0000950123-01-507577.txt : 20011030
0000950123-01-507577.hdr.sgml : 20011030
ACCESSION NUMBER: 0000950123-01-507577
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011203
FILED AS OF DATE: 20011026
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NAPCO SECURITY SYSTEMS INC
CENTRAL INDEX KEY: 0000069633
STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669]
IRS NUMBER: 112277818
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-10004
FILM NUMBER: 1767087
BUSINESS ADDRESS:
STREET 1: 333 BAYVIEW AVE
CITY: AMITYVILLE
STATE: NY
ZIP: 11701
BUSINESS PHONE: 5168429400
MAIL ADDRESS:
STREET 1: C/O FORCHELLI CURTO SCHWARTZ ET AL, LLP
STREET 2: 330 OLD COUNTRY RD. - 3RD FL.
CITY: MINEOLA
STATE: NY
ZIP: 11501
DEF 14A
1
y54242def14a.txt
NAPCO SECURITY SYSTEMS, INC.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Materials Only (as permitted by Rule 14a-6(a)(2))
[ ] Soliciting Material Pursuant to Section 240.14a-2
NAPCO SECURITY SYSTEMS, INC.
(Name of Registrant as Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-12
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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NAPCO SECURITY SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on December 3, 2001
Dear Fellow Stockholder:
The Annual Meeting of the Stockholders of Napco Security Systems,
Inc., a Delaware corporation (the "Company"), will be held at the Company's
offices at 333 Bayview Avenue, Amityville, New York, on Monday, December 3,
2001, at 4:00 p.m., for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. to elect two directors to serve for a term of three years and
until their successors are elected and qualified; and
2. to transact such other business as may properly come before
the Meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 19,
2001 are entitled to notice and to vote at the Meeting or any adjournment
thereof. A complete list of the stockholders entitled to vote at the Meeting on
the foregoing proposals will be open to examination by any stockholder for any
purpose germane to the Meeting during ordinary business hours for a period of
ten days prior to the Meeting at the offices of the Company, 333 Bayview Avenue,
Amityville, New York 11701.
By order of the Board of Directors,
Richard Soloway
Secretary
October 28, 2001
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING WHETHER OR NOT
YOU ARE PERSONALLY ABLE TO ATTEND. YOU ARE URGED TO COMPLETE, SIGN AND MAIL THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE.
NAPCO SECURITY SYSTEMS, INC.
333 BAYVIEW AVENUE
AMITYVILLE, NEW YORK 11701
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 3, 2001
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the holders of Common Stock, $.01 par
value per share ("Common Stock") of Napco Security Systems, Inc. (the "Company")
in connection with the solicitation of proxies on behalf of the Board of
Directors of the Company to be held on December 3, 2001 and at any adjournment
thereof (the "Meeting"), pursuant to the accompanying Notice of Annual Meeting
of Stockholders. Proxies in the enclosed form, if properly executed and returned
in time, will be voted at the Meeting. Any stockholder giving a proxy may revoke
it prior to its exercise by attending the Meeting and reclaiming the proxy, by
executing a later dated proxy or by submitting a written notice of revocation to
the Secretary of the Company at the Company's office or at the Meeting.
Stockholders attending the Meeting may vote their shares in person. This Proxy
Statement and the form of proxy were first mailed to the stockholders on or
about October 28, 2001. A copy of the 2001 Annual Report of the Company,
including financial statements, is being mailed herewith.
Only stockholders of record at the close of business on October 19, 2001
(the "Record Date") are entitled to notice of and to vote at the Meeting. The
outstanding voting securities of the Company on the Record Date consisted of
3,325,796 shares of Common Stock.
On all matters requiring a vote by holders of the Common Stock, each share
of Common Stock entitles the holder of record to one vote. At the Meeting, the
holders of record of Common Stock will vote on: Item 1, the election of two (2)
directors; and the transaction of any other business as may properly come
before the Meeting and require a vote of the Stockholders.
THEREFORE, THE COMPANY URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD.
