-----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, WRGMSe2KAGCErFSJNYVhozELEiKoe79PG9KeEkAs1loY0KBquFqL8zZ5gKWR2+K/ vV3HeKfQJmDYaU5GlNQaaA== 0000310056-97-000013.txt : 19980114 0000310056-97-000013.hdr.sgml : 19980114 ACCESSION NUMBER: 0000310056-97-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971224 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICON INDUSTRIES INC /NY/ CENTRAL INDEX KEY: 0000310056 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 112160665 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07939 FILM NUMBER: 97744790 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 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, 1997 Commission File No. 1-7939 - ---------------------------------------------- ------- VICON INDUSTRIES, INC. (Exact name of registrant as specified in its charter) NEW YORK 11-2160665 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 89 Arkay Drive, Hauppauge, New York 11788 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 952-2288 - ----------------------------------------------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, Par Value $.01 (Title of class) American Stock Exchange (Name of each exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of Common Stock held by non-affiliates of the registrant as of December 15, 1997 was approximately $19,300,000. The number of shares outstanding of the registrant's Common Stock as of December 15, 1997 was 3,001,108. PART I ITEM 1 - BUSINESS General Vicon Industries, Inc. (the "Company"), incorporated in New York in October, 1967, designs, manufactures, assembles and markets a wide range of closed circuit television ("CCTV") components and CCTV systems for security, surveillance, safety, process and control applications by end users. The Company sells CCTV components and systems directly to distributors, dealers and original equipment manufacturers, principally within the security industry. The U.S. security industry is a multi-billion dollar industry which includes guard services, armored carrier, electronic alarms and sensing equipment, safes, locking devices and access systems, as well as CCTV. The nature of the Company's business and the broad security market it serves has not changed materially in the past five years. Users of the Company's products typically utilize them as a visual crime deterrent, for visual documentation, observing inaccessible or hazardous areas, enhancing safety, obtaining cost savings (such as lower insurance premiums), managing control systems, and improving the efficiency and effectiveness of personnel. The Company's products are marketed under its own brand names and registered trademarks. In fiscal 1997, no customer represented more than 10% of consolidated revenues. Products The Company's product line consists of approximately 600 products, of which about a third represent model variations. The Company's product line consists of various elements of a video system, including video cameras, display units (monitors), video recorders, switching equipment for video distribution, digital video and signal processing units (which perform character generation, multi screen display, video insertion, intrusion detection, source identification and alarm processing), motorized zoom lenses, remote camera positioning devices, manual and computer based system controls, environmental camera enclosures and consoles for system assembly. The Company maintains a large line of products due to the many varied climatic and operational environments under which the products are expected to perform. In addition to selling from a standard catalog line, for significant orders, the Company will produce to specification or modify an existing product to meet a customer's requirements. The Company's products range in price from $10 for a simple camera mounting bracket to approximately one hundred thousand dollars (depending upon configuration) for a large digital control and video switching system. - 2 - Marketing The Company's products are sold worldwide, principally to independent distributors, dealers and integrators of various types of security-related systems. Sales are made by in-house customer service representatives, field sales engineers and by independent sales representatives in certain areas of the United States. The sales effort is supported by an in-house technical services group which provides application engineering, system design and project management. Although the Company does not sell directly to end users, much of its sales promotion and advertising is directed at end user markets. The Company's products are employed in video system installations by: (1) commercial and industrial users, such as office buildings, manufacturing plants, warehouses, apartment complexes, shopping malls and retail stores; (2) federal, state, and local governments for national security purposes, municipal facilities, prisons, and military installations; (3) financial institutions, such as banks, clearing houses, brokerage firms and depositories, for security purposes; (4) transportation departments for highway traffic control, bridge and tunnel monitoring, and airport, subway, bus and seaport surveillance; (5) gaming casinos, where video surveillance is often mandated by local regulation; and (6) health care facilities, such as hospitals, particularly psychiatric wards and intensive care units. The Company estimates that approximately 50 percent of its total revenues are sales for commercial and industrial uses. The Company's principal sales offices are located in Hauppauge, New York; Atlanta, Georgia and Segensworth, England. International Sales The Company sells internationally by direct export to dealers and distributors, and, in Europe through the Company's United Kingdom (U.K.) subsidiary to dealers and distributors. In fiscal 1997, the operating profit and identifiable assets of the Company's U.K. subsidiary amounted to approximately $363,000 and $4.8 million, respectively. For more information regarding foreign operations, see Note 7 of Notes to Consolidated Financial Statements included elsewhere herein. Direct export sales and sales from the Company's U.K. subsidiary amounted to $17.8 million, $16.2 million and $17.5 million or 35%, 38% and 40% of consolidated revenues in fiscal years 1997, 1996, and 1995, respectively. Export sales are made through a wholly-owned subsidiary, Vicon Industries Foreign Sales Corporation, a tax advantaged foreign sales corporation. The Company's principal foreign markets are Europe and the Far East, which together accounted for approximately 80 percent of international sales in fiscal 1997. Additional information is contained in the discussion of foreign currency activity included in Item 7. - 3 - Competition The Company competes in areas of price, service, product performance and availability with several large and small public and privately-owned companies in the production and sale of CCTV systems and components (excluding cameras, monitors and video recorders "Video Products") within the security industry. The Company's Video Products compete with many large companies whose financial resources and scope of operations are substantially greater than the Company's. The Company is one of a few domestic market suppliers that design, assemble, manufacture, market and support an extensive line of products offering a comprehensive system capability in a wide range of applications. The Company believes a broad product line is desirable since many customers prefer to obtain a complete video system from one supplier with the assurance of product compatibility and reliability. In recent years, price competition has intensified limiting the amount of cost increases the Company can pass on to customers and in some instances requiring price reductions. Research and Development The Company is engaged in ongoing research and development activities in connection with new and existing products. Changes in CCTV technology have incorporated the use of advanced electronic components and new materials which add to product life and performance. Nineteen professional employees devote full time to the development of new products and to improving the qualities and capabilities of existing products. Periodically, the Company engages the services of others to assist in the development of new products. Expenditures for research and development amounted to approximately $2,000,000 in 1997, $1,800,000 in 1996, and $1,900,000 in 1995 or approximately 3.9% of revenues in 1997, 4.2% of revenues in 1996, and 4.2% of revenues in 1995. Source and Availability of Raw Materials The Company has not experienced shortages or significant difficulty in obtaining its raw materials, components or purchased finished products. Raw materials are principally aluminum, steel and plastics, while components are mainly motors, video lenses and standard electronic parts. In 1997, the Company procured indirectly approximately 22% of its product purchases from Chun Shin Electronics, Inc., its South Korean joint venture company (see Item 13 for further discussion of this joint venture). The Company is not dependent upon any other single source for a significant amount of its raw materials, components or purchased finished products. Intellectual Property The Company owns a limited number of design and utility patents expiring at various times. The Company has certain trademarks registered and several other trademark applications pending both in the United States and in Europe. Many of the Company's products employ proprietary software which is protected by copyright. The Company has no licenses, franchises or concessions with respect to any of its products or business dealings. The Company does not deem its lack of patents, licenses, franchises and concessions, to be of substantial significance or to have a material effect on its business. The Company does, however, consider its proprietary software to be unique and valuable and is a principal element in the differentiation of the Company's products from its competition. - 4 - Inventories The Company maintains an inventory of finished products sufficient to accommodate its customers' requirements, since most sales are to dealer/contractors who do not carry large stock inventories. Parts and components inventories are also carried in sufficient quantities to permit prompt delivery of certain items. The Company would rather carry adequate inventory quantities than experience shortages which detract from the production process and sales effort. The Company's business is not seasonal. Backlog The backlog of orders believed to be firm as of September 30, 1997 and 1996 was approximately $7.0 million and $3.1 million, respectively. All orders are cancelable without penalty at the option of the customer. The Company prefers that its backlog of orders not exceed its ability to fulfill such orders on a timely basis, since experience shows that long delivery schedules only encourage the Company's customers to look elsewhere for product availability. Employees At September 30, 1997, the Company employed 187 full-time employees, of whom five are officers, 44 administrative personnel, 77 employed in sales capacities, 29 in engineering, and 32 production employees. At September 30, 1996, the Company employed 176 persons categorized in similar proportions to those of 1997. There are no collective bargaining agreements with any of the Company's employees and the Company considers its relations with its employees to be good. ITEM 2 - PROPERTIES The Company operates from a 56,000 square foot leased facility in Hauppauge, Long Island, New York which it occupied in April 1997. The five year lease includes a five year renewal option which, if exercised, would expire in December 2006. The Company is currently in the process of acquiring the facility from the landlord. The Company also operates, under short term leases, an 8,500 square foot warehouse in Hauppauge, and a sales office in Atlanta, Georgia. In addition, the Company owns a 14,000 square foot sales, service and warehouse facility in southern England which services the U.K. and Europe. ITEM 3 - LEGAL PROCEEDINGS None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None - 5 - PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's stock is traded on the American Stock Exchange under the symbol (VII). The following table sets forth for the periods indicated, the range of high and low prices for the Company's Common Stock on the American Stock Exchange: Quarter Ended High Low Fiscal 1997 December 2-3/4 1- 3/4 March 3-7/16 1- 15/16 June 4-1/4 3 September 8-11/16 4 Fiscal 1996 December 2-3/8 1-3/16 March 2 1-1/4 June 2-3/4 1-11/16 September 5-7/16 2-1/16 The Company has not declared or paid cash dividends on its Common Stock for any of the foregoing periods. Additionally, under the current loan agreement, the Company may not declare dividends. The approximate number of holders of Common Stock at December 15, 1997 was 1,500. - 6 - ITEM 6 - SELECTED FINANCIAL DATA FISCAL YEAR 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (in thousands, except per share data) Net sales $51,519 $ 43,191 $ 43,847 $ 47,714 $ 45,923 Gross profit 14,475 10,957 9,546 10,714 9,274 Pretax income (loss) 1,647 385 (1,267) 74 (1,858) Net income (loss) 1,565 300 (1,347) 45 (1,875) Income (loss) per share: Primary .52 .11 (.49) .02 (.68) Fully diluted .48 .10 (.49) .02 (.68) Total assets 31,200 28,085 26,423 28,857 26,069 Long-term debt 8,344 6,429 5,339 6,059 5,621 Working capital 15,351 12,064 10,721 13,359 13,420 Property, plant and equipment (net) 3,492 3,034 3,262 3,180 3,245 Cash dividends - - - - - - 7 - ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal Year 1997 Compared with 1996 Net sales for 1997 were $51.5 million, an increase of 19%, compared with $43.2 million in 1996. The increase was principally due to incremental sales worldwide of certain new products. The backlog of orders was $7.0 million at September 30, 1997 compared with $3.1 million at September 30, 1996. Gross profit margins for 1997 increased 11% to 28.1% compared with 25.4% in 1996. The margin improvement was principally attributable to capacity gains from increased sales, higher margins on certain new products and lower costs for video products. Operating expenses increased $2.0 million to $11.7 million in 1997 compared with $9.7 million in 1996. The increase is the result of payroll and related costs as the Company added sales, technical support and engineering personnel to support increased sales and product development activities. The Company also incurred $225,000 of costs and expenses to relocate to a new principal operating facility. Interest expense increased by $261,000 to $1,144,000 as a result of increased bank borrowings to support higher levels of working capital. The increase in income of approximately $1.3 million was due to higher sales and gross margins, offset in part by increased operating expenses. - 8 - MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Fiscal Year 1996 Compared with 1995 Net sales for 1996 were $43.2 million, a decrease of 1.5%, compared with $43.8 million in 1995. The sales decline was principally the result of the termination of low margin video product sales (cameras and VCR's) to a Far East distributor. Lower sales in Europe due to delays in new product introduction were offset by increased other export sales. Domestic revenue levels were essentially unchanged from 1995. The backlog of orders was $3.1 million at September 30, 1996 compared with $2.7 million at September 30, 1995. Gross profit margins were 25.4% of net sales in 1996, compared with 21.8% in 1995. The margin improvement was due principally to a beneficial sales mix of higher margin products, particularly new proprietary digital video products and control systems. The Company also shifted sourcing of a major portion of its video product line to lower cost suppliers outside of Japan. In addition, during 1996, the value of the dollar increased against the Japanese yen which increased margins for those few products still sourced in Japan. Operating expenses totaled $9.7 million in 1996 compared with $9.8 million in 1995. Operating expenses, as a percent of sales, amounted to 22.5% and 22.4% in 1996 and 1995, respectively. The decline in expenses was due primarily to ongoing cost control measures. During 1996, the Company recorded an unrealized foreign exchange gain of $42,000. This gain resulted from the Company's revaluation of its yen denominated mortgage obligation into U.S. dollars as the value of the British pound sterling gained against the Japanese yen. Interest expense declined $131,000 due principally to the lower cost of new bank borrowings. Income