<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Materials Only (as permitted by Rule 14a-6(a)(2))
[ ] Soliciting Material Pursuant to Section 240.14a-2
</TABLE>
NAPCO SECURITY SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-12
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(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:
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(4) Date Filed:
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<PAGE> 2
NAPCO SECURITY SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on December 9, 1999
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 Thursday,
December 9, 1999, at 4:00 p.m., for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. to elect one director to serve for a term of three
years and until his successor is 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 22, 1999 are entitled to notice and to vote at the Meeting or any
adjournment thereof. A complete list of the stockholders entitled to vote at the
Meeting on the foregoing proposals will be open to examination by any
stockholder for any purpose germane to the Meeting during ordinary business
hours for a period of ten days prior to the Meeting at the offices of the
Company, 333 Bayview Avenue, Amityville, New York 11701.
By order of the Board of Directors,
Richard Soloway
Secretary
October 28, 1999
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 DECEMBER 9, 1999
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the holders of Common Stock,
$.01 par value per share ("Common Stock") of Napco Security Systems, Inc. (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors of the Company to be held on December 9, 1999 and at any
adjournment thereof (the "Meeting"), pursuant to the accompanying Notice of
Annual Meeting of Stockholders. Proxies in the enclosed form, if properly
executed and returned in time, will be voted at the Meeting. Any stockholder
giving a proxy may revoke it prior to its exercise by attending the Meeting and
reclaiming the proxy, by executing a later dated proxy or by submitting a
written notice of revocation to the Secretary of the Company at the Company's
office or at the Meeting. Stockholders attending the Meeting may vote their
shares in person. This Proxy Statement and the form of proxy were first mailed
to the stockholders on or about October 28, 1999. A copy of the 1999 Annual
Report of the Company, including financial statements, is being mailed herewith.
Only stockholders of record at the close of business on October 22,
1999 (the "Record Date") are entitled to notice of and to vote at the Meeting.
The outstanding voting securities of the Company on the Record Date consisted of
3,495,351 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 one
(1) director; and the transaction of any other business as may properly come
before the Meeting and require a vote of the Stockholders.
THEREFORE, THE COMPANY URGES YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD.
<PAGE> 4
ITEM 1
ELECTION OF DIRECTORS
Unless otherwise specified, shares represented by the enclosed proxy
will be voted for the election of Andrew J. Wilder, currently a director, who
has been nominated by the Board of Directors for reelection as a director to
serve until the Annual Meeting of Stockholders in 2002 and until his successor
is elected and qualified.
Mr. Wilder has consented to serve if elected. One director is to be
elected by a plurality of the votes cast at the Meeting. In the event that the
nominee becomes unable or unwilling to serve as a director, discretionary
authority may be exercised by the proxies to vote for the election of an
alternate nominee of the Board of Directors.
The Board of Directors is divided into three classes. One class will
stand for election for a three-year term at this year's Annual Meeting of
Stockholders. The terms of the other two classes of continuing directors do not
expire until the Annual Meetings of Stockholders in 2000 and 2001, respectively.
The names of, and certain information concerning, the nominee of the Board of
Directors and such other directors are set forth below:
<TABLE>
<CAPTION>
Principal Occupation;
Five-Year Employment History and Other Director
Name and Age Directorships Since
- ------------ ------------- -----
<S> <C> <C>
Nominees to serve until
Annual Meeting of
Stockholders in 2002:
Andrew J. Wilder Officer of Israeloff, Trattner & Co., 1995
(48) independent certified public accountants,
since 1990.
Nominees to serve until
Annual Meeting of
Stockholders in 2000:
Randy B. Blaustein Partner of Blaustein, Greenberg & Co. since 1985
(47) 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.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C>
Nominees to serve until
Annual Meeting of
Stockholders in 2001:
Richard Soloway Chairman of the Board of Directors since 1972
(53) October 1981; President since 1998;
Secretary since 1975.
