UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(a)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-2
NAPCO SECURITY SYSTEMS, INC.
(Name of 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 0-11
(1) Title of each class of securities to which transaction applies:____________
(2) Aggregate number of securities to which transaction applies:_______________
(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): ________________________
(4) Proposed maximum aggregate value of transaction: _________________________
(5) Total fee paid:___________________
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Preliminary Copy
NAPCO SECURITY SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on December 9, 2008
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 Tuesday, December 9, 2008, at 2:00
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;
2. to amend the Amended and Restated Certificate of Incorporation to change
the name of the Company to "Napco Security Technologies, Inc."
3. 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 November 3,
2008 are entitled to notice and to vote at the Meeting or any adjournment
thereof.
By order of the Board of
Directors,
Richard L. Soloway, Secretary
November 7, 2008
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.
Preliminary Copy
NAPCO SECURITY SYSTEMS, INC.
333 Bayview Avenue
Amityville, New York 11701
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 9, 2008
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 for the Annual Meeting following Fiscal Year 2008,
to be held on December 9, 2008, 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 will first be mailed to the stockholders on or about November , 2008. A
copy of the 2008 Annual Report of the Company, including financial statements,
is being mailed herewith.
Only stockholders of record at the close of business on November 3,
2008 (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
19,092,473 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
directors; Item 2, amendment of the Amended and Restated Certificate of
Incorporation to change the name of the Company to Napco Security Technologies,
Inc.; and the transaction of any other business as may properly come before the
Meeting and require a vote of the stockholders.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock authorized to vote will constitute a
quorum for the transaction of business at the Meeting.
The affirmative vote of a plurality of the votes cast at the Annual
Meeting is required for the election of directors. A properly executed proxy
marked "WITHHOLD" with respect to the election of one or more directors will not
be voted with respect to the director or directors indicated, although it will
be counted for purposes of determining whether there is a quorum.
The affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote on the matter, will be required for approval of
the amendment to the Company' Amended and Restated Certificate of Incorporation.
A properly executed proxy marked "ABSTAIN" with respect to such matter will not
be voted, although it will be counted for purposes of determining whether there
is a quorum. Accordingly, an abstention will have the effect of a negative vote.
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If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to certain matters. Thus, if you do not give your broker
or nominee specific instructions, your shares may not be voted on those matters.
Shares represented by such "broker non-votes" will, however, be counted in
determining if there is a quorum.
THEREFORE, THE COMPANY URGES YOU TO SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD.
Item 1: Election of Directors
The Board of Directors is divided into three classes. At the upcoming
Annual Meeting, one class will stand for election for the term ending at the
Annual Meeting of Stockholders following Fiscal Year 2011. The terms of the
other two classes of continuing directors do not expire until the Annual
Meetings of Stockholders after fiscal year end 2009 and 2010, respectively.
Unless otherwise specified, shares represented by the enclosed proxy
will be voted for the election of Messrs. Andrew Wilder and Arnold Blumenthal,
currently directors, who have been recommended for nomination by the Nominating
Committee of the Board of Directors and nominated by the Board of Directors for
reelection as a director to serve until the Annual Meeting of Stockholders in
2011 and until his successor is elected and qualified.
Messrs. Wilder and Blumenthal have consented to serve if reelected. In
the event that any 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 names of, and certain information concerning, the nominees and the
continuing directors are set forth below:
Name and Age Principal Occupation; Director
Five-Year Employment History Since
----------------------------------------------------------------------------------------------------
Nominees for election to serve until
Annual Meeting of Stockholders following
Fiscal Year 2011:
Andrew J. Wilder Officer of Israeloff, Trattner & Co.,
independent certified public accountants,
(57) since 1990. 1995
Arnold Blumenthal Group Publisher Emeritus, Security Dealer
Locksmith Ledger, Publisher Security Line
(81) and Editor of MBFAA since 2004; V.P. of
Government Security News from 2004 through
2007; Group Publisher of Security Group of
Cygnus Publishing, 1999 through 2003. 2001
Directors to serve until Annual Meeting
of Stockholders following Fiscal Year
2009:
Paul Stephen Beeber Licensed Attorney in New York State since
1970, focusing on elder law, estate planning
(64) and real estate. 2004
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Name and Age Principal Occupation; Director
Five-Year Employment History Since
----------------------------------------------------------------------------------------------------
estate.