ITEM 1
ELECTION OF DIRECTORS
Unless otherwise specified, shares represented by the enclosed proxy will
be voted for the election of Richard Soloway and Kevin S. Buchel, currently
directors, who have been nominated by the Board of Directors for reelection as a
director to serve until the Annual Meeting of Stockholders in 2004 and until his
successor is elected and qualified.
Mr. Soloway and Mr. Buchel have consented to serve if elected. Two
directors are to be elected by a plurality of the votes cast at the Meeting.
In the event that either nominee becomes unable or unwilling to serve as a
director, discretionary authority may be exercised by the proxies to vote for
the election of an alternate nominee of the Board of Directors.
The Board of Directors is divided into three classes. One class will stand
for election for a three-year term at this year's Annual Meeting of
Stockholders. The terms of the other two classes of continuing directors do not
expire until the Annual Meetings of Stockholders in 2002 and 2003, respectively.
The names of, and certain information concerning, the nominees of the Board of
Directors and such other directors are set forth below:
Principal Occupation;
Five-Year Employment
History and Other Director
Name and Age Directorships Since
------------ ------------- -----
Nominees to serve until
Annual Meeting of
Stockholders in 2004:
Richard Soloway Chairman of the Board 1972
(55) of Directors since
October 1981; President
since 1998; Secretary
since 1975.
Kevin S. Buchel Senior Vice President 1998
(48) of Operations and
Finance since April 1995;
Treasurer since May 1998.
-2-
Directors to serve until
Annual Meeting of
Stockholders in 2002:
Andrew J. Wilder Officer of Israeloff, 1995
(50) Trattner & Co.,
independent certified
public accountants,
since 1990.
Arnold Blumenthal Mr. Blumenthal has 2001
(74) been Publisher of
SECURITY DEALER
magazine at Cygnus
Business Media, Inc.
since 1978.
Directors to serve until
Annual Meeting of
Stockholders in 2003:
Randy B. Blaustein Partner of Blaustein, 1985
(49) Greenberg & Co. since
July 1991; Attorney engaged
as a sole practitioner
since October 1980,
specializing in business and
tax matters, and author of
six books and numerous
articles.
Donna Soloway Board of Directors 2001
(52) Security Industry
Association (SIA);
Chair of Awards
Committee since 1993;
Director and Secretary
of SAINTS (Safety,
Awareness and
Independence Now
Through Security)
Foundation, Inc.; and
Monthly Columnist for
SECURITY DEALER
magazine since 1992.
Ms. Soloway is the wife
of Richard Soloway, the
Chairman and President
of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MESSRS.
SOLOWAY AND BUCHEL.
-3-
During the fiscal year ended June 30, 2001, the Company retained, and
currently retains, Mr. Blaustein as special counsel for certain general business
and tax related matters.
During fiscal 2001, there were four meetings of the Board of Directors;
Messrs. Soloway, Buchel, Blaustein and Wilder attended each meeting, and Mr.
Blumenthal and Ms. Soloway attended the two meetings after they became
directors.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS HELD
The Board of Directors has a Stock Option Committee consisting of Richard
Soloway and Kevin S. Buchel. This Committee, which met one time in fiscal year
2001, determines the individuals to be granted options under the Incentive Stock
Option Plan and the Non-Employee Stock Option Plan, the number of shares to be
subject to options and the terms of the options and interprets the provisions of
such plans.
The Company has an Audit Committee consisting of Randy Blaustein, Andrew
J. Wilder and Arnold Blumenthal. The Committee, which met four (4) times in
fiscal year 2001, recommends to the Board of Directors as to the engagement of
an independent certified public accountant, discusses the adequacy of the
accounting procedures and internal controls and new accounting pronouncements
that may affect the Company, approves the overall scope of the audit, and
reviews and discusses the audited financial statements. The Company has adopted
an Audit Charter with respect to the Committee's activities.
The Company does not have a standing nominating committee of the Board of
Directors, or committees performing similar functions. The Company's
Compensation Committee is made up of two officers of the Company.
