<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
NAPCO SECURITY SYSTEMS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
<PAGE> 2
NAPCO SECURITY SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------------------
To be Held on November 21, 1995
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, November 21,
1995, at 4:00 p.m., for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect four directors;
2. To consider a Shareholder Proposal to expand the Board of
Directors utilizing an unusual eligibility definition opposed by
management; and
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1
AND A VOTE AGAINST ITEM 2.
Only stockholders of record at the close of business on October 2,
1995 are entitled to notice and to vote at the Meeting or any adjournment
thereof. A complete list of the stockholders entitled to vote at the Meeting
on the foregoing proposals will be open to examination by any stockholder for
any purpose germane to the Meeting during ordinary business hours for a period
of ten days prior to the Meeting at the offices of the Company, 333 Bayview
Avenue, Amityville, New York 11701.
By order of the Board of Directors,
Richard Soloway
Secretary
October 20, 1995
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.
<PAGE> 3
NAPCO SECURITY SYSTEMS, INC.
333 BAYVIEW AVENUE
AMITYVILLE, NEW YORK 11701
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 21, 1995
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the holders of Common Stock, $.01
par value per share ("Common Stock") of Napco Security Systems, Inc. (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors of the Company to be held on November 21, 1995 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 proxy or by submitting a written
notice of revocation to the Secretary of the Company at the Company's office or
at the Meeting. Stockholders attending the Meeting may vote their shares in
person. This Proxy Statement and the form of proxy were first mailed to the
stockholders on or about October 20, 1995. A copy of the 1995 Annual Report of
the Company, including financial statements, is being mailed herewith.
Only stockholders of record at the close of business on October 2, 1995
(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
4,367,727 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 four
directors; Item 2, the shareholder proposal to expand the board of directors
utilizing an unusual eligibility definition opposed by management; and the
transaction of any other business as may properly come before the Meeting and
require a vote of the Stockholders.
<PAGE> 4
ITEM 1
ELECTION OF DIRECTORS
Information Concerning Nominees
The Board of Directors of the Company is currently composed of four
members. Directors are elected annually and hold office until the next annual
meeting of stockholders or until their respective successors are elected and
shall qualify. Four directors are to be elected by a plurality of the votes cast
at the Meeting. It is intended that the proxies solicited on behalf of the Board
of Directors will be voted for the election of the four nominees listed below
unless a contrary instruction is made on the proxy. Each of these nominees has
consented to serve if elected. 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 the nominees and certain information received from them
are set forth in the following table, including their principal occupations,
five-year employment history and the names of any other companies whose
securities are publicly held and of which they presently serve as directors.
<TABLE>
<CAPTION>
Principal Occupation;
Five-Year Employment
History and Director
Name and Age Other Directorships Since
- - ------------ ------------------------------------ -----
<S> <C> <C>
Richard Soloway Chairman of the Board of Directors 1972
(49) of the Company since October 1981;
Secretary of the Company since 1975.
Kenneth Rosenberg President of the Company since 1975; 1972
(49) Treasurer of the Company since
January 1985.
Randy B. Blaustein Partner of Blaustein, Greenberg & Co. 1985
(43) since July 1991; Attorney engaged as
a sole practitioner since October
1980, specializing in business and
tax matters, and author of six books
and numerous articles.
Andrew J. Wilder Officer of Israeloff, Trattner & Co., 1995
(44) independent certified public
accountants, since 1990.
</TABLE>
2
<PAGE> 5
THE BOARD OF DIRECTORS DEEMS ITEM 1 TO BE IN THE BEST INTEREST OF THE COMPANY
AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
During the fiscal year ended June 30, 1995, the Company retained, and
currently retains, Mr. Blaustein as special counsel for certain general business
and tax related matters.
During fiscal 1995, there were two meetings of the Board of Directors;
Messrs. Rosenberg, Soloway, Blaustein and Kedem attended each meeting. In
addition, the Board acted by unanimous written consent on one occasion during
the fiscal year. Mr. Kedem resigned as a director and was replaced by Andrew
J. Wilder.
Committees of the Board of Directors and Meetings Held
The Board of Directors has a Stock Option Committee consisting of
Richard Soloway and Kenneth Rosenberg. This Committee, which met once in fiscal
year 1995, determines the individuals to be granted options under the Incentive
Stock Option Plan and the Non-Employee Stock Option Plan, the number of shares
to be subject to options and the terms of the options and interprets the
provisions of such plans.