improved approximately $1.6 million principally as a result of the higher gross margins discussed above. - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND FINANCIAL CONDITION September 30, 1997 Compared with 1996 Working capital increased approximately $3.3 million to $15.4 million at September 30, 1997 principally as a result of higher receivables and inventories financed by long term bank borrowings. Accounts receivable increased approximately $.9 million to $9.6 million at September 30, 1997, as a result of a 30% increase in 1997 fourth quarter sales. Inventories increased $1.9 million to $16.6 million at September 30, 1997 due principally to increased levels of parts and work-in-process for a new line of domed camera products. Total current liabilities decreased $.6 million as cash generated from operations was used to pay down current debt. Long term debt increased $1.9 million to support higher levels of inventory and receivables as a result of a 19% or $8.3 million growth in 1997 sales. Capital expenditures totaled $1,202,000 in fiscal 1997. The expenditures were principally for leasehold improvements and furniture and fixtures related to the Company's move to a new principal operating facility. In December 1997, the Company entered into negotiations to acquire the new facility for $3.3 million and finance it with a bank mortgage loan of $2.9 million. The Company maintains a bank overdraft facility of 600,000 pounds sterling (approx. $960,000) in the U.K. to support local working capital requirements. At September 30, 1997, borrowings under this facility were approximately $169,000. The Company's domestic bank loan agreement permits borrowings up to a maximum of $6.5 million, subject to an availability formula based on accounts receivable and inventories. The agreement expires on January 31, 1999. Borrowings under such agreement amounted to approximately $6.0 million and $4.1 million at September 30, 1997 and 1996, respectively. The Company purchases certain products from a related party, Chugai Boyeki Co., Ltd. and its affiliates (Chugai) whose extended trade payables bear interest and are due on demand. The Company historically has made trade payable payments to Chugai as cash availability permits. The Company believes that its sources of credit provide adequate funding to meet its near term cash requirements. - 10 - Foreign Currency Activity The Company's foreign exchange exposure is principally limited to the relationship of the U.S. dollar to the Japanese yen and the British pound sterling. Japanese sourced products denominated in Japanese yen accounted for approximately 7% of product purchases in fiscal 1997 and 1996. Although the dollar strengthened against the Japanese yen during fiscal 1997 and 1996, in past years the dollar had weakened dramatically in relation to the yen, resulting in increased costs for such products. When market conditions permit, cost increases due to currency fluctuations are passed on to customers through price increases. The Company also attempts to reduce the impact of an unfavorable exchange rate condition through cost reductions from its suppliers, lowering production cost through product redesign, and shifting product sourcing to suppliers transacting in more stable and favorable currencies. The Company's purchases from Japan are denominated in Japanese yen. At the Company's direction, Chugai Boyeki Co., Ltd., its Japanese supplier, has entered into foreign exchange contracts on behalf of the Company to hedge the currency risk on these product purchases. Sales by the Company's U.K. subsidiary to customers in Europe are made in pounds sterling. In fiscal 1997 approximately $3.3 million of products were sold by the Company to its U.K. subsidiary for resale. In the years when the pound weakened significantly against the U.S. dollar, the cost of U.S. sourced product sold by the Company's U.K. subsidiary increased. When market conditions permitted, such cost increases were passed on to the customer through price increases. The Company attempts to control its currency exposure on intercompany sales through the purchase of forward exchange contracts. In general, the Company attempts to increase prices and seek lower costs from suppliers to mitigate exchange rate exposures, however, there can be no assurance that such steps will be effective in limiting foreign currency exposure. Inflation The impact of inflation on the Company has lessened in recent years as the rate of inflation remains low. However, inflation continues to increase costs to the Company. As operating expenses and production costs increase, the Company seeks price increases to its customers to the extent permitted by competition. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Part IV, Item 14, for an index to consolidated financial statements and financial statement schedules. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None - 11 - PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND OFFICERS OF THE REGISTRANT The Directors, Executive Officers and Officers of the Company are as follows: Donald N. Horn, age 68 Chairman of the Board (since 1967); term ends April 1999 Kenneth M. Darby, age 51 President, Chief Executive Officer, Assistant Secretary, and Director (since 1987); term ends April, 2000 Arthur D. Roche, age 59 Executive Vice President, Chief Financial Officer, Secretary, Member of the Office of the President and Director (since 1992); term ends April 1999 Peter F. Barry, age 69 Director since 1984; term ends April 1999 Milton F. Gidge, age 68 Director since 1987; term ends April 1998 Michael D. Katz, age 59 Director since 1993; term ends April 1998 Peter F. Neumann, age 63 Director since 1987; term ends April 2000 W. Gregory Robertson, age 53 Director since 1991; term ends April 1998 Kazuyoshi Sudo, age 55 Director since 1987; term ends April 2000 Arthur V. Wallace, age 72 Director since 1974; term ends April 1998 John L. Eckman, age 48 Vice President, U.S. Sales Peter A. Horn, age 42 Vice President, Compliance and Quality Assurance Yacov A. Pshtissky, age 46 Vice President, Technology and Develop. Mr. D. Horn founded the Company in 1967 and has served as Chairman of the Board since its inception. He also served as Chief Executive Officer from the Company's inception until April 1992 and as President to September, 1991. Mr. Darby has served as Chief Executive Officer since April, 1992 and as President since October, 1991. Mr. Darby also served as Chief Operating Officer and as Executive Vice President, Vice President, Finance and Treasurer of the Company. He first joined the Company in 1978 as Controller after more than nine years at KPMG Peat Marwick, a major public accounting firm. Mr. Roche joined the Company as Executive Vice President and co-participant in the Office of the President in August 1993. For the six months earlier, Mr. Roche provided consulting services to the Company. In October, 1991 Mr. Roche retired as a partner of Arthur Andersen & Co., an international accounting firm whom he joined in 1960. Mr. Barry is a retired executive of Grumman Corp., an aerospace manufacturer, for whom he served from August 1988 to March 1991 as Senior Vice President of Washington D.C. operations. Previously, he served since 1974 as President of Hartman Systems, Inc., a manufacturer of electronic controls and display devices for military applications. Mr. Barry currently acts as a consultant to private industry on government relations. - 12 - Mr. Gidge is a retired executive officer of Lincoln Savings Bank (1976-1994) and served as its Chairman, Credit Policy. He also served as a director since 1980 of Interboro Mutual Indemnity Insurance Co., a general insurance mutual company and since 1988 as a director of Intervest Corporation of New York, a mortgage banking company. Mr. Katz is a physician practicing in New York. He is the President of Katz, Rosenthal, Ganz, Snyder & PDC. He has served in that capacity since 1970. Mr. Neumann is the retired President of Flynn-Neumann Agency, Inc. an insurance brokerage firm. He has also served since 1978 as a director of Reliance Federal Savings Bank. Mr. Robertson is President of TM Capital Corporation, a financial services company, an organization he founded in 1989. From 1985 to 1989, he was employed by Thomson McKinnon Securities, Inc. as head of investment banking and public finance. Mr. Sudo is Chief Executive Officer of Chugai Boyeki (America) Corp., a distributor of electronic, chemical and optical products. From 1985 to 1997 he was Treasurer of such company. Mr. Wallace, who joined the Company in 1970, was Executive Vice President from 1979 until he retired in September, 1990. Mr. Eckman joined the Company in August 1995 as Eastern Regional Manager. He was promoted to Vice President, U.S. Sales in July, 1996. Prior to joining the Company, he was Director of Field Operations for Cardkey Systems, Inc. with whom he was employed for twelve years. Mr. P. Horn joined the Company in January, 1974 and has been employed in various technical capacities. In 1986 he was appointed as Vice President, Engineering; in May, 1990 as Vice President, New Products and Technical Support Services; in September 1993, he was appointed Vice President, Marketing; in 1994 as Vice President, Product Management; and in 1995 as Vice President, Compliance and Quality Assurance. Mr. Pshtissky, who joined the Company in September 1979 as an Electrical Design Engineer, was promoted to Director of Electrical Product Development in March, 1988 and to Vice President, Engineering in May, 1990. There are no family relationships between any director, executive officer or person nominated or chosen by the Company to become a director or officer except for the relationship between Peter A. Horn, an officer of the Company, and Donald N. Horn, Chairman of the Board. Peter A. Horn is the son of Donald N. Horn. - 13 - Compliance with Section 16(a) of the Exchange Act Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during the year ended September 30, 1997 and certain written representations, no person, who, at any time during the year ended September 30, 1997 was a director, officer or beneficial owner of more than 10 percent of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act failed to file on a timely basis, as disclosed in the above forms, reports required by Section 16 of the Exchange Act during the year ended September 30, 1997. ITEM 11 - EXECUTIVE COMPENSATION The following information is set forth with respect to all compensation paid by the Company to its Chief Executive Officer and its most highly compensated executive officers other than the CEO whose annual compensation exceeded $100,000, for each of the past three fiscal years. Annual Long Term Compensation Compensation Fiscal Name and Year Ended Options All Other Principal Position September 30, Salary No. of Shares Compensation Kenneth M. Darby 1997 $225,000 58,000 $87,017 (4) Chief Executive Officer 1996 $195,000 95,000 $34,750 (2) 1995 $195,000 - $ 3,000 (1) Arthur D. Roche 1997 $170,000 35,000 $45,240 (5) Executive Vice President 1996 $150,000 25,000 $15,875 (3) 1995 $150,000 - - No listed officer received other non-cash compensation amounting to more than 10% of salary. (1) Represents life insurance policy payment. (2) Represents life insurance policy payment of $3,000 and bonus in the form of 16,933 shares of common stock issued from Treasury. (3) Represents bonus in the form of 8,467 shares of common stock issued from Treasury. (4) Represents life insurance policy payment of $3,000 and cash bonus of $84,017. (5) Represents cash bonus. - 14 - Stock Options OPTION GRANTS IN LAST FISCAL YEAR Potential Realizable Individual Grants Value at Assumed Annual Rates of Stock % of Total Price Appreciation No. of Granted to Exercise For Option Term Options Employees In Price Expiration Name Granted Fiscal Year Per Share Date 5% 10% - ---------------- -------- ----------- --------- ---------- ------- ------- Kenneth M. Darby 38,000 16% 2.5000 10/01 $26,200 $58,000 20,000 8% 3.0625 4/02 $16,900 $37,400 Arthur D. Roche 25,000 10% 2.5000 10/01 $17,300 $38,200 10,000 4% 3.0625 4/02 $ 8,500 $18,700 Options granted in the year ended September 30, 1997 were issued under the 1996 Incentive Stock Option Plan. The options granted above are exercisable as follows: up to 30% of the shares at the grant date, an additional 30% of the shares on the first anniversary of the grant date, and the balance of the shares on the second anniversary of the grant date, except that no option is exercisable after the expiration of five years from the date of grant. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES At September 30, 1997 Number of Value of Shares Unexercisable Unexercisable Acquired Value In-the-Money In-the-Money Name On Exercise Realized (1) Options (3) Options (2) - ---------------- ----------- ------------ ------------- ----------- Kenneth M. Darby 153,432 $698,621 78,600 $484,775 Arthur D. Roche 75,500 $343,750 34,500 $206,875 (1)Calculated based on the difference between the closing quoted market value ($6.50) per share at the date of exercise and the exercise price. (2) Calculated based on the closing quoted market value ($8.375). (3) No options were exercisable by the above named officers at September 30, 1997. - 15- Mr. Darby and Mr. Roche have each entered into employment agreements with the Company that provide for annual salaries of $225,000 and $170,000, respectively through fiscal years 2002 and 1999, respectively. Each of these agreements provides for payment in an amount up to three times their average annual compensation for the previous five years if there is a change in control without Board of Director approval (as defined in the agreements). Mr. Darby's agreement also provides for a deferred compensation benefit of 45,952 shares of common stock held by the Company in treasury. Such benefit vests upon retirement of the executive or earlier, under certain conditions. The quoted market value of such benefit approximated $345,000 at the date of grant. Messrs. D. Horn and A. Wallace (current directors) each have insured deferred compensation agreements with the Company which provide that upon reaching retirement age total payments of $917,000 and $631,000, respectively, will be made in monthly installments over a ten year period. The full deferred compensation payment is subject to such individuals' adherence to certain non-compete covenants. Mr. Wallace, who retired in September 1990, began receiving payments under the agreement in October, 1990 and Mr. Horn began receiving payments under the agreement in January, 1994. Directors, except the Chairman of the Board and employee directors, were each compensated at the rate of $600 per Board meeting and $300 per committee meeting attended in person while the Chairman of the Board was compensated at the rate of $1,000 per Board meeting and $300 per committee meeting attended in person through December 31, 1996. Since January 1, 1997, the directors and Chairman have been compensated at annual rates of $6,000 and $10,000, respectively, while committee fees have been $500 per meeting attended in person. Employee directors are not compensated for Board or committee meetings. - 16 - COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board of Directors consists of Messrs. Neumann, Robertson and Wallace, none of whom are or ever have been officers of the Company, except Mr. Wallace who retired in 1990 as Executive Vice President. See the section entitled "Certain Relationships and Related Transactions" included elsewhere herein, for a discussion of certain other relationships maintained by Mr. Neumann and Mr. Robertson with the Company. BOARD COMPENSATION COMMITTEE REPORT The Compensation Committee's compensation policies applicable to the Company's executive officers for the last completed fiscal year were to pay a competitive market price for the services of such officers, taking into account the overall performance and financial capabilities of the Company and the officer's individual level of performance. Mr. Darby makes recommendations to the Compensation Committee as to the base salary and incentive compensation of all executive officers other than himself. The Committee reviews these recommendations with Mr. Darby, and after such review, determines compensation. In the case of Mr. Darby, the Compensation Committee makes its determination after direct negotiation with such officer. For each executive officer, the Committee's determinations are based on the committee's conclusions concerning each officer's performance and comparable compensation levels in the CCTV Industry and the Long Island area for similarly situated officers at other companies. The