<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ----- EXCHANGE ACT OF 1934 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 (IRS Employer Identification Number)
incorporation or organization)
333 Bayview Avenue
Amityville, New York 11701
(Zip Code)
(516) 842-9400
(Registrant's telephone number including area code)
NONE
(Former name, former address and former fiscal year
if changed from last report)
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 and Exchange Act
of 1934 during the preceding 12 months (or 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
------- -------
Number of shares outstanding of each of the issuer's classes of common stock, as
of: MARCH 31, 1999
COMMON STOCK, $.01 PAR VALUE PER SHARE 3,490,151
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
MARCH 31, 1999
Page
PART I: FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets,
March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statements of Income for the Nine
Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION 12
SIGNATURE PAGE 13
INDEX TO EXHIBITS 14
-2-
<PAGE> 3
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1999 1998
-------- --------
(in thousands, except share data)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,983 $ 1,989
Accounts receivable, less allowance for doubtful accounts:
March 31, 1999 $ 1,092
June 30, 1998 $ 755 12,273 14,760
Inventories, net (Note 2) 24,693 25,438
Prepaid expenses and other current assets 847 674
Deferred income taxes, net 1,292 1,292
-------- --------
Total current assets 41,088 44,153
Property, Plant and Equipment, net of accumulated depreciation
and amortization (Note 3):
March 31, 1999 $ 11,953
June 30, 1998 $ 11,055 11,338 11,491
Goodwill, net 2,512 2,592
Other Assets 341 327
-------- --------
$ 55,279 $ 58,563
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,748 $ 1,667
Accounts payable 3,512 3,862
Accrued and other current liabilities 1,392 1,678
Accrued taxes 558 3,004
-------- --------
Total current liabilities 7,210 10,211
Long-Term Debt 17,512 18,644
Deferred Income Taxes 875 875
-------- --------
Total liabilities 25,597 29,730
Stockholders' Equity:
Common stock, par value $.01 per share; 21,000,000 shares
authorized, 5,908,602 shares issued; 3,490,151 and
3,489,651 shares outstanding, respectively 59 59
Additional paid-in capital 751 749
Retained earnings 33,321 32,474
Less: Treasury stock, at cost (2,418,451 shares) (4,449) (4,449)
-------- --------
Total stockholders' equity 29,682 28,833
-------- --------
$ 55,279 $ 58,563
======== ========
</TABLE>
See accompanying notes to Condensed consolidated Financial Statements.
-3-
<PAGE> 4
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
(in thousands, except share and per share data)
<S> <C> <C>
Net Sales $ 33,608 $ 35,687
Cost of Sales 25,591 26,895
----------- -----------
Gross profit 8,017 8,792
Selling, General and Administrative Expenses 7,970 6,886
----------- -----------
Operating income 47 1,906
----------- -----------
Interest Expense, net 1,047 811
Other Expense, net 59 112
----------- -----------
1,106 923
----------- -----------
Income (loss) before (benefit) provision for income taxes (1,059) 983
(Benefit) Provision for Income Taxes (1,906) 274
----------- -----------
Net income $ 847 $ 709
=========== ===========
Earnings Per Share (Note 5): Basic $ 0.24 $ 0.16
=========== ===========
Diluted $ 0.24 $ 0.16
=========== ===========
Weighted Average Number of Shares Outstanding (Note 5): Basic 3,480,401 4,374,477
=========== ===========
Diluted 3,505,824 4,441,177
=========== ===========
</TABLE>
See accompanying notes to Condensed consolidated Financial Statements.
-4-
<PAGE> 5
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
(in thousands, except share and per share data)
<S> <C> <C>
Net Sales $ 11,672 $ 12,023
Cost of Sales 8,950 9,201
----------- -----------
Gross profit 2,722 2,822
Selling, General and Administrative Expenses 3,247 2,277
----------- -----------
Operating income (525) 545
----------- -----------
Interest Expense, net 327 282
Other Expense, net 150 100
----------- -----------
477 382
----------- -----------
Income (loss) before (benefit) provision for income taxes (1,002) 163
(Benefit) Provision for Income Taxes (1,345) 42
----------- -----------
Net income $ 343 $ 121
=========== ===========
Earnings Per Share (Note 5): Basic $ 0.10 $ 0.03
=========== ===========
Diluted $ 0.10 $ 0.03
=========== ===========
Weighted Average Number of Shares Outstanding (Note 5): Basic 3,480,401 4,377,477
=========== ===========
Diluted 3,491,250 4,396,477
=========== ===========
</TABLE>
See accompanying notes to Condensed consolidated Financial Statements.
-5-
<PAGE> 6
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities $ 1,790 $(1,679)
------- -------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (745) (238)
------- -------
Net cash used in investing activities (745) (238)
------- -------
Cash Flows from Financing Activities:
Proceeds from long-term debt borrowings -- 2,550
Principal payments on long-term debt (1,051) (450)
------- -------
Net cash (used in) provided by financing activities (1,051) 2,100
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (6) 183
Cash and Cash Equivalents at Beginning of Period 1,989 1,006
------- -------
Cash and Cash Equivalents at End of Period $ 1,983 $ 1,189
======= =======
Cash Paid During the Period for:
Interest $ 879 $ 663
======= =======
Income taxes $ 250 $ 85
======= =======
</TABLE>
See accompanying notes to Condensed consolidated Financial Statements.