COMPENSATION OF DIRECTORS
The directors who are not officers receive $1,000 for each Board of
Directors meeting and $1,000 for each Committee meeting that they attend in
person or by telephone conference call. For the fiscal year ended June 30,
2001, Mr. Blaustein, Mr. Wilder, Mr. Blumenthal and Ms. Soloway received
$8,000, $8,000, $4,000 and $2,000, respectively in director's fees and
committee fees. Mr. Wilder is chairman of the Audit Committee and receives
$2,000 for attending each meeting.
-4-
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets forth
information as of September 30, 2001, regarding the beneficial ownership (as
defined by the Securities and Exchange Commission) of Common Stock of the
Company of (a) each person known by the Company to own more than five percent of
the Company's outstanding Common Stock, (b) each director of the Company (c)
each executive officer named in the Summary Compensation Table, and (d) all
executive officers and directors of the Company as a group. Except as otherwise
indicated, the named owner has sole voting and investment power over shares
listed.
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership Common Stock[a]
---------------- --------- ----------------
Richard Soloway
c/o the Company
333 Bayview Avenue
Amityville, NY 11701 1,105,976[b] 31.0%
Dimensional Fund
Advisors, Inc. 295,450[c] 8.3%
Sandra Lifschitz 179,250[c] 5.0%
Kevin S. Buchel 47,001[b] 1.3%
Randy B. Blaustein 30,500[b] .9%
Jorge Hevia 29,280[b] .8%
Michael Carrieri 13,000[b] .4%
Andrew J. Wilder 8,300[b] .2%
Donna Soloway 5,400 .2%
All executive officers 1,239,457[d] 34.7%
and directors as a group
(7 in number)
[a] Percentages are computed on the basis of 3,570,076 shares, which consists
of 3,325,796 shares of Common Stock outstanding on October 19, 2001, plus
244,280, the number of shares which a person has the right to acquire
directly or indirectly within sixty (60) days. Except as otherwise noted,
persons named in the table and footnotes have sole voting and investment
power with respect to all shares of Common Stock reported as beneficially
owned by them.
[b] This number includes the number of shares which a person has a right to
acquire directly or indirectly within sixty (60) days (Soloway - 155,000,
Buchel - 31,000, Blaustein - 8,000, Hevia - 29,280, Carrieri - 13,000, and
Wilder - 8,000).
[c] Based on information from Securities and Exchange Commission and NASDAQ as
of June 30, 2001, on February 2, 2001, a Schedule 13G was filed with the
SEC by Dimensional Fund Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA
90401 ("DFAI") reporting beneficial ownership and sole voting power as to
295,450 shares of Common Stock of the Company, owned by advisory clients.
As to all of such shares, DFAI disclaims beneficial ownership of all such
securities. In addition, on May 22, 2001 Sandra Lifschitz, 7 Tulane Drive,
Livingston, New Jersey 07039, filed a Schedule 13D reporting beneficial
ownership and sole voting power as to 179,250 shares of Common Stock of the
Company.
[d] This number of shares includes (i) 992,027 shares as to which officers and
directors have sole voting and investment power, and (ii) 244,280 shares
which a person has the right to acquire directly or indirectly within sixty
(60) days.
-5-
COMPLIANCE WITH SECTION 16
Based solely on a review of the Forms 3, 4 and 5 furnished to the Company
with respect to the most recent fiscal year and written representations of the
reporting person (as defined below), no person, who at any time during such
fiscal year, was an officer, director, beneficial owner of more than ten (10%)
percent of any class of equity securities of the Company or any other person
subject to Section 16 of the Securities Exchange Act of 1934 ("reporting
person"), failed to file on a timely basis one or more reports during such
fiscal year, except that Messrs. Blaustein, Soloway and Wilder were
inadvertently late in filing a Form 4 or 5 in connection with a purchase or
option grant.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Each executive officer of the Company holds office until the annual
meeting of the Board of Directors and his successor is elected and qualified, or
until his earlier death, resignation, or removal by the Board. There are no
family relationships between any director or officer of the Company, except
Richard Soloway and Donna Soloway, his wife. The following table sets forth as
of the date hereof the names and ages of all executive officers of the Company,
all positions and offices with the Company held by them, the period during
which they have served in these positions and, where applicable, their
positions in any other organizations during the last five years.
c Position and Office with the
Company, Term of Office and
Name and Age Five-Year Employment History
------------ ----------------------------
Richard Soloway Chairman of the Board of Directors
(55) since October 1981; President Since
1998; and Secretary since 1975.
