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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(a)(2))
[X] 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:
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.";
and
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.
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 12, 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.
- 2 -
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:
Principal Occupation; Director
Name and Age 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 & 1995
(57) Co., independent certified public
accountants, since 1990.
Arnold Blumenthal.....................Group Publisher Emeritus, 2001
(81) Security Dealer Locksmith Ledger,
Publisher Security Line 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.
- 3 -
Directors to serve until Annual
Meeting of Stockholders following
Fiscal Year 2009:
Paul Stephen Beeber...................Licensed Attorney in New York 2004
(64) State since 1970, focusing on
elder law, estate planning and
real estate.
Randy B. Blaustein....................Principal of R.B. Blaustein & Co. 1985
(56) since December 2000; Partner of
Blaustein, 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.
Donna A. Soloway......................Board of Directors of Security 2001
(60) Industry Association (SIA); Chair
of Awards Committee 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.
Directors to serve until Annual
Meeting of Stockholders following
Fiscal Year 2010:
Richard L. Soloway....................Chairman of the Board of Directors 1972
(62) since October 1981; President
since 1998; Secretary since 1975.
Kevin S. Buchel.......................Senior Vice President of 1998
(55) Operations and Finance since April
1995; Treasurer since May 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, 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 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 Committee
The Compensation 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. The current members of the Compensation
Committee are Randy B. Blaustein (Chairman), Andrew J. Wilder, and Arnold
Blumenthal.
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The Compensation Committee held one meeting in fiscal year 2008. The report
of the Compensation 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
Attention: Kevin Buchel
- 6 -
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 $120,000 when aggregated with all
similar transactions.
Any issues as to the application of this policy shall be resolved by the
Audit Committee of the Board of Directors. A copy of our Statement of Policy
with Respect to Related Person Transactions is available at the Company's
website, www.napcosecurity.com, under the "Investors" caption.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors hereby reports as follows:
1. The Audit Committee has reviewed and discussed the Company's audited
financial statements with the Company's management and representatives
of Marcum & Kliegman LLP ("M&K") ;
2. The Audit Committee has discussed with M&K the matters required to be
discussed by the statement on Auditing Standards No. 61, as amended
(AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by
the Public Company Accounting Oversight Board in Rule 3200T; and
3. The Audit Committee has received the written disclosures and letter
from M&K required by applicable requirements of the Public Company
Accounting Oversight Board regarding the independent accountants'
communication with the Audit Committee concerning independence, and
has discussed with M&K, M&K's independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's annual report on Form 10-K for the fiscal year ended
June 30, 2008 filed with the Securities and Exchange Commission.
Date: September 29, 2008
The Audit Committee:
Andrew J. Wilder, Chairman
Paul Stephen Beeber
Arnold Blumenthal
- 7 -
COMPENSATION OF DIRECTORS
The total fiscal year 2008 compensation of non-employee Directors is shown
in the following table.
Director Compensation
Fees Earned
or Paid in All Other
Cash Option Awards Compensation Total
Name ($)(1) ($)(2)(3) ($) ($)
------------------- ----------- ------------- ------------ ---------
Paul Stephen Beeber $17,500 $3,792 - $21,292
Randy B. Blaustein (4) 17,500 3,792 $6,000 27,292
Arnold Blumenthal 17,500 3,792 - 21,292
Donna A. Soloway 7,500 3,792 - 11,292
Andrew J. Wilder 22,500 3,792 - 26,292
___________________
(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 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.
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Position and Office with the Company, Term of Office
Name and Age and Five-Year Employment History
------------ --------------------------------
Richard L. Soloway......Chairman of the Board of Directors since October 1981;
(62) President since 1998; and Secretary since 1975.
Kevin S. Buchel.........Senior Vice President of Operations and Finance since
(55) April 1995; Treasurer since May 1998.
Jorge Hevia.............Senior Vice President of Corporate Sales and Marketing
(50) since May 1999; Vice President of Corporate Sales and
Marketing since October 1998.
Michael Carrieri........Senior Vice President of Engineering Development since
(50) May 2000; Vice President of Engineering Development from
September 1999 to May 2000.
George Marks............President, Marks USA since August 2008; President of G.
(72) Marks Hardware, Inc. from prior to 2004 to August 2008.
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 life insurance
policies for the benefit of each of the named executive officers and on
additional health insurance policies for the benefit of Messrs. Soloway and
Carrieri. 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
$1,000,000.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors hereby reports as
follows:
1. The Compensation Committee has reviewed, and discussed with
Management, the Company's Compensation Discussion & Analysis ("CD&A")
appearing on pages 9 - 11 of this proxy statement.
2. Based on the review and discussions referred to in paragraph 1 above,
the Compensation Committee recommended to the Board of Directors that
the CD&A be included in this proxy statement and incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2008 filed with the Securities and Exchange
Commission.