-6-
<PAGE> 7
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) Summary of Significant Accounting Policies and Other Disclosures
The information for the nine months ended March 31, 1999 and 1998 is
unaudited, but in the opinion of the Company, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of the results of operations for such periods have been
included. The results of operations for the periods may not necessarily
reflect the annual results of the Company.
The Company has adopted all recently effective accounting standards which
have an impact on its condensed financial statements.
2.) Inventories
<TABLE>
<CAPTION>
Inventories consist of: March 31, June 30,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Component parts $ 9,932 $10,200
Work-in-process 3,958 4,056
Finished products 10,903 11,182
------- -------
$24,693 $25,438
======= =======
</TABLE>
3.) Property, Plant and Equipment
<TABLE>
<CAPTION>
Property, Plant and Equipment consists of: March 31, June 30,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Land $ 904 $ 904
Building 8,911 8,911
Molds and dies 3,065 2,819
Furniture and fixtures 928 912
Machinery and equipment 9,427 8,944
Building improvements 56 56
------- -------
23,291 22,546
Less: Accumulated depreciation and amortization 11,953 11,055
------- -------
$11,338 $11,491
======= =======
</TABLE>
4.) In August 1995, the Internal Revenue Service ("IRS") informed the Company
that it had completed the audit of the Company's Federal tax returns for
fiscal years 1986 through 1993. The IRS had 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 IRS related to intercompany pricing and royalty charges, DISC earnings
and charitable contributions. The Company disagreed with the IRS and began
the process of vigorously appealing this assessment using all remedies and
procedural actions available under the law. The Company had provided a
reserve to reflect its estimate of the ultimate resolution of this matter,
so that the outcome of this matter would not have a material adverse
effect on the Company's consolidated financial statements.
During fiscal 1999, the Company both continued to discuss the assessment
with the IRS Appeals Office and concluded an IRS examination of fiscal
years 1994 through 1997. In July 1998 the Company received a revised audit
report which eliminated the original assessment for the fiscal years 1986
through 1993. In April 1999 the Company favorably resolved the IRS
examination of fiscal years 1994 through 1997. The Company has accepted
both audit reports and the final government approvals have been received.
Accordingly, the benefit for income taxes for the three and nine months
ended March 31, 1999 reflects the favorable effect of the reversal of
previously recorded reserves.
-7-
<PAGE> 8
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.) Net Income Per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting standards ("SFAS") No. 128, "Earnings per share". In accordance
with SFAS No. 128, net income per common share amounts ("basic EPS") were
computed by dividing net income by the weighted average number of common
shares outstanding for the period. Net income per common share amounts,
assuming dilution ("diluted EPS"), were computed by reflecting the
potential dilution from the exercise of stock options. SFAS No. 128
requires the presentation of both basic EPS and diluted EPS on the face of
the income statement. Net income per share amounts for the same prior-year
periods have been restated to conform to the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net income is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
March 31, 1999
(in thousands, except per share data)
----------------------------------------
Net Income Shares Per Share
(numerator) (denominator) Amounts
----- ----- -----
<S> <C> <C> <C>
Net income $ 847 -- --
-----
BASIC EPS
Net income attributable to
common stock $ 847 3,480 $0.24
-----
EFFECT OF DILUTIVE SECURITIES
Options -- 26 0.00
----- ----- -----
DILUTED EPS
Net income attributable to
common stock and assumed
option exercises $ 847 3,506 $0.24
----- ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
(in thousands, except per share data)
----------------------------------------
Net Income Shares Per Share
(numerator) (denominator) Amounts
----- ----- -----
<S> <C> <C> <C>
Net income $ 343 -- --
-----
BASIC EPS
Net income attributable to
common stock $ 343 3,480 $0.10
-----
EFFECT OF DILUTIVE SECURITIES
Options -- 11 --
----- ----- -----
DILUTED EPS
Net income attributable to
common stock and assumed
option exercises $ 343 3,491 $0.10
----- =====
</TABLE>
Options to purchase 11,220 shares of common stock in the nine months and
68,870 in the three months ended March 31, 1999 were not included in the
computation of diluted EPS because the exercise prices exceeded the
average market price of the common shares for this period. These options
were still outstanding at the end of the period.
-8-
<PAGE> 9
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Sales for the nine months ended March 31, 1999 decreased by 6% to $33,608,000 as
compared to $35,687,000 for the same period a year ago. For the quarter ended
March 31, 1999 net sales decreased by 3% to $11,672,000 from $12,023,000 for the
same period in fiscal 1998. During the three and nine months ended March 31,
1999 net sales were affected by two of the Company's customers tightening their
levels of the Company's product in their inventory. In January 1999 this major
customer announced that it had acquired substantially all of the assets of one
of the customers discussed above. In the Company's opinion, the reduction of
inventory by these two customers was due in part to their anticipation of this
acquisition. In addition, the Company's sales were affected by the recent
economic problems in Latin America. The Company is assisting its customers
closely in keeping its products readily available while maintaining an
acceptable credit risk and cash flows.
