DEF 14A of Napco Security Technologies, Inc, Oct 25, 2024

DEF 14A of Napco Security Technologies, Inc

Filed Oct 25, 2024 · FY20240001140361-24-044270

Open on EDGAR

  1. Continuing Directors

    Continuing Directors Mr. Soloway has been the Company’s Chairman of the Board of Directors since October 1981, CEO since 1998, and Secretary since 1975. The Company believes Mr. Soloway’s qualifications to serve as a director include his almost 50 years’ experience in the security industry and his broad knowledge and understanding of the Company and its operations derived from his fifty-year tenure with the Company and service as its CEO. Mr. Buchel has been the President, Chief Operating Officer and Chief Financial officer since May of 2024 and was the Executive Vice President of Operations from October 2021, Senior Vice President of Operations and Finance from April 1995 to October 2021, CFO since April 1995 and Treasurer since May 1998. The Company believes Mr. Buchel’s qualifications to serve as a director include his understanding of the Company and its operations derived from lengthy service in various executive capacities with the Company. Mr. Paterson is a Senior Vice President and Senior Advisor to Las Vegas Sands Corp. Prior to becoming New York State’s 55th governor in March 2008, Mr. Paterson began his political career when he was elected to represent Harlem in 1985 at the age of 31, making him the third youngest state senator in New York’s history. In 2002, he was elected as Minority Leader of the New York State Senate, becoming the first African-American and blind legislative leader in the state’s history. The Company believes Mr. Paterson’s qualifications to serve as a director include his diverse background including his political career serving as both in the state senate and as the Governor of New York. Mr. Wilder has been a partner of GR Reid Associates, LLP and its predecessor firm, independent certified public accountants, since 1990. The Company believes Mr. Wilder’s qualifications to serve as a director include extensive experience in accounting, finance and financial reporting and his corporate governance experience. Our Board of Directors has determined that Mr. Wilder is an audit committee financial expert. Mr. Ungar is the President of Robert A. Ungar Associates, Inc., Lobbying, Media and Public Relations Services. The Company believes that Mr. Ungar’s qualifications to serve as a director include his diverse experience as an entrepreneur, his experience with various government departments, his experience as a lawyer, as well as his experience with the fire service industry.

  2. COMPENSATION OF DIRECTORS

    COMPENSATION OF DIRECTORS The total fiscal year 2024 compensation of non-employee Directors is shown in the following table.

  3. Director Compensation

    Director Compensation

  4. Director Compensation

    | Name | Fees Earned or Paid in Cash ($)(1) | Option Awards ($)(2) | All Other Compensation ($) | Total ($) | | Paul Stephen Beeber | $70,000 | $— | — | $70,000 | | Rick Lazio | $70,000 | $— | — | $70,000 | | David Paterson | $70,000 | $— | — | $70,000 | | Donna A. Soloway | $63,000 | $— | — | $63,000 | | Robert A. Ungar | $70,000 | $— | — | $70,000 | | Andrew J. Wilder | $77,000 | $— | — | $77,000 |

  5. Director Compensation

    | (1) Each director who is not an employee receives a fee for each Board of Directors meeting. Mr. Wilder, as Chairman of the Audit Committee, receives $11,000 for each meeting. Ms. Soloway is not a member of any committee and receives $9,000 for each meeting. All other directors, as members of the various committees, receive $10,000 for each meeting. |

  6. Director Compensation

    | (2) In accordance with SEC rules, the amounts shown reflect the grant date fair value of share-based awards in the year ended June 30, 2024, in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 10 to the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the year ended June 30, 2024. |

  7. Director Compensation

    At June 30, 2024, each of Ms. Soloway and Mr. Wilder held outstanding options to purchase 42,100 shares of Common Stock of the Company, of which 35,100 were vested at June 30, 2024; Mr. Beeber held outstanding options to purchase 9,000 shares of Common Stock of the Company, of which 2,000 were vested at June 30, 2024; Mr. Ungar held outstanding options to purchase 23,000 shares of common stock of which 16,000 were vested; Mr. Paterson held outstanding options to purchase 5,000 shares of common stock of which 2,000 were vested; and Mr. Lazio held outstanding options to purchase 25,000 shares of common stock of which 16,000 were vested.

