<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1995
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
For the Transition period from ___________ to ___________
COMMISSION FILE NUMBER: 0-10004
NAPCO SECURITY SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2277818
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
333 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(516) 842-9400
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 per share
(Title of Class)
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
--- ---
As of September 26, 1995, 4,367,727 shares of Common Stock were
outstanding, and the aggregate market value of the stock (based upon the last
sale price of the stock on such date) held by non-affiliates was approximately
$10,919,317.
Documents Incorporated by Reference: Portions of the Registrant's
Proxy Statement in connection with its 1995 Annual Meeting of Stockholders are
incorporated by reference in Part III.
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. / /
<PAGE> 2
PART I
ITEM 1. BUSINESS.
NAPCO Security Systems, Inc. ("NAPCO") was incorporated in December
1971 in the State of Delaware for the purpose of acquiring National Alarm
Products Co., Inc., a New Jersey corporation founded in 1969 ("National"). In
December 1971, NAPCO issued an aggregate of 300,000 shares of its common stock,
par value $.01 per share ("Common Stock"), to the stockholders of National in
exchange for all of the issued and outstanding capital stock of National, after
which National was merged into NAPCO.
NAPCO and its subsidiaries (collectively, the "Company") are engaged in
the development, manufacture, distribution and sale of security alarm products
and door security devices (the "Products") for commercial and residential
installations.
Products
Alarm Systems. Alarm systems usually consist of various detectors, a
control panel, a digital keypad and signaling equipment. When a break-in
occurs, an intrusion detector senses the intrusion and activates a control panel
via hard-wired or wireless transmission that sets off the signaling equipment
and, in most cases, causes a bell or siren to sound. Communication equipment
such as a digital communicator may be used to transmit the alarm signal to a
central station or another person selected by a customer.
The Company manufactures and markets the following products for alarm
systems:
Automatic Communicators. When a control panel is activated by a signal
from an intrusion detector, it activates a communicator that can automatically
dial one or more predesignated telephone numbers. If programmed to do so, a
digital communicator dials the telephone number of a central monitoring station
and communicates in computer language to a digital communicator receiver, which
prints out an alarm message.
Control Panels. A control panel is the "brain" of an alarm system.
When activated by any one of the various types of intrusion detectors, it can
activate an audible alarm and/or various types of communication devices. For
marketing purposes, the Company refers to its control panels by the trade name,
generally "Magnum Alert(TM)" followed by a numerical designation.
Combination Control Panels/Digital Communicators and Digitkey Systems.
A combination control panel, digital communicator and a digital keypad (a plate
with push button numbers as on a telephone, which eliminates the need for
mechanical keys) has continued to grow rapidly in terms of dealer
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and consumer preference. Benefits of the combination format include the cost
efficiency resulting from a single micro-computer function, as well as the
reliability and ease of installation gained from the simplicity and
sophistication of micro-computer technology.
Door Security Devices. The Company manufactures a variety of exit
alarm locks ranging from simple dead bolt locks to door alarms.
Fire Alarm Control Panel. Multi-zone fire alarm control panels which
accommodate an optional digital communicator for reporting to a central station
are also manufactured by the Company.
Area Detectors. The Company's area detectors are both passive
infra-red heat detectors and combination microwave/ passive infra-red detectors
that are linked to alarm control panels. Passive infra-red heat detectors
respond to the change in heat patterns caused by an intruder moving within a
protected area. Combination units respond to both changes in heat patterns and
changes in microwave patterns occurring at the same time.
Peripheral Equipment
The Company also markets peripheral and related equipment manufactured
by other companies. Revenues from peripheral equipment have not been
significant.
Research and Development
The Company's business involves a high technology element. A
substantial amount of the Company's efforts are expended to develop and improve
the Products. During the fiscal years ended June 30, 1995, 1994 and 1993, the
Company expended approximately $3,252,000, $2,883,000, and $2,680,000,
respectively, on Company-sponsored research and development activities conducted
by its engineering department and outside consultants. Substantially all of the
Company's research and development activities during fiscal 1995, 1994 and 1993
were conducted by its engineering department. The Company intends to continue
to conduct a significant portion of its future research and development
activities internally.
Employees
As of June 30, 1995, the Company had approximately 1,100 full-time
employees.
Marketing and Major Customers
The Company's staff of approximately 35 sales and marketing support
employees located at the Company's headquarters sells and markets the Products
directly to independent distributors and
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wholesalers of security alarm and security hardware equipment. Management
estimates that these channels of distribution represented approximately 95% of
the Company's total sales for the fiscal year ended June 30, 1995. The
Company's sales representatives periodically contact existing and potential
customers to introduce new products and create demand for those as well as other
Company products. These sales representatives, together with the Company's
technical personnel, provide training and other services to wholesalers and
distributors so that they can better service the needs of their customers. In
addition to direct sales efforts, the Company advertises in technical trade
publications and participates in trade shows in major United States cities.
Some of the Company's products are marketed under the "private label" of certain
customers.
Sales to A.D.T., Ademco Distribution (A.D.I.), and King Alarm, each
unaffiliated with the Company, together accounted for approximately 39% and 37%
of the Company's total sales for the fiscal years ended June 30, 1995 and 1994
(see footnote 10 to Notes to Consolidated Financial Statements as to percentage
breakdown). The loss of any of these customers could have a material adverse
effect on the Company's business.
Competition
The security alarm products industry is highly competitive. The
Company's primary competitors are comprised of approximately 30 other companies
that manufacture and market security equipment to distributors, dealers, central
stations and original equipment manufacturers. The Company believes that no one
of these competitors is dominant in the industry. Certain of these companies
may have substantially greater financial and other resources than the Company.
The Company competes primarily on the basis of the features, quality,
reliability and price of, and the incorporation of the latest innovative and
technological advances into, its Products. The Company also competes by
offering technical support services to its customers. In addition, the Company
competes on the basis of its expertise, its proven products, reputation and its
ability to provide Products to customers without delay. The inability of the
Company to compete with respect to any one or more of the aforementioned factors
could have an adverse impact on the Company's business. Relatively low-priced
"do-it-yourself" alarm system products have become available in past years and
are available to the public at retail stores. The Company believes that these
products compete with the Company only to a limited extent because they appeal
primarily to the "do-it-yourself" segment of the market. Purchasers of such
systems do not receive professional consultation, installation, service or the
sophistication that the Company's Products provide.
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Raw Materials and Backlog
The Company prepares specifications for component parts used in the
Products and purchases the components from outside sources or fabricates the
component part itself. These components, if standard, are generally readily
available; if specially designed for the Company, there is usually more than one
alternative source of supply available to the Company on a competitive basis.
The Company generally maintains inventories of all critical components. The
Company for the most part is not dependent on any one source for its raw
materials.
In general, orders for the Products are processed by the Company from
inventory. A backlog of approximately $5,152,000 existed as of June 30, 1995,
partially due to several large orders received during the fourth quarter. This
compared to a backlog of approximately $5,764,000 a year ago. This decrease was
due to the Company's effort to fill orders more quickly.
Government Regulation
The Company's telephone dialers, microwave transmitting devices
utilized in its motion detectors and any new communication equipment that may be
introduced from time to time by the Company must comply with standards
promulgated by the Federal Communications Commission ("FCC") in the United
States and similar agencies in other countries where the Company offers such
products, specifying permitted frequency bands of operation, permitted power
output and periods of operation, as well as compatibility with telephone lines.
Each new Product of the Company that is subject to such regulation must be
tested for compliance with FCC standards or the standards of such similar
governmental agencies. Test reports are submitted to the FCC or such similar
agencies for approval.
Patents
The Company has been granted several patents and trademarks relating to
the Products. While the Company obtains patents and trademarks as it deems
appropriate, the Company does not believe that its current or future success is
dependent on its patents.
Foreign Sales
The revenues, operating income and identifiable assets attributable to
the foreign and domestic operations of the Company for its last three fiscal
years, and the amount of export sales in the aggregate, are summarized in the
following tabulation.
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Financial Information Relating to Foreign
and Domestic Operations and Export Sales(1)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated
customers:
United States $48,078 $46,873 $46,560
Foreign 0 0 0
Operating income:
United States $ 2,331 $ 2,216 $ 3,097
Foreign 0 0 0
Sales or transfers between
geographic areas: $36,023 $36,507 $37,936
Identifiable assets:
United States $36,031 $31,297 $31,899
Foreign 19,708 22,513 19,334
Export sales:
United States(2) $ 8,865 $ 7,795 $ 6,013
</TABLE>
ITEM 2. PROPERTIES.
The Company has executive offices and production and warehousing
facilities at 333 Bayview Avenue, Amityville, New York. This facility consists
of a fully-utilized 90,000 square foot building on a six acre plot. This six
acre plot provides the Company with space for expansion of office, manufacturing
and storage capacities. The Company constructed this facility with the proceeds
from an industrial revenue bond financing in 1985.
The Company's foreign subsidiary, NSS Caribe, S.A., is located in the
Dominican Republic where it owns a building of approximately 167,000 square feet
of production and warehousing space. That subsidiary also leases the land
associated with this building under a 99 year lease expiring in the year 2092.
The foreign subsidiary also leases one building of approximately
- - -------------------------
(1) Certain prior year amounts have been reclassified to conform to
current year presentation.
(2) Export sales from the United States in fiscal year 1995 included
sales of approximately $5,038,000 and $1,523,000 to Europe and North America,
respectively. Export sales from the United States in fiscal year 1994 included
sales of approximately $3,089,000 and $2,040,000 to Europe and North America,
respectively.
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16,000 square feet, which it plans to terminate in fiscal year 1996. As of June
30, 1995, most of the Company's sales related to labor on assemblies, goods and
subassemblies at these sites, utilizing U.S. quality control standards.
Management believes that these facilities are more than adequate to
meet the needs of the Company in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending or threatened material legal proceedings to which
NAPCO or its subsidiaries or any of their property is subject, other than as
follows:
C&K Systems, Inc. ("C&K") brought a patent infringement action against
the Company, alleging that NAPCO infringes and induces others to infringe upon a
patent on a C&K component used in computerized security systems. The Company
brought its own action and counterclaims involving the infringement by C&K of
NAPCO patents. The parties reached a settlement agreement that permits each
company to continue manufacturing and marketing its existing product lines. In
the Company's opinion, the settlement does not have a material adverse effect on
its financial condition and results of operations.
In May of 1995 the Company was advised of an unexpected Chapter 7
bankruptcy filing of one of its customers. As a result of anticipated cash
recoveries, management is confident that the Company's allowance for doubtful
accounts at June 30, 1995 is sufficient and that this bankruptcy filing will
not have a material adverse effect on the Company.
In August 1995, the Internal Revenue Service informed the Company that
it had completed the audit of the Company's Federal tax returns for fiscal years
1987 through 1992. The Internal Revenue Service has issued a report to the
Company proposing adjustments that would result in taxes due of approximately
$4.3 million, excluding interest charges. The primary adjustments presented by
the Internal Revenue Service relate to intercompany pricing and royalty charges,
DISC earnings and charitable contributions. The Company disagrees with the IRS
and intends to vigorously appeal this assessment using all remedies and
procedural actions available under the law. The Company believes that it has
provided adequate reserves at June 30, 1995 to address the ultimate resolution
of this matter, so that it will not have a material impact on the Company's
consolidated financial statements. (See Note 4 to Consolidated Financial
Statements.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS.
Principal Market
NAPCO's Common Stock became publicly traded in the over-the-counter
("OTC") market in 1972. In December 1981, the Common Stock was approved for
reporting by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol "NSSC", and in November 1984 the Common Stock
was designated by NASDAQ as a National Market System Security, which has
facilitated the development of an established public trading market for the
Common Stock. The tables set forth below reflect the range of high and low
sales of the Common Stock in each quarter of the past two fiscal years as
reported by the NASDAQ National Market System.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
Fiscal 1995
--------------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock
High $4.00 $4.00 $2.95 $3.13
Low $3.00 $2.63 $2.25 $2.13
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
Fiscal 1994
--------------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock
High $6.88 $6.88 $5.00 $4.75
Low $4.75 $4.00 $4.25 $3.13
</TABLE>
Approximate Number of Security Holders
The number of holders of record of NAPCO's Common Stock as of September
26, 1995 was 305 (such number does not include beneficial owners of stock held
in nominee name).
Dividend Information
NAPCO has declared no cash dividends during the past three years with
respect to its Common Stock, and the Company does not anticipate paying any cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended June 30
----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Operations
Revenue $48,078 $46,873 $46,560 $38,816 $36,193
Gross Profit 11,325 11,068 11,925 9,623 8,839
Provision for
(recovery of)
Income Taxes 532 37 (32) (796) (410)
Net Income 512 1,254 2,317 1,406 511
Net Income per Share .12 .29 .53 .32 .12
Cash Dividends per
Share(3) 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
As of June 30
----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Financial Condition
Total Assets $55,739 $53,810 $51,233 $45,475 $40,720
Long-term Debt 15,923 13,690 6,567 7,950 2,480
Working Capital 28,660 28,033 19,936 19,038 12,472
Stockholders' Equity 28,560 28,048 26,793 24,474 23,068
Stockholders' Equity
per Outstanding
Share 6.54 6.42 6.14 5.60 5.28
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Company's cash on hand combined with proceeds from operating and
financing activities during fiscal 1995 were adequate to meet the Company's
capital expenditure needs. The primary source of financing related to
borrowings under a $2,000,000 short-term line of credit and a $11,000,000
secured revolving credit and term loan facility with two banks. The Company
expects that cash generated from operations and cash available under the
Company's bank line of credit will be adequate to meet its short-term liquidity
requirements. The Company's primary
- - -------------------------
(3) The Company has never declared or paid a cash dividend on its
common stock. It is the policy of the Board of Directors to retain earnings for
use in the Company's business.
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internal source of liquidity is the cash flow generated from operations. As of
June 30, 1995, the Company's unused sources of funds consisted principally of
$368,000 in cash and approximately $1,500,000 (after direct borrowings) which
represent the unused portion of its secured short-term borrowing facility.
On July 27, 1994, the Company entered into an $11,000,000 secured
revolving credit and term loan facility with two banks, with the Company's
primary bank acting as agent. The revolving credit loan, which bears interest
based upon a number of options available to the Company and does not require
principal payments until conversion, converts to a term loan on June 30, 1997
payable in sixteen (16) equal quarterly installments beginning on September 30,
1997. In addition, on July 28, 1994, the Company entered into a separate
$2,000,000 line of credit with its primary bank to be used in connection with
commercial letters of credit and standby letters of credit. As of June 30, 1995
approximately $589,000 represented the unused portion of this credit line.
In addition, a subsidiary of the Company maintains a $4,500,000 line of
credit with another bank, $4,050,000 of which was outstanding as of June 30,
1995 (see Note 6 to the Consolidated Financial Statements).
The Company takes into consideration a number of factors in measuring its
liquidity, including the ratios set forth below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current Ratio 3.5 to 1 3.3 to 1 2.1 to 1
Sales to Receivables 3.5 to 1 3.2 to 1 3.9 to 1
Total Debt to Equity 1 to 1 .9 to 1 .9 to 1
</TABLE>
In fiscal 1988, the Company completed construction of a new
manufacturing and administrative facility financed by a $3.9 million industrial
revenue bond issue bearing interest at a variable rate determined weekly by the
underwriting bank based upon market conditions. During fiscal 1995, the average
interest rate was approximately 3.7% per annum. The bonds have a maturity date
of April 1, 2000, subject to quarterly sinking fund payments.
On April 26, 1993, the Company's foreign subsidiary entered into a
99-year land lease of approximately 4 acres of land near its former facility in
the Dominican Republic, at an annual cost of approximately $272,000. The
foreign subsidiary has recently relocated to this site after construction of a
new facility pursuant to a separate contract dated May 6, 1993.
As of June 30, 1995, the Company had no material commitments for
purchases or capital expenditures.
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Working Capital. Working capital increased by $627,000 to $28,660,000
at June 30, 1995 from $28,033,000 at June 30, 1994. This was primarily due to
a decrease in accounts payable resulting from improved cash flow.
Accounts Receivable. Accounts receivable decreased by $1,040,000 to
$13,647,000 at June 30, 1995 from $14,687,000 at June 30, 1994. This decrease
is primarily the result of customers receiving payment terms that are more
favorable to the Company, as well as an increase in the Company's allowance for
doubtful accounts.
Inventory. Inventory increased by $565,000 to $24,178,000 at June 30,
1995 as compared to $23,613,000 at June 30, 1994. This increase is due primarily
to the effect of the Company's building up of inventory levels in conjunction
with the move to its new production facility. With the move virtually complete
by May, 1995, the Company started to reduce inventory during the fourth quarter
of Fiscal 1995.
Accounts Payable. Accounts payable decreased by $1,875,000 to
$4,001,000 at June 30, 1995 from $5,876,000 at June 30, 1994. This decrease is
primarily the result of improved cash flow from accounts receivable
collections, as well as increased efforts to reduce its on-hand raw materials
inventory requirements.
Results of Operations
Fiscal 1995 Compared to Fiscal 1994
Revenue. Revenue in fiscal 1995 increased $1,205,000, or
approximately 2.6%, to $48,078,000 from $46,873,000 in fiscal 1994. This
increase is primarily the result of increased export sales. In addition, the
Company was able to achieve this increase despite the Chapter 7 bankruptcy
filing of one of its major customers.
Gross Profits. The Company's gross profits increased $257,000 to
$11,325,000 or 23.6% of the sales in fiscal 1995 from $11,068,000 or 23.6% of
sales in fiscal 1994. The increase in gross profit is primarily due to the
higher sales as previously discussed.