Kevin S. Buchel Senior Vice President of Operations and
(48) Finance since April 1995; Treasurer
since May 1998.
Jorge Hevia Senior Vice President of Corporate
(43) Sales and Marketing since May 1999;
Vice President of Corporate Sales and
Marketing since October 1998; Vice President
of National Sales of Schieffelin and Somerset
Company from December 1993 to October 1998.
Michael Carrieri Senior Vice President of Engineering
(43) Development since May 1, 2000; Vice
President of Engineering Development since
September, 1999; Vice President of Engineering
of Chyron Corp. April 1998 to August 1999;
Vice President of Engineering of Boundless
Technologies from February 1990 until March
1998.
-6-
EXECUTIVE COMPENSATION
The following table sets forth the compensation information for the President
and Chief Executive Officer of the Company and for each of the Company's
four most highly compensated other executive officers serving at the end
of fiscal year 2001.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------ ------------------------------------------
Other Restricted
Name and Principal Annual Stock LTIP All Other
Position Fiscal Year Salary Bonus Compensation(1) Awards Options/SARS Payouts Compensation(2)
-------- ----------- ------ ----- --------------- ------ ------------ ------- ---------------
Richard Soloway, 2001 $432,134 -- $ 9,584 -- 50,000/0 -- $ 734
Chairman of the Board 2000 $415,949 -- $11,090 -- -- -- $ 922
of Directors, 1999 $407,793 -- $11,708 -- 225,000/0 -- $ 706
President, Secretary
Kevin S. Buchel, Senior 2001 $152,949 $60,000 $ 6,291 -- -- -- $1,908
Vice President of 2000 $142,285 $60,000 $ 5,491 -- 30,000/0 -- $2,051
Operations and Finance 1999 $138,533 $60,000 $ 5,574 -- -- -- $1,986
and Treasurer
Jorge Hevia, 2001 $182,308 $20,000 $ 7,081 -- -- -- $2,015
Senior Vice President of 2000 $178,365 $20,000 $ 6,541 -- 30,000/0 -- $ 174
Corporate Sales and 1999 $125,245 $30,000 $ 1,620 -- 16,600/0 -- --
Marketing
Michael Carrieri, 2001 $166,953 $35,000 $ 61 -- -- -- $1,902
Senior Vice President of 2000 $134,635 $35,000 $ 35 -- 25,000/0 -- --
Engineering Development 1999 -- -- -- -- -- -- --
(1) Messrs. Soloway, Buchel, Hevia and Carrieri received $3,961, $3,961 and
$4,108; $91, $91 and $174; $61, $61 and $0; and $61, $35 and $0,
respectively for health and life insurance for fiscal years 2001, 2000 and
1999. Messrs. Soloway, Buchel, and Hevia received $5,623, $7,129 and
$7,600; $6,200, $5,400 and $5,400; and $7,020, $6,480 and $1,620,
respectively, for automobile expenses for fiscal years 2001, 2000 and 1999.
(2) Company 401(k) Plan Contributions.
-7-
Option Grants and Exercises
The following tables summarize option grants and exercises during
fiscal 2001 to or by the named executive officers and the value of the fiscal
2001 granted options, if any, held by such persons at the end of fiscal 2001.