The Company has an Audit Committee consisting of Richard Soloway, Randy
Blaustein and Andrew J. Wilder. The Committee, which met two times in fiscal
year 1995, recommends to the Board of Directors as to the engagement of an
independent certified public accountant, discusses the adequacy of the
accounting procedures and internal controls and new accounting pronouncements
that may affect the Company, approves the overall scope of the audit, and
reviews and discusses the audited financial statements.
The Company does not have standing nominating and compensation
committees of the Board of Directors, or committees performing similar
functions. The Company's Compensation Committee is made up of three officers of
the Company.
Compensation of Directors
The directors who are not officers receive $1,000.00 for each Board of
Directors meeting and $1,000.00 for each Committee meeting that they attend in
person or by telephone conference call. For the fiscal year ended June 30, 1995,
each of Mr. Blaustein and Mr. Kedem received $4,000.00 in director's fees and
committee fees.
3
<PAGE> 6
ITEM 2
A SHAREHOLDER PROPOSAL TO EXPAND THE
BOARD OF DIRECTORS UTILIZING AN UNUSUAL
ELIGIBILITY DEFINITION OPPOSED BY MANAGEMENT
Two shareholders (related by marriage), who own their shares jointly,
have submitted a proposal utilizing an unusual and restrictive definition of
"independent" director. This proposal will be considered at the Company's 1995
annual meeting. The Company opposes this proposal, because the expansion of the
Board of Directors would hinder efficient corporate management. Napco currently
has competent and effective directors. The shareholder proposal also
contemplates a restrictive definition of "independent director" which is unlike
that adopted by the applicable regulatory entities. Moreover, qualified
candidates could be excluded under the proposed definition to the detriment of
the Company.
The proposal reads as follow:
"RESOLVED, that the Company's by-laws shall be amended to increase the
size of the Board to six directors from four directors and to provide that the
Board shall be composed of at least three independent directors. For purposes
hereof, an 'independent director' shall be defined as a person who is not
employed by the Company and has not, directly or indirectly, performed services
for, or transacted business with, the Company involving $20,000 in the aggregate
(excluding compensation for services as a director) during the two-year period
immediately preceding such person's nomination for election as a director. For
purposes hereof, a person shall be deemed to have 'directly or indirectly'
performed services for, or transacted business with, the Company, if he has or
had an interest in the party that performed services for, or transacted business
with, the Company as a stockholder, director, officer, employee, partner,
individual proprietor, agent, broker, consultant or otherwise."
The Company's Statement In Opposition To The Shareholder Proposal.
The Company opposes this proposal by two shareholders (related by
marriage) who at a previous stockholders' meeting had the wife nominate her
husband to be a director of the Company, but received less than 1% of the votes.
The expansion of the Board of Directors would make the corporate
governance of the Company more cumbersome. With four members Napco's board of
directors is able to have meetings with a minimum of scheduling problems,
enabling the Company to respond quickly to important developments. Expansion of
the board is unnecessary because the Company has capable directors at present.
In addition, at a time when the Company is working hard to minimize expenses
wherever possible, the proposal would add to overhead costs. Using six directors
where four are functioning well is counter-productive and inconsistent with the
Company cost-cutting endeavors.
4
<PAGE> 7
In addition, the shareholder proposal proposes an unusual and extremely
restrictive definition of "independent director" which is unlike that adopted by
the applicable regulatory entities. Moreover, it could exclude qualified
candidates to the detriment of the Company. This could make it more difficult
and more expensive to attract the best directors for the Company.
The following statement of shareholder is misleading in that it lists
only the vote of a minor portion of the total shareholders and fails to disclose
that the actual vote on this proposal last year was: FOR - 870,208; AGAINST -
2,220,059; ABSTAINED - 11,167; and NON-VOTING - 650,004.