Expenses. Selling, general and administrative expenses in fiscal 1995
increased 1.6% or $142,000 to $8,994,000 or 18.7% of sales from $8,852,000 or
18.9% of sales in fiscal 1994. This increase is the result of additional legal
fees associated with the litigation and settlement between the Company and C&K
and additional bad debt expense related to the bankruptcy of one of the
Company's major customers. Offsetting these additional expenses were decreases
resulting from general cost control procedures established by management.
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Other Expenses. Other expenses in fiscal 1995 increased 39.2% to
$1,287,000 from $925,000 in fiscal 1994. This increase is principally the
result of increased interest expense due to increased borrowings attributable
to the construction of the Company's manufacturing facility in the Dominican
Republic, as well as higher interest rates.
Income Taxes. Provision for income taxes increased $495,000 to
$532,000 or approximately 51% of income before provision for income taxes during
fiscal 1995. This compared to a provision of $37,000 or 3% of income before
provision for income taxes during fiscal 1994. This increase is primarily
attributable to the accrual of taxes on previously deferred DISC earnings.
(See Item 3 and Note 4 to the Consolidated Financial Statements).
Fiscal 1994 Compared to Fiscal 1993
Revenue. Revenue in fiscal 1994 increased slightly to $46,873,000 from
$46,560,000 in fiscal 1993. The Company was able to maintain this level of
sales despite continued general price erosion in the marketplace.
Gross Profit. The Company's gross profit decreased $857,000 to
$11,068,000 or 23.6% of sales in fiscal 1994 from $11,925,000 or 25.6% of sales
in fiscal 1993. The change in gross profit is primarily the result of a change
in product mix, resulting in part from an industry trend toward lower-priced,
higher value-per-dollar products.
Expenses. Selling, general and administrative expenses in fiscal 1994
also remained relatively flat, increasing by $24,000 to $8,852,000 from
$8,828,000 in fiscal 1993.
Other Expenses. Other expenses in fiscal 1994 increased by $113,000 to
$925,000 as compared to $812,000 in fiscal 1993. This increase is principally
the result of increased interest expense, which relates to increased borrowings
attributable to capital expenditures.
Income Taxes. The Company had a provision for income taxes of $37,000
in fiscal 1994 as compared to a recovery of income taxes of $32,000 in fiscal
1993. The Company's effective income tax rate as a percentage of income before
taxes was approximately 2.9% as compared to a recovery of 1.4% in fiscal 1993.
The low income tax rate in fiscal 1994 as well as the recovery rate in fiscal
1993 were both principally attributable to the benefit of non-taxable foreign
source income and utilization of net operating loss carryforwards. During
fiscal 1994 the Company implemented Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting For Income Taxes (see Note 4 to Consolidated
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Financial Statements). The implementation of SFAS No. 109 did not have a
significant impact on the Company's financial condition and results of
operations.
Effects of Inflation
During the three-year period ended June 30, 1995, inflation and
changing prices did not have a significant impact on the Company's operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS OF FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants
as of June 30, 1995 and 1994 and for the
3 Year Period Ended June 30, 1995 . . . . . . . . . . . . . 15
Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Income
for the Years Ended June 30,
1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . . 17
Consolidated Statements of
Stockholders' Equity for the
Years Ended June 30, 1995, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Cash
Flows for the Years Ended
June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 19
Notes to Consolidated Financial
Statements, June 30, 1995, 1994 and 1993 . . . . . . . . . 20
Schedules:
I. Condensed Financial Information on
Parent Company. . . . . . . . . . . . . . 30
II. Valuation and Qualifying Accounts . . . . . . . 32
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Napco Security Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Napco Security
Systems, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended June 30, 1995.
These consolidated financial statements and the schedules referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedules
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 financial statements referred to above present fairly, in
all material respects, the financial position of Napco Security Systems, Inc.
and subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index to consolidated financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Melville, New York
October 6, 1995
-15-
<PAGE> 16
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
(in thousands, except share data)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 368 $ 1,335
Accounts receivable, less allowance for doubtful accounts of $662
and $454, respectively 13,647 14,687
Inventories, net 24,178 23,613
Prepaid expenses and other current assets 445 470
Deferred income tax benefits, net of valuation allowance of approximately
$-0- and $2,200, respectively 1,278 --
-------- --------
Total current assets 39,916 40,105
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
and amortization of approximately $8,013 and $6,824, respectively 12,503 10,360
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, net of
accumulated amortization of approximately $828 and $721, respectively 2,913 3,020
DEFERRED FINANCING COSTS, net 70 85
OTHER ASSETS 337 240
-------- --------
$ 55,739 $ 53,810
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,182 $ 2,596
Notes payable to bank 500 -
Accounts payable 4,001 5,876
Accrued expenses 772 733
Accrued salaries and wages 593 608
Accrued taxes 3,208 2,259
-------- --------
Total current liabilities 11,256 12,072
LONG-TERM DEBT 15,275 13,690
DEFERRED INCOME TAXES 648 -
-------- --------
Total liabilities 27,179 25,762
-------- --------
COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; authorized 21,000,000 shares;
issued 5,896,602 shares as of both June 30, 1995 and 1994 59 59
Additional paid-in capital 719 719
Retained earnings 27,783 27,271
Less: Treasury stock, at cost (1,528,875 shares) (1) (1)
-------- --------
Total stockholders' equity 28,560 28,048
-------- --------
$ 55,739 $ 53,810
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
-16-
<PAGE> 17
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C>
NET SALES $ 48,078 $ 46,873 $ 46,560
COST OF SALES 36,753 35,805 34,635
-------- -------- --------
Gross profit 11,325 11,068 11,925
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,994 8,852 8,828
-------- -------- --------
Operating income 2,331 2,216 3,097
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 14 13 33
Interest expense (1,412) (816) (773)
Other, net 111 (122) (72)
-------- -------- --------
(1,287) (925) (812)
-------- -------- --------
Income before provision for (recovery of)
income taxes 1,044 1,291 2,285
PROVISION FOR (RECOVERY OF) INCOME TAXES 532 37 (32)
-------- -------- --------
Net income $ 512 $ 1,254 $ 2,317
======== ======== ========
EARNINGS PER SHARE $ .12 $ .29 $ .53
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 4,390 4,395 4,406
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
-17-
<PAGE> 18
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
---------- ------ ---------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1992 5,895,402 $59 $716 $23,700 $(1) $24,474
Net income for the year ended June 30, 1993 - - - 2,317 - 2,317
Exercise of stock option 600 - 2 - - 2
--------- --- ---- ------- --- -------
BALANCE AT JUNE 30, 1993 5,896,002 59 718 26,017 (1) 26,793
Net income for the year ended June 30, 1994 - - - 1,254 - 1,254
Exercise of stock options 600 - 1 - - 1
--------- --- ---- ------- --- -------
BALANCE AT JUNE 30, 1994 5,896,602 59 719 27,271 (1) 28,048
Net income for the year ended June 30, 1995 - - - 512 - 512
--------- --- ---- ------- --- -------
BALANCE AT JUNE 30, 1995 5,896,602 $59 $719 $27,783 $(1) $28,560
========= === ==== ======= === =======
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
-18-
<PAGE> 19
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 512 $ 1,254 $ 2,317
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Depreciation and amortization 1,357 1,482 1,352
Provision for bad debts 212 77 152
Deferred income taxes (320) -- (104)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 828 (2,676) (2,821)
Decrease in income tax receivable -- -- 1,560
Decrease (increase) in inventories (565) 795 (4,331)
Decrease (increase) in prepaid expenses and other
current assets 25 (28) 65
(Increase) in other assets (97) (134) (40)
Increase (decrease) in accounts payable and accrued liabilities (1,259) 612 1,483
-------- -------- --------
Net cash provided by (used in) operating activities 693 1,382 (367)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,332) (1,629) (1,246)
-------- -------- --------
Net cash used in investing activities (3,332) (1,629) (1,246)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term notes payable to bank 500 1,650 2,450
Principal payments on notes payable to bank (8,100) -- --
Principal payments on capital lease obligation (21) (28) (40)
Principal payments on long-term debt (1,925) (2,325) (1,175)
Proceeds from long-term debt borrowings 11,218 1,413 825
Proceeds from issuance of common stock -- 1 2
-------- -------- --------
Net cash provided by financing activities 1,672 711 2,062
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (967) 464 449
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,335 871 422
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 368 $ 1,335 $ 871
======== ======== ========
CASH PAID DURING THE YEAR FOR:
Interest $ 1,388 $ 914 $ 767
======== ======== ========
Income taxes $ 61 $ 42 $ 4
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
-19-
<PAGE> 20
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Napco Security Systems, Inc. and subsidiaries (the "Company") is engaged
principally in the development, manufacture and distribution of security devices
for commercial and residential use.
Principles of Consolidation
The consolidated financial statements include the accounts of Napco Security
Systems, Inc. and all of its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company classifies mutual fund investments and other highly liquid
investments with original maturities of three months or less as cash
equivalents. Cash and cash equivalents are stated at cost which approximates
market value.
Inventories
Inventories are valued at the lower of cost or market which is determined by the
first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation is recorded over
the estimated service lives of the related assets using primarily the
straight-line method. Amortization of leasehold improvements is provided for by
the straight-line method over the estimated useful life of the asset or lease
term, whichever is shorter.
Excess of Cost Over Fair Value of Assets Acquired
The excess of cost over fair value of assets acquired is being amortized on a
straight-line basis over 35 years.
Deferred Financing Costs
Deferred financing costs associated with the issuance of the Industrial Revenue
Bonds (see Note 6 (c)), and from obtaining the revolving credit and term loan
facility (see Note 6(a)) are being amortized on a straight-line basis over the
respective terms of the related debt.
-20-
<PAGE> 21
Revenue
Revenue is recognized upon shipment of the Company's products to its customers.
Income Taxes
The Company accounts for the research and development credit as a reduction of
income tax expense in the year in which such credits are allowable for tax
purposes. The provision for income taxes represents U.S. Federal and State taxes
on income generated from U.S. operations. Income generated by the Company's
foreign subsidiary is non taxable.
In prior years, the Company did not provide for income taxes on the
undistributed earnings of its Domestic International Sales Corporation ("DISC")
subsidiary because it was the Company's intent to continue the subsidiary's
qualification for tax deferral. Due to the shifting of manufacturing outside the
U.S., management determined in fiscal 1995 that the DISC no longer qualified for
continued tax deferral. As a result, previously deferred earnings of the DISC
totalling $2,031,000 must now be reported over a ten year period in the
Company's future tax returns. This liability has been fully accrued for in
fiscal 1995.
The Company does not provide for income taxes on the undistributed earnings of
its foreign subsidiary because such earnings are reinvested abroad and it is the
intention of management that such earnings will continue to be reinvested
abroad. As of June 30, 1995 and 1994, approximately $16,441,000 and $15,919,000
in cumulative earnings of the foreign subsidiary are included in consolidated
retained earnings.
Earnings Per Share
Earnings per share is computed based upon the weighted average number of common
shares and common stock equivalents (options) outstanding. Fully diluted
earnings per share does not materially differ from the earnings per share
presented in the consolidated statements of income.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
2. INVENTORIES:
Inventories, net, at June 30, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Component parts $ 9,706 $10,471
Work-in-process 6,539 6,022
Finished products 7,933 7,120
------- -------
$24,178 $23,613
======= =======
</TABLE>
-21-
<PAGE> 22
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, Depreciation/
---------------------- amortization-
1995 1994 annual rates
------- ------- -------------
(in thousands)
<S> <C> <C> <C>
Land $ 904 $ 904 -
Building 8,595 6,014 3%
Molds and dies 1,971 1,719 20%
Furniture and fixtures 1,005 925 10% to 20%
Machinery and equipment 7,633 7,229 10% to 33%
Leasehold improvements 408 393 Shorter of the lease
------- ------- term or life of asset
20,516 17,184
Less: Accumulated depreciation and
amortization 8,013 6,824
------- -------
$12,503 $10,360
======= =======
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
approximately $1,189,000, $1,304,000 and $1,231,000 for fiscal 1995, 1994 and
1993, respectively.
4. INCOME TAXES:
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", effective July 1,
1993. The implementation of SFAS No. 109 did not have a material impact on the
Company's financial statements included in their Form 10-Q filings during fiscal
1994. SFAS No. 109 requires recognition of deferred tax liabilities and assets
for the estimated future tax effects of events that have been recognized in the
Company's 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 in the years in which the differences are expected to reverse.
In August 1995, the Internal Revenue Service informed the Company that it had
completed the audit of the Company's Federal tax returns for fiscal years 1987
through 1992. The Internal Revenue Service has issued a report to the Company
proposing adjustments that would result in taxes due of approximately $4.3
million excluding interest charges. The primary adjustments presented by the
Internal Revenue Service relate to intercompany pricing and royalty charges,
DISC earnings and charitable contributions. The Company disagrees with the IRS
and intends to vigorously appeal this assessment using all remedies and
procedural actions available under the law. The Company believes that it has
provided adequate reserves at June 30, 1995 to address the ultimate resolution
of this matter, so that it will not have a material adverse effect on the
Company's consolidated financial statements.
-22-
<PAGE> 23
Deferred tax benefits at June 30, 1994 were fully offset by valuation
allowances since the Company's U.S. operations had accumulated a significant
net operating loss carryforward and realization of these deferred tax benefits
was not considered more likely than not at that time. As a result of the U.S.
operations generating income in fiscal 1995, management now believes it is more
likely than not that the Company will realize the benefit of the net deferred
tax assets existing at June 30, 1995. Accordingly, the Company has not
reflected any valuation allowance against the deferred tax assets at June 30,
1995. Furthermore, management believes that the existing net deductible
temporary differences will reverse during periods in which the Company
generates net taxable income. There can be no assurance, however, that the
Company will generate taxable earnings or any specific level of continuing
earnings in the future.
The deferred tax assets and deferred tax liabilities recorded on the Company's
consolidated balance sheet at June 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Net Deferred
Deferred Tax Deferred Tax Tax Asset
Assets Liabilities (Liabilities)
------------ ------------ -------------
<S> <C> <C> <C>
Current:
Bad debt reserve $ 265 $ -- $ 265
Uniform cost capitalization for inventory 431 -- 431
Vacation accrual 127 -- 127
Inventory reserves 499 -- 499
Other 64 108 (44)
------- ------- -------
1,386 108 1,278
------- ------- -------
Noncurrent:
Depreciation -- 648 (648)
------- ------- -------
-- 648 (648)
------- ------- -------
Total deferred taxes $ 1,386 $ (756) $ 630
======= ======= =======
</TABLE>
Components of income before provision for (recovery of) income taxes are as
follows:
<TABLE>
<CAPTION>
For the Years Ended June 30,
-------------------------------------------
1995 1994 1993
------- ------- -------
(in thousands)
<S> <C> <C> <C>
United States $ 522 $ 244 $(2,669)
Foreign 522 1,047 4,954
------- ------- -------
$ 1,044 $ 1,291 $ 2,285
======= ======= =======
</TABLE>
-23-
<PAGE> 24
Provision for (recovery of) income taxes consists of the following:
<TABLE>
<CAPTION>
For the Years Ended June 30,
----------------------------
1995 1994 1993
----- ----- -----
(in thousands)
<S> <C> <C> <C>
Taxes currently payable (receivable):
Federal $ 35 $-- $--
State 48 37 72
----- ----- -----
83 37 72
Taxable DISC earnings and other 769 -- --
Federal deferred income tax benefit (320) -- (104)
----- ----- -----
Provision for (recovery of) income taxes $ 532 $ 37 $ (32)
===== ===== =====
</TABLE>
For fiscal 1993, the source of the deferred tax benefit, computed in accordance
with Accounting Principles Board Opinion No. 11, was the utilization of net
operating loss carryforwards.
The following analysis reconciles the statutory Federal income tax rate to the
effective tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- --------------- ----------------
% of % of % of
pre-tax pre-tax pre-tax
Amount income Amount income Amount income
----------------- --------------- ----------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal statutory rate $ 355 34.0% $ 439 34.0% $ 777 34.0%
Increases (decreases) in taxes resulting
from:
State income taxes, net of Federal
income tax benefit 32 3.1 24 1.9 48 2.1
Amortization of excess of cost over
fair value of assets acquired 36 3.6 36 2.8 36 1.6
Non-taxable foreign source income (177) (17.0) (356) (27.6) (826) (36.1)
Taxes on previously deferred DISC
earnings, net 563 53.9 -- -- -- --
Utilization of net operating loss
carryforward (348) (33.3) (70) (5.4) (104) (4.6)
Other, net 71 6.7 (36) (2.8) 37 1.6
----- ---- ----- ---- ----- ----
Provision for (recovery of) income taxes $ 532 51.0% $ 37 2.9% $ (32) (1.4)%
===== ==== ===== ==== ===== ====
</TABLE>
Foreign income taxes are not provided on income generated by the
Company's subsidiary in the Dominican Republic, as such income is presently
exempt from local income tax.
-24-
<PAGE> 25
5. NOTES PAYABLE TO BANK:
On March 31, 1995, the Company amended its existing revolving credit and term
loan facility to provide for an additional $2,000,000 secured line of credit.
