-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UBPQHpMaZ7SfWo5s0qdi9bWiYwQ7Rbak+u6T0lgJrGREeh47uz4hVLeaguFL3qkJ kVB5AbYOQ6UNhZLcuRGGgA== 0000310056-00-000009.txt : 20001228 0000310056-00-000009.hdr.sgml : 20001228 ACCESSION NUMBER: 0000310056-00-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICON INDUSTRIES INC /NY/ CENTRAL INDEX KEY: 0000310056 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 112160665 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07939 FILM NUMBER: 796379 BUSINESS ADDRESS: STREET 1: 89 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5169522288 MAIL ADDRESS: STREET 1: 89 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-K 1 0001.txt VICON ANNUAL REPORT 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, 2000 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: (631) 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, 2000 was approximately $8,700,000. The number of shares outstanding of the registrant's Common Stock as of December 15, 2000 was 4,646,081. PART I ITEM 1 - BUSINESS General Vicon Industries, Inc. ("the Company"), incorporated in 1967, designs, manufactures, assembles and markets a wide range of video systems and system components used for security, surveillance, safety and control purposes by a broad group of end users. A video system is generally a private network 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 video systems and components that it sells worldwide, primarily to installing dealers, system integrators, government entities and distributors. The Company operates within the electronic protection segment of the security industry that includes, among others: fire and burglar alarm systems, access control, video systems 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, video systems, 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, managing personal liability, 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, among others, office buildings, manufacturing plants, apartment complexes, 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 700 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 continues to 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 in 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. - 2 - 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 matrix switching system. Marketing The Company's marketing emphasizes engineered video system solutions which incorporate system design, project management and technical training and support. The Company promotes and markets its products through industry trade shows worldwide, product brochures and catalogues, direct mailings to existing and prospective customers, product videos, website promotions, 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 inside customer service representatives. The Company's sales effort is supported by in-house customer service coordinators 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 2000 and 1999, indirect sales to the United States Postal Service under a national supply contract approximated $23 million in each year. The Company's principal sales offices are located in Hauppauge, New York; Fareham, England; Zaventem, Belgium; New Territories, Hong Kong; and Shanghai, China. International Sales The Company sells its products in Europe and the Middle East through its U.K. based subsidiary, in China through its Hong Kong subsidiary and elsewhere outside the U.S. by direct export from its U.S. based parent company. 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 - Direct export sales and sales from the Company's foreign subsidiaries amounted to $19.6 million, $15.4 million and $19.0 million or 26%, 21% and 30% of consolidated net sales in fiscal years 2000, 1999, and 1998, 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 82 percent of international sales in fiscal 2000. 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 video systems 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 system components. 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 video systems and system components. In recent years, the trend of product development and demand within the video security and surveillance market has been toward the application of digital video technology, specifically toward the compression, transmission, storage and display of digital video. 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. During the past year, the Company substantially increased its product development expenditures to meet the accelerating market shift to network capable video systems. R&D projects are chosen and prioritized based on direct customer feedback, the Company's analysis as to the needs of the marketplace, anticipated technological advances and market research. The Company employs a total of 43 engineers in the following areas: software development, mechanical design, manufacturing/testing and electrical and circuit design. R&D expenditures increased to 5% of net sales in fiscal 2000 compared with approximately 4% in prior years. - 4 - Source and Availability of Raw Materials The Company relies upon independent manufacturers and suppliers to manufacture and assemble its proprietary products and expects to continue to rely on such entities in the future. The Company's relationships with independent 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 the limited number of its patents or its lack of 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 maintains sufficient finished goods inventory levels to respond to unanticipated customer demand, since most sales are to installing dealers and contractors who normally do not carry any significant inventory. 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 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 - Backlog The backlog of orders believed to be firm as of September 30, 2000 and 1999 was approximately $8.4 million and $11.3 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, 2000, the Company employed 261 full-time employees, of whom 5 are officers, 60 administrative, 122 in sales and technical service capacities, 43 in engineering, and 31 production employees. At September 30, 1999, the Company employed 252 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 principally operates from an 80,000 square-foot facility located at 89 Arkay Drive, Hauppauge, New York, which it owns. The Company also owns and operates a 14,000 square-foot sales, service and warehouse facility in southern England which services the U.K., Europe and the Middle East. In addition, the Company operates under leases with offices in Zaventem, Belgium; 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 - 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 2000 December 7-1/2 5 March 6-5/8 3-7/16 June 4-3/8 3 September 4 3-1/16 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 The last sale price of the Company's Common Stock on December 15, 2000 as reported on AMEX was $1-7/8 per share. As of December 15, 2000, 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 - ITEM 6 - SELECTED FINANCIAL DATA FISCAL YEAR 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (in thousands, except per share data) Net sales $74,624 $73,414 $63,310 $51,519 $43,191 Gross profit 23,054 25,779 21,960 14,475 10,957 Income before income taxes 1,589 7,442 5,810 1,647 385 Net income 961 4,760 5,810 1,565 300 Earnings per share: Basic .21 1.05 1.61 .56 .11 Diluted .21 1.01 1.50 .52 .11 Total assets 53,918 49,899 44,386 31,200 28,085 Long-term debt 7,090 5,799 7,002 8,344 6,429 Working capital 33,365 29,049 27,642 15,351 12,064 Property, plant and equipment (net) 8,502 8,053 7,137 3,492 3,034 - 8 - ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal Year 2000 Compared with 1999 Net sales for 2000 increased $1.2 million or 2% to $74.6 million compared with $73.4 million in 1999. International sales increased $4.2 million or 27% to $19.6 million primarily as a result of increased sales efforts within new international markets. Domestic sales decreased $3.0 million or 5% to $55 million principally as a result of a decrease in large system sales. Indirect sales to the United States Postal Service under a national supply contract approximated $23 million in both 2000 and 1999. The contract was due to expire in July 2000 and was extended to December 31, 2000. The backlog of unfilled orders was $8.4 million at September 30, 2000 compared with $11.3 million at September 30, 1999. Gross profit margins for 2000 decreased to 30.9% compared with 35.1% in 1999. The margin decline was primarily the result of lower selling prices and a warranty charge of $1.3 million resulting from a technical problem associated with a new product line. Operating expenses for 2000 were $21.1 million or 28.2% of net sales compared with $17.9 million or 24.4% of net sales in 1999. The increase in operating expenses was principally the result of additional sales, sales support and product development personnel and related expenses. Operating income decreased to $2.0 million for 2000 compared with $7.9 million for 1999 principally as a result of a decrease in gross profit and increased operating expenses. Interest expense increased $224,000 to $816,000 for 2000 compared with $592,000 in 1999 principally as a result of an increase in bank borrowings to, among other things, finance the increase in accounts receivable. In the fourth quarter of fiscal 2000, the Company realized a $316,000 gain on the sale of certain of its stock holdings in Chun Shin Electronics, Inc. (CSE), a South Korean public company and manufacturer of certain of the Company's