<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
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
[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 7, 2000
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 7,
2000, 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;
2. to approve the extension of the 1990 Non-Employee Stock
Option Plan; and
3. to transact such other business as may properly come before
the Meeting or any adjournments thereof.
Only stockholders of record at the close of business on October
20, 2000 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, 2000
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 7, 2000
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 7, 2000 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 2000 Annual
Report of the Company, including financial statements, is being mailed herewith.
Only stockholders of record at the close of business on October 20, 2000
(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
3,516,401 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; (2) the extension of the 1990 Non-Employee Stock Option Plan; 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 DIRECTOR
Unless otherwise specified, shares represented by the enclosed proxy will
be voted for the election of Randy B. Blaustein, 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 2003 and until his successor is
elected and qualified.
Mr. Blaustein 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 2001 and 2002, 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>
Nominee to serve until
Annual Meeting of
Stockholders in 2003:
Randy B. Blaustein Partner of Blaustein, Greenberg & 1985
(48) Co. 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.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C>
Directors to serve until
Annual Meeting of
Stockholders in 2001:
Richard Soloway
(54) Chairman of the Board of 1972
Directors since October 1981; President
since 1998; Secretary since 1975.
Kevin S. Buchel Senior Vice President of 1998
(47) Operations and Finance since
April 1995; Treasurer since May
1998.
Director to serve until
Annual Meeting of
Stockholders in 2002:
Andrew J. Wilder
(49) Officer of Israeloff, Trattner & 1995
Co., independent certified public
accountants, since 1990.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MR.
BLAUSTEIN.
During the fiscal year ended June 30, 2000, the Company retained, and
currently retains, Mr. Blaustein as special counsel for certain general business
and tax related matters.
During fiscal 2000, 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 four (4) times in fiscal
year 2000, 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 2000, 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
3
<PAGE> 6
pronouncements that may affect the Company, approves the overall scope of the
audit, and reviews and discusses the audited financial statements. The Company
has adopted an Audit Charter with respect to the Committee's activities.
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.
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, 2000,
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, 2000, 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. 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 1,033,076 [b] [c] 27.3%
Dimensional Fund
Advisors, Inc. [d] 299,750 [d] 7.9%
Kevin S. Buchel 38,001 [b] 1.0%
Randy B. Blaustein 26,500 [b] .7%
Jorge Hevia 19,960 [b] .5%
Michael Carrieri 8,000 [b] .2%
Andrew J. Wilder 4,300 [b] .1%
All executive officers and
directors as a group (6 in number 1,129,837 [e] 29.9%
</TABLE>
------------------
[a] Percentages are computed on the basis of 3,781,211 shares, which consists of
3,516,401 shares of Common Stock outstanding on October 20, 2000, plus 264,810,
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 - 100,000, Buchel
- 22,000, Blaustein - 4,000, Hevia - 19,960, Carrieri - 8,000, and Wilder -
4,000).
[c] Includes 5,400 shares owned directly by Mr. Soloway's wife.
[d] Based on information from NASDAQ as of June 30, 2000. On February 3, 2000, 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 299,750 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) 966,477 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) 157,960 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, except that Messrs. Soloway, Buchel, Hevia and Carrieri were
inadvertently late in filing their Forms 5 in connection with certain options
granted to them.
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
(54) October 1981; President Since 1998; and
Secretary since 1975.
Kevin S. Buchel Senior Vice President of Operations and
(47) Finance since April 1995; Treasurer since
May 1998.