Any borrowings arising from this additional line are to be repaid in full on or
before April 1, 1996. As of June 30, 1995, outstanding borrowings under this
line amounted to $500,000. At June 30, 1995, the interest rate on this line was
approximately 11.0%. The maximum month-end borrowings outstanding under this
line of credit was $500,000 and the weighted average interest rate was 10.6%.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Revolving credit and term loan facility (a) $11,000 $ 8,100
Notes payable to banks (b) 4,950 6,433
Industrial revenue bonds (c) 1,500 1,725
Capital lease obligation 7 28
------- -------
17,457 16,286
Less: Current portion 2,182 2,596
------- -------
$15,275 $13,690
======= =======
</TABLE>
(a) On July 27, 1994, the Company entered into an $11,000,000 secured
revolving credit and term loan facility with two banks, with the
Company's primary bank acting as agent. In conjunction with this
agreement, the banks received as collateral all accounts receivable and
inventory located in the United States. Under the terms of this
agreement, the Company used the proceeds, among other things, to
refinance notes payable to its primary bank ($8,100,000 outstanding at
June 30, 1994), finance a temporary increase of inventory and finance
the completion of construction in the Dominican Republic. The revolving
credit loan, which bears interest based on a number of options
available to the Company (weighted average rate of approximately 8.3%
and 7.75% at June 30, 1995 and 1994, respectively) and does not
require principal payments until conversion, converts to a term loan
on June 30, 1997 payable in (16) sixteen equal quarterly installments
beginning on September 30, 1997. The agreement contains various
restrictions and covenants including, among others, restrictions on
payment of dividends, restrictions on borrowings, restrictions on
capital expenditures, the maintenance of minimum amounts of tangible
net worth, and compliance with certain financial ratios, as defined
in the agreement. As of June 30, 1995, the Company was not in
compliance with certain of these financial covenants for which they
have received appropriate waivers from the banks.
(b) In November 1991, the Company renegotiated the terms of its $6,000,000
unsecured note payable to the Company's primary bank. Under the terms
of the agreement, repayment of the $900,000 outstanding balance at June
30, 1995 ($2,600,000 at June 30, 1994), will be made in two remaining
installments in September and November 1995.
-25-
<PAGE> 26
Interest on the note is payable monthly at a rate determined
periodically based on a number of options available to the Company. At
June 30, 1995 and 1994, the interest rate on the note was approximately
9.52% and 7.75%, respectively.
Under the terms of the agreement, the Company is limited, among other
things, in the amount of capital expenditures and other investments it
may make, is restricted from the payment of dividends and is required
to maintain certain financial ratios. The Company was not in compliance
with certain of these financial covenants at June 30, 1995, for which
it received appropriate waivers from the bank.
In addition, in November 1991, a subsidiary of the Company entered into
a $4,500,000 line of credit agreement with another bank in connection
with the Company's international operations. The line is secured by a
letter of credit from the Company's primary bank. Interest on amounts
outstanding under this line is payable quarterly at a rate determined
periodically based on a number of options available to the Company. The
balance outstanding under the line as of December 31, 1994
automatically converted to a term loan payable in 20 equal quarterly
installments commencing on that date. At June 30, 1995 and 1994, the
amounts outstanding under this line were $4,050,000 and $3,832,500 at
interest rates of 6.27% and 4.92%, respectively.
Under the terms of the agreement, all advances under the line must be
used to pay for certain specified costs incurred by this subsidiary. In
addition, the terms of the agreement limit, among other things, the
amount of additional debt or liens that may be incurred and prohibit
the payment of dividends by this subsidiary.
On August 27, 1993, the Company entered into an agreement with its
primary bank to increase an existing $2,500,000 letter of credit
agreement to $4,500,000 for the purpose of providing additional
collateral for the construction of a manufacturing facility in the
Dominican Republic. In conjunction with this agreement, the bank
received as collateral a first priority perfected security interest in
all accounts receivable of the Company and a second mortgage on the
Company's facility located in Amityville, New York with a lien of up to
$1,500,000. This agreement expires on February 28, 1996.
(c) In 1985, the Company received $3,900,000 in proceeds from Industrial
Revenue Bonds issued by the Town of Babylon (the "Town") to be used for
the purchase of land and the construction of a new office and
manufacturing facility. Title to the land and building will be held by
the Town as security for the bonds, and the Town leases the facility to
the Company under an agreement which provides for the repurchase of the
facilities for $1 at the completion of the lease term. For accounting
purposes, this lease is accounted for as a capital lease. The bonds
bear interest at a variable rate which is determined weekly by the
underwriting bank based upon market conditions. At June 30, 1995 and
1994, the interest rate was approximately 3.7% and 2.05%, respectively.
The bonds have a maturity date of April 1, 2000; however, principal
repayment is to be accomplished through quarterly payments of $75,000
made to a sinking fund held by a trustee. On each July 1 through and
including July 1, 1999, the bonds shall be redeemed, in part, prior to
their maturity, in the amount of $300,000 from the sinking fund at a
price equal to 100% of the principal amount so redeemed.
-26-
<PAGE> 27
The Company's primary bank has issued an irrevocable letter of credit,
covering the outstanding balance of the bonds plus 50 days of interest
cost to the trustee of the bonds as security for the Company's
obligations under the various arrangements.
The bonds may be tendered, at any time, at the election of the holder,
at a price of 100% of the unpaid principal balance. At the time of
notice of tender, the remarketing agent will use its best efforts to
remarket the tendered bonds. The bank, as part of the letter of credit
arrangement, is obligated through April 12, 2000 to purchase any of the
bonds which are not remarketed.
Under the terms of the bond indenture, among other things, the Company
is required to maintain certain levels of working capital and tangible
net worth, is restricted in the amount of acquisitions of fixed assets
and other investments it may make and must maintain certain financial
ratios. The Company was not in compliance with certain of these
financial covenants at June 30, 1995 for which it has received
appropriate waivers from the bank.
Maturities of long-term debt (including sinking fund payments) are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1996 $ 2,182
1997 1,200
1998 3,950
1999 3,950
2000 3,425
Thereafter 2,750
-------
$17,457
=======
</TABLE>
7. STOCK OPTIONS:
In November 1992, the stockholders approved a 10 year extension of the
already existing 1982 incentive stock option plan. Shares of common stock are
reserved for issuance upon exercise of options granted to officers and key
employees under the extended 1982 plan. The plan provides that the option price
equal 100% of the fair market value of the stock at the date of grant. Options
are exercisable 20% per year and expire five years after the date of grant.
Transactions and other information relating to the plan for the three years
ended June 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Shares under option
Share available ---------------------------
for grant Shares Price
--------------- -------- --------------
<S> <C> <C> <C>
Outstanding at June 30, 1992 727,933 88,000 $2.25 to $2.50
Granted (36,750) 36,750 2.50 to 2.625
Lapsed and terminated 6,650 (6,650) 2.50
Exercised -- (600) 2.50
-------- -------- ---------------
Outstanding at June 30, 1993 697,833 117,500 2.25 to 2.625
Granted (26,500) 26,500 4.375
Lapsed and terminated 22,400 (22,400) 2.50 to 2.625
Exercised -- (600) 2.50
-------- -------- ---------------
Outstanding at June 30, 1994 693,733 121,000 2.25 to 4.375
Granted (3,000) 3,000 2.50
Lapsed and terminated 43,000 (43,000) 2.50 to 4.375
-------- -------- ---------------
Outstanding at June 30, 1995 733,733 81,000 $2.25 to $4.375
======== ======== ===============
</TABLE>
-27-
<PAGE> 28
Options representing 50,900 shares were exercisable at June 30, 1995. Subsequent
to year end, 34,000 options were terminated.
Effective October 1990, the Company established a non-employee stock option plan
to encourage non-employee directors and consultants of the Company to invest in
the Company's stock. The plan provides that the option price shall not be less
than 100% of the fair market value of the stock at the date of grant. Options
are exercisable at 20% per year and expire five years after the date of grant.
At June 30, 1995, 50,000 shares of common stock are reserved for issuance under
the Plan.
8. RESEARCH AND DEVELOPMENT COSTS:
Research and development costs charged to cost of sales were approximately
$3,252,000, $2,883,000 and $2,680,000 for the years ended June 30, 1995, 1994
and 1993, respectively.
9. 401(k) PLAN:
Effective August 31, 1985, the Company established a 401(k) plan covering all
employees with one or more years of service as of July 1, 1985, and annually
thereafter. The plan is qualified under Sections 401(a) and 401(k) of the
Internal Revenue Code. The Company provides for matching contributions of 50% of
the first 2% of employee contributions. Company contributions to the plan
totaled approximately $56,000, $59,000 and $44,000 for the years ended June 30,
1995, 1994 and 1993, respectively.
10. BUSINESS AND CREDIT CONCENTRATIONS:
The Company is engaged in one major line of business - the development,
manufacture, distribution and sale of security alarm products and door security
devices for commercial and residential installations. Most of the Company's
sales to unaffiliated customers originated in the United States. Most of the
Company's customers are located throughout the United States and Europe.
Identifiable assets (net of intercompany receivables and payables) relating to
the Company's foreign operations were approximately $19,708,000, $22,513,000 and
$19,334,000 at June 30, 1995, 1994 and 1993, respectively.
Export sales amounted to $8,865,000, $7,795,000 and $6,013,000 for the years
ended June 30, 1995, 1994 and 1993, respectively. At June 30, 1995 and 1994, the
Company had three customers with accounts receivable balances that aggregated
51% and 44% of the Company's accounts receivable, respectively. Revenues from
significant customers are summarized as follows:
<TABLE>
<CAPTION>
Percentage of Net Sales
--------------------------------
For the Years Ended June 30,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer 1 22% 18% 21%
Customer 2 6% 12% 12%
Customer 3 11% 7% 7%
</TABLE>
-28-
<PAGE> 29
11. COMMITMENTS:
Leases
The Company is committed under various operating leases which do not extend
beyond fiscal 1997. Minimum lease payments through the expiration dates of these
leases, with the exception of the land lease referred to below, are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1996 $57,139
1997 16,360
--------
$73,499
=======
</TABLE>
Rent expense totaled approximately $369,000, $357,000 and $296,000 for the years
ended June 30, 1995, 1994 and 1993, respectively.
Land Lease and Construction Contract
On April 26, 1993, the Company's foreign subsidiary entered into a 99 year land
lease of approximately four acres of land in the Dominican Republic, at an
annual cost of approximately $272,000. The foreign subsidiary relocated its
operations to this site upon completion of a new facility during fiscal 1995.
Letters of Credit
At June 30, 1995, the Company was committed for approximately $406,000
and $52,000 under open commercial letters of credit and steamship guarantees,
respectively.
-29-
<PAGE> 30
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30,
------------------------
ASSETS 1995 1994
------ ------ -------
(in thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 262 $ 1,063
ACCOUNTS RECEIVABLE, net 11,497 11,903
INVENTORIES, net 11,222 10,307
PREPAID EXPENSES AND OTHER CURRENT ASSETS 343 292
------- -------
Total current assets 23,324 23,565
INVESTMENT IN SUBSIDIARIES, on equity basis 23,412 23,973
PROPERTY, PLANT AND EQUIPMENT, net 5,842 5,862
OTHER ASSETS 299 274
------- -------
$52,877 $53,674
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $10,510 $10,950
DUE TO SUBSIDIARIES 1,682 4,244
LONG-TERM DEBT, including capital lease obligation 12,125 10,432
------- -------
Total liabilities 24,317 25,626
STOCKHOLDERS' EQUITY 28,560 28,048
------- -------
$52,877 $53,674
======= =======
</TABLE>
This schedule should be read in conjunction with
the accompanying consolidated financial statements and notes thereto.
-30-
<PAGE> 31
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
<TABLE>
<CAPTION>
For the Years Ended June 30,
---------------------------------------
CONDENSED STATEMENTS OF INCOME 1995 1994 1993
- - ------------------------------ ------- ------- -------
(in thousands)
<S> <C> <C> <C>
NET SALES $38,547 $35,954 $36,638
COST OF SALES 27,938 27,464 27,254
------- ------- -------
Gross profit 10,609 8,490 9,384
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,808 7,562 7,235
------- ------- -------
Operating income 2,801 928 2,149
EQUITY (LOSS) IN EARNINGS OF SUBSIDIARIES (561) 1,226 902
OTHER (EXPENSE), net (1,196) (863) (766)
------- ------- -------
Income before provision for
(recovery of) income taxes 1,044 1,291 2,285
PROVISION FOR (RECOVERY OF) INCOME TAXES 532 37 (32)
------- ------- -------
Net income $ 512 $ 1,254 $ 2,317
======= ======= =======
</TABLE>
This schedule should be read in conjunction with
the accompanying consolidated financial statements and notes thereto.
-31-
<PAGE> 32
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Charged to Balance
Beginning Costs and Deductions at End of
Description of Period Expenses Describe (1) Period
----------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
For the year ended June 30, 1993:
Allowance for doubtful accounts
(deducted from accounts receivable) $ 306 $ 152 $ 6(1) $ 452
===== ===== ====== =====
Reserve for obsolescence (deducted
from inventories) $ 251 $ 149 $ -- $ 400
===== ===== ====== =====
For the year ended June 30, 1994:
Allowance for doubtful accounts
(deducted from accounts receivable) $ 452 $ 77 $ 75(1) $ 454
===== ===== ====== =====
Reserve for obsolescence (deducted
from inventories) $ 400 $ 145 $ -- $ 545
===== ===== ====== =====
For the year ended June 30, 1995:
Allowance for doubtful accounts
(deducted from accounts receivable) $ 454 $ 212 $ 4(1) $ 662
===== ===== ====== =====
Reserve for obsolescence (deducted
from inventories) $ 545 $ 563 $ 145 $ 963
===== ===== ====== =====
</TABLE>
(1) Deductions relate to uncollectible accounts charged off to valuation
accounts, net of recoveries.
This schedule should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
-32-
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
33
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the Company's definitive proxy statement
for the 1995 annual meeting of stockholders which the Company intends to file
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the Company's 1995 fiscal year, and, accordingly,
items 10, 11, 12 and 13 are omitted pursuant to General Instruction G(3).
34
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)1. Financial Statements
The following consolidated financial statements of Napco Security Systems,
Inc. and its subsidiaries are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants
as of June 30, 1995 and 1994 and for the
3 Year Period Ended June 30, 1995 . . . . . . . . . . . 15
Consolidated Balance Sheets as of
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . 16
Consolidated Statements of Income
for the Years Ended June 30, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . 17
Consolidated Statements of
Stockholders' Equity for the
Years Ended June 30, 1995, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Cash
Flows for the Years Ended
June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . 19
Notes to Consolidated Financial
Statements, June 30, 1995, 1994 and 1993 . . . . . . . 20
</TABLE>
(a)2. Financial Statement Schedules
The following consolidated financial statement schedules of Napco Security
Systems, Inc. and its subsidiaries are included in Part II, Item 8:
<TABLE>
<S> <C> <C>
I: Condensed Financial Information
on Parent Company . . . . . . . . . . . . . 30
II: Valuation and Qualifying Accounts . . . . . . . . 32
</TABLE>
Schedules other than those listed above are omitted because of the absence
of the conditions under which they are required or because the required
information is shown in the consolidated financial statements and/or notes
thereto.
35
<PAGE> 36
(a)3 and (c). Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Title
- - ------- -----
<S> <C> <C>
Ex-3.(i) Articles of Incorporation, as amended. . Exhibit 3a to
Report on Form
10-K for
fiscal year
ended June 30,
1988
Ex-3.(ii) By-Laws . . . . . . . . . . . . . . . . Exhibit 3b to
Report on Form
10-K for
fiscal year
ended June 30,
1988
Ex-10.A 1982 Amended and Restated Incentive
Stock Option Plan (extended 1992) . . . Exhibit 10b to
Report on Form
10-K for
fiscal year
ended June 30,
1991
Ex-10.B 1990 Non-Employee Stock Option Plan . . Exhibit 10c to
Report on Form
10-K for
fiscal year
ended June 30,
1991
Ex-10.C Defined Contribution Pension Plan
Basic Plan Document . . . . . . . . . . Exhibit 10d to
Report on Form
10-K for
fiscal year
ended June 30,
1989
Ex-10.D Defined Contribution Pension Plan
401(k) Profit Sharing Plan
Adoption Agreement . . . . . . . . . . . Exhibit 10e to
Report on Form
10-K for
fiscal year
ended June 30,
1989
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C>
Ex-10.E Indenture of Mortgage and Trust . . . . Exhibit 10h to
Report on Form
10-K for
fiscal year
ended June 30,
1990
Ex-10.F Credit Agreement dated as of November
21, 1991 among the Company, certain
subsidiaries and Chemical Bank, as
agent . . . . . . . . . . . . . . . . . Exhibit 10-h
to Report on
Form 10-K for
fiscal year
ended June 30,
1992
Ex-10.G Promissory Note dated as of November
8, 1991 between Citibank, N.A. and
the Company . . . . . . . . . . . . . . Exhibit 10-i
to Report on
Form 10-K for
fiscal year
ended June 30,
1992
Ex-10.H Credit Agreement dated November 8,
1991 between N.S.S. Caribe S.A. and
Citibank, N.A. . . . . . . . . . . . . . Exhibit 10-j
to Report on
Form 10-K for
fiscal year
ended June 30,
1992
Ex-10.I Amendment and Waiver Agreement dated
as of August 27, 1993 between Chemical
Bank and the Company . . . . . . . . . . Exhibit 10-j
to Report on
Form 10-K for
fiscal year
ended June 30,
1993
Ex-10.J Construction Contract dated June 5,
1993 . . . . . . . . . . . . . . . . . . Exhibit 10-l
to Report on
Form 10-K for
fiscal year
ended June 30,
1993
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
Ex-10.K Amendment dated July 27, 1994 to
Credit Agreement dated November 21,
1991 . . . . . . . . . . . . . . . . . Exhibit 10-m
to Report on
Form 10-K for
fiscal year
ended June 30,
1993
Ex-10.L Loan Agreement dated as of July 27, 1994
with Chemical Bank and The Bank of New
York . . . . . . . . . . . . . . . . . Exhibit 10-n
to Report on
Form 10-K for
fiscal year
ended June 30,
1993
Ex-10.M First Amendment dated as of November 5,
1993 to Credit Agreement dated as of
November 8, 1991 with Citibank,
N.A. . . . . . . . . . . . . . . . . . Exhibit 10-o
to Report on
Form 10-K for
fiscal year
ended June 30,
1993
Ex-10.N Amendment and Waiver dated as of
September 14, 1993 to Credit Agreement
dated as of November 21, 1991. . . . . E-1
Ex-10.O Amendment dated as of December 7, 1993
to the Credit Agreement dated as of
November 21, 1991. . . . . . . . . . . E-4
Ex-10.P Fifth Amendment and Waiver dated
as of October 11, 1994 to the
Credit Agreement dated as of
November 21, 1991. . . . . . . . . . . E-7
Ex-10.Q Sixth Amendment and Waiver dated
as of March 31, 1995 to the
Credit Agreement dated as of
November 21, 1991. . . . . . . . . . . E-12
Ex-10.R First Amendment and Waiver dated as
of October 11, 1994 to Loan Agreement
dated as of July 27, 1994. . . . . . . E-20
Ex-10.S Second Amendment and Waiver dated as
of March 31, 1995 to the Loan Agreement
dated as of July 27, 1994. . . . . . . E-25
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C>
Ex-10.T Promissory Notes dated April 3, 1995
and July 3, 1995 between Chemical
Bank and the Company. . . . . . . . . . E-35
Ex-11 Computation of earnings per share . . . E-41
Ex-12 Computation of ratios . . . . . . . . . E-42
Ex-21 Subsidiaries of the Registrant . . . . E-43
Ex-27 Financial Data Schedule . . . . . . . . E-44
</TABLE>
Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. Stockholders of the registrant will be
provided with copies of these exhibits upon written request to the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30,
1995.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
October 12, 1995
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
By: /s/ RICHARD SOLOWAY By: /s/ KENNETH ROSENBERG
------------------- ---------------------
Richard Soloway Kenneth Rosenberg
Chairman of the Board of President and Treasurer
Directors and Secretary (Co-Principal Executive
(Co-Principal Executive Officer) Officer)
By: /s/ KEVIN S. BUCHEL
-------------------
Kevin S. Buchel
Senior Vice President of
Operations and Finance
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/RICHARD SOLOWAY Chairman of the October 12, 1995
- - ---------------------- Board of Directors
Richard Soloway
/s/KENNETH ROSENBERG Director October 12, 1995
- - ----------------------
Kenneth Rosenberg
/s/RANDY B. BLAUSTEIN Director October 12, 1995
- - ----------------------
Randy B. Blaustein
/s/ANDREW J. WILDER Director October 12, 1995
- - ----------------------
Andrew J. Wilder
</TABLE>
40
<PAGE> 41
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
For Fiscal Year Ending June 30, 1995
Commission file number : 0-10004
NAPCO SECURITY SYSTEMS, INC.