Randy B. Blaustein Principal of R.B. Blaustein & Co. since
December 2000; Partner of Blaustein,
(56) Greenberg & Co. July 1991 - November 2000;
Attorney since October 1980, specializing in
general business and tax matters, and author
of six books and numerous articles. 1985
Donna A. Soloway Board of Directors of Security Industry
Association (SIA); Chair of Awards Committee
(60) since 1993; Director and Secretary of SAINTS
(Safety, Awareness and Independence Now
Through Security) Foundation, Inc.; Monthly
Columnist for SECURITY DEALER magazine since
1992; and Columnist for SECURITY SALES &
INTEGRATION magazine since 2004. Ms. Soloway
is the wife of Richard L. Soloway, the
Chairman and President of the Company. 2001
Directors to serve until Annual Meeting
of Stockholders following Fiscal Year
2010:
Richard L. Soloway Chairman of the Board of Directors since
October 1981; President since 1998;
(62) Secretary since 1975. 1972
Kevin S. Buchel Senior Vice President of Operations and
Finance since April 1995; Treasurer since
(55) May 1998. 1998
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
MR. WILDER AND MR. BLUMENTHAL.
Other Directorships
Except as set forth below none of the directors or nominees is a
director of any company (other than the Company) which is subject to the
reporting requirements of the Securities Exchange Act of 1934 or which is a
registered investment company under the Investment Company Act of 1940.
Name Director of
--------------------------- -----------
Andrew J. Wilder YTB International, Inc.
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CORPORATE GOVERNANCE AND BOARD MATTERS
Independence of Directors
The Board currently consists of seven directors, four of whom the Board
has affirmatively determined have no relationship with the Company or its
subsidiaries which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and are independent as defined
by the applicable NASDAQ Listing Standards. The four independent directors are
Paul Stephen Beeber, Randy B. Blaustein, Arnold Blumenthal and Andrew J. Wilder.
Board Structure and Committee Composition
The Board maintains three standing committees: Audit,
Compensation/Stock Option, and Nominating. Each Committee is composed entirely
of independent directors as defined in the applicable NASDAQ Listing Standards.
During fiscal 2008, the Board held five meetings. Each director
attended at least 75% of all Board meetings and meetings of committees of which
such director was a member.
Directors are expected to attend the Company's annual meetings of
stockholders. All directors attended the last annual meeting of stockholders on
December 4, 2007.
NAPCO maintains an "Investors" section on its website,
www.napcosecurity.com, setting forth the Company's committee charters for the
Audit, Compensation/Stock Option and Nominating Committees.
Audit Committee
The Audit Committee has been established in accordance with Section
3(a)(58)A of the Securities Exchange Act of 1934 as amended. The Audit Committee
is responsible for retaining, evaluating and, if appropriate, recommending the
termination of the Company's independent auditors. The Audit Committee assists
the Board in oversight of (1) the integrity of the Company's financial
statements, (2) the Company's independent auditor's qualifications and
independence, and (3) the performance of the Company's internal audit function
and independent auditors. In addition, the Committee renders its report for
inclusion in the Company's annual proxy statement.
The Audit Committee has the authority to obtain advice and assistance
from outside legal, accounting or other advisors as the Audit Committee deems
necessary to carry out its duties. The Audit Committee held five meetings in
fiscal year 2008. The current members of the Audit Committee are Andrew J.
Wilder (Chairman), Paul Stephen Beeber and Arnold Blumenthal, each of whom meets
the NASDAQ Listing Standards for the independence of audit committee members.
The Board has determined that Andrew Wilder is an audit committee financial
expert.
The report of the Audit Committee is included in this proxy statement
on page 7.
Compensation/Stock Option Committee
The Compensation/Stock Option Committee assists the Board in discharging its
responsibilities relating to compensation of the Company's Chief Executive
Officer and other executives. The Committee determines individuals to be granted
options under the Employee Stock Option Plans and Non Employee Stock Option
Plan, the number of options awarded and the term of the options and interprets
provisions of such plans. The Committee also renders its report for inclusion in
the Company's annual proxy statement.
-5-
The current members of the Compensation Committee are Randy B. Blaustein
(Chairman), Andrew J. Wilder, and Arnold Blumenthal.
The Compensation/Stock Option Committee held one meeting in fiscal year
2008. The report of the Compensation/Stock Option Committee is included in this
proxy statement on page 11.
Nominating Committee
The Nominating Committee reviews and makes recommendation to the Board
regarding potential candidates for nomination as director.
The Nominating Committee held one meeting in fiscal year 2008. The
current members of the Nominating Committee are Arnold Blumenthal (Chairman),
Andrew J. Wilder and Randy B. Blaustein.
Nomination of Directors
The Nominating Committee considers candidates for director nominees
proposed by directors, the Chief Executive Officer and stockholders. Potential
candidates are screened and interviewed by the Nominating Committee. All members
of the Board may interview the final candidates. The same identifying and
evaluating procedures apply to all candidates for director nomination, including
candidates submitted by stockholders.