overall level of performance of the Company is taken into account but is not specifically related to the base salary of these executive officers. Also, the Company has established an incentive compensation plan for all of its executive officers, which provides a specified bonus to each officer upon the Company's achievement of certain annual profitability targets. The Compensation Committee grants options to executive officers to connect compensation to the performance of the Company. Options are exercisable in the future at the fair market value at the time of grant, so that an officer granted an option is rewarded by the increase in the price of the Company's stock. The Committee grants options based on significant contributions of an executive officer to the performance of the Company. In addition, in determining the salary compensation of Mr. Darby as CEO, the Committee considered the responsibility assumed by him in formulating and implementing a management and operating restructuring plan. Compensation Committee Peter F. Neumann, Chairman, W. Gregory Robertson and Arthur V. Wallace - 17 - This graph compares the return of $100 invested in the Company's stock on October 1, 1992, with the return on the same investment in the AMEX Market Value Index. (The following table was represented by a chart in the printed material) Vicon AMEX Market Date Industries, Inc. Value Index 10/01/92 100 100 10/01/93 58 122 10/01/94 60 122 10/01/95 63 145 10/01/96 83 152 10/01/97 279 191 - 18 - ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following sets forth information as to each person, known to the Company to be a "beneficial owner" (as defined in regulations of the Securities and Exchange Commission) of more than five percent of the Company's Common Stock outstanding as of December 15, 1997 except for Mr. Chu Chun, and the shares beneficially owned by the Company's Directors and by all Officers and Directors as a group. Name and Address Amount of of Beneficial Owner Beneficial Ownership (1) % of Class ------------------- ------------------------ ---------- Chugai Boyeki (America) Corp. 55 Mall Drive Commack, NY 11725 and Chugai Boyeki Company, Ltd. 2-15-13 Tsukishima Chuo-ku Tokyo, Japan 104 548,715 16.8% Chu Chun C/O I.I.I. Companies, Inc. 915 Hartford Turnpike Shrewsbury, MA 01545 204,507 (7) 6.2% ****************************************************************************** C/O Vicon Industries, Inc. Michael D. Katz 257,700 (2) 7.9% Kenneth M. Darby 246,087 (3) 7.5% Arthur D. Roche 136,967 (4) 4.2% Donald N. Horn 101,003 (2) 3.1% Arthur V. Wallace 26,695 (2) .8% Kazuyoshi Sudo 14,000 (2) .4% Milton F. Gidge 10,000 (5) .3% Peter F. Neumann 8,000 (2) .2% Peter F. Barry 5,600 (2) .2% W. Gregory Robertson 5,000 (2) .2% Total all officers and directors as a group (13 persons) 900,502 (6) 27.5% (1) The nature of beneficial ownership of all shares is sole voting and investment power. (2) Includes currently exercisable options to purchase 5,000 shares. (3) Includes currently exercisable options to purchase 49,400 shares. (4) Includes currently exercisable options to purchase 17,500 shares. (5) Includes currently exercisable options to purchase 8,000 shares. (6) Includes currently exercisable options to purchase 198,600 shares. (7) Mr. Chun has voting and dispositive power over 204,507 shares but disclaims beneficial ownership as to all but 48,400 shares. 100,707 shares are owned by the International Industries, Inc. Profit Sharing Plan and 55,400 shares are owned by immediate family members. - 19 - ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company and Chugai Boyeki Company, Ltd. (Chugai), a Japanese corporation, which owns 18.3% of the outstanding shares of the Company, have been conducting business with each other for approximately eighteen years whereby the Company imports certain video products and lenses through Chugai and also sells its products to Chugai who resells the products in certain Asian and European markets. In fiscal 1997, the Company purchased approximately $7.1 million of products through Chugai and sold products to Chugai for resale totaling approximately $2.7 million. Kazuyoshi Sudo, a director, is Chief Executive Officer of Chugai Boyeki (America) Corp., a U.S. subsidiary of Chugai. Chu S. Chun, who controls 6.8% of the outstanding shares of the Company, also owns Chun Shin Industries, Inc. (CSI). CSI is a 50% partner with the Company in Chun Shin Electronics, Inc. (CSE), a joint venture company which manufactures and assembles certain Vicon products in South Korea. In fiscal 1997, CSE sold approximately $7.0 million of product to the Company through International Industries, Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun. I.I.I. arranges the importation and provides short term financing on all the Company's product purchases from CSE. CSE also sold approximately $1.7 million of product to CSI which sells Vicon product exclusively in Korea. In addition, I.I.I. purchased approximately $1.1 million of products directly from the Company during fiscal 1997 for resale to CSI. Peter F. Neumann, a director of the Company, is a former principal in the insurance brokerage firm of Bradley & Parker, Inc. which is the agent for certain of the Company's commercial insurance. The premium paid for such insurance amounted to approximately $61,000 in fiscal 1997. W. Gregory Robertson, a director of the Company, is President of TM Capital Corporation, an investment banking firm which provides investment banking services to the Company on a periodic basis. Services rendered to the Company during fiscal 1997 amounted to approximately $5,000. - 20 - PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements Included in Part IV, Item 14: Independent Auditors' Report Financial Statements: Consolidated Statements of Operations, fiscal years ended September 30, 1997, 1996, and 1995 Consolidated Balance Sheets at September 30, 1997 and 1996 Consolidated Statements of Shareholders' Equity, fiscal years ended September 30, 1997, 1996, and 1995 Consolidated Statements of Cash Flows, fiscal years ended September 30, 1997, 1996, and 1995 Notes to Consolidated Financial Statements, fiscal years ended September 30, 1997, 1996, and 1995 (a) (2) Financial Statement Schedule Included in Part IV, Item 14: Schedule I - Valuation and Qualifying Accounts for the years ended September 30, 1997, 1996, and 1995 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. - 21 - 14(a)(3) Exhibits Exhibit Number or Exhibit Incorporation by Numbers Description Reference to 3 Articles of Incorporation and Incorporated by reference By-Laws, as amended to the 1985 Annual Report on Form 10-K; Form S-2 filed in Registration Statement No. 33-10435 and Exhibit A, B and C of the 1987 Proxy Statement 10 Material Contracts (.1) Credit and Security Agreement Incorporated by reference dated December 27, 1995 to the 1995 Annual Report between the Registrant and on Form 10-K IBJ Schroder Bank and Trust Company (.2) Credit and Security Agreement Incorporated by reference between the Registrant and IBJ to the 1996 Annual Report Schroder Bank and Trust Company, on Form 10-K First Amendment dated August 19, 1996. (.3) Credit and Security Agreement Incorporated by reference between the Registrant and IBJ to the March 31, 1997 Schroder Bank and Trust Company, filing on Form 10-Q Second Amendment dated February 5, 1997. (.4) Promissory Note dated 10.4 October 5, 1993 between Registrant and Chugai Boyeki Company, Ltd., first amendment dated February 5, 1997. (.5) Employment Contract dated 10.5 October 1, 1997 between the Registrant and Kenneth M. Darby (.6) Employment Contract dated October Incorporated by reference 1, 1996 between Registrant to the 1996 Annual Report and Arthur D. Roche on Form 10-K (.7) Employment Agreement dated October 10.7 1, 1997 between Registrant and John L. Eckman (.8) Employment Agreement dated October 10.8 1, 1997 between Registrant and Peter Horn (.9) Employment Agreement dated October 10.9 1, 1997 between Registrant and Yacov Pshtissky - 22 - (.10) Deferred Compensation Agreements Incorporated by dated November 1, 1986 between the reference to the 1992 Registrant and Donald N. Horn and Annual Report on Arthur V. Wallace Form 10K (.11) Lease agreement dated December Incorporated by 24, 1996 between the Registrant reference to the 1996 and RREEF MIDAMERICA/EAST-V Annual Report on Form NINE, INC. 10-K (.12) Amended and restated 1986 Incorporated by Incentive Stock Option Plan reference to the 1990 Annual Report on Form 10-K (.13) 1994 Incentive Stock Option Plan Incorporated by reference to the 1994 Annual Report on Form 10-K (.14) 1994 Non-Qualified Stock Option Incorporated by Plan for Outside Directors reference to the 1994 Annual Report on Form 10-K (.15) 1996 Incentive Stock Option Plan 10.15 (.16) 1996 Non-Qualified Stock Option 10.16 Plan for Outside Directors (.17) Advice of borrowing terms Incorporated by between the Registrant and reference to the National Westminster Bank PLC June 30, 1997 filing dated April 22, 1997 on Form 10-Q (.18) Commercial fixed rate loan Incorporated by agreement between the Registrant reference to the and National Westminster Bank PLC June 30, 1997 filing dated April 8, 1997 on Form 10-Q 22 Subsidiaries of the Registrant Incorporated by reference to the Notes to the Consolidated Financial Statements 24 Independent Auditors' Consent 24 No other exhibits are required to be filed. 14(b) - REPORTS ON FORM 8-K No reports on Form 8-K were required to be filed during the last quarter of the period covered by this report. - 23 - Other Matters - Form S-8 Undertaking For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 33-7892 (filed June 30, 1986), 33-34349 (filed April 1, 1990), 33-90038 (filed February 24, 1995) and 333-30097 (filed June 26, 1997): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. - 24 - Independent Auditors' Report The Board of Directors and Shareholders Vicon Industries, Inc.: We have audited the consolidated financial statements of Vicon Industries, Inc. and subsidiaries as listed in Part IV, item 14(a)(1). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Part IV, item 14(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vicon Industries, Inc. and subsidiaries at September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Jericho, New York November 12, 1997 - 25 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended September 30, 1997, 1996 and 1995 1997 1996 1995 ---- ---- ---- Net sales $51,518,940 $43,191,446 $43,846,571 Cost of sales 37,043,750 32,234,192 34,300,638 ------------ ---------- ----------- Gross profit 14,475,190 10,957,254 9,545,933 Operating expenses: General and administrative expense 3,542,400 2,931,333 3,366,662 Selling expense 7,957,340 6,800,361 6,433,483 Relocation expense 225,129 - - ---------- --------- ----------- 11,724,869 9,731,694 9,800,145 ---------- --------- ----------- Operating profit (loss) 2,750,321 1,225,560 (254,212) Other (39,896) (41,908) (550) Interest expense 1,143,699 882,290 1,013,383 ---------- ----------- ----------- Income (loss) before income taxes 1,646,518 385,178 (1,267,045) Income tax expense 82,000 85,000 80,000 ---------- ----------- ----------- Net income (loss) $1,564,518 $ 300,178 $(1,347,045) ========== =========== =========== Earnings (loss) per share: Primary $ .52 $ .11 $(.49) ===== ===== ===== Fully diluted $ .48 $ .10 $(.49) ===== ===== ===== See accompanying notes to consolidated financial statements. - 26 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 1997 and 1996 ASSETS 1997 1996 - ------ ---- ---- Current Assets: Cash $ 287,580 $ 205,876 Accounts receivable (less allowance of $493,000 in 1997 and $396,000 in 1996) 9,578,297 8,706,839 Inventories: Parts, components, and materials 3,399,133 2,175,408 Work-in-process 2,046,174 1,391,552 Finished products 11,188,217 11,135,798 ---------- ---------- 16,633,524 14,702,758 Prepaid expenses 307,580 529,631 ---------- ---------- Total current assets 26,806,981 24,145,104 Property, plant and equipment: Land 299,698 290,448 Building and improvements 1,653,503 1,507,630 Machinery, equipment, and vehicles 6,409,729 11,842,120 ---------- ---------- 8,362,930 13,640,198 Less accumulated depreciation and amortization 4,870,717 10,606,013 ---------- ---------- 3,492,213 3,034,185 Other assets 900,417 905,327 ---------- ---------- $31,199,611 $28,084,616 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Borrowings under revolving credit agreement $ 169,006 $ 959,583 Current maturities of long-term debt 515,092 203,719 Accounts payable: Related party 7,146,985 7,457,482 Other 1,407,917 1,811,730 Accrued wages and expenses 2,111,670 1,229,087 Income taxes payable 105,188 87,205 Deferred gain on sale and leaseback - 332,100 ----------- ---------- Total current liabilities 11,455,858 12,080,906 Long-term debt: Related party 1,440,000 2,262,005 Banks and other 6,904,368 4,166,881 Deferred gain on sale and leaseback - 101,893 Other long-term liabilities 485,402 504,776 Commitments and contingencies - Note 10 Shareholders' equity Common Stock, par value $.01 per share Authorized - 10,000,000 shares Issued 3,047,060 and 2,802,728 shares 30,470 28,027 Capital in excess of par value 9,868,063 9,423,089 Retained earnings (deficit) 1,280,907 (283,611) ---------- ---------- 11,179,440 9,167,505 Less treasury stock at cost, 45,952 shares in 1997 and 25,400 shares in 1996 (298,686) (82,901) Foreign currency translation adjustment 33,229 (116,449) ---------- ---------- Total shareholders' equity 10,913,983 8,968,155 ---------- ---------- $31,199,611 $28,084,616 See accompanying notes to consolidated financial statements. - 27 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Fiscal Years Ended September 30, 1997, 1996, and 1995
Foreign Total Capital in Retained currency share- Common excess of earnings Treasury translation holders' Shares Stock par value (deficit) Stock adjustment equity Balance September 30, 1994 2,788,228 $27,882 $9,396,890 $ 763,256 $(82,901) $ (62,595) $10,042,532 Foreign currency translation adjustment - - - - - (62,461) (62,461) Net loss - - - (1,347,045) - - (1,347,045) --------- ------ ---------- ---------- -------- ---------- ----------- Balance September 30, 1995 2,788,228 $27,882 $9,396,890 $ (583,789) $(82,901) $ (125,056) $ 8,633,026 Foreign currency translation adjustment - - - - - 8,607 8,607 Exercise of stock options 14,500 145 26,199 - - - 26,344 Net income - - - 300,178 - - 300,178 --------- ------ ---------- ---------- -------- ---------- ----------- Balance September 30, 1996 2,802,728 $28,027 $9,423,089 $ (283,611) $(82,901) $ (116,449) $ 8,968,155 Foreign currency translation adjustment - - - - - 149,678 149,678 Stock bonus awarded from treasury - - (28,926) - 82,901 - 53,975 Exercise of stock options 244,332 2,443 473,900 - (298,686) - 177,657 Net income - - - 1,564,518 - - 1,564,518 --------- ------ ---------- ---------- --------- ---------- ----------- Balance September 30, 1997 3,047,060 $30,470 $9,868,063 $1,280,907 $(298,686) $ 33,229 $10,913,983 ========= ======= ========== ========== ========= ========== =========== See accompanying notes to consolidated financial statements.
