________________
John Badke, Vice President-Finance
STATE OF NEW YORK )
) SS.:
COUNTY OF SUFFOLK )
On the 12th day of October, 1999, before me, the undersigned,
personally appeared JOHN BADKE, personally known to me or proved to me on the
basis of satisfactory evidence to be the individual whose name is subscribed to
the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
NOTARY
1999
INCENTIVE STOCK OPTION PLAN
of
VICON INDUSTRIES, INC.
1. Purpose of the Plan
This Incentive Stock Option Plan (hereinafter called the "Plan"), is
intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter
called the "Company"), by officers and other employees of the Company, and its
subsidiaries, and to provide additional incentive for them to promote the
success of the business.
2. Stock Subject to the Plan
Subject to the provisions of Paragraph "6", the total number of shares
of stock which may be optioned under the Plan is 100,000 shares of Common Stock
(par value of $.01 per share) of the Company, which shall be either authorized
and unissued stock or reacquired stock.
3. Administration of the Plan
The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee") who may, from time to time,
amend and rescind rules and regulations for carrying out the provisions and
purposes of the Plan. All awards of options by the Committee are subject to
approval by the Board of Directors. the interpretation, construction and
application of the Plan and any provision thereof made by the Committee shall be
final and conclusive. No director shall be liable for any action taken or
determination made in good faith. The Committee shall consist of at least three
members of the Board of Directors. All of whom shall be non-employee directors.
The members of the Committee shall be designated by two-thirds vote of the
entire Board of Directors of the Company and shall serve for a term of one year
and thereafter until their successors are designated.
4. Participants
Participants will be selected by the Committee, in its sole discretion,
from among the officers and other employees of the Company, and its
subsidiaries, including subsidiaries which become such after adoption of the
Plan, to accomplish the purposes of this Plan.
<PAGE>
5. Award of Incentive Stock Options
The Committee may, from time to time and subject to the provisions of
the Plan and such other terms and conditions as the Committee may prescribe,
grant to any participant in the Plan one or more stock options (intended to
qualify as incentive stock options under the provisions of section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") to purchase for cash or
shares the number of shares of Common Stock allotted by the Committee. The date
an option is granted shall mean the dated selected by the Committee as of which
the Committee allots a specific number of shares to a participant pursuant to
the Plan.
6. Changes to Capital Structure
In the event that the outstanding shares of common stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation, by reason or reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or
dividend payable in capital stock, appropriate adjustment shall be made by the
Board of Directors in the number and kind of shares as to which outstanding
options, or portions thereof then unexercised, shall be exercisable to the end
that the optionee's proportionate interest shall be maintained as before the
occurrence of such events; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of the
option and with a corresponding adjustment of the option price per share;
provided, however, that each such adjustment in the number and kind of shares
subject to outstanding options, including any adjustment in the option price,
shall be made in such manner as not to constitute a "modification" as defined in
Section 424 of the Code. Any such adjustment made by the Board of Directors
shall be conclusive.
7. Terms and Conditions of Options
The grant of an option shall be evidenced by a written Incentive Stock
Option Agreement, executed by the Company and the holder of an option (the
"optionee"), stating the number of shares of Common Stock subject to the option
evidenced thereby, and in such form as the Committee may from time to time
determine.
a) Option Price - The option price per share of Common Stock deliverable
upon the exercise of an option shall be 100% of the fair market value of a share
of Common Stock on the date the option is granted; however, an optionee who is
the record and beneficial owner of more than 10% of the Company's issued and
outstanding common stock shall be awarded options at a price equivalent to 110%
of the fair market value at the date of grant.