Kevin S. Buchel Senior Vice President of Operations and 1998
(46) Finance since April 1995; Treasurer since May
1998; Vice President of Finance and
Administration from December 1989 to April 1995.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MR. WILDER.
During the fiscal year ended June 30, 1999, the Company retained,
and currently retains, Mr. Blaustein as special counsel for certain general
business and tax related matters.
During fiscal 1999, there were six meetings of the Board of
Directors; Messrs. Soloway, Buchel, Blaustein and Wilder attended each meeting.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS HELD
The Board of Directors has a Stock Option Committee consisting of
Richard Soloway and Kevin Buchel. This Committee, which met three (3) times in
fiscal year 1999, 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 four times in
fiscal year 1999, 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 a standing nominating committee of the
Board of Directors, or committees performing similar functions. The Company's
Compensation Committee is made up of two officers of the Company.
3
<PAGE> 6
COMPENSATION OF DIRECTORS
The directors who are not officers receive $1,000 for each Board of
Directors meeting and $1,000 for each Committee meeting that they attend in
person or by telephone conference call. For the fiscal year ended June 30, 1999,
Mr. Blaustein and Mr. Wilder each received $10,000 in director's fees and
committee fees.
4
<PAGE> 7
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets
forth information as of September 30, 1999, 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
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.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership Common Stock [a]
- ---------------- --------- ----------------
<S> <C> <C>
Richard Soloway
c/o the Company
333 Bayview Avenue
Amityville, NY 11701 939,976[b] [c] 25.6%
Dimensional Fund
Advisors, Inc. [d] 288,050[d] 7.9%
Raymond Gaudio 88,267[b] 2.4%
Kevin S. Buchel 29,001[b] .8%
Alfred DePierro 24,107[b] .7%
Randy B. Blaustein 22,500 .6%
Jorge Hevia 7,320[b] .2%
Andrew J. Wilder 300
.1%
All executive officers and directors as a group
(9 in number) 1,121,821[e] 30.6%
- ----------
</TABLE>
[a] Percentages are computed on the basis of 3,669,171 shares, which consists of
3,495,351 shares of Common Stock outstanding on October 22, 1999, plus 173,820
the number of shares which a person has the right to acquire directly or
indirectly within sixty (60) days. Except as otherwise noted, persons named in
the table and footnotes have sole voting and investment power with respect to
all shares of Common Stock reported as beneficially owned by them.
[b] This number includes the number of shares which a person has a right to
acquire directly or indirectly within sixty (60) days (Soloway - 45,000, Buchel
- -28,000, Gaudio - 3,000, DePierro - 3,000, and Hevia - 7,320).
[c] Includes 5,400 shares owned directly by Mr. Soloway's wife.
[d] Based on information from NASDAQ as of June 30, 1999. On February 11, 1999,
a Schedule 13G was filed with the SEC by Dimensional Fund Advisors Inc., 1299
Ocean Avenue, Santa Monica, CA 90401 ("DFAI") reporting beneficial ownership and
sole voting power as to of 306,450 shares of Common Stock of the Company, owned
by advisory clients. As to all of such shares, DFAI disclaims beneficial
ownership of all such securities.
[e] This number of shares includes (i) 1,019,851 shares as to which officers and
directors have sole voting and investment power, (ii) 5,400 shares as to which
officers and directors share with others or may be deemed to share voting and
investment power, and (iii) 96,570 shares which a person has the right to
acquire directly or indirectly within sixty (60) days.
5
<PAGE> 8
COMPLIANCE WITH SECTION 16
Based solely on a review of the Forms 3, 4 and 5 furnished to the
Company with respect to the most recent fiscal year and written representations
of the reporting person (as defined below), no person, who at any time during
such fiscal year, was an officer, director, beneficial owner of more than ten
(10%) percent of any class of equity securities of the Company or any other
person subject to Section 16 of the Securities Exchange Act of 1934 ("reporting
person"), failed to file on a timely basis one or more reports during such
fiscal year.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Each executive officer of the Company holds office until the annual
meeting of the Board of Directors and his successor is elected and qualified, or
until his earlier death, resignation, or removal by the Board. There are no
family relationships between any director or officer of the Company. 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 October 1981;
(53) President Since 1998; and Secretary since 1975.