OPTION GRANTS IN LAST FISCAL YEAR(1)
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(2)
--------------------------------------------------------- ------------------------
Percent of
Total Options
Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ------- ----------- ------ ---- ------ -------
Richard Soloway 50,000 46% 4.54 9/27/05 $36,400 $105,500
Kevin S. Buchel -- -- -- -- -- --
Jorge Hevia -- -- -- -- -- --
Michael Carrieri -- -- -- -- -- --
(1) Options generally become exercisable in cumulative annual installments of
20% commencing on the date of grant. Options terminate upon the earlier of
the cessation of employment with the Company or the fifth anniversary of
the date of the grant.
(2) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed
rates of stock price appreciation of 5% and 10% annually from the date
options are granted.
-8-
AGGREGATED OPTION EXERCISES IN LAST YEAR AND FY-END OPTION VALUES(1)
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value FY-End (#) FY-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- -------- ------------- -------------
Richard Soloway -- -- 145,000 / 130,000 $240,100 / $168,400
Kevin S. Buchel 15,000 $26,250 24,000 / 21,000 $ 30,208 / $ 31,587
Jorge Hevia -- -- 21,960 / 24,640 $ 27,096 / $ 34,088
Michael Carrieri -- -- 10,000 / 15,000 $ 16,148 / $ 24,222
(1) No stock options were exercised by the named executive officers during
fiscal 2001.
-9-
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Richard Soloway, Jorge
Hevia, and Michael Carrieri. The agreement with Mr. Soloway, entered into on
February 26, 1999 for a five year period, provides for an annual salary of
$432,134 as adjusted by inflation, certain incentive compensation if earned
according to a formula to be determined by the Board of Directors, and 225,000
stock options that vest 20% per year or upon a change in control, as defined in
the agreement. In addition, if during the term there should be a change in
control, then the employee shall be entitled to terminate the term and his
employment thereunder, and the employer shall pay the employee, as a termination
payment, an amount equal to 299% of the average of the prior five calendar
year's compensation, subject to certain limitations. Mr. Hevia's agreement,
which is for a two-year period, provides for an annual salary of $185,000 with
certain bonus provisions, including those based on sales and profits. The
agreement with Mr. Carrieri for fiscal year 2000 provides for an annual salary
($160,000) and a bonus if certain benchmarks are met. In addition, the Company
has a severance agreement with Kevin S. Buchel providing for payments equal to
nine months of salary and six months of health insurance in the event of a
non-voluntary termination of employment without cause.
RELATED TRANSACTIONS
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. 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Richard Soloway and Kevin S.
Buchel. Each member of the Compensation Committee was, during fiscal 2001 and
previously, an officer and employee of the Company and each subsidiary of the
Company as described above pursuant to Item 404 of Regulation S-K promulgated
under the Securities and Exchange Act of 1934.
No executive officer of the Company has served as a director or member of
the Compensation Committee (or other committee serving an equivalent function)
of any other entity, one of whose executive officers served as a director of or
member of the Compensation Committee of the Company.
-10-
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee of the Board of Directors is made up
of the President and the Senior Vice President of Operations and Finance. The
Committee considers and establishes compensation for the management of the
Company. With respect to the compensation of the Chairman and the President, the
Board of Directors considers and approves such compensation.
Overview and Philosophy
The Compensation Committee uses its compensation program to achieve the
following objectives:
- increasing the profitability and net worth of the Company and,
accordingly, increasing stockholder value;
- providing compensation that will enable the Company to attract and
retain high quality employees and reward superior performance;
- providing management with incentives related to the success of the
Company; and
- providing management with long-term equity incentives through stock
options.
The Company believes that its executive compensation program provides an
overall level of compensation that is competitive within the electronic security
products industry and among companies of comparable size and complexity.
Procedures for Establishing Compensation
At the beginning of each year, the Compensation Committee establishes an
annual salary plan for the Company's senior executive officers, in some cases
based on employment agreements with such officers.
In fiscal 2001, as in the past several years, the Compensation Committee
set compensation at the start of the year and reviewed it approximately mid-way
through the year. The initial compensation recommendation, consisting of salary
and performance-based incentive compensation, is based in part upon a survey of
comparably sized companies. The Compensation Committee uses this survey to
determine the competitiveness of base salary and incentive opportunities at the
Company and to evaluate the relative mix of salary and incentive compensation.