The Company's general criteria for the nomination of director
candidates, include the following:
- the candidates' personal and professional ethics, integrity
and values, - mature judgment, - management, accounting or
finance, industry and technical knowledge, - demonstrated
skills in his/her area of present or past professional or
business
responsibility,
- an ability to work effectively with others, - sufficient
time to devote to the affairs of the Company and - freedom
from conflicts of interest.
Stockholder Nominees
The Nominating Committee will consider nominations submitted by
stockholders. Any stockholder nominations proposed for consideration by the
Nominating Committee should include the nominee's name and qualifications for
Board membership and should be addressed to:
Chair - Nominating Committee
Napco Security Systems, Inc.
333 Bayview Ave.
Amityville, NY 11701
Attention: Kevin Buchel
Communications with the Board
You can contact any Director by writing to such Director:
c/o Napco Security Systems, Inc.
333 Bayview Ave.
Amityville, NY 11701
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Attention: Kevin Buchel
The Secretary will promptly forward any communication unaltered to the
Director.
Policy With Respect to Related Person Transactions
It is the Company's policy, set forth in writing, not to permit any
transaction in which the Company is a party and in which executive officers or
directors, their immediate family members, or 5% shareholders have or will have
a direct or indirect interest unless approved by the Audit Committee of the
Board of Directors, other than
1. transactions available to all employees;
2. transactions involving compensation or business expense
reimbursement approved by the Compensation Committee or by
disinterested members of the Board of Directors; or
3. transactions involving less than $120,000 when aggregated
with all similar transactions.
Any issues as to the application of this policy shall be resolved by
the Audit Committee of the Board of Directors. A copy of our Statement of Policy
with Respect to Related Person Transactions is available at the Company's
website, www.napcosecurity.com, under the "Investors" caption.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors hereby reports as
follows:
1. The Audit Committee has reviewed and discussed the
Company's audited financial statements with the Company's
management and representatives of Marcum & Kliegman LLP
("M & K");
2. The Audit Committee has discussed with M&K the matters
required to be discussed by SAS 61, as modified or
supplemented; and
3. The Audit Committee has received the written disclosures
and letter from M&K required by Independence Standards
Board Standard No. 1 and discussed M&K's independence with
representatives of M&K.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 2008 filed with the Securities and Exchange
Commission.
Date: September 29, 2008
The Audit Committee:
Andrew J. Wilder,
Chairman
Paul Stephen Beeber
Arnold Blumenthal
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COMPENSATION OF DIRECTORS
The total fiscal year 2008 compensation of non-employee Directors is
shown in the following table.
Director Compensation
Fees Earned or Paid All Other
in Cash Option Awards Compensation Total
Name ($)(1) ($)(2)(3) ($) ($)
----------------------------------------------------------------------------------------------------
Paul Stephen Beeber $17,500 - - $17,500
Randy B. Blaustein (4) 17,500 - $6,000 23,500
Arnold Blumenthal 17,500 - - 17,500
Donna A. Soloway 7,500 - - 7,500
Andrew J. Wilder 22,500 - - 22,500
(1) Each director who is not an employee receives $2,500 for each Board of Directors meeting
attended. Mr. Wilder, as Chairman of the Audit Committee, receives $2,000 for each Audit
Committee meeting attended and each of Messrs. Beeber and Blumenthal receives $1,000 for each
Audit Committee meeting attended. Mr. Blaustein receives $4,000 for serving as Chairman of the
Compensation Committee.
(2) Amounts reflect the share-based compensation expense recognized by the Company in the year ended
June 30, 2008, in accordance with Statement of Financial Accounting Standards No. 123R.
Assumptions used in the calculation of these amounts are included in footnote 7 to the Notes to
Consolidated Financial Statements contained in the Company's Form 10-K for the year ended June
30, 2008.
(3) At June 30, 2008, each of Messrs. Beeber, Blaustein, Blumenthal, Wilder and Ms. Soloway held
outstanding options to purchase 6,000 shares of Common Stock of the Company, of which options
to purchase 2,400 shares were vested and options to purchase 1,200 shares will vest on the
anniversary date of grant in each of fiscal 2009, 2010 and 2011.
(4) During the fiscal year ended June 30, 2008, the Company retained Mr. Blaustein as special
counsel for certain general business and tax related matters. Fees for such services were
$6,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 each of Messrs. Soloway, Buchel, Hevia and Carrieri
filed one late Form 4 reporting one grant of options on October 9, 2007.
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. The Company has adopted a
Code of Ethics for directors and employees, including its executive officers.