  8. The Use of Compensation Survey Data and Peer Companies

    The Use of Compensation Survey Data and Peer Companies During FY 2024, the Compensation Committee did not conduct any formal competitive pay benchmarking. Instead, the competitiveness of the pay offered to the executive officer was based on existing employment agreements and compensation packages, the recommendations of the Chief Executive Officer, and the business experience of members of the Compensation Committee.

  9. Components of the Executive Compensation Program-Description of Elements and Evaluation Process

    | • | Annual incentives |

  10. Components of the Executive Compensation Program-Description of Elements and Evaluation Process

    | • | Long-term incentives in the form of stock options awards |

  11. Components of the Executive Compensation Program-Description of Elements and Evaluation Process

    Compensation Mix. We do not have policies that define specific percentage allocations for fixed and variable compensation, or cash and non-cash compensation. We do, however, intend to deliver a portion of total compensation in the form of performance-based cash incentives and in awards of stock options, to achieve our objective of offering rewards for successful business results and shareholder value creation. The following describes the general purpose of each element of compensation and how the Committee made fiscal year 2024 pay decisions from such element. Base Salaries. Base salaries are used to compensate each of our executives for their positions and levels of responsibility. Each of Messrs. Soloway, Carrieri and Vuono have employment agreements, which provide for a minimum base salary and, in the case of Mr. Soloway, a minimum annual cost-of-living adjustment. For fiscal 2024, Messrs. Soloway, Carrieri’s and Vuono’s salaries were determined pursuant to such Employment Agreements. Mr. Soloway recommended to the Committee the base salary for Mr. Carrieri and himself. Mr. Vuono was only employed by the Company for one month during fiscal 2024. Each of Mr. Buchel’s and Mr. Spinelli’s salary for the 2024 fiscal year was in an amount recommended by the CEO and approved by the Committee. The considerations entering into the determination by the CEO of the salary recommendation for each of Mr. Buchel and Mr. Spinelli were the CEO’s subjective evaluations of the ability and past performance of Mr. Buchel, and Mr. Spinelli and the CEO’s judgment of their potential for enhancing the Company’s profitability. With regard to Mr. Buchel, the additional responsibilities he assumed as President and Chief Operating Officer played a significant role in determining his base salary. Annual Cash Incentives. The Committee’s policy is that named executive officers, should receive short term incentive compensation in the form of bonuses based on recommendations by the CEO (other than for the CEO) who may base such determinations on targets established for the named executive officers or on their contributions to the Company’s profitability or, in the case of Mr. Spinelli, sales by the various divisions of the Company. Long-term Incentive Awards. The purpose of the granting of stock options is to retain the services of the named executive officers and our key employees and encourage them to improve our operating results and to become shareholders of the Company, all of which is intended to result in increased shareholder value. The Committee’s policy is generally to grant options to the named executive officers other than the CEO under the Company’s Stock Option Plans after consideration of the amounts recommended periodically by the CEO. The recommendations of the CEO for option grants reflect the subjective judgment of the CEO of the performance of such executives and the potential benefit to the Company from the grant of this form of incentive compensation. The Committee generally determines the CEO’s bonus and Incentive Awards following discussions between the Committee Chairman and the CEO. Employee Benefits, Perquisites and Other Personal Benefits. As a general rule, we do not provide special benefits to senior executives and the named executive officers participate in the same plans – including term life insurance, health and disability insurance – available to all salaried employees. We do, however, pay the premiums on life insurance policies for the benefit of each of the named executive officers and on additional health insurance policies for the benefit of Mr. Soloway. See footnote to the Summary Compensation Table. We offer one retirement plan, a qualified profit sharing 401(k) plan to all employees, including the named executive officers that matches 50% of an employee’s contribution up to the first 3% of the employee’s salary subject to an overall dollar cap. We have provided certain perquisites to the named executive officers, as summarized in footnotes 2 and 3 to the “Summary Compensation Table.” IRC Section 162(m). Under Section 162(m) of the Internal Revenue Code (“Section 162(m)”), compensation paid to each of the Company’s “covered employees” that exceeds $1 million per taxable year is generally non-deductible unless the compensation qualifies for certain exceptions that are not applicable to the Company. Although the Compensation Committee will continue to consider tax implications as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions and retains the flexibility to provide compensation for our named executive officers in a manner consistent with the goals of our executive compensation program and the best interests of our Company and our stockholders, which may include providing for compensation that is not deductible by us due to the deduction limit under Section 162(m).