b) Method of Exercise - Stock purchased under the options shall, at the
time of purchase, be paid for in full. To the extent that the right to purchase
shares has accrued thereunder, options may be exercised from time to time by
<PAGE>
written notice by the optionee to the Company stating the number of shares with
respect to which the option is being exercised, and the time of the delivery
thereof, which time shall be at least 15 days after the giving of such notice
unless an earlier date shall have been mutually agreed upon. At the time
specified in such notice, the Company shall deliver, without transfer or issue
tax to the optionee (or other person entitled to exercise the option), at the
main office of the Company, or such other places as shall be mutually
acceptable, a certificate or certificates for such shares or reacquired shares
of its Common Stock, as the Company may elect, against payment of the option
price in full for the number of shares to be delivered by (i) certified check or
the equivalent thereof acceptable to the Company; or (ii) the delivery to the
Company of issued and outstanding Common Stock of Vicon Industries, Inc. which
has been owned by the optionee for at least six month, the total fair market
value of which on such delivery date is equal to the total exercise price of
options being exercised; provided, however, that the time of such delivery may
be postponed by the Company for such period as may be required for it with
reasonable diligence to comply with any applicable listing requirements of any
national securities exchange, if the stock is so listed. If the optionee (or
other person entitled to exercise the option) fails to accept delivery of and
pay for all or any part of the number of shares specified in such notice upon
termination of delivery thereof, his right to exercise the option with respect
to such undelivered shares may be terminated by the Option Committee of the
Board of Directors without any formal notice to the optionee. Anything herein to
the contrary notwithstanding, if any law or any regulation of the Securities and
Exchange Commission or of any other body having jurisdiction shall require the
Company or a participant to take any action in connection with the shares
specified in a notice of election before such shares can be delivered to such
participant, then the date stated therein for the delivery of the shares shall
be postponed until the fifth business day next following the completion of such
action.
c) Option Term - No option will be exercisable prior to the date of
shareholder approval of the plan, or any time after expiration of six years from
the date the option is granted (the "Grant Date").
d) Maximum Amount of Incentive Stock Option Grant - The aggregate fair market
value (determined on the date the option is granted) of Common Stock subject to
an incentive stock option granted to an optionee (pursuant to any plan) by the
Committee and exercisable for the first time in any calendar year shall not
exceed $100,000.
e) Exercise of Options - As to any option issued under the Plan: it may be
exercised up to 30% of the total number of shares covered thereby after two
years from the date of grant, it may be exercised up to an additional 30% of the
total number of shares covered thereby after three years from date of grant; and
the remaining 40% after four years from the date of grant, and thereafter, the
option may be exercised at any time from time to time within its terms, in whole
or in part, but it shall not be exercisable after the expiration of six years
from the Grant Date. Notwithstanding the foregoing, all options granted under
this Plan may be exercised in the entirety should a "Change in Control" occur. A
"Change in Control" shall be deemed to have occurred if
<PAGE>
(i) any other entity shall directly or indirectly acquire a beneficial
ownership of 20%, or any further amount in excess of 20%, of the outstanding
shares of capital stock of the Company or (ii) a majority of the members of the
Board of Directors of the Company or any successor or merger or assignment of
assets or otherwise, shall be persons other than Directors on the date this Plan
became effective (April 22, 1999).
f) Non-Assignability of Option Rights - No option shall be assignable
or transferable by the optionee except by will or the by laws or descent and
distribution. During the life of an optionee, the option shall be exercisable
only the optionee.
g) Effect of Termination of Employment or Death - In the event an
optionee ceases to be an employee of the Company for any reason other than
retirement or death, any exercisable portion of any option as of the date such
optionee ceased to perform services to the Company must be exercised within
three months after the date on which the optionee ceases to perform services. In
the event of the retirement of an optionee, any option or unexercised portion
thereof granted to him shall be exercisable within not more than three months
from the date on which the optionee retires. In the event of the death of an
optionee while such optionee is an employee of the Company, or any subsidiary of
the Company, or within three months from the date of such optionee's retirement,
the option or unexercised portion thereof granted to such optionee may be
exercised by such optionee's personal representative, or a person who acquired
the right to exercise such option by bequest or inheritance at any time prior to
the expiration of one year from the date of death of the optionee. The foregoing
provisions with respect to retirement or death of any optionee shall, in no
event, be deemed to extend the date of expiration of the term provided in any
option held by any such optionee.