proprietary products. CSE completed an initial public offering in South Korea in July 2000. Income tax expense for 2000 was $628,000 compared with $2.7 million in 1999. As a result of the foregoing, net income amounted to $961,000 for 2000 compared with $4.8 million for 1999. - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS 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 35.1% compared with 34.7% 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 $17.9 million or 24.4% of net sales compared with $15.1 million or 23.8% 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. - 10 - MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND FINANCIAL CONDITION Net cash used in operating activities was $106,000 for 2000 due primarily to a $3.7 million increase in accounts receivable, offset in part by a $2.5 million decrease in inventories and net income of $961,000. The accounts receivable increase was due principally to slow collections on sales to U.S. Postal Service contractors. Net cash used in investing activities was $1.3 million for 2000 due primarily to the expenditure of $1.6 million for expansion of the Company's principal operating facility and other general capital expenditures. Net cash provided by financing activities was $1.3 million in 2000, which included $1.5 million of borrowings under the Company's U.S. revolving credit facility and $1.2 million of proceeds from a mortgage loan used to finance the facility expansion, offset in part by scheduled repayments of U.S. bank term and mortgage loans. As a result of the foregoing, cash increased by $116,000 for 2000 after the effect of exchange rate changes on the cash position of the Company. The Company has a $9.5 million unsecured revolving credit facility in the U.S. with a bank that expires in July 2002. 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 (7.50% and 7.52%, respectively, at September 30, 2000). At September 30, 2000, outstanding borrowings under this facility were $1.5 million. The agreement contains restrictive covenants which, among other things, require the Company to maintain certain levels of earnings and ratios of debt service coverage and debt to tangible net worth. The Company also maintains a bank overdraft facility of 600,000 Pounds Sterling (approximately $876,000) in the U.K. to support local working capital requirements of Vicon Industries Limited. At September 30, 2000, outstanding borrowings under this facility amounted to approximately $129,000. 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 (7.90% and 7.62%, respectively, at September 30, 2000) and contains the same covenants as included in the Company's 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. - 11 - New Accounting Standard Not Yet Adopted The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS 137 and SFAS 138, which will be adopted by the Company in the first quarter of fiscal 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. The Company's derivative financial instruments consist of foreign currency forward exchange contracts and interest rate swap agreements. Implementation of this statement is not expected to have a material impact on 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 7% and 9% of product purchases in fiscal 2000 and 1999, respectively. In recent years, the U.S. dollar has 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 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 or Euros. In fiscal 2000, approximately $5.6 million of products were sold by the Company to its U.K. based subsidiary for resale. Since the third quarter of fiscal 2000, the Pound and the Euro have significantly weakened against the U.S. dollar, thus increasing the cost of U.S. sourced product sold by this subsidiary. The Company attempts to minimize its currency exposure on intercompany sales through the purchase of forward exchange contracts. 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. - 12 - 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", Note 1 "Derivative Instruments" and "Fair Value of Financial Instruments" to the accompanying financial statements). At September 30, 2000, the Company's foreign currency exchange risks included a $2.1 million intercompany accounts receivable balance due from the Company's U.K. based subsidiary and a nominal Japanese Yen denominated trade accounts payable liability due to inventory suppliers. Such assets and liabilities are short term and will be settled in fiscal 2001. 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, 2000, a 10% strengthening or weakening of the U.S. dollar versus the British Pound would result in a $177,000 decrease or increase, respectively, in the intercompany accounts receivable balance. Such foreign currency exchange risk at September 30, 2000 has been substantially hedged by forward exchange contracts. At September 30, 2000, the Company had $5.2 million of outstanding floating rate bank debt which was covered by interest rate swap agreements that 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. However, the Company had a total of $2.8 million of floating rate bank debt, including $1.5 million of outstanding borrowings under its bank revolving credit facility and a $1.1 million mortgage loan that are subject to interest rate risk as they were not covered by interest rate swap agreements. 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 - "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 "Results of Operations" and "Liquidity and Financial Condition" 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 - 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 54 Chairman of the Board, President and Chief Executive Officer Henry B. Murray 51 Executive Vice President John M. Badke 41 Vice President, Finance and Chief Financial Officer Peter A. Horn 45 Vice President, Operations Yacov A. Pshtissky 49 Vice President, Technology and Development Chu S. Chun 65 Director Milton F. Gidge 71 Director Peter F. Neumann 66 Director W. Gregory Robertson 56 Director Arthur D. Roche 62 Director Kazuyoshi Sudo 58 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. Henry B. Murray - Executive Vice President. Mr. Murray joined the Company in March 2000 as Executive Vice President. From 1999 to 2000, he served as Vice President of Ultrak, Inc., where he was responsible for CCTV and access control sales in North and South America. From 1997 to 1999, he was the Chief Executive Officer of Monitor Dynamics, Inc., an access control company. From 1993 to 1997, he served as Vice President of Control Systems International (CSI), a supplier and manufacturer of electronic control systems. 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. - 15 - 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 casualty insurance company, and a director of Intervest Bancshares Corporation, a regional bank holding company 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 2003. 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. 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 2003. 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. - 16 - 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, 2000 and certain written representations, no person, who, at any time during the year ended September 30, 2000 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, 2000. - 17 - 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 2000, 1999 and 1998 by the Chief Executive Officer and the Company's most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 during any such year. SUMMARY COMPENSATION TABLE
Long-Term Compensation Awards ----------------------- Payouts Annual Compensation Restricted Securities Name and All Other Stock Underlying LTIP Principal Position Year Salary ($) Bonus ($) Compensation Award Options (#) Payouts - ------------------ ---- ---------- ---------- ------------ ---------- ------------ ------- Kenneth M. Darby 2000 $285,000 $ 42,271 (1) $ 3,000 (6) $ 50,813 (7) - - Chief Executive 1999 275,000 261,690 (4) 3,000 (6) 111,814 (7) - - Officer 1998 225,000 297,525 (5) 3,000 (6) 344,640 (7) - - Henry B. Murray 2000 $100,000 $ 40,000 (2) - - - - Executive 1999 - - - - - - Vice President 1998 - - - - - - Arthur D. Roche 2000 $ 29,769 $ 5,058 (3) - - - - Executive 1999 180,000 140,910 (4) - - - - Vice President 1998 170,000 160,206 (5) - - - - (1) Represents cash bonus based on certain performance measures, including the Company's profitability, which was adopted by the Board of Directors upon the recommendation of its Compensation Committee. (2) Represents minimum guaranteed bonus for fiscal 2000. (3) Represents cash bonus equal to 1.75% of the sum of consolidated pre-tax income and provision for officers' bonuses pro-rated for the two-month period of employment as Executive Vice President. Such bonus formula was adopted for 2000 by the Board of Directors upon the recommendation of its Compensation Committee. (4) 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. (5) 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 1998 by the Board of Directors upon the recommendation of its Compensation Committee. (6) Represents life insurance policy payment. (7) Represents deferred compensation benefit of 8,130, 16,565 and 45,952 shares of Common Stock awarded in 2000, 1999 and 1998, respectively, which are being held by the Company in Treasury and which vest 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, 2000, the quoted market value of such shares approximated $26,000, $54,000 and $149,000, respectively, for the 2000, 1999 and 1998 awards. No dividends can be paid on such shares.
