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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 [No Fee Required]
For the fiscal year ended June 30, 1999
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 16, 1999, 3,495,351 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
$12,233,729.
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement in connection with its 1999 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. [ ]
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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 pre-designated 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.
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Combination Control Panels/Digital Communicators and Digital Keypad
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 and
consumer preference. Benefits of the combination format include the cost
efficiency resulting from a single microcomputer 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 infrared
heat detectors and combination microwave/passive infrared detectors that are
linked to alarm control panels. Passive infrared 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, 1999, 1998, and 1997, the
Company expended approximately $4,008,000, $3,817,000, and $3,340,000,
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 1999, 1998 and 1997
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, 1999, the Company had approximately 940 full-time
employees.
Marketing and Major Customers
The Company's staff of 37 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 80% of
the Company's total sales for the fiscal year ended June 30, 1999. 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 one customer unaffiliated with the Company accounted for
approximately 27%, 23% and 21% of the Company's total sales for the fiscal years
ended June 30, 1999, 1998 and 1997, respectively (see Note 9 to Consolidated
Financial Statements). The loss of this customer 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 recent 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.
Raw Materials and Sales Backlog
The Company prepares specifications for component parts used in the
Products and purchases the components from outside sources or fabricates the
components 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
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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 sales backlog of approximately $918,500 existed as of June 30,
1999. This compared to a sales backlog of approximately $1,240,000 a year ago.
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 and Trademarks
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 or trademarks.
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>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated
customers:
United States $50,573 $50,269 $53,302
Foreign 0 0 0
Identifiable assets:
United States $33,067 $39,783 $41,242
Foreign 22,720 18,780 16,002
Export sales:
United States(2) $10,713 $12,101 $10,355
</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 completed construction on
this facility in 1988 with the proceeds from industrial revenue bonds that
have since been retired.
The Company's foreign subsidiary, NAPCO/Alarm Lock Grupo International,
S.A. (formerly known as 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. As of June 30, 1999,
most of the Company's sales related to labor on assemblies, goods and
subassemblies produced 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.
- ----------------
(1) Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) Export sales from the United States in fiscal year 1999 included sales
of approximately $6,730,000, $869,000, $1,653,000 and $1,461,000 to Europe,
North America, South America and other areas, respectively. Export sales from
the United States in fiscal year 1998 included sales of approximately
$6,966,000, $1,070,000, $2,094,000, and $1,971,000 to Europe, North America,
South America and other areas, respectively. Export sales from the United States
in fiscal year 1997 included sales of approximately $6,046,000, $1,608,000,
$1,127,000, and $1,574,000 to Europe, North America, South America and other
areas, respectively.
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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:
In August 1995, the Internal Revenue Service (the "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 1998, the Company continued to discuss the assessment with
the IRS Appeals Office and in July 1998 received a revised audit report, which
was subject to final government administrative approval, and which reduced the
original assessment for the years covered by the IRS audit. The Company accepted
the revised audit report and the final government approval was pending as of
June 30, 1998. Accordingly, the Company determined that $900,000 of previously
recorded reserves should be reversed through the 1998 income tax provision to
reflect the expected final settlement with respect to this IRS audit.
In fiscal 1999, the Company received the final government approval on the
IRS audit related to fiscal years 1986 through 1993. In addition, the IRS
completed its audits of fiscal years 1994 through 1997. As a result of the
favorable outcome from the audits, the Company reversed an additional $1,896,000
of previously recorded reserves through the income tax provision in fiscal 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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
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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 1999
------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock
High $5.88 $4.63 $4.38 $4.13
Low $4.00 $4.00 $2.56 $2.50
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------
Fiscal 1998
------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock
High $6.88 $6.75 $6.25 $8.25
Low $3.75 $5.50 $5.25 $4.75
</TABLE>
Approximate Number of Security Holders
The number of holders of record of NAPCO's Common Stock as of September
16, 1999 was 196 (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
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Operations
Net Sales $ 50,573 $ 50,269 $ 53,302 $ 49,088 $ 48,078
Gross Profit 12,059 11,785 12,778 11,302 11,325
(Benefit) Provision for
Income Taxes (1,925) (525) 605 515 532
Net Income 2,493 2,038 1,639 1,014 512
Earnings per Share:
Basic .71 .48 .38 .23 .12
Diluted .71 .48 .37 .23 .12
Cash Dividends per Share(3) 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
As of June 30
-----------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Financial Condition
Total Assets $55,787 $58,563 $57,244 $57,319 $55,739
Long-term Debt 17,241 18,644 13,313 14,150 15,275
Working Capital 34,920 33,942 30,136 28,676 28,660
Stockholders' Equity 31,328 28,833 31,218 29,574 28,560
Stockholders' Equity
Per Outstanding Share 8.98 8.26 7.14 6.77 6.54
</TABLE>
- ---------------
(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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Quarterly Results and Seasonality
The following table sets forth unaudited financial data for each of the
Company's last eight fiscal quarters (in thousands except for per share data):
<TABLE>
<CAPTION>
Year Ended June 30, 1999
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $11,090 $10,860 $11,672 $16,951
Gross Profit 2,708 2,601 2,722 4,028
Income from Operations 480 106 (525) 1,850
Net Income 272 132 343 1,746
Net Income Per Share
Basic .08 .04 .10 .49
Diluted .08 .04 .10 .49
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1998
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $12,253 $11,411 $12,023 $14,582
Gross Profit 3,172 2,798 2,822 2,993
Income from Operations 809 552 545 590
Net Income 382 206 121 1,329
Net Income Per Share
Basic .09 .05 .03 .31
Diluted .09 .05 .03 .31
</TABLE>
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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
activities during fiscal 1999 were adequate to meet the Company's capital
expenditure needs and short and long-term debt obligations. The primary source
of financing related to borrowings under a $16,000,000 secured revolving credit
facility. 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 internal source of
liquidity is the cash flow generated from operations. As of June 30, 1999, the
Company's unused sources of funds consisted principally of $2,230,000 in cash
and approximately $1,487,000, which represents the unused portion of its secured
revolving credit facility.
In fiscal 1988, the Company completed construction of a new manufacturing
and administrative facility in Amityville, New York 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. The bonds had a
maturity date of April 1, 2000, subject to quarterly sinking fund payments. Such
bonds were retired in May 1997 as part of the Company's debt refinancing with
its new primary bank as discussed below.
On April 26, 1993, the Company's foreign subsidiary entered into a 99-year
land lease of approximately 4 acres of land in the Dominican Republic, at an
annual cost of approximately $272,000.
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 and 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. 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
construction of the Company's Amityville, New York facility. The revolving
credit agreement will expire in November 2000 and any outstanding borrowings
are to be repaid on or before that time.
In addition, a subsidiary of the Company maintains a $4,500,000 line of
credit with another bank, $450,000 of which was outstanding as of June 30, 1999
(see Note 5 to Consolidated Financial Statements).
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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, Kenneth Rosenberg. $2.5
million was paid at closing with the balance of the purchase price to be paid
over a four (4) year period pursuant to an interest-bearing note. 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. At the closing, Mr. Rosenberg
retired as President and Director of the Company but will be available to the
Company pursuant to a consulting agreement. The repurchase agreement also
provides that Mr. Rosenberg will not compete with the Company for a ten (10)
year period.
The Company takes into consideration a number of factors in measuring its
liquidity, including the ratios set forth below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current Ratio 6.2 to 1 4.3 to 1 3.5 to 1
Sales to Receivables 3.1 to 1 3.4 to 1 3.8 to 1
Total Debt to Equity .8 to 1 1.0 to 1 .8 to 1
</TABLE>
As of June 30, 1999, the Company had no material commitments for purchases
or capital expenditures.
Working Capital. Working capital increased by $978,000 to $34,920,000 at
June 30, 1999 from $33,942,000 at June 30, 1998. The additional working capital
was generated primarily from the increase in accounts receivable and the
decrease in Income Taxes Payable resulting from the benefit from income taxes,
which was partially offset by the Company's reduction in its inventory, all as
discussed below.
Accounts Receivable. Accounts receivable increased by $1,686,000 to
$16,446,000 at June 30, 1999 from $14,760,000 at June 30, 1998. This increase
resulted primarily from the 16% increase in sales during the fourth quarter as
compared to the fourth quarter in fiscal 1998.
Inventory. Inventory was reduced by $3,943,000 to $21,495,000 at June 30,
1999 as compared to $25,438,000 at June 30, 1998. The Company generated a
significant reduction in its inventory during the year ended June 30, 1999 due
in part to its efforts at improving various planning and forecasting techniques
as well as the high sales levels achieved in the fourth quarter of fiscal 1999.
Accounts Payable and Accrued Expenses. Accounts payable and accrued
expenses decreased by $408,000 to $4,479,000 at June 30, 1999 from $4,887,000 at
June 30, 1998. This decrease was due primarily to the decrease in component part
purchases, which was a direct result of the improved planning and forecasting as
discussed above.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
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Net Sales. Net sales in fiscal 1999 increased by 1% to $50,573,000 from
$50,269,000 in fiscal 1998. The Company achieved this sales level in fiscal 1999
mainly through the increased sales in the fourth quarter as compared to the same
quarter of fiscal 1998. Sales in the fourth quarter of fiscal 1999 were
$16,951,000 as compared to $14,582,000 in 1998. This increase was due primarily
to a significant increase in the demand of the Company's door locking products
as well as increased orders from a major customer who returned to a more normal
inventory position of the Company's products after tightening these levels
during their acquisition of another company. These increases more than offset
the decrease in sales during the first three quarters of fiscal 1999 which were
affected, in part, by the major customer as discussed above.
Gross Profit. The Company's gross profit increased $274,000 to
$12,059,000 or 23.8% of net sales in fiscal 1999 as compared to $11,785,000 or
23.4% of net sales in fiscal 1998. The increase in gross profit margin was
primarily due to the company's improvement in its component costs.
Expenses. Selling, general and administrative expenses in fiscal 1999
increased 9% to $10,148,000 or 20% of net sales from $9,289,000 or 19% of net
sales in fiscal 1998. This increase is primarily due to the increased selling
and marketing expenses relating to the increased sales of the Company's door
security products as well as the introduction of the Company's new fire and
access control products.
Other Expenses. Other Expenses in fiscal 1999 increased by $360,000 to
$1,343,000 as compared to $983,000 in fiscal 1998. This increase was primarily
due to increased interest expense resulting from increased borrowings related to
the repurchase of common shares at the end of fiscal 1998.
Income Taxes. The benefit for income taxes increased $1,400,000 to a
benefit of $1,925,000 during fiscal 1999. This compared to a benefit of $525,000
during fiscal 1998. The increase in the benefit for fiscal 1999 is primarily
attributable to the favorable outcome of the IRS audits of fiscal years 1986
through 1997 and the resulting impact on related reserve requirements.
Effects of Inflation. During the three-year period ended June 30, 1999,
inflation and changing prices did not have a significant impact on the Company's
operations.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales in fiscal 1998 decreased approximately $3,033,000 or
5.7% to $50,269,000 from $53,302,000 in fiscal 1997. This decrease was primarily
the result of pricing pressures and the decreased sales to one major customer,
as previously disclosed. These decreases were offset, in part, by increased
export sales as well as the markets continued favorable reception of the
Company's hybrid hard-wired/wireless products and digital locks.
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Gross Profit. The Company's gross profit decreased $993,000 to
$11,785,000 or 23.4% of net sales in fiscal 1998 as compared to $12,778,000 or
24.0% of net sales in fiscal 1997. The decrease in gross profit was primarily
due to the pricing pressures and reduction in net sales as discussed above as
partially offset by reduced material and freight costs.