There are no family relationships between any director or officer of the
Company, except Richard L. Soloway and Donna A. 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
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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.
Name and Age Position and Office with the Company, Term of Office
and Five-Year Employment History
----------------------------------------------------------------------------------------------------
Richard L. Soloway Chairman of the Board of Directors since October 1981; President since 1998;
and Secretary since 1975.
(62)
Kevin S. Buchel Senior Vice President of Operations and Finance since April 1995; Treasurer
since May 1998.
(55)
Jorge Hevia Senior Vice President of Corporate Sales and Marketing since May 1999; Vice
President of Corporate Sales and Marketing since October 1998.
(50)
Michael Carrieri Senior Vice President of Engineering Development since May 2000; Vice President
of Engineering Development from September 1999 to May 2000.
(50)
George Marks President, Marks USA since August 2008; President of G. Marks Hardware, Inc.
from prior to 2004 to August 2008.
(72)
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION & ANALYSIS
Compensation Program Objective
The objective of our executive compensation program is to allow us to
successfully retain and motivate executives who enable us to achieve short and
long term growth and operational excellence.
Oversight of Our Executive Compensation Program
The Compensation Committee of the Board of Directors (the "Committee")
assists the Board in discharging its responsibilities relating to compensation
of the Chief Executive Officer and other executive officers. The Committee's
responsibilities are detailed in its charter, which can be found at
www.napcosecurity.com
The Committee's process includes executive sessions where the Committee
meets alone, without the presence of management.
Components of the Executive Compensation Program-Description of Elements and
Evaluation Process
The named executive officers, including our Chief Executive Officer,
have a compensation program that includes the following components:
- Base salary
- Annual incentives
- Long-term incentives in the form of stock options awards
- Employee benefits
- Perquisites
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Compensation Mix. We do not have policies that define specific
percentage allocations for fixed and variable compensation, or cash and non-cash
compensation. We do, however, intend to deliver a portion of total compensation
in the form of performance-based cash incentives and in awards of stock options,
to achieve our objective of offering rewards for successful business results and
shareholder value creation.
Base Salaries. Base salaries are used to compensate each of our
executives for their positions and levels of responsibility. Each of Messrs.
Soloway, Hevia and Carreri have employment agreements, which provide for a
minimum base salary and a minimum annual cost-of-living adjustment. For fiscal
2008 Messrs. Soloway, Hevia and Carrieri's salaries were determined pursuant to
such Employment Agreements.
Mr. Buchel's salary for the 2008 fiscal year was in an amount
recommended by the CEO. The considerations entering into the determination by
the CEO of the salary recommendation for Mr. Buchel were the CEO's subjective
evaluations of the ability and past performance of Mr. Buchel and the CEO's
judgment of Mr. Buchel's potential for enhancing the Company's profitability.
Annual Cash Incentives. The Committee's policy is that named executive
officers, other than the CEO, should receive short term incentive compensation
in the form of bonuses based, in part, on targeted sales and earnings
recommended by the CEO. For fiscal 2008, the Company did not achieve targeted
sales and earnings. Based on the CEO's recommendation, each named executive
officer (including the CEO) received a cash bonus determined using a formula
comparing actual operating income against budgeted operating income and
multiplying that formula by each NEO's targeted bonus. In addition, Mr. Buchel's
bonus reflects his work in overseeing the consummation of the successful Marks
USA acquisition.
Long-term Incentive Awards. The purpose of the granting of stock
options is to retain the services of the named executive officers and our key
employees, and encourage them to improve our operating results and to become
shareholders of the Company, all of which is intended to result in increased
shareholder value.
The Committee's policy is generally to grant options to the named
executive officers other than the CEO under the Company's Stock Option Plans
after consideration of the amounts recommended periodically by the CEO. The
recommendations of the CEO for option grants reflect the subjective judgment of
the CEO of the performance of such executives and the potential benefit to the
Company from the grant of this form of incentive compensation. Based upon the
recommendation of the CEO, each of Messrs. Hevia, Carrieri and Buchel were
granted options in fiscal 2008 to purchase 5,000 shares at an exercise price of
$5.35 per share. Mr. Soloway was granted options to purchase 25,000 in fiscal
2008 at an exercise price of $5.89 per share.
Employee Benefits, Perquisites and Other Personal Benefits. As a
general rule, we do not provide special benefits to senior executives and the
named executive officers participate in the same plans - including term life
insurance, health and disability insurance - available to all salaried
employees. We do, however, pay the premiums on additional health and life
insurance policies for the benefit of each of the named executive officers. See
footnote to the Summary Compensation Table.