EXHIBITS
<PAGE> 42
Index to Exhibits
<TABLE>
<S> <C> <C>
Ex-10.N Amendment and Waiver dated as of
September 14, 1993 to Credit Agreement
dated as of November 21, 1991. . . . . . . . . . . . E-1
Ex-10.0 Amendment dated as of December 7, 1993
to the Credit Agreement dated as of
November 21, 1991. . . . . . . . . . . . . . . . . . E-4
Ex-10.P Fifth Amendment and Waiver dated
as of October 11, 1994 to the
Credit Agreement dated as of
November 21, 1991. . . . . . . . . . . . . . . . . . E-7
Ex-10.Q Sixth Amendment and Waiver dated
as of March 31, 1995 to the
Credit Agreement dated as of
November 21, 1991. . . . . . . . . . . . . . . . . . E-12
Ex-10.R First Amendment and Waiver dated as
of October 11, 1994 to Loan Agreement
dated as of July 27, 1994. . . . . . . . . . . . . . E-20
Ex-10.S Second Amendment and Waiver dated as
of March 31, 1995 to the Loan Agreement
dated as of July 27, 1994. . . . . . . . . . . . . . E-25
Ex-10.T Promissory Notes dated April 3, 1995
and July 3, 1995 between Chemical
Bank and the Company . . . . . . . . . . . . . . . . E-35
Ex-11 Computation of earnings per share . . . . . . . . . . E-41
Ex-12 Computation of ratios . . . . . . . . . . . . . . . . E-42
Ex-21 Subsidiaries of the Registrant . . . . . . . . . . . . E-43
Ex-27 Financial Data Schedule
</TABLE>
E-i
<PAGE> 1
EXHIBIT 10.N
AMENDMENT and WAIVER dated as of
September 14, 1993 to the CREDIT
AGREEMENT dated as of November 21, 1991
(as the same may be further amended,
supplemented or modified from time to
time in accordance with its terms, the
"Credit Agreement"), among NAPCO
SECURITY SYSTEMS, Inc., a Delaware
corporation (the "Borrower"), the
Guarantors signatory hereto, the
lenders named in SCHEDULE 2.01 and 2.06
annexed hereto (collectively the
"Lenders") and CHEMICAL BANK, as agent
for the Lenders (in such capacity, the
"Agent").
WHEREAS, the Borrower and the Guarantors wish to amend and waive certain
provisions of the Credit Agreement;
WHEREAS, the Lenders and the Agent have consented to amend and waive the
Credit Agreement to reflect the requests herein set forth;
NOW, THEREFORE, the parties hereby agree as follows:
1. Waiver of Article VII. NEGATIVE COVENANTS Section 7.10. Current Ratio.
----------------------------------------------------------------------
Compliance with Article VII. Section 7.10. of the Credit Agreement is
hereby waived for the fiscal year ended June 30, 1993 to permit the
Current Ratio of the Borrower and its Consolidated subsidiaries to be
less than 2.25 to 1.0 as of the fiscal year ended June 30, 1993
provided, however; such ratio was not less than 2.11 to 1.0 as of
such fiscal year end.
2. Waiver of Article VII. COVENANTS Section 7.14. Total Unsubordinated
-------------------------------------------------------------------
Liabilities to Tangible Net Worth Ratio.
----------------------------------------
Compliance with Article VII. Section 7.14. of the Credit Agreement is
hereby waived for fiscal year ended June 30, 1993 to permit the ratio
of Total Unsubordinated Liabilities of the Borrower and its
Consolidated subsidiaries to Tangible Net Worth of the Borrower and
its Consolidated subsidiaries plus Consolidated Subordinated
Indebtedness to be greater than 1.0 to 1.0 as of the fiscal year
ended June 30, 1993 provided, however; such ratio was not greater
than 1.04 to 1.0 as of such fiscal year end.
<PAGE> 2
3. Amendment to Article VII. NEGATIVE COVENANTS Section 7.10. Current
------------------------------------------------------------------
Ratio.
------
Article VII Section 7.10. of the Credit Agreement is hereby amended
by deleting it in its entirety and substituting therefore the
following:
"Section 7.10. CURRENT RATIO. Permit the Current Ratio of the
Borrower and its Consolidated subsidiaries at any time to be less
than (i) 2.0 to 1.0 from July 1, 1993 through and including June 30,
1994 and (ii) 2.25 to 1.0 at any time thereafter."
4. Amendment to Article VII. COVENANTS Section 7.14. Total
-------------------------------------------------------
Unsubordinated Liabilities to Tangible Net Worth Ratio.
-------------------------------------------------------
Article VII. Section 7.14. of the Credit Agreement is hereby amended
by deleting it in its entirety and substituting therefore the
following:
"SECTION 7.14. TOTAL UNSUBORDINATED LIABILITIES TO TANGIBLE NET WORTH
RATIO. Permit the ratio of (x) Total Unsubordinated Liabilities of
the Borrower and its Consolidated subsidiaries, to (y) Tangible Net
Worth of the Borrower and its Consolidated subsidiaries plus
Consolidated Subordinated Indebtedness, at any time to be greater
than (i) 1.04 to 1.0 from July 1, 1993 through and including June 30,
1994 and (ii) 1.0 to 1.0 at any time thereafter.
This AMENDMENT and WAIVER shall be construed and enforced in accordance with
the laws of the State of New York.
Except as expressly amended, waived or consented to hereby, the Credit
Agreement shall remain in full force and effect in accordance with the
original terms thereof.
This AMENDMENT and WAIVER herein contained is limited specifically to the
matters set forth above and does not constitute directly or by implication an
amendment or waiver of any other provision of the Credit Agreement or any
default which may occur or may have occurred under the Credit Agreement.
The Borrower hereby represents and warrants that, after giving effect to this
AMENDMENT and WAIVER, no Event of Default or Default exists under the Credit
Agreement or any other related document.
Please be advised that should there be a need for further amendments or
waivers with respect to these covenants or any other covenants, those requests
shall be evaluated by the Agent and the Lenders when formally requested, in
writing, by the Borrower and the Guarantors.
<PAGE> 3
This AMENDMENT and WAIVER may be executed in two or more counterparts, each of
which shall constitute an original, but all of which when, taken together
shall constitute but one AMENDMENT and WAIVER. The AMENDMENT and WAIVER shall
become effective when duly executed counterparts hereof which, when taken
together, bear the signatures of each of the parties hereto shall have been
delivered to the Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Credit Agreement.
IN WITNESS WHEREOF, the Borrower, the Guarantors and the Agent have caused
this AMENDMENT and WAIVER to be duly executed by their duly authorized
officers, all as of the day and year first above written.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel, VP
-----------------------------------
Name:
Title:
Guarantors:
NAPCO SECURITY SYSTEMS INTERNATIONAL INC.
UMI MANUFACTURING CORP.
RALTECH LOGIC, INC.
E.E. ELECTRONIC COMPONENTS, INC.
ALARM LOCK SYSTEMS, INC.
DERRINGER SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel, VP
-----------------------------------
Name:
Title:
CHEMICAL BANK, as Agent and Lender
By: /s/ Frank L. Arceri
--------------------------
Name: Frank L. Arceri
Title: Vice President
<PAGE> 1
EXHIBIT 10.O
AMENDMENT dated as of December 7, 1993 to
the CREDIT AGREEMENT dated as of November
21, 1991 (as the same may be further amended,
supplemented or modified from time to time in
accordance with its terms, (the "Credit
Agreement"), among NAPCO SECURITY SYSTEMS,
Inc., a Delaware corporation (the
"Borrower"), the Guarantors signatory
hereto, the lenders named in SCHEDULE 2.01
and 2.06 annexed hereto (collectively the
"Lenders") and CHEMICAL BANK, as agent for
the Lenders (in such capacity, the "Agent").
WHEREAS, the Borrower and the Guarantors wish to amend certain provisions of
the Credit Agreement;
WHEREAS, the Lenders and the Agent have consented to amend the Credit Agreement
to reflect the requests herein set forth;
NOW, THEREFORE, the parties hereby agree as follows:
1. Amendment to Article I. DEFINITIONS.
------------------------------------
Article I of the Credit Agreement is hereby amended by deleting
the definition of "LETTER OF CREDIT COMMITMENT TERMINATION
DATE" in its entirety and substituting therefor the following:
"'LETTER OF CREDIT COMMITMENT TERMINATION DATE' shall mean the
earlier of (x) November 8, 1994 and (y) the date on which all
"Advances" have been made to Caribe pursuant to the Caribe Loan
Agreement."
2. Amendment to Article II. THE LOANS AND LETTER OF CREDIT.
--------------------------------------------------------
SECTION 2.04 Term Notes
-----------------------
Article II. Section 2.04. of the Credit Agreement is hereby
amended by deleting the second sentence thereof in its entirety
and substituting therefor the following:
"The principal balance of the Term Notes shall be payable
quarterly commencing on the last day of the calender quarter
immediately following the Closing Date and on the last day of
each March, June, September and December in each year
thereafter (each, a "Repayment Date") through and including the
Final Maturity Date, in four consecutive quarterly
installments each in the amount of $250,000, then four
consecutive quarterly installments each in the amount of
$375,000, then six consecutive quarterly installments in the
following order and amounts: $425,000, $475,000, $500,000,
$375,000, $400,000, $425,000, then two consecutive quarterly
installments each in the amount of $450,000, with a final
installment equal to the remaining unpaid principal balance due
and payable on the Final Maturity Date."
<PAGE> 2
-2-
This AMENDMENT shall be construed and enforced in accordance with the laws of
the State of New York.
Except as expressly amended or consented to hereby, the Credit Agreement shall
remain in full force and effect in accordance with the original terms thereof.
The AMENDMENT herein contained is limited specifically to the matters set forth
above and does not constitute directly or by implication an amendment or
waiver of any other provision of the Credit Agreement or any default which may
occur or may have occurred under the Credit Agreement.
The Borrower and the Guarantors hereby represent and warrant that, after giving
effect to this AMENDMENT, no Event of Default or Default exists under the
Credit Agreement or any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Agent and the Lenders when formally requested, in writing, by
the Borrower and the Guarantors.
This AMENDMENT may be executed in one or more counterparts, each which shall
constitute an original, but all of which when, taken together shall constitute
but one AMENDMENT. The AMENDMENT shall become effective (y) upon the receipt
and satisfactory review by the Agent of an amendment to the Caribe Loan
Agreement, duly executed by Caribe and Citibank, N.A., amending the definition
of "TERMINATION DATE" to read as follows: "the earlier of (i) November 8, 1994
or (ii) the date on which all Advances are made under the Commitment" and (z)
when duly executed counterparts hereof which, when taken together, bear the
signatures of each of the parties hereto shall have been delivered to the
Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Credit Agreement with the exception of the
defined terms "Advances" and "Commitment" as used in the immediately preceding
paragraph, both of which shall have the meanings ascribed to such terms in the
Caribe Loan Agreement.
IN WITNESS WHEREOF, the Borrower, the Guarantors and the Agent have caused this
AMENDMENT to be duly executed by their duly authorized officers, all as of the
day and year first above written.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel, V.P.
--------------------------
Name: Kevin S. Buchel
Title: Vice President of Finance
and Administration
<PAGE> 3
- 3 -
Guarantors:
NAPCO SECURITY SYSTEMS INTERNATIONAL INC.
UMI MANUFACTURING CORP.
RALTECH LOGIC, INC.
E.E. ELECTRONIC COMPONENTS, INC.
ALARM LOCK SYSTEMS, INC.
DERRINGER SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel, V.P.
-------------------------
Name: Kevin S. Buchel
Title: Vice President of Finance
and Administration
CHEMICAL BANK, as Agent and Lender
By: /s/ Frank L. Arceri
-----------------------------
Name: Frank L. Arceri
Title: Vice President
<PAGE> 1
EXHIBIT 10.P
FIFTH AMENDMENT and WAIVER dated as of
October 11, 1994 to the CREDIT AGREEMENT
dated as of November 21, 1991 (as the
same has been amended by the Amendment
and Waiver dated as of August 27, 1993,
the Amendment and Waiver dated as of
September 14, 1993, the Amendment dated
as of December 7, 1993, the Amendment and
Waiver dated as of July 27, 1994 and as
the same may be further amended,
supplemented or modified from time to
time in accordance with its terms, the
"Credit Agreement), among NAPCO SECURITY
SYSTEMS, INC., a Delaware corporation
(the "Borrower"), the guarantors
signatory hereto (collectively, the
"Guarantors"), the lenders named in
SCHEDULE 2.01 and 2.06 of the Credit
Agreement (collectively, the "Lenders")
and CHEMICAL BANK, as agent for the
Lenders (in such capacity, the "Agent").
WHEREAS, the Borrower and the Guarantors wish to amend and waive certain
provisions of the Credit Agreement;
WHEREAS, the Lenders and the Agent have consented to amend and waive the Credit
Agreement to reflect the requests herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
1. Waiver of Article VII. NEGATIVE COVENANTS. Section 7.08. Tangible
-----------------------------------------------------------------
Net Worth.
----------
Compliance with Article VII. Section 7.08. of the Credit Agreement
is hereby waived for the fiscal year ended June 30, 1994 to permit
Tangible Net Worth plus Subordinated Indebtedness of the Borrower
and its Consolidated subsidiaries to be less than $25,566,000 as of
the fiscal year ended June 30, 1994 provided, however, Tangible Net
Worth plus Subordinated Indebtedness of the Borrower and its
Consolidated subsidiaries was not less than $24,821,000 as of such
fiscal year end.
<PAGE> 2
-2-
2. Amendment to Article VII. NEGATIVE COVENANTS. Section 7.08.
-----------------------------------------------------------
Tangible Net Worth.
-------------------
Article VII. Section 7.08. of the Credit Agreement is hereby amended by
deleting the number "$26,000,000" contained in subsection (ii) thereof
and substituting therefor the number "$24,821,000".
3. Waiver of Article VII. NEGATIVE COVENANTS. Section 7.10. Current
----------------------------------------------------------------
Ratio.
------
Compliance with Article VII. Section 7.10. of the Credit Agreement is
hereby waived for the fiscal year ended June 30, 1994 to permit the
Current Ratio of the Borrower and its Consolidated subsidiaries to be
less than 2.00 to 1.0 as of the fiscal year ended June 30, 1994
provided, however, such ratio was not less than 1.99 to 1.0 as of such
fiscal year end.
4. Amendment to Article VII. NEGATIVE COVENANTS. Section 7.10.
-----------------------------------------------------------
Current Ratio.
--------------
Section 7.10. of the Credit Agreement is hereby amended by deleting it
in its entirety and by substituting the following therefor:
"SECTION 7.10. CURRENT RATIO. Permit the Current Ratio of the
Borrower and its Consolidated Subsidiaries (i) to be less than 1.99
to 1.00 from July 1, 1994 until June 29, 1995, (ii) to be less than
2.00 to 1.00 from June 30, 1995 until June 29, 1996 and (iii) to be
less than 2.25 to 1.00 at all times from June 30, 1996 and
thereafter."