Expenses. Selling, general and administrative expenses in fiscal 1998
increased slightly to $9,289,000 or 18.5% of net sales from $9,133,000 or 17.1%
of net sales in fiscal 1997. This increase was primarily due to the Company's
expansion of its international sales operations and related informational
systems as partially offset by continuing cost saving efforts.
Other Expenses. Other Expenses in fiscal 1998 decreased by $418,000 to
$983,000 as compared to $1,401,000 in fiscal 1997. This decrease was primarily
due to decreased interest expense resulting from more favorable interest rates
available to the Company as well as more favorable foreign currency transaction
rates realized by the Company during the year as partially offset by increased
borrowings.
Income Taxes. Provision for income taxes decreased $1,130,000 to a benefit
of $525,000 during fiscal 1998. This compared to a provision of $605,000 or
approximately 27% of income before provision for income taxes during fiscal
1997. The decrease in the provision for fiscal 1998 was primarily attributable
to the reversal of $900,000 of reserves no longer required with respect to an
IRS audit of fiscal years 1986 through 1993.
Effects of Inflation. During the three-year period ended June 30, 1998,
inflation and changing prices did not have a significant impact on the Company's
operations.
By-Laws
The Board of Directors amended the Company's By-Law provision on
indemnification of officers and directors to make it more detailed as to the
circumstances for such indemnification and the Company entered into an
Indemnification Agreement with the directors.
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 primary software supplier
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
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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 unforeseen problems
are being developed.
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instrument is long-term debt (consisting
of a revolving credit and term loan facility) that provides for interest at a
spread above the prime rate. The Company is affected by market risk exposure
primarily through the effect of changes in interest rates on amounts payable by
the Company under this credit facility. A significant rise in the prime rate
could materially adversely affect the Company's business, financial condition
and results of operations. At June 30, 1999, an aggregate principal amount of
approximately $15,000,000 was outstanding under the Company's credit facility
and term loan with a weighted average interest rate of 6.5%. If principal
amounts outstanding under the Company's credit facility remained at this
year-end level for an entire year and the prime rate increased or decreased,
respectively, by 1.25% the Company would pay or save, respectively, an
additional $187,500 in interest that year. The Company does not utilize
derivative financial instruments to hedge against changes in interest rates or
for any other purpose.
Where appropriate, the Company requires that letters of credit be provided
on foreign sales. In addition, a significant number of transactions by the
Company are denominated in U.S. dollars. As such, the Company has shifted
foreign currency exposure onto its foreign customers. As a result, if exchange
rates move against foreign customers, the Company could experience difficulty
collecting unsecured accounts receivable, the cancellation of existing orders
or the loss of future orders. The foregoing could materially adversely affect
the Company's business, financial condition and results of operations.
14
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants
as of June 30, 1999 and 1998 and for
each of the 3 Years in the Period
Ended June 30, 1999.................................................. 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1999 and 1998.............................................. 17
Consolidated Statements of Income
for the Years Ended June 30,
1999, 1998 and 1997................................................. 18
Consolidated Statements of
Stockholders' Equity for the
Years Ended June 30, 1999, 1998
and 1997............................................................ 19
Consolidated Statements of Cash
Flows for the Years Ended
June 30, 1999, 1998 and 1997........................................ 20
Notes to Consolidated Financial
Statements, June 30, 1999, 1998 and 1997............................ 21
Schedules:
I. Condensed Financial Information on
Parent Company............................................... 32
II. Valuation and Qualifying Accounts........................... 34
</TABLE>
15
<PAGE> 17
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, 1999 and
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended June 30, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 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.
/s/ ARTHUR ANDERSEN LLP
Melville, New York
September 22, 1999
16
<PAGE> 18
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
-------- --------
(in thousands, except share data)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,230 $ 1,989
Accounts receivable, less reserve for doubtful accounts of $887 and $755, respectively
16,446 14,760
Inventories 21,495 25,438
Prepaid expenses and other current assets 809 674
Deferred income taxes 716 1,292
-------- --------
Total current assets 41,696 44,153
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
and amortization of approximately $12,316 and $11,055, respectively 11,280 11,491
GOODWILL, net of accumulated amortization of approximately $1,256 and $1,149, respectively
2,485 2,592
OTHER ASSETS 326 327
-------- --------
$ 55,787 $ 58,563
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,433 $ 1,667
Accounts payable 3,651 3,862
Accrued expenses 828 1,025
Accrued salaries and wages 754 653
Accrued income taxes 110 3,004
-------- --------
Total current liabilities 6,776 10,211
LONG-TERM DEBT 17,241 18,644
DEFERRED INCOME TAXES 442 875
-------- --------
Total liabilities 24,459 29,730
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 21,000,000 shares authorized;
5,908,602 and 5,908,102 shares issued, respectively; 3,490,151 and
3,489,651 shares
outstanding, respectively 59 59
Additional paid-in capital 751 749
Retained earnings 34,967 32,474
Less: Treasury stock, at cost (2,418,451 shares) (4,449) (4,449)
-------- --------
Total stockholders' equity 31,328 28,833
-------- --------
$ 55,787 $ 58,563
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
17
<PAGE> 19
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C>
NET SALES $ 50,573 $ 50,269 $ 53,302
COST OF SALES 38,514 38,484 40,524
----------- ----------- -----------
Gross profit 12,059 11,785 12,778
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,148 9,289 9,133
----------- ----------- -----------
Operating income 1,911 2,496 3,645
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net (1,359) (1,130) (1,081)
Other, net 16 147 (320)
----------- ----------- -----------
(1,343) (983) (1,401)
----------- ----------- -----------
Income before (benefit) provision for income taxes 568 1,513 2,244
(BENEFIT) PROVISION FOR INCOME TAXES (1,925) (525) 605
----------- ----------- -----------
Net income $ 2,493 $ 2,038 $ 1,639
=========== =========== ===========
EARNINGS PER SHARE (Note 1):
Basic $ .71 $ .48 $ .38
=========== =========== ===========
Diluted $ .71 $ .48 $ .37
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note 1):
Basic 3,493,000 4,263,000 4,369,000
=========== =========== ===========
Diluted 3,512,000 4,285,000 4,383,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
18
<PAGE> 20
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(in thousands except share data)
<TABLE>
<CAPTION>
Common Stock
------------------------
Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 5,896,602 $ 59 $ 719 $ 28,797 $ (1) $ 29,574
Exercise of employee stock options 2,000 - 5 - - 5
Net income - - - 1,639 - 1,639
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1997 5,898,602 59 724 30,436 (1) 31,218
Purchase of treasury stock - - - - (4,448) (4,448)
Exercise of employee stock options 9,500 - 25 - - 25
Net income - - - 2,038 - 2,038
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1998 5,908,102 59 749 32,474 (4,449) 28,833
Purchase of treasury stock - - - - - -
Exercise of employee stock options 500 - 2 - - 2
Net income - - - 2,493 - 2,493
--------- --------- --------- --------- --------- ---------
BALANCE AT JUNE 30, 1999 5,908,602 $ 59 $ 751 $ 34,967 $ (4,449) $ 31,328
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
19
<PAGE> 21
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,493 $ 2,038 $ 1,639
Adjustments to reconcile net income to net cash provided by (used in)
operating activities-
Depreciation and amortization 1,368 1,289 1,440
Provision for doubtful accounts 230 50 55
Deferred income taxes 143 (259) (11)
Changes in operating assets and liabilities resulting from increases and
decreases in:
Accounts receivable (1,916) (873) (233)
Inventories 3,943 264 242
Prepaid expenses and other current assets (135) (284) 99
Other assets 1 109 (105)
Accounts payable, accrued expenses, accrued salaries and wages and
accrued income taxes (3,201) (2,441) (368)
------- ------- --------
Net cash provided by (used in) operating activities 2,926 (107) 2,758
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property, plant and equipment (1,050) (585) (746)
------- ------- --------
Net cash used in investing activities (1,050) (585) (746)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank - 2,500 -
Principal payments on long-term debt (1,637) (900) (13,400)
Proceeds from long-term debt - 2,550 11,963
Purchase of treasury stock - (2,500) -
Proceeds from exercise of employee stock options 2 25 5
------- ------- --------
Net cash (used in) provided by financing activities (1,635) 1,675 (1,432)
------- ------- --------
NET INCREASE IN CASH 241 983 580
CASH, beginning of year 1,989 1,006 426
------- ------- --------
CASH, end of year $ 2,230 $ 1,989 $ 1,006
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,301 $ 1,289 $ 1,076
======= ======= ========
Income taxes paid $ 259 $ 108 $ 35
======= ======= ========
NON-CASH FINANCING ACTIVITIES:
Issuance of note payable for purchase of treasury stock $ - $ 1,948 $ -
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
20
<PAGE> 22
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
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 alarm
products and door 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 subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent gains and losses at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded 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 calculated by
using the straight-line method over the estimated useful life of the asset or
lease term, whichever is shorter.
Goodwill
Goodwill is being amortized on a straight-line basis over 35 years. Subsequent
to an acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life of
the goodwill may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted cash flows
over the remaining life of the goodwill in measuring whether it is recoverable.
In the years ended June 30, 1999, 1998 and 1997, there were no adjustments to
the carrying value of goodwill, other than the straight-line amortization.
21
<PAGE> 23
Revenue Recognition
Revenue is recognized upon shipment of the Company's products to its customers.
The Company reports its sales levels on a net sales basis, with net sales being
computed by deducting from gross sales the amount of actual sales returns and
the amount of reserves established for anticipated sales returns.
Income Taxes
Deferred income taxes are recognized for the expected future tax consequences of
temporary differences between the amounts reflected for financial reporting and
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 in the Dominican Republic is non-taxable. 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.
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
totaling $2,031,000 must be reported as taxable income over a ten-year period in
the Company's tax returns, starting with the June 30, 1992 tax year.
The Company does not provide for income taxes on the undistributed earnings of
its foreign subsidiary in the Dominican Republic 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, 1999 and 1998, approximately
$19,369,000 and $19,085,000 in cumulative earnings of this foreign subsidiary
are included in consolidated retained earnings.
Earnings Per Share
The Company accounts for Earnings Per Share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of income. Under this new standard, Basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently-required fully diluted EPS. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted.
22
<PAGE> 24
A reconciliation between the numerators and denominators of the Basic and
Diluted EPS computations for net income is as follows:
<TABLE>
<CAPTION>
Net Income - Numerator Shares - Denominator Per Share Amounts
---------------------- -------------------- -----------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income .................. $2,493 $2,038 $1,639 -- -- -- $ -- $ -- $ --
Basic EPS
Net income attributable to
common stock ........... 2,493 2,038 1,639 3,493 4,263 4,369 0.71 0.48 0.38
------ ------ ------ ------ ------ ------ ----- ----- -----
Effect of Dilutive Securities
Options .................. -- -- -- 19 22 14 -- -- (0.01)
------ ------ ------ ------ ------ ------ ----- ----- -----
Diluted EPS
Net income attributable to
common stock and assumed
option exercises ........ $2,493 $2,038 $1,639 3,512 4,285 4,383 $ 0.71 $ 0.48 $ 0.37
====== ====== ====== ====== ====== ====== ======= ======== =======
</TABLE>
Options to purchase 10,620, 4,400 and 4,200 shares of common stock for the three
years ended June 30, 1999, respectively, were not included in the computation of
diluted EPS because the exercise prices exceeded the average market price of the
common shares for the respective periods because their inclusion would be
antidilutive. These options were still outstanding at the end of the respective
periods.
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of SFAS
No. 123 "Accounting for Stock-Based Compensation". The Company adopted this
standard in fiscal 1997, and has elected to continue the accounting set forth in
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and to provide the necessary pro-forma disclosures (Note 6).