- 28 - VICON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended September 30, 1997, 1996 and 1995 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ 1,564,518 $ 300,178 $(1,347,045) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 783,859 699,211 704,900 Amortization of deferred gain on sale and leaseback (433,993) (332,100) (332,100) Stock bonus award 53,975 - - Foreign exchange gain (39,896) (41,908) (550) Change in assets and liabilities: Accounts receivable (820,556) (122,162) 1,417,089 Inventories (1,880,543) (2,593,382) 1,358,533 Prepaid expenses 230,371 (218,762) 13,513 Other assets 4,910 67,780 (30,000) Accounts payable (727,574) 1,045,453 708,591 Accrued wages and expenses 875,673 (460,350) 409,285 Income taxes payable 14,762 7,517 48,077 Other liabilities (19,374) (45,833) (63,878) ----------- ----------- ---------- Net cash (used in) provided by operating activities (393,868) (1,694,358) 2,886,415 ----------- ---------- ----------- Cash flows from investing activities: Capital expenditures, net of minor disposals (925,024) (482,111) (608,808) ----------- ----------- ---------- Net cash used in investing activities (925,024) (482,111) (608,808) ----------- ----------- ---------- Cash flows from financing activities: Net borrowings under U.S. credit and security agreement 1,860,518 4,142,898 - Repayments of U.S. revolving credit agreement - (2,800,000) (1,700,000) Proceeds from exercise of stock options 177,657 26,344 - Decrease (increase) in borrowings under U.K. revolving credit agreement (831,275) 57,251 (29,511) Borrowings under U.K. term loan 810,000 - - Repayments of U.K. mortgage (353,112) (140,846) (145,280) Repayment of term loan (200,000) - - Repayments of other debt (127,280) (79,779) (92,443) ---------- ---------- ---------- Net cash provided by (used in) financing activities 1,336,508 1,205,868 (1,967,234) ---------- ---------- ---------- Effect of exchange rate changes on cash 64,088 24,627 (68,923) ---------- ---------- ---------- Net increase (decrease) in cash 81,704 (945,974) 241,450 Cash at beginning of year 205,876 1,151,850 910,400 ---------- ---------- ---------- Cash at end of year $ 287,580 $ 205,876 $1,151,850 ========== ========== ========== Non-cash investing and financing activities: Capital lease obligations $ 276,624 - $ 178,151 Cash paid during the fiscal year for: Income taxes $ 29,203 $ 78,121 $ 32,097 Interest $1,118,963 $ 888,061 $ 974,640 See accompanying notes to consolidated financial statements. - 29 - VICON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years ended September 30, 1997, 1996, and 1995 NOTE 1. Summary of Significant Accounting Policies Nature of Operations The Company designs, manufactures, assembles and markets closed circuit television components and systems for use in security, surveillance, safety, process and control applications by end users. The Company markets its products worldwide directly to distributors, dealers and original equipment manufacturers, principally within the security industry. Principles of Consolidation The consolidated financial statements include the accounts of Vicon Industries, Inc. (the Company) and its wholly owned subsidiaries, Vicon Industries Foreign Sales Corp., a Foreign Sales Corporation (FSC) and Vicon Industries (U.K.), Ltd. after elimination of intercompany accounts and transactions. Revenue Recognition Revenues are recognized when products are sold and title is passed to a third party, generally at the time of shipment. Inventories Inventories are valued at the lower of cost (on a moving average basis which approximates a first-in, first-out method) or market. When it is determined that a product or product line will be sold below carrying cost, affected on hand inventories are written down to their estimated net realizable values. Long-Lived Assets Property, plant, and equipment are recorded at cost and include expenditures for replacements or major improvements. Depreciation, which includes amortization of assets under capital leases, is computed by the straight-line method over the estimated useful lives of the related assets for financial reporting purposes and on an accelerated basis for income tax purposes. Machinery, equipment and vehicles are being depreciated over periods ranging from 2 to 10 years. The Company's building is being depreciated over a period of 40 years and leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining lease term. In connection with the Company's move to a new principal operating facility in 1997, approximately $6.3 million of fully depreciated abandoned assets and leasehold improvements were written off. The Company implemented the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of," effective October 1, 1996. The Company reviews its long-lived assets (property, plant and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The adoption of Statement No.121 had no impact on the Company's financial position or results of operations. Research and Development Product research and development costs are charged to cost of sales as incurred, and amounted to approximately $2,000,000, $1,800,000 and $1,900,000 in fiscal 1997, 1996, and 1995, respectively. - 30 - Earnings Per Share Earnings per share are computed based on the weighted average number of shares outstanding and equivalent shares from dilutive stock options. The number of shares used to compute primary earnings/(loss) per share were 3,022,000 in 1997, 2,841,000 in 1996 and 2,763,000 in 1995, respectively. Fully diluted earnings per share reflect the maximum dilution that would have resulted from the exercise of stock options. The number of shares used to compute fully diluted earnings per share were 3,257,000 in 1997, 2,874,000 in 1996 and 2,763,000 in 1995, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" which will require companies to present basic and diluted earnings per share (EPS), instead of primary and fully diluted EPS that is currently required. The new standard simplifies the computation of EPS and is required to be adopted by the Company when it reports its operating results for the first quarter ended December 31, 1997 of fiscal year ended 1998. The standard requires restatement of EPS for all prior periods reported. Under the requirements of SFAS No. 128, the Company's EPS would be as follows: 1997 1996 1995 ---- ---- ---- Basic earnings (loss) per share $.56 $.11 $(.49) Diluted earnings (loss) per share $.48 $.10 $(.49) Foreign Currency Translation Foreign currency translation is performed utilizing the current rate method under which assets and liabilities are translated at the exchange rate on the balance sheet date, while revenues, costs, and expenses are translated at the average exchange rate for the reporting period. The resulting translation adjustment of $33,000 and $(116,000) at September 30, 1997 and 1996, respectively, is recorded as a component of shareholders' equity. Intercompany balances not deemed long-term in nature at the balance sheet date resulted in a translation gain of $35,000, $14,000 and $47,000 in 1997, 1996, and 1995, respectively, which is reflected in cost of sales. Gains and losses on contracts which hedge specific foreign currency denominated commitments, primarily inventory purchases, are included in cost of sales. Income Taxes The Company accounts for income taxes under the provisions of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled (see Note 5). Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure of the fair value of certain financial instruments. The carrying amounts for accounts and other receivables, accounts payable and accrued expenses approximate fair value because of the short-term maturity of these instruments. The carrying amounts of the Company's long-term debt and extended term related party accounts payable approximates fair value since the interest rates are prime-based and, accordingly, are adjusted for market rate fluctuations. The fair value of forward exchange contracts is estimated by obtaining quoted market prices. The exchange rates on committed forward exchange contracts at September 30, 1997 approximated market rates for similar term contracts. - 31 - Accounting for Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification Certain prior year amounts have been reclassified to conform with current year presentation. NOTE 2. Investment in Affiliate The Company's 50 percent ownership interest in Chun Shin Electronics, Inc., a joint venture company which assembles certain Vicon products in South Korea, is accounted for using the equity method of accounting which reflects the cost of the Company's investment adjusted for the Company's proportionate share of earnings or losses. Such earnings or losses were not material during each of the three years ended September 30, 1997. Assets and sales of the joint venture were approximately $4.9 million and $8.8 million, respectively, for the fiscal year ended September 30, 1997. A significant portion of joint venture product sales were to related parties including approximately $7.0 million indirectly to the Company and approximately $1.7 million to a company owned by the other joint venture partner (see Note 11). NOTE 3. Deferred Gain on Sale and Leaseback In fiscal 1988, under a sale and leaseback agreement, the Company sold its principal operating facility in Melville, New York for approximately $11 million and leased it back under a ten-year lease agreement. The transaction resulted in a net gain of $3,321,000 which was deferred and was amortized over the ten-year lease period. The Company terminated this lease in 1997 and wrote off the unamortized balance against the cost of relocation. NOTE 4. Short-Term Borrowings Borrowings under revolving credit agreement represent short term borrowings by the Company's U.K. subsidiary under a bank overdraft facility. In April 1997, such credit agreement was amended to provide for maximum borrowings of 600,000 pounds ($972,000) and is secured by all the assets of the subsidiary. Maximum borrowings during 1997, 1996 and 1995 amounted to approximately $1,282,000, $1,045,000 and $1,083,000, respectively. The weighted-average interest rate on borrowings during these years was 8.27% in 1997, 8.00% in 1996 and 8.50% in 1995. At September 30, 1997 and 1996, Accounts Payable - related party included approximately $5.0 million and $4.4 million, respectively, of extended accounts payable balances due Chugai Boyeki Company, Ltd., a shareholder of the Company. The extended accounts payable balance at September 30, 1997 and 1996, includes approximately $4.7 million and $4.1 million, respectively, of purchases denominated - 32 - in U.S. dollars which bear interest at the prime rate of the related party's U.S. bank (8.50% and 8.25% at September 30, 1997 and 1996, respectively). The remaining balances are denominated in Japanese yen and bear interest at the related party's internal lending rate (4.0% at September 30, 1997 and 1996). NOTE 5. Income Taxes The components of income tax expense for the fiscal years indicated are as follows: 1997 1996 1995 ---- ---- ---- Federal $ 24,000 $ - $ - State 5,000 - - Foreign 53,000 85,000 80,000 ------------- ----------- ------------- $ 82,000 $ 85,000 $ 80,000 ============= =========== ============= There were no deferred taxes in any of the years presented above. A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate follows: 1997 1996 1995 ---- ---- ---- Amount Percent Amount Percent Amount Percent U.S. statutory tax $560,000 34.0% $131,000 34.0 % $(431,000) 34.0% Change in valuation allowance (467,000) (28.3) (56,000) (14.5) 532,000 42.0 Foreign subsidiary operations 3,000 0.2 - - (42,000) (3.3) Officers' life insurance 4,000 0.2 5,000 1.3 17,000 1.3 Other (18,000) (1.1) 5,000 1.3 $ 4,000 0.3 -------- ------ ------ ----- --------- ----- Effective Tax Rate $ 82,000 5.0% $85,000 22.1% $ 80,000 6.3% ======== ====== ======== ===== ========= ===== - 33 - The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, 1997 and 1996 are presented below: 1997 1996 ---- ---- Deferred tax assets: Deferred gain on sale and leaseback $ - $ 146,000 Inventory obsolescence and disposition reserves 457,000 418,000 Deferred compensation accruals 199,000 206,000 Allowance for doubtful accounts receivable 162,000 123,000 Net operating loss carryforwards 1,726,000 2,001,000 General business credit carryforwards 186,000 186,000 Other 8,000 8,000 ---------- ---------- Total deferred tax assets 2,738,000 3,088,000 Less valuation allowance (2,525,000) (2,992,000) ---------- ---------- Net deferred tax assets 213,000 96,000 ---------- ---------- Deferred tax liabilities: Cash surrender value of officers' life insurance 73,000 73,000 Other 140,000 23,000 ---------- ----------- Total deferred tax liabilities 213,000 96,000 ---------- ----------- Net deferred tax assets and liabilities $ -0- $ -0- ---------- ----------- The Company has provided a valuation allowance of $2,525,000 for deferred tax assets since realization of these assets was not assured. At September 30, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $5,100,000 which are available to offset future federal taxable income, if any, through 2011. The Company also had general business tax credit carryforwards for federal income tax purposes of approximately $186,000 which are available to reduce future federal income taxes, if any, through 2003. Pretax domestic income (loss) amounted to approximately $1,414,000, $136,000 and ($1,626,000) in fiscal years 1997, 1996 and 1995, respectively. Pretax foreign income amounted to approximately $236,000, $311,000 and $291,000 in fiscal years 1997, 1996 and 1995, respectively. - 34 - NOTE 6. Long-Term Debt Long-term debt is comprised of the following at September 30, 1997 and 1996: 1997 1996 ---- ---- Related party: Mortgage loan denominated in Japanese yen at a formula interest rate (6.3% at September 30, 1996) $ - $ 393,008 Term loan with interest rate of 1% above the prevailing prime rate (9.50% and 9.25% at September 30, 1997 and 1996) 1,800,000 2,000,000 ---------- ---------- 1,800,000 2,393,008 Less installments due within one year 360,000 131,003 ---------- ---------- $1,440,000 $2,262,005 Banks and other: Revolving credit loan $6,003,416 $4,142,898 Bank term loan 776,250 - Capital lease obligations 279,794 86,520 Other - 10,179 ---------- ---------- 7,059,460 4,239,597 Less installments due within one year 155,092 72,716 ---------- ---------- $6,904,368 $4,166,881 In October 1993, the Company issued a $2,000,000 secured promissory note to Chugai Boyeki Co., Ltd., a related party. The note is subordinated to senior bank debt with regard to liens and interest under certain conditions. The remaining balance at September 30, 1997 is due in installments of $360,000 on July 1, 1998 and $1,440,000 on July 1, 1999. In December 1995, the Company entered into a two year Credit and Security Agreement with a bank which currently provides for maximum borrowings of $6,500,000, subject to an availability formula based on accounts receivable and inventory balances. In February 1997, the term of the agreement was extended to January 31, 1999. Borrowings under the agreement bear interest at the bank's prime rate plus 1.00% (9.50% at September 30, 1997). The Credit and Security Agreement contains restrictive covenants which, among other things, require the Company to maintain certain levels of net worth, earnings and ratios of interest coverage and debt to net worth. Borrowings under this agreement are secured by substantially all assets of the Company. In April 1997, the Company repaid its U.K. related party mortgage loan with the proceeds of a new ten year 500,000 pound sterling (approx. $810,000) bank term loan. The term loan is payable in equal monthly installments with interest at a fixed rate of 9%. The loan is secured by a first mortgage on the subsidiary's property and contains restrictive covenants which, among other things, require the subsidiary to maintain certain levels of net worth, earnings and debt service coverage. Long-term debt maturing in each of the fiscal years subsequent to September 30, 1997 approximates $515,000 in 1998, $7,577,000 in 1999, $139,000 in 2000, $144,000 in 2001, $113,000 in 2002 and $371,000 thereafter. At September 30, 1997, future minimum annual rental commitments under non-cancelable capital lease obligations were as follows: $100,090 in 1998, $69,334 per year in 1999 through 2001, and $33,454 in 2002. - 35 - NOTE 7. Foreign Operations The Company operates one foreign entity, Vicon Industries (U.K.), Ltd., a wholly owned subsidiary which markets and distributes the Company's products principally within the United Kingdom and Europe. The following summarizes certain information concerning the Company's operations in the U.S. and U.K. for fiscal years 1997, 1996, and 1995: 1997 1996 1995 ---- ---- ---- Net sales U.S. $43,605,000 $35,468,000 $34,294,000 U.K. 7,914,000 7,723,000 9,553,000 ----------- ----------- ----------- Total $51,519,000 $43,191,000 $43,847,000 Operating profit (loss) U.S. $ 2,387,000 $ 805,000 $ (827,000) U.K. 363,000 421,000 573,000 ----------- ----------- ----------- Total $ 2,750,000 $ 1,226,000 $ (254,000) Identifiable assets U.S. $26,372,000 $23,260,000 $21,213,000 U.K. 4,828,000 4,825,000 5,210,000 ----------- ----------- ----------- Total $31,200,000 $28,085,000 $26,423,000 Net assets-- U.K. $ 1,515,000 $ 935,000 $ 711,000 U.S. sales include $9,930,000, $8,531,000 and $7,987,000 for export in fiscal years 1997, 1996, and 1995, respectively. Operating profit (loss) excludes foreign exchange gain/loss, interest expense and income taxes. U.S. assets include $162,000, $117,000 and $1,127,000 in fiscal years 1997, 1996 and 1995, respectively, of cash for general corporate use. NOTE 8. Stock Options and Stock Purchase Rights The Company maintains stock option plans which include both incentive and non-qualified options covering a total of 467,032 shares of common stock reserved for issuance to key employees, including officers and directors. Such amount includes a total of 200,000 options reserved for issuance under the 1996 Incentive Stock Option Plan, as well as a total of 50,000 options reserved for issuance under the 1996 NonQualified Stock Option Plan for Outside Directors, approved by the shareholders in April 1997. All options are issued at fair market value at the grant date and are exercisable in varying installments according to the plans. The plans allow for the payment of option exercises through the surrender of previously owned shares based on the fair market value of such shares at the date of surrender. During fiscal 1997, a total of 45,952 common shares were surrendered pursuant to stock option exercises, which are held in treasury. There were 47,535 and 32,935 shares available for grant at September 30, 1997 and 1996, respectively. As of September 30, 1997, 1996, and 1995, options exercisable pursuant to the plans amounted to 149,838, 289,471 and 198,783, respectively. - 36 - Changes in outstanding stock options for the three years ended September 30, 1997 are as follows: Weighted Number Average of Exercise Shares Price Balance - September 30, 1994 431,174 $2.03 Options granted 25,000 $1.94 Options exercised - - Options forfeited (156,513) $2.07 - ------------------------------------------------------------ Balance - September 30, 1995 299,661 $2.01 Options granted 245,397 $1.72 Options exercised (14,500) $1.82 Options forfeited (85,909) $2.13 - ------------------------------------------------------------ Balance - September 30, 1996 444,649 $1.83 Options granted 241,000 $2.77 Options exercised (244,332) $1.95 Options forfeited (21,820) $2.35 - ------------------------------------------------------------ Balance - September 30, 1997 419,497 $2.27 Price range $1.69 - $2.24 (weighted-average contractual 206,897 $1.78 life of 2.7 years) Price range $2.25 - $3.06 (weighted-average contractual 212,600 $2.76 life of 4.3 years) - --------------------- Exercisable options - September 30, 1995 198,783 $2.07 September 30, 1996 289,471 $1.89 September 30, 1997 149,838 $1.96 - ------------------------------------------------------------ Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of this Statement. The fair value for options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1997 and 1996. 