UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(A) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(a)(2))
[X] Definitive Materials
[ ] Soliciting Material Pursuant to Section 240.14a-2
NAPCO SECURITY SYSTEMS, INC.
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(Name of Registrant as Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
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NAPCO SECURITY SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on April 16, 2004
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 Friday, April
16, 2004, at 4:00 p.m., for the following purposes, as more fully described in
the accompanying Proxy Statement:
1. to elect three directors to serve for a term of three
years and until their successors are elected and
qualified; and
2. to transact such other business as may properly come
before the Meeting or any adjournments thereof.
Only stockholders of record at the close of business on March
1, 2004 are entitled to notice and to vote at the Meeting or any adjournment
thereof.
By order of the Board of Directors,
Richard Soloway
Secretary
March 8, 2004
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING WHETHER OR NOT
YOU ARE PERSONALLY ABLE TO ATTEND. YOU ARE URGED TO COMPLETE, SIGN AND MAIL THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE.
NAPCO SECURITY SYSTEMS, INC.
333 BAYVIEW AVENUE
AMITYVILLE, NEW YORK 11701
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 16, 2004
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the holders of Common Stock, $.01
par value per share ("Common Stock") of Napco Security Systems, Inc. (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors of the Company for the Annual Meeting following Fiscal Year 2003,
to be held on April 16, 2004, 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 March 8, 2004. A copy
of the 2003 Annual Report of the Company, including financial statements, is
being mailed herewith.
Only stockholders of record at the close of business on March 1, 2004
(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
3,444,216 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
three (3) directors; and the transaction of any other business as may properly
come before the Meeting and require a vote of the Stockholders.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock authorized to vote will constitute a
quorum for the transaction of business at the Meeting.
ELECTION OF DIRECTORS. The affirmative vote of a plurality of
the votes cast at the Annual Meeting is required for the election of directors.
A properly executed proxy marked "WITHHOLD" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether there
is a quorum.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to certain matters. Thus, if you do not give your broker
or nominee specific instructions, your shares may not be voted on those matters
and will not be counted in determining the number of shares necessary for
approval. Shares represented by such "broker non-votes" will, however, be
counted in determining if there is a quorum
THEREFORE, THE COMPANY URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD.
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ITEM 1
ELECTION OF DIRECTORS
Unless otherwise specified, shares represented by the enclosed proxy
will be voted for the election of Paul Stephen Beeber, Randy B. Blaustein and
Donna Soloway, currently directors, who have been nominated by the Board of
Directors for reelection as a director to serve until the Annual Meeting of
Stockholders in 2006 and until his successor is elected and qualified.
Mr. Beeber, Mr. Blaustein and Ms. Soloway have consented to serve if
elected. Three directors are to be elected by a plurality of the votes cast at
the Meeting. 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 Board of Directors is divided into three classes. At the upcoming
Annual Meeting one class will stand for election for the term ending the Annual
Meeting of Stockholders following Fiscal Year 2006. The terms of the other two
classes of continuing directors do not expire until the Annual Meetings of
Stockholders after fiscal year end 2004 and 2005, respectively. The names of,
and certain information concerning, the nominees of the Board of Directors and
such other directors are set forth below:
Principal Occupation;
Five-Year Employment
History and Director
Name and Age Other Directorships Since
------------ ------------------- -----
Nominees to serve until
Annual Meeting of
Stockholders following
Fiscal Year 2006:
Paul Stephen Beeber Licensed Attorney in New York 2004
(59) State since 1970, focusing on
elder law, estate planning and
real estate; member of Suffolk
County Bar Association
Principal of R.B. Blaustein & Co. 1985
Randy B. Blaustein since December 2000; Partner of
(52) Blaustein, Greenberg & Co. July
1991 - November 2000; Attorney engaged as
a sole practitioner since October 1980,
specializing in
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business and tax matters, and author of
six books and numerous articles.
Donna Soloway Board of Directors of Security 2001
(55) Industry Association (SIA); Chair
of Awards Committee since 1993;
Director and Secretary of SAINTS
(Safety, Awareness and
Independence Now Through
Security) Foundation, Inc.; and
Monthly Columnist for SECURITY
DEALER magazine since 1992. Ms.
