SFASM DRAFT
10/26/07
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 4, 2007
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 4, 2007, 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; and
2. to transact such other business as may properly come
before the Meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 29,
2007 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
October 29, 2007
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 4, 2007
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 2007,
to be held on December 4, 2007, 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 1, 2007.
A copy of the 2007 Annual Report of the Company, including financial statements,
is being mailed herewith.
Only stockholders of record at the close of business on October 29,
2007 (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
19,398,283 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, 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. 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 and will not be
counted in determining the number of shares necessary for approval. 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.
-2-
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 2010. The terms of the
other two classes of continuing directors do not expire until the Annual
Meetings of Stockholders after fiscal year end 2008 and 2009, respectively.
Unless otherwise specified, shares represented by the enclosed proxy
will be voted for the election of Messrs. Soloway and Buchel, 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 2010 and
until his successor is elected and qualified.
Messrs. Soloway and Buchel 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 2010:
Richard L. Soloway.................................. Chairman of the Board of Directors since October 1981; 1972
(61) President since 1998; Secretary since 1975.
Kevin S. Buchel..................................... Senior Vice President of Operations and Finance since 1998
(54) April 1995; Treasurer since May 1998.
Directors to serve until Annual Meeting of
Stockholders following Fiscal Year 2008:
Andrew J. Wilder.................................... Officer of Israeloff, Trattner & Co., independent 1995
(56) certified public accountants, since 1990.
Arnold Blumenthal................................... V.P. of Government Security News and Editor of MBFAA 2001
(80) since 2004; Group Publisher of Security Group of
Cygnus Publishing, 1999 through 2003.
-3-
Principal Occupation; Director
Name and Age Five-Year Employment History Since
------------ ---------------------------- -----
Directors to serve until Annual Meeting of
Stockholders following Fiscal Year 2009:
Paul Stephen Beeber................................. Licensed Attorney in New York State since 1970, 2004
(63) focusing on elder law, estate planning and real estate.
Randy B. Blaustein.................................. Principal of R.B. Blaustein & Co. since December 2000; 1985
(55) Partner of Blaustein, Greenberg & Co. July 1991 -
November 2000; Attorney since October 1980,
specializing in general business and tax matters,
and author of six business books and numerous
business articles.
Donna A. Soloway.................................... Board of Directors of Security Industry Association 2001
(59) (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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
MR. SOLOWAY AND MR. BUCHEL.
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.
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.
-4-
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 2007, 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 6, 2006.
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 2007. 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. The current members of the
Compensation Committee are Randy B. Blaustein (Chairman), Andrew J. Wilder, and
Arnold Blumenthal.
The Compensation/Stock Option Committee held two meetings in fiscal
year 2007. The report of the Compensation/Stock Option Committee is included in
this proxy statement on page 11.
-5-
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 2007. 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
c/o Secretary
Napco Security Systems, Inc.
333 Bayview Ave.
Amityville, NY 11701
Communications with the Board
You can contact any Director by writing to such Director:
c/o Secretary
Napco Security Systems, Inc.
333 Bayview Ave.
Amityville, NY 11701
The Secretary will promptly forward any communication unaltered to the
Director.
-6-
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 $120,000 when aggregated
with all similar transactions.
Any issues as to the application of this policy shall be resolved by
the Audit Committee of the Board of Directors. A copy of our Statement of Policy
with Respect to Related Person Transactions is available at the Company's
website, www.napcosecurity.com, under the "Investors" caption.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors hereby reports as
follows:
1. The Audit Committee has reviewed and discussed the
Company's audited financial statements with the Company's
management and representatives of Marcum & Kliegman LLP
("M&K");
2. The Audit Committee has discussed with M&K the matters
required to be discussed by SAS 61, as modified or
supplemented; and
3. The Audit Committee has received the written disclosures
and letter from M&K required by Independence Standards
Board Standard No. 1 and discussed M&K's independence with
representatives of M&K.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 2007 filed with the Securities and Exchange
Commission.
Date: October 9, 2007
The Audit Committee:
Andrew J. Wilder, Chairman
Paul Stephen Beeber
Arnold Blumenthal
-7-
COMPENSATION OF DIRECTORS
The total fiscal year 2007 compensation of non-employee Directors is
shown in the following table.
Director Compensation
Fees Earned or All Other
Paid in Cash Option Awards Compensation Total
Name ($)(1) ($)(2) (3) ($) ($)
------------------ --------- --------- --------- ---------
Paul Stephen Beeber $14,000 $18,960 - $32,960
Randy B. Blaustein (4) 14,000 18,960 $6,000 38,960
Arnold Blumenthal 14,000 18,960 - 32,960
Donna A. Soloway 10,000 18,960 - 28,960
Andrew J. Wilder 18,000 18,960 - 36,960
--------------------
(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, 2007, 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, 2007.
(3) At June 30, 2007, 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 1,200 shares were vested
and options to purchase 1,200 shares will vest on the anniversary date of
grant in each of fiscal 2008, 2009, 2010 and 2011.