Comprehensive Income
In the first quarter of 1999, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income," which establishes new rules for the reporting of
comprehensive income and its components. The adoption of this statement had no
impact on the Company's net income or stockholders' equity. For the fiscal years
ended 1999, 1998 and 1997, the Company's operations did not give rise to items
includable in comprehensive income which were not already included in net
income. Therefore, the Company's comprehensive income is the same as its net
income for all periods presented.
Segment Reporting
Effective June 30, 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Pursuant to this
pronouncement, the reportable operating segments are determined based on the
Company's management approach. The management approach, as defined by SFAS No.
131, is based on the way that the chief operating decision maker organizes the
segments within an enterprise for making operating decisions and assessing
performance. The Company's results of operations are reviewed by the chief
operating decision maker on a consolidated basis and the Company operates in
only one segment. The company has presented required geographical segment data
in Note 11, and no additional segment data has been presented.
23
<PAGE> 25
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements where the fair value
is different than the book value of those financial instruments. When the fair
value approximates book value, no additional disclosure is made. The Company
uses quoted market prices whenever available to calculate these fair values.
When quoted market prices are not available, the Company uses standard pricing
models for various types of financial instruments which take into account the
present value of estimated future cash flows. At June 30, 1999, management of
the Company believes the carrying value of all financial instruments
approximated fair value.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
--------
1999 1998
(in thousands)
<S> <C> <C>
Component parts .................. $10,093 $10,200
Work-in-process .................. 4,954 4,056
Finished products ................ 6,448 11,182
------- -------
$21,495 $25,438
======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Depreciation/
June 30, amortization-
1999 1998 annual rates
(in thousands)
<S> <C> <C> <C>
Land ............................. $ 904 $ 904 --
Building ......................... 8,911 8,911 3%
Molds and dies ................... 3,180 2,819 20% to 33%
Furniture and fixtures ........... 964 912 10% to 20%
Machinery and equipment .......... 9,581 8,944 10% to 15%
Leasehold improvements ........... 56 56 Shorter of the lease
------- ------- term or life of asset
23,596 22,546
Less: Accumulated depreciation and
amortization ................... 12,316 11,055
------- -------
$11,280 $11,491
======= =======
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
approximately $1,261,000, $1,182,000 and $1,332,000 for the three years ended
June 30, 1999, respectively.
24
<PAGE> 26
4. INCOME TAXES:
In August 1995, the Internal Revenue Service (the "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 1998, the Company continued to discuss the assessment with the IRS
Appeals Office and in July 1998 received a revised audit report, that was
subject to final government administrative approval, and which reduced the
original assessment for the years covered by the IRS audit. The Company
accepted the revised audit report and the final government approval was pending
as of June 30, 1998. Accordingly, the Company determined that $900,000 of
previously recorded reserves should be reversed through the 1998 income tax
provision to reflect the expected final settlement with respect to this IRS
audit.
In fiscal 1999, the Company received the final government approval on the IRS
audit related to fiscal years 1986 through 1993. In addition, the IRS completed
its audits of fiscal years 1994 through 1997. As a result of the favorable
outcome from the audits, the Company reversed an additional $1,896,000 of
previously recorded reserves through the income tax provision in fiscal 1999.
(Benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For the Years Ended June 30,
-------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Taxes currently payable:
Federal .................................. $(2,271) $ (210) $ 340
State .................................... (4) (56) 120
------- ------- -------
(2,275) (266) 460
Taxes on DISC earnings and other ............ -- -- 156
Deferred income tax (benefit) provision ..... 350 (259) (11)
------- ------- -------
(Benefit) provision for income taxes $(1,925) $ (525) $ 605
======= ======= =======
</TABLE>
25
<PAGE> 27
The difference between the statutory U.S. Federal income tax rate and the
Company's effective tax rate as reflected in the consolidated statements of
income is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- -------------------
% 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 .................. $ 193 34% $ 514 34.0% $ 763 34.0%
Increases (decreases) in taxes resulting from:
State income taxes, net of Federal income tax
benefit ................................... (2) (0.4) 38 2.5 96 4.3
Amortization of non-deductible goodwill ..... 36 6.3 36 2.4 36 1.6
Non-taxable foreign source income ........... (362) (63.7) (257) (17.0) (382) (17.0)
Adjustment to reflect IRS settlement ........ (1,896) (333.8) (900) (59.5) -- --
Other, net .................................. 106 18.7 44 2.9 92 4.1
------- ------- ------- ------- ------- -------
(Benefit) provision for income taxes ........... $(1,925) (338.9)% $ (525) (34.7)% $ 605 27.0%
======= ======= ======= ======= ======= =======
</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
domestic income tax.
Deferred tax assets and deferred tax liabilities at June 30, 1999 and 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
Deferred Net Deferred
Deferred Tax Assets Tax Liabilities Tax Assets (Liabilities)
------------------- --------------- ------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Current:
Accounts receivable $ 255 $ 314 $ - $ - $ 255 $ 314
Inventories 392 902 - - 392 902
Accrued liabilities 93 194 - - 93 194
Other 15 29 39 147 (24) (118)
-------- -------- -------- -------- -------- ---------
755 1,439 39 147 716 1,292
Noncurrent:
Fixed assets - - 442 875 (442) (875)
-------- -------- -------- -------- -------- --------
Total deferred taxes $ 755 $ 1,439 $ 481 $ 1,022 $ 274 $ 417
======== ======== ======== ======== ======== ========
</TABLE>
As a result of the Company's U.S. operations generating income in each of the
three years in the period ended June 30, 1999, management believes it is more
likely than not that the Company will realize the benefit of the net deferred
tax assets existing at June 30, 1999 and 1998. Accordingly, the Company has not
reflected any valuation allowance against the deferred tax assets at June 30,
1999 and 1998. 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.
26
<PAGE> 28
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------
1999 1998
(in thousands)
<S> <C> <C>
Revolving credit and term loan facility (a) $ 14,513 $ 14,513
Notes payable (b) 4,161 5,798
---------- ----------
18,674 20,311
Less: Current portion 1,433 1,667
---------- ----------
$ 17,241 $ 18,644
========== ==========
</TABLE>
(a) 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 and 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. The revolving
credit agreement and the letters of credit are secured by all the accounts
receivable, inventory and certain other assets of Napco Security Systems,
Inc., a first and second mortgage on the Company's headquarters in
Amityville, New York and common stock of two of the Company's subsidiaries.
The revolving credit agreement bears interest at either the bank's prime
rate (7.75% at June 30, 1999) or an alternate rate based on LIBOR as
described in the agreement. As part of the debt restructuring, the Company
retired the outstanding Industrial Revenue Bonds relating to the financing
of the construction of the Company's Amityville, New York facility. The
revolving credit agreement will expire in November 2000 and any outstanding
borrowings are to be repaid on or before that time. 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 other certain financial ratios, as defined in the
agreement. As of June 30, 1999, the Company was in compliance with all of
these financial covenants.
(b) In November 1991, a subsidiary of the Company entered into a $4,500,000
line of credit agreement with a 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, 1999 and
1998, the amounts outstanding ($450,000 and $1,350,000, respectively) bore
interest at rates of 5.57% and 6.19%, 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. In May 1997, the Company entered into an agreement with its
primary bank to replace a previous $2,500,000 standby letter of credit
agreement which expired in February 1997 with a new $2,500,000 standby
letter of credit, as described above, for the purpose of providing
additional collateral for the line of credit agreement.
In connection with the stock purchase agreement described in Note 7, the
Company entered into a term-loan facility in May 1998 with its primary bank
for a $2,500,000 term loan. Under the terms of the note, the loan is to be
repaid in 60 equal monthly installments of $41,667, plus interest at 7.94%,
beginning on July 1, 1998.
27
<PAGE> 29
In addition, the Company issued a four-year term loan in the amount of
$1,947,880 to its former president in connection with the stock purchase
agreement. This note bears interest at 8% and calls for payments to begin
in April 1999, with a final maturity June 2003.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending June 30,
<S> <C>
2000 $ 1,433
2001 15,571
2002 1,116
2003 554
------------
$ 18,674
============
</TABLE>
6. STOCK OPTIONS:
In November 1992, the stockholders approved a 10-year extension of the already
existing 1982 Incentive Stock Option Plan (the "1992 Plan"). The 1992 Plan
authorizes the granting of awards, the exercise of which would allow up to an
aggregate of approximately 815,000 shares of the Company's common stock to be
acquired by the holders of such awards. Under the 1992 Plan, the Company may
grant stock options, which are intended to qualify as incentive stock options
("ISOs"), to key employees, officers, and employee directors. Any plan
participant who is granted ISOs and possesses more than 10% of the voting rights
of the Company's outstanding common stock must be granted an option with a price
of at least 110% of the fair market value on the date of grant and the option
must be exercised within five years from the date of grant. Under the 1992 Plan,
stock options have been granted to employees and directors for terms of up to 5
years at an exercise price equal to the fair market on the date of grant and are
exercisable in whole or in part at 20% per year from the date of grant. At June
30, 1999, 138,750 stock options granted to employees and directors were
exercisable. The Company accounts for awards granted to employees, directors and
key employees under APB Opinion No. 25, under which compensation cost is
recognized for stock options granted at an exercise price less than the market
value of the options on the grant date. Had compensation cost for all stock
option grants in fiscal years 1999, 1998 and 1997 been determined consistent
with SFAS No.
123, the Company's net income and earnings per share would have been:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
NET INCOME: As reported $ 2,493 $ 2,038 $ 1,639
Pro forma 2,279 1,901 1,629
BASIC EPS: As reported $ 0.71 $ 0.48 $ 0.38
Pro forma 0.65 0.45 0.37
DILUTED EPS: As reported $ 0.71 $ 0.48 $ 0.37
Pro forma 0.65 0.44 0.37
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to option awards
granted prior to fiscal year 1996.
28
<PAGE> 30
The following table reflects activity under the plan for the years ended:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 236,250 $3.91 75,750 $3.08 76,000 $3.02
Granted 251,600 3.12 209,000 4.11 3,250 3.59
Exercised (500) 3.88 (9,500) 2.61 (2,000) 2.25
Forfeited (35,500) 4.66 (34,500) 3.76 - -
Canceled/Lapsed (13,750) 4.28 (4,500) 2.97 (1,500) 2.25
-------- ---- ------ ------ ----
Outstanding at end of year 438,100 3.39 236,250 3.91 75,750 3.08
======= ======= ======
Exercisable at end of year 138,570 3.40 72,800 3.71 46,750 3.21
======= ====== ======
Weighted average fair value of options
granted $4.25 $3.04 $1.76
</TABLE>
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-Free Interest Rates 5.22% 6.10% 5.99%
Expected Lives 5 years 5 years 5 years
Expected Volatility 45% 46% 47%
Expected Dividend Yields 0% 0% 0%
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ------------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Range of Exercise Prices 6/30/99 Contractual Life Price 6/30/99 Price
------------------------ ------- ---------------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2.50 - $ 3.75 261,000 4.23 $2.97 72,350 $2.85
3.76 - 5.63 177,100 3.23 4.00 66,220 4.00
------- ---- ---- ------ ----
2.50 - 5.63 438,100 3.82 3.39 138,570 3.40
======= ==== ==== ======= ====
</TABLE>
Effective October 1990, the Company established a non-employee stock option plan
(the "1990 Plan") to encourage non-employee directors and consultants of the
Company to invest in the Company's stock. The 1990 Plan provides for the
granting of non-qualified stock options, the exercise of which would allow up to
an aggregate of 50,000 shares of the Company's common stock to be acquired by
the holders of the stock options. The 1990 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. The Company has adopted SFAS No. 123 to account for stock-based
compensation awards granted to non-employee consultants, under which a
compensation cost is recognized for the fair value of the options granted as of
the date of grant. As of June 30, 1999, no shares have been granted under this
plan.