Executive Officer Compensation Program
The Company's executive compensation program consists of base salary,
annual incentive cash compensation, commissions, long-term equity incentives in
the form of stock options and various benefits such as medical insurance and
401(k) savings plan generally available to employees of the Company. The amount
of perquisites, as determined in accordance with rules promulgated by the
Securities and Exchange Commission, did not exceed 10% of salary in fiscal 2001.
-11-
Base Salary
Base compensation is generally set within the range of salaries of
executive officers with comparable qualifications, experience and
responsibilities at other companies in the same or similar businesses and or
comparable size and success as the Company. In addition to external market data,
salary is determined by the Company's financial performance and the individual's
performance based on predetermined, non-financial objectives. Non-financial
objectives include an individual's contribution to the Company as a whole,
including his ability to motivate others, develop the necessary skills as the
Company grows, recognize and pursue new business opportunities and initiate
programs to enhance the Company's growth and success.
Short-Term and Long-Term Compensation
Annual incentive compensation and long-term incentive compensation, in
comparison to base salary, are more highly tied to the Company's success in
achieving financial performance goals. Annual cash bonuses are paid primarily on
the basis of attainment of financial, sales, and production goals of the
Company. The officers do not vote on their own compensation.
Long-term incentive compensation, through stock options, enables
executives to develop a long-term stock ownership position in the Company. In
addition to considering an individual's past performance, the Company's desire
to retain an individual is of paramount consideration in the determination of
stock option grants.
Stock options are granted at an option price equal to fair market value on
the date of grant and generally vest over a five-year period in order to
encourage key employees to continue in the employ of the Company. Accordingly,
stock options are intended to retain and motivate executives to improve
long-term stock market performance.
Summary of Compensation of Chief Executive Officer
Recommendations regarding the compensation for Mr. Soloway are made by the
Board of Directors (exclusive of Mr. Soloway) using a process and philosophy
similar to those used for all other executive officers. In making their
recommendations for Mr. Soloway's compensation for fiscal year 2001,
consideration was given, among other things, to the overall performance of the
Company along with an assessment of Mr. Soloway's performance and contributions
to the Company and the importance of a significant incentive-based equity
component in the form of stock options.
Compensation Committee: Richard Soloway
Kevin S. Buchel
-12-
COMPENSATION PURSUANT TO PLANS
Profit Sharing Plan
The Company maintains a defined contribution profit sharing plan (the
"Plan") pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). In general, all employees who are at least age twenty-one
and have completed one year of employment with the Company are eligible to
participate in the Plan. The effective date of the Plan, as restated, is July 1,
1989. Participants in the Plan may contribute up to the maximum amount permitted
by the Code of their compensation as a salary reduction. The Company matches all
such contributions by contributing an amount equal to 50% of all such salary
reduction deferrals up to a maximum of 1% of each participant's salary
compensation. In addition, the Company may elect at the end of each Plan year to
contribute a discretionary amount to the Plan to be allocated among the eligible
employees on the basis of compensation. During fiscal 2001, the Company
contributed approximately $63,000 to the Plan.
Vested contributions, both participant and the Company's additional
contributions, are payable to the participant (or his beneficiary), upon any of
the following events: retirement, termination of employment, disability, death,
termination of the Plan without the establishment of a successor Plan, or the
attainment of age 59-1/2. Participants may withdraw up to the total of salary
deferral contributions upon suffering a financial hardship, as defined in the
Plan. A participant may also borrow from the Plan against his account balance.
All participant and additional Company contributions are 100% vested at all
times. Benefits at retirement are payable to participants in a lump sum or as an
annuity.