We offer one retirement plan, a qualified profit sharing 401(k) plan to
all employees, including the named executive officers.
We have provided certain perquisites to the named executive officers,
as summarized in footnote 2 to the "Summary Compensation Table."
-10-
Employment Agreements
Change in Control, Severance Agreements. Under Mr. Soloway's Employment
Agreement, if during its term there should be a change in control, then Mr.
Soloway is entitled to terminate his employment and is entitled to receive a
termination payment equal to 299% of the average of the prior five calendar
years' compensation, subject to certain limitations. If the Company terminates
Mr. Soloway's employment other than for Cause, as defined, or if Mr. Soloway
terminates his employment with the Company for Good Reason, as defined, the
Company shall pay a lump sum payment equal to (i) Mr. Soloway's annual base
salary plus the bonus paid for the prior fiscal year multiplied by (ii) the
greater of the number of years or portion thereof remaining in the term of the
Agreement or three years.
Each of the agreements with Mr. Hevia and Mr. Carrieri provide for
payment equal to nine months of salary and six months of health insurance in the
event of a non-voluntary termination of employment of the officer without cause.
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.
We believe these changes in control and severance arrangements help to
retain these executive talents by providing them with a sense of commitment by
the Company to them.
Material Tax Implications
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to the CEO and other named executive officers. Because of the range of
compensation paid to its executive officers, the Committee has not established
any policy regarding annual compensation to such executive officers in excess of
$1,000,000.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors hereby reports as
follows:
1. The Compensation Committee has reviewed, and discussed
with Management, the Company's Compensation Discussion &
Analysis ("CD&A") appearing on pages 9-11 of this proxy
statement.
2. Based on the review and discussions referred to in
paragraph 1 above, the Compensation Committee recommended
to the Board of Directors that the CD&A be included in
this proxy statement and incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2008 filed with the Securities and Exchange
Commission.
Date: October 30, 2008
The Compensation/Stock Option
Committee:
Randy B. Blaustein
Andrew J. Wilder
Arnold Blumenthal
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SUMMARY OF EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth compensation
information for our Chief Executive Officer, our Chief Financial Officer and our
two other most highly compensated executive officers during fiscal year 2008 and
2007 of the Company.
Summary Compensation Table
All Other
Name and Fiscal Salary Bonus Option Awards Compensation Total
Principal Position Year ($) ($) ($)(1) ($)(2) ($)
----------------------------------------------------------------------------------------------------
Richard L. Soloway, Chairman 2008 $598,086 $48,225 $115,969 $43,149 $805,429
of the Board of Directors,
President and Secretary 2007 532,171 159,159 227,916 44,265 963,511
Kevin S. Buchel,
Senior Vice President of 2008 245,712 25,630 35,216 9,103 315,661
Operations and Finance and
Treasurer 2007 228,250 51,585 35,235 9,444 324,514
Jorge Hevia,
Senior Vice President of 2008 266,042 15,630 35,216 12,482 329,370
Corporate Sales and
Marketing 2007 245,562 51,585 35,235 11,680 344,062
Michael Carrieri, 2008 241,113 10,941 35,216 16,096 303,366
Senior Vice President of
Engineering Development 2007 223,610 36,109 35,235 8,710 303,664
(1) Amounts reflect the share-based compensation expense recognized by
the Company in the fiscal years ended June 30, 2007 and June 30,
2008, in accordance with Statement of Financial Accounting
Standards No. 123R. Assumptions used in the calculation of these
amounts are included in footnote 7 to the Notes to Consolidated
Financial Statements contained in the Company's Form 10-K for the
year ended June 30, 2008.
(2) All Other Compensation for Mr. Soloway for fiscal 2007 includes
payment of health insurance premiums of $17,311, automobile
expenses of $21,599 and 401K match of $5,322. All other
compensation for Mr. Soloway for fiscal 2008 includes payment of
health insurance premiums of $16,886, automobile expenses of
$20,732 and 401K match of $5,273.
Grants of Plan-Based Awards
All Other Option
Awards: Number of Exercise or Base Grant Date Fair
Shares of Stock or Price of Option Value of Option
Grant Units Awards Awards
Name Date (#)(1) ($/Sh) ($)(2)
------------------------------------------------------------------------------------------
Richard L. Soloway 10/09/07 25,000 $5.89 $101,980
Kevin S. Buchel 10/09/07 5,000 5.35 18,950
Jorge Hevia 10/09/07 5,000 5.35 18,950
Michael Carrieri 10/09/07 5,000 5.35 18,950
(1) Vest as to 20% upon grant and as to an additional 20% on the first four
annual anniversary dates of grant.