1997 1996 Risk-free interest rate 6.0% 6.0% Dividend yield 0.0% 0.0% Volatility factor 52.7% 46.2% Weighted average expected life 3 years 3 years - --------------------------------------------------------------- The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. - 37 - For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income and earnings per share are as follows: 1997 1996 ---- ---- Net income: As reported $1,564,518 $300,178 Pro forma $1,364,368 $213,848 Net earnings per share: As reported Primary $.52 $.11 Fully diluted $.48 $.10 Pro forma Primary $.45 $.08 Fully diluted $.42 $.07 Weighted average fair value of options granted $1.13 $0.64 Pro forma net earnings reflect only options granted in fiscal 1997 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because compensation cost is reflected over the options' vesting period and compensation cost for options granted prior to October 1, 1995 was not considered. NOTE 9. Industry Segment and Major Customer The Company operates in one industry which encompasses the design, manufacture, assembly, and marketing of closed-circuit television (CCTV) equipment and systems for the CCTV segment of the security products industry. The Company's products include all components of a video surveillance system such as remote positioning devices, cameras, monitors, video switchers, housings, mounting accessories, recording devices, manual and motorized lenses, controls, video signal equipment, and consoles for system assembly. No customer represented sales in excess of ten percent of consolidated revenues during any of the three fiscal years presented. NOTE 10. Commitments In December 1996, the Company entered into a five year lease agreement for a new principal operating facility. The aggregate remaining commitment under such agreement amounted to $1,614,000 at September 30, 1997 with minimum rentals for the fiscal years shown as follows: 1998 -- $370,000; 1999 -- $377,000; 2000 -- $385,000; 2001 -- $392,000; and 2002 -- $90,000. Additionally, the Company occupies certain other facilities, or is contingently liable, under operating leases which expire at various dates through 2000. The leases, which cover periods from one to three years, generally provide for renewal options at specified rental amounts. The aggregate operating lease commitment at September 30, 1997 was $106,000 with minimum rentals for the fiscal years shown as follows: 1998 - $79,000; 1999 - $18,000; and 2000- $9,000. The Company is a party to employment agreements with five executives which provide for, among other things, the payment of compensation if there is a change in control without Board of Director approval (as defined in the agreements). The contingent liability under these change in control provisions at September 30, 1997 was approximately $2,115,000. The total compensation payable under these agreements aggregated $2,085,000 at September 30, 1997. The Company is also a party to insured deferred compensation agreements with two retired officers. The aggregate remaining - 38 - compensation payments of approximately $813,000 as of September 30, 1997 are subject to the individuals' adherence to certain non-compete covenants, and are payable in monthly installments through December 2003. In October 1997, the Company's Chief Executive Officer was provided a deferred compensation benefit of 45,952 shares of common stock currently held by the Company in treasury. The issuance of such shares occurs upon retirement of the executive or earlier, under certain conditions. The market value of such shares approximated $345,000 at the date of agreement, which will be amortized over the expected minimum service period of the executive. Sales to customers from the Company's U.K. subsidiary are denominated in British pounds sterling. The Company attempts to minimize its currency exposure on these sales through the purchase of forward exchange contracts to cover its U.S. dollar denominated product cost. These contracts generally involve the exchange of one currency for another at a future date and specified exchange rate. At September 30, 1997, the Company had approximately $1,350,000 of outstanding forward exchange contracts to sell British pounds. Such contracts expire at varying dates and exchange rates through January 26, 1998. The Company's purchases of Japanese sourced products through Chugai Boyeki Co., Ltd., a related party, are denominated in Japanese yen. At September 30, 1997, the Company did not have any forward exchange contracts to purchase Japanese yen. NOTE 11: Related Party Transactions As of September 30, 1997 and 1996, Chugai Boyeki Company, Ltd. and affiliates ("Chugai") owned 548,715 shares of the Company's common stock (18.3% of the total outstanding shares). The Company, which has been conducting business with Chugai for approximately 18 years, imports certain finished products and components through Chugai and also sells its products to Chugai who resells the products in certain Asian and European markets. The Company purchased approximately $7.1, $9.2 and $11.6 million of products and components from Chugai in fiscal years 1997, 1996, and 1995, respectively, and the Company sold $2.7, $2.1, and $3.4 million of product to Chugai for distribution in fiscal years 1997, 1996, and 1995, respectively. At September 30, 1997 and 1996, the Company owed $7.1 million and $7.5 million, respectively, to Chugai and Chugai owed $276,000 and $148,000, respectively, to the Company resulting from purchases of products. The amounts owed to Chugai are secured by a subordinated lien on substantially all the Company's assets. During 1997, the Company repaid a mortgage loan made by Chugai. In October 1993, the Company borrowed $2 million from Chugai under a promissory note agreement. See Note 6 for a further discussion of this transaction. As of September 30, 1997, Mr. Chu S. Chun controlled 204,507 shares of the Company's common stock (6.8% of the total outstanding shares). Mr. Chun owns Chun Shin Industries, Inc., the Company's 50% South Korean joint venture partner in Chun Shin Security which purchases product from the joint venture (see Note 2). Mr. Chun also controls International Industries, Inc. (I.I.I.), a U.S. based company, which arranges the importation and provides short term financing on all the Company's product purchases from the joint venture company, Chun Shin Electronics, Inc. During fiscal years 1997 and 1996, the Company purchased approximately $7.0 million and $5.8 million of products from I.I.I. under this agreement. In addition, the Company sold approximately $1,100,000 and $900,000 of its products to I.I.I. in 1997 and 1996, respectively. At September 30, 1997 and 1996, I.I.I. owed the Company approximately $279,000 and $368,000, respectively. - 39 - VICON INDUSTRIES, INC. AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Unaudited) Net Earnings Per Share Quarter Net Gross Net Ended Sales Profit Profit Primary Fully Diluted Fiscal 1997 December $11,298,000 $3,181,000 $ 215,000 $ .08 $ .08 March 12,328,000 3,392,000 166,000 .06 .06 June 13,726,000 3,910,000 543,000 .18 .18 September 14,167,000 3,992,000 641,000 .20 .19 ----------- ---------- ----------- ----- ----- Total $51,519,000 $14,475,000 $ 1,565,000 $ .52 $ .48 =========== ========== =========== ===== ===== Fiscal 1996 December $10,512,000 $2,706,000 $ 102,000 $ .04 $ .04 March 10,856,000 2,748,000 125,000 .05 .05 June 10,902,000 2,735,000 41,000 .01 .01 September 10,921,000 2,768,000 32,000 .01 .01 ----------- ----------- ----------- ----- ----- Total $43,191,000 $10,957,000 $ 300,000 $ .11 $ .10 =========== =========== =========== ===== ===== The Company has not declared or paid cash dividends on its common stock for any of the foregoing periods. Additionally, certain loan agreements restrict the payment of any cash dividends in future periods. Because of changes in the number of common shares outstanding and market price fluctuations affecting outstanding stock options, the sum of quarterly earnings per share may not equal the earnings per share for the full year. - 40 - SCHEDULE I VICON INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended September 30, 1997, 1996, and 1995 Balance at Charged to Balance beginning costs and at end Description of period expenses Deductions of period Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts: September 30, 1997 $396,000 $273,000 $176,000 $493,000 ======== ======== ======== ======== September 30, 1996 $542,000 $186,000 $332,000 $396,000 ======== ======== ======== ======== September 30, 1995 $309,000 $381,000 $148,000 $542,000 ======== ======== ======== ======== - 41 - SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VICON INDUSTRIES, INC. By Kenneth M. Darby By Arthur D. Roche By John M. Badke Kenneth M. Darby Arthur D. Roche John M. Badke President Executive Vice President Controller (Chief Executive Officer) (Chief Financial Officer) (Chief Acctg.Officer) December 24, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: VICON INDUSTRIES, INC. Donald N. Horn December 24, 1997 - --------------------- ----------------- Donald N. Horn Chairman of the Board Date Kenneth M. Darby Director December 24, 1997 - --------------------- ----------------- Kenneth M. Darby Date Arthur D. Roche Director December 24, 1997 - --------------------- ----------------- Arthur D. Roche Date Arthur V. Wallace Director December 24, 1997 - --------------------- ----------------- Arthur V. Wallace Date Peter F. Barry December 24, 1997 - --------------------- ----------------- Peter F. Barry Director Date Milton F. Gidge December 24, 1997 - --------------------- ----------------- Milton F. Gidge Director Date Michael D. Katz December 24, 1997 - --------------------- ----------------- Michael D. Katz Director Date Peter F. Neumann December 24, 1997 - --------------------- ----------------- Peter F. Neumann Director Date W. Gregory Robertson December 24, 1997 W. Gregory Robertson Director Date Kazuyoshi Sudo December 24, 1997 Kazuyoshi Sudo Director Date - 42- SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VICON INDUSTRIES, INC. By By By ------------------------- ------------------------- Kenneth M. Darby Arthur D. Roche John M. Badke President Executive Vice President Controller (Chief Executive Officer) (Chief Financial Officer) (Chief Acctg.Officer) December , 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: VICON INDUSTRIES, INC. December , 1997 Donald N. Horn Chairman of the Board Date Director December , 1997 Kenneth M. Darby Date Director December , 1997 Arthur D. Roche Date Director December , 1997 Arthur V. Wallace Date December , 1997 Peter F. Barry Director Date December , 1997 Milton F. Gidge Director Date December , 1997 Michael D. Katz Director Date December , 1997 Peter F. Neumann Director Date December , 1997 W. Gregory Robertson Director Date December , 1997 Kazuyoshi Sudo Director Date - 42 - EX-10 2 PROMISSORY NOTE EXHIBIT 10.4 AMENDMENT NO. 1 AND CONSENT TO SUBORDINATION AGREEMENT AMENDMENT NO.1 AND CONSENT (this "Amendment and Consent"), dated as of February 5, 1997, to the Subordination Agreement (the "Subordination Agreement") dated as of December 27, 1995 among Chugai Boyeki Company Limited (the "Subordinated Lender"), Chugai Boyeki (America) Corp., Vicon Industries, Inc. (the "Borrower") and IBJ Schroder Bank & Trust Company (the "Bank"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed thereto in the Subordination Agreement. WHEREAS, the Borrower has delivered to the Subordinated Lender the Subordinated Note; WHEREAS, the Borrower and the Bank have requested that the schduled amortization of the principal amount of the Subordinated Note be amended as provided in the form of the Secured Promissory Note attached hereto as Exhibit A (the "New Note"); and WHEREAS, the Subordinated Lender is willing to so amend the Subordinated Note on the terms and conditions provided herein. NOW, THEREFORE, the parties hereto, being the parties to the Subordination Agreement, hereby agree as follows: 1. Upon (i) the due execution and delivery by the borrower to the Subordinated Lender of the New Note and the payment in full to the Subordinated Lender of the first scheduled amortization of principal provided thereby and (ii) the due execution and delivery by the borrower to the Subordinated Lender of the letter agreement attached hereto as Exhibit B, the Subordinated Lender shall surrender to the Borrower for cancellation the Subordinated Note as delivered by the Borrower as of October 5, 1993 (the "Old Note"). The parties hereto acknowledge and agree that the New Note shall thereupon replace the Old Note for all purposes (including, without limitation, as #20164625.2 the Subordinated Note contemplated by the Subordination Agreement), and the New Note shall be deemed for all purposes (including, without limitation, for the purposes of the first sentence of Section 2 of the Subordination Agreement) to have been executed and delivered by the Borrower to the Subordinated Lender as of October 5, 1993. 2. (a) The last two sentences of Section 1 of the Subordination Agreement shall be deleted and, in lieu thereof, new sentences shall read as follows: "Except as provided in the next sentence, in no event shall the principal of the Subordinated Note be due and payable (whether by its terms, by acceleration or otherwise) before July 1, 1999, except for the scheduled payment on February 5, 1997 of $200,000 and the scheduled payment on July 1, 1998 of $360,000, PROVIDED, HOWEVER, that no payment of principal of the Subordinated Note shall be made by the Borrower to the Subordinated Lender at any time before July 1, 1999 in the event that, after giving effect to such payment, the Available Commitment (as defined in the Credit Agreement) is less than $250,00. Notwithstanding the foregoing, principal of the Subordinated Note shall be permitted to become due and payable upon the occurrance of any Event of Default contemplated by paragraphs (e) or (i) of the definition thereof contained in the Subordinated Note." (b) The number "$6,000,000" in Section 7 of the Subordination Agreement shall be deleted and the number "$6,500,000" shall be substitued in lieu thereof. 3. The Bank hereby consents to transactions contemplated by Section 1 hereof, including without limitation the amendment of the scheduled amortization of the principal amount of the Subordinated Note to be effected thereby, notwithstanding anything to the contrary contained in the Subordination Agreement. 4. Except as provided in this Amendment and Consent, the Subordination Agreement shall not be amended or modified and shall remain in full force and effect. 