Jorge Hevia Senior Vice President of Corporate Sales
(42) and Marketing since May 1999; 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 Senior Vice President of Engineering Development
(42) since May 1, 2000; Vice President of Engineering
Development since September, 1999; Vice
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
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 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------
Other Annual
Name and Principal Position Fiscal Year Salary Bonus Compensation(1)
--------------------------- ----------- ------ ----- ---------------
<S> <C> <C> <C> <C>
Richard Soloway, Chairman of the 2000 $415,949 - $11,090
Board of Directors, President, 1999 $407,793 - $11,708
Secretary 1998 $407,793 - $9,123
Kevin S. Buchel, Senior Vice 2000 $142,285 $60,000 $5,491
President of Operations and 1999 $138,533 $60,000 $5,574
Finance and Treasurer 1998 $131,811 $50,000 $5,252
Jorge Hevia 2000 $178,365 $20,000 $6,541
Senior Vice President of 1999 $125,245 $30,000 $1,620
Corporate Sales and 1998 - - -
Marketing
Michael Carrieri, 2000 $134,635 $35,000 $35
Senior Vice President of 1999 - -
Engineering Development 1998 - -
<CAPTION>
Long-Term Compensation
-----------------------------------------------------------------------
Restricted All Other
Name and Principal Position Stock Awards Options/SARS LTIP Payouts Compensation(2)
--------------------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Richard Soloway, Chairman of the - - - $922
Board of Directors, President, - 225,000/0 - $706
Secretary - - - $706
Kevin S. Buchel, Senior Vice - 30,000/0 - $2,051
President of Operations and - - - $1,986
Finance and Treasurer - 15,000/0 - $1,841
Jorge Hevia - 30,000/0 - $174
Senior Vice President of - 16,600/0 - -
Corporate Sales and - - - -
Marketing
Michael Carrieri, - 25,000/0 - -
Senior Vice President of - - - -
Engineering Development - - - -
</TABLE>
(1) Messrs. Soloway, Buchel, Hevia and Carrieri received $3,961, $4,108, and
$1,174; $91, $174, $102; $61, $0, and $0; and $35, $0, and $0 respectively for
health and life insurance for fiscal years 2000, 1999, and 1998. Messrs.
Soloway, Buchel, and Hevia received $7,129, $7,600, and $7,950; $5,400, $5,400,
and $5,150; and $6,480, $1,620 and $0 respectively, for automobile expenses for
fiscal years 2000, 1999, and 1998.
(2) Company 401(k) Plan Contributions.
7
<PAGE> 10
Option Grants and Exercises
The following tables summarize option grants and exercises during fiscal
2000 to or by the named executive officers and the value of the fiscal 2000
granted options, if any, held by such persons at the end of fiscal 2000.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Percent of
Total Options Exercise or
Options Granted to Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date
---- ------- ----------- ------ ----
<S> <C> <C> <C> <C>
Richard Soloway - - - -
Kevin S. Buchel 30,000 33.0% $3.25(20,000) 7/2/04-3/1/05
$3.063(10,000)
Jorge Hevia 30,000 33.0% $3.25(20,000) 7/2/04-3/1/05
$3.063(10,000)
Michael Carrieri 25,000 27.5% $3.25(15,000) 7/2/04-3/1/05
$3.063(10,000)
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Option Term(2)
-----------------------------
Name 5% ($) 10% ($)
---- ------ -------
<S> <C> <C>
Richard Soloway - -
Kevin S. Buchel $26,421 $58,383
Jorge Hevia $26,421 $58,383
Michael Carrieri $21,931 $48,462
</TABLE>
(1) Options generally become exercisable in cumulative annual installments of
20% commencing on the date of grant. Options terminate upon the earlier of the
cessation of employment with the Company or the fifth anniversary of the date of
the grant.
(2) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed rates
of stock price appreciation of 5% and 10% annually from the date options are
granted.
8
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST YEAR AND FY-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value FY-End (#) FY-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Richard Soloway - - 90,000/135,000 $59,220/$88,830
Kevin S. Buchel - - 30,000/30,000 $20,822/$12,008
Jorge Hevia - - 12,640/33,960 $3,002/$12,008
Michael Carrieri - - 5,000/20,000 $2,564/$10,256
</TABLE>
--------------------
(1) No stock options were exercised by the named executive officers during
fiscal 2000.
9
<PAGE> 12
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Richard Soloway, Jorge Hevia,
and Michael Carrieri. The agreement with Mr. Soloway, entered into on February
26, 1999 for a five year period, provides for an annual salary of $415,949 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 $185,000 with certain bonus provisions,
including those based on sales and profits. The agreement with Mr. Carrieri for
fiscal year 2000 provides for an annual salary ($160,000) and a bonus if certain
benchmarks are met. 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 2000 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.