(2) See footnote (1) to the Summary Compensation Table
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Outstanding Equity Awards
Option Awards
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised Option
Options Options Exercise Option
(#) (#) Price Expiration
Name Exercisable Unexercisable ($) Date (1)
------------------------------------------------------------------------------------
Richard L. Soloway 135,000 - $1.787 02/27/13
540,000 - 1.881 06/15/13
135,000 - 2.091 03/19/14
45,000 11,250 5.227 03/15/15
22,500 15,000 11.160 03/24/16
10,000 15,000 6.620 10/26/16
1,000 4,000 5.890 10/09/17
Kevin S. Buchel 27,000 - 1.759 12/20/12
27,000 - 1.900 03/19/14
13,500 9,000 5.733 11/21/15
2,000 3,000 6.020 10/26/16
1,000 4,000 5.350 10/09/17
Michael Carrieri 27,000 - 1.759 12/20/12
27,000 - 1.900 03/19/14
13,500 9,000 5.733 11/21/15
2,000 3,000 6.020 10/26/16
1,000 4,000 5.350 10/09/17
Jorge Hevia 27,000 - 1.759 12/20/12
27,000 - 1.900 03/19/14
13,500 9,000 5.733 11/21/15
2,000 3,000 6.020 10/26/16
1,000 4,000 5.350 10/09/17
----------------
Vest as to 20% upon grant and as to an additional 20% on the first four annual
anniversary dates of grant.
Option Exercises and Stock Awards
Option Awards
Number of Shares Value Realized on
Acquired on Exercise Exercise
Name (#) ($)
--------------------- ------------------ -----------------
Richard L. Soloway - -
Kevin S. Buchel - -
-13-
Option Awards
Number of Shares Value Realized on
Acquired on Exercise Exercise
Name (#) ($)
--------------------- ------------------ -----------------
Jorge Hevia - -
Michael Carrieri - -
Employment Agreements and Potential Payments Upon Termination or Change in
Control
The Company has employment agreements with Richard L. Soloway, Jorge
Hevia and Michael Carrieri. The agreement with Mr. Soloway, entered into on June
26, 2003 for a five year period, and then year to year unless notice of
termination is given at least six months prior to the end of the then applicable
term, provides for a minimum annual salary to be adjusted for inflation and
discretionary annual incentive compensation. Mr. Soloway's agreement contains
non-compete restrictions during his employment and for one year after
termination for any reason. The agreement also provides for termination payments
to Mr. Soloway upon death, disability, termination by the Company other than for
Cause, as defined, termination by Mr. Soloway for Good Reason, as defined, and
termination by Mr. Soloway in the event of a change in control. In the event of
death, the termination payment equals one year's salary payable over one year
plus a bonus calculated on a pro rata basis through the end of the fiscal
quarter immediately preceding death. In the event of disability, the Company
must pay Mr. Soloway an amount equal to 60% of his annual salary through the
term of the agreement plus his bonus on a pro rata basis through the end of the
fiscal quarter preceding the sixth month of his disability. In the event the
Company terminates Mr. Soloway other than for Cause or if Mr. Soloway terminates
for Good Reason, the Company must pay Mr. Soloway, in a lump sum, an amount
equal to three times his annual salary plus the bonus paid to him for the year
prior to his termination. If during the term there should be a change in
control, then Mr. Soloway is entitled to terminate his employment, and the
Company is required to pay him, an amount equal to 299% of the average of the
prior five calendar years' total compensation, subject to certain limitations.
The Company's option plans provide for the accelerated vesting of unvested
options upon a change in control.
Had Mr. Soloway's employment terminated on June 30, 2008 after a change
in control, the Company would have been required to pay him $2,027,279 pursuant
to such agreement. In addition, assuming a change in control on June 30, 2008,
vesting of options to purchase 72,500 shares of Company Common Stock would have
been accelerated. The closing price per share of the Company's Common Stock on
the NASDAQ Global Market on June 30, 2008 ($4.53) was less than the exercise
prices of such accelerated options.
Under such agreement, had Mr. Soloway's employment terminated on June
30, 2008 on account of (i) death, (ii) disability or (iii) by the Company other
than for Cause, or by Mr. Soloway for Good Reason, the Company would have been
required to pay him $621,171, $391,993, and $1,863,513, respectively.
Mr. Hevia's agreement terminates in October 2010. The agreement, as
amended, provides for annual salaries of $274,401 and $288,121 during fiscal
2009 and 2010, respectively, as well as certain bonus provisions based on sales
and profits. Mr. Hevia's agreement provides for payment equal to nine months of
salary and six months of health insurance in the event of a non-voluntary
termination of employment without cause or upon a change in control of the
Company. Had either of such events occurred on June 30, 2008, the Company would
have been required to pay him $202,410.