h) Restriction on Issuance of Shares - On the date stated in the notice
of election for the payment and delivery of the shares specified in such notice,
the participant shall certify to the Company in such form as it shall require
that such participant will receive and hold such shares for investment and not
with a view to resale or distribution thereof to the public, unless the issuance
of such shares shall have been registered under the Securities Act of 1933, as
amended, and the Rules and Regulations promulgated thereunder, or counsel to the
Company shall have advised the Company that for any other reason such
certification is unnecessary.
i) Rights as a Stockholder - The optionee shall have no rights as a
Stockholder with respect to any shares covered by such optionee's option until
the date of issuance of a stock certificate to such optionee for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
j) Successive Options - Options may be exercised in any order.
<PAGE>
k) Termination of Options Upon Consent - The Option Committee may
terminate any outstanding option with the consent of the holder thereof.
8. Effective Date and Term of Plan
a) The Plan, which was adopted by the Board of Directors on December 10,
1998, is subject to the condition that the Stockholders approve the Plan prior
to July 1, 1999. The Plan shall become effective upon adoption by the Company's
Board of Directors.
b) The Plan shall terminate on December 9, 2008, provided, however, that
the Plan and all awards made under the Plan prior to such date shall remain in
effect until such awards have been satisfied or terminated in accordance with
the Plan and the terms of such awards.
9. Definitions
In this Plan the following definitions shall apply:
a) "subsidiary" means any corporation or which, at any applicable
time, more than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by Vicon Industries, Inc., or any
subsidiary thereof.
c) "fair market value" as of any date and in respect of any share
of Common Stock means the closing price on such date or on the next business
day, if such date is not a business day, of a share of Common Stock
reflected in the consolidated trading tables of The Wall Street Journal
(presently the AMEX-Composite Transactions) or any other publication selected by
the Committee, provided that, if shares of Common Stock shall not have been
traded on the American Stock Exchange for more than 10 days immediately
preceding such date or if deemed appropriate by the Committee for any other
reason, the fair market value of shares of Common Stock shall be as determined
by the Committee in such other manner as it may deem appropriate. In no event
shall the fair market value of any share of Common Stock be less than its par
value.
10. Amendment of Plan
The Board of Directors may at any time amend the Plan, provided that
without approval of Stockholders there shall be, except by operation of the
provisions of paragraph "6" above, no increase in the total number of shares
covered by the Plan; there shall be no change in the class of persons eligible
to receive options granted under the Plan; there shall be no change in the
limitations on the option price; and there shall be no extension of the latest
date upon which options may be exercised. Neither the Board of Directors nor the
Stockholders by amendment to this Plan can affect options granted and
outstanding under any prior stock option plan of the Company or its
subsidiaries.
<PAGE>
11. Use of Proceeds
The proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
12. Governing Law
Options granted under this Plan shall be construed and shall take effect in
accordance with the laws of the State of New York.
13. Liquidation
Upon the complete liquidation of the Company, any unexercised options
heretofore granted under this Plan shall be deemed canceled. In the event of the
complete liquidation of any employer corporation (other than the Company)
employing the participant or in event such corporation ceases to be an employer
corporation, any unexercised part of any option granted hereunder shall be
deemed canceled unless the participant shall become employed by another employer
corporation (including the Company) concurrently with such event.
1999
NON-QUALIFIED STOCK OPTION PLAN
of
VICON INDUSTRIES, INC.
1. Purpose of the Plan
The Non-Qualified Stock Option Plan (hereinafter called the "Plan"), is
intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter
called the "Company"), by directors, officers and other key employees of the
Company, and its subsidiaries, and to provide additional incentive for them to
promote the success of the business.
2. Stock Subject to the Plan
Subject to the provisions of Paragraph "6", the total number of shares of
stock which may be optioned under the Plan is 100,000 shares of Common Stock
(par value of $.01 per share) of the Company, which shall be either authorized
and unissued stock or reacquired stock.
3. Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company (the "Committee") who may, from time to time, with
the approval of the Board of Directors, amend and rescind rules and regulations
for carrying out the provisions and purposes of the Plan. The interpretation,
construction and application of the Plan and any provision thereof made by the
Board shall be final and conclusive. No director shall be liable for any action
taken or determination made in good faith. The Committee shall consist of at
least three members of the Board of Directors, all of whom shall be non-employee
directors. The members of the Committee shall be designated by two-thirds vote
of the entire Board of Directors of the Company and shall serve for a term of
one year and thereafter until their successors are designated.
4. Participants
Participants will be recommended by the Committee, in its sole discretion,
from among the directors, officers and other key employees of the Company to
accomplish the purposes of this Plan.
<PAGE>
5. Award of Non-Qualified Stock Options
The Committee may, in its discretion, recommend options to be granted under
this Plan from time to time, prior to the expiration date of the Plan. A
majority of the Board of Directors shall be required to approve the grant of any
options under this Plan. The shares related to the unexercised portions of any
terminated or expired options shall be deemed not to have been optioned shares
for the purposes of Paragraph "2" and may again be subjected to option grant
under the Plan.
6. Changes to Capital Structure
In the event that the outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason or reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or
dividend payable in capital stock, appropriate adjustment shall be made by the
Board of Directors in the number and kind of shares for the purchase of which
options shall be granted under the Plan. In addition, the Board of Directors
shall make appropriate adjustment in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be exercisable
to the end that the optionee's proportionate interest shall be maintained as
before the occurrence of such events; such adjustment in outstanding options
shall be made without change in the total price applicable to the unexercised
portion of the option and with a corresponding adjustment of the option price
per share; provided, however, that each such adjustment in the number and kind
of shares subject to outstanding options, including any adjustment in the option
price, shall be made in such manner as not to constitute a "modification" as
defined in Section 424 of the Internal Revenue Code of 1986, as amended. Any
such adjustment made by the Board of Directors shall be conclusive.
7. Terms and Conditions of Options
Options shall be evidenced by written Stock-Option Agreements in such form
not inconsistent with the Plan as the Committee shall from time to time
determine, provided that the substance of the following be included therein:
a) Option Price - The option price shall not be less than 100% of the fair
market value on the date the option is granted, which shall be the date on which
the Board of Directors approved the award of any Option. An optionee, however,
who is the record and beneficial owner of more than 10% of the Company's common
stock shall be awarded options at a price equivalent to 110% of the fair market
value at the date of grant.
<PAGE>
b) Method of Exercise - Stock purchased under the options shall, at the
time of purchase, be paid for in full. To the extent that the right to purchase
shares has accrued thereunder, options may be exercised from time to time by
written notice by the optionee to the Company stating the number of shares with
respect to which the option is being exercised, and the time of the delivery
thereof, which time shall be at least 15 days after the giving of such notice
unless an earlier date shall have been mutually agreed upon. At the time
specified in such notice, the Company shall deliver, without transfer or issue
tax to the optionee (or other person entitled to exercise the option), at the
main office of the Company, or such other places as shall be mutually
acceptable, a certificate or certificates for such shares or reacquired shares
of its Common Stock, as the Company may elect, against payment of the option
price in full for the number of shares to be delivered by (i) certified check or
the equivalent thereof acceptable to the Company; or (ii) the delivery to the
Company of issued and outstanding Common Stock of Vicon Industries, Inc. which
has been owned by the optionee for at least six months, the total fair market
value of which on such delivery date is equal to the total exercise price of
options being exercised; provided, however, that the time of such delivery may
be postponed by the Company for such period as may be required for it with
reasonable diligence to comply with any applicable listing requirements of any
national securities exchange, if the stock is so listed. If the optionee (or
other person entitled to exercise the option) fails to accept delivery of and
pay for all or any part of the number of shares specified in such notice upon
tender of delivery thereof, his/her right to exercise the option with respect to
such undelivered shares may be terminated by the Committee without any formal
notice to the optionee. Anything herein to the contrary notwithstanding, if any
law or any regulation of the Securities and Exchange Commission or of any other
body having jurisdiction shall require the Company or a participant to take any
action in connection with the shares specified in a notice of election before
such shares can be delivered to such participant, then the date stated therein
for the delivery of the shares shall be postponed until the fifth business day
next following the completion of such action.