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
10
<PAGE> 13
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 2000, 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 2000.
11
<PAGE> 14
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.
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 2000,
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
12
<PAGE> 15
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 2000, the Company
contributed approximately $55,000 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, 2000,
294,133 shares were available for grant under the 1992 Plan. Options to purchase
a total of 499,850 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
13
<PAGE> 16
Company's business. The 1990 Plan was approved by the stockholders at the
Company's 1990 annual meeting. At June 30, 2000, 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 that do not meet the requirements of Section 422 of
the Internal Revenue Code to non-employee directors and/or consultants of the
Company. Unless the Plan is extended as provided below, no option may be granted
after October 15, 2000 or such earlier date as the Board of Directors may
determine. Through June 30, 2000, no options under the 1990 Plan had been
granted. On September 27, 2000, 20,000 options were granted to each of Randy
Blaustein and Andrew J. Wilder.
ITEM 2
PROPOSAL TO APPROVE AN EXTENSION OF THE 1990 NON-EMPLOYEE STOCK OPTION PLAN
The Board of Directors believes that the 1990 Non-Employee Stock Option
Plan has been valuable to furthering the interests of the Company and that the
Company's continued ability to grant stock options to outside directors and
consultants substantially enhances its ability to attract and retain the high
caliber personnel upon whose judgement, skill and initiative the success of the
Company is largely dependent. Accordingly, the Board has approved (subject to
stockholder approval) the readoption and ten-year extension of the 1990 Plan to
October 15, 2010, as the 2000 Non-Employee Stock Option Plan ("2000 Plan"), with
options for an aggregate of fifty thousand (50,000) shares (representing ten
thousand (10,000) shares available for future options and forty thousand
(40,000) shares for outstanding options (see Exhibit A hereto for the full text
of the 2000 plan). Shares for options that expire unexercised will be available
for the grant of future options.
The 2000 Plan would continue to be administered by the Board of Directors
or a Stock Option Committee of the Board of Directors ("Committee"). The Board
or Committee would determine the individuals to be granted options under the
2000 Plan, the number of shares to be subject to options and the terms of
options, interpret the provisions of the 2000 Plan and make all determinations
deemed necessary or advisable for the administration of the 2000 Plan. No
options may be granted to an individual under the 2000 Plan except by the
Committee, at a meeting at which a majority of its members are not being
considered to receive grants, or the Board of Directors, at a meeting at which
the majority of the directors voting on the grant are not being considered to
receive grants. The Board of Directors may amend or terminate the 2000 Plan
without the approval of stockholders, except that it may not, without such
approval, increase the maximum number of shares available and reserved for issue
under the 2000 Plan, change the class of persons eligible to receive options, or
extend the term of the 2000 Plan. No amendment of the 2000 Plan may, without an
participant's consent, adversely affect his rights under an existing option.
The 2000 Plan provides that options may be granted only to non-employee
directors and consultants of the Company. The option exercise price would be
fixed
14
<PAGE> 17
by the Committee and may not be less than the fair market value per share of
Common Stock on the date the option is granted. The Committee may approve
cancellation of an option prior to its expiration or exercise, and grant a new
option at a lower price.
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 but could be accelerated in the event of a change in control. 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.
The affirmative vote of a majority of the shares of Common Stock present
or represented at the meeting is required for approval of the extension of the
2000 Non-Employee Stock Option Plan. It is intended that the proxies solicited
herewith will be voted for such approval unless a contrary instruction is made
on the proxy.
THE BOARD OF DIRECTORS DEEMS ITEM 2 TO BE IN THE BEST INTEREST OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
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]
<TABLE>
<CAPTION>
ACTUAL: INDEXED:
-----------------------------------------------------------------------------------------------------------
Fiscal NAPCO NASDAQ Peer Group* Fiscal NAPCO NASDAQ Peer Group*
Year Year
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jun-96 3.625 391.217 29.594 Jun-96 100.00 100.00 100.00
Jun-97 4.750 475.806 32.469 Jun-97 131.03 121.62 109.71
Jun-98 5.125 626.431 33.719 Jun-98 141.38 160.12 113.94
Jun-99 3.500 902.001 40.203 Jun-99 96.55 230.56 135.85
Jun-00 3.6875 1332.49 18.191 Jun-00 101.72 340.60 61.47
* The Peer Group consists of:
American Medical
Alert Corp.
