-----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, GmII6S0/LpqWMGZnKmcpxdSsiX2PMR9hNb/DA9H7dEnuAtbh8KFlK07n5JZtPDg2 ILTAybAZJLg999Vpj7unqA== 0000310056-01-500012.txt : 20020413 0000310056-01-500012.hdr.sgml : 20020413 ACCESSION NUMBER: 0000310056-01-500012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011231 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: 1934 Act SEC FILE NUMBER: 001-07939 FILM NUMBER: 1826489 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 f10k_120101.txt 2001 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, 2001 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, 2001 was approximately $17,300,000. The number of shares outstanding of the registrant's Common Stock as of December 15, 2001 was 4,652,712. 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 several 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 2001, 2000 and 1999, indirect sales to the United States Postal Service under a national supply contract approximated $15.2 million, $22.8 million and $22.7 million, respectively. 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. principally 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 $20.5 million, $19.6 million and $15.4 million or 31%, 26% and 21% of consolidated net sales in fiscal years 2001, 2000, and 1999, 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 78 percent of international sales in fiscal 2001. 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, Interlogix, Inc. 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. Engineering and Development - --------------------------- The Company's engineering and development 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 has focused its engineering effort in these developing areas. During the past two years, the Company substantially increased its product development expenditures to meet the accelerating market shift to network capable video systems. Development 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 44 engineers in the following areas: software development, mechanical design, manufacturing/testing and electrical and circuit design. Engineering and development expense amounted to approximately 6%, 5% and 4% of net sales in fiscal 2001, 2000 and 1999, respectively. - 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 may be 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, 2001 and 2000 was approximately $6.3 million and $8.4 million, respectively. Orders are generally cancelable without penalty at the option of the customer. The Company prefers that its backlog of orders not exceed its ability to fulfill such orders on a timely basis, since experience shows that long delivery schedules only encourage the Company's customers to look elsewhere for product availability. Employees - --------- At September 30, 2001, the Company employed 251 full-time employees, of whom 5 are officers, 56 administrative, 119 in sales and technical service capacities, 44 in engineering, and 27 production employees. At September 30, 2000, the Company employed 261 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 various offices in mainland 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 2001 December 3.3125 1.6875 March 2.7500 1.8125 June 2.7000 1.7000 September 6.5000 2.0200 Fiscal 2000 December 7.5000 5.0000 March 6.6250 3.4375 June 4.3750 3.0000 September 4.0000 3.0625 The last sale price of the Company's Common Stock on December 15, 2001 as reported on AMEX was $3.71 per share. As of December 15, 2001, 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 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (in thousands, except per share data) Net sales $65,365 $74,624 $73,414 $63,310 $51,519 Gross profit 21,686 23,054 25,779 21,960 14,475 Operating (loss) income (418) 1,993 7,893 6,869 2,750 Income before income taxes 2,307 1,589 7,442 5,810 1,647 Net income 1,497 961 4,760 5,810 1,565 Earnings per share: Basic .32 .21 1.05 1.61 .56 Diluted .32 .21 1.01 1.50 .52 Total assets 51,926 53,918 49,899 44,386 31,200 Long-term debt 3,498 7,090 5,799 7,002 8,344 Working capital 30,005 33,365 29,049 27,642 15,351 Property, plant and equipment (net) 8,139 8,502 8,053 7,137 3,492 - 8 - ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS - --------------------- Fiscal Year 2001 Compared with 2000 - ----------------------------------- Net sales for 2001 decreased $9.2 million or 12% to $65.4 million compared with $74.6 million in 2000. Domestic sales decreased $10.1 million or 18% to $44.9 million principally as a result of a $7.6 million decline in indirect sales to the United States Postal Service (USPS) under a national supply contract. Indirect sales to the USPS decreased 33% to $15.2 million in 2001 compared with $22.8 million in 2000. In March 2001, the USPS announced an immediate freeze on all its capital spending due to a severe projected budget deficit. As a result, the Company has since experienced a material reduction in its USPS order rate. In addition, the USPS supply contract had expired on June 30, 2001 with no new contract being awarded. The Company has since been named as one of three pre-approved suppliers in the latest USPS published specification for video systems. International sales increased $.9 million or 5% to $20.5 million primarily as a result of increased sales in Europe. The backlog of unfilled orders was $6.3 million at September 30, 2001 compared with $8.4 million at September 30, 2000. Gross profit margins for 2001 increased to 33.2% compared with 30.9% in 2000. The margin increase was principally attributable to the effects of a $1.3 million charge for warranty costs incurred in the prior year. Operating expenses for 2001 were $22.1 million or 33.8% of net sales compared with $21.1 million or 28.2% of net sales in 2000. The increase in operating expenses included the write-down of certain foreign assets, certain severance and payroll related costs and costs incurred in the development of new product lines. The Company incurred an operating loss of $418,000 for 2001 compared with operating income of $2.0 million for 2000 principally as a result of lower sales and increased operating expenses during 2001. Interest expense decreased $318,000 to $498,000 for 2001 compared with $816,000 in 2000 principally as a result of the paydown of bank borrowings. The Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products. Income tax expense for 2001 was $810,000 compared with $628,000 in 2000. As a result of the foregoing, net income increased to $1.5 million for 2001 compared with $961,000 for 2000. - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ 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. - 10 - MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ LIQUIDITY AND FINANCIAL CONDITION - --------------------------------- Net cash provided by operating activities was $8.0 million for 2001 due primarily to a $5.7 million decrease in accounts receivable and a $1.6 million decrease in inventories. The accounts receivable decrease was due principally to lower comparable period sales and improved collections on sales to U.S. Postal Service contractors. Reported net income for the period of $1.5 million included a $2.0 million net of tax non-operating gain on the sale of securities. Net cash provided by investing activities was $2.5 million for 2001 due to the receipt of $3.3 million of proceeds from the sale of the Company's remaining equity interest in Chun Shin Electronics, Inc. Net cash used in financing activities was $2.9 million in 2001, which included the repayment of $1.5 million of borrowings under the Company's U.S. revolving credit agreement and $1.3 million of scheduled repayments of bank term and mortgage loans. As a result of the foregoing, cash increased by $7.7 million for 2001 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 (4.00% and 4.42%, respectively, at September 30, 2001). At September 30, 2001, there were no outstanding borrowings under this facility. 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. At September 30, 2001, the Company was not in compliance with certain of the financial covenants of the aforementioned loan and mortgage agreements. Subsequent to yearend, the Company received a waiver of such covenant violations from its bank. At the same time, the Company received and executed a firm commitment letter from the bank to amend its current unsecured revolving credit and term loan agreement to provide a $5 million secured revolving credit facility through July 2004. Borrowings under such facility would bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points. The amendment agreement, when executed, will grant the bank a security interest in all the assets of the Company and, among other things, will effectively modify the financial covenants contained in all existing agreements. The Company also maintains a bank overdraft facility of 600,000 Pounds Sterling (approximately $882,000) in the U.K. to support local working capital requirements of Vicon Industries Limited. At September 30, 2001, there were no outstanding borrowings under this facility. The Company believes that it has sufficient cash and funds available under its credit agreements to meet its anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. - 11 - New Accounting Standards Not Yet Adopted - ---------------------------------------- In July 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations and establishes criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized but, instead, tested for impairment at least annually in accordance with the provisions of the Statement. SFAS No. 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company adopted the provisions of SFAS No. 141 effective July 1, 2001, which had no effect on its financial position or results of operations. SFAS No. 142 will be effective for the Company beginning October 1, 2001, at which time the Company will be required to reassess the useful lives and residual values of its intangible assets acquired in purchase business combinations and make any necessary amortization adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of the Statement. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. Amortization expense related to goodwill was $193,543 and $200,659 for the years ended September 30, 2001 and 2000, respectively. Because of the extensive effort needed to comply with adopting SFAS No. 142, the Company has not yet been able to assess the impact of adopting this statement on its financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill will be evaluated for impairment under SFAS No. 142, as discussed above. The Company is required to adopt SFAS No. 144 on October 1, 2003. Management does not expect the adoption of SFAS No. 144 for long-lived assets held for use to have a material impact on the Company's consolidated financial statements because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. - 12 - 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 6% and 7% of product purchases in fiscal 2001 and 2000, respectively. The Company attempts to minimize its currency exposure on these purchases through the purchase of forward 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 and the Middle East are made in Pounds Sterling or Euros. In fiscal 2001, approximately $7.1 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. On October 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, and the effect of adoption was not material. As of September 30, 2001, the Company had interest rate swaps and forward exchange contracts outstanding with notional amounts aggregating $4.1 million and $2.0 million, respectively, whose aggregate fair value was a liability of approximately $267,000. In general, the Company seeks lower costs from suppliers and enters into forward exchange contracts to mitigate exchange rate exposures. However, there can be no assurance that such steps will be effective in limiting foreign currency exposure. Market Risk Factors - ------------------- The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. The Company has a policy that prohibits the use of currency derivatives or other financial instruments for trading or speculative purposes. The Company enters into forward exchange contracts to hedge certain foreign currency exposures and minimize the effect of such fluctuations on reported earnings and cash flow (see "Foreign Currency Activity", Note 1 "Derivative Instruments" and "Fair Value of Financial Instruments" to the accompanying financial statements). At September 30, 2001, the Company's foreign currency exchange risks included a $3.8 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 2002. The following sensitivity analysis assumes an instantaneous 10% change in foreign currency exchange rates from year-end levels, with all other variables held constant. - 13 - At September 30, 2001, a 10% strengthening or weakening of the U.S. dollar versus the British Pound would result in a $378,000 decrease or increase, respectively, in the intercompany accounts receivable balance. Such foreign currency exchange risk at September 30, 2001 has been substantially hedged by forward exchange contracts. At September 30, 2001, the Company had $4.1 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 6. 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 approximately $1.1 million of floating rate bank debt that is subject to interest rate risk as it was not covered by interest rate swap agreements. Inflation - --------- The impact of inflation on the Company has been minimal 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. "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 publicly update or revise 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 55 Chairman of the Board, President and Chief Executive Officer John M. Badke 42 Vice President, Finance and Chief Financial Officer John L. Eckman 52 Vice President, Sales Peter A. Horn 46 Vice President, Operations Bret M. McGowan 36 Vice President, Marketing Yacov A. Pshtissky 50 Vice President, Technology and Development Milton F. Gidge 72 Director Peter F. Neumann 67 Director W. Gregory Robertson 57 Director Arthur D. Roche 63 Director Kazuyoshi Sudo 59 Director The business experience, principal occupations and employment, as well as period of service, of each of the directors and officers of the Company during at least the last five years are set forth below. Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer. Mr. Darby has served as Chairman of the Board since April 1999, as Chief Executive Officer since April 1992 and as President since October 1991. He has served as a director since 1987. Mr. Darby also served as Chief Operating Officer and as Executive Vice President, Vice President, Finance and Treasurer of the Company. He joined the Company in 1978 as Controller after more than nine years at Peat Marwick Mitchell & Co., a public accounting firm. Mr. Darby's current term on the Board ends in April 2002. John M. Badke - Vice President, Finance and Chief Financial Officer. Mr. Badke has been Chief Financial Officer since December 1999 and Vice President, Finance since October 1998. Previously, he served as Controller since joining the Company in 1992. Prior to joining the Company, Mr. Badke was Controller for NEK Cable, Inc. and an audit manager with the international accounting firms of Arthur Andersen & Co. and Peat Marwick Main & Co. John L. Eckman - Vice President, U.S. Sales. Mr. Eckman rejoined the Company in April 2001 as Vice President, U.S. Sales after serving as District General Manager with Honeywell from June 2000 to April 2001. From July 1996 to June 2000, he served as Vice President, U.S. Sales of the Company after joining the Company in August 1995 as Eastern Regional Manager. Prior to that time, he was Director of Field Operations for Cardkey Systems, Inc., an access control security products manufacturer with whom he was employed for 12 years. - 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. Bret M. McGowan - Vice President, Marketing. Mr. McGowan was promoted to Vice President, Marketing in October 2001. Previously, he served as Director of Marketing since 1998 and as Marketing Manager since 1994. He joined the Company in 1993 as a Marketing Specialist. 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. 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 also served as a director of Interboro Mutual Indemnity Insurance Co., a general casualty insurance company, from 1980 to 2001 and as a director of Intervest Bancshares Corporation, a regional bank holding company, from 1988 to 2001. His current term on the Board ends in April 2004. 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 Thomson McKinnon Securities, Inc. as head of investment banking and public finance. Mr. Robertson's current term on the Board ends in April 2004. 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 President and Chief Executive Officer of Toyo Management, Inc., a consulting firm which he founded in 2001. Previously, Mr. Sudo was Chief Executive Officer of CBC (America) Corp., a distributor of electronic, chemical and optical products, from 1996 to 2001 and a director of its parent company, CBC Co., Ltd. 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, 2001 and certain written representations, no person, who, at any time during the year ended September 30, 2001 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, 2001. - 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 2001, 2000 and 1999 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 2001 $285,000 $ 75,000 (1) $ 3,000 (5) - - - Chief Executive 2000 285,000 42,271 (1) 3,000 (5) 50,813 (6) - - Officer 1999 275,000 261,690 (4) 3,000 (5) 111,814 (6) - - Henry B. Murray 2001 $184,615 - $ 87,179 (7) - - - Executive 2000 100,000 40,000 (2) - - - - Vice President 1999 - - - - - - Arthur D. Roche 2001 - - - - - - Executive 2000 29,769 5,058 (3) - - - - Vice President 1999 180,000 140,910 (4) - - - - (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 life insurance policy payment. (6) Represents deferred compensation benefit of 8,130 and 16,565 shares of Common Stock awarded in 2000 and 1999, 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, 2001, the quoted market value of such shares approximated $28,000 and $56,000, respectively, for the 2000 and 1999 awards. No dividends can be paid on such shares. (7) Represents lump-sum severance payout pursuant to Mr. Murray's separation from the Company effective August 31, 2001.
- 18 - Stock Options - ------------- There were no options granted to the aforementioned executive officers during fiscal 2001. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES At September 30, 2001 ----------------------------- 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-/$4,577 Henry B. Murray -0- -0- -0-/-0- -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 ($3.40) 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 $310,000 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 $16,000 for regular meetings and, for committee membership, receive $1,000 per meeting attended in person or by teleconference. 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 2001 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 sales and 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, 1996, 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 - ---- ---------------- ------------ --------------- 10/01/96 100 100 100 10/01/97 335 126 110 10/01/98 285 118 133 10/01/99 280 152 225 10/01/00 130 188 264 10/01/01 136 137 214 - 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, 2001 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 11.5% Dimensional Fund Advisors 1299 Ocean Avenue Santa Monica, CA 90401 320,600 (7) 6.8% Chu S. Chun C/O I.I.I. Companies, Inc. 915 Hartford Turnpike Shrewsbury, MA 01545 299,457 (2) 6.3% ****************************************************************************** C/O Vicon Industries, Inc. Kenneth M. Darby 250,092 5.3% Arthur D. Roche 146,601 (3) 3.1% W. Gregory Robertson 20,972 (4) * Kazuyoshi Sudo 18,772 (4) * Milton F. Gidge 18,772 (4) * Peter F. Neumann 17,072 (5) * Total all Executive Officers and Directors as a group (6 persons) 472,281 (6) 10.0% * 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 299,457 shares but disclaims beneficial ownership as to all but 48,400 shares. 195,657 shares are owned by the International Industries, Inc. Profit Sharing Plan and 103,800 shares are owned by Mr. Chun and immediate family members. (3) Includes 50,000 shares held by Mr. Roche's wife, 15,000 shares held by their children and currently exercisable options to purchase 1,947 shares. (4) Includes currently exercisable options to purchase 9,072 shares. (5) Includes currently exercisable options to purchase 8,197 shares. (6) Includes currently exercisable options to purchase 91,244 shares. (7) Dimensional Fund Advisors had voting and investment control over 320,600 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 11.5% of the outstanding shares of the Company, have been conducting business with each other for approximately twenty-two 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. CBC has also acted as the Company's sourcing agent for the purchase of certain video products. In fiscal 2001, the Company purchased approximately $3.5 million of products and components 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 2001. Kazuyoshi Sudo is a director of the Company and former director of CBC and Chief Executive Officer of CBC (America) Corp., a U.S. subsidiary of CBC. Mr. Chu S. Chun, who has beneficial voting control over 6.3% of the Common Stock of the Company, also beneficially owns a minority 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. In 2001, CSE sold approximately $4.1 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 $276,000 of products directly from the Company during 2001 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, 2001, 2000, and 1999 Consolidated Balance Sheets at September 30, 2001 and 2000 Consolidated Statements of Shareholders' Equity, fiscal years ended September 30, 2001, 2000, and 1999 Consolidated Statements of Cash Flows, fiscal years ended September 30, 2001, 2000, and 1999 Notes to Consolidated Financial Statements, fiscal years ended September 30, 2001, 2000, and 1999 (a) (2) Financial Statement Schedule ---------------------------- Included in Part IV, Item 14: Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 2001, 2000, and 1999 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 4 Instruments defining the rights of security holders (.1) Rights Agreement dated December 4, 2001 between the Registrant and Computershare Investor Services 4.1 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 April 1, 2001 between Registrant and John M. Badke 10.2 (.3) Employment Agreement dated October 1, 2001 between Registrant and Peter Horn 10.3 (.4) Employment Agreement dated October 1, 2000 between the Registrant and Yacov Pshtissky 10.4 (.5) Employment Agreement dated April 1, 2001 between Registrant and John L. Eckman 10.5 (.6) Employment Agreement dated October 1, 2001 between the Registrant and Yigal Abiri 10.6 (.7) 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 - 26 - Exhibit Number or Exhibit Incorporation by Numbers Description Reference to - ------- ----------- ---------------- (.8) 1994 Incentive Stock Option Plan Incorporated by reference to the 1994 Annual Report on Form 10-K (.9) 1994 Non-Qualified Stock Option Incorporated by Plan for Outside Directors reference to the 1994 Annual Report on Form 10-K (.10) 1996 Incentive Stock Option Plan Incorporated by reference to the 1997 Annual Report on Form 10-K (.11) 1996 Non-Qualified Stock Option Incorporated by Plan for Outside Directors reference to the 1997 Annual Report on Form 10-K (.12) Commercial fixed rate loan Incorporated by agreement between the Registrant reference to the and National Westminster Bank PLC June 30, 1997 filing dated April 8, 1997 on Form 10-Q (.13) Loan Agreement between the Incorporated by Registrant and 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 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 (.15) 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 (.16) 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 - 27 - Exhibit Number or Exhibit Incorporation by Numbers Description Reference to - ------- ----------- ------------ (.17) 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 (.18) Interest rate master swap agreement Incorporated by between the Registrant and KeyBank reference to the National Association dated December 31, 1997 December 11, 1997 filing on Form 10-Q (.19) Schedule to the master agreement Incorporated by between the Registrant and KeyBank reference to the National Association dated December 31, 1997 December 11, 1997 filing on Form 10-Q (.20) Swap transaction confirmation with Incorporated by a notional amount of $2,512,000 reference to the between the Registrant and KeyBank December 31, 1997 National Association dated filing on Form 10-Q December 30, 1997 (.21) Swap transaction confirmation with Incorporated by a notional amount of $388,000 reference to the between the Registrant and KeyBank December 31, 1997 National Association dated filing on Form 10-Q December 30, 1997 (.22) Advice of borrowing terms Incorporated by between the Registrant and reference to the National Westminster Bank PLC March 31, 2001 filing dated March 13, 2001 on Form 10-Q (.23) 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 (.24) Swap transaction confirmation with Incorporated by a notional amount of $4,425,000 reference to the between the Registrant and KeyBank 1998 Annual Report National Association dated on Form 10-K September 9, 1998 (.25) Stock purchase agreement between Incorporated by reference the Registrant and Isaac Gershoni to the 1999 Annual Report dated August 12, 1999 on Form 10-K - 28 - Exhibit Number or Exhibit Incorporation by Numbers Description Reference to - ------- ----------- ---------------- (.26) 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 (.27) 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 (.28) 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 (.29) 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 (.30) 1999 Incentive Stock Option Plan Incorporated by reference to the 1999 Annual Report on Form 10-K (.31) 1999 Non-Qualified Stock Option Incorporated by reference to the 1999 Annual Report on Form 10-K 21 Subsidiaries of the Registrant Incorporated by reference to the Notes to the Consolidated Financial Statements 23 Independent Auditors' Consent 23 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. - 29 - 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), 333-30097 (filed June 26, 1997) and 333-71410 (filed October 11, 2001) 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. - 30 - 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 (the "Company") 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2001, 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 December 3, 2001, except as to note 6, which is as of December 31, 2001 - 31 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended September 30, 2001, 2000 and 1999 2001 2000 1999 ---- ---- ---- Net sales $65,364,558 $74,624,065 $73,414,046 Cost of sales 43,678,775 51,570,001 47,634,962 ------------ ------------ ------------ Gross profit 21,685,783 23,054,064 25,779,084 Operating expenses: Selling expense 13,025,115 13,117,039 11,159,633 General and administrative expense 4,973,816 4,190,856 3,966,892 Engineering and development expense 4,105,282 3,753,653 2,759,907 ------------ ------------ ------------ 22,104,213 21,061,548 17,886,432 ------------ ------------ ------------ Operating (loss) income (418,430) 1,992,516 7,892,652 Other expense (income): Interest expense 497,597 816,017 591,826 Gain on sale of securities (3,022,579) (315,955) - Interest and other income (200,596) (96,751) (141,003) ------------ ------------ ------------ Income before income taxes 2,307,148 1,589,205 7,441,829 Income tax expense 810,000 628,000 2,681,628 ------------ ------------ ------------ Net income $ 1,497,148 $ 961,205 $ 4,760,201 ============ ============ ============ Earnings per share: Basic $ .32 $ .21 $1.05 ===== ===== ===== Diluted $ .32 $ .21 $1.01 ===== ===== ===== See accompanying notes to consolidated financial statements. - 32 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2001 and 2000 ASSETS 2001 2000 - ------ ---- ---- Current Assets: Cash and cash equivalents $ 9,795,148 $2,115,118 Marketable securities - 2,775,196 Accounts receivable (less allowance of $1,115,000 in 2001 and $1,063,000 in 2000) 11,438,334 17,101,618 Inventories: Parts, components, and materials 2,518,782 3,011,071 Work-in-process 2,777,211 3,285,213 Finished products 11,800,197 12,364,719 ----------- ----------- 17,096,190 18,661,003 Deferred income taxes 1,420,372 955,003 Prepaid expenses 566,861 896,923 ----------- ----------- Total current assets 40,316,905 42,504,861 Property, plant and equipment: Land 1,161,948 1,160,098 Buildings and improvements 5,394,076 5,380,387 Machinery, equipment, and vehicles 9,815,829 9,256,266 ----------- ----------- 16,371,853 15,796,751 Less accumulated depreciation and amortization 8,232,536 7,295,079 ----------- ----------- 8,139,317 8,501,672 Goodwill, net of accumulated amortization 1,571,058 1,639,678 Deferred income taxes 1,366,625 805,087 Other assets 531,660 466,590 ----------- ----------- $51,925,565 $53,917,888 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Borrowings under revolving credit agreement $ - $ 129,424 Current maturities of long-term debt 2,144,727 1,311,386 Accounts payable 2,375,825 2,939,936 Accrued compensation and employee benefits 1,789,401 1,895,766 Accrued expenses 2,227,825 1,713,316 Unearned service revenue 1,294,576 835,045 Income taxes payable 479,361 315,481 ----------- ----------- Total current liabilities 10,311,715 9,140,354 Long-term debt 3,498,099 7,090,253 Unearned service revenue 2,334,348 2,011,123 Other long-term liabilities 883,356 677,775 Commitments and contingencies - Note 11 Shareholders' equity Common stock, par value $.01 per share authorized - 10,000,000 shares issued 4,756,532 and 4,710,635 shares 47,565 47,106 Capital in excess of par value 21,542,541 21,444,638 Retained earnings 14,309,442 12,812,294 ----------- ----------- 35,899,548 34,304,038 Treasury stock at cost, 118,249 shares in 2001 and 85,561 shares in 2000 (633,422) (555,097) Accumulated other comprehensive income (368,079) 1,249,442 ----------- ------------ Total shareholders' equity 34,898,047 34,998,383 ----------- ----------- $51,925,565 $53,917,888 =========== =========== See accompanying notes to consolidated financial statements - 33 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Fiscal Years Ended September 30, 2001, 2000, and 1999