The Company's gross margin for the nine months ended March 31, 1999 decreased by
$775,000 to $8,017,000 or 23.9% of sales as compared to $8,792,000 or 24.6% of
sales for the same period a year ago. Gross margin for the three months ended
March 31, 1999 was $2,722,000 or 23.3% of sales as compared to $2,822,000 or
23.5% of sales for the same period a year ago. This decrease was primarily due
to the same issues resulting in the decreased sales volume as discussed above.
Selling, general and administrative expenses for the nine months ended March 31,
1999 increased by $1,084,000 to $7,970,000 as compared to $6,886,000 a year ago.
For the three months ended March 31, 1999 selling, general and administrative
expenses increased by $970,000 to $3,247,000 from $2,246,000 for the same period
a year ago. These increases were primarily related to the Company's increased
selling and marketing focus in the international marketplace. In addition, the
Company increased its allowance for doubtful accounts reserve in light of the
economic uncertainty in Latin America.
Interest and other expense for the nine months ended March 31, 1999 increased by
$183,000 to $1,106,000 from $923,000 for the same period a year ago. For the
three months ended March 31, 1999 interest and other expenses increased by
$95,000 to $477,000 from $382,000 for the same period in fiscal 1998. These
increases were primarily due to the additional debt incurred in the fourth
quarter of fiscal 1998.
Provision for income taxes for the nine months ended March 31, 1999 decreased by
$2,180,000 to a benefit of $1,906,000 as compared to a provision of $274,000 for
the same period a year ago. For the three months ended March 31, 1999 provision
for income taxes decreased by $1,387,000 to a benefit of $1,345,000 as compared
to a provision of $42,000 for the same period a year ago. These decreases were
primarily due to the favorable effect of the reversal of previously recorded
reserves no longer required with respect to IRS audits of fiscal years 1986
through 1997 as well as the decrease in income before provision for income
taxes.
Net income increased by $138,000 to $847,000 or $.24 per share for the
nine months ended March 31, 1999 as compared to $709,000 or $.16 per share for
the same period a year ago. For the three months ended March 31, 1999 net income
increased by $222,000 to $343,000 or $.10 per share from $121,000 or $.03 per
share for the same period in fiscal 1998. These increases were primarily due to
the items discussed above as well as the reduction in the number of common
shares outstanding by the Company's purchase of 889,576 shares of Treasury stock
in the fourth quarter of fiscal 1998.
Liquidity and Capital Resources
During the nine months ended March 31, 1999 the Company utilized virtually all
of its cash generated from operations to reduce its outstanding borrowings and
to purchase property and equipment. This resulted in a decrease in outstanding
debt to $19,260,000 at March 31, 1999 from $20,311,000 at June 30, 1998 while
cash and cash equivalents remained relatively constant at $1,983,000 as of March
31, 1999 as compared to $1,989,000 at June 30, 1998.
Accounts Receivable at March 31, 1999 decreased $2,487,000 to $12,273,000 as
compared to $14,760,000 at June 30, 1998. This decrease is primarily the result
of the higher sales volume during the quarter ended June 30, 1998 as compared to
the quarter ended March 31, 1999. In addition, the Company provided for
additional reserves for doubtful accounts in response to the recent economic
problems in Latin America.
-9-
<PAGE> 10
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Inventory at March 31, 1999 decreased by $745,000 to $24,793,000 as compared to
$25,438,000 at June 30, 1998. This decrease was primarily the result of the
Company's operational efforts at streamlining its planning and procurement
processes to reduce its onhand inventory requirements while improving delivery
response to its customers.
In May of 1998 the Company repurchased 889,576 shares of Napco common stock for
$5.00 per share from one of its co-founders. $2.5 million was paid at closing
with the balance of the purchase price to be paid over a four (4) year period.
The portion of the purchase price paid at closing was financed by the Company's
primary bank and is to be repaid over a five (5) year period.
On May 13, 1997, the Company refinanced the majority of its bank debt with a new
primary bank and entered into a $16,000,000 secured revolving credit agreement,
a $3,000,000 line of credit to be used in connection with commercial and standby
letters of credit and replaced the $2,500,000 standby letter of credit securing
an earlier loan from another bank in connection with the Company's international
operations. These agreements replaced the existing $11,000,000 and $2,000,000
credit agreements with another bank. The Company restructured its debt to allow
for future growth and expansion as well as to obtain terms more favorable to the
Company. As part of the debt restructuring, the Company retired the outstanding
Industrial Revenue Bonds relating to the financing of the Company's Amityville
facility. The revolving credit agreement will expire in May, 2000 and any
outstanding borrowings are to be repaid on or before that time.
On April 26, 1993 the Company's foreign subsidiary entered into a 99 year 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 at the end of fiscal 1995.
The Company has entered into employment agreements with Richard Soloway,
Chairman of the Board and President, and Jorge Hevia, Vice President of
Corporate Sales and Marketing (see Exhibit 10(Q) and 10(R) respectively).
As of March 31, 1999 the Company had no material commitments for capital
expenditures.