Supporting Statement of Shareholder Proponent.
"The stockholders need a Board that will exercise greater scrutiny of,
and control over, the management of the business and that is accountable to the
stockholders for the performance of the Company. At present, two directors are
executive officers of the Company, and of the other two, one is an attorney
performing services and receiving compensation from the Company. [One] of the
so-called 'outside' directors has [not] seen fit to attend the last four annual
meetings of shareholders [in the shareholder proponent's personal opinion]
thereby avoiding, in part, his responsibility to the stockholders. We need a
Board composed of at least three independent directors who will take seriously
their responsibilities to oversee the management of the Company and will be
committed to returning the Company to the level of profitability it had
previously enjoyed.
"During the last several years outside directors of many major
corporations have held management responsible for the performance of their
companies and have dismissed them for poor results. They have recognized that
their responsibility is to the shareholders and not management, and as a result,
many outside directors are no longer "rubber stamping" management's actions. It
is time the Board of this Company does the same.
"This proposal was submitted to stockholders last year and received
approximately 75% of the shares present or represented at the meeting (other
than those controlled directly by management). If all of the "independent"
shareholders vote for the proposal, the proposal will pass. Management's
position with respect to this proposal, as set forth in last year's proxy
statement, was that "the expansion of the Boards of Directors would make
corporate governance of the Company more cumbersome". However, that position is
simply not credible. Moreover, the vast majority of the Board of Directors of
public companies are greater than four and management does not appear to be
encumbered."
Pursuant to the Proxy rules, the name and address of the shareholder
proponent and the number of shares held by the shareholder proposal will be
furnished by the Company upon request.
A vote FOR by a majority of the shares of Common Stock present (or
represented by proxy) at the meeting is required for approval of this
shareholder proposal. The proxies
5
<PAGE> 8
solicited herewith will be voted AGAINST such approval unless other instruction
is made on the proxy.
In today's world where most corporate and governmental institutions,
alike, are endeavoring to reduce bureaucratic "red-tape", this proposal, while
well-intentioned, would be a step backward and add delays and slow down action
and reaction by the Company.
THE BOARD OF DIRECTORS DEEM ITEM 2 NOT TO BE IN THE BEST INTEREST OF THE COMPANY
AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "AGAINST" APPROVAL THEREOF.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets
forth information as of October 2, 1995, 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 and (c)
all officers and directors of the Company as a group. Except as otherwise
indicated, the named owner has sole voting and investment power over shares
listed.
6
<PAGE> 9
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership Common Stock [a]
- - ---------------- ----------------- ----------------
<S> <C> <C>
Richard Soloway 889,576 20.4%
c/o the Company Direct
333 Bayview Avenue
Amityville, NY 11701 5,400 [b] .1%
Indirect
Kenneth Rosenberg 889,576 20.4%
c/o the Company Direct
333 Bayview Avenue
Amityville, NY 11701
Randy B. Blaustein 22,500 .5%
All officers and directors 1,911,402 [c] 43.8%
</TABLE>
- - ---------------
[a] Percentages are computed on the basis of 4,367,727 shares of Common Stock
outstanding on October 1, 1995, plus the number of shares which a person
has the right to acquire directly or indirectly within sixty (60) days.
[b] Represents shares owned directly by Mr. Soloway's wife.
[c] This number of shares includes (i) 1,903,002 shares as to which officers
and directors have sole voting and investment power, and (ii) 8,400 shares
as to which officers and directors share with others or may be deemed to
share voting and investment power.
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), the following is a list of each
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") that failed to file on a
timely basis one or more reports during such fiscal year, the number of late
reports, the number of transactions not reported on a timely basis, and any
known failure to file a required form: Mr. Buchel (as to 1 share) and Mr. Wilder
(as to 0 shares) were late in filing their Forms 3.
7
<PAGE> 10
INFORMATION CONCERNING EXECUTIVE OFFICERS
The term of office of each executive officer of the Company is one
year. There are no family relationships between any director or officer of the
Company. 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.