(4) During the fiscal year ended June 30, 2007, 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 the non employee directors, Messrs. Beeber,
Blaustein, Blumenthal and Wilder and Ms. Soloway, filed a late Form 4, reporting
one grant of options on March 16, 2007, to purchase 6,000 shares of Common
Stock.
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.
-8-
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; President since 1998; and
(61) Secretary since 1975.
Kevin S. Buchel............ Senior Vice President of Operations and Finance since April 1995; Treasurer since
(54) May 1998.
Jorge Hevia................ Senior Vice President of Corporate Sales and Marketing since May 1999; Vice
(49) President of Corporate Sales and Marketing since October 1998.
Michael Carrieri........... Senior Vice President of Engineering Development since May 2000; Vice President of
(49) Engineering Development from September 1999 to May 2000.
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
-9-
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
2007 Messrs. Soloway, Hevia and Carrieri's salaries were determined pursuant to
such Employment Agreements.
Mr. Buchel's salary for the 2007 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 2007, the Company did not achieve targeted
sales and earnings due in part, to a reduced housing market and reduced
international sales. Based on the CEO's recommendation, each named executive
officer (including the CEO) received a cash bonus determined by multiplying last
year's bonus and the ratio of net income in fiscal 2007 compared to 2006.
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 2007 to purchase 5,000 shares at an exercise price of
$6.02 per share. Mr. Soloway was granted options to purchase 25,000 in fiscal
2007 at an exercise price of $6.62 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
$1,000,000.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors hereby reports as
follows:
1. The Compensation Committee has reviewed, and discussed
with Management, the Company's Compensation Discussion &
Analysis ("CD&A") appearing on pages 9 - 11 of this proxy
statement.
2. Based on the review and discussions referred to in
paragraph 1 above, the Compensation Committee recommended
to the Board of Directors that the CD&A be included in
this proxy statement and incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2007 filed with the Securities and Exchange
Commission.
Date: October 23, 2007
The Compensation/Stock Option Committee:
Randy B. Blaustein
Andrew J. Wilder
Arnold Blumenthal
-11-
SUMMARY OF EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth compensation
information for our Chief Executive Officer, our Chief Financial Officer and our
two other most highly compensated executive officers during fiscal year 2007 of
the Company.
Summary Compensation Table
Option All Other
Name and Fiscal Salary Bonus Awards Compensation Total
Principal Position Year ($) ($) ($)(1) ($)(2) ($)
--------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Richard L. Soloway, Chairman of the 2007 $ 532,171 $ 159,159 $ 101,980 $ 44,265 $ 837,575
Board of Directors, President and
Secretary
Kevin S. Buchel, 2007 228,250 51,585 18,950 9,444 308,229
Senior Vice President of Operations
and Finance and Treasurer
Jorge Hevia, 2007 245,562 51,585 18,950 11,680 327,777
Senior Vice President of Corporate
Sales and Marketing
Michael Carrieri, 2007 223,610 36,109 18,950 8,710 287,379
Senior Vice President of
Engineering Development
----------------
(1) Amounts reflect the share-based compensation expense recognized by the
Company in the year ended June 30, 2007, 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, 2007.
(2) All Other Compensation for Mr. Soloway includes payment of health insurance
premiums of $17,311, automobile expense of $21,599 and 401K match of
$5,322.
Grants of Plan-Based Awards
All Other Option Awards: Grant Date Fair
Number of Shares of Stock Exercise or Base Value of Option
or Units Price of Option Awards Awards
Name Grant Date (#)(1) ($/Sh) ($)(2)
---------------- ---------- ------------------------- ---------------------- ---------------
Richard L. Soloway 10/26/06 25,000 $6.62 $101,980
Kevin S. Buchel 10/26/06 5,000 6.02 18,950
Jorge Hevia 10/26/06 5,000 6.02 18,950
Michael Carrieri 10/26/06 5,000 6.02 18,950
----------------
(1) Vest as to 20% upon grant and as to an additional 20% on the first four
annual anniversary dates of grant.
(2) See footnote (1) to the Summary Compensation Table
-12-
Outstanding Equity Awards
Option Awards
Number of Number of
Securities Underlying Securities Underlying Option
Unexercised Options Unexercised Options Exercise Option
(#) (#) Price Expiration
Name Exercisable Unexercisable ($) Date (1)
------------------ --------------------- --------------------- -------- ----------
Richard L. Soloway 135,000 - $1.787 02/27/13
540,000 - 1.881 06/15/13
108,000 27,000 2.091 03/19/14
33,750 22,500 5.227 03/15/15
15,000 22,500 11.160 03/24/16
5,000 20,000 6.620 10/26/16
Kevin S. Buchel 27,000 - 1.759 12/20/12
21,600 5,400 1.900 03/19/14
9,000 13,500 5.733 11/21/15
1,000 4,000 6.020 10/26/16
Michael Carrieri 27,000 - 1.759 12/20/12
21,600 5,400 1.900 03/19/14
9,000 13,500 5.733 11/21/15
1,000 4,000 6.020 10/26/16
Jorge Hevia 27,000 - 1.759 12/20/12
21,600 5,400 1.900 03/19/14
9,000 13,500 5.733 11/21/15
1,000 4,000 6.020 10/26/16
----------------
(1) Vest as to 20% upon grant and as to an additional 20% on the first four
annual anniversary dates of grant.