- 18 - Stock Options - ------------- OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Individual Grants Value at Assumed ------------------------------------------------ Annual Rates of Stock % of Total Price Appreciation No. of Granted to Exercise for Option Term --------------------- - Options Employees in Price Expiration Name Granted Fiscal Year Per Share Date 5% 10% - ------------- ------- ------------- ---------- ----------- -------- --------- Kenneth M. Darby 21,539 17% 3.1800 5/06 $23,300 $ 53,000 Henry B. Murray 50,000 39% 3.9375 3/06 $67,000 $151,900
Options granted in the year ended September 30, 2000 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, 2000 ----------------------------- Number of Securities Value of Underlying Unexercised Unexercised In-the-money Options Options (2) ------------- ------------- Shares Acquired Value Exercisable/ Exercisable/ Name On Exercise Realized (1) Unexercisable Unexercisable Kenneth M. Darby -0- -0- -0-/21,539 -0-/$1,508 Henry B. Murray -0- -0- -0-/50,000 -0-/-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 ($3.25) and the exercise price. - 19 - 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 a cash bonus based on certain performance measures, including the Company's profitability, which was adopted by the Board of Directors upon the recommendation of its Compensation Committee. Directors' Compensation and Term - -------------------------------- Non-employee directors are compensated at an annual rate of $10,000 for regular meetings, and for committee membership, receive $750 per meeting attended in person. Employee directors are not compensated for Board or committee meetings. Directors may not stand for reelection after age 70, except that any director may serve one additional three-year term after age 70 with the unanimous consent of the Board of Directors. - 20 - Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- The Compensation Committee of the Board of Directors consists of Messrs. Gidge, Neumann, Robertson and Roche none of whom has ever been an officer of the Company except for Mr. Roche, who served as Executive Vice President from August 1993 until his retirement in November 1999. Board Compensation Committee Report ----------------------------------- The Compensation Committee's compensation policies applicable to the Company's officers for 2000 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 security 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 and strategic initiatives. 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 - This graph compares the return of $100 invested in the Company's stock on October 1, 1995, with the return on the same investment in the AMEX U.S. Market Index and the AMEX Technology Index. (The following table was represented by a chart in the printed material) Vicon AMEX U.S. Amex Technology Date Industries, Inc. Market Index Index - ---- ---------------- ------------ --------------- 10/01/95 100 100 100 10/01/96 133 102 91 10/01/97 447 128 100 10/01/98 380 120 121 10/01/99 373 155 206 10/01/00 173 191 241 - 22 - 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, 2000 and the shares beneficially owned by the Company's Executive Officers and Directors and by all Executive Officers and Directors as a group. Name and Address Number of Shares of Beneficial Owner Beneficially Owned (1) % of Class ------------------- ---------------------- ---------- CBC Co., Ltd. and affiliates 2-15-13 Tsukishima Chuo-ku Tokyo, Japan 104 543,715 11.4% Dimensional Fund Advisors 1299 Ocean Avenue Santa Monica, CA 90401 326,800 (8) 6.9% ****************************************************************************** C/O Vicon Industries, Inc. Kenneth M. Darby 250,092 5.3% Chu S. Chun 204,507 (2) 4.3% Arthur D. Roche 144,654 (3) 3.0% W. Gregory Robertson 19,025 (4) * Kazuyoshi Sudo 16,125 (5) * Milton F. Gidge 16,825 (5) * Peter F. Neumann 15,125 (6) * Total all Executive Officers and Directors as a group (8 persons) 666,353 (7) 14.0% * Less than 1%. (1) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment control over the shares of stock owned. (2) Mr. Chun has voting and dispositive control 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 50,000 shares held by Mr. Roche's wife and 15,000 shares held by their children. (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 6,250 shares. (7) Includes currently exercisable options to purchase 32,625 shares. (8) Dimensional Fund Advisors had voting and investment control over 326,800 shares as investment advisor and manager for various mutual funds and other clients. These shares are beneficially owned by such mutual funds or other clients. - 23 - 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-one 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. In past years, CBC 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 fiscal 2000, the Company purchased approximately $4.4 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. Sales of all products to CBC were $303,000 in 2000. 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 South Korean public company that manufactures certain of the Company's proprietary products. CSE also sells various security products, including the Company's products, principally within the South Korean market. Mr. Chun is the President and a principal stockholder of CSE. As of September 30, 2000, the Company owned 19% of CSE's shares. In 2000, CSE sold approximately $5.0 million of products to the Company through International Industries, Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun. I.I.I. arranges the importation of all the Company's product purchases from CSE. In addition, I.I.I. purchased approximately $663,000 of products directly from the Company during 2000 for resale to CSE. - - 24 - 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, 2000, 1999, and 1998 Consolidated Balance Sheets at September 30, 2000 and 1999 Consolidated Statements of Shareholders' Equity, fiscal years ended September 30, 2000, 1999, and 1998 Consolidated Statements of Cash Flows, fiscal years ended September 30, 2000, 1999, and 1998 Notes to Consolidated Financial Statements, fiscal years ended September 30, 2000, 1999, and 1998 (a) (2) Financial Statement Schedule ---------------------------- Included in Part IV, Item 14: Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 2000, 1999, and 1998 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 - 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 Incorporated by reference October 1, 1999 between the to the 1999 Annual Report Registrant and Kenneth M. Darby on Form 10-K (.2) Employment Contract dated March 13, 2000 between Registrant and Henry B. Murray 10.2 (.3) Employment Agreement dated October Incorporated by reference 1, 1999 between Registrant and to the 1999 Annual Report Peter Horn on Form 10-K (.4) Employment Agreement dated October Incorporated by reference 1, 1999 between Registrant and to the 1999 Annual Report Yacov Pshtissky on Form 10-K (.5) Deferred Compensation Agreement Incorporated by reference dated November 1, 1986 between the to the 1992 Annual Report Registrant and Donald N. Horn on Form 10-K (.6) 1994 Incentive Stock Option Plan Incorporated by reference to the 1994 