Accumulated Total Capital in other share- Common excess of Retained Treasury comprehensive holders' Shares Stock par value earnings Stock income equity ------ ------- ----------- ---------- --------- ------------ --------- 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 Comprehensive income: Net income -- -- -- 1,497,148 -- -- 1,497,148 Foreign currency translation adjustment -- -- -- -- -- 113,344 113,344 Reclassification adjustment for gains on securities included in net income -- -- -- -- -- (1,554,962) (1,554,962) Unrealized loss on derivatives (175,903) (175,903) Total comprehensive income -- -- -- -- -- -- (120,373) Repurchases of common stock -- -- -- -- (30,966) -- (30,966) Exercise of stock options 45,897 459 83,077 -- (47,359) -- 36,177 Tax benefit from exercise of stock options -- -- 14,826 -- -- -- 14,826 --------- ------- ----------- ----------- ----------- --------- ------------ Balance September 30, 2001 4,756,532 $47,565 $21,542,541 $14,309,442 $ (633,422) $(368,079) $ 34,898,047 ========= ======= =========== =========== =========== ========== ============
See accompanying notes to consolidated financial statements. - 34 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended September 30, 2001, 2000 and 1999
2001 2000 1999 ---- ---- ---- Cash flows from operating activities: Net income $ 1,497,148 $ 961,205 $4,760,201 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,062,167 1,019,441 877,698 Goodwill amortization 193,543 200,659 36,279 Deferred income taxes 16,710 (1,145,081) (371,300) Gain on sale of securities (3,022,579) (315,955) - Change in assets and liabilities: Accounts receivable 5,703,378 (3,667,310) (403,392) Inventories 1,594,450 2,495,615 (3,668,388) Prepaid expenses 331,955 (283,892) (301,590) Other assets (65,070) (57,594) (108,383) Accounts payable (566,837) (1,060,362) 399,202 Accrued compensation and employee benefits (107,988) (324,918) 166,317 Accrued expenses 509,229 (6,536) 414,896 Unearned service revenue 782,756 1,982,288 863,880 Income taxes payable 157,723 147,195 (482,201) Other liabilities (60,939) (50,509) 60,976 ----------- ----------- ------------ Net cash provided by (used in) operating activities 8,025,646 (105,754) 2,244,195 ----------- ----------- ------------ Cash flows from investing activities: Capital expenditures (689,427) (1,640,802) (1,747,030) Proceeds from sale of securities 3,289,813 347,473 - Acquisition, net of cash acquired (124,923) - (2,064,857) ----------- ----------- ----------- Net cash provided by (used in) investing activities 2,475,463 (1,293,329) (3,811,887) ----------- ----------- ----------- Cash flows from financing activities: Repayments of U.S. term loan (900,000) (900,000) (900,000) Proceeds from exercise of stock options 51,004 75,518 172,179 Increase (decrease) in borrowings under short-term revolving credit agreement (127,655) (216,072) (238,003) Repayments of long-term debt (360,605) (342,274) (275,016) Borrowings under mortgage loans - 1,200,000 - Increase (decrease) in borrowings under U.S. bank credit agreement (1,500,000) 1,500,000 - Repurchases of common stock (30,966) - - ----------- ----------- ------------ Net cash (used in) provided by financing activities (2,868,222) 1,317,172 (1,240,840) ----------- ----------- ----------- Effect of exchange rate changes on cash 47,143 198,262 (47,258) ----------- ----------- ----------- Net increase (decrease) in cash 7,680,030 116,351 (2,855,790) Cash at beginning of year 2,115,118 1,998,767 4,854,557 ----------- ----------- ----------- Cash at end of year $ 9,795,148 $ 2,115,118 $ 1,998,767 =========== =========== =========== Cash paid during the fiscal year for: Income taxes $ 435,566 $ 1,673,100 $3,517,498 Interest $ 512,354 $ 717,355 $ 608,673
See accompanying notes to consolidated financial statements. - 35 - VICON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years ended September 30, 2001, 2000, and 1999 NOTE 1. Summary of Significant Accounting Policies - --------------------------------------------------- Nature of Business - ------------------ 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. Basis of Presentation - --------------------- The accompanying consolidated financial statements include the accounts of Vicon Industries, Inc. (the Company) and its wholly owned subsidiaries: Vicon Industries, Limited, 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 from product sales 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. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on deposit and amounts invested in highly liquid money market funds. Marketable Securities - --------------------- Marketable securities at September 30, 2000 consisted of an equity investment in Chun Shin Electronics, Inc. (see Note 3), which was 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, were excluded from earnings and reported as a component of shareholders' equity in accumulated other comprehensive income until realized. Realized gains from the sale of available-for-sale securities were determined on a specific identification basis. 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. - 36 - 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 and goodwill arising from purchase business combinations) 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. 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. Accumulated amortization amounted to $435,870 and $242,327 at September 30, 2001 and 2000, respectively. Engineering and Development - --------------------------- Product engineering and development costs are charged to expense as incurred, and amounted to approximately $4,100,000, $3,800,000 and $2,800,000 in fiscal 2001, 2000, and 1999, 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 common 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 - ---------------------------- The Company translates the financial statements of its foreign subsidiaries by applying 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 $(192,000) and $(306,000) at September 30, 2001 and 2000, respectively, is recorded as a component of shareholders' equity in accumulated other comprehensive income. - 37 - 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 5). Derivative Instruments - ---------------------- On October 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, and the effect of adoption was not material. This statement establishes accounting and reporting standards for derivative instruments as either assets or liabilities in the statement of financial position based on their fair values. Changes in the fair values are required to be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. Derivative instruments are designated and accounted for as either a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). For derivatives designated as effective cash flow hedges, changes in fair values are recognized in other comprehensive income. Changes in fair values related to fair value hedges as well as the ineffective portion of cash flow hedges are recognized in earnings. The Company does not use derivative instruments for speculative or trading purposes. Derivative instruments are primarily used to manage exposures related to (i) transactions denominated in Japanese Yen, (ii) transactions with the Company's U.K. subsidiary, and (iii) interest rate risk on certain variable rate indebtedness. To accomplish this, the Company uses certain contracts, primarily foreign currency forward contracts ("forwards") and interest rate swaps, which minimize cash flow risks from changes in foreign currency exchange rates and interest rates, respectively. These derivatives have been designated as cash flow hedges for accounting purposes. As of September 30, 2001, the Company had interest rate swaps and forwards outstanding with notional amounts aggregating $4.1 million and $2.0 million, respectively, whose aggregate fair value was a liability of approximately $267,000. The change in the fair value of these derivatives for the year ended September 30, 2001, is reflected in other comprehensive income in the accompanying statement of shareholders' equity, net of tax. The forwards have maturities of less than one year and require the Company to exchange currencies at specified dates and rates. The interest rate swaps mature in the same amounts and over the same periods as the related debt. The Company considers the credit risk related to the interest rate swaps and the forwards to be low because such instruments are entered into only with financial institutions having high credit ratings and are generally settled on a net basis. - 38 - 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 due to the short-term maturity of these instruments. The carrying amounts of the Company's long-term debt instruments approximate fair value. The aggregate original carrying amounts of the Company's interest rate swap agreements exceeded their fair market values by approximately $216,000 at September 30, 2001. This value represents the estimated amount the Company would need to pay if such agreements were terminated before maturity, principally resulting from market interest rate decreases. The fair value of forward exchange contracts is estimated by obtaining quoted market prices. The contracted exchange rates on committed forward exchange contracts exceeded the market rates for similar term contracts by approximately $51,000 at September 30, 2001 (see Note 11). Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Accounting for Stock-Based Compensation - --------------------------------------- The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related interpretations in accounting for its employee stock options. Under APB No. 25, compensation expense would be recorded if, on the date of grant, the market price of the underlying stock exceeded its exercise price. As permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), the Company has retained the accounting prescribed by APB No. 25 and presents the SFAS No. 123 information in the notes to its consolidated financial statements. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, provisions for doubtful accounts receivable, net realizable value of inventory and assessments of the recoverability of the Company's deferred tax assets. Actual results could differ from those estimates. Reclassification - ---------------- Certain prior year amounts have been reclassified to conform to current year presentation. - 39 - 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 $2.3 million. 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 $2.0 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, 1998, consolidated net sales would have been approximately $75.9 million for 1999. Consolidated pro forma net income and earnings per share would not have been materially different from the reported amounts for 1999. 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 fiscal 1999. 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 approximately $3,023,000 and $316,000 in fiscal years 2001 and 2000, respectively. Prior to CSE's public offering, the Company recognized this investment on the cost method of accounting. NOTE 4. 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 ($882,000) and is secured by all the assets of the subsidiary. Maximum borrowings during 2001 and 2000 amounted to approximately $618,000 and $1,018,000, respectively. The weighted-average interest rate on borrowings during these years was 5.30% in 2001 and 7.81% in 2000. NOTE 5. Income Taxes - --------------------- The components of income tax expense for the fiscal years indicated are as follows: 2001 2000 1999 ---- ---- ---- Federal $ 396,000 $ 368,000 $ 2,392,000 State (19,000) 40,000 200,000 Foreign 433,000 220,000 90,000 ------------- ----------- ------------ $ 810,000 $ 628,000 $ 2,682,000 ============= =========== ============ - 40 - A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate follows:
2001 2000 1999 ---- ---- ---- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- U.S. statutory tax $ 784,000 34.0% $ 540,000 34.0% $2,530,000 34.0% State tax,net of federal benefit - - 26,000 1.6 132,000 1.8 Goodwill amortization 65,000 2.8 68,000 4.3 12,000 0.1 Other (39,000) (1.7) (6,000) (0.4) 8,000 0.1 ----------- ------ ---------- ------ ---------- ------ Effective Tax Rate $ 810,000 35.1% $ 628,000 39.5% $2,682,000 36.0% =========== ====== ========== ====== ========== ======