Year 2000 Date Conversion
As the century turns from 1900 to 2000, date-sensitive systems may recognize the
year 2000 as 1900 or not at all. This results primarily because of the
conventional use of a two digit date field in most software applications. The
inability to properly recognize the year 2000 may cause systems to process
financial and operational information incorrectly.
The Company believes that virtually all of the Company's systems are now fully
compliant. Due to the fact that the Company's software manufacturer includes the
year 2000 upgrade as part of its ongoing maintenance, the Company expects to
expend a minimal amount of its resources in this area.
Although the Company expects its critical systems to be compliant, there is no
guarantee that these results will be achieved. Specific factors that give rise
to this uncertainty include a possible failure to identify all susceptible
systems, noncompliance by third parties whose systems and operations impact the
Company, and other similar uncertainties.
In addition to internal Year 2000 remediation activities, the Company is in
contact with key suppliers and customers to reduce the likelihood of any
significant interruption in the business between the Company and these important
third parties relating to the Year 2000 issue. A comprehensive survey of all
vendors and customers has not been made and is not presently planned. The
Company's efforts thus far have been focused on key vendors and customers. If
these third parties do not convert their systems in a timely manner and in a way
that is compatible with the Company's systems, the Year 2000 issue could have a
material adverse effect on the Company's operations. The Company believes that
its actions with key suppliers and customers will minimize these risks. The vast
majority of the Company's products are not date-sensitive. The Company has
collected information on current and discontinued date-sensitive products.
At this time, the Company does not have in place a comprehensive, global
contingency plan relative to potential Year 2000 disruptions. Rather, each
significant system with a potential problem either has been repaired and tested
or is being updated. Contingency plans for certain types of unforseen problems
are being developed.
-10-
<PAGE> 11
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Forward-looking Statements
This quarterly report, other than historical financial information, contains
forward-looking statements, as defined in the Private Securities Litigation
Reform Act of 1995, that involve a number of risks and uncertainties. Important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are set forth in Item 1 of the
Company's annual report on Form 10-K for the year ended June 30, 1998. These
include risks and uncertainties relating to competition and technological
change, intellectual property rights, capital spending, international
operations, and the Company's acquisition strategies.
-11-
<PAGE> 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In August 1995, the Internal Revenue Service ("IRS") informed the Company
that it had completed the audit of the Company's Federal tax returns for
fiscal years 1986 through 1993. The IRS had 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 IRS related to intercompany pricing and royalty charges, DISC earnings
and charitable contributions. The Company disagreed with the IRS and began
the process of vigorously appealing this assessment using all remedies and
procedural actions available under the law. The Company had provided a
reserve to reflect its estimate of the ultimate resolution of this matter,
so that the outcome of this matter would not have a material adverse
effect on the Company's consolidated financial statements.
During fiscal 1999, the Company both continued to discuss the assessment
with the IRS Appeals Office and concluded an IRS examination of fiscal
years 1994 through 1997. In July 1998 the Company received a revised audit
report which eliminated the original assessment for the fiscal years 1986
through 1993. In April 1999 the Company favorably resolved the IRS
examination of fiscal years 1994 through 1997. The Company has accepted
both audit reports and the final government approvals have been received.
Accordingly, the benefit for income taxes for the three and nine months
ended March 31, 1999 reflects the favorable effect of the reversal of
previously recorded reserves.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 21, 1999, the Company's board of directors adopted amendments to
by-laws relating to: (1) Section 11, Article 1 replacing the provision on
written consent of shareholders in lieu of meeting with a notice provision
relating to shareholder proposals; and (2) the amendment of Article 11 to
provide that shareholders may amend the by-laws by an eighty percent
(80%) vote, all as described in Exhibit 3(ii)(A).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(ii)(A) Amendments to by-laws
10(Q) Employment agreement; Richard Soloway
10(R) Employment agreement; Jorge Hevia
22 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the Company's fiscal
quarter ended March 31, 1999.
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 14, 1999
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
By: /s/ Richard Soloway
-----------------------------------------
Richard Soloway
Chairman of the Board of Directors,
President and Secretary
(Principal Executive Officer)
By: /s/ Kevin S. Buchel
-----------------------------------------
Kevin S. Buchel
Senior Vice President of Operations
and Finance and Treasurer
(Principal Financial and Accounting
Officer)
-13-
<PAGE> 14
INDEX TO EXHIBITS
Exhibits
- --------
3(ii)(A) Amendments to by-laws
10(Q) Employment agreement: Richard Soloway
10(R) Employment agreement: Jorge Hevia
22 Financial Data Schedule
-14-
<PAGE> 1
Exhibit A
RESOLVED, that the Amended and Restated Bylaws of the Corporation are hereby
amended as follows:
1. The current Section 11 of Article I is hereby deleted and replaced by
the following provision:
"11. Conduct of Business.
"(a) The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including
such regulation of the manner of voting and the conduct of discussion
as seem to him or her in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will
vote at the meeting shall be announced at the meeting by the chairman.