Soloway is the wife of Richard
Soloway, the Chairman and
President of the Company.
Directors to serve until
Annual Meeting of
Stockholders following
Fiscal Year end 2004:
Richard Soloway Chairman of the Board of 1972
(57) Directors since October 1981;
President since 1998; Secretary
since 1975.
Kevin S. Buchel Senior Vice President of Operations and 1998
(51) Finance since April 1995; Treasurer
since May 1998.
Directors to serve until
Annual Meeting of
Stockholders following
Fiscal Year end 2005:
Andrew J. Wilder Officer of Israeloff, Trattner & 1995
(52) Co., independent certified public
accountants, since 1990.
Arnold Blumenthal V.P. of Government Security News 2001
(76) and Executive Director of MBFAA.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MR.
BEEBER, MR. BLAUSTEIN AND MS. SOLOWAY.
CORPORATE GOVERNANCE AND BOARD MATTERS
INDEPENDENCE OF DIRECTORS
The Board currently consists of seven directors, four of whom the Board
has affirmatively determined have no relationship with the Company or its
subsidiaries, which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and are independent, as defined
by the applicable NASDAQ Listing Standards. The four independent directors are
Paul Stephen Beeber, Randy B. Blaustein, Arnold Blumenthal and Andrew J. Wilder.
BOARD STRUCTURE AND COMMITTEE COMPOSITION
The Board maintains three standing committees: Audit,
Compensation/Stock Option, and Nominating. The Audit, Compensation/Stock Option
and Nominating Committees are each currently composed entirely of independent
directors as defined in the applicable NASDAQ Listing Standards.
During fiscal 2003, the Board held four meetings. Each director
attended at least 75% of all Board meetings and meetings of committees of which
such director was a member. Directors are expected to attend the Company's
annual meetings of stockholders. All directors except Mr. Beeber, who was
elected a director in March 2004, attended the last annual meeting of
stockholders in 2002.
NAPCO maintains an investor relations section on its website,
www.napcosecurity.com, setting forth the Company's committee charters (including
those for the Audit and Nominating Committees).
AUDIT COMMITTEE
The Audit Committee has been established in accordance with Section
3(a)(58)A of the Securities Exchange Act of 1934 as amended. The Audit Committee
is responsible for retaining, evaluating and, if appropriate, recommending the
termination of the Company's independent auditors. The Audit Committee assists
the Board in oversight of (1) the integrity of the Company's financial
statements, (2) the Company's independent auditor's qualifications and
independence, and (3) the performance of the Company's internal audit function
and independent auditors. In addition, the Committee renders its report for
inclusion in the Company's annual proxy statement.
The Audit Committee has the authority to obtain advice and assistance
from, outside legal, accounting or other advisors as the Audit Committee deems
necessary to carry out its duties. The Audit Committee held four meetings in
fiscal year 2003. The current members of the Audit Committee are Andrew J.
Wilder (Chairman), Paul Stephen Beeber (who replaced Randy B. Blaustein on March
3, 2004) and Arnold Blumenthal, each of whom meets the NASDAQ Listing Standards
for the independence of audit committee members. The Board has determined that
Andrew Wilder is an audit committee financial expert.
The report of the Audit Committee is included in this proxy statement on page 7.
The charter of the Audit Committee was included in the 2002 proxy statement as
an Appendix A.
COMPENSATION/STOCK OPTION COMMITTEE
The Compensation/Stock Option Committee assists the Board in
discharging its responsibilities relating to compensation of the Company's chief
executive officer and other executives. The Committee determines individuals to
be granted options under the Employee Stock Option Plan and Non Employee Stock
Option Plan, the number of shares to be subjected to option and the terms of the
options and interprets provisions of such plans. The Committee also renders its
report on executive compensation for inclusion in the Company's annual proxy
statement.
The Compensation/Stock Option Committee held four meetings in fiscal
year 2003. The report of the Compensation/Stock Option Committee is included in
this proxy statement on page 13.