Annual Report on Form 10-K (.7) 1994 Non-Qualified Stock Option Incorporated by Plan for Outside Directors reference to the 1994 Annual Report on Form 10-K (.8) 1996 Incentive Stock Option Plan Incorporated by reference to the 1997 Annual Report on Form 10-K - 26 - Exhibit Number or Exhibit Incorporation by Numbers Description Reference to - ------- ----------- ---------------- (.9) 1996 Non-Qualified Stock Option Incorporated by Plan for Outside Directors reference to the 1997 Annual Report on Form 10-K (.10) 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 (.11) Loan Agreement between the Incorporated by Registrant and The Dime Savings reference to the Bank of New York, FSB dated December 31, 1997 January 29, 1998 filing on Form 10-Q (.12) Mortgage Note between the Incorporated by Registrant and The Dime Savings reference to the Bank of New York, FSB dated December 31, 1997 January 29, 1998 filing on Form 10-Q (.13) Term Loan Note between the Incorporated by Registrant and The Dime Savings reference to the Bank of New York, FSB dated December 31, 1997 January 29, 1998 filing on Form 10-Q (.14) Mortgage and Security Agreement Incorporated by in the amount of $2,512,000 between reference to the the Registrant and The Dime Savings December 31, 1997 Bank of New York, FSB dated filing on Form 10-Q January 29, 1998 (.15) Mortgage and Security Agreement Incorporated by in the amount of $388,000 between reference to the the Registrant and The Dime Savings December 31, 1997 Bank of New York, FSB dated filing on Form 10-Q January 29, 1998 (.16) 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 (.17) 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 - 27 - Exhibit Number or Exhibit Incorporation by Numbers Description Reference to (.18) 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 (.19) 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 (.20) Advice of borrowing terms Incorporated by between the Registrant and reference to the National Westminster Bank PLC June 30, 2000 filing dated March 13, 2000 on Form 10-Q (.21) Credit Agreement between the Incorporated by Registrant and The Dime Savings reference to the Bank of New York, FSB dated June 30, 1998 filing July 20, 1998 on Form 10-Q (.22) 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 (.23) Stock purchase agreement between Incorporated by reference the Registrant and Isaac Gershoni to the 1999 Annual Report dated August 12, 1999 on Form 10-K (.24) Escrow agreement among the Incorporated by reference Registrant, Isaac Gershoni and to the 1999 Annual Report European American Bank dated on Form 10-K August 12, 1999 (.25) Loan Agreement between the Incorporated by reference Registrant and The Dime Savings to the 1999 Annual Report Bank of New York, FSB dated on Form 10-K October 12, 1999 (.26) Mortgage Note between the Incorporated by reference Registrant and The Dime Savings to the 1999 Annual Report Bank of New York, FSB dated on Form 10-K October 12, 1999 - 28 - Exhibit Number or Exhibit Incorporation by Numbers Description Reference to - ------- ----------- ---------------- (.27) Mortgage and Security Agreement Incorporated by reference in the amount of $1,200,000 between to the 1999 Annual Report the Registrant and The Dime Savings on Form 10-K Bank of New York, FSB dated October 12, 1999 (.28) 1999 Incentive Stock Option Plan Incorporated by reference to the 1999 Annual Report on Form 10-K (.29) 1999 Non-Qualified Stock Option Incorporated by reference to the 1999 Annual Report on Form 10-K 22 Subsidiaries of the Registrant Incorporated by reference to the Notes to the Consolidated Financial Statements 24 Independent Auditors' Consent 24 No other exhibits are required to be filed. 14(b) - REPORTS ON FORM 8-K - --------------------------- No reports on Form 8-K were required to be filed during the last quarter of the period covered by this report. 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 - 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 22, 2000 - 30 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended September 30, 2000, 1999 and 1998 2000 1999 1998 ---- ---- ---- Net sales $74,624,065 $73,414,046 $63,310,466 Cost of sales 51,570,001 47,634,962 41,350,084 ------------ ------------ ------------ Gross profit 23,054,064 25,779,084 21,960,382 Operating expenses: Selling expense 13,117,039 11,159,633 8,955,704 General and administrative expense 4,190,856 3,966,892 3,644,018 Engineering and development expense 3,753,653 2,759,907 2,491,673 ------------ ------------ ------------- 21,061,548 17,886,432 15,091,395 ------------ ------------ ------------ Operating income 1,992,516 7,892,652 6,868,987 Interest expense 816,017 591,826 1,107,196 Gain on sale of securities (315,955) - - Other income (96,751) (141,003) (48,190) ------------ ------------ ------------ Income before income taxes 1,589,205 7,441,829 5,809,981 Income tax expense 628,000 2,681,628 - ------------ ------------ ------------ Net income $ 961,205 $ 4,760,201 $ 5,809,981 ============ ============ ============ Earnings per share: Basic $ .21 $1.05 $1.61 ===== ===== ====== Diluted $ .21 $1.01 $1.50 ===== ===== ===== See accompanying notes to consolidated financial statements. - 31 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2000 and 1999 ASSETS 2000 1999 - ------ ---- ---- Current Assets: Cash $ 2,115,118 $1,998,767 Marketable securities 2,775,196 - Accounts receivable (less allowance of $1,063,000 in 2000 and $818,000 in 1999) 17,101,618 13,771,411 Inventories: Parts, components, and materials 3,011,071 2,647,781 Work-in-process 3,285,213 5,298,862 Finished products 12,364,719 13,381,900 ----------- ----------- 18,661,003 21,328,543 Deferred income taxes 955,003 1,303,791 Prepaid expenses 896,923 630,716 ----------- ----------- Total current assets 42,504,861 39,033,228 Property, plant and equipment: Land 1,160,098 1,195,248 Buildings and improvements 5,380,387 5,156,490 Machinery, equipment, and vehicles 9,256,266 8,188,688 ----------- ----------- 15,796,751 14,540,426 Less accumulated depreciation and amortization 7,295,079 6,486,937 ----------- ----------- 8,501,672 8,053,489 Goodwill, net of accumulated amortization 1,639,678 1,768,056 Deferred income taxes 805,087 264,218 Other assets 466,590 780,028 ----------- ----------- $53,917,888 $49,899,019 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Borrowings under revolving credit agreement $ 129,424 $ 374,806 Current maturities of long-term debt 1,311,386 1,212,316 Accounts payable 2,939,936 4,022,892 Accrued compensation and employee benefits 1,895,766 2,233,441 Accrued expenses 1,713,316 1,749,395 Unearned service revenue 835,045 224,711 Income taxes payable 315,481 167,013 ----------- ----------- Total current liabilities 9,140,354 9,984,574 Long-term debt 7,090,253 5,798,641 Unearned service revenue 2,011,123 639,169 Other long-term liabilities 677,775 728,284 Commitments and contingencies - Note 11 Shareholders' equity Common stock, par value $.01 per share authorized - 10,000,000 shares issued 4,710,635 and 4,654,760 shares 47,106 46,547 Capital in excess of par value 21,444,638 21,343,676 Retained earnings 12,812,294 11,851,089 ----------- ----------- 34,304,038 33,241,312 Treasury stock at cost, 85,561 shares in 2000 and 74,948 shares in 1999 (555,097) (508,745) Accumulated other comprehensive income 1,249,442 15,784 ----------- ------------ Total shareholders' equity 34,998,383 32,748,351 ----------- ----------- $53,917,888 $49,899,019 =========== =========== See accompanying notes to consolidated financial statements - 32 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Fiscal Years Ended September 30, 2000, 1999, and 1998