"(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the
meeting (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of the Corporation who is entitled to vote with
respect thereto and who complies with the notice procedures set forth
in this Section 11(b). For business to be properly brought before an
annual meeting by a stockholder, the business must relate to a proper
subject matter for stockholder action and the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or
mailed to and received at the principal executive offices of the
Corporation not less than sixty (60) days prior to the date of the
annual meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of
business on the tenth (10th) day following the day on which such
notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter such stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting; (ii) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 11(b). The Chairman of
1
<PAGE> 2
the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting
that business was not properly brought before the meeting in
accordance with the provisions of this Section 11(b) and, if he or she
should so determine, he or she shall so declare to the meeting and any
such business so determined to be not properly brought before the
meeting shall not be transacted.
"At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or
at the direction of the Board of Directors.
"(c) Only persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for election as
Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders
at which directors are to be elected only: (i) by or at the direction
of the Board of Directors, or (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the
meeting who complies with the notice procedures set forth in this
Section 11(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in
writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered or mailed to and received at
the principal executive offices of the Corporation not less than sixty
(60) days prior to the date of the meeting; provided, however, that in
the event that less than seventy (70) days' notice or prior disclosure
of the date of the meeting is given or made to stockholders, notice by
the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which
such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth: (i) as
to each person whom such stockholder proposes to nominate for election
or re-election as a Director, all information relating to such person
that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as
amended (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected);
and (ii) as to the stockholder giving the notice (x) the name and
address, as they appear on the Corporation's books, of such
stockholder and (y) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Corporation that information required
to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a Director
of the Corporation unless nominated in accordance with the provisions
of this Section 11(c). The Chairman of the Corporation or other person
presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and,
if he or she shall
2
<PAGE> 3
so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded."
2. Article XI is hereby deleted and replaced by the following new Article
XI:
"ARTICLE XI
AMENDMENT TO BYLAWS
"11.1 Amendments by Board of Directors.
"The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of
Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board).
"11.2 Amendments by Stockholders.
"In addition to the right of the Board of Directors, as provided
in Section 11.1, above, to adopt, amend or repeal Bylaws of the
Corporation, the stockholders shall have power to adopt, amend or
repeal the Bylaws of the Corporation. In addition to any vote of the
holders of any class or series of stock of this Corporation required
by law or by the Certificate of Incorporation of the Corporation, the
affirmative vote of the holders of at least 80% of the voting power of
all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to adopt, amend
or repeal any provisions of the bylaws of the Corporation."
RESOLVED, that the officers of the Corporation are hereby authorized to take any
and all actions necessary to effectuate the foregoing resolutions.
3
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of February
26, 1999, between Napco Security Systems, Inc., a Delaware corporation (the
"Company"), and Richard Soloway (the "Employee").
WHEREAS, Employee has been serving as Chairman of the Board,
President and Chief Executive Officer of the Company and the parties wish to
provide for the continuation of such services.
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, the parties hereto agree as follows:
1. Employment, Duties and Acceptance.
1.1. The Company hereby employs the Employee for the Term
(as hereinafter defined) to render services to the Company as its chairman of
the board, president and chief executive officer, subject to the direction of
the Board of Directors, and, in connection therewith, to perform such executive
and managerial duties as he shall be directed by the Board of Directors
consistent with Employee's position as chairman of the board, president and
chief executive officer.
1.2. Acceptance of Employment by the Employee. The
Employee hereby accepts such employment and agrees to render the executive and
managerial services described above on the terms and conditions set forth.
2. Term of Employment. The term of the Employee's
employment under this Agreement (the "Term") shall commence on the date hereof
and shall end five (5) years from the
<PAGE> 2
date hereof, unless sooner terminated pursuant to Article 5 of this Agreement.
The Term shall automatically renew for additional one year intervals thereafter
unless either party gives notices of non-renewal at least six months before the
end of the then applicable Term.
3. Compensation.
3.1. Salary. For services to be rendered pursuant
to this Agreement, the Company agrees to pay the Employee a salary of $407,793
per annum (the "Annual Salary"), payable in accordance with the Company's
regular payroll practices but no less frequently than once per month. Employee's
annual salary shall be reviewed by the Board of Directors from time to time, but
may not be reduced, and shall be increased commencing January 1 of each year of
the Term by an amount at least equal to the product of the prior year's Annual
Salary and the increase in the Consumer Price Index ("CPI") (over the CPI for
1998).
3.2. Incentive Compensation. For each of the
Company's fiscal years ending during the ' Term, including the fiscal years
ending June 30, 1999 and 2004, the Employee shall be awarded an incentive bonus
(the "Bonus") if such a bonus has been earned according to a formula to be
determined by the Board of Directors. The amount of such bonus shall, at the
Employee's option, be payable in common stock of the Company valued at the
average closing sales price of NASDAQ, or the principal market on which the
Company's common stock trades, on the last five trading days of the fiscal year
for which the bonus is paid. If the Employee elects to receive stock for
incentive compensation, the Company shall loan, or use its best efforts to have
another lender loan, Employee the amount of the estimated income taxes payable
by Employee as a result of receiving such stock, which loan shall be payable
with interest one year after the termination of Employee's employment with the
Company. The Company shall charge
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<PAGE> 3
Employee interest on such loan at the same rate it pays to its bank for the
primary loan amount under its revolving line of credit.