Stock Options
Under the Company's 1992 Incentive Stock Option Plan, as amended ("1992
Plan") which was approved by vote of the stockholders of the Company at the 1992
Annual Meeting (extending the 1982 plan for an additional ten years), incentive
stock options to purchase up to an aggregate of 727,933 shares of Common Stock
(plus the shares at the time subject to option) or a total of 815,933 shares (as
adjusted) may be granted at fair market value to executive officers and key
employees during the ten-year period ending in October 2002. At June 30, 2001,
195,133 shares were available for grant under the 1992 Plan. Options to purchase
a total of 579,350 shares of Common Stock were outstanding under the 1992 Plan
on June 30, 2001, with exercise prices of $2.50 to $5.63 per share. The
incentive stock options included in the foregoing tabulation expire five years
from the date of grant, are non-transferable and are exercisable beginning with
the date of grant in 20 percent cumulative yearly installments. These options
and shares were registered in October 24, 1996 with the Securities and Exchange
Commission.
The Company's 1990 Non-Employee Stock Option Plan ("1990 Plan") was
adopted to promote the interests of the Company and its stockholders by enabling
the Company to attract and retain outside directors and consultants, to provide
them an incentive to continue service with the Company, and provide them
additional incentive to promote the success of the Company's business. The 1990
Plan was approved by the stockholders at the Company's 1990
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annual meeting. At June 30, 2000, a total of 50,000 shares (with appropriate
adjustment in the event of a stock split or other change in the Company's common
stock) of common stock of the Company, par value $.01 per share, were available
for grant of options under the 1990 Plan. The Plan authorized grants of options
that do not meet the requirements of Section 422 of the Internal Revenue Code to
non-employee directors and/or consultants of the Company. On September 27, 2000,
20,000 options were granted to each of Randy Blaustein and Andrew J. Wilder.
The Board of Directors believed that the 1990 Non-Employee Stock Option
Plan had been valuable to furthering the interests of the Company and that the
Company's continued ability to grant stock options to outside directors and
consultants substantially enhances its ability to attract and retain the high
caliber personnel upon whose judgement, skill and initiative the success of the
Company is largely dependent. Accordingly, the Board approved (and the
stockholders approved) the readoption and ten-year extension of the 1990 Plan to
October 15, 2010, as the 2000 Non-Employee Stock Option Plan ("2000 Plan"), with
options for an aggregate of fifty thousand (50,000) shares (representing ten
thousand (10,000) shares available for future options and forty thousand
(40,000) shares for outstanding options). Shares for options that expire
unexercised will be available for the grant of future options.
The 2000 Plan continues to be administered by the Board of Directors or a
Stock Option Committee of the Board of Directors ("Committee"). The Board or
Committee determines the individuals to be granted options under the 2000 Plan,
the number of shares to be subject to options and the terms of options,
interpret the provisions of the 2000 Plan and make all determinations deemed
necessary or advisable for the administration of the 2000 Plan. No options may
be granted to an individual under the 2000 Plan except by the Committee, at a
meeting at which a majority of its members are not being considered to receive
grants, or the Board of Directors, at a meeting at which the majority of the
directors voting on the grant are not being considered to receive grants. The
Board of Directors may amend or terminate the 2000 Plan without the approval of
stockholders, except that it may not, without such approval, increase the
maximum number of shares available and reserved for issue under the 2000 Plan,
change the class of persons eligible to receive options, or extend the term of
the 2000 Plan. No amendment of the 2000 Plan may, without an participant's
consent, adversely affect his rights under an existing option.
The 2000 Plan provides that options may be granted only to non-employee
directors and consultants of the Company. The option exercise price would be
fixed by the Committee and may not be less than the fair market value per share
of Common Stock on the date the option is granted. The Committee may approve
cancellation of an option prior to its expiration or exercise, and grant a new
option at a lower price.
Each option would have a maximum term of five years, or such lesser period
as the Committee specifies. Options would become exercisable at the rate of 20%
per year but could be accelerated in the event of a change in control. An option
may be exercised by an optionee during his tenure as a director or consultant.
Options under the 1990 Plan would not be transferable. The optionees would have
"piggy-back" registration rights whereby if in the future the Company registered
any additional shares with the Securities and Exchange Commission, the Company
would also register the shares subject to such options.