29
<PAGE> 31
7. STOCK PURCHASE:
On May 28, 1998, the Company entered into a stock purchase agreement with its
former president, which called for the purchase by the Company of all the shares
of the Company's common stock held by the former president (889,576 shares) at a
price of $5 per share, in connection with the former president's retirement .
The agreement also contained a consulting and non-compete agreement for a period
of ten years each. Upon closing, $2,500,000 of the purchase price was paid to
the former president with the proceeds of the term loan discussed in Note 5 (b).
The remaining purchase price is to be paid over a 4 year period according to the
terms of a note issue to the former president. The common stock purchased is
included in treasury stock as of June 30, 1999.
8. 401(k) PLAN:
The Company maintains a 401(k) plan covering all employees with one or more
years of service. 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 $54,000, $53,000 and $47,000 for the three years ended
June 30, 1999, respectively.
9. BUSINESS AND CREDIT CONCENTRATIONS:
The Company is engaged in one major line of business - the development,
manufacture and distribution of security alarm products and door security
devices for commercial and residential use. Sales to unaffiliated customers are
primarily shipped from the United States. The Company has customers worldwide
with major concentrations in North America, Europe and South America.
Identifiable assets (net of intercompany receivables and payables) relating to
the Company's foreign subsidiaries were approximately $22,720,000 and
$18,780,000 at June 30, 1999 and 1998, respectively.
Export sales amounted to $10,713,000, $12,101,000 and $10,355,000 for the three
years ended June 30, 1999, respectively.
At June 30, 1999, the Company had two customers (Customer A and B) with accounts
receivable balances that aggregated 49% of the Company's accounts receivable. At
June 30, 1998, the Company had two customers (Customer A and C) with accounts
receivable balances that aggregated 36% of the Company's accounts receivable.
The Company had one customer that accounted for 27%, 23% and 21% of the
Company's net sales in fiscal 1999, 1998 and 1997, respectively. During the past
three fiscal years no other customer represented more than 10% of the Company's
net sales.
30
<PAGE> 32
10. COMMITMENTS AND CONTINGENCIES:
Leases
The Company is committed under various operating leases which do not extend
beyond fiscal 2001. Minimum lease payments through the expiration dates of these
leases, with the exception of the land lease referred to below, are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C> <C>
2000 $ 371
2001 165
2002 70
2003 45
Thereafter 15
</TABLE>
Rent expense totaled approximately $805,000, $866,000 and $736,000 for the three
years ended June 30, 1999, respectively.
Land Lease
On April 26, 1993, one of the Company's foreign subsidiaries entered into a 99
year lease for approximately four acres of land in the Dominican Republic, at an
annual cost of approximately $272,000, on which the Company's main production
facility is located.
Letters of Credit
At June 30, 1999, the Company was committed for approximately $576,000 under
open commercial letters of credit and steamship guarantees.
Litigation
In the normal course of business, the Company is a party to claims and/or
litigation. Management believes that the settlement of such claims and/or
litigation, considered in the aggregate, will not have a material adverse effect
on the Company's financial position and results of operations.
11. SEGMENT DATA:
As described in Note 1, effective June 30, 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
While the company's results of operations are primarily reviewed on a
consolidated basis, the chief operating decision maker also manages the
enterprise in two geographic segments: (i) United States (ii) Foreign. The
following represents selected consolidated financial information for the
Company's segments for the fiscal years ended June 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $50,573 50,269 53,302
Foreign (see Note 9) 0 0 0
Identifiable assets:
United States 33,067 39,783 41,242
Foreign 22,720 18,780 16,002
</TABLE>
31
<PAGE> 33
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30
-------------
ASSETS 1999 1998
- ------ ---- ----
(in thousands)
<S> <C> <C>
CASH ...................................... $ 1,452 $ 1,825
ACCOUNTS RECEIVABLE, net .................. 13,311 12,905
INVENTORIES ............................... 6,583 12,656
PREPAID EXPENSES AND OTHER CURRENT ASSETS . 489 533
DEFERRED INCOME TAXES ..................... 716 1,292
------- -------
Total current assets .... 22,551 29,211
INVESTMENT IN SUBSIDIARIES, on equity basis 29,495 25,102
PROPERTY, PLANT AND EQUIPMENT, net ........ 5,777 5,744
OTHER ASSETS .............................. 214 146
------- -------
$58,037 $60,203
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES ....................... $ 5,665 $ 8,917
DUE TO SUBSIDIARIES ....................... 3,361 3,384
LONG-TERM DEBT ............................ 17,241 18,194
DEFERRED INCOME TAXES ..................... 442 875
------- -------
Total liabilities ....... 26,709 31,370
STOCKHOLDERS' EQUITY ...................... 31,328 28,833
------- -------
$58,037 $60,203
======= =======
</TABLE>
This schedule should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
32
<PAGE> 34
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended June 30,
---------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
NET SALES ................................................... $ 35,733 $ 41,610 $ 43,921
COST OF SALES ............................................... 26,325 32,022 33,733
-------- -------- --------
Gross profit ..................................... 9,408 9,588 10,188
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .................................................. 7,741 7,934 7,826
-------- -------- --------
Operating income ................................. 1,667 1,654 2,362
EQUITY IN EARNINGS OF SUBSIDIARIES .......................... 284 757 1,122
OTHER EXPENSE, net .......................................... (1,383) (898) (1,240)
-------- -------- --------
Income before (benefit) provision for income taxes 568 1,513 2,244
(BENEFIT) PROVISION FOR INCOME TAXES ........................ (1,925) (525) 605
-------- -------- --------
Net income ....................................... $ 2,493 $ 2,038 $ 1,639
======== ======== ========
</TABLE>
This schedule should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
33
<PAGE> 35
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 at End of
Description of Period Expenses Deductions (1) Period
----------- --------- -------- -------------- ------
<S> <C> <C> <C> <C>
For the year ended June 30, 1997:
Allowance for doubtful accounts (deducted from accounts
receivable) $ 864 $ 55 $ 114 $ 805
======= ======= ======= =======
For the year ended June 30, 1998:
Allowance for doubtful accounts (deducted from accounts
receivable) $ 805 $ 50 $ 100 $ 755
======= ======= ======= =======
For the year ended June 30, 1999:
Allowance for doubtful accounts (deducted from accounts
receivable) $ 755 $ 230 $ 98 $ 887
======= ======= ======= =======
</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.
34
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
35
<PAGE> 37
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 1999 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 1999 fiscal year, and, accordingly,
items 10, 11, 12 and 13 are omitted pursuant to General Instruction G(3).
36
<PAGE> 38
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, 1999 and 1998 and for each of the
3 Years in the Period Ended June 30, 1999............................................................... 16
Consolidated Balance Sheets as of
June 30, 1999 and 1998.................................................................................. 17
Consolidated Statements of Income for the Years
Ended June 30, 1999, 1998 and 1997...................................................................... 18
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1999, 1998
and 1997................................................................................................ 19
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1999, 1998 and 1997................................................................ 20
Notes to Consolidated Financial Statements,
June 30, 1999, 1998 and 1997............................................................................ 21
</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>
I: Condensed Financial Information
on Parent Company.................................................................................. 32
II: Valuation and Qualifying Accounts.................................................................. 34
</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.
37
<PAGE> 39
(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) Amended and Restated By-Laws - August 9, 1999......................... E-1
Ex-10.A Amended and Restated 1992 Incentive
Stock Option Plan ................................................... E-17
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
Ex-10.E 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.F Credit Agreement dated November 8,
1991 between N.S.S. Caribe S.A. and
Citibank, N.A......................................................... Exhibit 10-j
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit
No. Title
--- -----
<S> <C> <C>
to Report on Form 10-K for fiscal year
ended June 30, 1992
Ex-10.G Construction Contract dated June 5,
1993.................................................................. Exhibit 10-l
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.H First Amendment dated as of November 5,
1993 to Credit Agreement dated as of
November 8, 1991 with Citibank, N.A................................... Exhibit 10-0
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.I Loan and Security Agreement with
Marine Midland Bank dated as of
May 12, 1997.......................................................... Exhibit 10.I to Rpt. On Form 10K for
fiscal year ended June 30, 1997
Ex-10.J Revolving Credit Note #1 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.J to
Report on Form 10-K for Fiscal year
ended June 30, 1997
Ex-10.K Revolving Credit Note #2 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.K to
Report on Form 10-K for fiscal year
ended June 30, 1997
Ex-10.L Promissory Note to Marine Midland Bank
dated as of May 12, 1997.............................................. Exhibit 10-L to
Report on Form 10-K for fiscal year
ended June 30, 1997
Ex-10.G Construction Contract dated June 5,
1993.................................................................. Exhibit 10-l
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.H First Amendment dated as of November 5,
1993 to Credit Agreement dated as of
November 8, 1991 with Citibank, N.A................................... Exhibit 10-0
to Report on Form 10-K for fiscal year
ended June 30, 1993
Ex-10.I Loan and Security Agreement with
Marine Midland Bank dated as of
May 12, 1997.......................................................... Exhibit 10.I to Rpt. On Form 10K for
fiscal year ended June 30, 1997
Ex-10.J Revolving Credit Note #1 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.J to
Report on Form 10-K for Fiscal year
ended June 30, 1997
Ex-10.K Revolving Credit Note #2 to Marine
Midland Bank dated as of May 12, 1997................................. Exhibit 10.K to
Report on Form 10-K for fiscal year
ended June 30, 1997
Ex-10.L Promissory Note to Marine Midland Bank
dated as of May 12, 1997.............................................. Exhibit 10-L to
Report on Form 10-K for fiscal year
ended June 30, 1997
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C> <C>
Ex-10.M Amendment No. 1 to the Loan and Security
Agreement with Marine Midland Bank
dated as of May 28, 1998.................................... Exhibit 10-M to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex.-10.N Term Loan Note to Marine Midland Bank dated as of
May 28, 1998................................................ Exhibit
10-N to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex-10.0 Promissory Note to Kenneth Rosenberg dated as of
May 28, 1998................................................ Exhibit 10-O to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex-10.P Consulting Agreement with Kenneth Rosenberg
dated as of May 28, 1998....................................... Exhibit 10-P to Report
in Form 10-K for
fiscal year ended
June 30, 1998.
Ex-10.Q Employment Agreement with Richard Soloway .......... Exhibit 10.Q to Report
in Form 10-Q for
period ended
March 31, 1999.
Ex-10.R Employment Agreement with Jorge Hevia ............... Exhibit 10-R to Report
in Form 10-Q for
period ended
March 31, 1999.
Ex-10.S Amendment No. 2 to the Loan and Security
Agreement with HSBC Bank
dated as of June 30, 1999............................................ E-26
Ex-10.T Indemnification Agreement dated August 9, 1999 ...................... E-29
Ex-11 Computation of earnings per share ................................... E-33
Ex-12 Computation of ratios ............................................... E-34
Ex-21 Subsidiaries of the Registrant ...................................... E-35
</TABLE>
40
<PAGE> 42
<TABLE>
<S> <C> <C>
Ex-23 Consent of Independent Public Accountants............................ E-36
Ex-27 Financial Data Schedule.............................................. E-37
</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, 1999.
41
<PAGE> 43
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.
September 28, 1999
NAPCO SECURITY SYSTEMS, INC.