3.3. Withholdings and Deductions. All
Compensation described in this Article 3 shall be less such deductions as may be
required to be withheld by applicable law and regulation.
3.4. Stock Options. As additional incentive to
Employee, simultaneous with the execution of this Agreement, the Company shall
grant Employee options under the Company's Stock Option Plan to purchase 225,000
shares of the Company's common stock at an exercise price equal to 110% of the
market price with respect to incentive stock options and 100% of the market
price for non-qualified stock options. Such options shall vest as provided in
such Plan, but in no event later than on a Change in Control, as defined in
Section 6 below, and may be exercisable for 5 years. For the purposes hereof,
"Market Price" shall mean the last reported sales price of the Company's common
stock on the date options are granted. The Stock Option Agreement shall provide
that the Company shall loan, or use its best efforts to have another lender
loan, Employee all amounts necessary to exercise any such options (including any
withholding taxes due in connection with such exercise). The Company shall
charge Employee interest on such loan at the same rate it pays to its bank for
the primary loan amount under its revolving line of credit.
3.5. Supplemental Amount. (a) The Company has a
qualified retirement plan, under Section 401 et seq. of the Internal Revenue
Code of 1986, as amended. The Employee is a participant in said plans. Section
415 of the Code provides that a plan shall not be a qualified trust under
Section 401(a) if it provides for the payment of contributions with
-3-
<PAGE> 4
respect to a participant in excess of certain amounts. The Company's plan has
provisions intended to assure that they are such qualified trusts, by providing
that no contribution may be made to a plan if such contribution would cause the
plan to be a non-qualified trust (the "Section 415 provisions"). The annual
amounts that the Employee, as a participant, would be entitled to have
contributed for his benefit by the Company under said plan (or under any other
plan qualified under Section 401 et seq. of the Code in which the Employee may
be a participant during the Term) if the plans did not have Section 415
provisions (or any successor provisions) in excess of the annual amounts that
the Company actually contributes thereto for the benefit of the Employee is
referred to as the "Supplemental Amount."
(b) As supplemental compensation for each year
during the Term, the Company shall, within 90 days after the end of the year,
issue (or transfer from its treasury stock) to the Employee a number of shares
of its common stock, subject to no restriction other than as required by the
Securities Act of 1933, equal to (x) the Supplemental Amount, (y) divided by the
average of the daily closing prices of such stock over the last five trading
days during said year. Such number of shares shall be rounded to the nearest
number of whole shares. The certificate representing said shares shall bear the
following legend: "The shares represented by this certificate were acquired in a
transaction not registered under the Securities Act of 1933, and may not be
transferred or disposed of except pursuant to an effective registration
statement under said Act or an exemption from such registration thereunder."
4. Expenses and Benefits.
4.1. Expenses. The Company shall pay or reimburse
the Employee for all reasonable expenses actually incurred or paid by him during
the Term in the performance of
-4-
<PAGE> 5
his services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as it may require.
4.2. Benefits. The Employee shall be entitled to
all rights and benefits for which he shall be eligible under any stock option or
extra compensation plan, pension, group insurance or other so-called "fringe"
benefits which the Company may, in its sole discretion, provide for him or for
its senior executive employees generally.
4.3. Vacation. The Employee shall be entitled to
such vacation as is provided from time to time to other senior executives of the
Company. Upon termination of Employee's employment for any reason, the Company
shall pay Employee for all unused vacation pay from the beginning of the term of
this Agreement.
5. Termination.
5.1. Termination upon Death. If the Employee
shall die during the Term, this Agreement shall terminate, except that the
Employee's legal representatives shall be entitled to receive the Annual Salary
provided for in Section 3.1 of this Agreement for a period of one year after the
Employee's death, paid in accordance with the Company's normal payroll
practices, and his Bonus shall be calculated on a pro rata basis through the end
of the fiscal quarter immediately preceding his death.
5.2. Termination upon Disability. If, during the
Term, the Employee shall become physically or mentally disabled, whether totally
or partially, as determined by a medical doctor acceptable to both parties
hereto, so that he is unable substantially to perform his services hereunder for
(i) a period of six consecutive months, or (ii) for shorter periods aggregating
six months during any twelve-month period, the Company may at any time after the
-5-
<PAGE> 6
last day of the sixth consecutive month of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of six months, by
written notice to the Employee (but before the Employee has recovered from such
disability), terminate the term of the Employee's employment hereunder.
Notwithstanding such disability, the Company shall continue to pay the Employee
an amount equal to sixty (60%) percent of the Annual Salary herein provided for
in Section 3.1 up to and through the scheduled Term under Section 2 hereof, but
not longer than three (3) years, but his Bonus shall be calculated on a pro rata
basis through the end of the fiscal quarter immediately preceding the sixth
month of his disability.
5.3. Termination for Cause. Nothing contained
herein shall preclude the Company from terminating this Agreement for cause. As
used herein the term "for cause" shall be deemed to mean and include with
respect to the Employee only chronic alcoholism, drug addiction, conviction of
the Employee of any felony, or of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, or willful
failure or refusal to substantially perform the services required of the
Employee under this Agreement, following written notice by the Board of
Directors to the Employee and Employee having failed to cure such failure within
thirty days after such notice.