<TABLE>
<CAPTION>
Position and Office with the
Company, Term of Office and
Name and Age Five-Year Employment History
- - ------------ ----------------------------
<S> <C>
Richard Soloway Chairman of the Board of Directors since
(49) October 1981 (Co-Chief Executive Officer);
Secretary since 1975.
Kenneth Rosenberg President since January 1975 (Co-Chief Executive
(49) Officer); Treasurer since January 1985.
Kevin S. Buchel Senior Vice President of Operations and Finance
(42) since April 1995; Vice President of Finance and
Administration from December 1989 to April 1995.
Richard Paladino Senior Vice President of Corporate Sales
(41) for Napco and Alarm Lock since August 1994;
Vice President for Corporate Sales for Napco
and Alarm Lock from December 1993 to August
1994; Vice President of Sales and Marketing
for Alarm Lock Hardware Division from November
1987 to December 1993.
Alfred DePierro Vice President of Engineering --
(48) Microcomputer Applications since September 1985.
Raymond Gaudio Vice President of Engineering --
(51) Software Applications since September 1985.
Joseph Scardino Vice President of Sales of Napco from August 1994;
(38) Vice President-New York Sales Division from
January 1994 to August 1994; Regional Sales Manager
of New York from October 1986 to January 1994.
</TABLE>
8
<PAGE> 11
EXECUTIVE COMPENSATION
The following table sets forth the compensation information for the
President and Co-Chief Executive Officer of the Company and for each of the
Company's four most highly compensated other executive officers serving at the
end of fiscal year 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- -----------------------------------
Name and Fiscal Other Annual Restricted Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation(2) Stock Awards SARS Payouts Compensation(3)
- - ------------------ ---- ------ ----- --------------- ------------ ---- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Soloway, Chairman 1995 $407,793 -- $ 2,725 -- -- -- $ 4,078
of the Board of Directors, 1994 $407,793 -- $ 4,088 -- -- -- $ 4,078
Secretary 1993 407,793 -- 5,608 -- -- -- 4,078
Kenneth Rosenberg, President 1995 $407,793 -- $ 10,724 -- -- -- $ 4,078
and Treasurer 1994 407,793 -- 10,384 -- -- -- 4,078
1993 407,793 -- 15,063 -- -- -- 4,078
Richard Paladino, 1995 $148,218(1) -- $ 7,256 -- -- -- $ 1,482
Senior Vice President 1994 133,268(1) -- 5,817 -- 5,000 -- 1,333
of Corporate Sales 1993 110,874(1) -- 5,528 -- -- -- 1,109
Alfred DePierro, Vice 1995 $223,412(1) -- $ 2,156 -- -- -- $ 2,234
President of Engineering - 1994 221,551(1) -- 2,117 -- -- -- 2,216
Microcomputer Applications 1993 217,003(1) -- 2,128 -- -- -- 2,170
Raymond Gaudio, Vice 1995 $267,893(1) -- $ 156 -- -- -- $ 2,635
President of Engineering - 1994 265,356(1) -- 117 -- -- -- 2,580
Software Application 1993 260,815(1) -- 128 -- -- -- 2,608
</TABLE>
- - --------
(1) Includes commissions.
(2) Messrs. Soloway, Rosenberg, DePierro, Gaudio and Paladino received $1,965,
$1,926, and $3,272; $9,730, $9,294, and $ 9,631; $156, $117, and $128;
$156, $117, and $128; and $156, $117, and $128, respectively for health and
life insurance for fiscal years 1995, 1994 and 1993. Messrs. Soloway,
Rosenberg, DePierro and Paladino received $760, $2,162, and $2,336; $994,
$1,090, and $5,432; $2,000, $2,000 and $2,000; and $7,100, $5,700 and
$5,400, respectively, for automobile expenses for fiscal years 1995, 1994
and 1993.
(3) 401(k) plan contributions.
9
<PAGE> 12
Option Grants and Exercises
The following tables summarize option grants and exercises during
fiscal 1995 to or by the named executive officers and the value of the fiscal
1995 granted options, if any, held by such persons at the end of fiscal 1995.