(Registrant)
<TABLE>
<S> <C>
By: /s/ RICHARD SOLOWAY By: /s/ KEVIN S. BUCHEL
Richard Soloway Kevin S. Buchel
Chairman of the Board of Senior Vice President of
Directors, President and Secretary Operations and Finance and Treasurer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
</TABLE>
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
- ----------------------------- Board of Directors September 28, 1999
Richard Soloway
/s/ KEVIN S. BUCHEL
- -----------------------------
Kevin S. Buchel Director September 28, 1999
/s/ RANDY B. BLAUSTEIN
- -----------------------------
Randy B. Blaustein Director September 28, 1999
/s/ ANDREW J. WILDER
- -----------------------------
Andrew J. Wilder Director September 28, 1999
</TABLE>
42
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
Ex-3(ii) Amended and Restated By-Laws - August 9, 1999....................................... E-1
Ex-10.A Amended and Restated 1992 Incentive Stock Option Plan............................... E-17
Ex-10.S Amendment No. 2 to the Loan and Security Agreement with HSBC Bank
dated as of June 30, 1999........................................................... E-26
Ex-10.T Indemnification Agreement dated August 9, 1999...................................... E-29
Ex-11 Computation of earnings per share................................................... E-33
Ex-12 Computation of ratios............................................................... E-34
Ex-21 Subsidiaries of the Registrant...................................................... E-35
Ex-23 Consent of Independent Public Accountants........................................... E-36
Ex-27 Financial Data Schedule............................................................. E-37
</TABLE>
<PAGE> 1
EX-3(ii)
NAPCO SECURITY SYSTEMS, INC.
BY-LAWS
Amended and Restated Effective August 9, 1999
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the
stockholders of NAPCO SECURITY SYSTEMS, INC. (the "Corporation") for the
election of directors and for the transaction of such other business as may come
before the meeting shall be held at 10:00 a.m. on the fourth Wednesday in
November in each year or at such other hour or on such other day within five
months after the end of each fiscal year of the Corporation as the Board of
Directors of the Corporation (the "Board") may order or at such other time as
the Board may determine.
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Board, the Chairman of the Board or the President.
Section 3. Notice of Meetings. Notice of the place, date and
time of the holding of each annual and special meeting of the stockholders and
the purpose or purposes thereof shall be given personally or by mail in a
postage prepaid envelope to each stockholder entitled to vote at such meeting,
not less than ten nor more than fifty days before the date of such meeting. If
mailed, it shall be deposited in the mails within the above-mentioned period and
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Except as may otherwise
be required by applicable law, notice of any meeting of stockholders shall not
be required to be given to any stockholder who shall attend such meeting in
person or by proxy and shall not, at the beginning of such meeting, object to
the transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. In the case of an adjourned meeting,
unless the Board shall fix after the adjournment a new record date, notice of
such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 4. Place of Meetings. Meetings of the stockholders may
be held at such place, within or without the State of Delaware, as the Board or
the officer calling the same shall specify in the notice of such meeting, or in
a duly executed waiver of notice thereof.
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Section 5. Quorum. At all meetings of the stockholders, the
holders of a majority of the shares of stock of the Corporation issued and
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business, except as otherwise
provided by statute or in the Certificate of Incorporation and except when
stockholders are required to vote by class, in which event a majority of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy. In the absence of a quorum, the holders of a majority of the
shares of stock present in person or by proxy and entitled to vote, or if no
stockholder entitled to vote is present, then any officer of the Corporation,
may adjourn the meeting from time to time. At any such adjourned meeting at
which a quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders,
the Chairman of the Board or the President, or in their absence of inability to
act, a Vice President, or in the absence of any Vice President, any person
chosen by a majority of those stockholders present shall act as chairman of the
meeting. The Secretary, or, in his absence or inability to act, the Assistant
Secretary or any person appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
Section 8. Voting. Except as otherwise provided by statute,
the Certificate of Incorporation or any certificate duly filed in the State of
Delaware pursuant to Section 151 of the Delaware General Corporation Law, each
holder of record of shares of stock of the Corporation having voter power shall
be entitled to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation on the date fixed by the Board as
the record date for the determination of the stockholders who shall be entitled
to notice of and to vote at such meeting; or if such record date shall not have
been so fixed, then at the close of business on the day next prevailing the day
on which notice thereof shall be given, or if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. Each
stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact. Any such proxy shall be delivered to the secretary of
such meeting at or prior to the time designated in the order of business for so
delivering such proxies. No proxy shall be valid after the expiration of three
years from the date thereof, unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the stockholder executing it, except in
those cases where an irrevocable proxy is permitted by law. Except as otherwise
provided by statute, these By-Laws or the Certificate of Incorporation, any
corporate action to be taken by vote of the stockholders shall be authorized by
a majority of the total votes, or when stockholders are required to vote by
class by a majority of the votes of the appropriate class, cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and entitled to vote on such action. Unless required by statute, or determined
by the chairman of the meeting to be advisable, the vote on any question need
not be by written ballot. On a vote by written ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
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Section 9. List of Stockholders. The officer or duly
authorized transfer agent who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any stockholder entitled to vote thereat shall appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the validity and effect of proxies, and they shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors may, but need not, be stockholders.
Section 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
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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 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
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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 so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by the Board. The Board may exercise all such
authority and powers of the Corporation and do all such lawful acts and things
as are not by statute or the Certificate of Incorporation directed or required
to be exercised or done by the stockholders.
Section 2. Number, Qualifications, Election and Term of
Office. The number and term of office of directors shall be as set forth in the
Certificate of Incorporation, as amended. All directors shall be of full age.
Directors need not be stockholders. Except as otherwise provided by statute, the
Certificate of Incorporation, or these By-Laws, the directors shall be elected
at the annual meeting of stockholders for the election of directors at which a
quorum is present and the persons receiving a plurality of the votes cast at
such election shall be elected.
Section 3. Place of Meetings. Meetings of the Board may be
held at such place, within or without the State of Delaware, as the Board may
from time to time determine or as shall be specified in the notice or waiver of
notice of such meeting.
Section 4. First Meeting. The Board shall meet for the purpose
of organization, the election of officers and the transaction of other business,
as soon as practicable after each annual meeting of the stockholders, on the
same day and at the same place where such annual meeting shall be held. Notice
of such meeting need not be given. Such meeting may be held at any other time or
place (within or without the State of Delaware) which shall be specified in a
notice thereof given as hereinafter provided in Section 7 of this Article II.
Section 5. Regular Meetings. Regular meetings of the Board
shall be held at such time and place as the Board may from time to time
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day. Notice of regular meetings of the Board need not be
given except as otherwise required by statute or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board may
be called by two or more directors of the Corporation, by the Chairman of the
Board or by the President.
Section 7. Notice of Meetings. Notice of each special meeting
of the Board (and or each regular meeting for which notice shall be required)
shall be given by the Secretary as
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hereinafter provided in this Section 7, in which notice shall be stated the time
and place (within or without the State of Delaware) of the meeting. Notice of
each such meeting shall be delivered to each director either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held or by first-class mail, postage
prepaid, addressed to him at his residence, or usual place of business, at least
three days before the day on which such meeting is to be held. Notice of any
such meeting need not be given to any director who shall, either before or after
the meeting, submit a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
Except as otherwise specifically required by these By-Laws, a notice or waiver
of notice of any regular or special meeting need not state the purposes of such
meeting.
Section 8. Quorum and Manner of Acting. A majority of the
entire Board shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at such meeting, and, except
as otherwise expressly required by statute or the Certificate of Incorporation,
the act of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board. In the absence of a quorum at any
meeting of the Board, a majority of the directors present thereat, or if no
director be present, the Secretary, may adjourn such meeting to another time and
place, or such meeting, unless it be the first meeting of the Board, need not be
held. At any adjourned meeting at which a quorum is present, any business may be
transacted at the meeting as originally called. Except as provided in Article
III of these By-Laws, the directors shall act only as a Board and the individual
directors shall have no power as such.
Section 9. Organization. At each meeting of the Board, the
Chairman of the Board or the President (or, in their absence or inability to
act, a director chosen by a majority of the directors present) shall act as
chairman of the meeting and preside thereat. The Secretary (or, in his absence
or inability to act, any person appointed by the chairman) shall act as
secretary of the meeting and keep the minutes thereof.
Section 10. Resignations. Any Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 11. Vacancies. Vacancies may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office as provided in
the Certificate of Incorporation of the Corporation. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any holder or holders of at least ten
percent of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office. Except as otherwise provided in
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the Certificate of Incorporation of the Corporation or these By-Laws, when one
or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in this section in the filling
of other vacancies.
Section 12. Removal of Directors. Except as otherwise provided
in the Certificate of Incorporation or in these By-Laws, any director may be
removed, either with or without cause, at any time, by the affirmative vote of
the holders of a majority of the issued and outstanding shares entitled to vote
for the election of directors of the Corporation given at a special meeting of
the stockholders - called and held for the purpose; and the vacancy in the Board
caused by any such removal may be filled by such stockholders at such meeting,
or, if the stockholders shall fail to fill such vacancy, as in these By-Laws
provided.
Section 13. Compensation. The Board shall have authority to
fix the compensation, including fees and reimbursement of expenses; of directors
for services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 14. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if all members of the Board of committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 15. Action by Conference Telephone. Members of the
Board or any committee may participate in a meeting of such Board or committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in such meeting may hear each other, and such
participation shall constitute presence in person at such meeting.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Board may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution, shall have and may exercise
the powers of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may
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require it; provided, however, that no committee shall have power or authority
to amend the Certificate of Incorporation, adopt an agreement of merger or
consolidation, recommend to the stockholders a dissolution of the Corporation or
a revocation of a dissolution, or amend these By-Laws. No committee shall have
the power and authority to declare a dividend or authorize the issuance of stock
of the Corporation. Each committee shall keep written minutes of its proceedings
and shall report such minutes to the Board when required. All such proceedings
shall be subject to revision or alteration by the Board; provided, however, that
third parties shall not be prejudiced by such revision or alteration.
Section 2. General. A majority of any committee may determine
its action and fix the time and place of its meetings, unless the Board shall
otherwise provide. Notice of such meetings shall be given to each member of the
committee in the manner provided for in Article II, Section 7. The Board shall
have any power at any time to fill vacancies in, to change the membership of, or
to dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part of
persons who are not directors of the Corporation; provided, however, that no
such committee shall have or exercise any authority of the Board.
Section 3. Audit Committee. The Board of Directors may appoint
from among its members an Audit Committee of not less than three members, and
shall designate one of such members as Chairman.
The responsibilities of the Audit Committee shall be limited
to the following:
(a) To recommend to the Board of Directors for engagement a
firm of independent certified public accountants, hereinafter called the "Firm",
to audit the accounts of the Corporation, and its subsidiaries for the year
regarding which the Firm is engaged.
(b) To meet jointly and/or separately with the Chief Financial
Officer of the Corporation and the Firm before commencement of the audit (1) to
discuss evaluation by the Firm of the adequacy and effectiveness of the
accounting procedures and internal controls of the Corporation and its
subsidiaries, (ii) to approve the overall scope of the audit to be made and the
fees to be charged, and (iii) to inquire and discuss with the Firm recent
Financial Accounting Standards Board, Securities and Exchange Commission or
other regulatory agency pronouncements, if any, which might effect the
Corporation's financial statements.
(c) The meet jointly and/or separately with the Chief
Financial Officer and the Firm at the conclusion of the audit; (i) to read and
discuss the audited financial statements of the Corporation, (ii) to discuss any
significant recommendations by the Firm for improvement of accounting systems
and internal controls of the Corporation, and (iii) to discuss the quality and
depth of staffing in the accounting and financial departments of the
Corporation.
(d) To meet and confer with such officers and employees of the
Corporation as the Audit Committee shall deem appropriate in connection with
carrying out the foregoing responsibilities.