NOMINATING COMMITTEE
The Nominating Committee reviews and makes recommendation to the Board
regarding potential candidate for nomination as director.
The Nominating Committee held one meeting in fiscal year 2003. The
current members of the Nominating Committee are Arnold Blumenthal (Chairman),
Andrew Wilder and Randy B. Blaustein.
NOMINATION OF DIRECTORS
The Nominating Committee considers candidates for director nominees
proposed by directors, the Chief Executive Officer and stockholders. Potential
candidates are screened and interviewed by the Nominating Committee. All members
of the Board may interview the final candidates. The same identifying and
evaluating procedures apply to all candidates for director nomination, including
candidates submitted by stockholders.
The Company's general criteria for the nomination of director
candidates, include the following:
- the candidates' personal and professional ethics, integrity and
values,
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- mature judgment,
- management, accounting or finance industry and technical knowledge,
- demonstrated skills in his/her area of present or past professional,
business responsibility,
- an ability to work effectively with others,
- sufficient time to devote to the affairs of the Company and
- freedom from conflicts of interest.
STOCKHOLDER NOMINEES
The Nominating Committee will consider nominations submitted by
stockholders. Any stockholder nominations proposed for consideration by the
Nominating Committee should include the nominee's name and qualifications for
Board membership and should be addressed to:
Chair
Nominating Committee
c/o Secretary
Napco Security Systems, Inc.
333 Bayview Ave.
Amityville, NY 11701
Mr. Beeber was elected a director on March 3, 2004. He was recommended
to the Nominating Committee by Richard Soloway.
COMMUNICATIONS WITH THE BOARD
You can contact any Director by writing to such Director:
c/o Secretary
Napco Security Systems, Inc.
333 Bayview Ave.
Amityville, NY 11701
The Secretary will promptly forward any communication unaltered to the
Director.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors:
1. reviewed and discussed the Company's audited financial statements for
the fiscal years ended June 30, 2003 and 2002 with management and
representatives of Marcum & Kliegman LLP ("M&K");
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2. discussed with M&K the matters required to be discussed by SAS 61, as
modified or supplemented; and
3. received the written disclosures and letter from M&K required by
Independence Standards Board Standard No. 1 and discussed M&K's
independence with representatives of M&K.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements for the fiscal years ended June 30, 2003 and 2002 be included in the
Company's annual report on Form 10-K for the fiscal year ended June 30, 2003
filed with the Securities and Exchange Commission.
The Board of Directors has adopted a written charter for the Audit
Committee. A copy of the charter is attached to the Company's 2002 Proxy
Statement.
Date: February 24, 2004
The Audit Committee:
Andrew J. Wilder
Randy Blaustein
Arnold Blumenthal
COMPENSATION OF DIRECTORS
The directors who are not officers receive $1,000 for each Board of
Directors meeting and $1,000 for each Audit Committee meeting that they attend
in person or by telephone conference call, except Mr. Wilder, who is chairman of
the Audit Committee, receives $2,000 for attending each Audit Committee meeting.
For the fiscal year ended June 30, 2003, Mr. Blaustein, Mr. Wilder, Mr.
Blumenthal and Ms. Soloway received $8,000, $12,000, $8,000 and $4,000,
respectively in director's fees and committee fees.
During the fiscal year ended June 30, 2003, the Company retained Mr.
Blaustein as special counsel for certain general business and tax related
matters. Fees for such services were $9,200.
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 Richard Soloway was late on filing one Form 4, reporting
one transaction, due to a delay in obtaining
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certain necessary codes for EDGAR filing.
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, except
Richard Soloway and Donna Soloway, his wife. The following table sets forth as
of the date hereof the names and ages of all executive officers of the Company,
all positions and offices with the Company held by them, the period during which
they have served in these positions and, where applicable, their positions in
any other organizations during the last five years.
Position and Office with the Company, Term of Office
Name and Age and Five-Year Employment History
------------ ----------------------------------------------------
Richard Soloway Chairman of the Board of Directors since October 1981;
(57) President Since 1998; and Secretary since 1975.
Kevin S. Buchel Senior Vice President of Operations and Finance since
(51) April 1995; Treasurer since May 1998.