Kevin S. Buchel Senior Vice President of Operations and Finance since April 1995;
(46) Treasurer since May 1998; Vice President of Finance and
Administration from December 1989 to April 1995.
Jorge Hevia Senior Vice President of Corporate Sales and Marketing since May 1999;
(41) Vice President of Corporate Sales and Marketing since October 1998;
Vice President of National Sales of Schieffelin and Somerset Company
from December 1993 to October 1998.
Michael Carrieri Vice President of Engineering Development since September, 1999; Vice
(41) President of Engineering of Chyron Corp. April 1998 to August 1999;
Vice President of Engineering of Boundless Technologies from February
1990 until March 1998.
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C>
Alfred DePierro Vice President of Engineering -- Microcomputer Applications since
(52) September 1985.
Raymond Gaudio Vice President of Engineering - Software Applications since September
(55) 1985.
Joseph Scardino Vice President of International Sales since March 1998; Vice
(42) President of Sales of Napco from August 1994 to March 1998.
</TABLE>
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth the compensation information for
the President and Chief Executive Officer of the Company and for each of the
Company's four most highly compensated other executive officers serving at the
end of fiscal year 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------
Other Annual Restricted Stock
Name and Principal Position Fiscal Year Salary Bonus Compensation(2) Awards
- --------------------------- ----------- ------ ----- --------------- ------
<S> <C> <C> <C> <C> <C>
Richard Soloway, Chairman of 1999 $407,793 - $4,808 -
the Board of Directors, 1998 $407,793 - $9,123 -
President, Secretary 1997 $407,793 - $9,282 -
Kevin S. Buchel, Senior Vice 1999 $138,533 $60,000 $5,574 -
President of Operations and 1998 $131,811 $50,000 $5,252 -
Finance and Treasurer 1997 $120,959 $25,000 $4,902 -
Jorge Hevia
Senior Vice President of 1999 $125,245 $30,000 $1,620 -
Corporate Sales and 1998 - - - -
Marketing 1997 - - - -
Alfred DePierro, Vice President 1999 $220,928(1) - $2,288 -
of Engineering - Microcomputer 1998 $222,005(1) - $2,288 -
Applications 1997 $221,112(1) - $2,174 -
Raymond Gaudio, Vice President 1999 $257,462(1) - $ 288 -
of Engineering - Software 1998 $265,950(1) - $ 288 -
Application 1997 $264,715(1) - $ 288 -
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
All Other
Name and Principal Position Options/SARS LTIP Payouts Compensation(3)
- --------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Richard Soloway, Chairman of 225,000/0 - $4,078
the Board of Directors, - - $4,078
President, Secretary - - $4,078
Kevin S. Buchel, Senior Vice - - $1,986
President of Operations and 15,000/0 - $1,841
Finance and Treasurer - - $1,460
Jorge Hevia
Senior Vice President of 16,600/0 - -
Corporate Sales and - - -
Marketing - - -
-
Alfred DePierro, Vice President - - $2,209
of Engineering - Microcomputer 5,000/0 - $1,331
Applications - - $1,165
Raymond Gaudio, Vice President - - $2,575
of Engineering - Software 5,000/0 - $2,531
Application - - $2,517
</TABLE>
(1) Includes commissions.
(2) Messrs. Soloway, Buchel, DePierro, and Gaudio received $4,108, $1,174, and
$1,060; $174, $102, and $102; $288, $288, and $174; $288, $288, and $288
respectively for health and life insurance for fiscal years 1999, 1998, and
1997. Messrs. Soloway, Buchel, Hevia, and DePierro received $700, $7,950, and
$8,222; $5,400, $5,150, and $4,800; $1,620, $0, and $0; and $2,000, $2,000, and
$2,000, respectively, for automobile expenses for fiscal years 1999, 1998, and
1997.
(3)401(k) Plan Contributions.