Accumulated Total Capital in other share- Common excess of Retained Treasury comprehensive holders' Shares Stock par value earnings Stock income equity ------ ------- ----------- ---------- --------- ------------ --------- 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 Comprehensive income: Net income - - - 961,205 - - 961,205 Foreign currency translation adjustment - - - - - (321,304) (321,304) Unrealized gain on securities - - - - - 1,554,962 1,554,962 Total comprehensive income - - - - - - 2,194,863 Exercise of stock options 55,875 559 100,962 - (46,352) - 55,169 --------- ------- ----------- ----------- ---------- ---------- ----------- Balance September 30, 2000 4,710,635 $47,106 $21,444,638 $12,812,294 $ (555,097) $1,249,442 $34,998,383 ========= ======= =========== =========== ========== ========== ===========
See accompanying notes to consolidated financial statements. - 33 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income $ 961,205 $ 4,760,201 $5,809,981 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,019,441 877,698 782,960 Goodwill amortization 200,659 36,279 5,389 Deferred income taxes (1,145,081) (371,300) (1,196,709) Gain on sale of securities (315,955) - - Change in assets and liabilities: Accounts receivable (3,667,310) (403,392) (3,187,475) Inventories 2,495,615 (3,668,388) (382,087) Prepaid expenses (283,892) (301,590) (10,068) Other assets (57,594) (108,383) 228,772 Accounts payable (1,060,362) 399,202 (403,060) Accrued compensation and employee benefits (324,918) 166,317 842,476 Accrued expenses (6,536) 414,896 188,370 Unearned service revenue 1,982,288 863,880 - Income taxes payable 147,195 (482,201) 450,979 Other liabilities (50,509) 60,976 179,256 ----------- ----------- ----------- Net cash (used in) provided by operating activities (105,754) 2,244,195 3,308,784 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (1,640,802) (1,747,030) (4,231,674) Proceeds from sale of securities 347,473 - - Acquisition, net of cash acquired - (2,064,857) (158,925) ----------- ----------- ----------- Net cash used in investing activities (1,293,329) (3,811,887) (4,390,599) ----------- ----------- ----------- Cash flows from financing activities: Repayments of U.S. term loan (900,000) (900,000) - Proceeds from exercise of stock options 75,518 172,179 143,227 Increase (decrease) in borrowings under short-term revolving credit agreement (216,072) (238,003) 443,596 Repayments of long-term debt (342,274) (275,016) (310,692) Borrowings under term loans - - 4,500,000 Borrowings under mortgage loans 1,200,000 - 2,900,000 Repayments of term loan to related party - - (1,800,000) Net proceeds from sale of common stock - - 10,800,916 Increase (decrease) in borrowings under U.S. bank credit agreement 1,500,000 - (6,003,416) Decrease in interest-bearing accounts payable to related party - - (5,031,919) ----------- ----------- ----------- Net cash provided by (used in) financing activities 1,317,172 (1,240,840) 5,641,712 ----------- ----------- ----------- Effect of exchange rate changes on cash 198,262 (47,258) 7,080 ----------- ----------- ----------- Net increase (decrease) in cash 116,351 (2,855,790) 4,566,977 Cash at beginning of year 1,998,767 4,854,557 287,580 ----------- ----------- ---------- Cash at end of year $ 2,115,118 $ 1,998,767 $ 4,854,557 =========== =========== =========== Cash paid during the fiscal year for: Income taxes $ 1,673,100 $ 3,517,498 $64,523 Interest $ 717,355 $ 608,673 $ 1,265,243
See accompanying notes to consolidated financial statements. - 34 - VICON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years ended September 30, 2000, 1999, and 1998 NOTE 1. Summary of Significant Accounting Policies Nature of Operations - -------------------- The Company designs, manufactures, assembles and markets video systems and system components 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 - 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 $242,327 and $41,668 at September 30, 2000 and 1999, respectively. Research and Development - ------------------------ Product research and development costs are principally charged to expense as incurred, and amounted to approximately $3,800,000, $2,800,000 and $2,500,000 in fiscal 2000, 1999, and 1998, 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 cumulative translation adjustment of $(306,000) and $16,000 at September 30, 2000 and 1999, respectively, is recorded as a component of shareholders' equity in accumulated other comprehensive income. 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 to 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 when incurred. - 36 - The Company entered into interest rate swap agreements with its bank to effectively convert certain of 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 $5.2 million at September 30, 2000. Gains and losses on these contracts are recorded in interest expense when incurred. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS 137 and SFAS 138, which will be adopted by the Company in the first quarter of fiscal 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. Implementation of this statement is not expected to have a material impact on the Company's financial position or results of operations. 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 trade accounts and other receivables, accounts payable and accrued expenses approximate fair value because of the short-term maturity of these instruments. The carrying amounts of the Company's long-term debt approximate fair value. The aggregate fair market value of the Company's interest rate swap agreements exceeded their carrying amounts by approximately $60,000 at September 30, 2000. This value represents the estimated amount the Company would receive if such agreements were terminated before maturity, principally resulting from market interest rate increases. 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, 2000 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). Marketable Securities - --------------------- Marketable securities at September 30, 2000 consist of an equity investment in Chun Shin Electronics, Inc. (see Note 3), which is classified as available-for-sale under SFAS No. 115 and recorded at fair value. Unrealized market value gains and losses on these securities, net of the related tax effect, are excluded from earnings and reported as a component of shareholders' equity in accumulated other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. - 37 - Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification - ---------------- Certain prior year amounts have been reclassified to conform to current year presentation. NOTE 2. Business Acquisition 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. NOTE 3. Marketable Securities At September 30, 2000, the Company had a 19% ownership interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products. In July 2000, CSE completed an initial public offering of approximately 1.4 million shares of its stock in South Korea, at which time the Company's ownership interest was reduced to approximately 21% from 34% at September 30, 1999. At September 30, 2000, the Company recorded an unrealized gain on these securities of $2.5 million ($1.6 million net of tax effect) based upon a $2.8 million fair market value and $267,000 cost basis. Realized gains from the sale of these securities were $316,000 in fiscal 2000. Prior to CSE's public offering, the Company recognized this investment on the cost method of accounting. - 38 - 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. 