Jorge Hevia Senior Vice President of Corporate Sales and
(45) 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
(46) since May 2000; Vice President of Engineering
Development from September 1999 to May 2000; 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.
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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 three most highly compensated other executive officers who received
compensation in excess of $100,000 and were serving at the end of fiscal year
2003.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation ----------------------
------------------- Restricted
Other Annual Stock LTIP All Other
Name and Principal Position Fiscal Year Salary Bonus Compensation(1) Awards Options/SARS Payouts Compensation(2)
--------------------------- ----------- ------ ----- --------------- ---------- ------------ ------- ---------------
Richard Soloway, Chairman 2003 $443,457 $75,000 $27,455 125,000/0 $ 838
of the Board of Directors, 2002 $450,637 - $22,433 - 25,000/0 - $ 784
President,Secretary 2001 $432,134 $50,000 $11,990 - 50,000/0 - $ 734
Kevin S. Buchel, Senior 2003 $183,196 $33,525 $ 6,738 5,000/0 $1,811
Vice President of Operations 2002 $185,842 $30,000 $ 6,690 - 10,000/0 - $1,678
and Finance and Treasurer 2001 $152,949 $60,000 $ 6,291 - - - $1,908
Jorge Hevia, 2003 $202,230 $33,525 $ 7,200 5,000/0 $1,903
Senior Vice President of 2002 $192,269 $10,000 $ 7,260 - 10,000/0 - $1,816
Corporate Sales and 2001 $182,308 $20,000 $ 7,081 - - - $2,015
Marketing
Michael Carrieri, 2003 $183,999 $23,467 $ 5,250 5,000/0 $1,820
Senior Vice President of 2002 $175,269 $17,500 $ 60 - 10,000/0 - $1,671
Engineering Development 2001 $166,953 $35,000 $ 61 - - - $1,902
(1) Messrs. Soloway, Buchel, Hevia and Carrieri received $8,073, $7,040, $6,367;
$138, $90, $91; $60, $60, $61; $90, $60 and $61, respectively for health and
life insurance for fiscal years 2003, 2002 and 2001. Messrs. Soloway, Buchel,
Hevia and Carrieri received $19,382, $15,393, $5,623; $6,600, $6,600, $6,200;
$7,200, $7,200, $7,020; $5,250, $0, and $0, respectively, for automobile
expenses for fiscal years 2003, 2002 and 2001.
(2) Company 401(k) Plan Contributions.
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OPTION GRANTS, OPTION EXERCISES AND OUTSTANDING OPTIONS
The following tables summarize option grants and exercises during
fiscal 2003 to or by the named executive officers and the value of the fiscal
2003 granted options, if any, held by such persons at the end of fiscal 2003.
OPTION GRANTS IN LAST FISCAL YEAR(1)
Individual Grants
Potential Realizable Value at Assumed
Percent of Annual Rates of Stock Price
Total Options Exercise or Appreciation for Option Term(2)
Options Granted to Employees Base Price Expiration -------------------------------
Name Granted in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---------------- ------- -------------------- ----------- ---------- ------ -------
Richard Soloway 25,000 16% $ 9.65 2/27/13 $116,000 $ 327,500
100,000 62% $10.16 6/26/13 $489,000 $1,381,000
Kevin S. Buchel 5,000 3% $ 9.50 12/20/12 $ 29,850 $ 75,700
Jorge Hevia 5,000 3% $ 9.50 12/20/12 $ 29,850 $ 75,700
Michael Carrieri 5,000 3% $ 9.50 12/20/12 $ 29,850 $ 75,700
-------
(1) Options generally become exercisable in cumulative annual installments of
20% commencing on the date of grant. Options generally terminate upon the
earlier of the cessation of employment with the Company or the tenth 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.