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COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph sets forth the Company's total shareholder return index as
compared to the NASDAQ index and a NASDAQ electronic component stock industry
index.
[Performance Chart]
ACTUAL: INDEXED:
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Fiscal NAPCO NASDAQ Peer Group* Fiscal NAPCO NASDAQ Peer Group*
Year Year
Jun-97 4.750 475.991 24.000 Jun-97 100.000 100.000 100.000
Jun-98 5.125 626.505 27.078 Jun-98 107.895 131.621 112.826
Jun-99 3.500 901.140 35.313 Jun-99 73.684 189.319 147.135
Jun-00 3.688 1,332.303 13.715 Jun-00 77.632 279.901 57.145
Jun-01 4.790 722.211 14.360 Jun-01 100.842 151.728 59.833
* The Peer Group consists of:
American Medical Alert Corp.
Honeywell, Inc.
Sensormatic Electronics Corp.
Vicon Industries, Inc.
Note: Detection Systems, Inc., that was part of the Company's 2000 Peer Group,
is no longer publicly traded.
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THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors appointed Arthur Andersen LLP ("AA") as the
independent public accountants for the Company and its subsidiaries for its 2001
fiscal year. AA has been serving the Company since fiscal 1993.
Services provided by AA during and for the 2001 fiscal year consisted of
audit and non-audit related services. These services included the examination of
the consolidated financial statements of the Company, services related to
reporting by the Company and its subsidiaries to the Securities and Exchange
Commission and consulting during the year on matters related to accounting,
taxes and financial reporting.
A representative of AA will be present at the Annual Meeting to make a
statement if he desires and to respond to appropriate questions presented at the
Meeting.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal which is intended to be presented at next year's
annual meeting of stockholders must be received by the Company not later than
June 30, 2002 if it is to be considered for inclusion in the Company's proxy
statement and form of proxy for such meeting.
EXPENSES OF SOLICITATION
The Company will bear all costs in connection with the solicitation by the
Board of Directors of proxies of the Meeting. The Company intends to request
brokerage houses, custodial nominees and others who hold stock in their names to
solicit proxies from the persons who beneficially own such stock. The Company
will reimburse brokerage houses, custodial nominees and others for their
out-of-pocket expenses and reasonable clerical expenses. It is estimated that
these expenses will be nominal. In addition, officers and employees of the
Company may solicit proxies personally or by telephone, telegram or letter; they
will receive no extra compensation for such solicitation.
Dated: October 28, 2001 By Order of the Board of Directors
Richard Soloway
Secretary
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NAPCO SECURITY SYSTEMS, INC.
333 Bayview Avenue
Amityville, New York 11701
PROXY - SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of NAPCO SECURITY SYSTEMS, INC. hereby
appoints Messrs. Richard Soloway and Kevin S. Buchel, and each or either of
them, the proxy or proxies of the undersigned, with full power of substitution,
to vote as specified on the reverse side all shares of Common Stock of said
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of said Corporation, to be held on Monday, December 3, 2001 and
at all adjournments of such Meeting, with all powers the undersigned would
possess if personally present.
This Proxy will be voted as specified. If no specification is made, the
Proxy will be voted FOR the election of the two (2) directors (Item 1); and as
to any other matters as may properly come before the meeting, this Proxy will be
voted in the discretion and in the best judgment of the Proxies. This Proxy may
be revoked at any time prior to the voting thereof.
(Please date and sign on the reverse side.)
(Continued from the other side)
The Board of Directors recommends a Vote FOR Item 1.
Item 1 - Election of two directors:
Richard Soloway
FOR / / WITHHOLD / /
Kevin S. Buchel
FOR / / WITHHOLD / /
Dated:
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Signature or Signatures
Please sign exactly as your name
appears at the left. Executors,
administrators, trustees, guardians,
attorneys and agents should give their
full titles and submit evidence of
appointment unless previously
furnished to the Corporation or its
transfer agent.