5. Waiver of Article VII. NEGATIVE COVENANTS. Section 7.14. Total
--------------------------------------------------------------
Unsubordinated Liabilities to Tangible Net Worth Ratio.
-------------------------------------------------------
Compliance with Article VII. Section 7.14. of the Credit Agreement is
hereby waived for period commencing on July 1, 1994 and ending on July
26, 1994 to permit the ratio of Total Unsubordinated Liabilities of the
Borrower and its Consolidated subsidiaries to Tangible Net Worth of the
Borrower and its Consolidated subsidiaries plus Consolidated Subordinated
Indebtedness to be greater than 1.00 to 1.0 provided, however; such ratio
was not greater than 1.04 to 1.0.
<PAGE> 3
-3-
6. Waiver of Article VII. NEGATIVE COVENANTS. Section 7.18. Debt
-------------------------------------------------------------
Service Coverage Ratio.
-----------------------
Compliance with Article VII. Section 7. 18. of the Credit Agreement
is hereby waived for the fiscal year ended June 30, 1994 to permit
the Debt Service Coverage Ratio of the Borrower and its Consolidated
subsidiaries to be less than 1.10 to 1.0 as of the fiscal year ended
June 30, 1994 provided, however, such ratio was not less than 1.02
to 1.0 as of such fiscal year end.
7. Amendment to Article VII. NEGATIVE COVENANTS. Section 7.18. Debt
----------------------------------------------------------------
Service Coverage Ratio.
-----------------------
Section 7. 18 of the Credit Agreement is hereby amended by deleting
it in its entirety and by substituting the following therefor:
"SECTION 7.18. DEBT SERVICE COVERAGE RATIO. Permit the Debt Service
Ratio of the Borrower and its Consolidated subsidiaries to be less
than:
(i) 1.02 to 1.00 at all times from July 1, 1994 until June 29,
1995;
(ii) 1.15 to 1.00 at all times from June 30,1995 until June
29, 1997; and
(iii) 1.10 to 1.00 at all times from June 30, 1997 and thereafter."
8. Amendment to Article VII NEGATIVE COVENANTS. Section 7.19.
----------------------------------------------------------
Inventory Reliance.
-------------------
Section 7.19 of the Credit Agreement is hereby amended by deleting
it in its entirety and by substituting the following therefor:
"Section 7.19 INVENTORY RELIANCE. Permit the Inventory Reliance of
the Borrower and its Consolidated subsidiaries to be more than (i)
18% at all times from July l, 1994 until June 29, 1995; (ii) 15%
at all times from June 30, 1995 until June 29, 1996; and (iii) 10%
at all times from June 30, 1996 and thereafter.
This FIFTH AMENDMENT and WAIVER shall be construed and enforced in
accordance with the laws of the State of New York.
Except as expressly amended, waived or consented to hereby, the Credit
Agreement shall remain in full force and effect in accordance with the original
terms thereof.
<PAGE> 4
-4-
This FIFTH AMENDMENT and WAIVER herein contained is limited specifically to the
matters set forth above and does not constitute directly or by implication an
amendment or waiver of any other provision of the Credit Agreement or any
default which may occur or may have occurred under the Credit Agreement.
The Borrower hereby represents and warrants that, after giving effect to this
FIFTH AMENDMENT and WAIVER, no Event of Default or Default exists under the
Credit Agreement or any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Agent and the Lenders when formally requested, in writing, by
the Borrower and the Guarantors.
This FIFTH AMENDMENT and WAIVER may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
when, taken together shall constitute but one FIFTH AMENDMENT and WAIVER. The
FIFTH AMENDMENT and WAIVER shall become effective when (i) duly executed
counterparts hereof which, when taken together, bear the signatures of each of
the parties hereto shall have been delivered to the Agent, (ii) the Agent shall
have received copies of (a) the executed Eighth Amendment and Waiver to the
Letter of Credit and Bond Purchase Agreement dated as of April 1, 1985 between
the Borrower and Chemical Bank, in the form attached hereto as Exhibit A and
(b) the executed First Amendment and Waiver to the Loan Agreement dated as of
July 27, 1994 among the Company, the Guarantors named therein, Chemical Bank,
The Bank of New York and Chemical Bank, as Agent, in the form attached hereto
as Exhibit B, and (iii) the Agent shall have received, for its satisfactory
review, a "draft" of the Borrower's audited financial statements for the fiscal
year ended June 30, 1994.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Credit Agreement.
IN WITNESS WHEREOF, the Borrower, the Guarantors and the Agent have caused this
FIFTH AMENDMENT and WAIVER to be duly executed by their duly authorized
officers, all as of the day and year first above written.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel, VP
------------------------
Name:
Title:
<PAGE> 5
- 5 -
Guarantors:
NAPCO SECURITY SYSTEMS
INTERNATIONAL, INC.
UMI MANUFACTURING CORP.
RALTECH LOGIC, INC.
E.E. ELECTRONIC
COMPONENTS, INC.
ALARM LOCK SYSTEMS, INC.
DERRINGER SECURITY
SYSTEMS, INC.
By: /s/ K. S. Buchel, VP
-------------------------
Name:
Title:
CHEMICAL BANK, as Agent and Lender
By: /s/ Frank L. Arceri
-------------------------
Name: Frank L. Arceri
Title: Vice President
<PAGE> 1
EXHIBIT 10.Q
SIXTH AMENDMENT and WAIVER dated as of
March 31, 1995 to the CREDIT AGREEMENT
dated as of November 21, 1991 (as the same
has been amended by the Amendment and
Waiver dated as of August 27, 1993, the
Amendment and Waiver dated as of
September 14, 1993, the Amendment dated
as of December 7, 1993, the Fourth
Amendment Agreement dated as of July 27,
1994, the Fifth Amendment and Waiver
dated as of October 11, 1994 and as the
same may be further amended, supplemented
or modified from time to time in
accordance with its terms, the "Credit
Agreement), among NAPCO SECURITY SYSTEMS,
INC., a Delaware corporation (the
"Borrower"), the guarantors signatory
hereto (collectively, the "Guarantors"),
the lenders named in SCHEDULE 2.01 and
2.06 of the Credit Agreement
(collectively, the "Lenders") and
CHEMICAL BANK, as agent for the Lenders
(in such capacity, the "Agent").
WHEREAS, the Borrower and the Guarantors wish to amend and waive certain
provisions of the Credit Agreement;
WHEREAS, the Agent and the Lenders have consented to amend and waive the Credit
Agreement to reflect the requests herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
1. Waiver of Article VII. NEGATIVE COVENANTS. Section 7.10. Current
----------------------------------------------------------------
Ratio.
------
Compliance with Article VII. Section 7.10. of the Credit Agreement
is hereby waived for the interim six (6) months ended December 31,
1994 to permit the Current Ratio of the Borrower and its
Consolidated subsidiaries to be less than 1.99 to 1.0 provided,
however, such ratio was not less than 1.80 to 1.0 as of such interim
period end.
<PAGE> 2
-2-
2. Waiver of Article VII NEGATIVE COVENANTS. Section 7.14. Total
-------------------------------------------------------------
Unsubordinated Liabilities to Tangible Net Worth Ratio.
-------------------------------------------------------
Compliance with Article VII. Section 7.14. of the Credit
Agreement is hereby waived for the interim six (6) months
ended December 31, 1994 to permit the ratio of Total
Unsubordinated Liabilities of the Borrower and its
Consolidated subsidiaries to Tangible Net Worth of the
Borrower and its Consolidated subsidiaries plus Consolidated
Subordinated Indebtedness to be greater than 1.05 to 1.0
provided, however; such ratio was not greater than 1.09 to
1.0.
3. Waiver of Article VII. NEGATIVE COVENANTS. Section 7.18. Debt
-------------------------------------------------------------
Service Coverage Ratio.
-----------------------
Compliance with Article VII. Section 7.18. of the Credit
Agreement is hereby waived for the interim six (6) months
ended December 31, 1994 to permit the Debt Service Coverage
Ratio of the Borrower and its Consolidated subsidiaries to
be less than 1.02 to 1.0 provided, however, such ratio was
not less than .824 to 1.0 as of such interim period end.
4. Waiver of Article VII NEGATIVE COVENANTS. Section 7.19.
------------------------------------------------------
Inventory Reliance.
-------------------
Compliance with Article VII Section 7. 19. of the Credit
Agreement is hereby waived for the interim six (6) months
ended December 31, 1994 to permit the Inventory Reliance of
the Borrower and its Consolidated subsidiaries to be more
than 18% provided, however, the Inventory Reliance of the
Borrower and its Consolidated subsidiaries was not greater
than 34% as of such interim period end.
5. Amendment to Article VI AFFIRMATIVE COVENANTS. Section 6.05.
------------------------------------------------------------
Financial Statements. Reports. etc. (b).
----------------------------------------
Article VI Section 6.05. (b) of the Credit Agreement is
hereby amended by (i) inserting the phase "(i)" immediately
preceding the word "within" contained in the first line
thereof and (ii) inserting the following phrase immediately
preceding the semi-colon at the end of such sub-section as
follows:
" and (ii) within forty-five (45) days after the end of each
calendar month, a Consolidated balance sheet and a
Consolidated income statement of the Borrower and its
Consolidated subsidiaries showing the financial condition of
the Borrower and its Consolidated subsidiaries as of the
close of the immediately preceding calendar month and
results of operations of the Borrower and Consolidated
subsidiaries for the immediately preceding
<PAGE> 3
- 3 -
calendar month, a Consolidated statement of shareholders'
equity of the Borrower and its Consolidated subsidiaries as
of the end of the immediately preceding calendar month and a
Consolidated statement of cash flow of the Borrower and its
Consolidated subsidiaries for the end of the immediately
preceding calendar month, all in reasonable detail and
setting forth in comparative form (commencing one (1) year
from the date of the Sixth Amendment and Waiver to this
Credit Agreement) the figures for the comparable month for
the previous calendar year, certified by the Financial
Officer of the Borrower as presenting fairly the financial
condition and results of operations of the Borrower and
subsidiaries and as having been prepared in accordance with
generally accepted accounting principles consistently
applied, in each case subject to normal year-end audit
adjustments".
6. Amendment to Article VI AFFIRMATIVE COVENANTS. Section 6.05.
------------------------------------------------------------
Financial Statements, Reports, etc.
-----------------------------------
Article VI Section 6.05. of the Credit Agreement is hereby amended by
deleting in their entirety all sub-sections following sub-section "(i)"
contained therein and substituting therefor the following new
sub-sections "(j)", "(k)", "(l)" and "(m)":
"(j) as soon as practicable, copies of all budgets covering
non-construction costs, which as to their accuracy must be satisfactory
to the Agent;
(k) OTHER REPORTS. (a) As soon as available, but in no event later than
forty-five (45) days after the end of each fiscal quarter of the
Borrower (i) production output schedules and (ii) schedules of staffing
levels in the United States and the Dominican Republic, each in form,
substance and detail satisfactory to the Agent and (b) As soon as
available, but in no event later than forty-five (45) days after the end
of each calendar month (i) accounts receivable aging schedules of the
Borrower and its Consolidated subsidiaries, with separate sub-totals for
foreign and domestic accounts receivable and (ii) inventory designation
schedules of the Borrower and its Consolidated subsidiaries, designating
foreign and domestic inventory separately, each in form, substance and
detail satisfactory to the Agent.
(l) MONTHLY REPORTS. As soon as available but in no event later than ten
(10) days after the end of each month, a schedule of expenses (by type
and dollar amount) to be incurred in connection with the completion of
the Caribe Building (as defined in the Chemical/BNY Loan Agreement); and
(m) such other information as the Agent or any Lender may reasonably
request."
<PAGE> 4
-4-
7. Amendment to Article VI AFFIRMATIVE COVENANTS. Section 6.08.
------------------------------------------------------------
Maintaining Records: Access to Properties and Inspections.
----------------------------------------------------------
Article VI Section 6.08. of the Credit Agreement shall be amended by
adding the following phrase immediately to the end thereof as follows:
"In addition to the foregoing, commencing at such time as the Borrower
is no longer obligated to the Agent pursuant to the Chemical/BNY Loan
Agreement, the Agent shall be permitted to conduct a field examination
of the books, records, internal accounting and reporting procedures and
all assets of the Borrower and its subsidiaries once each calendar year,
the costs and expenses of which shall be paid for by the Borrower up to
an aggregate amount of $20,000 (with amounts in excess thereof paid for
by the Agent). Such field examination shall be performed by an
independent firm (the "Firm") designated by the Agent. The Agent will
provide the Borrower with a copy of the invoice rendered by the Firm in
connection with the completion of any field examination and the Agent
will request that the Firm provide in the invoice a time summary by area
and related billing rates charged. Should the Agent desire to conduct
more than one field examination during the course of a given calendar
year, the costs and expenses of such additional field examinations shall
be paid for by the Agent. The Agent agrees that any such field
examinations shall not be conducted (i) at any time during the
forty-five days immediately following the end of the first, second and
third fiscal quarters of any fiscal year of the Borrower nor (ii) at any
time during the ninety days immediately following the end of each fiscal
year of the Borrower."
8. Amendment to Article VII NEGATIVE COVENANTS. Section 7.04.
----------------------------------------------------------
Capital Expenditures.
---------------------
Article VII Section 7.04. of the Credit Agreement is hereby amended by
deleting in its entirety, for the period "Fiscal year ending June 30,
1995", the corresponding requirement set forth under the column heading
"MAXIMUM AMOUNT" and substituting therefor the following:
"$3,800,000, but not more than $2,500,000 in capital expenditures for the
Caribe Building (as defined in the Chemical/BNY Loan Agreement) and not
more than $1,300,000 for all other capital expenditures;"
9. Amendment to Article VII. NEGATIVE COVENANTS. Section 7.10.
-----------------------------------------------------------
Current Ratio.
--------------
Article VII Section 7.10. of the Credit Agreement is hereby amended by
deleting it in its entirety and by substituting therefor the following:
<PAGE> 5
-5-
"SECTION 7.10. CURRENT RATIO. Permit the Current Ratio of the Borrower
and its Consolidated subsidiaries (i) to be less than 1.99 to 1.00 from
July 1, 1994 until December 30, 1994, (ii) to be less than 1.70 to 1.00
at all times from December 31, 1994 until December 30, 1995, (iii) to be
less than 1.85 to 1.00 at all times from December 31, 1995 until June
29, 1996 and (iv) to be less than 2.25 to 1.00 at all times from June
30, 1996 and thereafter."
10. Amendment to Article VII NEGATIVE COVENANTS. Section 7.14. Total
----------------------------------------------------------------
Unsubordinated Liabilities to Tangible Net Worth Ratio.
-------------------------------------------------------
Article VII Section 7.14. of the Credit Agreement is hereby amended by
deleting it in its entirety and substituting therefor the following:
"SECTION 7.14. TOTAL UNSUBORDINATED LIABILITIES TO TANGIBLE NET WORTH
RATIO.
Permit the ratio of (x) Total Unsubordinated Liabilities of the Borrower
and its Consolidated subsidiaries to (y) Tangible Net Worth of the
Borrower and its Consolidated subsidiaries plus Consolidated
Subordinated Indebtedness, (i) to be greater than 1.05 to 1.00 at any
time from July 1, 1994 until December 30, 1994, (ii) to be greater than
1.15 to 1.00 at any time from December 31, 1994 until September 29,
1995, (iii) to be greater than 1.10 to 1.00 at any time from September
30, 1995 until December 30, 1995 and (iv) to be greater than 1.00 to
1.00 at any time from December 31, 1995 and thereafter."
11. Amendment to Article VII. NEGATIVE COVENANTS. Section 7.18. Debt
----------------------------------------------------------------
Service Coverage Ratio.
-----------------------
Section 7. 18 of the Credit Agreement is hereby amended by deleting it
in its entirety and by substituting therefor the following:
"SECTION 7.18. DEBT SERVICE COVERAGE RATIO. Permit the Debt Service
Ratio of the Borrower and its Consolidated subsidiaries to be less
than:
(i) 1.02 to 1.00 at any time from July l, 1994 until December 30,
1994;
(ii) .824 to 1.00 at any time from December 31, 1994 until June 29,
1995;
(iii) .94 to 1.00 at any time from June 30, 1995 until June 29, 1996;
and
(iv) 1.00 to 1.00 at any time from June 30, 1996 and thereafter."
<PAGE> 6
-6-
12. Amendment to Article VII NEGATIVE COVENANTS. Section 7.19.
----------------------------------------------------------
Inventory Reliance.
-------------------
Section 7.19 of the Credit Agreement is hereby amended by deleting it in
its entirety and by substituting therefor the following:
"Section 7.19 INVENTORY RELIANCE. Permit the Inventory Reliance of the
Borrower and its Consolidated subsidiaries to be more than (i) 18% at
any time from July 1, 1994 until December 30, 1994, (ii) 37% at any
time from December 31, 1994 until June 29, 1995, (iii) 34% at any time
from June 30, 1995 until September 29, 1995, (iv) 32% at any time from
September 30, 1995 until December 30, 1995, (v) 30% at any time from
December 31, 1995 until March 30, 1996, (vi) 20% at any time from
March 31, 1996 until June 29, 1996 and (vii) 10% at any time from June
30, 1996 and thereafter."