8
<PAGE> 11
Option Grants and Exercises
The following tables summarize option grants and exercises during
fiscal 1999 to or by the named executive officers and the value of the fiscal
1999 granted options, if any, held by such persons at the end of fiscal 1999.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(2)
------------------------------------------------------------------------------ --------------------------
Percent of
Total Options Exercise or
Options Granted to Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Richard Soloway 225,000 89.4% $3.03 2/25/04 $189,000 $416,250
Kevin S. Buchel - - - -
Jorge Hevia 16,600 6.6% $4.00 10/05/03 $18,426 $ 40,504
Alfred DePierro - - - -
Raymond Gaudio - - - -
</TABLE>
(1) Options generally become exercisable in cumulative annual installments of
20% commencing on the date of grant. Options terminate upon the earlier of the
cessation of employment with the Company or the fifth anniversary of the date of
the grant.
(2) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed rates
of stock price appreciation of 5% and 10% annually from the date options are
granted.
9
<PAGE> 12
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 - - 45,000/180,000 $21,150/$84,600
Kevin S. Buchel - - 18,000/12,000 $12,000/$3,000
Jorge Hevia - - 3,320/13,280 $0
Alfred DePierro - - 2,000/3,000 $0
Raymond Gaudio - - 2,000/3,000 $0
</TABLE>
- ----------
(1) No stock options were exercised by the named executive officers during
fiscal 1999.
10
<PAGE> 13
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Richard Soloway, Jorge
Hevia, Alfred DePierro and Raymond Gaudio. The agreement with Mr. Soloway,
entered into on February 26, 1999 for a five period, provides for an annual
salary of $407,793 as adjusted by inflation, certain incentive compensation if
earned according to a formula to be determined by the Board of Directors, and
225,000 stock options that vest 20% per year or upon a change in control, as
defined in the agreement. In addition, if during the term there should be a
change in control, then the employee shall be entitled to terminate the term and
his employment thereunder, and the employer shall pay the employee, as a
termination payment, an amount equal to 299% of the average of the prior five
calendar year's compensation, subject to certain limitations. Mr. Hevia's
agreement, which is for a two-year period, provides for an annual salary of
$175,000 with certain bonus provisions, including those based on sales and
profits. The agreement with Mr. Gaudio for fiscal year 1999 provides for an
annual salary ($120,330) and commission draw ($52,000) aggregating $172,330 plus
commissions in excess of the draw. The agreement with Mr. DePierro for fiscal
year 1999 provides for an annual salary ($116,556) and commission draw ($41,600)
aggregating $158,156 plus commissions in excess of the draw and automobile
allowance. In addition, the Company has a severance agreement with Kevin S.
Buchel providing for payments equal to nine months of salary and six months of
health insurance in the event of a non-voluntary termination of employment
without cause.
RELATED TRANSACTIONS
In May of 1998 the Company repurchased 889,576 shares of Napco
common stock for $5.00 per share from one of its co-founders, Kenneth Rosenberg.
$2.5 million was paid at closing with the balance of the purchase price to be
paid over a four (4) year period. The portion of the purchase price paid at
closing was financed by the Company's primary bank and is to be repaid over a
five (5) year period. At the closing, Mr. Rosenberg retired as President and
Director of the Company but will be available to the Company pursuant to a
consulting agreement. The repurchase agreement also provides that Mr. Rosenberg
will not compete with the Company for a ten (10) year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Richard Soloway and
Kevin S. Buchel. Each member of the Compensation Committee was, during fiscal
1999 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.
11
<PAGE> 14
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee of the Board of Directors is
made up of the President and the Senior Vice President of Operations and
Finance. The Committee considers and establishes compensation for the management
of the Company. With respect to the compensation of the Chairman and the
President, the Board of Directors considers and approves such compensation.
Overview and Philosophy
The Compensation Committee uses its compensation program to achieve
the following objectives:
- increasing the profitability and net worth of the Company and,
accordingly, increasing stockholder value;
- providing compensation that will enable the Company to attract and
retain high quality employees and reward superior performance;
-providing management with incentives related to the success of the
Company;
-and providing management with long-term equity incentives through
stock options.