The tax effects of temporary differences that give rise to deferred tax assets and liabilities at September 30, 2001 and 2000 are presented below: 2001 2000 ---- ---- Deferred tax assets: Inventory reserves $ 980,000 $1,499,000 Deferred compensation accruals 149,000 156,000 Allowance for doubtful accounts receivable 357,000 339,000 Unearned service revenue 1,009,000 639,000 Unrealized loss on derivatives 91,000 - Other 333,000 150,000 ---------- ---------- Total deferred tax assets 2,919,000 2,783,000 Deferred tax liabilities: Unrealized gain on securities - 953,000 Cash surrender value of officers' life insurance 80,000 30,000 Other 52,000 40,000 ---------- ----------- Total deferred tax liabilities 132,000 1,023,000 ---------- ----------- Net deferred tax assets and liabilities $2,787,000 $ 1,760,000 ---------- ------------ Pretax domestic income amounted to approximately $1,383,000, $1,079,000 and $7,385,000 in fiscal years 2001, 2000 and 1999, respectively. Pretax foreign income amounted to approximately $924,000, $510,000 and $57,000 in fiscal years 2001, 2000 and 1999, respectively. - 41 - NOTE 6. Long-Term Debt - ----------------------- Long-term debt is comprised of the following at September 30, 2001 and 2000: 2001 2000 ---- ---- U.S. bank credit agreement $ - $1,500,000 U.S. bank term loan 1,725,000 2,625,000 U.S. bank mortgage loans 3,393,462 3,650,128 U.K. bank term loan 410,373 480,582 Other 113,991 145,929 ---------- ----------- 5,642,826 8,401,639 Less installments due within one year 2,144,727 1,311,386 ---------- ---------- $3,498,099 $7,090,253 ========== ========== 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% (4.00% and 7.50% at September 30, 2001 and 2000, respectively) or, at the Company's option, LIBOR plus 90 basis points (4.42% and 7.52% at September 30, 2001 and 2000, respectively). At September 30, 2001, there were no outstanding borrowings under this facility. At September 30, 2000, outstanding borrowings under this facility were $1.5 million. 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 at the time to effectively convert the foregoing floating rate long-term loan to a fixed rate loan. Subsequently, such bank sold its local operations, including the Company's loans, to another bank while retaining the Company's interest rate swap agreement. This agreement effectively 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 at the time to effectively convert the foregoing floating rate long-term loans to fixed rate loans. Subsequently, such bank sold its local operations, including the Company's loans, to another bank while retaining the Company's interest rate swap agreements. These agreements effectively 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. - 42 - 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 (4.40% and 7.90% at September 30, 2001 and 2000, respectively) or, at the Company's option, LIBOR plus 100 basis points (4.52% and 7.62% at September 30, 2001 and 2000, respectively) and contains the same covenants as included in the existing mortgage loans. At September 30, 2001, the Company was not in compliance with certain of the financial covenants of the aforementioned loan and mortgage agreements. Subsequent to yearend, the Company received a waiver of such covenant violations from its bank. At the same time, the Company received and executed a firm commitment letter from the bank to amend its current unsecured revolving credit and term loan agreement to provide a $5 million secured revolving credit facility through July 2004. Borrowings under such facility would bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points. The amendment agreement, when executed, will grant the bank a security interest in all the assets of the Company and, among other things, will effectively modify the financial covenants contained in all existing agreements. In April 1997, the Company's U.K. based subsidiary entered into a ten-year 500,000 pound sterling (approximately $735,000) 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. Current and long-term debt maturing in each of the fiscal years subsequent to September 30, 2001 approximates $2,145,000 in 2002, $475,000 in 2003, $316,000 in 2004, $324,000 in 2005, $330,000 in 2006 and $2,053,000 thereafter. NOTE 7. 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 (Europe) based operations. Its U.S. based operations consist of Vicon Industries, Inc., the Company's corporate headquarters and principal operating entity. Its Europe 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. - 43 - 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, 2001, 2000 and 1999 is as follows: 2001 U.S. Europe Other Consolidating Totals - ---- ---------- ---------- --------- ------------- ------ Net sales to external customers $47,409,000 $14,572,000 $3,384,000 $ - $65,365,000 Intersegment net sales 8,160,000 - 736,000 - 8,896,000 Net income (loss) 1,749,000 979,000 (1,041,000) (190,000) 1,497,000 Interest expense 440,000 208,000 18,000 (168,000) 498,000 Interest income 348,000 - - (147,000) 201,000 Depreciation and amortization 780,000 158,000 124,000 194,000 1,256,000 Total assets 44,996,000 8,841,000 3,691,000 (5,602,000) 51,926,000 Capital expenditures $ 296,000 $ 227,000 $ 166,000 - $ 689,000 2000 U.S. Europe 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. Europe 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 The consolidating segment information presented above includes the elimination and consolidation of intersegment transactions. - 44 - Net sales and long-lived assets related to operations in the United States and other foreign countries for the fiscal years ended September 30, 2001, 2000, and 1999 are as follows: 2001 2000 1999 ---- ---- ---- Net sales U.S. $48,339,000 $61,096,000 $63,236,000 Foreign 17,026,000 13,528,000 10,178,000 ----------- ----------- ----------- Total $65,365,000 $74,624,000 $73,414,000 Long-lived assets U.S. $ 6,076,000 $ 6,561,000 $ 6,234,000 Foreign 2,063,000 1,941,000 1,819,000 ---------- ----------- ----------- Total $ 8,139,000 $ 8,502,000 $ 8,053,000 U.S. sales include $3,455,000, $6,039,000 and $5,236,000 for export in fiscal years 2001, 2000, and 1999, respectively. Indirect sales to the United States Postal Service under a national supply contract approximated $15.2 million, $22.8 million and $22.7 million in fiscal 2001, 2000 and 1999, respectively. NOTE 8. Stock Options and Stock Purchase Warrants - -------------------------------------------------- The Company maintains stock option plans which include both incentive and non-qualified options covering a total of 323,760 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 mature shares based on the fair market value of such shares at the date of surrender. During fiscal 2001, 2000 and 1999, a total of 18,988, 10,613 and 12,431 common shares, respectively, were surrendered pursuant to stock option exercises, which are held in treasury. There were 71,889 shares available for grant at September 30, 2001. - 45 - Changes in outstanding stock options for the three years ended September 30, 2001 are as follows: Weighted Number Average of Exercise Shares Price - ------------------------------------------------------------------- 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 Options granted 86,301 $2.39 Options exercised (45,897) $1.81 Options forfeited (64,517) $3.49 - ------------------------------------------------------------------- Balance - September 30, 2001 251,871 $3.15 Price range $2.20 - $3.06 (weighted-average contractual 151,926 $2.58 life of 2.9 years) Price range $3.07 - $7.44 (weighted-average contractual 99,945 $4.03 life of 4.3 years) - ------------------------------------------------------------------- Exercisable options - September 30, 1999 210,147 $2.94 September 30, 2000 140,239 $2.66 September 30, 2001 107,643 $3.30 - ------------------------------------------------------------------- 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 2001 and 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 2001, 2000 and 1999: 2001 2000 1999 ---- ---- ---- Risk-free interest rate 4.0% 5.0% 5.0% Dividend yield 0.0% 0.0% 0.0% Volatility factor 66.9% 59.5% 59.0% Weighted average expected life 4 years 4 years 4 years - ------------------------------------------------------------------------------ - 46 - 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: 2001 2000 1999 ---- ---- ---- Net income: As reported $1,497,148 $ 961,205 $4,760,201 Pro forma $1,424,263 $ 773,082 $4,646,938 Earnings per share: As reported Basic $ .32 $ .21 $1.05 Diluted $ .32 $ .21 $1.01 Pro forma Basic $ .31 $ .17 $1.03 Diluted $ .31 $ .17 $ .98 Weighted average fair value of options granted $1.30 $1.76 $3.74 In connection with the public offering during fiscal 1998, 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 9. Shareholder Rights Plan - -------------------------------- On November 14, 2001, the Company's Board of Directors adopted a Shareholder Rights Plan, which declared a dividend of one Common Stock Purchase Right (a Right) for each outstanding share of common stock of the Company to shareholders of record on December 21, 2001. Each Right entitles the holder to purchase from the Company one share of common stock at a purchase price of $15 per share. In the event of the acquisition of or tender offer for 20% or more of the Company's outstanding common stock by certain persons or group without the Board of Directors' consent, such purchase price will be adjusted to equal fifty percent of the average market price of the Company's common stock for a period of thirty consecutive trading days immediately prior to the event. Until the Rights become exercisable, they have no dilutive effect on the Company's earnings per share. - 47 - The Rights, which are non-voting and exercisable until November 30, 2011, can be redeemed by the Company in whole at a price of $.001 per Right at any time prior to the acquisition by certain persons or group of 50% of the Company's common stock. Separate certificates for the Rights will not be distributed, nor will the Rights be exercisable, until either (i) a person or group acquires beneficial ownership of 20% or more of the Company's common stock or (ii) the tenth day after the commencement of a tender or exchange offer for 20% or more of the Company's common stock. Following an acquisition of 20% or more of the Company's common shares, each Right holder, except for the 20% or more stockholder, can exercise their Right(s), unless the 20% or more stockholder has offered to acquire all of the outstanding shares of the Company under terms that a majority of the independent Directors of the Company have determined to be fair and in the best interest of the Company and its stockholders. NOTE 10. Earnings Per Share - ---------------------------- The following table provides the components of the basic and diluted earnings per share (EPS) computations: 2001 2000 1999 ---- ---- ---- Basic EPS Computation - --------------------- Net income $1,497,148 $ 961,205 $4,760,201 Weighted average shares outstanding 4,645,154 4,600,447 4,519,344 Basic earnings per share $ .32 $ .21 $ 1.05 ========== ========== ========== Diluted EPS Computation Net income $1,497,148 $ 961,205 $4,760,201 Weighted average shares outstanding 4,645,154 4,600,447 4,519,344 Stock options 6,403 70,808 185,940 Stock compensation arrangement - 1,510 13,075 --------- --------- --------- Diluted shares outstanding 4,651,557 4,672,765 4,718,359 Diluted earnings per share $ .32 $ .21 $ 1.01 ========== ========== ========== 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, 2001 was $772,000 with minimum rentals for the fiscal years shown as follows: 2002 - $258,000; 2003 - $200,000; 2004 - $183,000; 2005 - $64,000; 2006 - $22,000; 2007 and thereafter - $45,000. - 48 - The Company is a party to employment agreements with seven 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, 2001 was approximately $2,626,000. The total compensation payable under these agreements, absent a change in control, aggregated $2,650,000 at September 30, 2001. The Company is also a party to an insured deferred compensation agreement with a retired officer. The aggregate remaining compensation payments of approximately $222,000 as of September 30, 2001 are subject to the individual's adherence to certain non-compete covenants, and are payable in monthly installments through December 2003. The Company entered into certain consulting and incentive compensation agreements that provide for the payout of up to $810,000 of fees and compensation upon the completion and sale of a specified number of units of a newly developed product line. 