5. This Amendment and Consent shall be governed by and construed in accordance with the laws of the State of New York. 6. This Amendment and Consent may be executed in one or more couterparts, all of which taken together shall constitute one and the same agreement. #20164625.2 -2- IN WITNESS WHEREOF, the undersigned have executed and delivered this Amendment and Consent as of the date first written above. CHUGAI BOYEKI COMPANY LIMITED By: Name: Kazuyoshi Sudu Title: CHUGAI BOYEKI (AMERICA) CORP. By: Name: Kazuyoshi Sudo Title: VICON INDUSTRIES, INC. By: Name: Title: IBJ SCHRODER BANK & TRUST COMPANY By: Name: Title: #20164625.1 -3- EX-10 3 EMPLOYMENT CONTRACT - KENNETH M. DARBY EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT EXHIBIT 10.5 AGREEMENT, dated as of October 1, 1997, between KENNETH M. DARBY (hereinafter called "Darby") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company"). WHEREAS, Darby has previously been employed by the Company, and WHEREAS, the Company and Darby mutually desire to assure the continuation of Darby's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ Darby as its Chief Executive Officer and President throughout the term of this Agreement, and Darby accepts such employment. 2. Term. The term of this Agreement shall commence as of the date of this Agreement and end on September 30, 2002. 3. Compensation. A. The Company shall pay Darby a base salary of $225,000 per annum, subject to adjustment as provided in subsection B. B. Prior to September 15 of each succeeding year, Darby's base salary shall be reviewed by the Compensation Committee of the Board of Directors and shall be fixed for the year commencing October 1 of such year by agreement between Darby and the Board of Directors, but in any event shall not be less than the base salary for the one year period then ending. C. Darby's base salary shall be payable monthly or bi-weekly. D. Darby shall also be entitled to participate in any pension, profit sharing, life insurance, medical, dental, hospital, disability or other benefit plans as may from time to time be available to officers of the Company. 4. Extent and Places of Services; Vacation A. Darby shall establish operating policy and direct, supervise and oversee the operations of the Company. He shall advise and report to the Board of Directors. Darby shall also assume and perform such additional reasonable responsibilities and duties as the Board of Directors and he may from time to time agree upon. B. Darby shall devote his full time, attention, and energies to the business of the Company. C. Darby shall not be required to perform his services outside the Hauppauge, New York area or such other area on Long Island, New York as shall contain the location of the Company's headquarters. D. The Company shall provide Darby will office space, secretary, telephones and other office facilities appropriate to his duties. E. Darby shall be entitled to one month's vacation per annum. - 2 - 5. Covenant not to Compete. Darby agrees that during the term of this Agreement and for a period of three years thereafter, he shall not directly or indirectly within the United States or Europe engage in, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing and selling CCTV security equipment and protection devices anywhere in the United States and Europe. Darby further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Darby agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. 6. Termination Payment on Change of Control. A. Notwithstanding any provision of this Agreement, if a "Change of Control" occurs without the prior written consent of the Board of Directors, Darby, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control, in either lump sum or extended payments over three years as Darby shall elect. - 3 - B. A "Change of Control" shall be deemed to have occurred if (i) any entity shall directly or indirectly acquire a beneficial ownership of 20% (or in the case of Chugai Boyeki Co., Ltd. and its affiliates 35%) or more of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor by merger or assignment of assets or otherwise, shall be persons other than Directors on the date of this Agreement. C. Darby's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Darby receives actual notice of Change of Control. D. If Darby elects to receive lump sum payment, such payment shall be made within 30 days of the Company's receipt of Darby's notice of election. 7. Severance Payment on Certain Terminations. A. If either (i) this Agreement expires, or (ii) the Company terminates Darby's employment under this Agreement for reasons other than "Gross Misconduct",or (iii) with the consent of the Board of Directors a Change of Control as defined in paragraph 6 B. shall occur, or (iv) the Company executes a "Company Sale Agreement" then Darby, at his option, may elect to receive a severance payment, without reduction for any offset or mitigation, - 4 - in an amount equal to (a) one-twelfth his annual base salary at the time of such termination multiplied by (b) the number of full years of his employment to the end of this Agreement by the Company up to a maximum of 24 years, payable in either lump sum or extended payments as Darby shall elect. B. "Company Sales Agreement" means an agreement to which the Company is a party that contemplates that more than half of the assets of the Company are transferred to another entity or that upon consummation of the transactions contemplated by such agreement, a Change of Control as defined in paragraph 6 shall occur or have occurred. C. In the event of an election under paragraph 7, payment of such severance payment shall be in lieu of any obligation of the Company for termination payment or other post- termination compensation under this Agreement, if any. D. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal to perform substantially the duties and services required by this Agreement to be performed; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or (c) conviction of a felony involving moral turpitude. E. Darby's option to elect to receive severance payment and to elect to receive lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which this Agreement expires or on - 5 - which Darby receives actual notice of the existence of any other condition referred to in paragraph 7A, except that, in the case of the Company's execution of a Company Sale Agreement, Darby's option may be exercised at any time prior to the closing under such agreement and such termination shall be effective as of such closing. F. If Darby elects to receive lump sum payment, such payment shall be made within 30 days of the Company's receipt of Darby's notice of such election, except that, in the case of the Company's execution of a Company Sale Agreement, the payment shall be made no later than the time of closing under such agreement. G. Payment of termination or severance payment shall not affect the Company's obligations under any other agreement with Darby. 8. Deferred Compensation. A. 45,952 shares of the Company's stock now held by the Company as treasury shares (the "Deferred Compensation Shares") shall be set aside and held by the Company for future distribution to Darby under this paragraph. B. As deferred compensation, and in addition to all other compensation payable to Darby, the Deferred Compensation Shares shall become the property of Darby, and the Company shall deliver the certificates for the Deferred Compensation Shares to Darby (or his executor or administrator), on the Transfer Date, registered in Darby's name, within 10 days thereafter. The Transfer Date shall be the earliest of (i) the date of Darby's - 6 - death; (ii) the date as of which Darby's employment by the Company involuntarily terminates; (iii) the date of execution of a Company Sale Agreement as defined in paragraph 7; (iv) the occurrence of a Change of Control as defined in paragraph 6; or (v) expiration of this Agreement (including any replacement agreement). C. Notwithstanding any other provision of this paragraph, Darby shall not be entitled to any Deferred Compensation Shares if the Company terminates this Agreement for Gross Misconduct as defined in paragraph 7. D. Prior to the Transfer Date, Darby's rights to the Deferred Compensation Shares shall not be transferrable and the Treasury Shares shall be the property of the Company. E. Darby represents that he will be acquiring the Deferred Compensation Shares for investment only and without a view to the distribution thereof and that the Deferred Compensation Shares, when delivered to him, may constitute restricted stock under the Securities Act of 1933, and the regulations thereunder, and that the certificates therefor shall bear such legend relating to this subparagraph as the Company shall reasonably require. 9. Death or Disability. The Company may terminate this Agreement if during the term of this Agreement (a) Darby dies or (b) Darby becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. Such termination shall not release the Company from any liability to Darby for compensation earned, or for termination or severance due in accordance with paragraph 7 herein. - 7 - Agreement termination under this paragraph shall not be deemed a termination of employment for Gross Misconduct. 10. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 11. Miscellaneous. A. Except for any deferred compensation agreement, retirement plan or stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to the term of Darby's employment by the Company, however, it does not restrict or limit such other benefits as the Board of Directors may determine to provide or make available to Darby. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York applicable to contracts between New York residents and made and to be entirely performed in New York. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and - 8 - effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. By Kenneth M. Darby Peter F. Neumann Chairman Compensation Committee Date: - 9 - EX-10 4 EMPLOYMENT AGREEMENT - JOHN L. ECKMAN EMPLOYMENT AGREEMENT EXHIBIT 10.7 AGREEMENT, dated as of October 1, 1997, between JOHN ECKMAN (hereinafter called "Eckman") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 525 Broad Hollow Road, Melville, New York 11747 (hereinafter called the "Company"). WHEREAS, Eckman has previously been employed by the Company, and WHEREAS, the Company and Eckman mutually desire to assure the continuation of Eckman's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ Eckman as its Vice President of U.S. Sales throughout the term of this Agreement, and Eckman hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the date of this Agreement and end on March 31, 1999. 3. Compensation. A. The Company shall pay Eckman a base salary of $120,000 per annum, subject to periodic adjustment as determined by the President of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. B. Eckman's base salary shall be payable monthly or bi-weekly. C. Eckman shall also be entitled to participate in any bonus, profit sharing, life insurance, medical, dental, hospital, disability, 401(k) or other benefit plans as may from time to time be available to officers of the Company, subject to the general eligibility requirements of such plans. 4. Covenant not to Compete. Eckman agrees that during the term of this Agreement and for a period of two years thereafter, he shall not directly or indirectly within the United States or Europe engage in, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing and selling CCTV security equipment and protection devices anywhere in the United States and Europe. Eckman further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Eckman agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Eckman acknowledges that he may only be released from this covenant if the Company materially breach's this agreement or provides to Eckman a written release of this provision. - 2 - 5. Severance Payment on Certain Terminations. A. If either this Agreement expires, or the Company terminates Eckman's employment under this Agreement for reasons other than "Gross Misconduct", then Eckman, at his option, may elect to receive severance payments except in the case of disability under paragraph 7, without reduction for any offset or mitigation, in an amount equal to (a) one-twelfth Eckman's annual base salary at the time of such termination multiplied by (b) the number of full years of Eckman's employment by the Company which shall be no less than three years and up to a maximum of 6 years. B. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal to perform substantially the duties and services required of his position; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or (c) conviction of a felony involving moral turpitude. Eckman's option to elect to receive severance payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Eckman receives actual notice of termination or this Agreement expires, as the case may be. In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any. - 3 - The severance amount determined in 5A above shall be paid in equal monthly payments over the number of full years of Eckman's employment. 6. Termination Payment on Change of Control. A. Notwithstanding any other provision of this Agreement, if a "Change of Control" occurs without the prior written consent of the Board of Directors, Eckman, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control or shorter period of actual employment, in either lump sum or extended payments over three years as Eckman shall elect. B. A "Change of Control" shall be deemed to have occurred if (i) any other entity shall directly or indirectly acquire beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor by merger or assignment of assets or otherwise, shall be persons other than Directors on the date of this Agreement. C. Eckman's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Eckman receives actual notice of Change of Control. - 4 - 7. Death or Disability. The Company may terminate this Agreement without liability for severance payments under paragraph 5 if during the term of this Agreement (a) Eckman dies or (b) Eckman becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of such disability. 8. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 9. Miscellaneous. A. Except for stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President or Board of Directors may determine to provide or make available to Eckman. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. - 5 - C. This Agreement shall be governed by the laws of New York applicable to contracts between New York residents and made and to be entirely performed in New York. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. By John Eckman Kenneth M. Darby Vice President - U.S. Sales President Vicon Industries, Inc. - 6 - EX-10 5 EMPLOYMENT AGREEMENT - PETER HORN EMPLOYMENT AGREEMENT EXHIBIT 10.8 AGREEMENT, dated as of October 1, 1997, between PETER HORN (hereinafter called "Horn") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company"). WHEREAS, Horn has previously been employed by the Company, and WHEREAS, the Company and Horn mutually desire to assure the continuation of Horn's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ Horn as its Vice President of Quality Assurance and Compliance throughout the term of this Agreement, and Horn hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the date of this Agreement and end on September 30, 1999. 3. Compensation. A. The Company shall pay Horn a base salary of $110,000 per annum, subject to periodic adjustment as determined by the President of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. Beginning October 1, 1998 to the end of this agreement, the base salary shall be adjusted upward by an amount at least equal to the Consumer Price Index - All Urban Consumers factor for the previous twelve months. B. Horn's base salary shall be payable monthly or bi-weekly. C. Horn shall also be entitled to participate in any pension, profit sharing, life insurance, medical, dental, hospital, disability or other benefit plans as may from time to time be available to officers of the Company, subject to the general eligibility requirements of such plans. 