-14-
Mr. Carrieri's agreement terminates in August, 2010. The agreement
provides for annual salaries of $248,212 and $260,023 during fiscal 2009 and
2010, respectively, as well as certain bonus provisions based on sales and
profits. Mr. Carrieri's agreement provided for payment equal to nine months of
salary and six months of health insurance in the event of a non-voluntary
termination of employment without cause. Had Mr. Carrieri been terminated
non-voluntarily without cause on June 30, 2008, the Company would have been
required to pay him $183,704.
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. Had Mr. Buchel's employment been terminated on June 30, 2008
non-voluntarily without cause, the Company would have been required to pay him
$188,149 pursuant to such severance agreement.
In the event of a change in control on June 30, 2008, vesting of
options to purchase 16,000 shares would have been accelerated for each of
Messrs. Hevia, Carrieri and Buchel. The closing price per share of the Company's
Common Stock on the NASDAQ Global Market on June 30, 2008 ($4.53) was less than
the exercise prices of such accelerated options.
Each of the agreements with Messrs. Hevia, Carrieri and Buchel contains
non-compete restrictions for three years after the employee's termination of
employment.
Item 2: Amendment of the Amended and Restated Certificate of Incorporation to
change the name of the Company to Napco Security Technologies, Inc.
On September 15, 2008, the Board of Directors of the Company
unanimously adopted a resolution approving the amendment of the Company's
Amended and Restated Certificate of Incorporation to change the name of the
Company to Napco Security Technologies, Inc. (the "Amendment"). The Board of
Directors further directed that the Amendment be submitted for consideration by
stockholders at the Company's 2008 Annual Meeting. In the event the Amendment is
approved by stockholders, the Company will thereafter execute and submit to the
Delaware Secretary of State for filing a Certificate of Amendment of the Amended
and Restated Certificate of Incorporation providing for the Amendment. The
Amendment will become effective at the close of business on the date the
Certificate of Amendment is accepted for filing by the Secretary of State.
The Board of Directors considers the proposed name change desirable
because it more closely identifies its corporate name with its ongoing research
and development efforts as well as its recent acquisition of Marks, which
engages in, among other things, the door lock technology business. .
In the event stockholders approve the Amendment, Article First of the
Company's Amended and Restated Certificate of Incorporation will be amended to
change the name of the Company to Napco Security Technologies, Inc. and will
read as follows:
"FIRST: The name of the corporation (hereinafter called the
"Company") is Napco Security Technologies, Inc."
Approval of the Amendment will require the affirmative vote of a
majority of the outstanding shares entitled to vote thereon. Proxies received in
response to the Board's solicitation will be voted "FOR" approval of the
Amendment if no specific instructions are included thereon for Item 2.
The Board of Directors believes adoption of the Amendment will be in the
best interests of
-15-
the stockholders and, accordingly, recommends a vote FOR this proposal,
which is ITEM 2 on the Proxy Card.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets
forth information as of October [ ], 2008, 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.
Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership Common Stock (2)
(1)
------------------------------------------------------------------------------
Richard L. Soloway
c/o the Company
333 Bayview Avenue
Amityville, NY 11701 6,900,160 34.51%
Rutabaga Capital
64 Broad Street, 3rd Floor
Boston, MA 02109 (3) 1,291,771 6.71%
Kevin S. Buchel 355,683 1.86%
Jorge Hevia 262,250 1.37%
Michael Carrieri 184,500 0.96%
Andrew J. Wilder 112,020 0.59%
Randy B. Blaustein 108,150 0.57%
Donna A. Soloway 31,560 0.17%
Paul Stephen Beeber 7,800 0.04%
Arnold Blumenthal 3,975 0.02%
George Marks - -
All executive officers and
directors as a group (10 in
number) 7,966,098 (4) 39.30%
----------------
(1) This number includes the number of shares that a person has a right to
acquire within sixty (60) days (Soloway - 902,500, Buchel - 77,000, Hevia
-77,000, and Carrieri - 77,000, Wilder - 1,200, Blaustein - 1,200, D.
Soloway - 1,200, Beeber - 1,200, Blumenthal - 1,200).
(2) Percentages for each person or the group are computed on the basis of
19,092,473 shares of Common Stock outstanding on October [ ], 2008, plus
the number of shares that such person or group has the right to acquire
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.
(3) Based on information set forth in Form 13F filed with the Securities and
Exchange Commission reporting as of June 30, 2008.