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ARTICLE IV
OFFICERS
Section 1. Number and Qualifications. The officers of the
Corporation shall include the Chairman of the Board, President, one or more Vice
Presidents (one or more of whom may be designated Executive Vice President or
Senior Vice President), the Treasurer, and the Secretary. Any two or more
offices may be held by the same person. Such officers shall be elected from time
to time by the Board, each to hold office until the meeting of the Board
following the next annual meeting of the stockholders, or until his successor
shall have been duly elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws. The Board may from time to time elect, or the Chairman of the
Board or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers), and
such agents, as may be necessary or desirable for the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President, or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein; immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal. Any officer or agent of the Corporation
may be removed, either with or without cause, at any time, by the vote of the
majority of the entire Board at any meeting of the Board or, except in the case
of an officer or agent elected or appointed by the Board, by the Chairman of the
Board or the President. Such removal shall be without prejudice of the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Chairman of the Board. The Chairman of the Board
shall be an executive officer of the Corporation. He shall perform all duties
incident to the office of Chairman of the Board and such other duties as may
from time to time be assigned to him by the Board.
Section 6. The President. The President shall be an executive
officer of the Corporation. He shall perform all duties incident to the office
of President and such other duties as from time to time may be assigned to him
by the Board.
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Section 7. Vice Presidents. Each Executive Vice President,
each Senior Vice President and each Vice President shall have such powers and
perform all such duties as from time to time may be assigned to him by the
Chairman of the Board, the President, or the Board of Directors.
Section 8. The Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
establish and maintain internal accounting controls, and, in cooperation with
the independent public accountants selected by the Board, shall supervise
internal auditing.
The Treasurer shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursement, and shall render to the Chairman of the
Board, the President and the Board of Directors, at regular meetings of the
Board or when the Board of Directors, the Chairman of the Board or the President
so requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. He may delegate all or some of the above
duties at any time.
Section 9. The Assistant Treasurer. The Assistant Treasurer
or, if there shall be more than one (1), the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer, or in
the event of his inability or refusal to act, perform the duties and exercise
the power of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors, the Chairman of the Board or the
President may from time to time prescribe.
Section 10. The Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholder and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors, the Chairman of the Board or the President, under whose
supervision he shall be. The Secretary shall have custody of the corporate seal
of the Corporation and the Secretary or an Assistant Secretary shall have
authority to affix the seal to any instrument requiring it and when so affixed,
it may be attested by the signature of the Secretary or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall also have the powers and duties of the
Treasurer if for any reason the Corporation has no Treasurer. He may delegate
all or some of the duties at any time.
Section 11. The Assistant Secretary. The Assistant Secretary,
or if there be more than one, the Assistant Secretaries, in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the event
of the Secretary's inability or refusal to act, perform the duties and
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exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
Section 12. Officers' Bonds or Other Security. If required by
the Board, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
or sureties as the Board may require.
Section 13. Compensation. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board; provided, however, that the Board may delegate to the
Chairman of the Board or the President the power to fix the compensation of
officers and agents appointed by the Chairman of the Board or the President, as
the case may be. An officer of the Corporation shall not be prevented from
receiving compensation by reason of the fact that he is also a director of the
Corporation, but any such officer who shall also be a director shall not have
any vote in the determination of the amount of compensation paid to him.
ARTICLE V
INDEMNIFICATION
(a) To the extent not prohibited by law, the Corporation shall
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or is or was serving in any capacity at the request
of the Corporation for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees and disbursements). Persons who
are not Directors or officers of the Corporation may be similarly indemnified in
respect of service to the Corporation or to an Other Entity at the request of
the Corporation to the extent the Board at any time specifies that such persons
are entitled to the benefits of this Article V.
(b) The Corporation shall, from time to time, reimburse or
advance to any Director or officer or other person entitled to indemnification
hereunder the funds necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that if required by the
Delaware General Corporation Law, such expenses incurred by or on behalf of any
Director of officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
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(c) The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other right to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Certificate of Incorporation,
these By-laws of the Corporation, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
(d) The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article V
shall continue as to a person who has ceased to be a Director or officer (or
other person indemnified hereunder) and shall inure to the benefit of the
executors, administrators, legatees and distributees of such person.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts. Except as otherwise
required by statute, the Certificate of Incorporation or these By-Laws, any
contracts or other instruments may be executed and delivered in the name and on
behalf of the Corporation by such officer or officers (including any assistant
officer) of the Corporation as the Board may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. Unless authorized by the Board or expressly permitted by these
By-Laws, an officer or agent or employee shall not have any power or authority
to bind the Corporation by any contract or engagement or to pledge its credit or
to render it pecuniarily liable for any purpose or to any amount.
Section 2. Loans. Unless the Board shall otherwise determine,
either (a) the Chairman of the Board or the President, each singly, or (b) a
Vice President, together with the Treasurer, or Secretary, may effect loans and
advances at any time for the Corporation from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, but no officer or
officers shall mortgage, pledge, hypothecate or transfer any securities or other
property of the Corporation, except when authorized by the Board.
Section 3. Checks, Drafts etc. All checks, drafts, bills of
exchange or other orders for the payment of money out of the funds of the
Corporation, and all notes or other evidences of indebtedness of the
Corporation, shall be signed in the name and on behalf of the Corporation by
such persons and in such manner as shall from time to time be authorized by the
Board.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
may from time to time designate or as may be designated by any
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officer of officers of the Corporation to whom such power of designation may
from time to time be delegated by the board. For the purpose of deposit and for
the purpose of collection for the account of the Corporation, checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation, or in such other manner as the Board may determine by
resolution.
Section 5. General and Special Bank Accounts. The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these By-Laws, as it
may deem expedient.
Section 6. Proxies in Respect of Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board, the
Chairman of the Board, the President, or a Vice President may, from time to
time, in the name and on behalf of the Corporation (a) cast the votes which the
Corporation may be entitled to cast as the holder of stock or other securities
in any other corporation any of whose stock or other securities may be held by
the Corporation, at meetings of the holders of the stock or other securities of
such other corporation, or consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises, and (b) appoint an attorney or attorneys or
agent or agents, of the Corporation, to take any of such actions and instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent.
ARTICLE VII
SHARES, ETC.
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board, certifying the number of shares of stock of the
Corporation owned by him. The certificates representing shares of stock shall be
signed in the name of the Corporation by the Chairman of the Board, the
President, or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed); provided,
however, that where any such certificate is countersigned by a transfer agent
other than the Corporation or its employee, or is registered by a registrar
other than the Corporation or one of its employees, any other signature on such
certificates may be facsimiles, engraved or printed. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile signature
has been placed upon such certificates no longer holds such office, the shares
may nevertheless be issued by the Corporation with the same effect as if such
officer were still in office at the date of their issue.
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Section 2. Books of Account and Record of Stockholders. The
books and records of the Corporation may be kept at such places, within or
without the State of Delaware as the Board may from time to time determine. The
stock record books and the blank stock certificate books shall be kept by the
Secretary or by any other officer or agent designated by the Board.
Section 3. Transfer of Shares. Transfer of shares of stock of
the Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation may hold any such stockholder of
record liable for calls and assessments and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof. Whenever any transfer of shares shall be made for
collateral security and not absolutely, and both the transferor and transferee
request the Corporation to do so, such fact shall be stated in the entry of the
transfer.
Section 4. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. The Board may appoint, or authorize any
officer or officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all certificates for
shares of stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed, or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties as the Board in its
absolute discretion shall determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate, or the issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Delaware.
Section 6. Stockholder's Right of Inspection. Any stockholder
of record of the Corporation in person or by attorney or other agent, shall upon
written demand under oath stating the purpose thereof, have the right during the
usual hours of business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably
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related to such person's interest as a stockholder. In every instance where an
attorney or other agent shall be the person who seeks the right to inspection,
the demand under oath shall be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 7. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VIII
OFFICES
Section 1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be at No. 100 West Tenth Street, in
the City of Wilmington, in the County of New Castle. The name of the resident
agent in charge thereof shall be The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board shall from time to
time determine or the business of the Corporation may require.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the
Board.
ARTICLE X
SEAL
The Board shall provide a corporate seal, which shall be in
the form of the name of the Corporation, the year of its incorporation, and the
words "Corporate Seal, Delaware."
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ARTICLE XI
AMENDMENTS
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.
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EX-10.A
NAPCO SECURITY SYSTEMS, INC.
AMENDED AND RESTATED
1992 INCENTIVE STOCK OPTION PLAN
(Extended 1982 Incentive Stock Option Plan)
1. Purpose of the Plan. This 1992 Incentive Stock Option Plan (hereinafter
referred to as the "Plan"), constituting a ten-year extension of the 1982
Incentive Stock Option Plan, is intended to encourage ownership of stock of
Napco Security Systems, Inc. (hereinafter referred to as the "Corporation") by
key employees of the Corporation and its subsidiaries, if any, and to provide
additional incentive for them to promote the success of the business. As used in
the Plan the term "subsidiary" shall have the same meaning as the term
"subsidiary corporation" defined in Section 425(f) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Scope of the Plan. An aggregate of Eight Hundred Fifteen Thousand Nine
Hundred Thirty-Three (815,933) shares (representing Seven Hundred Twenty-seven
Thousand Nine Hundred Thirty-three (727,933) shares for future options and
Eighty-Eight Thousand (88,000) shares for outstanding options) of the
Corporation's Common Stock, par value $.01 per share (hereinafter referred to as
"Common Stock"), shall be available and reserved for issue under the Plan
subject, however, to the provisions of Section 12 hereof. If an option should
expire or terminate for any reason without having been exercised in full, the
unpurchased shares that were subject thereto shall, unless the Plan shall have
terminated, become available for other options under the Plan. Common Stock
shall not be issued in respect of an option granted under the Plan unless the
exercise of such option and the issuance and delivery of shares of Common Stock
pursuant thereto shall comply with all relevant provisions of law, including the
Securities Act of
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1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations thereunder, and the requirements of any stock exchange upon which
the Common Stock may then be listed, and shall be further subject to the
approval of the Corporation's counsel with respect to such compliance.
3. Administration of the Plan. The Plan shall be administered by the Board
of Directors or a Stock Option Committee (hereinafter sometimes referred to as
the "Committee") of the Board of Directors of the Corporation. Directors of the
Corporation who are either eligible for options or to whom options have been
granted may vote on any matters affecting the administration of the Plan or the
granting of options under the Plan; provided, however, that no option may be
granted to a director under the Plan except by:
(a) The Committee at a meeting at which a majority of its members are
disinterested persons; or
(b) The Board of Directors at a meeting at which the majority of
directors present and a majority of the directors voting on a grant,
are disinterested persons.
For purposes of this Section 3, a "disinterested person" is a person who,
at a given meeting of the Committee or the Board of Directors, is not being
considered to receive a grant of stock options under the Plan or any other stock
option plan of the Corporation or its subsidiaries.