  12. Employment Agreements

    Employment Agreements Change in Control, Severance Agreements. Under Mr. Soloway’s Employment Agreement, if during its term there should be a change in control, then Mr. Soloway is entitled to terminate his employment and is entitled to receive a termination payment equal to 299% of the average of the prior five calendar years’ compensation, subject to certain limitations. If the Company terminates Mr. Soloway’s employment other than for Cause, as defined, or if Mr. Soloway terminates his employment with the Company for Good Reason, as defined, the Company shall pay a lump sum payment equal to (i) Mr. Soloway’s annual base salary plus the bonus paid for the prior fiscal year multiplied by (ii) the greater of the number of years or portion thereof remaining in the term of the Agreement or three years. The agreement with Mr. Carrieri provides for payment equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment of the officer without cause. In addition, the Company has a severance agreement with Kevin S. Buchel providing for payments equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause. We believe these changes in control and severance arrangements help to retain these executive talents by providing them with a sense of commitment by the Company to them.

  13. Summary Compensation Table

    Summary Compensation Table

  14. Summary Compensation Table

    | Name and Principal Position | Fiscal Year | Salary ($) | Bonus(1) ($) | Option Awards(2) ($) | All Other Compensation ($) | Total ($) | | Richard L. Soloway,(3) Chairman of the Board of Directors, CEO and Secretary | 2024 | 923,543 | 834,237 | — | 64,465 | 1,822,245 | | | 2023 | 904,778 | 226,395 | 133,600 | 74,435 | 1,339,208 | | | 2022 | 853,223 | 453,390 | 990,960 | 62,378 | 2,359,952 | | Kevin S. Buchel,(4) President, Chief Operating Officer and Chief Financial Officer (Since 2024) and prior thereto from October 2021, Executive Vice President of Operations, from April 1995, Senior Vice President of Operations and Finance, and from May 1998, Treasurer | 2024 | 514,020 | 342,100 | 1,095,500 | 17,441 | 1,969,061 | | | 2023 | 489,174 | 79,375 | 133,600 | 18,029 | 720,178 | | | 2022 | 461,410 | 158,750 | 990,960 | 15,460 | 1,626,580 | | Michael Carrieri,(4) Executive Vice President of Engineering and Chief Technology Officer (Since 2024) and prior thereto from October 2002, Senior Vice President of Engineering | 2024 | 395,377 | 292,100 | 1,095,500 | 15,995 | 1,798,972 | | | 2023 | 380,200 | 158,750 | 133,600 | 14,393 | 686,943 | | | 2022 | 356,230 | 158,750 | 495,480 | 13,101 | 1,023,561 | | Stephen Spinelli,(4) Senior Vice President of Sales (since 2020) | 2024 | 283,800 | 60,000 | — | 951 | 344,751 | | | 2023 | 278,242 | 50,000 | 66,800 | 4,870 | 399,912 | | | 2022 | 260,001 | 125,000 | — | 3,613 | 388,614 | | Andrew J. Vuono,(4) Senior Vice President of Finance and Chief Accounting Officer (since June 2024) | 2024 | 20,192 | 35,000 | 508,600 | 303 | 564,095 |

  15. Summary Compensation Table

    | (1) Bonuses reflects discretionary bonuses awarded to each officer following the fiscal year as determined by the Compensation Committee. |

  16. Summary Compensation Table

    | (2) Amounts reflect the aggregate grant date fair value of all option awards granted during the fiscal years ended June 30, 2024, June 30, 2023, and June 30, 2022, calculated in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 10 to the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the year ended June 30, 2024. Options listed for fiscal 2024 were granted in May of 2024 in connection with promotions of Messrs. Buchel and Carrieri as determined by the Compensation Committee. Options listed for fiscal 2024 were granted in June of 2024 in connection with the hiring of Mr. Vuono as determined by the Compensation Committee. All options were granted at an exercise price equal to the closing price of the Company’s common stock on the date of grant. |