OPTION GRANTS IN LAST YEAR(1)
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(2)
---------------------------------------------------------------------------- -------------------
Percent of
Total Options Fair Market
Granted to Exercise or Value on
Options Employees in Base Price Date of Expiration
Name Granted Fiscal Year ($/Sh) Grant ($/Sh) Date 5%($) 10%($)
- - ---- ------- ------------- ----------- ------------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard Soloway - - - - - - -
Kenneth Rosenberg - - - - - - -
Richard Paladino - - - - - - -
Alfred DePierro - - - - - - -
Raymond Gaudio - - - - - - -
</TABLE>
- - ---------------
(1) No options or stock appreciation rights were granted to the named executive
officers during fiscal 1995. Options generally become exercisable in
cumulative annual installments of 20% commencing on the date of grant.
Options terminate upon the earlier of the cessation of employment with the
Company or the fifth anniversary of the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed
rates of stock price appreciation of 5% and 10% annually from the date
options are granted.
10
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST YEAR AND FY-END OPTION VALUES (1)
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value FY-End (#) FY-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- ----- ------------- -------------
<S> <C> <C> <C> <C>
Richard Soloway - - - -
Kenneth Rosenberg - - - -
Richard Paladino - - - -
Alfred DePierro - - - -
Raymond Gaudio - - - -
</TABLE>
- - -------------------
(1) No stock options were exercised by the named executive officers during
fiscal 1995.
11
<PAGE> 14
Employment Agreements
The Company has employment agreements with Alfred DePierro and Raymond
Gaudio. The agreement with Mr. Gaudio provides for an annual salary of $172,330
plus commissions. The agreement with Mr. DePierro provides for an annual salary
of $158,156 plus commissions and automobile allowance.
Report of the Compensation Committee
The Company's Compensation Committee is made up of the Chairman of the
Board, the President, and the Senior Vice President of Operations and Finance.
The Committee considers and establishes compensation for the management of the
Company. With respect to the compensation of the Chairman and the President, the
Board of Directors considers and approves such compensation.
Overview and Philosophy
The Compensation Committee uses its compensation program to achieve the
following objectives:
- increasing the profitability and net worth of the Company and,
accordingly, increasing stockholder value;
- providing compensation that will enable the Company to attract and retain
high quality employees and reward superior performance;
- providing management with incentives related to the success of the
Company; and
- providing management with long-term equity incentives through stock
options.
The Company believes that its executive compensation program provides an
overall level of compensation that is competitive within the electronic security
products industry and among companies of comparable size and complexity.
Procedures for Establishing Compensation
At the beginning of each year, the Compensation Committee establishes an
annual salary plan for the Company's senior executive officers.
In fiscal 1995, as in the past several years, the Compensation Committee set
compensation at the start of the year and reviewed it approximately mid-way
through the year. The initial compensation recommendation, consisting of salary
and performance-based incentive compensation, is based in part upon a survey of
comparably sized companies. The Compensation Committee uses this survey to
determine the competitiveness of base salary and incentive opportunities at the
Company and to evaluate the relative mix of salary and incentive compensation.
12
<PAGE> 15
Executive Officer Compensation Program
The Company's executive compensation program consists of base salary, annual
incentive cash compensation, commissions, long-term equity incentives in the
form of stock options and various benefits such as medical insurance and 401(k)
savings plan generally available to employees of the Company. The amount of
perquisites, as determined in accordance with rules promulgated by the
Securities and Exchange Commission, did not exceed 10% of salary in fiscal 1995.
Base Salary
Base compensation is generally set within the range of salaries of executive
officers with comparable qualifications, experience and responsibilities at
other companies in the same or similar businesses and or comparable size and
success as the Company. In addition to external market data, salary is
determined by the Company's financial performance and the individual's
performance based on predetermined, non-financial objectives. Non-financial
objectives include an individual's contribution to the Company as a whole,
including his ability to motivate others, develop the necessary skills as the
Company grows, recognize and pursue new business opportunities and initiate
programs to enhance the Company's growth and success.
Short-Term and Long-Term Compensation
Annual incentive compensation and long-term incentive compensation, in
comparison to base salary, are more highly tied to the Company's success in
achieving financial performance goals. Annual cash bonuses are paid primarily on
the basis of attainment of financial, sales, and production goals of the
Company. The Chairman and the President do not vote on their own compensation.