13. Amendment to Article VII NEGATIVE COVENANTS.
--------------------------------------------
Article VII of the Credit Agreement is hereby amended by adding the
following new "SECTION 7.20 INVENTORY TURNOVER DAYS." as follows:
"SECTION 7.20. INVENTORY TURNOVER DAYS. In the case of the Borrower
and its Consolidated subsidiaries, permit the number of inventory
days in any Test Period, as defined below, to exceed the number of
days for the corresponding period set forth below (inventory days
shall mean (a) the Consolidated inventory of the Borrower and its
Consolidated subsidiaries as of the last day of such Test Period
divided by (b) the Consolidated cost of goods sold of the Borrower
and its Consolidated subsidiaries for such Test Period, times (c) the
number of days in such Test Period):
<TABLE>
<CAPTION>
Period Number of Days
------ --------------
<S> <C>
March 31, 1995 - June 29, 1995 276
June 30, 1995 - September 29, 1995 258
September 30, 1995 - December 30, 1995 246
December 31, 1995 - March 30, 1996 238
March 31, 1996 - June 29, 1996 218
June 30, 1996 and thereafter 208
</TABLE>
Test Period shall mean the immediately preceding four fiscal quarters
of the Borrower and its Consolidated subsidiaries ending on the date
the number of "Inventory Turnover Days" is calculated."
<PAGE> 7
-7-
This SIXTH AMENDMENT and WAIVER shall be construed and enforced in
accordance with the laws of the State of New York.
Except as expressly amended, waived or consented to hereby, the Credit
Agreement shall remain in full force and effect in accordance with the original
terms thereof.
This SIXTH AMENDMENT and WAIVER herein contained is limited specifically to the
matters set forth above and does not constitute directly or by implication an
amendment or waiver of any other provision of the Credit Agreement or any
default which may occur or may have occurred under the Credit Agreement.
The Borrower hereby represents and warrants that, after giving effect to this
SIXTH AMENDMENT and WAIVER, no Event of Default or Default exists under the
Credit Agreement or any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Agent and the Lenders when formally requested, in writing, by
the Borrower and the Guarantors.
This SIXTH AMENDMENT and WAIVER may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
when, taken together shall constitute but one SIXTH AMENDMENT and WAIVER. The
SIXTH AMENDMENT and WAIVER shall become effective when (i) duly executed
counterparts hereof which, when taken together, bear the signatures of each of
the parties hereto shall have been delivered to the Agent and (ii) the Agent
shall have received copies of executed waivers and amendments (as appropriate)
to (a) the Chemical/BNY Loan Agreement and (b) the Letter of Credit and Bond
Purchase Agreement dated as of April 1, 1985 between the Borrower and Chemical
Bank.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Credit Agreement.
IN WITNESS WHEREOF, the Borrower, the Guarantors and the Agent have caused this
SIXTH AMENDMENT and WAIVER to be duly executed by their duly authorized
officers, all as of the day and year first above written.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel
---------------------------
Name:
Title: V.P.
<PAGE> 8
- 8 -
Guarantors:
NAPCO SECURITY SYSTEMS
INTERNATIONAL INC.
UMI MANUFACTURING CORP.
RALTECH LOGIC, INC.
E.E. ELECTRONIC
COMPONENTS, INC.
ALARM LOCK SYSTEMS, INC.
DERRINGER SECURITY
SYSTEMS, INC.
By: /s/ K. S. Buchel
-------------------------
Name:
Title: V.P.
CHEMICAL BANK, as Agent and Lender
By: /s/ Robert F. Eisen Jr.
-----------------------------
Name: Robert F. Eisen Jr.
Title: V.P.
<PAGE> 1
EXHIBIT 10.R
FIRST AMENDMENT and WAIVER
dated as of October 11, 1994 to the LOAN
AGREEMENT dated as of July 27, 1994 (as
the same may be further amended,
supplemented or modified from time to time
in accordance with its terms, the "Loan
Agreement), among NAPCO SECURITY
SYSTEMS, INC., a Delaware corporation
(the "Borrower"), NAPCO SECURITY
SYSTEMS INTERNATIONAL, INC., UMI
MANUFACTURING CORP., RALTECH
LOGIC, INC., E.E. ELECTRONIC
COMPONENTS, INC., ALARM LOCK
SYSTEMS, INC., and DERRINGER
SECURITY SYSTEMS, INC. (individually,
each a "Guarantor" and collectively, the
"Guarantors"), CHEMICAL BANK, a New
York banking corporation ("Chemical"),
THE BANK OF NEW YORK ("BONY"
and collectively with Chemical, the
"Banks") and CHEMICAL BANK, as Agent
(the "Agent").
WHEREAS, the Borrower and the Guarantors wish to amend and waive certain
provisions of the Loan Agreement;
WHEREAS, the Banks and the Agent have consented to amend and waive the Loan
Agreement to reflect the requests herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
1 Amendment to ARTICLE V. COVENANTS OF THE BORROWER, SECTION
----------------------------------------------------------
5.01 Affirmative Covenants.
--------------------------
ARTICLE V. SECTION 5.01. of the Loan Agreement is hereby amended by the
addition of subsection "(n) Projections" as follows:
"(n) PROJECTIONS. The Borrower shall provide to the Agent and the
Banks no later than December 1, 1994 five (5) year balance sheet,
income statement and cash flow projections prepared under the
supervision of and certified by the chief financial officer of the
Borrower, in form and detail satisfactory to the Agent and the
Banks."
<PAGE> 2
-2-
2. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.03.
-------------------------------------------------------------
Financial Requirements. (a) Minimum Consolidated Tangible Net Worth.
--------------------------------------------------------------------
Compliance with ARTICLE V. SECTION 5.03. (a) of the Loan Agreement is
hereby waived for the fiscal year ended June 30, 1994 to permit the
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt of the
Borrower to be less than $26,000,000 as of the fiscal year ended June 30,
1994 provided, however, the Consolidated Tangible Net Worth plus
Consolidated Subordinated Debt of the Borrower was not less than
$24,821,000 as of such fiscal year end.
3. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements. (a) Minimum Consolidated Tangible Net Worth.
--------------------------------------------------------------------------
ARTICLE V. SECTION 5.03. (a) of the Loan Agreement is hereby amended by
deleting the number "$26,000,000" from sub-section (ii) thereof and
substituting therefor the number "$24,821,000".
4. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03 Financial Requirements (c) Current Ratio.
----------------------------------------------
Section 5.03 (c) of the Loan Agreement is hereby amended by deleting it in
its entirety and by substituting therefor the following:
"(c) The Borrower will maintain a ratio of Consolidated Current
Assets CURRENT RATIO to Consolidated Current Liabilities of (i) not
less than 1.99 to 1.00 at all times from July 1, 1994 until June 29,
1995;(ii) not less than 2.00 to 1.00 at all times from June 30, 1995
until June 29, 1996 and (iii) not less than 2.25 to 1.00 at all
times from June 30, 1996 and thereafter."
5. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements. (e) Debt Service Ratio.
-----------------------------------------------------
Section 5.03 (e) of the Loan Agreement is hereby amended by deleting it in
its entirety and by substituting the following therefor:
"(e) DEBT SERVICE COVERAGE RATIO. The Borrower will maintain a Debt
Service Coverage Ratio of not less than:
(i) 1.02 to 1.00 at all times from July 1,1994 until June 29,1995;
(ii) 1.15 to 1.00 at all times from June 30, 1995 until June 29,
1997; and
(iii) 1.10 to 1.00 at all times from June 30, 1997 and thereafter."
<PAGE> 3
-3-
6. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements. (g) Inventory Reliance.
-----------------------------------------------------
Section 5.03 (g) of the Loan Agreement is hereby amended by deleting it in
its entirety and by substituting the following therefor:
"(g) INVENTORY RELIANCE. The Borrower will maintain an Inventory
Reliance of not more than:
(i) 18% at all times from July 1, 1994 until June 29, 1995;
(ii) 15% at all times from June 30, 1995 until June 29,
1996: and
(iii) 10% at all times from June 30, 1996 and thereafter."
This FIRST AMENDMENT and WAIVER shall be construed and enforced in
accordance with the laws of the State of New York.
Except as expressly amended or consented to hereby, the Loan Agreement shall
remain in full force and effect in accordance with the original terms thereof.
The FIRST AMENDMENT and WAIVER herein contained is limited specifically to the
matters set forth above and does not constitute directly or by implication an
amendment or waiver of any other provision of the Loan Agreement or any default
which may occur or may have occurred under the Loan Agreement.
The Borrower and the Guarantors hereby represent and warrant that, after giving
effect to this FIRST AMENDMENT and WAIVER, no Event of Default or Default
exists under the Loan Agreement or any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Agent and the Lenders when formally requested, in writing, by
the Borrower and the Guarantors.
This FIRST AMENDMENT and WAIVER may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
when, taken together shall constitute but one FIRST AMENDMENT and WAIVER. The
FIRST AMENDMENT and WAIVER shall become effective when (i) duly executed
counterparts hereof which, when taken together, bear the signatures of each of
the parties hereto shall have been delivered to the Agent, (ii) the Agent shall
have received copies of (a) the executed Eighth Amendment and Waiver to the
Letter of Credit and Bond Purchase Agreement dated as of April 1, 1985 between
the Borrower and Chemical Bank
<PAGE> 4
-4-
in the form attached hereto as Exhibit A and (b) the executed Fifth Amendment
and Waiver to the Credit Agreement dated as of November 21, 1991 among the
Borrower, the Guarantors named therein and Chemical Bank, in the form attached
hereto as Exhibit B, and (iii) the Banks shall have received, in each case for
their satisfactory review, a "draft" of the Borrower's audited financial
statements for the fiscal year ended June 30, 1994.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Loan Agreement.
IN WITNESS WHEREOF, the Borrower, the Guarantors, the Banks and the Agent have
caused this FIRST AMENDMENT and WAIVER to be duly executed by their duly
authorized officers, all as of the day and year first above written.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ K. S. Buchel, V.P.
----------------------------
Name:
Title:
NAPCO SECURITY SYSTEMS
INTERNATIONAL INC.
By: /s/ K. S. Buchel, V.P.
----------------------------
Name:
Title:
UMI MANUFACTURING CORP.
By: /s/ K. S. Buchel, V.P.
----------------------------
Name:
Title:
<PAGE> 5
- 5 -
RALTECH LOGIC, INC.
By: /s/ K. S. Buchel, V.P.
------------------------------
Name:
Title;
E.E. ELECTRONIC COMPONENTS,
INC.
By: /s/ K. S. Buchel, V.P.
------------------------------
Name:
Title:
ALARM LOCK SYSTEMS, INC.
By: /s/ K. S. Buchel, V.P.
------------------------------
Name:
Title:
DERRINGER SECURITY SYSTEMS,
INC.
By: /s/ K. S. Buchel, V.P.
------------------------------
Name:
Title:
CHEMICAL BANK, as Agent and Bank
By: /s/ Frank L. Arceri
-----------------------------
Name: Frank L. Arceri
Title: Vice President
THE BANK OF NEW YORK, as Bank
By: /s/ KR Braddish
-----------------------------
Name: Kevin R. Braddish
Title: Vice President
<PAGE> 1
EXHIBIT 10.S
SECOND AMENDMENT and WAIVER
dated as of March 31, 1995 to the LOAN
AGREEMENT dated as of July 27, 1994 (as
the same may be further amended,
supplemented or modified from time to time
in accordance with its terms, the "Loan
Agreement), among NAPCO SECURITY
SYSTEMS, INC. a Delaware corporation
(the "Borrower"), NAPCO SECURITY
SYSTEMS INTERNATIONAL, INC., UMI
MANUFACTURING CORP., RALTECH
LOGIC, INC., E.E. ELECTRONIC
COMPONENTS, INC., ALARM LOCK
SYSTEMS, INC., and DERRINGER
SECURITY SYSTEMS, INC. (individually,
each a "Guarantor" and collectively, the
"Guarantors"), CHEMICAL BANK, a New
York banking corporation ("Chemical"),
THE BANK OF NEW YORK ("BNY" and
collectively with Chemical, the "Banks")
and CHEMICAL BANK, as Agent (the
"Agent").
WHEREAS, the Borrower and the Guarantors wish to amend and waive certain
provisions of the Loan Agreement;
WHEREAS, the Banks and the Agent have consented to amend and waive the Loan
Agreement to reflect the requests herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
1. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.02.
-------------------------------------------------------------
Negative Covenants. (b) Debt.
-----------------------------
Compliance with Article V. Section 5.02. (b) of the Loan Agreement is
hereby waived to permit the Borrower to enter into with Chemical Bank (i)
the ISDA Master Agreement dated as of December 1, 1994 and (ii) the
Schedule to the Master Agreement dated as of December 1, 1994
(collectively, the "Swap Documents"), with respect to a one (1) year
interest rate swap transaction covering a notional principal amount of
$9,000,000.
2. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.02.
-------------------------------------------------------------
Negative Covenants. (i) Guarantees.
-----------------------------------
<PAGE> 2
-2-
Compliance with Article V. Section 5.02. (i) of the Loan Agreement is
hereby waived to permit each of the Guarantors to guaranty the obligations
of the Borrower under the Swap Documents.
3. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.03.
------------------------------------------------------------
Financial Requirements. (c) Current Ratio.
------------------------------------------
Compliance with Section 5.03. (c) of the Loan Agreement is hereby waived
for the interim six (6) months ended December 31, 1994 to permit the ratio
of Consolidated Current Assets to Consolidated Current Liabilities to be
less than 1.99 to 1.00 provided, however, such ratio was not less than 1.80
to 1.00 as of such interim period end.
4. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.03.
-------------------------------------------------------------
Financial Requirements. (d) Leverage Ratio.
-------------------------------------------
Compliance with Section 5.03. (d) of the Loan Agreement is hereby waived
for the interim six (6) months ended December 31, 1994 to permit the ratio
of Consolidated Total Unsubordinated Liabilities to Consolidated Tangible
Net Worth plus Consolidated Subordinated Debt to be greater than 1.05 to
1.00 provided, however, such ratio was not greater than 1.09 to 1.00 as of
such interim period end.
5. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.03.
-------------------------------------------------------------
Financial Requirements. (e) Debt Service Coverage Ratio.
--------------------------------------------------------
Compliance with Section 5.03. (e) of the Agreement is hereby waived for the
interim six (6) months ended December 31, 1994 to permit the Debt Service
Coverage Ratio to be less than 1.02 to 1.00 provided, however, such ratio
was not less than .824 to 1.00 as such interim period end.
6. Waiver of ARTICLE V. COVENANTS OF THE BORROWER. SECTION 5.03.
-------------------------------------------------------------
Financial Requirements. (g) Inventory Reliance.
-----------------------------------------------
Compliance with Section 5.03. (g) of the Loan Agreement is hereby waived
for the interim six (6) months ended December 31, 1994 to permit the
Inventory Reliance of the Borrower to be greater than 18% provided,
however, the Inventory Reliance of the Borrower was not greater than 34% as
of such interim period end.
7. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.01. Affirmative Covenants. (b) Reporting Requirements. (ii) Quarterly
-----------------------------------------------------------------------
Financial Statements.
---------------------
Section 5.01(b) (ii) of the Loan Agreement is hereby amended by (i)
deleting the word "Quarterly" in the first line thereof and substituting
therefor the word "Interim", (ii) by inserting immediately preceding the
word "As" in the first line
<PAGE> 3
-3-
thereof the phrase "(a)" and (iii) by inserting the following phrase
immediately preceding the period at the end thereof as follows:
"and (b) as soon as available and in any event within forty-five (45) days
after the end of each calendar month, a copy of the consolidated financial
statements of the Borrower and its Consolidated Affiliates for the
immediately preceding calendar month, including a balance sheet with
related statements of income and retained earnings and a statement of cash
flows, all in reasonable detail and setting forth in comparative form
(beginning one (1) year from the date of the Second Amendment and Waiver to
this Agreement) the figures for the comparable month for the previous
calendar year, prepared by the Chief Financial Officer of the Borrower, all
such financial statements to be prepared in accordance with GAAP (subject
to normal year-end adjustments)".
8. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
---------------------------------------------------------
5.01. Affirmative Covenants. (b) Reporting Requirements. (xii) Other
--------------------------------------------------------------------
Quarterly Reports.
------------------
Section 5.01.(b) (xii) of the Loan Agreement is hereby amended by deleting
it in its entirety and substituting therefor the following:
"(xii) OTHER REPORTS. (a) As soon as available, but in no event later than
forty-five (45) days after the end of each fiscal quarter of the Borrower
(i) production output schedules and (ii) schedules of staffing levels in
the United States and the Dominican Republic, each in form, substance and
detail satisfactory to the Agent and (b) As soon as available, but in no
event later than forty-five (45) days after the end of each calendar month,
(i) accounts receivable aging schedules of the Borrower and the Guarantors,
with separate sub-totals for foreign and domestic accounts receivable and
(ii) inventory designation schedules of the Borrower and the Guarantors,
designating foreign and domestic inventory separately, each in form,
substance and detail satisfactory to the Agent."
9. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.01. Affirmative Covenants. (g) Visitation.
---------------------------------------------
Section 5.01 (g) of the Loan Agreement is hereby amended by adding the
following four new sentences to the end thereof as follows:
"The Banks shall be permitted to conduct a field examination of the books,
records, internal accounting and reporting procedures and all assets of the
Borrower and its Consolidated Affiliates once each calendar year, the costs
and expenses of which shall be paid for by the Borrower up to an aggregate
amount of $20,000 (with amounts in excess thereof paid for by Chemical).
Such field examination shall be performed by an independent firm (the
"Firm") designated jointly by Chemical and BNY. The Banks will provide the
Borrower with a copy of the invoice rendered by
<PAGE> 4
-4-
the Firm in connection with the completion of any field examination and the
Banks will request that the Firm provide in the invoice a time summary by
area and related billing rates charged. Should the Banks jointly agree to
conduct more than one field examination per calendar year, the Borrower
shall permit the Firm designated by the Banks to conduct additional field
examinations during the course of a given calendar year, the costs and
expenses of which shall be paid for by Chemical. The Banks agree that any
such field examinations shall not be conducted (i) at any time during the
forty-five days immediately following the end of the first, second and
third fiscal quarters of any fiscal year of the Borrower nor (ii) at any
time during the ninety days immediately following the end of each fiscal
year of the Borrower."
10. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
---------------------------------------------------------
5.01. Affirmative Covenants.
----------------------------
Section 5.01. of the Agreement is hereby amended by adding the following
new sub-section "(o)" immediately following sub-section (n) thereof as
follows:
"(o) AMENDMENT FEE: (i) Upon the execution by the Borrower of the Second
Amendment and Waiver dated as of March 31, 1995 and (ii) on each of June
15, 1995, September 15, 1995 and December 15, 1995, the Borrower shall pay
to Chemical, for its own account, an amount equal to $11,250, each such
payment representing one quarter of an amendment fee in the aggregate
amount of $45,000 (the "Chemical Amendment Fee") to be paid by the Borrower
to Chemical in connection with the execution of the Second Amendment and
Waiver dated as of March 31, 1995 to the Agreement. The Borrower agrees
that in the event that, prior to December 15, 1995, the Commitments are
reduced (including upon an Event of Default) to $0 and the obligations of
the Borrower hereunder are accelerated, then there shall be due and payable
to Chemical hereunder, and the Borrower shall promptly thereupon pay to
Chemical, for its own account, the amount by which $45,000 exceeds the
amount theretofore paid under this Section 5.01. (o)."
11. Amendment to ARTICLE V. COVENENTS OF THE BORRORWER. SECTION
-----------------------------------------------------------
5.02. Negative Covenants. (a) Liens, Etc. (i).
---------------------------------------------
Section 5.02. (a) (i) of the Loan Agreement is hereby amended by adding the
following phrase immediately preceding the semi-colon in sub-section (i) as
follows:
"and Section 5.02 (b) (xi) of this Agreement".
12. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
-----------------------------------------------------------
5.02. Negative Covenants. (b) Debt.
-----------------------------------
Section 5.02 (b) of the Loan Agreement is hereby amended by adding to the
end thereof new sub-sections "(x)" and "(xi)" as follows:
<PAGE> 5
-5-
"(x) Debt of the Borrower pursuant to the (i) ISDA Master Agreement dated
as of December 1, 1994 between the Borrower and Chemical Bank and (ii)
Schedule to the Master Agreement dated as of December 1, 1994 between the
Borrower and Chemical Bank;"
(xi) Debt owing to Chemical arising out of a secured line of credit issued
for the purpose of direct borrowings in the maximum principal amount of
$2,000,000.00, such line of credit to expire April 1, 1996, and any
extensions, replacements or renewals thereof, on terms and conditions
satisfactory to both Chemical and BNY, provided that any such extensions,
replacements or renewals thereof shall not result in the aggregate
principal amount of such indebtedness exceeding $2,000,000.00, all such
indebtedness to be secured by the Collateral (subject to an inter-creditor
agreement between the Banks) and guaranteed by the Guarantors;".
13. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
------------------------------------------------------------
5.02. Negative Covenants. (i) Guarantees.
------------------------------------------
Section 5.02. (i) of the Loan Agreement is hereby amended by inserting the
following phrase immediately preceding the period at the end thereof as
follows:
"; or (iv) guarantees by the Guarantors of the obligations of the Borrower
under (i) the ISDA Master Agreement dated as of December 1, 1994 between
the Borrower and Chemical Bank and (ii) the Schedule to the Master
Agreement dated as of December 1, 1994 between the Borrower and Chemical
Bank; or (v) guarantees by the Guarantors of the obligations of the
Borrower of the Debt permitted by Section 5.02. (b) (xi) hereof".
14. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
------------------------------------------------------------
5.03. Financial Requirements. (b) Consolidated Capital Expenditures.
--------------------------------------------------------------------
Section 5.03. (b) of the Loan Agreement is hereby amended by (i) deleting
the number "$3,500,000.00" contained therein and substituting therefor the
number "$3,800,000.00", (ii) deleting number "$2,000,000.00" contained
therein and substituting therefor the number "$2,500,000.00" and (iii)
deleting the number "$1,500,000.00" contained in the sixth line thereof and
substituting therefor the number "$1,300,000.00".
15. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
-----------------------------------------------------------
5.03. Financial Requirements. (c) Current Ratio.
------------------------------------------------
Section 5.03. (c) of the Loan Agreement is hereby amended by deleting it in
its entirety and substituting therefor the following:
"(c) CURRENT RATIO. The Borrower will maintain a ratio of ConsoLidated
Current Assets to Consolidated Current Liabilities of (i) not less than
1.99 to 1.00 at all times
<PAGE> 6
-6-
from July 1, 1994 until December 30, 1994; (ii) not less than 1.70 to 1.00
at all times from December 31, 1994 until December 30, 1995; (iii) not less
than 1.85 to 1.00 at all times from December 31, 1995 until June 29, 1996;
and (iv) not less than 2.25 to 1.00 at all times from June 30, 1996 and
thereafter."
16. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements. (d) Leverage Ratio.
-------------------------------------------------
Section 5.03. (d) of the Loan Agreement is hereby amended by deleting such
section in its entirety and substituting therefor the following:
"(d) LEVERAGE RATIO. The Borrower will maintain a ratio of (x) Consolidated
Total Unsubordinated Liabilities to (y) Consolidated Tangible Net Worth
plus Consolidated Subordinated Debt of not more than (i) 1.05 to 1.00 at
all times from July 1, 1994 until December 30, 1994; (ii) 1.15 to 1.00 at
all times from December 31, 1994 until September 29, 1995, (iii) 1.10 to
1.00 at all times from September 30, 1995 until December 30, 1995 and (iv)
1.00 to 1.00 at all times from December 31, 1995 and thereafter.
17. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements. (e) Debt Service Coverage Ratio.
--------------------------------------------------------------
Section 5.03. (e) of the Loan Agreement is hereby amended by deleting it in
its entirety and substituting therefor the following:
"(e) DEBT SERVICE COVERAGE RATIO. The Borrower will maintain a Debt Service
Coverage Ratio of not less than:
(i) 1.02 to 1.00 at all times from July 1, 1994 until December 30, 1994;
(ii) .824 to 1.00 at all times from December 31, 1994 until June 29, 1995;
(iii) .94 to 1.00 at all times from June 30, 1995 until June 29, 1996: and
(iv) 1.00 to 1.00 at all times from June 30, 1996 and thereafter."
18. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements. (g) Inventory Reliance.
-----------------------------------------------------
Section 5.03. (g) of the Loan Agreement is hereby amended by deleting it in
its entirety and substituting therefor the following:
"(g) INVENTORY RELIANCE. The Borrower will maintain an Inventory Reliance
of not more than:
<PAGE> 7
-7-
(i) 18% at all times from July 1, 1994 until December 30, 1994;
(ii) 37% at all times from December 31, 1994 until June 29, 1995;
(iii) 34% at all times from June 30, 1995 until September 29, 1995;
(iv) 32% at all times from September 30, 1995 until December 30, 1995;
(v) 30% at all times from December 31, 1995 until March 30, 1996;
(vi) 20% at all times from March 31, 1996 until June 29, 1996; and
(vii) 10% at all times from June 30, 1996 and thereafter."
19. Amendment to ARTICLE V. COVENANTS OF THE BORROWER. SECTION
----------------------------------------------------------
5.03. Financial Requirements.
-----------------------------
Section 5.03. of the Loan Agreement is hereby amended by adding the
following new sub-section "(h)" as follows:
"(h) INVENTORY TURNOVER DAYS. The Borrower will not permit the number of
inventory days in any Test Period, as defined below, to exceed the number
of days for the corresponding period set forth below (inventory days shall
mean (a) the consolidated inventory of the Borrower and its Consolidated
Affiliates as of the last day of such Test Period divided by (b) the
consolidated cost of goods sold of the Borrower and its Consolidated
Affiliates for such Test Period, times (c) the number of days in such Test
Period):
<TABLE>
<CAPTION>
Period Number of Days
------ --------------
<S> <C>
March 31, 1995 - June 29, 1995 276
June 30, 1995 - September 29, 1995 258
September 30, 1995 - December 30, 1995 246
December 31, 1995 - March 30, 1996 238
March 31, 1996 - June 29, 1996 218
June 30, 1996 and thereafter 208
</TABLE>
Test Period shall mean the immediately preceding four fiscal quarters of the
Borrower ending on the date the number of "Inventory Turnover Days" is
calculated."
This SECOND AMENDMENT and WAIVER shall be construed and enforced in
accordance with the laws of the State of New York.
<PAGE> 8
-8-
Except as expressly amended or consented to hereby, the Loan Agreement shall
remain in full force and effect in accordance with the original terms thereof.
The SECOND AMENDMENT and WAIVER herein contained is limited specifically to the
matters set forth above and does not constitute directly or by implication an
amendment or waiver of any other provision of the Loan Agreement or any default
which may occur or may have occurred under the Loan Agreement.
Notwithstanding the provisions of the Security Agreements dated July 27, 1994
and entered into by the Borrower and each of the Guarantors in connection with
the closing of the Loan Agreement (the "Security Agreements"), (a) the
Borrower's obligations under the Swap Documents and (b) the Guarantors'
guaranty of the Borrower's obligations under the Swap Documents (pursuant to
the Guaranties dated July 27, 1994 and entered into by each of the Guarantors
in connection with the closing of the Loan Agreement), shall not be secured by
the Collateral described in the Security Agreements.
The Borrower and the Guarantors hereby represent and warrant that, after giving
effect to this SECOND AMENDMENT and WAIVER, no Event of Default or Default
exists under the Loan Agreement or any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Agent and the Lenders when formally requested, in writing, by
the Borrower and the Guarantors.
This SECOND AMENDMENT and WAIVER may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
when, taken together shall constitute but one SECOND AMENDMENT and WAIVER. The
SECOND AMENDMENT and WAIVER shall become effective when (i) duly executed
counterparts hereof which, when taken together, bear the signatures of each of
the parties hereto shall have been delivered to the Agent, (ii) the Banks
shall have entered into an amendment to the Intercreditor Agreement dated as of
July 27, 1994 (the "Intercreditor Agreement"), which such amendment amends
Exhibit A thereto to include the Debt permitted under Section 5.02. (b)(xi) of
the Loan Agreement as "Chemical Senior Loans" (as such term is defined in the
Intercreditor Agreement), (iii) the Agent shall have received copies of
executed waivers and amendments (as appropriate) to the Letter of Credit and
Bond Purchase Agreement dated as of April 1, 1985 between the Borrower and
Chemical Bank and the Credit Agreement dated as of November 21, 1991 among the
Borrower, the Guarantors named therein and Chemical Bank, such amendments and
waivers reflecting the matters set forth herein and (iv) the Agent shall have
received a check in the amount of $16,250, representing (a) a $5,000 amendment
fee to be paid to BNY and (b) one-quarter of an amendment fee in the aggregate
amount of $45,000 (the "Chemical Amendment Fee") to be paid to the Agent for
its own account. The remaining portion of the Chemical Amendment Fee payable to
Agent for its own account in the amount of $33,750 shall be payable as set
forth in Section 5.01. (o) of the Agreement.
<PAGE> 9
-9.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Loan Agreement.
IN WITNESS WHEREOF, the Borrower, the Guarantors, the Banks and the Agent have
caused this SECOND AMENDMENT and WAIVER to be duly executed by their duly
authorized officers, all as of the day and year first above written.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ K. Buchel
-------------------------
Name: Kevin Buchel
Title: VP-Finance
NAPCO SECURITY SYSTEMS
INTERNATIONAL INC.
By: /s/ K. Buchel
-------------------------
Name:
Title:
UMI MANUFACTURING CORP.
By: /s/ K. Buchel
-------------------------
Name:
Title:
RALTECH LOGIC, INC.
By: /s/ K. Buchel
-------------------------
Name:
Title:
<PAGE> 10
- 10 -
E.E. ELECTRONIC COMPONENTS,
INC.
By: /s/ K. Buchel
---------------------------
Name:
Title:
ALARM LOCK SYSTEMS, INC.
By: /s/ K. Buchel
---------------------------
Name:
Title:
DERRINGER SECURITY SYSTEMS,
INC.
By: /s/ K. Buchel
---------------------------
Name:
Title:
CHEMICAL BANK, as Agent and Bank
By: /s/ Robert F. Eisen Jr
--------------------------
Name: Robert F. Eisen Jr
Title: VP
THE BANK OF NEW YORK, as Bank
By: /s/ Kevin R. Braddish
--------------------------
Name: Kevin R. Braddish
Title: V.P.
<PAGE> 1
EXHIBIT 10.T
[LOGO] Chemical Bank
PROMISSORY NOTE
Melville, N.Y.
--------------------
$ 500,000.00 July 3, 1995
- - ------------------------ -----------------
On OCTOBER 2, 1995 (insert specific date or "DEMAND") for value
received, the undersigned hereby promises to pay to the order of CHEMICAL BANK
(hereinafter the "Bank") at its offices at 395 N. SERVICE RD. MELVILLE, N.Y.
FIVE HUNDRED THOUSAND AND NO/100************************************ DOLLARS
with interest payable on ____________________________ (specific date) and the
__________ day of each ______________________ (quarter, month, etc.) thereafter
(and at maturity) at a per annum rate of 2% above the Bank's Prime Rate (which
shall be the rate of interest as is publicly announced at the Bank's principal
office from time to time as its Prime Rate), adjusted as of the date of each
such change. The foregoing rate shall be computed for the actual number of days
elapsed on the basis of a 360-day year, but in no event shall be higher than
the maximum permitted under applicable law. Interest on any past due amount,
whether at the due date thereof or by acceleration, shall be paid at a rate of
one percent per annum in excess of the above stated rate, but in no event
higher than the maximum permitted under applicable law. Time for payment
extended by law shall be included in the computation of interest.
The undersigned hereby grants to the Bank a lien on, security interest
in and right of set-off against all moneys, securities and other property of
the undersigned and the proceeds thereof now or hereafter delivered to remain
with or in transit in any manner to the Bank, its correspondents or its agents
from or for the undersigned, whether for safekeeping, custody, pledge,
transmission, collection or for any other purpose, or coming into possession,
control or custody of the Bank, Chemical Securities, Inc., or any other
affiliate of the Bank in any way, and, also, any balance of any deposit account
and credits of the undersigned with, and any other claims of the undersigned
against, the Bank, Chemical Securities, Inc., or any other affiliate of the
Bank at any time existing (all of which are hereinafter collectively called
"Collateral"), as collateral security for the payment of this note and all
other liabilities and obligations now or hereafter owed by the undersigned to
the Bank, contracted with or acquired by the Bank, whether joint, several,
direct, indirect, absolute, contingent, secured, unsecured, matured or
unmatured (all of which are hereafter collectively called "Liabilities"),
hereby authorizing the Bank at any time or times, without notice or demand, to
apply any such Collateral or any proceeds thereof to any of such Liabilities in
such amounts as it in its sole discretion may select, either contingent,
unmatured or otherwise and whether any other collateral security therefor is
deemed adequate or not. Undersigned authorizes the Bank to deliver to others a
copy of this note as written notification of the undersigned's transfer of a
security interest in the Collateral. The Bank further is authorized at any time
or times, without demand or notice to the undersigned, to transfer to or
register in the name of its nominee or nominees all or any part of the
Collateral and to exercise any and all rights, power and privileges (except
that prior to an Event of Default the Bank shall not have the right to vote or
to direct the voting of any Collateral). The collateral security and other
rights described herein shall be in addition to any other collateral security
described in any separate agreement executed by the undersigned.
In the event of: default in the prompt payment of any Liabilities; default
in any other indebtedness of the undersigned (which, for the purposes of this
sentence, means the undersigned or any guarantor, surety or endorser of, or any
person or entity which has pledged any of its property to secure, any
Liabilities); complete or partial liquidation or suspension of any business of
the undersigned; dissolution, merger, consolidation or reorganization of the
undersigned; death of or loss of employment by an individual or any member of
any partnership (if the undersigned is an individual or a partnership); failure
to furnish any financial information or to permit inspection of any books or
records at the Bank's request; a representation, warranty or statement of the
undersigned proving false in any material respect when made or furnished;
general assignment for the benefit of creditors or insolvency of the
undersigned; commencement of any proceeding supplementary to any execution
relating to any judgment against the undersigned; attachment, distraint, levy,
execution or final judgment against the undersigned or against the property of
the undersigned; assignment by the undersigned of any equity in any of the
Collateral without the written consent of the Bank; appointment of a receiver,
conservator, rehabilitator or similar officer for the undersigned, or for any
property of the undersigned; tax assessment by the United States Government or
any state or political subdivision thereof against the undersigned; the taking
of possession of, or assumption of control over, all or any substantial part of
the property of the undersigned by the United States Government, or any state
or political subdivision thereof, foreign government (de facto or de jure) or
any agency of any thereof; calling of a meeting of creditors, assignment for
the benefit of creditors or bulk sale or notice thereof; any mortgage, pledge
of or creation of a security interest in any assets without the consent of the
holder of this note; filing of a petition in bankruptcy, commencement of any
proceeding under any bankruptcy or debtor's law (or similar law analogous in
purpose or effect) for the relief, reorganization, composition, extension,
arrangement or readjustment of any of the obligations by or against the
undersigned; then, and in any of those events (each, an "Event of Default"),
all Liabilities, although otherwise unmatured or contingent, shall forthwith
become due and payable without notice or demand and notwithstanding anything to
the contrary contained herein or in any other instrument. Further, acceptance
of any payments shall not waive or affect any prior demand or acceleration of
these Liabilities, and each such payment made shall be applied first to the
payment of accrued interest, then to the aggregate unpaid principal or
otherwise as determined by the Bank in its sole discretion. The undersigned
hereby irrevocably consents to the in personam jurisdiction of the federal
and/or state courts located within the State of New York over controversies
arising from or relating to this note or the Liabilities and IRREVOCABLY WAIVES
TRIAL BY JURY and the right to interpose any counterclaim or offset of any
nature in any such litigation. The undersigned further irrevocably waives
presentment, demand, protest, notice of dishonor and all other notices or
demands of any kind in connection with this note or any Liabilities. The
undersigned shall be jointly and severally liable hereon.