Detection Systems, Inc.
Honeywell, Inc.**
Sensormatic
Electronics Corp.
--------
</TABLE>
** acquired Pittway Corp. that was part of the Company's 1999 Peer Group
16
<PAGE> 19
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 2000
fiscal year. AA has been serving the Company since fiscal 1993.
Services provided by AA during and for the 2000 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, 2001 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, 2000 By Order of the Board of Directors
Richard Soloway
Secretary
17
<PAGE> 20
EXHIBIT A
NAPCO SECURITY SYSTEMS, INC.
2000 NON-EMPLOYEE STOCK OPTION PLAN
(Extended 1990 Non-Employee Stock Option Plan)
1. Purpose of the Plan. This 2000 Non-Employee Stock Option Plan
(hereinafter referred to as the "Plan"), constituting a ten-year extension of
the 1990 Non-Employee Stock Option Plan, is intended to encourage ownership of
stock of Napco Security Systems, Inc. (hereinafter referred to as the
"Corporation") by non-employee directors and consultants of the Corporation and
its subsidiaries, if any, and to provide additional incentive for them to
promote the success of the business. As used in the Plan the term "subsidiary"
shall have the same meaning as the term "subsidiary corporation" defined in
Section 425(f) of the Internal Revenue Code of 1986, as amended (the "Code").
All options granted under the Plan shall be non-qualified stock options and do
not qualify as incentive stock options within the meaning of Section 422 or any
successor section of the Code.
2. Scope of the Plan. An aggregate of Fifty Thousand (50,000) shares
(representing Ten Thousand (10,000) shares for future options and Forty Thousand
(40,000) shares for outstanding options) of the Corporation's Common Stock, par
value $.01 per share (hereinafter referred to as "Common Stock"), shall be
available and reserved for issue under the Plan subject, however, to the
provisions of Section 12 hereof. If an option should expire or terminate for any
reason without having been exercised in full, the unpurchased shares that were
subject thereto shall, unless the Plan shall have terminated, become available
for other options under the Plan. Common Stock shall not be issued in respect of
an option granted under the Plan unless the exercise of such option and the
issuance and delivery of shares of Common Stock pursuant thereto shall comply
with all relevant provisions of law, including the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations thereunder, and the requirements of any stock exchange upon which
the Common Stock may then be listed, and shall be further subject to the
approval of the Corporation's counsel with respect to such compliance.
3. Administration of the Plan. The Plan shall be administered by the
Board of Directors or a Stock Option Committee (hereinafter sometimes referred
to as the "Committee") of the Board of Directors of the Corporation. Directors
of the Corporation who are either eligible for options or to whom options have
been granted may vote on any matters affecting the administration of the Plan or
the granting of options under the Plan; provided, however, that no option may be
granted to a director under the Plan except by:
(a) The Committee at a meeting at which a majority of its members
are disinterested persons; or
(b) The Board of Directors at a meeting at which the majority of
directors present and a majority of the directors voting on a
grant, are disinterested persons.
18
<PAGE> 21
For purposes of this Section 3, a "disinterested person" is a person who,
at a given meeting of the Committee or the Board of Directors, is not being
considered to receive a grant of stock options under the Plan or any other stock
option plan of the Corporation or its subsidiaries.
Without limiting the generality of the foregoing, the Board of Directors
shall have full and final authority in its discretion, but subject to the
express provisions of the Plan, to determine the fair market value of the Common
Stock covered by each option; to select the key non-employee individuals of the
Corporation and its subsidiaries to whom, and the time or times at which,
options shall be granted; to determine the manner in which options may be
exercised; to determine the number of shares to be covered by each option and
the consideration, if any, to flow to the Corporation for each option; to
interpret the Plan; to prescribe, amend, and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of each option
granted under the Plan (which need not be identical); to accelerate any exercise
date of any option; to waive restrictions imposed with respect to the
transferability of stock acquired on exercise of options granted under the Plan;
to cancel an option previously granted to an optionee and issue a new option to
such optionee at a lower price, provided that such optionee's consent is first
obtained; to authorize any person to execute on behalf of the Corporation an
option agreement with respect to an option previously granted by the Board of
Directors; and to make all other determinations deemed necessary or advisable
for the administration of the Plan.