(4) This number of shares includes (i) 6,820,598 shares as to which officers
and directors have sole voting and investment power, and (ii) 1,145,500
shares that officers and directors have the right to acquire within sixty
(60) days.
-16-
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company included in the
Annual Report to Stockholders for the 2008 fiscal year were examined by Marcum &
Kleigman LLP ("M&K"). A representative of M&K will be present at the Annual
Meeting to make a statement if he desires and to respond to appropriate
questions presented at the Meeting.
The Company has not yet retained an independent registered public
accounting firm for fiscal year 2009.
Principal Accountant Fees
The fees billed by M&K, the Company's independent auditors for
professional services for 2008 and 2007 fiscal years were as follows:
Fiscal Year 2008 Fiscal Year 2007
------------------------ ---------------------
Audit Fees (1) $307,250 $228,000
Audit Related Fees - -
Tax Fees - -
All Other Fees (2) 14,000 12,000
----------------
(1) Includes audit of financial statements, SAS 100 reviews and consultations
for 2008 and 2007 and fees for audit of internal controls for 2008 and
2007.
(2) Includes services related to the audit of the Company's employee benefit
plan for 2008 and 2007.
The Audit Committee has considered whether the provision of the
services described above under the headings "Audit Related Fees," "Tax Fees" and
"All Other Fees" is compatible with maintaining the auditor's independence and
determined that it is. In fiscal year 2008 100% of "All Other Fees" were
approved by the Audit Committee.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
The Audit Committee specifically pre-approves all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval may be provided for up to one year. Each pre-approval is detailed
as to the particular service or category of services and is generally subject to
a specific budget. The independent auditors and management are required to
periodically report to the Audit Committee regarding the services provided by
the independent auditors in accordance with this pre-approval, and the fees for
the services performed to date.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
AND NOMINATION OF DIRECTORS
From time to time stockholders present proposals that may be proper subjects for
inclusion in the Proxy Statement and for consideration at an annual meeting.
Stockholders who intend to present proposals at the 2009 Annual Meeting, and who
wish to have such proposals included in the Company's Proxy Statement for the
2009 Annual Meeting, must be certain that such proposals are received by the
Company's Secretary at the Company's executive offices, 333 Bayview Avenue,
Amityville, New York 11701, not later than July 10, 2009. Such proposals must
meet the requirements set forth in the rules and regulations of the Securities
and Exchange Commission in order to be eligible for inclusion in the Proxy
Statement. Stockholders who intend to present a proposal at the 2009 Annual
Meeting but who do not
-17-
wish to have such proposal included in the Company's Proxy Statement for such
meeting must be certain that notice of such proposal is received by the
Company's Secretary at the Company's executive offices not later than September
23, 2009.
Pursuant to the Company's by-laws, any nominations for director by a
stockholder must be delivered or mailed to and received by the principal
executive offices of the Company not less than sixty (60) days prior to the date
of 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: November 7, 2008 By Order of The Board of Directors
Richard L. Soloway, Secretary
Upon the written request of any stockholder of the Company, the Company
will provide to such stockholder a copy of the Company's Annual Report on Form
10-K for 2008, including the financial statements and the schedules thereto,
filed with the Securities and Exchange Commission. Any such request should be
directed to Secretary, Napco Security Systems, Inc., 333 Bayview Avenue,
Amityville, New York 11701. There will be no charge for such report unless one
or more exhibits thereto are requested, in which case the Company's reasonable
expenses of furnishing such exhibits may be charged.
All stockholders are urged to fill in, sign and mail the enclosed proxy
promptly whether or not you expect to attend the meeting. If you are mailing
your Proxy, kindly do so sufficiently in advance of the meeting date so that it
will be received in time to be counted at the meeting.
-18-
NAPCO SECURITY SYSTEMS, INC.
333 Bayview Avenue
Amityville, New York 11701
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of NAPCO SECURITY SYSTEMS, INC. hereby
appoints Messrs. Richard L. 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
Company which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of said Company, to be held on Tuesday, December 9, 2008 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); FOR THE
AMENDMENT TO CHANGE THE NAME OF THE COMPANY TO NAPCO SECURITY TECHNOLOGIES, INC.
(ITEM 2) 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)
PROXY
The Board of Directors recommends a Vote FOR Items 1 & 2.
Item 1. Election of Two Directors:
Andrew J. Wilder
FOR [ ] WITHHOLD [ ]
Arnold Blumenthal
FOR [ ] WITHHOLD [ ]
Item 2. Amendment of the Amended and Restated Certificate of Incorporation to
change the name of the Company to Napco Security Technologies, Inc.:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated:________ ____________________________________________
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 Company or its transfer
agent.