4. Covenant not to Compete. Horn agrees that during the term of this Agreement and for a period thereafter equal to the length of severance as calculated in paragraph 5A, he shall not directly or indirectly within the United States or Europe engage in, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing, and selling security equipment and protection devices anywhere in the United States and Europe. Horn further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Horn agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Horn acknowledges that he may only be released from this covenant if the Company materially breech's this agreement or provides to Horn a written release of this provision. - 2 - 5. Severance Payment on Certain Terminations. A. If either this Agreement expires, or the Company terminates Horn's employment under this Agreement for reasons other than "Gross Misconduct", then Horn, at his option, may elect to receive severance payments, without reduction for any offset or mitigation, in an amount equal to (a) one-twelfth Horn's annual base salary at the time of such termination multiplied by (b) the number of full years of Horn's employment by the Company up to a maximum of 24 years. B. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal to perform substantially the duties and services required of his position; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or (c) conviction of a felony involving moral turpitude. Horn's option to elect to receive severance payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Horn's receives actual notice of termination or this Agreement expires, as the case may be. In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any. The severance amount shall be paid in equal monthly payments over a 12 month period. - 3 - 6. Termination Payment on Change of Control. A. Notwithstanding any other provision of this Agreement, if a "Change of Control" occurs without the prior written consent of the Board of Directors, Horn, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for five years preceding the Change of Control, in either lump sum or extended payments over three years as Horn shall elect. B. A "Change of Control" shall be deemed to have occurred if (i) any other entity shall directly or indirectly acquire beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor by merger or assignment of assets or otherwise, shall be persons other than Directors on the date of this Agreement. C. Horn's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Horn receives actual notice of Change of Control. 7. Death or Disability. The Company may terminate this Agreement if during the term of this Agreement (a) Horn dies or (b) Horn becomes so disabled for a period of six months that he is - 4 - substantially unable to perform his duties under this Agreement for such period. 8. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 9. Miscellaneous. A. Except for stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President or Board of Directors may determine to provide or make available to Horn. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York applicable to contracts between New York residents and made and to be entirely performed in New York. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining - 5 - provisions of this Agreement shall continue in full force and effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. By Peter Horn Kenneth M. Darby Vice President - Compliance President and Quality Assurance Vicon Industries, Inc. Date: Date: - 6 - EX-10 6 EMPLOYMENT AGREEMENT - YACOV PSHTISSKY EMPLOYMENT AGREEMENT EXHIBIT 10.9 AGREEMENT, dated as of October 1, 1997, between YACOV PSHTISSKY (hereinafter called "Pshtissky") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company"). WHEREAS, Pshtissky has previously been employed by the Company, and WHEREAS, the Company and Pshtissky mutually desire to assure the continuation of Pshtissky's services to the Company, NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows: 1. Employment. The Company shall employ Pshtissky as its Vice President of Technology and Development throughout the term of this Agreement, and Pshtissky hereby accepts such employment. 2. Term. The term of this Agreement shall commence as of the date of this Agreement and end on September 30, 1999. 3. Compensation. A. The Company shall pay Pshtissky a base salary of $110,000 per annum, subject to periodic adjustment as determined by the President of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. Beginning October 1, 1998 to the end of this agreement, the base salary shall be adjusted upward by an amount at least equal to the Consumer Price Index - All Urban Consumers factor for the previous twelve months. B. Pshtissky's base salary shall be payable monthly or bi-weekly. C. Pshtissky shall also be entitled to participate in any pension, profit sharing, life insurance, medical, dental, hospital, disability or other benefit plans as may from time to time be available to officers of the Company, subject to the general eligibility requirements of such plans. 4. Covenant not to Compete. Pshtissky agrees that during the term of this Agreement and for a period thereafter equal to the length of severance as calculated in paragraph 5A, he shall not directly or indirectly within the United States or Europe, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing, and selling security equipment and protection devices in the United States and Europe. Pshtissky further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Pshtissky agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Pshtissky acknowledges that he may only be released from this covenant if the Company materially breech's this - 2 - agreement to Pshtissky or provides a written release of this provision. 5. Severance Payment on Certain Terminations. A. If either this Agreement expires, or the Company terminates Pshtissky's employment under this Agreement for reasons other than "Gross Misconduct", then Pshtissky, at his option, may elect to receive severance payments, without reduction for any offset or mitigation, in an amount equal to (a) one-twelfth Pshtissky's annual base salary at the time of such termination multiplied by (b) the number of full years of Pshtissky's employment by the Company up to a maximum of 24 years. B. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal to perform substantially the duties and services required of his position; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or (c) conviction of a felony involving moral turpitude. Pshtissky's option to elect to receive a severance payment may be exercised only by written notice delivered to the Company within 90 days following the date on which Pshtissky receives actual notice of termination or this Agreement expires, as the case may be. In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any. - 3 - The severance amount shall be paid in equal monthly payments over a 12 month period. 6. Termination Payment on Change of Control. A. Notwithstanding any other provision of this Agreement, if a "Change of Control" occurs without the prior written consent of the Board of Directors, Pshtissky, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for five years preceding the Change of Control, in either lump sum or extended payments over three years as Pshtissky shall elect. B. A "Change of Control" shall be deemed to have occurred if (i) any other entity shall directly or indirectly acquire beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor by merger or assignment of assets or otherwise, shall be persons other than Directors on the date of this Agreement. C. Pshtissky's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Pshtissky receives actual notice of Change of Control. - 4 - 7. Death or Disability. The Company may terminate this Agreement if during the term of this Agreement (a) Pshtissky dies or (b) Pshtissky becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. 8. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof. 9. Miscellaneous. A. Except for stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President or Board of Directors may determine to provide or make available to Pshtissky. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York applicable to contracts between New York residents and made and to be entirely performed in New York. - 5 - D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement. VICON INDUSTRIES, INC. By Yacov Pshtissky Kenneth M. Darby Vice President - Technology President and Development Vicon Industries, Inc. Date: Date: - 6 - EX-10 7 INCENTIVE STOCK OPTION PLAN EXHIBIT 10.15 1996 INCENTIVE STOCK OPTION PLAN of VICON INDUSTRIES, INC. 1. Purpose of the Plan This Incentive Stock Option Plan (hereinafter called the "Plan"), is intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter called the "Company"), by officers and other employees of the Company, and its subsidiaries, and to provide additional incentive for them to promote the success of the business. 2. Stock Subject to the Plan Subject to the provisions of Paragraph "6", the total number of shares of stock which may be optioned under the Plan is 200,000 shares of the Common Stock (par value of $.0l per share) of the Company, which shall be either authorized and unissued stock or reacquired stock. 3. Administration of the Plan The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee") who may, from time to time, amend and rescind rules and regulations for carrying out the provisions and purposes of the Plan. All awards of options by the Committee are subject to approval by the Board of Directors. The interpretation, construction and application of the Plan and any provision thereof made by the Committee shall be final and conclusive. No director shall be liable for any action taken or determination made in good faith. The Committee shall consist of at least three members of the Board of Directors. All of whom shall be non-employee directors. The members of the Committee shall be designated by two-thirds vote of the entire Board of Directors of the Company and shall serve for a term of one year and thereafter until their successors are designated. 4. Participants Participants will be selected by the Committee, in its sole discretion, from among the officers and other employees of the Company, and its subsidiaries, including subsidiaries which become such after adoption of the Plan, to accomplish the purposes of this Plan. 5. Award of Incentive Stock Options The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more stock options (intended to qualify as incentive stock options under the provisions of section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) to purchase for cash or shares the number of shares of Common Stock allotted by the Committee. The date an option is granted shall mean the date selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan. 6. Changes to Capital Structure In the event that the outstanding shares of common stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason or reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in capital stock, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable to the end that the optionee's proportionate interest shall be maintained as before the occurrence of such events; such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment in the option price per share; provided, however, that each such adjustment in the number and kind of shares subject to outstanding options, including any adjustment in the option price, shall be made in such manner as not to constitute a "modification" as defined in Section 424 of the Code. Any such adjustment made by the Board of Directors shall be conclusive. 7. Terms and Conditions of Options The grant of an option shall be evidenced by a written Incentive Stock Option Agreement, executed by the Company and the holder of an option (the "optionee"), stating the number of shares of Common Stock subject to the option evidenced thereby, and in such form as the Committee may from time to time determine. a) Option Price - The option price per share of Common Stock deliverable upon the exercise of an option shall be 100% of the fair market value of a share of Common Stock on the date the option is granted; however an optionee who is the record and beneficial owner of more than 10% of the Company's issued and outstanding common stock shall be awarded options at a price equivalent to 110% of the fair market value at the date of grant. b) Method of Exercise - Stock purchased under the options shall, at the time of purchase, be paid for in full. To the extent that the right to purchase shares has accrued thereunder, options may be exercised from time to time by written notice by the optionee to the Company stating the number of shares with respect to which the option is being exercised, and the time of the delivery thereof, which time shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in such notice, the Company shall deliver, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the main office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates for such shares or reacquired shares of its Common Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by (i) certified check or the equivalent thereof acceptable to the Company; or (ii) the delivery to the Company of issued and outstanding Common Stock of Vicon Industries, Inc., the total fair market value of which 2 on such delivery date is equal to the total exercise price of options being exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange, if the stock is so listed. If the optionee (or other person entitled to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon tender of delivery thereof, his right to exercise the option with respect to such undelivered shares may be terminated by the Option Committee of the Board of Directors without any formal notice to the optionee. Anything herein to the contrary notwithstanding, if any law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or a participant to take any action in connection with the shares specified in a notice of election before such shares can be delivered to such participant, then the date stated therein for the delivery of the shares shall be postponed until the fifth business day next following the completion of such action. c) Option Term - No option will be exercisable prior to the date of shareholder approval of the plan, or at any time after expiration of five years from the date the option is granted (the "Grant Date"). d) Maximum Amount of Incentive Stock Option Grant - - The aggregate fair market value (determined on the date the option is granted) of Common Stock subject to an incentive stock option granted to an optionee (pursuant to any plan) by the Committee and exercisable for the first time in any calendar year shall not exceed $100,000. e) Exercise of Options - As to any option issued under the Plan: during the first year after the Grant Date, it may be exercised up to 30% of the total number of shares covered thereby; during the second year after the Grant Date, it may be exercised up to an additional 30% of the total number of shares covered thereby; and during the third year after the Grant Date, and thereafter, the option may be exercised at any time from time to time within its terms, in whole or in part, but it shall not be exercisable after the expiration of five years from the Grant Date. Notwithstanding the foregoing, all options granted under this Plan may be exercised in their entirety should a "Change of Control" occur. A "Change of Control" shall be deemed to have occurred if (i) any other entity shall directly or indirectly acquire a beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor by merger or assignment of assets or otherwise, shall be persons other than Directors on the date this Plan became effective (October 10, 1996). f) Non-Assignability of Option Rights - No option shall be assignable or transferable by the optionee except by will or by the laws or descent and distribution. During the life of an optionee, the option shall be exercisable only by the optionee. g) Effect of Termination of Employment or Death - - In the event an optionee ceases to be an employee of the Company for any reason other than retirement or death, any option or unexercised portion thereof granted to such optionee shall immediately terminate. In the event of the retirement of an optionee, any option or unexercised portion thereof granted to such optionee shall immediately terminate, except that in the event of the retirement of any optionee any option or unexercised portion thereof granted to him shall be 3 exercisable within not more than three months from the date on which the optionee retires. In the event of the death or the death of an optionee while such optionee is an employee of the Company, or any subsidiary of the Company, or within three months from the date of such optionee's retirement, the option or unexercised portion thereof granted to such optionee may be exercised by such optionee's personal representative, or a person who acquired the right to exercise such option by bequest or inheritance at any time prior to the expiration of one year from the date of death of the optionee. The foregoing provisions with respect to retirement or death of any optionee shall, in no event, be deemed to extend the date of expiration of the term provided in any option held by any such optionee. i) Restriction on Issuance of Shares - On the date stated in the notice of election for the payment and delivery of the shares specified in such notice, the participant shall certify to the Company in such form as it shall require that such participant will receive and hold such shares for investment and not with a view to resale or distribution thereof to the public, unless the issuance of such shares shall have been registered under the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder, or counsel to the Company shall have advised the Company that for any other reason such certification is unnecessary. j) Rights as a Stockholder - The optionee shall have no rights as a Stockholder with respect to any shares covered by such optionee's option until the date of issuance of a stock certificate to such optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. h) Successive Options - Options may be exercised in any order. k) Termination of Options Upon Consent - The Option Committee may terminate any outstanding option with the consent of the holder thereof. 