6. Change in Control. (a) If during the Term
there should be a Change in Control (hereinafter defined), then the Employee
shall, by written notice to the Company at any time within twelve months
following a Change in Control, be entitled to terminate the Term and his
employment hereunder, and within 10 business days following such notice, the
Employer shall pay the Employee, as a termination payment, an amount equal to
299% of the average of the prior five calendar year's compensation (including
bonuses, pension, profit sharing and 401(k)
-6-
<PAGE> 7
contributions), except that in no event shall the amount payable under this
paragraph 6(a) exceed $100.00 less than the amount which would (when aggregated
with any other amounts which would be subject to the "parachute payment"
provisions hereinafter referred to) result in any part of a payment to otherwise
be made under this paragraph 6(a) constituting a "parachute payment" under
Section 280G of the Internal Revenue Code of 1986, as amended (the "Maximum
Termination Payment"). The determination whether or not any part of such payment
would constitute a "parachute payment" and the amount of the Maximum Termination
Payment shall be made by the Company's regularly engaged independent
accountants. In making the determination, the accountants shall rely on the
Company's federal income tax returns and on the Internal Revenue Code and the
regulations thereunder, as then in effect, and may rely on the legislative and
Internal Revenue Service reports issued in connection with the adoption of said
Paragraph and regulations.
(b) For purposes of this Agreement, a "Change in
Control" shall mean:
(i) either (x) any merger or consolidation of the Company
into or with another corporation, or (y) the
acquisition by another person, group or entity after
the execution date of this Employment Agreement of
beneficial ownership of more than 25% of the common
stock of the Company (such person, group or entity
reporting, or being required to report, the
acquisition pursuant to Section 13 of the Securities
Exchange Act of 1934 of all the voting and investment
powers of such stock),
or
(ii) any sale by the Company of substantially all of the
assets and business of Company for cash, stock, or
any combination thereof, unless, immediately after
such sale, the holders of Common Stock of the Company
immediately prior to such sale own more than 50% or
more of the voting capital stock of the acquiring
corporation or, if the acquiring person or
-7-
<PAGE> 8
entity is not a corporation, more than 50% of the
voting equity interests of such acquiring person or
entity,
or
(iii) if a majority of Company's board of directors
consists of individuals who were not Incumbent
Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the
date hereof, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not
include an individual whose election or nomination is
in connection with an actual or threatened proxy
contest relating to the election of directors to the
Company).
7. Certain Restrictions.
7.1. During Term. Through and including December
31, 2002 (unless Employee is wrongfully terminated as Chairman of the Board,
President or Chief Executive Officer or exercises his right to terminate the
Agreement under Section 6), the Employee will not, directly or indirectly, as an
officer, director, stockholder, partner, associate, employee, consultant or
owner, become or be interested in, or associated with, any other corporation,
firm or business engaged in a business which is the same as, similar to or
competitive with the business of the Company; provided that the ownership by the
Employee, directly or indirectly, of shares of stock of a corporation, which
shares are regularly traded on a national securities exchange or on the
over-the-counter market and which shares do not amount to the lesser of (a) five
per cent of the issued and outstanding shares of such corporation, or (b) an
aggregate market
-8-
<PAGE> 9
value in excess of $500,000, shall not, in any event, be deemed to be in
violation of the provisions of this Section 7.1.
7.2. Non-Detrimental Conduct. During the Term and
for a period of one year thereafter (regardless of any termination under Section
5 hereof), the Employee will not intentionally engage in any course of conduct
anywhere that will diminish the value of the business of the Company, including,
without limitation, the solicitation or hiring of employees of the Company other
than those dismissed by the Company.
8. Protection of Confidential Information.
8.1. Confidential Information. In view of the
fact that the Employee's work for the Company will bring him into close contact
with many confidential affairs of the Company not readily available to the
public, the Employee agrees:
(a) To keep secret and retain in the
strictest confidence all confidential matters of the Company, including, without
limitation, trade "know-how", secrets, the names of its customers, suppliers and
contractors, the Company's procedures and policies in purchasing and sales,
including its pricing policies, operational methods and technical processes, and
other business affairs of the Company, learned by him heretofore or hereafter,
and not to disclose them to anyone outside of the Company, either during or
after his employment with the Company, except in the course of performing his
duties hereunder or with the Company's express written consent; and
(b) To deliver promptly to the Company
on termination of his employment, all memoranda, notes, records, reports,
manuals, drawings and other documents
-9-
<PAGE> 10
(and all copies thereof) relating to the Company's business and all property
associated therewith, which he may then possess or have under his control.
8.2. Survival. The provisions of this
Section 8 shall survive any termination of this Agreement.
8.3. Specific Performance. The parties
recognize that, because of the nature of the subject matter of this Section 8,
it would be impractical and extremely difficult to determine the Company's
actual damages in the event of a breach of this Section 8 by the Employee.
Accordingly, if the Employee commits a breach, or threatens to commit a breach,
of any of the provisions of Section 8.1, the Company shall be entitled to have
the provisions of said Sections specifically enforced by temporary, preliminary
and permanent injunctive relief without the posting of bond or other security by
and court of competent jurisdiction, notwithstanding the provisions of Section 8
hereof.