The Bank may, at its option, at any time when in the judgment of the Bank
the Collateral is inadequate or the Bank deems itself insecure, or upon or at
any time after the occurrence of an Event of Default, proceed to enforce
payment of the same and exercise any of or all the rights and remedies afforded
the Bank by the Uniform Commercial Code (the "Code") or otherwise possessed by
the Bank. Any requirement of the Code for reasonable notice to the undersigned
shall be deemed to have been complied with if such notice is mailed, postage
prepaid, to the undersigned and such other persons entitled to notice, at the
addresses shown on the records of the Bank at least four (4) days prior to the
time of sale, disposition or other event requiring notice under the Code.
The undersigned agrees to pay to the Bank, as soon as incurred, all costs
and expenses incidental to the care, preservation, processing, sale or
collection of or realization upon any of or all the Collateral or incurred in
connection with the enforcement or collection of this note, or in any way
relating to the rights of the Bank hereunder, including reasonable inside or
outside counsel fees and expenses. Each and every right and remedy hereby
granted to the Bank or allowed to it by law shall be cumulative and not
exclusive and each may be exercised by the Bank from time to time and as often
as may be necessary.
<PAGE> 2
The undersigned shall have the sole responsibility for notifying the Bank in
writing that the undersigned wishes to take advantage of any redemption,
conversion or other similar right with respect to any of the Collateral. The
Bank may release any party (including any partner or any undersigned) without
notice to any of the undersigned, whether as co-makers, endorsers, guarantors,
sureties, assigns or otherwise, without affecting the liability of any of the
undersigned hereof or any partner of any undersigned hereof.
Upon any transfer of this note, the undersigned hereby waiving notice of
any such transfer, the Bank may deliver the Collateral or any part thereof to
the transferee who shall thereupon become vested with all the rights herein or
under applicable law given to the Bank with respect thereto and the Bank shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter; but the Bank shall retain all rights hereby given
to it with respect to any Liabilities and Collateral not so transferred. No
modification or waiver of any of the provisions of this note shall be effective
unless in writing, signed by the Bank, and only to the extent therein set
forth; nor shall any such waiver be applicable except in the specific instance
for which given. This agreement sets forth the entire understanding of the
parties, and the undersigned acknowledges that no oral or other agreements,
conditions, promises, understandings, representations or warranties exist in
regard to the obligations hereunder, except those specifically set forth
herein.
If the undersigned is a partnership, the agreement herein contained
shall remain in force and applicable, notwithstanding any changes in the
individuals composing the partnership or any release of any partner or partners
and their partners shall not thereby be released from any liability. If this
note is signed by more than one party, the terms "undersigned", as used herein,
shall include mean the "undersigned and each of them" and each undertaking
herein contained shall be their joint and several undertaking, provided,
however, that in the phrases "of the undersigned", "by the undersigned",
"against the undersigned", "for the undersigned", "to the undersigned", and "on
the undersigned", the term "undersigned" shall mean the "undersigned or any of
them"; and the Bank may release or exchange any of the Collateral belonging to
any of the parties hereto and it may renew or extend any of the liabilities of
any of them and may make additional advances or extensions of credit to any of
them or release or fail to set off any deposit account or credit to any of them
or grant other indulgences to any of them, all from time to time, before or
after maturity hereof, with or without further notice to or assent form any of
the other parties hereto. Each reference herein to the Bank shall be deemed to
include its successors, endorsees and assigns, in whose favor the provisions
hereof shall also inure. Each reference herein to the undersigned shall be
deemed to include the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned, all of whom shall be bound by the
provisions hereof.
The provisions of this note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York, and, as to interest rates, applicable Federal law.
NAPCO SECURITY SYSTEMS, INC. NAPCO SECURITY SYSTEMS, INC.
/s/ Kevin S. Buchel /s/ Kenneth Rosenberg
- - ------------------------------------ ------------------------------------
Sr. V.P. of Operations and Finance President
Address: 333 Bayview Avenue Address: 333 Bayview Avenue
-------------------------- ---------------------------
Amityville, NY 11701 AMITYVILLE, NY 11701
<PAGE> 3
[LOGO]
Chemical Bank
PROMISSORY NOTE
Melville, NY
----------------
$ 500,000.00 April 3, 1995
------------------- -----------------
On July 3, 1995 (insert specific date or "DEMAND"), for value received, the
undersigned hereby promises to pay to the order of CHEMICAL BANK (hereinafter
the "Bank") at its offices at 395 N. Service Rd. Melville, N.Y. FIVE HUNDRED
THOUSAND AND NO/100*********************************** DOLLARS with interest
payable on _______________________________________ (specific date) and
the__________ day of each _____________________ (quarter, month, etc.)
thereafter (and at maturity) at a per annum rate of 2% above the Bank's Prime
Rate (which shall be the rate of interest as is publicly announced at the
Bank's principal office from time to time as its Prime Rate), adjusted as of
the date of each such change. The foregoing rate shall be computed for the
actual number of days elapsed on the basis of a 360-day year, but in no event
shall be higher than the maximum permitted under applicable law. Interest on
any past due amount, whether at the due date thereof or by acceleration, shall
be paid at a rate of one percent per annum in excess of the above stated rate,
but in no event higher than the maximum permitted under applicable law. Time
for payment extended by law shall be included in the computation of interest.
The undersigned hereby grants to the Bank a lien on, security interest
in and right of set-off against all moneys, securities and other property of the
undersigned and the proceeds thereof now or hereafter delivered to remain with
or in transit in any manner to the Bank, its correspondents or its agents from
or for the undersigned, whether for safekeeping, custody, pledge, transmission,
collection or for any other purpose, or coming into possession, control or
custody of the Bank, Chemical Securities, Inc., or any other affiliate of the
Bank in any way, and, also, any balance of any deposit account and credits of
the undersigned with, and any other claims of the undersigned against, the
Bank, Chemical Securities, Inc., or any other affiliate of the Bank at any time
existing (all of which are hereinafter collectively called "Collateral"), as
collateral security for the payment of this note and all other liabilities and
obligations now or hereafter owed by the undersigned to the Bank, contracted
with or acquired by the Bank, whether joint, several, direct, indirect,
absolute, contingent, secured, unsecured, matured or unmatured (all of which
are hereafter collectively called "Liabilities"), hereby authorizing the Bank
at any time or times, without notice or demand, to apply any such Collateral or
any proceeds thereof to any of such Liabilities in such amounts as it in its
sole discretion may select, either contingent, unmatured or otherwise and
whether any other collateral security therefor is deemed adequate or not.
Undersigned authorizes the Bank to deliver to others a copy of this note as
written notification of the undersigned's transfer of a security interest in
the Collateral. The Bank further is authorized at any time or times, without
demand or notice to the undersigned, to transfer to or register in the name of
its nominee or nominees all or any part of the Collateral and to exercise any
and all rights, power and privileges (except that prior to an Event of Default
the Bank shall not have the right to vote or to direct the voting of any
Collateral). The collateral security and other rights described herein shall be
in addition to any other collateral security described in any separate
agreement executed by the undersigned.
In the event of: default in the prompt payment of any Liabilities;
default in any other indebtedness of the undersigned (which, for the purposes
of this sentence, means the undersigned or any guarantor, surety or endorser
of, or any person or entity which has pledged any of its property to secure,
any Liabilities); complete or partial liquidation or suspension of any business
of the undersigned; dissolution, merger, consolidation or reorganization of the
undersigned; death of or loss of employment by an individual or any member of
any partnership (if the undersigned is an individual or a partnership), failure
to furnish any financial information or to permit inspection of any books or
records at the Bank's request; a representation, warranty or statement of the
undersigned proving false in any material respect when made or furnished;
general assignment for the benefit of creditors or insolvency of the
undersigned; commencement of any proceeding supplementary to any execution
relating to any judgment against the undersigned; attachment, distraint, levy,
execution or final judgment against the undersigned or against the property of
the undersigned; assignment by the undersigned of any equity in any of the
Collateral without the written consent of the Bank; appointment of a receiver,
conservator, rehabilitator or similar officer for the undersigned, or for any
property of the undersigned; tax assessment by the United States Government or
any state or political subdivision thereof against the undersigned; the taking
of possession of, or assumption of control over, all or any substantial part of
the property of the undersigned by the United States Government, or any state
or political subdivision thereof, foreign government (de facto or de jure) or
any agency of any thereof; calling of a meeting of creditors, assignment for
the benefit of creditors or bulk sale or notice thereof; any mortgage, pledge
of or creation of a security interest in any assets without the consent of the
holder of this note; filing of a petition in bankruptcy, commencement of any
proceeding under any bankruptcy or debtor's law (or similar law analogous in
purpose or effect) for the relief, reorganization, composition, extension,
arrangement or readjustment of any of the obligations by or against the
undersigned; then, and in any of those events (each, an "Event of Default"),
all Liabilities, although otherwise unmatured or contingent, shall forthwith
become due and payable without notice or demand and notwithstanding anything to
the contrary contained herein or in any other instrument. Further, acceptance
of any payments shall not waive or affect any prior demand or acceleration of
these Liabilities, and each such payment made shall be applied first to the
payment of accrued interest, then to the aggregate unpaid principal or
otherwise as determined by the Bank in its sole discretion. The undersigned
hereby irrevocably consents to the in personam jurisdiction of the federal
and/or state courts located within the State of New York over controversies
arising from or relating to this note or the Liabilities and IRREVOCABLY WAIVES
TRIAL BY JURY and the right to interpose any counterclaim or offset of any
nature in any such litigation. The undersigned further irrevocably waives
presentment, demand, protest, notice of dishonor and all other notices or
demands of any kind in connection with this note or any Liabilities. The
undersigned shall be jointly and severally liable hereon.
The Bank may, at its option, at any time when in the judgment of the Bank
the Collateral is inadequate or the Bank deems itself insecure, or upon or at
any time after the occurrence of an Event of Default, proceed to enforce
payment of the same and exercise any of or all the rights and remedies afforded
the Bank by the Uniform Commercial Code (the "Code") or otherwise possessed by
the Bank. Any requirement of the Code for reasonable notice to the undersigned
shall be deemed to have been complied with if such notice is mailed, postage
prepaid, to the undersigned and such other persons entitled to notice, at the
addresses shown on the records of the Bank at least four (4) days prior to the
time of sale, disposition or other event requiring notice under the Code.
The undersigned agrees to pay to the Bank, as soon as incurred, all costs
and expenses incidental to the care, preservation, processing, sale or
collection of or realization upon any of or all the Collateral or incurred in
connection with the enforcement or collection of this note, or in any way
relating to the rights of the Bank hereunder, including reasonable inside or
outside counsel fees and expenses. Each and every right and remedy hereby
granted to the Bank or allowed to it by law shall be cumulative and not
exclusive and each may be exercised by the Bank from time to time and as often
as may be necessary.
<PAGE> 4
The undersigned shall have the sole responsibility for notifying the Bank in
writing that the undersigned wishes to take advantage of any redemption,
conversion or other similar right with respect to any of the Collateral. The
Bank may release any party (including any partner or any undersigned) without
notice to any of the undersigned, whether as co-makers, endorsers, guarantors,
sureties, assigns or otherwise, without affecting the liability of any of the
undersigned hereof or any partner of any undersigned hereof.
Upon any transfer of this note, the undersigned hereby waiving notice of
any such transfer, the Bank may deliver the Collateral or any part thereof to
the transferee who shall thereupon become vested with all the rights herein or
under applicable law given to the Bank with respect thereto and the Bank shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter; but the Bank shall retain all rights hereby given
to it with respect to any Liabilities and Collateral not so transferred. No
modification or waiver of any of the provisions of this note shall be effective
unless in writing, signed by the Bank, and only to the extent therein set
forth; nor shall any such waiver be applicable except in the specific instance
for which given. This agreement sets forth the entire understanding of the
parties, and the undersigned acknowledges that no oral or other agreements,
conditions, promises, understandings, representations or warranties exist in
regard to the obligations hereunder, except those specifically set forth
herein.
If the undersigned is a partnership, the agreement herein contained
shall remain in force and applicable, notwithstanding any changes in the
individuals composing the partnership or any release of any partner or partners
and their partners shall not thereby be released from any liability. If this
note is signed by more than one party, the terms "undersigned", as used herein,
shall include mean the "undersigned and each of them" and each undertaking
herein contained shall be their joint and several undertaking, provided,
however, that in the phrases "of the undersigned", "by the undersigned",
"against the undersigned", "for the undersigned", "to the undersigned", and "on
the undersigned", the term "undersigned" shall mean the "undersigned or any of
them"; and the Bank may release or exchange any of the Collateral belonging to
any of the parties hereto and it may renew or extend any of the liabilities of
any of them and may make additional advances or extensions of credit to any of
them or release or fail to set off any deposit account or credit to any of them
or grant other indulgences to any of them, all from time to time, before or
after maturity hereof, with or without further notice to or assent form any of
the other parties hereto. Each reference herein to the Bank shall be deemed to
include its successors, endorsees and assigns, in whose favor the provisions
hereof shall also inure. Each reference herein to the undersigned shall be
deemed to include the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned, all of whom shall be bound by the
provisions hereof.
The provisions of this note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York, and, as to interest rates, applicable Federal law.
NAPCO SECURITY SYSTEMS, INC.
/s/ Kevin S. Buchel /s/ Kenneth Rosenberg
- - ------------------------------------ ---------------------------------
Kevin S. Buchel, Sr. V.P. Operations Kenneth Rosenberg, President
& Finance
Address: 333 Bayview Avenue Address: 333 Bayview Avenue
---------------------------- ------------------------
Amityville, NY 11707 Amityville, NY 11701
<PAGE> 1
EXHIBIT 11
NAPCO SECURITY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average
number of shares
outstanding 4,367,727 4,367,577 4,366,827 4,366,527 4,366,527
Add common stock
equivalents 21,904 27,053 39,077 13,472 12,263
---------- ---------- ---------- ---------- ----------
Adjusted weighted
average shares
outstanding 4,389,631 4,394,630 4,405,904 4,379,999 4,378,790
========== ========== ========== ========== ==========
Net Income: $ 512,000 $1,254,000 $2,317,000 $1,406,000 $ 511,000
========== ========== ========== ========== ==========
Earnings per share:
primary and fully
diluted: $ .12 $ .29 $ .53 $ .32 $ .12
========== ========== ========== ========== ==========
</TABLE>
Earnings per common and common equivalent shares are based upon the
weighted average number of shares of common stock and common stock
equivalents outstanding during the respective periods. Stock options have
been considered to be the equivalent of common stock. Shares issuable
upon exercise of stock options, to the extent appropriate, have been added
to the average common shares actually outstanding for purposes of this
computation, and shares assumed to be purchased at the average market
price during the respective periods, with proceeds from the exercise of
such options, have been deducted from the average shares outstanding.
E-41
<PAGE> 1
EXHIBIT 12
NAPCO SECURITY SYSTEMS, INC.
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands, except for ratios)
<S> <C> <C> <C> <C>
A. Current Assets $39,916 $40,105 $37,809
B. Current Liabilities 11,256 12,072 17,873
Current Ratio
(Line A / Line B) 3.5 to 1 3.3 to 1 2.1 to 1
C. Sales $48,078 $46,873 $46,560
D. Receivables 13,647 14,687 12,088
Ratio (Line C / Line D) 3.5 to 1 3.2 to 1 3.9 to 1
E. Total Current
Liabilities $11,256 $12,072 $17,873
F. Long Term Debt 15,275 13,690 6,567
G. Deferred Income Taxes 648 0 0
H. Total Debt 27,179 25,762 24,440
I. Equity 28,560 28,048 26,793
Ratio (Line H / Line I) 1 to 1 .9 to 1 .9 to 1
</TABLE>
E-42
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following are the Company's subsidiaries as of the close of the fiscal
year ended June 30, 1995. All beneficial interests are wholly-owned, directly
or indirectly, by the Company and are included in the Company's consolidated
financial statements.
<TABLE>
<CAPTION>
State or
Jurisdiction of
Name Organization
---- ---------------
<S> <C>
Alarm Lock Systems, Inc. Delaware
Derringer Security Systems, Inc. New York
E.E. Electronic Components Inc. New York
Napco Security Systems International, Inc. New York
NSS Caribe, S.A. Dominican
Republic
Raltech Logic, Inc. New York
UMI Manufacturing Corp. New York
</TABLE>
E-43
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 368,000
<SECURITIES> 0
<RECEIVABLES> 14,309,000
<ALLOWANCES> 662,000
<INVENTORY> 24,178,000
<CURRENT-ASSETS> 39,916,000
<PP&E> 20,516,000
<DEPRECIATION> 8,013,000
<TOTAL-ASSETS> 55,739,000
<CURRENT-LIABILITIES> 11,256,000
<BONDS> 15,275,000
<COMMON> 59,000
0
0
<OTHER-SE> 28,501,000
<TOTAL-LIABILITY-AND-EQUITY> 55,739,000
<SALES> 48,078,000
<TOTAL-REVENUES> 48,078,000
<CGS> 36,753,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,994,000
<LOSS-PROVISION> 218,000
<INTEREST-EXPENSE> 1,412,000
<INCOME-PRETAX> 1,044,000
<INCOME-TAX> 532,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 512,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