c) Option Term - No option will be exercisable after expiration of six
years from the date the option is granted or the date of shareholder approval of
the Plan, whichever date is later (the "Grant Date").
d) Exercise of Options - As to any option issued under the Plan to
non-employee directors, at all times after the first anniversary of the Grant
Date, the option may be exercised at any time from time to time within its
terms, in whole or in part but it shall not be exercisable after the expiration
of six years from the Grant Date. As to any option issued under the Plan to
officers and other key employees, it may be exercised up to 30% of the total
number of shares covered thereby after two years from the date of grant, it may
be exercised up to an additional 30% of the total number of shares covered
thereby after three years from date of grant; and the remaining 40% after four
years from the date of grant, and thereafter, the option may be exercised at any
time from time to time within its terms, in whole or in part, but it shall not
be exercisable after the expiration of six years from the Grant Date.
<PAGE>
Notwithstanding the foregoing, all options granted under this Plan may be
exercised in their entirety should a "Change in Control" occur. A "Change in
Control" shall be deemed to have occurred if any other entity shall directly or
indirectly acquire a beneficial ownership of 20%, or any further amount in
excess of 20%, of the outstanding shares of capital stock of the Company.
e) Non-Assignability of Option Rights - No option shall be assignable or
transferable by the optionee except by will or by the laws of descent and
distribution. During the life of an optionee, the option shall be exercisable
only the optionee.
f) Effect of Termination of Employment or Death - In the event an optionee
ceases to be a director or an employee of the Company for any reason other than
retirement, disability or death, any unexercisable portion of any option granted
to such optionee as of the date such optionee ceases to perform services to the
Company must be exercised within three months after the date on which the
optionee ceases to perform services. In the event of the retirement or
disability of an optionee, any option or unexercised portion thereof granted to
him shall be exercisable within not more than three months from the date on
which the optionee retires or ceases to provide services to the Company. In the
event of the death of an optionee while such optionee is a director or employee
of the Company or within three months from the date of such optionee's
retirement, the option or unexercised portion thereof granted to such optionee
may be exercised by such optionee's personal representative, or a person who
acquired the right to exercise such option by bequest or inheritance at any time
prior to the expiration of one year from the date of death of the optionee. The
foregoing provisions with respect to retirement, disability, or death of any
optionee shall, in no event, be deemed to extend the date of expiration of the
term provided in any option held by any such optionee.
g) Restriction on Issuance of Shares - On the date stated in the notice of
election for the payment and delivery of the shares specified in such notice,
the participant shall certify to the Company in such form as it shall require
that such participant will receive and hold such shares for investment and not
with a view to resale or distribution thereof to the public, unless the issuance
of such shares shall have been registered under the Securities Act of 1933, as
amended, and the Rules and Regulations promulgated thereunder, or counsel to the
Company shall have advised the Company that for any other reason such
certification is unnecessary.
h) Rights as a Stockholder - The optionee shall have no rights as a
Stockholder with respect to any shares covered by such optionee's option until
the date of issuance of a stock certificate to such optionee for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
<PAGE>
i) Successive Options - Options may be exercised in any order.
j) Termination of Options Upon Consent - The Option Committee may terminate
any outstanding option with the consent of the holder thereof.
8. Effective Date and Term of Plan
The Plan, which was adopted by the Board of Directors on December 10, 1998,
is subject to the condition that the Stockholders approve the Plan prior to July
1, 1999. The Plan shall become effective upon adoption by the Company's Board of
Directors. The Plan shall terminate on December 9, 2008. The Board of Directors
may terminate this Plan at any time. Termination of the Plan will not affect the
rights and obligations. Theretofore granted, and then in effect, if the
Stockholders shall have approved the Plan prior to termination.