Raymond Gaudio and Alfred DePierro do not receive bonuses but do receive
commissions.
Long-term incentive compensation, through stock options, enables executives
to develop a long-term stock ownership position in the Company. In addition to
considering an individual's past performance, the Company's desire to retain an
individual is of paramount consideration in the determination of stock option
grants.
Stock options are granted at an option price equal to fair market value on
the date of grant and generally vest over a five-year period in order to
encourage key employees to continue in the employ of the Company. Accordingly,
stock options are intended to retain and motivate executives to improve
long-term stock market performance.
13
<PAGE> 16
Summary of Compensation of Chief Executive Officers
In fiscal 1995, the Company's Chairman and Co-Chief Executive Officer,
Richard Soloway and the President and Co-Chief Executive Officer, Kenneth
Rosenberg, each received a salary of $407,793. They received no stock options in
fiscal year 1995.
Compensation Committee: Richard Soloway
Kenneth Rosenberg
Kevin S. Buchel
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Richard Soloway, Kenneth
Rosenberg and Kevin S. Buchel. Each member of the Compensation Committee was,
during fiscal 1995 and previously, an officer and employee of the Company and
each subsidiary of the Company as described above pursuant to Item 404 of
Regulation S-K promulgated under the Securities and Exchange Act of 1934.
No executive officer of the Company has served as a director or member of
the Compensation Committee (or other committee serving an equivalent function)
of any other entity, one of whose executive officers served as a director of or
member of the Compensation Committee of the Company.
Compensation Pursuant to Plans
Profit Sharing Plan
The Company maintains a defined contribution profit sharing plan (the
"Plan") pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). In general, all employees who are at least age twenty-one
and have completed one year of employment with the Company are eligible to
participate in the Plan. The effective date of the Plan, as restated, is July 1,
1989. Participants in the Plan may contribute up to the maximum amount permitted
by the Code of their compensation as a salary reduction. The Company matches all
such contributions by contributing an amount equal to 50% of all such salary
reduction deferrals up to a maximum of 1% of each participant's salary
compensation. In addition, the Company may elect at the end of each Plan year to
contribute a discretionary amount to the Plan to be allocated among the eligible
employees on the basis of compensation. During fiscal 1995, the Company
contributed approximately $56,000 to the Plan.
Vested contributions, both participant and the Company's additional
contributions, are payable to the participant (or his beneficiary), upon any of
the following events: retirement, termination of employment, disability, death,
termination of the Plan without the establishment of a successor Plan, or the
attainment of age 59 1/2. Participants may withdraw up to the total of salary
deferral contributions upon suffering a financial hardship, as defined in the
Plan. A participant may also borrow from the Plan against his account
14
<PAGE> 17
balance. All participant and additional Company contributions are 100% vested at
all times. Benefits at retirement are payable to participants in a lump sum or
as an annuity.
Stock Options
Under the Company's 1992 Incentive Stock Option Plan, as amended ("1992
Plan") which was approved by vote of the stockholders of the Company at the 1992
Annual Meeting (extending the 1982 plan for an additional ten years), incentive
stock options to purchase up to an aggregate of 727,933 shares of Common Stock
(as adjusted) may be granted at fair market value to executive officers and key
employees during the ten-year period ending in October 2002. At June 30, 1995,
733,733 shares were available for grant under the 1992 Plan. Options to purchase
a total of 81,000 shares of Common Stock were outstanding under the 1992 Plan on
June 30, 1995, with exercise prices of $2.25 to $4.375 per share. The incentive
stock options included in the foregoing tabulation expire five years from the
date of grant, are non-transferable and are exercisable beginning with the date
of grant in 20 percent cumulative yearly installments.