Without limiting the generality of the foregoing, the Board of Directors
shall have full and final authority in its discretion, but subject to the
express provisions of the Plan, to determine the fair market value of the Common
Stock covered by each option; to select the key employees of the Corporation and
its subsidiaries to whom, and the time or times at which, options shall be
granted; to determine the manner in which options may be exercised; to determine
the number of shares to be covered by each option and the consideration, if any,
to flow to the Corporation for each option; to interpret the Plan; to prescribe,
amend, and rescind rules and regulations relating
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to the Plan; to determine the terms and provisions of each option granted under
the Plan (which need not be identical); to accelerate any exercise date of any
option; to waive restrictions imposed with respect to the transferability of
stock acquired on exercise of options granted under the Plan; to cancel an
option previously granted to an optionee and issue a new option to such optionee
at a lower price, provided that such optionee's consent is first obtained; to
authorize any person to execute on behalf of the Corporation an option agreement
with respect to an option previously granted by the Board of Directors; and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
4. Eligibility. Options may be granted only to valued employees (including
officers and directors who are employees) of the Corporation or any subsidiary;
provided, however, that no option shall be granted hereunder to any person in
whose hands such option is not an "incentive stock option" within the meaning of
Section 422 of the Code by reason of the stock ownership test set forth in
Section 422(b)(6) of the Code. However, options may be granted to such persons
under the Plan if such options would qualify as incentive stock options by
virtue of meeting the option price and term requirements set forth in Section
422(c)(5) of the Code. In selecting the individuals to whom options shall be
granted, as well as in determining the number of shares subject to each option,
the Board of Directors may take into consideration the recommendation of the
members of the Board of Directors who are also employees of the Corporation or a
subsidiary and such factors as it shall deem relevant in connection with
accomplishing the purposes of the Plan. An individual who has been granted an
option may, if he is otherwise eligible, be granted an additional option or
options.
5. Option Price. The purchase price to be paid for Common Stock transferred
pursuant to the exercise of any option granted under the Plan shall be not less
than the fair market value of
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such stock on the date the option is granted as provided in Section 14 hereof
(but in no event less than the par value of the Common Stock), and shall not
thereafter be subject to reduction except as provided in Section 12 hereof;
provided, however, that the purchase price to be paid for Common Stock issued
pursuant to an option granted to an individual who, at the time of grant, owns
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or its subsidiaries, as described in Section
422(b)(6) of the Code, shall, as provided by Section 422(c)(5) of the Code, be
not less than 110% of the fair market value of the Common Stock. For purposes of
the Plan the fair market value of the Common Stock on any date shall be
determined by the Board of Directors. The proceeds of sale of Common Stock
subject to option are to be added to the general funds of the Corporation and
used for such corporate purposes as the Board of Directors may determine.
6. Term of Options. The term of each option granted under the Plan shall be
not more than five years from the date of the granting thereof, subject to its
earlier termination as hereinafter provided.
7. Non-Transferability of Options. An option granted under the Plan shall
by its terms not be transferable and an option may be exercised, during the
lifetime of the holder of the option, only by such holder. More particularly,
but without limiting the generality of the foregoing, an option may not be
assigned, transferred, pledged, or hypothecated in any way (whether by operation
of law or otherwise), and will not be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of any option contrary to the provisions of the Plan, and any
levy of any attachment or similar process upon an option will be null and void
and without effect, and the Board of Directors may, in its discretion, upon the
happening of any such event, terminate an option forthwith.
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8. Annual Limitation on Options Granted. To the extent that the aggregate
fair market value of stock with respect to which incentive stock options
(determined without regard to this subsection) are exercisable for the first
time by any individual during any calendar year (under all plans of the
individual's employer corporation and its parent and subsidiary corporations)
exceeds One Hundred Thousand ($100,000) Dollars, such options shall be treated
as options which are not incentive stock options.
9. Exercise of Options. Except as hereinafter provided in this Section 9
and in Sections 3 and 11, options may be exercised within the year of grant (as
the Board of Directors, in its discretion, shall determine) with respect to no
more than twenty percent (20%) of the total number of shares of Common Stock
subject to such grant. Thereafter, during each succeeding year beginning on an
anniversary date, options with respect to an additional twenty percent (20%) of
the total number of shares subject to a grant may be exercised. However, no
option shall be exercisable after the expiration of the term thereof as provided
in Section 6. Moreover, an option shall not be exercisable unless the holder
thereof shall, at the time of exercise, be an employee of the Corporation or a
subsidiary.
Notwithstanding anything herein to the contrary, to the extent that the
Corporation has entered into a written employment agreement with the holder of
the option and such agreement provides that such options will vest upon a
"change in control" of the Corporation (as defined in such agreement), such
holder's options will vest and become immediately exercisable in full upon such
a change in control.
The purchase price of any shares as to which an option shall be exercised
shall be paid in full at the time of exercise. The holder of an option shall not
have any of the rights of a stockholder with respect to the shares covered by
his option until such shares shall have been
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issued to him (as evidenced by the appropriate entry on the books of a duly
authorized transfer agent of the Corporation) upon the purchase of such shares
upon exercise of the option.
10. Consideration. The Board of Directors shall determine the nature of the
consideration flowing to the Corporation in respect of each option granted under
the Plan as well as the conditions, if any, which it may deem appropriate to
assure that such consideration shall be received by, or shall accrue to, the
Corporation. The consideration specified in any option may be different from the
consideration specified in any other option, whether granted at the same or a
different time.
11. Exercise Upon Cessation of Relationship With Corporation. The right of
a holder of an option to exercise such option shall terminate immediately upon
voluntary termination of service as an employee or dismissal, disability,
retirement, death or otherwise. Option agreements may contain such provisions as
the Board of Directors shall approve with reference to the effect of approved
leaves of absence, provided, however, that all options shall terminate not more
than five years after the date of grant.
12. Adjustments. Options granted under the Plan shall contain such uniform
provisions as the Board of Directors shall, in its sole judgment, determine for
adjustment of the number and class of shares covered thereby, or of the option
prices (but not below the par value of the Common Stock), or both, to reflect a
stock dividend, stock split-up, share combination, exchange of shares,
recapitalization, merger, consolidation, acquisition or disposition of property
or shares, reorganization, liquidation, or other similar changes or
transactions, of or by the Corporation. In any such event the aggregate number
and class of shares available for issuance under the Plan shall be appropriately
adjusted and all the provisions of the Plan with respect to the number and class
of shares so available shall likewise be adjusted.
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13. Effectiveness of the Plan. The Plan shall become effective on October
8, 1992, but shall be subject to approval by the holders of Common Stock at a
meeting of stockholders of the Corporation duly called and held no later than
twelve months after the date of adoption of the Plan by the Board of Directors.
14. Time of Granting Options. The date of grant of an option under the Plan
shall, for all purposes, be the date on which the Board of Directors makes the
determination granting such option; and no grant shall be deemed effective under
the Plan prior to such date. Notice of the determination shall be given to each
employee to whom an option is so granted within a reasonable time after the date
of such grant.
15. Termination and Amendment of the Plan. The Plan shall terminate ten
(10) years from the date on which it is adopted by the Board of Directors or the
date on which it is approved by the stockholders, whichever is earlier. Prior
thereto, the Board of Directors may terminate the Plan at any time; provided,
however, that any such termination shall not affect any options then outstanding
under the Plan. No options under the Plan may be granted after termination of
the Plan.
The Board of Directors from time to time may make such modifications or
amendments of the Plan and, with the consent of the holder of an option, of the
terms and conditions of his option, as it shall deem advisable, but may not,
without further approval of the stockholders of the Corporation, except as
provided in Section 12 hereof (a) increase the maximum number of shares which
shall be available and reserved for issue under the Plan, or (b) change the
employees or class of employees eligible to receive options, or (c) extend the
term of the Plan beyond the period provided in this paragraph.
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Neither the termination nor any modification or amendment of the Plan
shall, without the consent of the holder of an option theretofore granted under
the Plan, adversely affect the rights of such holder with respect to such
option.
16. Termination of Right of Action. Every right of action arising out of or
in connection with the Plan by or on behalf of the Corporation or a subsidiary
or by any stockholder of the Corporation or a subsidiary against any past,
present or future employee, or by an employee (past, present or future) against
the Corporation shall, irrespective of the place where an action may be brought
and irrespective of the place of residence of any such stockholder or employee,
cease and be barred by the expiration of three years from the date of the act or
omission in respect to which such right of action is alleged to have arisen.
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17. Registration Rights. If in the future the Corporation registers
additional shares with the Securities and Exchange Commission, the Corporation
will also register the shares subject to the options of this Plan.
Dated as of: October 8, 1992
Last Amended: February 22, 1999
NAPCO SECURITY SYSTEMS, INC.
By: /s/ Richard Soloway, President
ATTEST:
By: /s/ Kevin S. Buchel, Senior Vice President
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Ex-10.S
AMENDMENT NO. 2 TO THE LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 2 to the Loan and Security Agreement dated as of June 30,
1999 ("Amendment No. 2") by and between NAPCO SECURITY SYSTEMS, INC., a New York
corporation having a place of business at 333 Bayview Avenue, Amityville, New
York 11701 (the "Debtor") and HSBC BANK USA F/K/A MARINE MIDLAND BANK, having a
place of business at 534 Broad Hollow Road, Melville, New York 11747 (the
"Secured Party").
W I T N E S S E T H
WHEREAS, as of May 12, 1997, Debtor and Secured Party had entered into a
certain loan and security agreement, as amended by amendment no. 1 to the loan
and security agreement dated as of May 28, 1998, as may be amended from time to
time (the "Agreement");
WHEREAS, the Debtor has requested that the Secured Party extend the
Termination Date, as set forth in the Agreement and the Secured Party has agreed
to do so, in the manner set forth below, provided however, that, among other
things, Debtor execute this Amendment No. 2.
NOW, THEREFORE, in consideration of the mutual promises and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. The definition of "Termination Date" contained in Section 1.1. of the
Agreement is hereby amended to read in its entirety as follows:
"Termination Date" shall mean the earlier to occur of (a)
November 30, 2000 or, if such day shall not be a Business Day,
the next succeeding Business Day, or (b) upon the occurrence of
an Event of Default.
2. As an inducement to the Bank extending the Termination Date, Debtor
represents and warrants to Secured Party that, as of the date of execution of
this Amendment No. 2, (i) the representations and warranties set forth in
Article 4 of the Agreement and the representations and warranties of Debtor and
any Third Party set forth in the other Transaction Documents to which any is a
party are true and correct in all respects, (ii) no event has occurred and is
continuing which constitutes an "Event of Default" under any of the Transaction
Documents (as
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"Event of Default" is defined in each of those Transaction Documents"), and
(iii) Debtor is in compliance with the covenants set forth in Articles 9 and 10
of the Agreement.
3. Debtor represents and warrants to Secured Party that there are no
offsets, defenses or counterclaims to the payment of the indebtedness owing
Secured Party, including the Advances, and to the continuing general security
interest in the Collateral granted to Secured Party by Debtor as security for
payment of the indebtedness, as fully described in the Agreement.
4. Except as modified herein, all other provisions of the Agreement and the
other Transaction Documents remain unmodified and are in full force and effect.
5. This Amendment No. 2 shall be governed by the laws of the State of New
York.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of
the day and year first above written.
HSBC BANK USA F/K/A MARINE
MIDLAND BANK
By: /s/ Thomas J. Dionian
Vice President
NAPCO SECURITY SYSTEMS, INC.
By: /s/ Kevin Buchel
Senior Vice President
STATE OF NEW YORK
SS:
COUNTY OF SUFFOLK
On this 9th day of August, 1999, before me, the undersigned, a Notary Public in
and for said State, personally came THOMAS J. DIONIAN, personally known to me or
proved to me on the basis of satisfactory evidence to be the person, whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his capacity and that by his signature on the instrument, the person
or entity upon behalf of which the person acted executed the instrument.
/s/ Antonella Stallone
Notary Public
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<PAGE> 3
STATE OF NEW YORK
SS:
COUNTY OF SUFFOLK
On this 9th day of August, 1999, before me, the undersigned, a Notary Public in
and for said State, personally came KEVIN BUCHEL, personally known to me or
proved to me on the basis of satisfactory evidence to be the person, whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his capacity and that by his signature on the instrument, the person
or entity upon behalf of which the person acted executed the instrument.