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AGGREGATED OPTION EXERCISES IN LAST YEAR AND FY-END OPTION VALUES
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
---------------- ----------- -------- --------------- -------------------
Richard Soloway - - 290,000/135,000 $1,625,150/$144,600
Kevin S. Buchel 15,000 $44,475 29,000/16,000 $ 165,976/$60,794
Jorge Hevia 5,000 $24,300 40,600/16,000 $ 229,312/$60,794
Michael Carrieri - - 25,000/15,000 $ 141,136/$54,584
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EMPLOYMENT AGREEMENTS
The Company has employment agreements with Richard Soloway and Jorge
Hevia. The agreement with Mr. Soloway, entered into on June 26, 2003 for a five
year period, provides for an annual salary of $453,235 as adjusted by inflation,
certain incentive compensation if earned according to a formula to be determined
by the Board of Directors, and 100,000 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, entered into September 15, 1998 for a
two-year period, provides for an annual salary of $215,000 with certain bonus
provisions, including those based on sales and profits. During fiscal year 2003
Michael Carrieri had an agreement that provided for an annual salary of $194,481
with certain bonus provisions including those based on sales and profits. 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.
BOARD COMPENSATION/STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation/Stock Option Committee of the Board of
Directors is made up of Randy B. Blaustein (Chairman), Andrew J. Wilder and
Arnold Blumenthal. The Committee considers and establishes compensation for the
management of the Company.
Overview and Philosophy
The Compensation/Stock Option 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
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At the beginning of each year, the Compensation/Stock Option 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 2003, as in the past several years, the Compensation/Stock
Option 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/Stock Option
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 2003.
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
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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
In 2003, the Committee entered into an employment agreement with Mr.
Soloway based on competitive information. The agreement includes a base salary
and provides for a performance bonus at the discretion of the Committee. The
base salary is adjusted using a formula tied into the Consumer Price Index and
the bonus is based upon, but not limited to, such performance indicators as net
sales, EBITDA, net income and various financial ratios. In addition, Mr. Soloway
was granted options in fiscal 2003 in accordance with such factors and the
principles described above for grants to other executive officers.
Date: March 1, 2004
Compensation/Stock Option Committee: Randy Blaustein
Andrew J. Wilder
Arnold Blumenthal
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table, together with the accompanying footnotes, sets
forth information as of February 26, 2004 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.
15
Amount and Nature
of beneficial Percent of
Beneficial Owner Ownership Common Stock [a]
---------------- --------- ----------------
Richard Soloway
c/o the Company
333 Bayview Avenue
Amityville, NY 11701 1,229,976 [b] 33.6%
Dimensional Fund 226,650 [c] 6.2%
Advisors, Inc.
Kevin S. Buchel 69,001 [b] 1.9%
Jorge Hevia 54,600 [b] 1.5%
Randy B. Blaustein 38,500 [b] 1.1%
Michael Carrieri 33,000 [b] .9%
Andrew J. Wilder 16,300 [b] .4%
Donna Soloway 5,400 .1%
All executive officers and 1,446,777 [d] 39.5%
directors as a group (7 in number)
-------
[a] Percentages are computed on the basis of 3,658,616 shares, which consists of
3,432,616 shares of Common Stock outstanding on February 26, 2004, plus 226,000,
the number of shares that 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 that a person has a right to
acquire directly or indirectly within sixty (60) days (Soloway - 85,000, Buchel
- 38,000, Hevia - 38,000, Blaustein - 16,000, Carrieri - 33,000, and Wilder -
16,000).
[c] Based on information from Securities and Exchange as of December 31, 2003, a
form 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 226,650 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.
[d] This number of shares includes (i) 1,220,777 shares as to which officers and
directors have sole voting and investment power, and (ii) 226,000 shares that a
person has the right to acquire directly or indirectly within sixty (60) days.
16
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fiscal Year 2003 Fiscal Year 2002
---------------- ----------------
KPMG M&K KPMG M&K
---- --- ---- ---
Audit Fees(1)
Billed $237,000 $150,000 $87,000 (1)
Paid $ 70,000 $150,000 $87,000 (1)
Audit Related Fees(2) - - - -
Tax Fees(3) - - - -
All Other Fees(4)
Billed $ 15,000 $ 0 $15,000 $ 0
Paid $ 15,000 $ 0 $15,000 $ 0
--------------------
(1) Audit Fees. The Company was billed $237,000 and paid $70,000 to
date and was billed and paid $87,000 to KPMG LLP ("KPMG") for professional
services rendered for the audit of the Company's financial statements for fiscal
years 2003 and 2002, respectively. The Company was billed $150,000 by Marcum &
Kliegman LLP ("M&K") for professional services rendered for the audit of the
Company's financial statements for fiscal years 2003 and 2002.