The Company believes that its executive compensation program
provides an overall level of compensation that is competitive within the
electronic security products industry and among companies of comparable size and
complexity.
Procedures for Establishing Compensation
At the beginning of each year, the Compensation Committee
establishes an annual salary plan for the Company's senior executive officers,
in some cases based on employment agreements with such officers.
In fiscal 1999, as in the past several years, the Compensation
Committee set compensation at the start of the year and reviewed it
approximately mid-way through the year. The initial compensation recommendation,
consisting of salary and performance-based incentive compensation, is based in
part upon a survey of comparably sized companies. The Compensation Committee
uses this survey to determine the competitiveness of base salary and incentive
opportunities at the Company and to evaluate the relative mix of salary and
incentive compensation.
Executive Officer Compensation Program
The Company's executive compensation program consists of base
salary, annual incentive cash compensation, commissions, long-term equity
incentives in the form of stock options and various benefits such as medical
insurance and 401(k) savings plan generally available to employees of the
Company. The amount of perquisites, as determined in accordance with rules
promulgated by the Securities and Exchange Commission, did not exceed 10% of
salary in fiscal 1999.
12
<PAGE> 15
Base Salary
Base compensation is generally set within the range of salaries of
executive officers with comparable qualifications, experience and
responsibilities at other companies in the same or similar businesses and or
comparable size and success as the Company. In addition to external market data,
salary is determined by the Company's financial performance and the individual's
performance based on predetermined, non-financial objectives. Non-financial
objectives include an individual's contribution to the Company as a whole,
including his ability to motivate others, develop the necessary skills as the
Company grows, recognize and pursue new business opportunities and initiate
programs to enhance the Company's growth and success.
Short-Term and Long-Term Compensation
Annual incentive compensation and long-term incentive compensation,
in comparison to base salary, are more highly tied to the Company's success in
achieving financial performance goals. Annual cash bonuses are paid primarily on
the basis of attainment of financial, sales, and production goals of the
Company. The officers do not vote on their own compensation. 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.
Summary of Compensation of Chief Executive Officer
Recommendations regarding the compensation for Mr. Soloway are made
by the Board of Directors (exclusive of Mr. Soloway) using a process and
philosophy similar to those used for all other executive officers. In making
their recommendations for Mr. Soloway's compensation for fiscal year 1999,
consideration was given, among other things, to the overall performance of the
Company along with an assessment of Mr. Soloway's performance and contributions
to the Company and the importance of a significant incentive-based equity
component in the form of stock options.
Compensation Committee: Richard Soloway
Kevin S. Buchel
13
<PAGE> 16
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 1999, the Company
contributed approximately $54,000 to the Plan.
Vested contributions, both participant and the Company's additional
contributions, are payable to the participant (or his beneficiary), upon any of
the following events: retirement, termination of employment, disability, death,
termination of the Plan without the establishment of a successor Plan, or the
attainment of age 59 1/2. Participants may withdraw up to the total of salary
deferral contributions upon suffering a financial hardship, as defined in the
Plan. A participant may also borrow from the Plan against his account balance.
All participant and additional Company contributions are 100% vested at all
times. Benefits at retirement are payable to participants in a lump sum or as an
annuity.
Stock Options
Under the Company's 1992 Incentive Stock Option Plan, as amended
("1992 Plan") which was approved by vote of the stockholders of the Company at
the 1992 Annual Meeting (extending the 1982 plan for an additional ten years),
incentive stock options to purchase up to an aggregate of 727,933 shares of
Common Stock (plus the shares at the time subject to option) or a total of
815,933 shares (as adjusted) may be granted at fair market value to executive
officers and key employees during the ten-year period ending in October 2002. At
June 30, 1999, 377,333 shares were available for grant under the 1992 Plan.