9. Notices.
All notices, requests, consents and other
communications, required or permitted to be given hereunder, shall be in writing
and shall be deemed to have been duly given if delivered personally, or mailed
first-class, postage prepaid by registered or certified mail (notices shall be
deemed to have been given when so delivered personally) or, if mailed, two days
after the date of mailing, as follows (or to such other address as either party
shall designate by notice so given to the other in accordance herewith):
If to the Company, to:
Napco Security Systems, Inc.
Attention: Andrew J. Wilder
333 Bayview Avenue
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<PAGE> 11
Amityville, NY 11701
If to the Employee, to:
Richard Soloway
-------------------
-------------------
10. General.
10.1. Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the local laws of the
State of New York applicable to agreements made and to be performed entirely in
New York.
10.2. Section Headings. The article and section
headings contained herein are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
10.3. Entire Agreement. This Agreement sets forth
the entire agreement and understanding of the parties relating to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, relating to the subject matter hereof. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
10.4. Successors and Assigns. This Agreement, and
the Employee's rights and obligations hereunder, may not be assigned by the
Employee. The Company may assign its rights, together with its obligations,
hereunder in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event the obligations of the
-11-
<PAGE> 12
Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
10.5. Amendments, Modifications, etc. This
Agreement may be amended, modified, superseded, canceled, renewed or extended
and the terms or covenants hereof may be waived, only by a written instrument
executed by the party to be charged therewith. The failure of either party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement. The
invalidity or unenforceability of any term or provision of this Agreement shall
in no way impair or affect the balance thereof, which shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on March
17, 1999.
NAPCO SECURITY SYSTEMS, INC.
By: /s/ Andrew J. Wilder
-------------------------------------------
Andrew J. Wilder for the Board of Directors
/s/ Richard Soloway
-------------------------------------------
RICHARD SOLOWAY
-12-
<PAGE> 1
Exhibit 10(R)
September 15, 1998
Mr. Jorge Hevia
- -------------------
- -------------------
Dear Jorge:
As per our meeting today, we agree to the following points for your employment
as Vice President of sales and marketing. We would like your employment to
commence October 5, 1998.
1) Annual Salary of $165,000, with annual reviews hereafter on your
anniversary date. Upon being promoted to Senior Vice President of Sales and
Marketing (estimated to occur approximately May 1999) salary will be
increased to $175,000.
2) Signing Bonus- A signing bonus will be paid as follows:
$10,000 upon employment
$10,000 end of December 1998
$10,000 end of May 1998
3) Bonus Plan- An additional 61% of annual salary (or $95,000) can be earned
as follows:
A) *Sales Volume- Sales volume bonus plan is as follows:
a) Net sales increase 5%- Bonus = $10,000
b) Net sales increase 10%- Bonus = $28,875
c) Net sales increase 15% or greater- Bonus = $50,000
*Sales volume will be measured for the year ended 6/30/99 as compared to
6/30/98. In the event of an acquisition, this plan will be adjusted.
B) Profitability- Profitability bonus plan is based on the average
selling price of the top 250 stock keeping units (SKU's), which
represent approximately 99% of overall corporate sales. The plan is
as follows:
a) Average selling price is 6.5% below target (level 1 pricing)-
Bonus = $7,000
b) Average selling price is 6% below target- Bonus = $17,325
c) Average selling price is 5% below target- Bonus = $25,000
C) *Sales and Marketing Budget-
a) If the Sales and Marketing Budget is met (not exceeded)-
Bonus = $11,550
b) If the Sales and Marketing expenses are 5% or more below budget-
Bonus = $20,000
*The budget may be adjusted throughout the year, and would require approval
of joint executive management.
<PAGE> 2
As discussed, since you will be joining the Company approximately in
October 1998, the bonus plan would have to be prorated.
4) Stock Options- 16,600 stock options would be awarded upon employment, at
the fair market value price of the Napco stock at that time. Future stock
options will be granted based on performance.
5) A contract will be drawn up for two (2) years and will include a clause for
severance of nine (9) months salary and health insurance for six (6)
months. The contract will be reviewed for renewal one (1) year before its
expiration date.
6) 401K- The Company 401K policy allows for a company match of 1% of
compensation (salary and bonus). The policy also includes a one (1) year
waiting period before new employees can be added to the plan.
7) Auto Allowance- You will be entitled to an auto allowance of $540 per
month.
8) Vacation- You will be entitled to three (3) weeks vacation.
I look forward to a long and prosperous relationship with you. This should be a
lot of fun.
Sincerely,
/s/ Richard Soloway
Richard Soloway
Chairman
Soloway/ Hevia- 9-15-98
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,983
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<RECEIVABLES> 13,365
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<INVENTORY> 24,693
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<PP&E> 23,291
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<CURRENT-LIABILITIES> 7,210
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> (3,698)
<TOTAL-LIABILITY-AND-EQUITY> 55,279
<SALES> 33,608
<TOTAL-REVENUES> 33,608
<CGS> 25,591
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<OTHER-EXPENSES> 7,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,106
<INCOME-PRETAX> (1,059)
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