8. Effective Date and Term of Plan (a) The Plan, which was adopted by the Board of Directors on October 10, 1996, is subject to the condition that the Stockholders approve the Plan prior to July 1, 1997. The Plan shall become effective upon adoption by the Company's Board of Directors. (b) The Plan shall terminate on October 9, 2006, provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards. 9. Definitions In this Plan the following definitions shall apply: (a) "subsidiary" means any corporation or which, at any applicable time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by Vicon Industries, Inc., or any subsidiary thereof. 4 (b) "fair market value" as of any date and in respect of any share of Common Stock means the closing price on such date or on the next business day, if such date is not a business day, of a share of Common Stock reflected in the consolidated trading tables of The Wall Street Journal (presently the AMEX-Composite Transactions) or any other publication selected by the Committee, provided that, if shares of Common Stock shall not have been traded on the American Stock Exchange for more than 10 days immediately preceding such date or if deemed appropriate by the Committee for any other reason, the fair market value of shares of Common Stock shall be as determined by the Committee in such other manner as it may deem appropriate. In no event shall the fair market value of any share of Common Stock be less than its par value. 10. Amendment of Plan The Board of Directors may at any time amend the Plan, provided that without approval of Stockholders there shall be, except by operation of the provisions of Paragraph "6" above, no increase in the total number of shares covered by the Plan; there shall be no change in the class of persons eligible to receive options granted under the Plan; there shall be no change in the limitations on the option price; and there shall be no extension of the latest date upon which options may be exercised. Neither the Board of Directors nor the Stockholders by amendment to this Plan can affect options granted before such amendment or any unexercised portion thereof. The adoption of this Plan shall not be deemed to affect the terms and conditions of any unexercised portion of options granted and outstanding under any prior stock option plan of the Company or its subsidiaries. 11. Use of Proceeds The proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 12. Governing Law Options granted under this Plan shall be construed and shall take effect in accordance with the laws of the State of New York. 13. Liquidation Upon the complete liquidation of the Company, any unexercised options heretofore granted under this Plan shall be deemed canceled. In the event of the complete liquidation of any employer corporation (other than the Company) employing the participant or in event such corporation ceases to be an employer corporation any unexercised part of any option granted hereunder shall be deemed canceled unless the participant shall become employed by another employer corporation (including the Company) concurrently with such event. 5 EX-10 8 NON-QUALIFIED STOCK OPTION PLAN 1996 EXHIBIT 10.16 NON-QUALIFIED STOCK OPTION PLAN FOR OUTSIDE DIRECTORS OF VICON INDUSTRIES, INC. 1. Purpose of the Plan This Non-Qualified Stock Option Plan For Outside Directors (hereinafter called the "Plan"), is intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter called the "Company"), by non-employee directors of the Company and to provide additional incentive for them to promote the success of the business. 2. Stock Subject to the Plan Subject to the provisions of Paragraph "6", the total number of shares of stock which may be optioned under the Plan is 50,000 shares of the Common stock (par value of $.01 per share) of the Company, which shall be either authorized and unissued stock or reacquired stock. 3. Administration of the Plan The Plan shall be administered by the Compensation Committee of the Board or Directors of the Company (the "Committee") who may, from time to time, with the approval of the full Board of Directors amend and rescind rules and regulations for carrying out the provisions and purposes of the Plan. The interpretation, construction and application of the Plan and any provision thereof made by the Board shall be final and conclusive. No director 1 shall be liable for any action taken or determination made in good faith. The Committee shall consist of at least three members of the Board of Directors. The members of the Committee ~ be designated by two-thirds vote of the entire Board of Directors of the Company and shall serve for a term of one year and thereafter until their successors are designated. 4. Participants Participants will be recommended by the Committee, in its sole discretion, from among the non-employee directors of the Company, to accomplish the purposes of this Plan. 5. Award of Options The Committee may, in its discretion, recommend options to be granted under this Plan from time to time, prior to the expiration date of 10 years from the date on which this Plan is approved by the Stockholders of the Company. A majority of the full Board shall be required to approve the grant of any options under this Plan. The shares involved in the unexercised portions of any terminated or expired options shall be deemed not to have been optioned shares for the purposes of Paragraph "2"' and may again be subjected to options under the Plan. 6. Changes to Capital Structure In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason or reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, 2 or dividend payable in capital stock, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable to the end that the optionee's proportionate interest shall be maintained as before the occurrence of much events; such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment in the option price per share; provided, however, that each such adjustment in the number and kind of shares subject to outstanding options, including any adjustment in the option price, shall be made in such manner as not to constitute a "modification" as defined in Section 424 of the Internal Revenue Code of 1986, as amended. Any such adjustment made by the Board of Directors shall be conclusive. 7. Terms and Conditions of Options Options shall be evidenced by written Stock-Option Agreements in such form not inconsistent with the Plan as the Committee shall from time to time determine, provided that the substance of the following be included therein: a) Option Price - The option price shall be not less than 100% of the fair market value on the date the option is granted, which shall be the date on which the Committee recommends the award of any Option. b) Method of Exercise - Stock purchased under the options shall, at the time of purchase, be paid for in full. To the extent that the right to purchase shares has accrued thereunder, options may be exercised from time to time by written notice by the optionee to 3 the Company stating the number of shares with respect to which the option is being exercised, and the time of the delivery thereof, which time shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in such notice. the Company shall deliver, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the main office of the Company, or such other place as shall be mutually acceptable a certificate or certificates for such shares or reacquired shares of its Common Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by (i) certified check. or the equivalent thereof acceptable to the company; or (ii) the delivery to the Company of issued and outstanding Common Stock of Vicon Industries, Inc., the total fair market value of which on such delivery date is equal to the total exercise price of options being exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange, if the stock is so listed. If the optionee (or other person entitled to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon tender of delivery thereof, his right to exercise the option with respect to such undelivered shares may be terminated by the Committee without any formal notice to the optionee. Anything herein to the contrary notwithstanding, if any law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or a participant to take any action in connection with the shares specified in a notice or election before such shares can be delivered to such participant, then the date stated therein for the delivery of the shares shall be postponed until the fifth business day next following the completion of such action. 4 c) Option Term - No option will be exercisable after expiration of five years from the date the option is granted or the date of shareholder approval of the Plan, whichever date is later (the "Starting Date"). d) Exercise of Options - As to any option issued under the Plan, at all times after the first anniversary of the Starting Date, the option may be exercised at any time from time to time within its terms, in whole or in part but it shall not be exercisable after the expiration of five years from the Starting Date. No option shall be exercisable prior to the Starting Date. e) Non-Assignability of Option Rights - No option shall be assignable or transferable by the optionee except by will or by the laws or descent and distribution. During the life of an optionee, the option shall be exercisable only by the optionee. f) Effect of Termination of Employment or Death - In the event an optionee ceases to be a director of the Company for any reason other than retirement or death, any option or unexercised portion thereof granted to such optionee shall be exercisable within not more than three months from the date on which the optionee ceases to be a director. In the event of the retirement of an optionee, any option or unexercised portion thereof granted to such optionee shall immediately terminate, except that in the event of the retirement of any optionee any option or unexercised portion thereof granted to him shall be exercisable within not more than one year from the date on which the optionee retires. In the event of the death of an optionee while such optionee is a director of the Company, or within three months from the date of such optionee's retirement, the option or unexercised portion thereof granted to such optionee may be exercised by such optionee's personal representative, or a person who acquired the right to exercise such option by bequest or inheritance at any time 5 prior to the expiration of one year from the date of death of the optionee. The foregoing provisions with respect to retirement or death of any optionee shall, in no event, be deemed to extend the date of expiration of the term provided in any option held by any such optionee. g) Restriction on Issuance of Shares - On the date stated in the notice of election for the payment and delivery or the shares specified in such notice, the participant shall certify to the Company in such form as it shall require that such participant will receive and hold such shares for investment and not with a view to resale or distribution thereof to the public, unless the issuance of such shares shall have been registered under the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder, or counsel to the company shall have advised the Company that for any other reason such certification is unnecessary. h) Rights as a Stockholder - The optionee shall have no rights as a Stockholder with respect to any shares covered by such optionee's option until the date of issuance of a stock certificate to such optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. i) Successive Options - Options may be exercised in any order. j) Termination of Options Upon Consent - The Option Committee may terminate any outstanding option with the consent of the holder thereof. 6 8. Effective Date and Termination of Plan The Plan, which was adopted by the Board of Directors on December 6, 1996 is subject to the condition that the stockholders approve the Plan prior to July 1, 1997. This Plan shall become effective upon adoption by the Company's Board of Directors. The Board of Directors may terminate this Plan at any time. Termination of the Plan will not affect rights and obligations theretofore granted and then in effect if the Stockholders shall have approved the Plan prior to termination. 9. Amendment of Plan The Board of Directors may at any time amend the Plan, provided that without approval of Stockholders there shall be, except by operation of the provisions of Paragraph "6" above, no increase in the total number of shares covered by the Plan; there shall be no change in the class of persons eligible to receive options granted under the Plan; there shall be no change in the limitations on the option price; and there shall be no extension of the latest date upon which options may be exercised. Neither the Board of Directors nor the Stockholders by amendment to this Plan can affect options granted before such amendment or any unexercised portion thereof. The adoption of this Plan shall not be deemed to affect the terms and conditions of any unexercised portion of options granted and outstanding under any prior stock option plan of the Company or its subsidiaries. 10. Use of Proceeds The proceeds from the sale of stock pursuant to options granted under the plan shall constitute general funds of the Company. 7 11. Governing Law Options granted under this plan shall be construed and shall take effect in accordance with the laws of the State of New York. 12. Liquidation Upon the complete liquidation of the Company, any unexercised options heretofore granted under this Plan shall be deemed canceled. In the event of the complete liquidation of any employer corporation (other than the Company) employing the participant or in event such corporation ceases to be an employer corporation any unexercised part of any option granted hereunder shall be deemed canceled unless the participant shall become employed by another employer corporation (including the Company) concurrently with such event. 8 EX-24 9 AUDITOR CONSENT EXHIBIT 24 KPMG PEAT MARWICK LLP Independent Auditors' Consent The Board of Directors Vicon Industries, Inc.: We consent to incorporation by reference in the Registration Statements (No. 33-7892, 33-34349, 33-90038 and 333-30097) on Form S-8 and No. 33-10435 on Form S-2 of Vicon Industries, Inc. of our report dated November 12, 1997 relating to the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of September 30, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity and cash flows and related schedule for each of the years in the three-year period ended September 30, 1997, which report appears in the September 30, 1997 annual report on form 10-K of Vicon Industries, Inc. KPMG Peat Marwick LLP Jericho, New York December 24, 1997 EX-27 10 FDS --
5 3-MOS 12-MOS SEP-30-1997 SEP-30-1997 SEP-30-1997 SEP-30-1997 287,580 287,580 0 0 10,378,676 10,378,676 (492,799) (492,799) 16,633,524 16,633,524 26,806,981 26,806,981 9,263,347 9,263,347 (4,870,717) (4,870,717) 31,199,611 31,199,611 11,455,858 11,455,858 8,829,770 8,829,770 0 0 0 0 30,470 30,470 10,883,513 10,883,513 31,199,611 31,199,611 14,167,536 51,518,940 0 0 10,175,880 37,043,750 0 0 2,985,859 11,443,920 45,000 241,053 309,492 1,143,699 651,305 1,646,518 11,000 82,000 640,305 1,564,518 0 0 0 0 0 0 640,305 1,564,518 .20 .52 .19 .48
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