4. Eligibility. Options may be granted only to non-employee directors
serving on the Board of Directors of the Corporation or any subsidiary and/or
non-employee consultant serving the Corporation or any subsidiary. In selecting
the individuals to whom options shall be granted, as well as in determining the
number of shares subject to each option, the Board of Directors may take into
consideration the recommendation of the members of the Board of Directors who
are also employees of the Corporation or a subsidiary and such factors as it
shall deem relevant in connection with accomplishing the purposes of the Plan.
An individual who has been granted an option may, if he is otherwise eligible,
be granted an additional option or options.
5. Option Price. The purchase price to be paid for Common Stock
transferred pursuant to the exercise of any option granted under the Plan shall
be not less than the fair market value of such stock on the date the option is
granted as provided in Section 14 hereof (but in no event less than the par
value of the Common Stock), and shall not thereafter be subject to reduction
except as provided in Section 12 hereof. For purposes of the Plan the fair
market value of the Common Stock on any date shall be determined by the Board of
Directors. The proceeds of sale of Common Stock subject to option are to be
added to the general funds of the Corporation and used for such corporate
purposes as the Board of Directors may determine.
6. Term of Options. The term of each option granted under the Plan shall
be not more than five years from the date of the granting thereof, subject to
its earlier termination as hereinafter provided.
7. Non-Transferability of Options. An option granted under the Plan shall
by its terms not be transferable and an option may be exercised, during the
lifetime of the holder of the option, only by such holder. More particularly,
but without limiting the generality of the foregoing, an option may not be
assigned, transferred, pledged, or hypothecated in any way (whether by
operation of law or otherwise), and will not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
19
<PAGE> 22
the Plan, and any levy of any attachment or similar process upon an option will
be null and void and without effect, and the Board of Directors may, in its
discretion, upon the happening of any such event, terminate an option forthwith.
8. Annual Limitation on Options Granted. The amount of the aggregate fair
market value of stock, determined at the time of the grant of the option, for
which any non-employee director or consultant may be granted stock options under
this Plan in any calendar year shall not exceed One Hundred Thousand ($100,000)
Dollars.
9. Exercise of Options. Except as hereinafter provided in this Section 9
and in Sections 3 and 11, options may be exercised within the year of grant (as
the Board of Directors, in its discretion, shall determine) with respect to no
more than twenty percent (20%) of the total number of shares of Common Stock
subject to such grant. Thereafter, during each succeeding year beginning on an
anniversary date, options with respect to an additional twenty percent (20%) of
the total number of shares subject to a grant may be exercised. However, no
option shall be exercisable after the expiration of the term thereof as provided
in Section 6. Moreover, except as provided herein, an option shall not be
exercisable unless the holder thereof shall, at the time of exercise, be an
employee of the Corporation or a subsidiary.
The purchase price of any shares as to which an option shall be exercised
shall be paid in full at the time of exercise. The holder of an option shall not
have any of the rights of a stockholder with respect to the shares covered by
his option until such shares shall have been issued to him (as evidenced by the
appropriate entry on the books of a duly authorized transfer agent of the
Corporation) upon the purchase of such shares upon exercise of the option.
10. Consideration. The Board of Directors shall determine the nature of
the consideration flowing to the Corporation in respect of each option granted
under the Plan as well as the conditions, if any, which it may deem appropriate
to assure that such consideration shall be received by, or shall accrue to, the
Corporation. The consideration specified in any option may be different from the
consideration specified in any other option, whether granted at the same or a
different time.