Options to purchase a total of 438,100 shares of Common Stock were outstanding
under the 1992 Plan on June 30, 1999, with exercise prices of $2.50 to $5.63 per
share. The incentive stock options included in the foregoing tabulation expire
five years from the date of grant, are non-transferable and are exercisable
beginning with the date of grant in 20 percent cumulative yearly installments.
These options and shares were registered in October 24, 1996 with the Securities
and Exchange Commission.
The Company's 1990 Non-Employee Stock Option Plan ("1990 Plan") was
adopted to promote the interests of the Company and its stockholders by enabling
the Company to attract and retain outside directors and consultants, to provide
them an incentive to continue service with the Company, and provide them
additional incentive to promote the success of the
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Company's business. The 1990 Plan was approved by the stockholders at the
Company's 1990 annual meeting. At June 30, 1999, a total of 50,000 shares (with
appropriate adjustment in the event of a stock split or other change in the
Company's common stock) of common stock of the Company, par value $.01 per
share, were available for grant of options under the 1990 Plan. The Plan
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. Through June 30, 1999, no options under
the 1990 Plan had 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.
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COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph sets forth the Company's total shareholder return index as
compared to the NASDAQ index and a NASDAQ electronic component stock industry
index.
- --------------------------------------------------------------------------------
[Performance Chart]
6/95 6/96 6/97 6/98 6/99
NAPCO 100.000 170.59 223.53 241.18 183.26
NASDAQ 100.000 128.39 156.14 205.59 294.06
PEER 100.000 84.73 92.47 70.14 63.63
GROUP*
* Peer Group consists of:
American Medical Alert Corp.
Detection Systems, Inc.
Pittway Corp.
Sensormatic Electronics Corp. (replacing Central Sprinkler Corp.,
which was used in the Company's 1998 proxy statement peer group
but which is no longer a publicly reporting company)
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THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors appointed Arthur Andersen LLP ("AA") as the
independent public accountants for the Company and its subsidiaries for its 1999
fiscal year. AA has been serving the Company since fiscal 1993.
Services provided by AA during and for the 1999 fiscal year
consisted of audit and non-audit related services. These services included the
examination of the consolidated financial statements of the Company, services
related to reporting by the Company and its subsidiaries to the Securities and
Exchange Commission and consulting during the year on matters related to
accounting, taxes and financial reporting.
A representative of AA will be present at the Annual Meeting to make
a statement if he desires and to respond to appropriate questions presented at
the Meeting.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal which is intended to be presented at next
year's annual meeting of stockholders must be received by the Company not later
than June 30, 2000 if it is to be considered for inclusion in the Company's
proxy statement and form of proxy for such meeting.
EXPENSES OF SOLICITATION
The Company will bear all costs in connection with the solicitation
by the Board of Directors of proxies of the Meeting. The Company intends to
request brokerage houses, custodial nominees and others who hold stock in their
names to solicit proxies from the persons who beneficially own such stock. The
Company will reimburse brokerage houses, custodial nominees and others for their
out-of-pocket expenses and reasonable clerical expenses. It is estimated that
these expenses will be nominal. In addition, officers and employees of the
Company may solicit proxies personally or by telephone, telegram or letter; they
will receive no extra compensation for such solicitation.
Dated: October 28, 1999 By Order of the Board of Directors
Richard Soloway
Secretary
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NAPCO SECURITY SYSTEMS, INC.
333 Bayview Avenue
Amityville, New York 11701
PROXY - SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of NAPCO SECURITY SYSTEMS, INC. hereby
appoints Messrs. Richard Soloway and Kevin S. Buchel, and each or either of
them, the proxy or proxies of the undersigned, with full power of substitution,
to vote as specified on the reverse side all shares of Common Stock of said
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of said Corporation, to be held on Thursday, December 9, 1999 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 one (1) director (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.)
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(Continued from the other side)
The Board of Directors recommends a Vote FOR Item 1.
Item 1 - Election of one director for a term of three years and until his
successor is elected and qualified:
Andrew J. Wilder.
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 Corporation or
its transfer agent.
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