/s/ Antonella Stallone
Notary Public
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<PAGE> 1
Ex-10.T
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of the 9th day of August, 1999,
between NAPCO SECURITY SYSTEMS, INC., a Delaware corporation (the "Company"),
and the individuals listed on the signature page (each an "Indemnitee" and
collectively the "Indemnitees").
WHEREAS, Indemnitee is a director, officer or employee of the
Company; and
WHEREAS, both the Company and the Indemnitee recognize the
risk of litigation and other claims being asserted against corporate agents or
public companies in today's environment; and
WHEREAS, the Articles of Incorporation and Bylaws of the
Company permit the Company to indemnify and advance expenses to its directors
and officers to the fullest extent now or hereafter authorized or permitted by
law.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions.
(a) Approved Counsel shall mean any attorney or law
firm located and selected by an Indemnitee and reasonably acceptable to the
Company.
(b) Board of Directors shall mean the Board of
Directors of the Company.
(c) Claim shall mean any threatened, pending or
completed action, suit or proceeding, or any inquiry or investigation, whether
instituted by the Company or any other party, that an Indemnitee in good faith
believes might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other and shall also
include litigation of the type described in Section 3(b), 3(c) or 5.
(d) Expenses shall include attorneys' fees of
approved counsel and all other costs, expenses, disbursements, and obligations
paid or incurred in connection with investigating, defending, being a witness in
or participating in (including on appeal), or preparing to defend, be a witness
in or participate in any Claim relating to any Indemnifiable Event, including
any litigation described in Section 3(b), 3(c) or 5 together with interest
calculated at the Company's average cost of funds for short-term borrowings,
accrued from the date of payment of such expense of the date Indemnitee received
reimbursement therefor.
(e) Indemnifiable Event shall mean any event or
occurrence related to the fact that an Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation of any type or kind, domestic or foreign, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by an Indemnitee in any such capacity. Without
limitation of an indemnification provided hereunder, an Indemnitee serving (i)
another corporation, partnership, joint venture or trust of which twenty (20%)
percent or more of the voting power or residual economic interest is held,
directly or indirectly, by the Company, or (ii) any employee benefit plan of the
Company or any entity referred to in clause (i), in any capacity shall be deemed
to be doing so at the request of the Company.
2. Basic Indemnification Arrangement. If an Indemnitee was, is
or becomes at any time a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, a Claim by
reason of (or arising in part out of) an Indemnifiable Event, the Company shall
indemnify such Indemnitee to the fullest extent now or hereafter authorized or
permitted by law as soon as practicable but in any event no later than fifteen
(15) days after written demand is presented to the Company, against any and all
Expenses, judgments, fines (including excise
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<PAGE> 2
taxes assessed against an Indemnitee with respect to an employee benefit plan),
penalties and amounts paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in respect of such
Expenses, judgments, fines, penalties or amounts paid in settlement) of such
Claim. If so requested by Indemnitee, the Company shall advance (within two (2)
business days of such request) any and all Expenses to an Indemnitee (an
"Expense Advance"), provided however, the Indemnitee must sign an undertaking to
reimburse the Company for such Expenses if it is ultimately determined that the
Indemnitee was not entitled to indemnification with respect to the Claim. As to
any action or suit by or in the right of the Company, such indemnification shall
be subject to the provisions of Section 145(b) of the DGCL.
3. Payment. (a) Notwithstanding the provisions of Section 2,
the obligations of the Company under Section 2 shall in no event be deemed to
preclude any right to indemnification to which an Indemnitee may be entitled
under the Delaware General Corporation Law (the "DGCL").
(b) In the event an Indemnitee seeks indemnification
in a proceeding initiated by such Indemnitee (other than a proceeding under
Section 3(c) hereof), the obligations of the Company under Section 2 shall be
subject to the requirement that such proceeding was specifically authorized, or
later ratified, by the Company.
(c) If the Company refuses to indemnify an Indemnitee
for any reason whatsoever and such Indemnitee substantively would be permitted
to be indemnified in whole or in part under applicable law, such Indemnitee
shall have the right to commence litigation in any court in the States of New
York or Delaware having subject matter jurisdiction thereof and in which venue
is proper seeking an initial determination by the court or challenging any such
refusal by the Company or any aspect thereof, including the legal or factual
bases therefor, and the Company hereby consents to service of process relating
thereto and hereby consents to personal jurisdiction of any such court and
agrees of appear in any such proceeding. In any such litigation, an Indemnitee
shall be entitled to the benefits of the burden of proof presumption provided in
Section 7 hereof.
4. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against an Indemnitee to the extent such Indemnitee has otherwise actually
received payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
5. Indemnification for Additional Expenses. The Company shall
indemnify Indemnitees against any and all Expenses (including attorneys' fees)
and, if requested by such Indemnitee, shall (within two business days of such
request) advance such expenses to Indemnitee, which are incurred by Indemnitee
in connection with any claim asserted or action brought by Indemnitee for (i)
indemnification or payment of Expenses by the Company or advance of expenses
under this Agreement or any other agreement or Company Bylaw now or hereafter in
effect relating to Claims for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether such Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
6. Partial Indemnity, Etc. If an Indemnitee is entitled under
any provision of this Agreement or otherwise to indemnification by the Company
for some or a portion of the Expenses, judgments, fines, penalties and amounts
paid in settlement of a Claim but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify such Indemnitee for the
portion thereof to which such Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that such Indemnitee has
been successful on the merits or otherwise in defense of any or all Claims
relating in whole or in part to an Indemnifiable Event or in defense of any
issue or matter therein, including dismissal without prejudice, such Indemnitee
shall be indemnified, to the extent permitted by law, against all Expenses
incurred in connection with such Indemnifiable Event.
7. Burden of Proof. In connection with any determination
hereunder or otherwise, including any litigation of the sort described in
Section 3(b) or 3(c), as to whether an Indemnitee is entitled to be indemnified
hereunder the burden of proof shall be on the Company to establish that such
Indemnitee is not so entitled.
8. No Adverse Presumptions. For purposes of this Agreement,
the termination of any claim, action, suit or proceeding, whether civil or
criminal, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that an
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<PAGE> 3
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
9. Nonexclusivity, Etc. The rights of an Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have under the Company's
Bylaws or the DGCL or otherwise. To the extent that a change in the DGCL
(whether by statute or judicial decision) permits greater indemnification by
agreement than those currently afforded under the Company's Bylaws and this
Agreement, it is the intent of the parties hereto that such Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such change.
5. Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, an Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any director or officer of the Company.
6. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the Company against an
Indemnitee, an Indemnitee's spouse, heir, executors or personal or legal
representatives from and after the date hereof.
7. Amendments, Etc. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement shall be effective
unless in writing and no written waiver shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a waiver.
8. Subrogation. In the event of payment under this Agreement
to an Indemnitee, the Company shall be subrogated to the extent of such payment
to all of the rights of recovery of such Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
9. Specific Performance. The parties recognize that if any
provision of this Agreement is violated by the Company, an Indemnitee may be
without an adequate remedy at law. Accordingly, in the event of any such
violation, such Indemnitee shall be entitled, if such Indemnitee so elects, to
institute proceedings, either in law or at equity, to obtain damages or
reimbursements for costs, expenses, or disbursements, to enforce specific
performance, to enjoin such violation, or to obtain any relief or any
combination of the foregoing as such Indemnitee may elect to pursue.
10. Binding Effect, Etc. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, assigns, spouses, heirs, executors, and personal
and legal representatives. This Agreement shall continue in effect regardless of
whether an Indemnitee continues to serve as an officer or director of the
Company or of any other enterprise at the Company's request or in any other
capacity, such as agent or consultant.
11. Severability; Several Obligations. The provisions of this
Agreement shall be severable in the event that any of the provisions hereof
(including any provisions within a single section, paragraph or sentence) is
held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable in any respect, and the validity and enforceability of any such
provision in every other respect and with respect to all other Indemnitees and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law. The indemnities
afforded hereby are several and not joint obligations, and no requirement of
joinder, common pleadings, joint request or the like shall be needed for any
single Indemnitee to enjoy the rights hereby afforded.
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<PAGE> 4
THE INDEMNITOR:
NAPCO SECURITY SYSTEMS, INC.
By: /s/
--------------------------------
Name: Richard Soloway
Title: President
THE IMDEMNITEES:
/s/
-----------------------------------
Richard Soloway
/s/
-----------------------------------
Kevin S. Buchel
/s/
-----------------------------------
Randy Blaustein
/s/
-----------------------------------
Andrew J. Wilder
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<PAGE> 1
EXHIBIT 11
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average number of
shares outstanding 3,492,501 4,262,686 4,368,727 4,367,727 4,367,727
Add common stock equivalents 19,607 22,536 14,222 5,396 21,904
---------- ---------- ---------- ---------- ---------
Adjusted weighted average
shares outstanding 3,512,108 4,285,222 4,382,949 4,373,123 4,389,631
========== ========== ========== ========== ==========
Net Income: $2,493,000 $2,038,000 $1,639,000 $1,014,000 $ 512,000
========== ========== ========== ========== ==========
Earnings per share:
$ .71 $ .48 $ .38 $ .23 $ .12
Basic ========== ========== ========== ==========
$ .71 $ .48 $ .37 $ .23 $ .12
Diluted ========== ========== ========== ========== ==========
</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.
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<PAGE> 1
EXHIBIT 12
NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(In thousands, except for ratios)
A. Current Assets $41,696 $44,153 $42,021
B. Current Liabilities 6,776 10,211 11,885
Current Ratio
(Line A / Line B) 6.2 to 1 4.3 to 1 3.5 to 1
C. Sales $50,573 $50,269 $53,302
D. Receivables 16,446 14,760 13,937
Ratio (Line C / Line D) 3.1 to 1 3.4 to 1 3.8 to 1
E. Total Current Liabilities $6,776 $10,211 $11,885
F. Long Term Debt 17,241 18,644 13,313
G. Deferred Income Taxes 442 875 828
H. Total Liabilities 24,459 29,730 26,026
I. Equity 31,328 28,833 31,218
Ratio (Line H / Line I) .8 to 1 1.0 to 1 .8 to 1
</TABLE>
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<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, 1998. 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
Napco/Alarm Lock Exportadora, S.A. Dominican
Republic
NAPCO/Alarm Lock Grupo International, S.A. Dominican
(formerly known as NSS Caribe, S.A.) Republic
NAPCO/Alarm Lock Exportadora, S.A. Dominican
Republic
NAPCO Group Europe, Limited England
UMI Manufacturing Corp. New York
</TABLE>
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<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement No. 333-14743 on Form S-8 relating to common stock of
Napco Security Systems, Inc. issuable under the 1992 Incentive Stock Option
Plan.
/s/ ARTHUR ANDERSEN LLP
New York, New York
September 27, 1999
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,230
<SECURITIES> 0
<RECEIVABLES> 16,446
<ALLOWANCES> 887
<INVENTORY> 21,495
<CURRENT-ASSETS> 41,696
<PP&E> 11,280
<DEPRECIATION> 12,310
<TOTAL-ASSETS> 55,787
<CURRENT-LIABILITIES> 6,776
<BONDS> 0
59
0
<COMMON> 0
<OTHER-SE> 751
<TOTAL-LIABILITY-AND-EQUITY> 55,787
<SALES> 50,573
<TOTAL-REVENUES> 50,573
<CGS> 38,514
<TOTAL-COSTS> 38,514
<OTHER-EXPENSES> 10,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,359
<INCOME-PRETAX> 568
<INCOME-TAX> (1,925)
<INCOME-CONTINUING> 2,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,493
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.71
</TABLE>