(2) Audit Related Fees. There were no fees paid by the Company to KPMG
or M&K for professional services for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
or review of Napco's financial statements and are not reported under Item
9(e)(i) of Schedule 14 A in fiscal years 2003 and 2002, respectively.
(3) Tax Fees. There were no fees paid by the Company to KPMG or M&K for
professional services rendered by the principal accountants for tax compliance,
tax advice and tax planning for fiscal years 2003 and 2002, respectively.
(4) All Other Fees. The Company was billed and paid approximately
$15,000 to KPMG for services other than those described above, including
services related to the audit of the company's employee benefit plan and
reporting by the Company and its subsidiaries to the Securities and Exchange
Commission for fiscal years 2003 and 2002, respectively. The Company was not
billed by M&K for services other than those described above, including services
related to the audit of the company's employee benefit plan and reporting by the
Company and its subsidiaries to the Securities and Exchange Commission for
fiscal years 2003 and 2002, respectively.
The Audit Committee has considered whether the provision of the
services described above under the headings "Audit Related Fees", "Tax Fees" and
"All Other Fees" is compatible
17
with maintaining the auditor's independence and determined that it is. All of
the services described in Items 9(e)(2) through 9(e)(4) of Schedule 14A were
approved by the Audit Committee pursuant to paragraph c(7)(i)(C) of Rule 2-01 of
Regulation S-X.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
The Audit Committee specifically pre-approves all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval may be provided for up to one year. Each pre-approval is detailed
as to the particular service or category of services and is generally subject to
a specific budget. The independent auditors and management are required to
periodically report to the Audit Committee regarding the services provided by
the independent auditors in accordance with this pre-approval, and the fees for
the services performed to date.
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.
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]
ACTUAL: INDEXED:
-------------------------------------- ----------------------------------
Fiscal Peer Fiscal Peer
Year NAPCO NASDAQ Group* Year NAPCO NASDAQ Group*
------ ----- ------ ------ ---- ----- ------ -------
Jun-99 3.500 900.720 55.516 Jun-99 100.000 100.000 100.000
Jun-00 3.688 1,331.820 21.602 Jun-00 71.951 212.428 54.926
Jun-01 4.790 723.860 23.738 Jun-01 93.463 115.457 60.358
Jun-02 7.100 493.110 13.835 Jun-02 138.537 78.652 35.178
Jun-03 9.460 547.490 12.930 Jun-03 270.286 60.784 23.291
The Peer Group
consists of:
American Medical
Alert Corp.
Honeywell, Inc.
(includes Ademco)
Tyco International
Ltd. (includes
Digital Security
Controls Limited)
Vicon Industries,
Inc.
19
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
On December 15, 2003, the Company engaged Marcum & Kliegman LLP ("M&K") as the
independent public accountants for the Company and its subsidiaries principal
independent accountants, replacing KPMG LLP, who were dismissed on the same day.
The Board of Directors had previously appointed KPMG LLP as the independent
accountants for the Company and its subsidiaries for its 2003 fiscal year. The
change was approved by the Company's audit committee and board of directors. The
Company has not consulted with M&K during its two most recent fiscal years nor
during any subsequent interim period prior to its appointment as auditor for the
fiscal years 2003 and 2002 audits regarding the application of accounting
principles to a specified transaction either completed or proposed, or the type
of audit opinion that might be rendered on the Company's consolidated financial
statements.
On July 9, 2002 the Board of Directors of Company dismissed Arthur
Andersen LLP ("Andersen") as its independent public accountants and appointed
KPMG to serve as its independent public accountants. These actions were taken at
the recommendation of the Company's Audit Committee. Andersen had served as the
Company's independent public accountants since 1993. None of Andersen's reports
on the Company's consolidated financial statements for the fiscal years ended
June 30, 2001 and 2000 contained an adverse opinion or disclaimer of opinion,
nor was any such report qualified or modified as to uncertainty, audit scope or
accounting principles.