Option Exercises and Stock Awards
Option Awards
Number of Shares Value Realized on
Acquired on Exercise Exercise
(#) ($)
Name
------------------ -------------------- -----------------
Richard L. Soloway 135,000 $606,015
Kevin S. Buchel - -
Jorge Hevia - -
Michael Carrieri - -
-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, 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, 2007 after a change
in control, the Company would have been required to pay him $2,374,332 pursuant
to such agreement. In addition, assuming a change in control on June 30, 2007,
vesting of options to purchase 92,000 shares of Company Common Stock would have
been accelerated. The intrinsic value as of June 30, 2007 of such accelerated
vesting is $137,800, calculated based upon the excess amount of the closing
price of the Company's Common Stock on the NASDAQ Global Market on June 30, 2007
($6.30) over the exercise prices of such accelerated options.
Under such agreement, had Mr. Soloway's employment terminated on June
30, 2007 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 $704,822, $422,893, and $2,114,466, respectively.
Mr. Hevia's agreement terminates in October, 2008. The agreement, as
amended, provides for annual salaries of $248,889 and $261,334 during fiscal
2007 and 2008, 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, 2007, the Company would
have been required to pay him $186,667.
Mr. Carrieri's agreement terminates in August, 2008. The agreement
provides for annual salaries of $225,136 and $236,393 during fiscal 2007 and
2008, 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, 2007, the Company would have been
required to pay him $116,153.
-14-
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, 2007
non-voluntarily without cause, the Company would have been required to pay him
$173,089 pursuant to such severance agreement.
In the event of a change in control on June 30, 2007, vesting of
options to purchase 22,900 shares would have been accelerated with an intrinsic
value as of June 30, 2007 of $32,530 for each of Messrs. Hevia, Carrieri and
Buchel.
Each of the agreements with Messrs. Hevia, Carrieri and Buchel contains
non-compete restrictions for three years after the employee's termination of
employment.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets
forth information as of October 23, 2007, 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 6,844,410 33.81%
c/o the Company
333 Bayview Avenue
Amityville, NY 11701
Rutabaga Capital 1,640,700 8.46%
64 Broad Street, 3rd Floor
Boston, MA 02109 (3)
Heartland Advisors 1,150,000 5.93%
789 N. Water Street, Suite 500
Milwaukee, WI 53202 (3)
Kevin S. Buchel 343,783 1.77%
Jorge Hevia 250,350 1.29%
Michael Carrieri 172,600 0.89%
Andrew J. Wilder 110,820 0.57%
Randy B. Blaustein 106,950 0.55%
Donna A. Soloway 30,360 0.16%
Paul Stephen Beeber 6,600 0.03%
Arnold Blumenthal 2,775 0.01%
All executive officers and directors as a 7,868,648 (4) 38.48%
group (9 in number)
----------------
(1) This number includes the number of shares that a person has a right to
acquire within sixty (60) days (Soloway - 841,750, Buchel - 64,100, Hevia
-64,100, and Carrieri - 64,100, 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
19,398,283 shares of Common Stock outstanding on October 23, 2007, 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, 2007.
(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) 1,040,050
shares that officers and directors have the right to acquire within sixty
(60) days.
-15-
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company included in the
Annual Report to Stockholders for the 2007 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 2008.
Principal Accountant Fees
The fees billed by M&K, the Company's independent auditors for
professional services for 2007 and 2006 fiscal years were as follows:
Fiscal Year 2007 Fiscal Year 2006
---------------- ----------------
Audit Fees (1) $228,000 $168,750
Audit Related Fees - -
Tax Fees - -
All Other Fees (2) 12,000 10,000
----------------
(1) Includes audit of financial statements, SAS 100 reviews and consultations
for 2006 and 2007 and fees for audit of internal controls for 2007.
(2) Includes services related to the audit of the Company's employee benefit
plan for 2006 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 2007 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.
-16-
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 2008 Annual
Meeting, and who wish to have such proposals included in the Company's Proxy
Statement for the 2008 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 1, 2008. 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 2008
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 14, 2008.
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: October 29, 2007 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 2007, 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.
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 4, 2007 and at all
adjournments of such Meeting, with all powers the undersigned would possess if
personally present.
This Proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THE
PROXY WILL BE VOTED FOR THE ELECTION OF THE TWO (2) DIRECTORS (ITEM 1); AND AS
TO ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE
VOTED IN THE DISCRETION AND IN THE BEST JUDGMENT OF THE PROXIES. This Proxy may
be revoked at any time prior to the voting thereof.
(Please date and sign on the reverse side)
PROXY
The Board of Directors recommends a Vote FOR Item 1.
Item 1. Election of Two Directors:
Richard L. Soloway
FOR [ ] WITHHOLD [ ]
Kevin S. Buchel
FOR [ ] WITHHOLD [ ]
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.