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, 2001 and 2000, the Company had approximately $1,600,000 and $1,900,000, respectively, of outstanding forward exchange contracts to sell British pounds. Such contracts have maturities of less than one year. The Company's purchases of Japanese sourced products through CBC Company, Ltd., a related party, are denominated in Japanese yen. At September 30, 2001 and 2000, the Company had approximately $395,000 and $791,000, 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 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. - 49 - NOTE 12. Related Party Transactions - ------------------------------------ As of September 30, 2001, CBC Company, Ltd. and affiliates ("CBC") owned approximately 11.7% of the Company's outstanding common stock. The Company, which has been conducting business with CBC for approximately 22 years, imports certain finished products and components through CBC and also sells its products to CBC. The Company purchased approximately $3.5 million, $4.4 million and $5.4 million of products and components from CBC in fiscal years 2001, 2000, and 1999, respectively, and the Company sold $303,000, $303,000 and $1.3 million of products to CBC for distribution in fiscal years 2001, 2000, and 1999, respectively. At September 30, 2001 and 2000, the Company owed $243,000 and $481,000, respectively, to CBC and CBC owed $58,000 and $50,000, respectively, to the Company resulting from purchases of products. As of September 30, 2001, Mr. Chu S. Chun had beneficial voting control over approximately 6.5% of the Company's outstanding common stock. Mr. Chun controls and beneficially owns a minority 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 2001, 2000 and 1999, the Company purchased approximately $4.1 million, $5.0 million and $5.7 million, respectively, of products from CSE through I.I.I. under this agreement. In addition, the Company sold approximately $276,000, $663,000 and $535,000 of its products to I.I.I. in 2001, 2000 and 1999, respectively, for resale to CSE. At September 30, 2001 and 2000, I.I.I. owed the Company approximately $10,000 and $380,000, respectively. - 50 - VICON INDUSTRIES, INC. AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Unaudited) Earnings (Loss) Per Share Net ---------------- Quarter Net Gross Income Ended Sales Profit (Loss) Basic Diluted ------- ----- ------ ------ ----- ------- Fiscal 2001 December $17,377,000 $5,901,000 $ 1,722,000 $ .37 $ .37 March 17,160,000 5,706,000 418,000 .09 .09 June 16,081,000 5,465,000 (374,000) (.08) (.08) September 14,747,000 4,614,000 (269,000) (.06) (.06) ----------- ----------- ----------- ----- ----- Total $65,365,000 $21,686,000 $ 1,497,000 $ .32 $ .32 =========== =========== =========== ===== ===== 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 =========== =========== =========== ===== ===== 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. - 51 - SCHEDULE II VICON INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended September 30, 2001, 2000, and 1999 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, 2001 $1,063,000 $436,000 $384,000 $1,115,000 ========== ======== ======== ========== September 30, 2000 $ 818,000 $291,000 $ 46,000 $1,063,000 ========== ======== ======== ========== September 30, 1999 $ 694,000 $290,000 $166,000 $ 818,000 ========== ======== ======== ========== - 52 - 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 /s/ Kenneth M. Darby By /s/ John M. Badke ------------------------- ------------------------- Kenneth M.Darby John M. Badke Chairman Vice President, Finance (Chief Executive Officer) (Chief Financial Officer) December 31, 2001 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. /s/ Kenneth M. Darby December 31, 2001 - --------------------- --------------------- Kenneth M. Darby Chairman and CEO Date /s/ Milton F. Gidge December 31, 2001 - --------------------- --------------------- Milton F. Gidge Director Date /s/ Peter F. Neumann December 31, 2001 - --------------------- --------------------- Peter F. Neumann Director Date /s/ W. Gregory Robertson December 31, 2001 - --------------------- --------------------- W. Gregory Robertson Director Date /s/ Arthur D. Roche December 31, 2001 - --------------------- --------------------- Arthur D. Roche Director Date /s/ Kazuyoshi Sudo December 31, 2001 - --------------------- --------------------- Kazuyoshi Sudo Director Date - 53 - 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 31, 2001 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 31, 2001 - --------------------- ------------------- Kenneth M. Darby Chairman and CEO Date December 31, 2001 - --------------------- ------------------ Milton F.Gidge Director Date December 31, 2001 - --------------------- ------------------ Peter F. Neumann Director Date December 31, 2001 - --------------------- ------------------ W. Gregory Robertson Director Date _____________________ December 31, 2001 ------------------- Arthur D. Roche Director Date December 31, 2001 - --------------------- ----------------- Kazuyoshi Sudo Director Date - 53 - EX-4 3 f10k1201_ex04-1.txt RIGHTS AGREEMENT Exhibit 4.1 RIGHTS AGREEMENT This Agreement, dated as of December 4, 2001, between VICON INDUSTRIES, INC., a New York corporation (the "Company"), and COMPUTERSHARE INVESTOR SERVICES, LLC, a Delaware limited liability company (the "Rights Agent"). WHEREAS, the Board of Directors of the Company has authorized and declared a dividend distribution (the "Distribution") of one Right for each outstanding share of Common Stock, par value $.01 per share, of the Company outstanding on December 21, 2001 (the "Record Date") and has authorized the issuance of one Right with respect to each share of Common Stock of the Company issued between the Record Date and the earlier of the Distribution Date, the Expiration Date or the Final Expiration Date (as such terms are hereinafter defined), and under certain other circumstances, each Right representing the right to purchase an amount of shares of Common Stock of the Company upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 20% or more of the Common Stock of the Company then outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Stock for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Stock of the Company then outstanding; provided, however, that if a Person shall become the Beneficial Owner of 20% or more of the Common Stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Stock of the Company, then such Person shall be deemed to be an Acquiring Person. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph (a)(i), has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph (a)(i), then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date hereof. (c) A Person shall be deemed the "Beneficial Owner" of any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise, provided, however, that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase; or (B) the right to vote pursuant to any agreement, arrangement or understanding; should be provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the second proviso to Section 1(c)(ii)(B)) for the purpose of acquiring, holding, voting or disposing of any securities of the Company. (d) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which the New York Stock Exchange or banking institutions in the State of New York or Illinois are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. (f) "Common Stock" when used with reference to the Company shall mean the Common Stock, par value $.01 per share, of the Company. "Common Stock" when used with reference to any Person other than the Company shall mean the common stock with the greatest voting power of such Person or, if such Person is a subsidiary of another Person, the Person which ultimately controls such first-mentioned Person. (g) "Person" shall mean any individual, firm, corporation or other entity. (h) "Stock Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Right Certificates. (a) Until the earlier to occur of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth day after the date of the commencement of a tender or exchange offer for 20% or more of the outstanding shares of Common Stock by any Person other than the Company (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Stock. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent, if requested by the Company, will send) by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit A hereto, evidencing one Right for each share of Common Stock so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) On the Record Date or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Common Stock, in substantially the form attached hereto as Exhibit B (the "Summary of Rights"), by first-class, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Stock registered in the names of the holders of the Common Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any of the certificates for the Common Stock outstanding on the Record Date shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. (c) Certificates for the Common Stock which become outstanding (including, without limitation, reacquired shares of Common Stock referred to in the last sentence of this paragraph issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date or the Final Expiration Date (as such terms are defined in Section 7) shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Vicon Industries, Inc. and Computershare Investor Services, LLC dated as of December 4, 2001 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Vicon Industries, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Vicon Industries, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge within five days after receipt of a written request therefor. As described in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) shall become null and void. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. In the event that the Company purchases or acquires any shares of Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such shares of Common Stock shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the shares of Common Stock which are no longer outstanding. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 22 hereof, the Right Certificates, whenever issued, shall entitle the holders thereof to purchase such number of shares of Common Stock as shall be set forth therein at the price per share set forth therein (the "Purchase Price"), but the number of such shares and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent, issued and delivered with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at one of its offices in New York, New York, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the name and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Expiration Date or the Final Expiration Date, any Right Certificate or Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of shares of Common Stock as the Right Certificate or Right Certificates surrendered then entitle such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent along with an amount equal to any applicable transfer or other tax or other governmental charge in cash, or by certified check or bank draft payable to the order of the Company. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date, upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each share of Common Stock as to which the Rights are exercised, at or prior to the close of business on the earliest of (i) November 30, 2011 (the "Final Expiration Date"); (ii) the date on which the Rights are redeemed as provided in Section 23 or (iii) the time at which such Rights are exchanged as provided in Section 24 (such earlier date being herein referred to as the "Expiration Date"). (b) The Purchase Price for each share of Common Stock pursuant to the exercise of a Right shall initially be $15, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9, by certified check or cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) requisition from any transfer agent of the Common Stock of the Company certificates for the number of shares of Common Stock to be purchased, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14, (iii) promptly after receipt of such certificates, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Shares of Common Stock; Registration of Common Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Common Stock or its authorized and issued shares of Common Stock held in its treasury, the number of shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. (b) The Company covenants and agrees that it will take all such action as may be necessary to insure that all shares of Common Stock delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. (c) The Company covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any shares of Common Stock upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates for the shares of Common Stock in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates for Common Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section 10. Common Stock Record Date. Each person in whose name any certificate for shares of Common Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Stock represented thereby on and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding business day on which the Common Stock transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price. The Purchase Price, the number of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Stock payable in shares of Common Stock, (B) subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Common Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. (ii) In the event any Person, at any time after the date of this Agreement, shall become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board who are not operating officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price which is fair to stockholders and not inadequate (taking into account all factors which such members of the Board deem relevant, including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders, then the Purchase Price shall be 50% of the current market price per share of the Common Stock of the Company (determined pursuant to Section 11(d)) such Person became an Acquiring Person. Notwithstanding the foregoing, any Rights that are or were at any time beneficially owned by the Acquiring Person or any Associate or Affiliate of the Acquiring Person shall become void and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that represents Rights beneficially owned by an Acquiring Person, whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person, whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person, whose Rights would be void pursuant to the preceding sentence shall be cancelled. (b) In the event the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share of Common Stock (or having a conversion price per share of Common Stock, if a security convertible into Common Stock) less than the current market price per share of Common Stock (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In the event such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In the event the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of the last cash dividend theretofore paid or a dividend payable in Common Stock) or subscription rights or warrants (excluding those referred to in Section11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the current market price per share of Common Stock (as defined in Section 11(d)) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of Common Stock and of which the denominator shall be such current market price per share of Common Stock; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation hereunder, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current market price per share of Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock, or (B) any subdivision, combination or reclassificiation of such Common Stock, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current market price shall be appropriately adjusted to reflect the current market price per Common Stock equivalent. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the American Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by law or executive order to close. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one ten-thousandth of a share as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which mandates such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If as a result of an adjustment made pursuant to Section 11(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the shares of Common Stock shall apply on like terms to any such other shares. (g) All rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Common Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares (calculated to the nearest one ten-thousandth) obtained by (i) multiplying (x) the number of shares covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of shares of Common Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of shares of Common Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any date thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates, on such record date Right Certificates evidencing, subject to Section 14, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of shares of Common Stock issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, issuance wholly for cash of any Common Stock at less than the current market price, issuance wholly for cash of Common Stock or securities which by their terms are convertible into or exchangeable for Common Stock, stock dividends or issuance of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by the Company to holders of its Common Stock shall not be taxable to such stockholders. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Sections 11 and 13, the Company shall (a) promptly prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Common Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. In the event, directly or indirectly, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with or, merge with and into, the Company, the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer ), in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any other Person, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at the then-current Purchase Price in accordance with the terms of this Agreement, such number of shares of Common Stock of such other Person as shall be equal to the result obtained by (x) multiplying the then-current Purchase Price by the number of shares of Common Stock for which a Right is then exercisable and dividing that product by (y) 50% of the current market price per share of the Common Stock of such other Person (determined pursuant to Section 11(d)) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Stock shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock in accordance with Section 9) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section l4(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange or, if the Rights are not listed or admitted to trading on the American Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares upon exercise of the Rights or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company may pay to the registered holders of Right Certificates at the time such Right Certificates are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share of Common Stock. For purposes of this Section l4(b), the current market value of a share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the second sentence of Section ll(d) for the Trading Day immediately prior to the Date of such exercise. (c) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). Section 15. Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. Section 16. Agreement of Right Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Stock Certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Stock Certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent and its affiliates and each of their directors, officers, employees and agents (collectively, the "Indemnified Parties") for, and to hold them harmless against, any damage, loss, liability, cost or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Indemnified Parties, for anything done or omitted by the Indemnified Parties in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim or demand of liability in the premises. The Rights Agent and its affiliates shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Right Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and where necessary, verified or acknowledged, by the proper person or persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 2l. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel of its own choice (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provision of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own gross negligence, bad faith or willful misconduct. In no event shall the Rights Agent be liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits). (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shal1 be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any adjustment required under the provisions of Sections 3, 11, 13, 23 or 24 or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Common Stock will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge .and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President or any Vice President or the Secretary or any Assistant Secretary or the Treasurer or any Assistance Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof . Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of New York), in good standing, having a principal office in the State of New York, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares of stock or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. Section 23. Redemption. The Company may, at its option, at any time prior to 5:00 P.M., New York City time, on the earlier of (x) the date any Person or group of Affiliated or Associated Persons has acquired Beneficial Ownership of 50% or more of the outstanding Common Stock of the Company or (y) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.001 per Right appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Within 10 days after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Stock prior to the Distribution Date. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii)) for Common Stock at an exchange ratio of one share of a Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the shares of Common Stock then outstanding. (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of share of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights. (c) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights. (d) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole shares of Common Stock. For the purposes of this paragraph (d), the current market value of a whole Common Share shall be the closing price of a share of Common Stock (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24. Section 25. Notice of Certain Events. In case the Company shall propose (a) to pay any dividend payable in stock of any class to the holders of its Common Stock or to make any other distribution to the holders of its Common Stock (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of the last cash dividend theretofore paid), or (b) to offer to the holders of its Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (c) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision of outstanding shares of Common Stock), or (d) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets of earning power of the Company and its subsidiaries (taken as a whole) to, any other Person, or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 26, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or Rights, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least twenty days prior to the record date for determining holders of the Common Stock for purposes of such action, and in the case of any such other action, at least twenty days prior to the date of the taxing of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. In case any of the events set forth in Section 11(a)(ii) of this Agreement shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each holder of a Right, in accordance with Section 26, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii). Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Vicon Industries, Inc. 89 Arkay Drive, Hauppauge, New York 11788 Attn: Chairman Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Computershare Investor Services, LLC Attn: Relationship Manager Two North LaSalle Street Chicago, Illinois 60602 with a copy to: Computershare Investor Services, LLC Attn: Keith Bradley Two North LaSalle Street Chicago, Illinois 60602 Notice or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. The Company and the Rights Agent may from time to time supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Rights Agent may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates. Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates. Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 31. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such state without regard to its choice of law principles. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. VICON INDUSTRIES, INC. By:________________________________ Title:_______________________________ COMPUTERSHARE INVESTOR SERVICES, LLC By:_________________________________ Title:_______________________________ Exhibit A --------- [Form of Right Certificate] Certificate No. R- _____Rights NOT EXERCISABLE AFTER NOVEMBER 30, 2011 OR AT EARLIER IF REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION, THE OPTION OF THE COMPANY, AT $.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. VICON INDUSTRIES, INC. This certifies that ______________________________________ or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of December 4, 2001 (the "Rights Agreement") between Vicon Industries, Inc., a New York corporation (the "Company"), and Computershare Investor Services, LLC, a Delaware limited liability company (the "Right Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 PM (New York City time) on November 30, 2011 at the principal office of the Rights Agent, or its successors as Rights Agent, one fully paid non-assessable share of the Common Stock, par value $0.01 per share ("Common Stock"), of the Company, at a purchase price of $15 per share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of December 14, 2001, based on the shares of Common Stock of the Company as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of shares of Common Stock which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent. The Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.001 per Right. No fractional shares of Common Stock will be issued upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _________________. VICON INDUSTRIES, INC. By: ________________________ Title: _______________________ Countersigned: COMPUTERSHARE INVESTOR SERVICES, LLC By: __________________________________ Title: _________________________________ FORM OF ELECTION TO PURCHASE ---------------------------- (To be executed if holder desires to exercise Right Certificate) The undersigned hereby irrevocably elects to exercise ________________ Rights represented by this Right Certificate to purchase the shares of Common Stock issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: Please insert social security or other identifying number - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- If such number of Rights shall not be all the rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Dated: _________________, 20__ ------------------------------ Signature (Signature must conform in all respects to name of holder as specified on the face of this Right Certificate) Signature Guaranteed: (Form of Reverse Side of Right Certificate) FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Right Certificates.) FOR VALUE RECEIVED, _______________________________________ hereby sells, assigns and transfers unto ------------------------------------------ -------------------------------------------------------------------------- (Please print name and address of transferee) this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: ______, 20__ - ------------------------ Signature Signature Guaranteed: NOTICE ------ The signature of the foregoing Assignment must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. Exhibit B --------- VICON INDUSTRIES, INC. SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK On November 14, 2001, the Board of Directors of the Company declared a dividend distribution of one Common Stock Purchase Right (a "Right") for each outstanding share of Common Stock of the Company. The Rights are to be distributed as a dividend payable on December 21, 2001, to the stockholders of record on that date. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Computershare Investor Services, LLC, as Rights Agent (the "Rights Agent"). In the event of the acquisition of 20% or more of the Company's outstanding Common Stock by certain persons or the commencement of a tender offer for 20% or more of the Company's outstanding Common Stock, each Right entitles the registered holder to purchase from the Company one share of Common Stock at a purchase price of $15 per share (the "Purchase Price"), subject to adjustment. Under certain circumstances and with certain qualifications, the price will be adjusted to equal fifty percent of the average market price of the Company's Common Stock for the 30 consecutive trading days immediately prior to time of the adjustment. The Rights will be exercisable on or after the Distribution Date (hereinafter defined) and until November 30, 2011, unless redeemed by the Company. The Distribution Date is the earlier to occur of (i) the 10th day after the first date of public announcement of the acquisition or right to acquire by a person or group of affiliated or associated persons (an "Acquiring Person") of beneficial ownership of 20% or more of the outstanding Common Stock or (ii) the 10th day after the commencement of a tender offer or exchange offer for 20% or more of the outstanding Common Stock. Until the Distribution Date, the Rights will be evidenced solely by the certificates for the Common Stock together with the Summary of Rights and will be transferred with and only with the Common Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Stock will also constitute the transfer of Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will thereafter evidence the Rights. At any time prior to the earlier of the date any person or group of affiliated or associated persons has acquired beneficial ownership of 50% or more of the outstanding Common Stock or November 30, 2011, the Company may redeem the Rights in whole, but not in part, at a price of $.001 per Right. Until a Right is exercised, a Right, as such, does not provide the holder with any rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. The Purchase Price payable, and the number of share of Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of the Common Stock, (ii) upon the grant to holders of the Common Stock of certain rights or warrants to subscribe for Common Stock or convertible securities at less than the current market price of the Common Stock or (iii) upon other distribution to holders of the Common Stock of evidences of indebtedness or assets (excluding cash dividends.) With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares will be issued and in lieu thereof, an adjustment in cash will be made based on the market price of the Common Stock on the last trading date prior to the date of exercise. As of November 30, 2001, there were 4,656,983 shares of Common Stock outstanding and 308,760 shares reserved for issuance pursuant to rights under the Company's stock option plans. Each outstanding share of Common Stock on December 21, 2001 will receive one Right. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person who attempts to acquire the Company without conditioning his offer on a substantial number of Rights being acquired. The Rights will also adversely affect a person who desires to obtain control of the Company without acquiring 100% ownership. The Rights will not affect a transaction approved by the Company prior to the existence of a 50% stockholder because, to the extent the Rights have not yet been exercised, the Rights can be redeemed before the consummation of such transaction. EX-10 4 f10k1201_ex10-2.txt EMPLOYMENT CONTRACT - JOHN M. BADKE Exhibit 10.2 EMPLOYMENT AGREEMENT -------------------- AGREEMENT, dated as of April 1, 2001, between John M. Badke (hereinafter called "BADKE") 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 and BADKE mutually desire to assure the continuation of BADKE's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ BADKE as its Vice ---------- President of Finance and Chief Financial Officer throughout the term of this Agreement, and BADKE hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the ---- date of this Agreement and end on September 30, 2003 unless terminated earlier by the Company. 3. Compensation. ------------ A. The Company shall pay BADKE a base salary of $130,000 per annum, subject to periodic adjustment as determined by the President of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. B. BADKE's base salary shall be payable monthly or bi-weekly. C. BADKE shall also be entitled to participate, if an employee, 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. 4. Covenant not to Compete. ------------------------- BADKE 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. BADKE 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 BADKE 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. BADKE 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 the Company terminates BADKE's employment under this Agreement for reasons other than "Misconduct" then BADKE, 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 one month of Badke's annual base salary at the time of such termination for each full year of service up to a maximum of 12 months. 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. BADKE'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 BADKE receives actual notice of termination. 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 shall be paid in equal monthly payments over the number of months determined in 5A above. 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, BADKE, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control, in either lump sum present valued or extended payments over three years as BADKE shall elect. B. A "Change of Control" shall be deemed to have occurred if any entity shall directly or indirectly acquire beneficial ownership of 50% or more of the then outstanding shares of capital stock of the Company. C. BADKE'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 BADKE receives actual notice of a Change of Control. In selecting this option the Company shall have no obligation to BADKE 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) BADKE dies or (b) BADKE 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 BADKE. 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:---------------------- John M.Badke Kenneth M. Darby CEO Vicon Industries, Inc. EX-10 5 f10k1201_ex10-3.txt EMPLOYMENT CONTRACT - PETER HORN Exhibit 10.3 EMPLOYMENT AGREEMENT -------------------- AGREEMENT, dated as of October 1, 2001, between PETER HORN (hereinafter called "Horn") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company"). WHEREAS, Horn has previously been employed by the Company, and WHEREAS, the Company and Horn mutually desire to assure the continuation of Horn's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ Horn as its Vice ---------- President of Operations throughout the term of this Agreement, and Horn hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the ---- date of this Agreement and end on September 30, 2004, unless terminated earlier by the Company for cause. 3. Compensation. ------------ A. The Company shall pay Horn a base salary of $140,000 per annum, subject to periodic adjustment as determined by the CEO of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. Beginning October 1, 2002 to the end of this agreement, the base salary shall be adjusted upward by an amount at least equal to the Consumer Price Index - All Urban Consumers factor for the previous twelve months. B. Horn's base salary shall be payable monthly or bi-weekly. C. Horn shall also be entitled to participate in any life insurance, medical, dental, hospital, disability or other benefit plans as may from time to time be made available to non-executive officers of the Company, subject to the general eligibility requirements of such plans. 4. Covenant not to Compete. Horn agrees that during the term of ----------------------- this Agreement and for a period thereafter equal to the length of severance as calculated in paragraph 5A, he shall not directly or indirectly within the United States or Europe engage in, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing, and selling security equipment and protection devices anywhere in the United States and Europe. Horn further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Horn agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Horn acknowledges that he may only be released from this covenant if the Company materially breech's this agreement or provides a written release of this provision. 5. Severance Payment on Certain Terminations. ----------------------------------------- A. If either this Agreement expires, or the Company terminates Horn's employment under this Agreement for reasons other than "Gross Misconduct", then Horn, at his option, may elect to receive severance payments, without reduction for any offset or mitigation, in an amount equal to (a) one-twelfth Horn's annual base salary at the time of such termination multiplied by (b) the number of full years of Horn's employment by the Company up to a maximum of 24 years. B. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal or inability, due to drug or alcohol, impairment to perform substantially the duties and services required of his position; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or (c) conviction of a felony involving moral turpitude. C. Horn's option to elect to receive severance payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Horn's receives actual notice of termination or this Agreement expires, as the case may be. In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any. The severance amount shall be paid in equal monthly payments over a 12 month period. 6. Termination Payment on Change of Control. ---------------------------------------- A. Notwithstanding any other provision of this Agreement, if a "Change of Control" occurs without the consent of the Board of Directors, Horn, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control, in either lump sum or extended payments over three years as Horn shall elect. B. A "Change of Control" shall be deemed to have occurred if any entity shall directly or indirectly acquire beneficial ownership of 50% or more of the outstanding shares of capital stock of the Company. C. Horn's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Horn receives actual notice of Change of Control. 7. Deferred Compensation. --------------------- A. 2,637 shares of the Company's common stock now held by the Company as treasury shares (the "Deferred Compensation Shares") shall be set aside and held by the Company for future distribution B. As deferred compensation, and in addition to all other compensation payable to Horn, the Deferred Compensation Shares shall become the property of Horn, and the Company shall deliver the certificates for the Deferred Compensation Shares to Horn (or his executor of administrator), on the Transfer Date, registered in Horn's name, within 10 days thereafter. The Transfer Date shall be the earliest of (i) the date of Pshtissky's death; (ii) the date as of which Horn's employment by the Company involuntarily terminates; (iii) the date Horn reaches age 60; or (iv) the occurrence of a change of Control as defined in paragraph C. Notwithstanding any other provision of this paragraph, Horn shall not be entitled to any Deferred Compensation Shares if the Company terminates this Agreement for Gross Misconduct as defined in paragraph 5. D. Prior to the Transfer Date, Horn's rights to the Deferred Compensation Shares shall not be transferrable and the Treasury Shares shall be the property of the Company. E. Horn represents that he will be acquiring the Deferred Compensation Shares for investment only and without a view to the distribution thereof and that the Deferred Compensation Shares, when delivered to him, may constitute restricted stock under the Securities Act of 1933, and the regulations thereunder, and that the certificates therefore shall bear such legend relating to this subparagraph as the Company shall reasonably require. to Horn under this paragraph. 8. Death or Disability. The Company may terminate this Agreement at its ------------------- sole option and determination if during the term of this Agreement (a) Horn dies or (b) Horn becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of whether Horn is disabled or not. 9. Arbitration. Any controversy or claim arising out of, or relating to ----------- this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 10. Miscellaneous. ------------- A. Except for stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President may determine to provide or make available to Horn. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York State applicable to contracts between New York State residents and made and to be entirely performed in New York State. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. 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:___________________ By:_________________ Peter Horn Kenneth M. Darby Vice President - Operations President Vicon Industries, Inc. Date: Date:______________ ---------------- EX-10 6 f10k1201_ex10-4.txt EMPLOYMENT CONTRACT - YACOV PSHTISSKY Exhibit 10.4 EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT ---------------------------------------------- AGREEMENT, dated as of October 1, 2000, between YACOV PSHTISSKY (hereinafter called "Pshtissky") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company"). WHEREAS, Pshtissky has previously been employed by the Company, and WHEREAS, the Company and Pshtissky mutually desire to assure the continuation of Pshtissky's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ Pshtissky as its Vice ---------- President of Technology and Development throughout the term of this Agreement, and Pshtissky hereby accepts such employment. Pshtissky shall report to the CEO or upon mutual agreement his designee. If Pshtissky chooses not to report to someone other than the CEO and as a result resigns from the Company, then he shall be free from the restrictions of Paragraph 4 and the Company shall have no obligation to him for severance under Paragraph 5. 2. Term. The term of this Agreement shall commence as of the ---- date of this Agreement and end on September 30, 2003, unless terminated earlier by the Company for cause. 3. Compensation. ------------ A. The Company shall pay Pshtissky a base salary of $135,000 per annum, subject to periodic adjustment as determined by the CEO of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. Beginning October 1, 2001 to the end of this agreement, the base salary shall be adjusted upward by an amount at least equal to the Consumer Price Index - All Urban Consumers factor for the previous twelve months. B. Pshtissky's base salary shall be payable monthly or bi-weekly. C. Pshtissky shall also be entitled to participate in any life insurance, medical, dental, hospital, disability or other benefit plans as may from time to time be made available to non-executive officers of the Company, subject to the general eligibility requirements of such plans. 4. Covenant not to Compete. Pshtissky agrees that during the term of ----------------------- this Agreement and for a period thereafter equal to the length of severance as calculated in paragraph 5A, he shall not directly or indirectly within the United States or Europe, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing, and selling security equipment and protection devices in the United States and Europe. Pshtissky further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Pshtissky agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Pshtissky acknowledges that he may only be released from this covenant if the Company materially breech's this agreement or provides a written release of this provision. 