The Company's 1990 Non-Employee Stock Option Plan ("1990 Plan") was
adopted to promote the interests of the Company and its stockholders by enabling
the Company to attract and retain outside directors and consultants, to provide
them an incentive to continue service with the Company, and provide them
additional incentive to promote the success of the Company's business. The 1990
Plan was approved by the stockholders at the Company's 1990 annual meeting. A
total of 50,000 shares (with appropriate adjustment in the event of a stock
split or other change in the Company's common stock) of common stock of the
Company, par value $.01 per share, are currently available for grant of options
under the 1990 Plan. The Plan authorizes grants of options which do not meet the
requirements of Section 422 of the Internal Revenue Code to non-employee
directors and/or consultants of the Company. No option may be granted after
October 15, 2000 or such earlier date as the Board of Directors may determine.
To date no options under the 1990 Plan have been granted.
Each option would have a maximum term of five years, or such lesser
period as the Committee specifies. Options would become exercisable at the rate
of 20% per year. An option may be exercised by an optionee during his tenure as
a director or consultant. Options under the 1990 Plan would not be transferable.
The optionees would have "piggy-back" registration rights whereby if in the
future the Company registered any additional shares with the Securities and
Exchange Commission, the Company would also register the shares subject to such
options.
15
<PAGE> 18
COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph sets forth the Company's total shareholder return index as
compared to the NASDAQ index and a NASDAQ electronic component stock industry
index.
- - ------------------------------------------------------------------------------
PERFORMANCE CHART
[CHART]
<TABLE>
<S> <C> <C> <C> <C> <C>
NAPCO 100 88 167 104 71
NASDAQ 100 120 152 151 203
PEER 100 80 103 103 83
GROUP*
</TABLE>
- - ---------------
* Peer Group consists of:
Code-Alarm, Inc.
Detection Systems, Inc.
Napco Security Systems, Inc.
Vicon Industries, Inc.
16
<PAGE> 19
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP ("AA") as the
independent public accountants for the Company and its subsidiaries for its 1995
fiscal year. AA has been serving the Company since fiscal 1993.
Services provided by AA during and for the 1995 fiscal year consisted
of audit and non-audit related services. These services included the examination
of the consolidated financial statements of the Company, services related to
reporting by the Company and its subsidiaries to the Securities and Exchange
Commission and consulting during the year on matters related to accounting,
taxes and financial reporting.
A representative of AA will be present at the Annual Meeting to make a
statement if he desires and to respond to appropriate questions presented at the
Meeting.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal which is intended to be presented at next
year's annual meeting of stockholders must be received by the Company not later
than June 22, 1996 if it is to be considered for inclusion in the Company's
proxy statement and form of proxy for such meeting.
EXPENSES OF SOLICITATION
The Company will bear all costs in connection with the solicitation by
the Board of Directors of proxies of the Meeting. The Company intends to request
brokerage houses, custodial nominees and others who hold stock in their names to
solicit proxies from the persons who beneficially own such stock. The Company
will reimburse brokerage houses, custodial nominees and others for their
out-of-pocket expenses and reasonable clerical expenses. It is estimated that
these expenses will be nominal. In addition, officers and employees of the
Company may solicit proxies personally or by telephone, telegram or letter; they
will receive no extra compensation for such solicitation.
Dated: October 20, 1995
17
<PAGE> 20
NAPCO SECURITY SYSTEMS, INC.
333 Bayview Avenue
Amityville, New York 11701
PROXY - SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of NAPCO SECURITY SYSTEMS, INC. hereby
appoints Messrs. Richard Soloway and Kenneth Rosenberg, and each or either of
them, the proxy or proxies of the undersigned, with full power of substitution,
to vote as specified on the reverse side all shares of Common Stock of said
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of said Corporation, to be held on Tuesday, November 21, 1995 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 FOUR (4) DIRECTORS (ITEM 1) AND
AGAINST THE SHAREHOLDER PROPOSAL TO EXPAND THE BOARD OF DIRECTORS (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.)
<PAGE> 21
(Continued from the other side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
Item 1 - Election of four directors: Randy B. Blaustein, Kenneth Rosenberg,
Richard Soloway and Andrew J. Wilder.
FOR / / WITHHOLD / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
Item 2 - Shareholder proposal to expand the Board of Directors utilizing an
unusual eligibility definition opposed by management.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 2.
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 Corporation
or its transfer agent.