9. Definitions
In this plan the following definitions shall apply:
a) "Subsidiary" means any corporation or which, at any applicable time,
more than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by Vicon Industries, Inc., or any
subsidiary thereof.
b) "Fair Market Value" as of any date and in respect of any share of Common
Stock means the closing price on such date or on the next business day, if such
date is not a business day, of a share of Common Stock reflected in the
consolidated trading tables of The Wall Street Journal (Presently the
AMEX-Composite Transactions) or any other publication selected by the Committee,
provided that, if shares of Common Stock shall not have been traded on the
American Stock Exchange for more than 10 days immediately preceding such date or
if deemed appropriate. In no event shall the fair market value of any share of
Common Stock be less than its par value.
10. Amendment of Plan
The Board of Directors may at any time amend the Plan, provided that
without approval of Stockholders there shall be, except by operation of the
provisions of Paragraph "6" above, no increase in the total number of shares
covered by the Plan; there shall be no change in the class of persons eligible
to receive options granted under the Plan; there shall be no change in the
limitations on the option price; and there shall be no extension of the latest
date upon which options may be exercised. Neither the Board of Directors nor the
Stockholders by amendment to this Plan can affect options granted before such
amendment or any unexercised portion thereof. The adoption of this Plan shall
not be deemed to affect the terms and conditions of any unexercised portion of
options granted and outstanding under any prior stock option plan of the Company
or its subsidiaries.
11. Use of Proceeds
The proceeds from the sale of stock pursuant to option granted under the
Plan shall constitute general funds of the Company.
12. Governing Law
Options granted under this Plan shall be construed and shall take effect in
accordance with the laws of the State of New York.
13. Liquidation
Upon the complete liquidation of the Company, any unexercised options
heretofore granted under this Plan shall be deemed canceled. In the event of the
complete liquidation of any employer corporation (other than the Company)
employing the participant or in event such corporation ceases to be an employer
corporation, any unexercised part of any option granted hereunder shall be
deemed canceled unless the participant shall become employed by another employer
corporation (including the Company) concurrently with such event.
EXHIBIT 24
KPMG 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 November 30, 1999 relating to
the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of
September 30, 1999 and 1998 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, 1999, which report
appears in the September 30, 1999 annual report on Form 10-K of Vicon
Industries, Inc.
KPMG LLP
Melville, New York
December 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 1,998,767 1,998,767
<SECURITIES> 0 0
<RECEIVABLES> 16,524,184 16,524,184
<ALLOWANCES> (818,266) (818,266)
<INVENTORY> 21,328,543 21,328,543
<CURRENT-ASSETS> 39,033,228 39,033,228
<PP&E> 17,352,728 17,352,728
<DEPRECIATION> (6,486,937) (6,486,937)
<TOTAL-ASSETS> 49,899,019 49,899,019
<CURRENT-LIABILITIES> 9,984,574 9,984,574
<BONDS> 7,166,094 7,166,094
0 0
0 0
<COMMON> 46,547 46,547
<OTHER-SE> 32,701,804 32,701,804
<TOTAL-LIABILITY-AND-EQUITY> 49,899,019 49,899,019
<SALES> 19,292,612 73,414,046
<TOTAL-REVENUES> 0 0
<CGS> 12,711,735 48,714,749
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 4,563,295 16,566,645
<LOSS-PROVISION> 60,000 240,000
<INTEREST-EXPENSE> 128,080 450,823
<INCOME-PRETAX> 1,829,502 7,441,829
<INCOME-TAX> 636,628 2,681,628
<INCOME-CONTINUING> 1,192,874 4,760,201
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,192,874 4,760,201
<EPS-BASIC> .26 1.05
<EPS-DILUTED> .25 1.01
</TABLE>