During the fiscal years ended June 30, 2001 and 2000 and through the
date of dismissal, there were no disagreements between the Company and Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Andersen's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on the Company's consolidated financial statements
for such years; and there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K.
During the fiscal years ended June 30, 2001 and 2000 and through the
date of engagement of KPMG, the Company did not consult KPMG with respect to
either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's consolidated financial statements, or (ii) any matter
that was either the subject of a disagreement, within the meaning of Item
304(a)(1)(iv) of Regulation S-K, or any "reportable event," as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Andersen with a copy of the Company's annual
report on Form 10-K for the year ended June 30, 2002 and requested that Andersen
furnish a letter addressed to the Securities and Exchange Commission stating
whether it agrees with the statements made by the Company in such report, and if
not, stating the respects in which it does not agree. Andersen had indicated to
the Company that Andersen no longer issues such letters.
Services provided by M&K during and for the 2003 and 2002 fiscal years
consisted of
20
audit and non-audit related services. These services included the audit of the
consolidated financial statements of the Company and services related to
reporting by the Company and its subsidiaries to the Securities and Exchange
Commission.
M&K has been retained for fiscal year 2004. A representative of M&K
will be present at the Annual Meeting to make a statement if he desires and to
respond to appropriate questions presented at the Meeting.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
AND NOMINATION OF DIRECTORS
From time to time stockholders present proposals that may be proper
subjects for inclusion in the Proxy Statement and for consideration at an annual
meeting. Stockholders who intend to present proposals at the 2004 Annual
Meeting, and who wish to have such proposals included in the Company's Proxy
Statement for the 2004 Annual Meeting, must be certain that such proposals are
received by the Company's Secretary at the Company's executive offices, 333
Bayview Avenue, Amityville, New York 11701 not later than June 1, 2004. Such
proposals must meet the requirements set forth in the rules and regulations of
the Securities and Exchange Commission in order to be eligible for inclusion in
the Proxy Statement. Stockholders who intend to present a proposal at the 2004
Annual Meeting but who do not wish to have such proposal included in the
Company's Proxy Statement for such meeting must be certain that notice of such
proposal is received by the Company's Secretary at the Company's executive
offices not later than September 13, 2004.
Pursuant to the Company's by-laws, any nominations for director by a
stockholder must be delivered or mailed to and received by the principal
executive offices of the Company not less than sixty (60) days prior to the date
of meeting.
EXPENSES OF SOLICITATION
The Company will bear all costs in connection with the solicitation by
the Board of Directors of proxies of the Meeting. The Company intends to request
brokerage houses, custodial nominees and others who hold stock in their names to
solicit proxies from the persons who beneficially own such stock. The Company
will reimburse brokerage houses, custodial nominees and others for their
out-of-pocket expenses and reasonable clerical expenses. It is estimated that
these expenses will be nominal. In addition, officers and employees of the
Company may solicit proxies personally or by telephone, telegram or letter; they
will receive no extra compensation for such solicitation.
Dated: March 8, 2004 By Order of the Board of Directors
Richard Soloway
Secretary
21
NAPCO SECURITY SYSTEMS, INC.
333 Bayview Avenue
Amityville, New York 11701
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of NAPCO SECURITY SYSTEMS, INC. hereby
appoints Messrs. Richard 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 Friday, April 16, 2004 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 THREE (3) DIRECTORS (ITEM 1); AND AS
TO ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE
VOTED IN THE DISCRETION AND IN THE BEST JUDGMENT OF THE PROXIES. This Proxy may
be revoked at any time prior to the voting thereof.
(Please date and sign on the reverse side.)
PROXY
The Board of Directors recommends a Vote FOR Item 1.
Item 1. Election of Three Directors:
Paul Stephen Beeber
FOR [ ] WITHHOLD [ ]
Randy B. Blaustein
FOR [ ] WITHHOLD [ ]
Donna Soloway
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.