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 ($876,000) and is secured by all the assets of the subsidiary. Maximum borrowings during 2000, 1999 and 1998 amounted to approximately $1,018,000, $852,000 and $676,000, respectively. The weighted-average interest rate on borrowings during these years was 7.81% in 2000, 7.80% in 1999 and 9.33% in 1998. NOTE 6. Income Taxes The components of income tax expense for the fiscal years indicated are as follows: 2000 1999 1998 ---- ---- ---- Federal $ 368,000 $ 2,392,000 $ (515,000) State 40,000 200,000 380,000 Foreign 220,000 90,000 135,000 ------------- ----------- ------------ $ 628,000 $ 2,682,000 $ - ============= =========== ============ A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate follows: 2000 1999 1998 ---- ---- ---- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- U.S. statutory tax $ 540,000 34.0% $2,530,000 34.0% $1,975,000 34.0% Change in valuation allowance - - - - (2,560,000) (44.0) State tax, net of federal benefit 26,000 1.6 132,000 1.8 251,000 4.3 Goodwill amortization 68,000 4.3 12,000 0.1 2,000 0.0 Other (6,000) (0.4) 8,000 0.1 332,000 5.7 ----------- ------ ---------- ------ ---------- ------ Effective Tax Rate $ 628,000 39.5% $2,682,000 36.0% $ - - % =========== ====== ========== ====== ========= ======
- 39 - The tax effects of temporary differences that give rise to deferred tax assets and liabilities at September 30, 2000 and 1999 are presented below: 2000 1999 ---- ---- Deferred tax assets: Inventory reserves $1,499,000 $1,009,000 Deferred compensation accruals 156,000 179,000 Allowance for doubtful accounts receivable 339,000 256,000 Unearned service revenue 639,000 128,000 Other 150,000 88,000 ---------- ---------- Total deferred tax assets 2,783,000 1,660,000 Deferred tax liabilities: Unrealized gain on securities 953,000 - Cash surrender value of officers' life insurance 30,000 46,000 Other 40,000 46,000 ---------- ----------- Total deferred tax liabilities 1,023,000 92,000 ---------- ----------- Net deferred tax assets and liabilities $1,760,000 $ 1,568,000 ---------- ------------ 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 $1,079,000 $7,385,000 and $5,462,000 in fiscal years 2000, 1999 and 1998, respectively. Pretax foreign income amounted to approximately $510,000, $57,000 and $348,000 in fiscal years 2000, 1999 and 1998, respectively. NOTE 7. Long-Term Debt Long-term debt is comprised of the following at September 30, 2000 and 1999: 2000 1999 ---- ---- U.S. bank credit agreement $1,500,000 $ - U.S. bank term loan 2,625,000 3,525,000 U.S. bank mortgage loans 3,650,128 2,679,000 U.K. bank term loan 480,582 625,626 Other 145,929 181,331 ---------- ----------- 8,401,639 7,010,957 Less installments due within one year 1,311,386 1,212,316 ---------- ---------- $7,090,253 $5,798,641 ========== ========== In July 1998, the Company entered into a $14 million unsecured revolving credit and term loan agreement with a bank that includes a $9.5 million revolving credit facility which expires in July 2002. Borrowings under this facility bear interest at the bank's prime rate minus 2% (7.50% and 6.25% at September 30, 2000 and 1999, respectively) or, at the Company's option, LIBOR plus 90 basis points (7.52% and 6.30% at September 30, 2000 and 1999, respectively). At September 30, 2000, outstanding borrowings under this facility were $1.5 million. At September 30, 1999, there were no outstanding borrowings under this facility. - 40 - 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 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. 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 (7.90% at September 30, 2000) or, at the Company's option, LIBOR plus 100 basis points (7.62% at September 30, 2000) 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 $730,000) 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, 2000 approximates $1,311,000 in 2001, $2,787,000 in 2002, $1,290,000 in 2003, $503,000 in 2004, $244,000 in 2005 and $2,267,000 thereafter. - 41 - NOTE 8. Segment and Related Information The Company operates in one industry which encompasses the design, manufacture, assembly and marketing of 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, 2000, 1999 and 1998 is as follows: 2000 U.S. U.K. Other Consolidating Totals - ---- ---------- ---------- --------- ------------- ------ Net sales to external customers $59,488,000 $10,846,000 $4,290,000 $ - $74,624,000 Intersegment net sales 6,301,000 - 1,248,000 - 7,549,000 Net income (loss) 1,241,000 461,000 (540,000) (201,000) 961,000 Interest expense 672,000 205,000 62,000 (123,000) 816,000 Interest income 243,000 - - (146,000) 97,000 Depreciation and amortization 766,000 168,000 85,000 201,000 1,220,000 Total assets 48,277,000 5,813,000 3,598,000 (3,770,000) 53,918,000 Capital expenditures $ 1,094,000 $ 115,000 $ 432,000 - $ 1,641,000
1999 U.S. U.K. Other Consolidating Totals - ---- ---------- ---------- --------- ------------- ------ 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
- 42 - 1998 U.S. U.K. Other Consolidating Totals - ---- ---------- ---------- --------- ------------- ------ 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
The consolidating segment information 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, 2000, 1999, and 1998 are as follows: 2000 1999 1998 ---- ---- ---- Net sales U.S. $61,096,000 $63,236,000 $54,184,000 Foreign 13,528,000 10,178,000 9,126,000 ----------- ----------- ---------- Total $74,624,000 $73,414,000 $63,310,000 Long-lived assets U.S. $ 6,561,000 $ 6,234,000 $ 5,443,000 Foreign 1,941,000 1,819,000 1,694,000 ---------- ----------- ---------- Total $ 8,502,000 $ 8,053,000 $ 7,137,000 U.S. sales include $6,039,000, $5,236,000 and $9,853,000 for export in fiscal years 2000, 1999, and 1998, respectively. Indirect sales to the United States Postal Service under a national supply contract approximated $22.8 million, $22.7 million and $12.0 million in fiscal 2000, 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 374,657 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 2000 and 1999, a total of 10,613 and 12,431 common shares, respectively, were surrendered pursuant to stock option exercises, which are held in treasury. There were 98,673 shares available for grant at September 30, 2000. - 43 - Changes in outstanding stock options for the three years ended September 30, 2000 are as follows: Weighted Number Average of Exercise Shares Price - ------------------------------------------------------------------- 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 Options granted 129,823 $3.50 Options exercised (55,875) $2.18 Options forfeited (168,611) $7.33 - ------------------------------------------------------------------- Balance - September 30, 2000 275,984 $3.30 Price range $1.69 - $3.06 (weighted-average contractual 128,022 $2.44 life of 1.0 years) Price range $3.19 - $7.44 (weighted-average contractual 147,962 $4.03 life of 4.9 years) - ------------------------------------------------------------------- Exercisable options - September 30, 1998 253,123 $2.47 September 30, 1999 210,147 $2.94 September 30, 2000 140,239 $2.66 - ------------------------------------------------------------------- On April 20, 2000, the Board of Directors granted holders of stock options the right to surrender their underwater options by May 31, 2000 in exchange for a reduced option grant at an exercise price of $3.18 per share, based on the closing market price of the Company's common stock on such date. On May 31, 2000, the Company granted 67,823 new options and cancelled 156,750 options with exercise prices ranging from $6.75 to $8.19 per share. These new grants were treated as repricings and are subject to variable plan accounting pursuant to FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." Accordingly, compensation expense will be recorded for any increase in the Company's stock price above the price of $3.18 on July 1, 2000, the effective date of this pronouncement. In fiscal 2000, no compensation expense was recorded relating to these repriced options. 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 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Risk-free interest rate 5.0% 5.0% 5.0% Dividend yield 0.0% 0.0% 0.0% Volatility factor 59.5% 59.0% 67.3% Weighted average expected life 4 years 4 years 3 years - ------------------------------------------------------------------------------ - 44 - 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. 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: 2000 1999 1998 ---- ---- ---- Net income: As reported $ 961,205 $4,760,201 $5,809,981 Pro forma $ 773,082 $4,646,938 $5,638,166 Earnings per share: As reported Basic $ .21 $1.05 $1.61 Diluted $ .21 $1.01 $1.50 Pro forma Basic $ .17 $1.03 $1.56 Diluted $ .17 $ .98 $1.46 Weighted average fair value of options granted $1.76 $3.74 $3.34 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: 2000 1999 1998 ---- ---- ---- Basic EPS Computation Net income $ 961,205 $4,760,201 $5,809,981 Weighted average shares outstanding 4,600,447 4,519,344 3,605,307 Basic earnings per share $ .21 $ 1.05 $ 1.61 ========== ========== ========== - 45 - 2000 1999 1998 ---- ---- ---- Diluted EPS Computation Net income $ 961,205 $4,760,201 $5,809,981 Weighted average shares outstanding 4,600,447 4,519,344 3,605,307 Stock options 70,808 185,940 260,425 Stock compensation arrangement 1,510 13,075 7,343 --------- --------- --------- Diluted shares outstanding 4,672,765 4,718,358 3,873,075 Diluted earnings per share $ .21 $ 1.01 $ 1.50 ========== ========== ========== NOTE 11. Commitments and Contingencies 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 eight years, generally provide for renewal options at specified rental amounts. The aggregate operating lease commitment at September 30, 2000 was $619,000 with minimum rentals for the fiscal years shown as follows: 2001 - $212,000; 2002 - $152,000; 2003 - $81,000; 2004 - $74,000; 2005 - $37,000; 2005 and thereafter - $63,000. 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, 2000 was approximately $1,989,000. The total compensation payable under these agreements, absent a change in control, aggregated $1,727,000 at September 30, 2000. The Company is also a party to an insured deferred compensation agreement with a retired officer. The aggregate remaining compensation payments of approximately $328,000 as of September 30, 2000 are subject to the individual's 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, 2000 and 1999, the Company had approximately $1,900,000 and $1,550,000, respectively, of outstanding forward exchange contracts to sell British pounds. Such contracts have maturities of less than one year. - 46 - The Company's purchases of Japanese sourced products through CBC Company, Ltd., a related party, are denominated in Japanese yen. At September 30, 2000 and 1999, the Company had approximately $791,000 and $1,059,000, respectively, of outstanding forward exchange contracts to purchase Japanese yen. In fiscal 1999, 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. NOTE 12. Related Party Transactions As of September 30, 2000, CBC Company, Ltd. and affiliates ("CBC") owned approximately 11.8% of the Company's outstanding common stock. The Company, which has been conducting business with CBC for approximately 21 years, imports certain finished products and components through CBC and also sells its products to CBC. The Company purchased approximately $4.4 million, $5.4 million and $5.3 million of products and components from CBC in fiscal years 2000, 1999, and 1998, respectively, and the Company sold $303,000, $1.3 million and $4.1 million of products to CBC for distribution in fiscal years 2000, 1999, and 1998, respectively. At September 30, 2000 and 1999, the Company owed $481,000 and $955,000, respectively, to CBC and CBC owed $50,000 and $27,000, respectively, to the Company resulting from purchases of products. As of September 30, 2000, Mr. Chu S. Chun had beneficial voting control over approximately 4.4% of the Company's outstanding common stock. Mr. Chun beneficially owns a controlling interest in Chun Shin Electronics, Inc. (CSE), a South Korean manufacturer of certain of the Company's proprietary 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 2000, 1999 and 1998, the Company purchased approximately $5.0 million, $5.7 million and $8.0 million, respectively, of products from CSE through I.I.I. under this agreement. In addition, the Company sold approximately $663,000, $535,000 and $344,000 of its products to I.I.I. in 2000, 1999 and 1998, respectively, for resale to CSE. At September 30, 2000, the Company owed I.I.I. approximately $1.2 million and at September 30, 2000 and 1999, I.I.I. owed the Company approximately $380,000 and $238,000, respectively. - 47 - VICON INDUSTRIES, INC. AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Unaudited) Earnings Per Share Quarter Net Gross Net Ended Sales Profit Income Basic Diluted ------- ----- ------ ------ ----- ------- Fiscal 2000 December $19,525,000 $ 5,390,000 $ 85,000 $ .02 $ .02 March 17,442,000 5,626,000 186,000 .04 .04 June 19,123,000 6,344,000 478,000 .10 .10 September 18,534,000 5,694,000 212,000 .05 .05 ----------- ----------- ----------- ----- ----- Total $74,624,000 $23,054,000 $ 961,000 $ .21 $ .21 =========== =========== =========== ===== ===== Fiscal 1999 December $17,128,000 $5,864,000 $ 1,060,000 $ .24 $ .23 March 17,500,000 6,124,000 1,161,000 .26 .25 June 19,493,000 6,828,000 1,346,000 .30 .28 September 19,293,000 6,963,000 1,193,000 .26 .25 ----------- ----------- ----------- ----- ----- Total $73,414,000 $25,779,000 $ 4,760,000 $1.05 $1.01 =========== =========== =========== ===== ===== 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 - SCHEDULE II VICON INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended September 30, 2000, 1999, and 1998 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, 2000 $818,000 $291,000 $ 46,000 $1,063,000 ======== ======== ======== ========== September 30, 1999 $694,000 $290,000 $166,000 $ 818,000 ======== ======== ======== ========== September 30, 1998 $493,000 $285,000 $ 84,000 $ 694,000 ======== ======== ======== ========== - 49 - 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 27, 2000 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 27, 2000 - --------------------- --------------------- Kenneth M. Darby Chairman and CEO Date Chu S. Chun December 27, 2000 - --------------------- --------------------- Chu S. Chun Director Date Milton F. Gidge December 27, 2000 - --------------------- --------------------- Milton F. Gidge Director Date Peter F. Neumann December 27, 2000 - --------------------- --------------------- Peter F. Neumann Director Date W. Gregory Robertson December 27, 2000 - --------------------- --------------------- W. Gregory Robertson Director Date Arthur D. Roche December 27, 2000 - --------------------- --------------------- Arthur D. Roche Director Date Kazuyoshi Sudo December 27, 2000 - --------------------- --------------------- Kazuyoshi Sudo Director Date - 50 - 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 27, 2000 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 27, 2000 - --------------------- ------------------- Kenneth M. Darby Chairman and CEO Date December 27, 2000 - --------------------- ------------------- Chu S. Chun Director Date December 27, 2000 - --------------------- ------------------ Milton F.Gidge Director Date December 27, 2000 - --------------------- ------------------ Peter F. Neumann Director Date December 27, 2000 - --------------------- ------------------ W. Gregory Robertson Director Date _____________________ December 27, 2000 ------------------- Arthur D. Roche Director Date December 27, 2000 - --------------------- ----------------- Kazuyoshi Sudo Director Date - 50 - EX-10 2 0002.txt EMPLOYMENT AGREEMENT - HENRY B. MURRAY EMPLOYMENT AGREEMENT AGREEMENT, dated as of March 13, 2000, between Henry B. Murray (hereinafter called "MURRAY") 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, the Company wishes to retain and MURRAY desires to offer his 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 MURRAY as its Executive ---------- Vice President throughout the term of this Agreement, and MURRAY hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the ---- date of this Agreement and end on March 12, 2002 unless terminated earlier by the Company for cause. 3. Compensation. ------------ A. The Company shall pay MURRAY a base salary of $200,000 per annum, subject to periodic adjustment as determined by the President of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. B. MURRAY's base salary shall be payable monthly or bi-weekly. C. MURRAY 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 the officers of the Company, subject to the general eligibility requirements of such plans. Subject to plan availability and approval by the Board of Directors, the President will recommend an annual stock option grant to MURRAY based on his contribution to the Company's performance. 4. Covenant not to Compete. ------------------------- MURRAY agrees that during the term of this Agreement and for a period of 12 months 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 video security and surveillance equipment and protection devices anywhere in the United States and Europe. MURRAY 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 MURRAY 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. MURRAY 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 or Events. ---------------------------------------------------- A. If either this Agreement expires, or the Company terminates MURRAY's employment under this Agreement for reasons other than "Misconduct"; or his title and responsibilities are materially diminished, then MURRAY, at his option, may elect to receive severance payments or the balance of the amount owing under this agreement, whichever is greater, except in the case of disability under paragraph 7, without reduction for any offset or mitigation. The severance amount shall be equal to three months annual base salary at the time of such termination plus one additional month for each full year of service completed up to a maximum of twelve months. 2 B. "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. MURRAY's option to elect to receive severance payments may be exercised only by written notice delivered to the Company within 30 days following the date on which MURRAY receives actual notice of termination, this Agreement expires or his title and responsibilities are materially diminished, 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 MURRAY'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 the Board of Directors, MURRAY, 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 present valued or extended payments over three years as MURRAY shall elect. 3 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 then outstanding shares of capital stock of the Company. C. MURRAY'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 MURRAY receives actual notice of a Change of Control. In selecting this option the Company has no obligation to MURRAY for any severance payments under paragraph 5. 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) MURRAY dies or (b) MURRAY becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of such disability. 8. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 9. Miscellaneous. ------------- A. 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 MURRAY. 4 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. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. - ---------------------------------- By:------------------------ Henry B.Murray Kenneth M. Darby CEO Vicon Industries, Inc. EX-24 3 0003.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 24 KPMG LLP Consent of Independent Auditors 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 22, 2000 relating to the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of September 30, 2000 and 1999 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, 2000, which report appears in the September 30, 2000 annual report on Form 10-K of Vicon Industries, Inc. KPMG LLP Melville, New York December 27, 2000 EX-27 4 0004.txt FDS
5 3-MOS 12-MOS SEP-30-2000 SEP-30-2000 SEP-30-2000 SEP-30-2000 2,115,118 2,115,118 2,775,196 2,775,196 20,016,267 20,016,267 (1,062,723) (1,062,723) 18,661,003 18,661,003 42,504,861 42,504,861 18,708,106 18,708,106 (7,295,079) (7,295,079) 53,917,888 53,917,888 9,140,354 9,140,354 9,779,151 9,779,151 0 0 0 0 47,106 47,106 34,951,277 34,951,277 53,917,888 53,917,888 18,534,147 74,624,065 18,534,147 74,624,065 12,839,887 51,570,001 12,839,887 51,570,001 5,022,421 20,505,593 60,000 240,000 176,590 719,266 435,249 1,589,205 223,000 628,000 212,249 961,205 0 0 0 0 0 0 212,249 961,205 .05 .21 .05 .21
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