5. Severance Payment on Certain Terminations. ----------------------------------------- A. If either this Agreement expires, or the Company terminates Pshtissky's employment under this Agreement for reasons other than "Gross Misconduct", then Pshtissky, at his option, may elect to receive severance payments, without reduction for any offset or mitigation, in an amount equal to (a) one-twelfth Pshtissky's annual base salary at the time of such termination multiplied by (b) the number of full years of Pshtissky's employment by the Company up to a maximum of 24 years. B. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal, or inability due to drug or alcohol impairment, to perform substantially the duties and services required of his position; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or (c) conviction of a felony involving moral turpitude. Pshtissky's option to elect to receive a severance payment may be exercised only by written notice delivered to the Company within 90 days following the date on which Pshtissky receives actual notice of termination or this Agreement expires, as the case may be. In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any. The severance amount shall be paid in equal monthly payments over a 12-month period. 6. Termination Payment on Change of Control. ---------------------------------------- A. Notwithstanding any other provision of this Agreement, if a "Change of Control" occurs without the consent of the Board of Directors, Pshtissky, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control, in either lump sum or extended payments over three years as Pshtissky shall elect. B. A "Change of Control" shall be deemed to have occurred if any entity shall directly or indirectly acquire beneficial ownership of 50% or more of the outstanding shares of capital stock of the Company. C. Pshtissky's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Pshtissky receives actual notice of Change of Control. 7. Deferred Compensation. ---------------------- A. 6,875 shares of the Company's common stock now held by the Company as treasury shares (the "Deferred Compensation Shares") shall be set aside and held by the Company for future distribution to Pshtissky under this paragraph. B. As deferred compensation, and in addition to all other compensation payable to Pshtissky, the Deferred Compensation Shares shall become the property of Pshtissky, and the Company shall deliver the certificates for the Deferred Compensation Shares to Pshtissky (or his executor of administrator), on the Transfer Date, registered in Pshtissky's name, within 10 days thereafter. The Transfer Date shall be the earliest of (i) the date of Pshtissky's death; (ii) the date as of which Pshtissky's employment by the Company involuntarily terminates; (iii) the date Pshtissky reaches age 60; or (iv) the occurrence of a change of Control as defined in paragraph 6. C. Notwithstanding any other provision of this paragraph, Pshtissky shall not be entitled to any Deferred Compensation Shares if the Company terminates this Agreement for Gross Misconduct as defined in paragraph 5. D. Prior to the Transfer Date, Pshtissky's rights to the Deferred Compensation Shares shall not be transferrable and the Treasury Shares shall be the property of the Company. E. Pshtissky represents that he will be acquiring the Deferred Compensation Shares for investment only and without a view to the distribution thereof and that the Deferred Compensation Shares, when delivered to him, may constitute restricted stock under the Securities Act of 1933, and the regulations thereunder, and that the certificates therefor shall bear such legend relating to this subparagraph as the Company shall reasonably require. 8. Death or Disability. The Company may terminate this Agreement at its -------------------- sole option and determination if during the term of this Agreement (a) Pshtissky dies or (b) Pshtissky becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of whether Pshtissky is disabled or not. 9. Arbitration. Any controversy or claim arising out of, or relating to ----------- this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 10. Miscellaneous. ------------- A. Except for stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President may determine to provide or make available to Pshtissky. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York State applicable to contracts between New York State residents and made and to be entirely performed in New York State. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. By__________________ - ------------------------------ Yacov Pshtissky Kenneth M. Darby Vice President - New Technology CEO and Development Vicon Industries, Inc. Date:_________________ Date:_________________ EX-10 7 f10k1201_ex10-5.txt EMPLOYMENT CONTRACT - JOHN L. ECKMAN Exhibit 10.5 EMPLOYMENT AGREEMENT -------------------- AGREEMENT, dated as of April 1, 2001, between John L. Eckman (hereinafter called "ECKMAN") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company"). WHEREAS, the Company and ECKMAN mutually desire to assure the continuation of ECKMAN's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ ECKMAN as its Vice ---------- President of Sales throughout the term of this Agreement, and ECKMAN hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the ---- date of this Agreement and end on September 30, 2003 unless terminated earlier by the Company. 3. Compensation. ------------ A. The Company shall pay ECKMAN a base salary of $140,000 per annum, subject to periodic adjustment as determined by the President of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. B. ECKMAN's base salary shall be payable monthly or bi-weekly. C. ECKMAN shall also be entitled to participate, if an employee, in any lifeinsurance, 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 and requirements of such plans. 4. Covenant not to Compete. ECKMAN agrees that during the term ----------------------- of this Agreement, or earlier date in case of termination for any reason by the Company, and for a period of 24 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. ECKMAN further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and ECKMAN agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. ECKMAN acknowledges that he may only be released from this covenant if the Company materially breach's this agreement or provides a written release of this provision. 5. Severance Payment on Certain Terminations or Events. --------------------------------------------------- A. If the Company terminates ECKMAN's employment under this Agreement for reasons other than "Misconduct" then ECKMAN, shall be entitled to receive severance payments as determined below, except in the case of disability under paragraph 7. The severance amount shall be equal to one month of ECKMAN's annual base salary at the time of such termination for each full year of service beginning with ECKMAN's original start date of August 7, 1995, but excluding time when ECKMAN was not a full time employee, up to a maximum of 12 months. 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. The severance amount shall be paid in equal monthly payments over the number of months determined in 5A above. 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, ECKMAN, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control, in either lump sum present valued or extended payments over three years as ECKMAN shall elect. B. A "Change of Control" shall be deemed to have occurred if any entity shall directly or indirectly acquire beneficial ownership of 50% or more of the then outstanding shares of capital stock of the Company. C. ECKMAN's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which ECKMAN receives actual notice of a Change of Control. In selecting this option the Company shall have no obligation to ECKMAN 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) ECKMAN dies or (b) ECKMAN becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of such disability. 8. Arbitration. Any controversy or claim arising out of, or relating to ----------- this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 9. Miscellaneous. ------------- A. This Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President may determine to provide or make available to ECKMAN. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York State applicable to contracts between New York State residents and made and to be entirely performed in New York State. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. - ----------------------- By: ----------------------- John L.Eckman Kenneth M. Darby CEO Vicon Industries, Inc. EX-10 8 f10k1201_ex10-6.txt EMPLOYMENT CONTRACT - YIGAL ABIRI Exhibit 10.6 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT, dated as of October 1, 2001 between YIGAL ABIRI (hereinafter called "Abiri") and Q.S.R. Ltd, a Israeli corporation, having its principal place of business at Park Argaman, Industrial Zone, P.O.B. 41, Yavne 81100, Israel (hereinafter called "QSR"). WHEREAS, Abiri has previously been employed by QSR, WHEREAS, QSR and Abiri mutually desire to assure the continuation of Abiri's services to QSR, NOW THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment QSR shall employ Abiri as its General Manager throughout the ---------- term of this Agreement, and Abiri hereby accepts such employment. 2. Term The term of this Agreement shall commence as of the date of this ---- Agreement and end of September 30, 2004 thereof unless terminated earlier by QSR for cause. 3. Compensation ------------ A. QSR shall pay Abiri a base salary of $125,000 per annum. Such base salary shall be payable monthly or bi-weekly. During the term of this Agreement, Abiri shall be entitled to an increase to the aforementioned annual base salary to $145,000 retroactive to the beginning of any QSR fiscal year in which the consolidated audited financial results of Vicon Industries, Inc. and subsidiaries reflects a profit. B. Abiri shall also be entitled to a fiscal year end Performance Bonus beginning with fiscal year 2002, but only if the consolidated audited financial results of Vicon Industries, Inc. and subsidiaries (VII) reflects a fiscal year end profit, as follows: Performance Bonus ----------------- Amount Criteria ------ -------- a) 10% of base salary VII Consolidated Net Sales is above planned target b) 25% of base salary VII Consolidated Net Sales is 5% aboveplanned target c) 50% of base salary VII Consolidated Net Sales is 10% above planned target d) 100% of base salary VII Consolidated Net Sales is 20% above planned target For fiscal year 2002, the planned revenue target is $63 million U.S. dollars. The sales target for fiscal years 2003 and 2004 shall be established each year by budget. Vicon Industries, Inc. Consolidated Net Sales shall be exclusive of sales from an acquired business whose sales are not included in an annual budget plan. C. Abiri shall also be entitled to participate in employee benefit plans as may be required by Israeli law or are offered to other full-time employees of QSR. 4. Expenses QSR will provide Abiri with an automobile to be agreed upon by -------- the parties. In addition, QSR will pay all prudent and reasonable costs of operation of such automobile, such as gas, repairs and insurance. 5. Change of Control Should a majority, 51% or more, of the common ----------------- stock of Vicon Industries, Inc. be owned and controlled by an entity or individual other than the Officers and Directors of Vicon Industries, Inc. existing at the date of this Agreement, then Abiri, at his own option, may resign from QSR Ltd. and such resignation shall be considered involuntary. 6. Covenant not to Compete Abiri agrees that during the term of this ----------------------- Agreement and for a period of five years thereafter, he shall not directly or indirectly within the United States, Europe, or Israel, 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 QSR's or Vicon's business of designing, manufacturing, marketing and selling video systems and equipment in the United States, Europe, or Israel. Abiri further acknowledges that the services rendered by him under this Agreement are special, unique, and of extraordinary character and that a material breach by him of this section will cause QSR, TeleSite and Vicon to suffer irreparable damage; and Abiri agrees that in addition to nay other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Abiri acknowledges that he may only be released from this covenant if QSR materially breaches this agreement or provides a written release to Abiri of this provision. 7. Death or Disability QSR may terminate this Agreement, at its sole ------------------- option and determination, if during the term of this Agreement (a) Abiri dies or (b) Abiri becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. 8. Arbitration Any controversy or claim arising out of, or relating to ----------- this Agreement, or the breach thereof, shall be settled by arbitration in the City of Tel Aviv in accordance with the rules of the Israeli Arbitration Board, then in effect, and judgement upon the award rendered to 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 whether written or verbal, including the Employment Agreement dated July 30, 1999 between Abiri and QSR Ltd, except for paragraphs 3D and E which shall remain in effect until their scheduled expiration date. 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 the State of Israel. 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. 10. This Agreement shall inure to the benefit of, and be binding upon, QSR, TeleSite or Vicon, its successors, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. Q.S.R. LTD. By__________________________ Director -------------------------- Yigal Abiri EX-23 9 f10k1201_ex23.txt INDEPENDENT AUDIT'S CONSENT EXHIBIT 23 Independent Auditors' Consent ----------------------------- The Board of Directors Vicon Industries, Inc.: We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-7892, 33-34349, 33-90038, 333-30097 and 333-71410) and Form S-2 (No. 333-46841) of Vicon Industries, Inc. of our report dated December 3, 2001, relating to the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of September 30, 2001 and 2000 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, 2001, which report appears in the September 30, 2001 annual report on Form 10-K of Vicon Industries, Inc. /s/ KPMG LLP Melville, New York December 31, 2001 -----END PRIVACY-ENHANCED MESSAGE-----