11. Exercise Upon Cessation of Relationship With Corporation. Except as
provided in Sections 7 and 9 above, the right of a holder of an option to
exercise such option shall terminate immediately upon voluntary termination of
service as an employee or dismissal, disability, retirement, death or otherwise.
Option agreements may contain such provisions as the Board of Directors shall
approve with reference to the effect of approved leaves of absence, provided,
however, that all options shall terminate not more than five years after the
date of grant.
12. Adjustments. Options granted under the Plan shall contain such
uniform provisions as the Board of Directors shall, in its sole judgment,
determine for adjustment of the number and class of shares covered thereby, or
of the option prices (but not below the par value of the Common Stock), or both,
to reflect a stock dividend, stock split-up, share combination, exchange of
shares, recapitalization, merger, consolidation, acquisition or disposition of
property or shares, reorganization, liquidation, or other similar changes or
transactions, of or by the Corporation. In any such event the aggregate number
and class of shares available for issuance under the Plan shall be appropriately
adjusted and all the provisions of the Plan with respect to the number and class
of shares so available shall likewise be adjusted.
13. Effectiveness of the Plan. The Plan shall become effective on October
15, 2000, but shall be subject to approval by the holders of Common Stock at a
meeting of stockholders of the Corporation duly called and held no later than
twelve months after the date of adoption of the Plan by the Board of Directors.
20
<PAGE> 23
14. Time of Granting Options. The date of grant of an option under the
Plan shall, for all purposes, be the date on which the Board of Directors makes
the determination granting such option; and no grant shall be deemed effective
under the Plan prior to such date. Notice of the determination shall be given to
each employee to whom an option is so granted within a reasonable time after the
date of such grant.
15. Termination and Amendment of the Plan. The Plan shall terminate ten
(10) years from the date on which it is adopted by the Board of Directors or the
date on which it is approved by the stockholders, whichever is earlier. Prior
thereto, the Board of Directors may terminate the Plan at any time; provided,
however, that any such termination shall not affect any options then outstanding
under the Plan. No options under the Plan may be granted after termination of
the Plan.
The Board of Directors from time to time may make such modifications or
amendments of the Plan and, with the consent of the holder of an option, of the
terms and conditions of his option, as it shall deem advisable, but may not,
without further approval of the stockholders of the Corporation, except as
provided in Section 12 hereof (a) increase the maximum number of shares which
shall be available and reserved for issue under the Plan, or (b) change the
employees or class of employees eligible to receive options, or (c) extend the
term of the Plan beyond the period provided in this paragraph.
Neither the termination nor any modification or amendment of the Plan
shall, without the consent of the holder of an option theretofore granted under
the Plan, adversely affect the rights of such holder with respect to such
option.
16. Termination of Right of Action. Every right of action arising out of
or in connection with the Plan by or on behalf of the Corporation or a
subsidiary or by any stockholder of the Corporation or a subsidiary against any
past, present or future non-employee directors or consultants (past, present or
future) against the Corporation shall, irrespective of the place where an action
may be brought and irrespective of the place of residence of any such
stockholder or employee, cease and be barred by the expiration of three years
from the date of the act or omission in respect to which such right of action is
alleged to have arisen.
17. Registration Rights. If in the future the Corporation registers
additional shares with the Securities and Exchange Commission, the Corporation
will also register the shares subject to the options of this Plan.
Dated as of: October 15, 2000
NAPCO SECURITY SYSTEMS, INC.
By:
Richard Soloway, President
ATTEST:
By:
Kevin S. Buchel, Senior Vice President
21
<PAGE> 24
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 7, 2000 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); FOR the
extension of the 1990 Non-Employee Stock Option Plan (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.)
22
<PAGE> 25
(Continued from the other side)
The Board of Directors recommends a Vote FOR Items 1 and 2.
Item 1 - Election of one director: Randy B. Blaustein.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Item 2 - The extension of the 1990 Non-Employee Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated:
----------------------
----------------------------
----------------------------
Signature or Signatures
Please sign exactly as your
name appears at the left.
Executors, administrators,
trustees, guardians,
attorneys and agents should
give their full titles and
submit evidence of
appointment unless
previously furnished to the
Corporation or its transfer
agent.
23