Date: October 30, 2008
The Compensation Committee:
Randy B. Blaustein
Andrew J. Wilder
Arnold Blumenthal
- 11 -
SUMMARY OF EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth compensation information
for our Chief Executive Officer, our Chief Financial Officer and our two other
most highly compensated executive officers during fiscal year 2008 and 2007 of
the Company.
Summary Compensation Table
Option All Other
Name and Fiscal Salary Bonus Awards Compensation Total
Principal Position Year ($) ($) ($)(1) ($)(2)(3) ($)
--------------------------- -------- ---------- --------- ---------- ------------ ----------
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, 2008 245,712 25,630 35,216 9,103 315,661
Senior Vice President of
Operations and Finance and 2007 228,250 51,585 35,235 9,444 324,514
Treasurer
Jorge Hevia, 2008 266,042 15,630 35,216 12,482 329,370
Senior Vice President of
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 and life 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 and life insurance premiums of
$16,886, automobile expenses of $20,732 and 401K match of $5,273.
(3) All other compensation for Messrs. Buchel, Hevia and Carrieri includes
payment of life insurance premiums, automobile expenses and 401K matches
and for Mr. Carrieri, includes payment of health insurance premiums.
Grants of Plan-Based Awards
All Other
Option Awards: Exercise or
Number of Shares Base Price Grant Date Fair
Grant of Stock or Units of Option Value of Option
Name Date (#)(1) Awards ($/Sh) Awards ($)(2)
------------------ -------- ----------------- -------------- ---------------
Richard L. Soloway 10/09/07 25,000 $5.89 $101,980
Kevin S. Buchel 10/09/07 5,000 5.35 18,950
Jorge Hevia 10/09/07 5,000 5.35 18,950
Michael Carrieri 10/09/07 5,000 5.35 18,950
_____________________
(1) Vest as to 20% upon grant and as to an additional 20% on the first four
annual anniversary dates of grant.
(2) See footnote (1) to the Summary Compensation Table
- 12 -
Outstanding Equity Awards
Option Awards
Number of Number of
Securities Securities
Underlying Underlying Option
Unexercised Unexercised Exercise Option
Options Options Price Expiration
Name (#) Exercisable (#) Unexercisable ($) Date
------------------ --------------- ----------------- -------- ----------
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 (1) 5.227 03/15/15
22,500 15,000 (2) 11.160 03/24/16
10,000 15,000 (3) 6.620 10/26/16
5,000 20,000 (4) 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) 5.733 11/21/15
2,000 3,000 (6) 6.020 10/26/16
1,000 4,000 (7) 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) 5.733 11/21/15
2,000 3,000 (6) 6.020 10/26/16
1,000 4,000 (7) 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) 5.733 11/21/15
2,000 3,000 (6) 6.020 10/26/16
1,000 4,000 (7) 5.350 10/09/17
_________________________________
(1) Options as to 11,250 shares vest on 3/15/09.
(2) Options as to 7,500 shares vest on each of 3/24/09 and 3/24/10.
(3) Options as to 5,000 shares vest on each of 10/26/08, 10/26/09 and 10/26/10.
(4) Options as to 5,000 shares vest on each of 10/9/08, 10/9/09, 10/9/10 and
10/9/11.
(5) Options as to 4,500 shares vest on each of 3/24/09 and 3/24/10.
(6) Options as to 1,000 shares vest on each of 10/26/08, 10/26/09 and 10/26/10.
(7) Options as to 1,000 shares vest on each of 10/9/08, 10/9/09, 10/9/10 and
10/9/11.
Option Exercises
None of Messrs. Soloway, Buchel, Carrieri or Hevia exercised any options to
purchase Common Stock in the 2008 fiscal year.
- 13 -
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.
Mr. Carrieri's agreement terminates in August, 2010. The agreement provides
for annual salaries of $248,212 and $260,623 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.
- 14 -
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 G. Marks Hardware,
Inc., 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 the stockholders and, accordingly, recommends a vote FOR this
proposal, which is ITEM 2 on the Proxy Card.
- 15 -
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets forth
information as of November 3, 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.
Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Common Stock (2)
--------------------------- ------------------------ ----------------
Richard L. Soloway 6,900,160 34.51%
c/o the Company
333 Bayview Avenue
Amityville, NY 11701
Rutabaga Capital 1,281,771 6.71%
64 Broad Street, 3rd Floor
Boston, MA 02109 (3)
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 7,966,098 (4) 39.36%
directors as a group (10 in
number)
_____________________________
(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 - 2,400, Blaustein - 2,400, D.
Soloway - 2,400, Beeber - 2,400, Blumenthal - 2,400).
(2) Percentages for each person or the group are computed on the basis of
19,092,473 shares of Common Stock outstanding on November 3, 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) $377,250 $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 "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 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.
- 17 -
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.