  17. Summary Compensation Table

    | (3) All other compensation for Mr. Soloway for fiscal 2024 included payment of health and life insurance premiums of $40,710, automobile expenses of $19,180 and Company discretionary matching contributions of $4,575. All other compensation for Mr. Soloway for fiscal 2023 included payment of health and life insurance premiums of $39,155, automobile expenses of $28,405 and Company discretionary matching contributions of $6,875. All other compensation for Mr. Soloway for fiscal 2022 included payment of health and life insurance premiums of $36,168, automobile expenses of $21,644 and Company discretionary matching contributions of $4,588. |

  18. Summary Compensation Table

    | (4) All other compensation for Messrs. Buchel, Vuono, Carrieri and Spinelli includes payment of life insurance premiums, automobile expenses and the Company’s 401(k) discretionary matching contributions. |

  19. Outstanding Equity Awards at Fiscal Year-End

    Outstanding Equity Awards at Fiscal Year-End

  20. Employment Agreements and Potential Payments Upon Termination or Change in Control

    Employment Agreements and Potential Payments Upon Termination or Change in Control The Company has an employment agreement with each of Richard L. Soloway and Michael Carrieri. The agreement with Mr. Soloway, entered into on June 26, 2003, was initially for a five-year period, and then continued year to year unless notice of termination is given at least six months prior to the end of the then applicable term. The Agreement provides for a minimum annual salary to be adjusted for inflation and discretionary annual incentive compensation. Mr. Soloway’s agreement contains non-compete restrictions during his employment and for one year after termination for any reason. The agreement also provides for termination payments to Mr. Soloway upon death, disability, termination by the Company other than for Cause, as defined, termination by Mr. Soloway for Good Reason, as defined, and termination by Mr. Soloway within twelve months of a change in control. In the event of death, the termination payment equals one year’s salary payable over one year plus a bonus calculated on a pro rata basis through the end of the fiscal quarter immediately preceding death. In the event of disability, the Company must pay Mr. Soloway an amount equal to 60% of his annual salary through the term of the agreement plus his bonus on a pro rata basis through the end of the fiscal quarter preceding the sixth month of his disability. In the event the Company terminates Mr. Soloway other than for Cause or if Mr. Soloway terminates for Good Reason, the Company must pay Mr. Soloway, in a lump sum, an amount equal to three times his annual salary plus the bonus paid to him for the year prior to his termination. If during the term there should be a change in control, then Mr. Soloway is entitled to terminate his employment, and the Company is required to pay him, an amount equal to 299% of the average of the prior five calendar years’ total compensation, subject to certain limitations. The Company’s option plans provide for the accelerated vesting of unvested options upon a change in control. Under such agreement, had Mr. Soloway’s employment terminated on June 30, 2024 on account of (i) death, (ii) disability or (iii) by the Company other than for Cause, or by Mr. Soloway for Good Reason, the Company would have been required to pay him $1,757,780, $554,126 and $5,273,341 respectively. Had Mr. Soloway’s employment terminated on June 30, 2024 after a change of control, the Company would have been required to pay him $4,754,941 pursuant to his employment agreement. In addition, assuming a change of control on June 30, 2024, vesting of options to purchase 46,000 shares of Common Stock of the Company would have been accelerated. The value of such accelerated options would have been $1,328,260 based upon the closing price per share of $51.95 of the Company’s Common Stock on the NASDAQ Global Market on June 30, 2024. Mr. Carrieri’s agreement, as amended, terminates in August 2026 and provides for an annual salary of $390,497. Due to Mr. Carrieri’s promotion to Chief Technology Officer in May of 2024, his annual salary was increased to $440,000. Mr. Carrieri’s agreement, as amended, provides for payment equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause or for any reason within three months of a change in control of the Company. Had either of such events occurred on June 30, 2024, the Company would have been required to pay him $330,373. Mr. Vuono’s agreement, provides for annual renewal and provides for an annual salary of $350,000. On the first anniversary of employment, Mr. Vuono’s agreement, provides for payment equal to six months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause or for any reason or upon a change in corporate control of the Company employment ceases within three months thereof. 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 or for any reason upon a change of control of the Company. Had Mr. Buchel’s employment been terminated on June 30, 2024 non-voluntarily without cause, the Company would have been required to pay him $453,199 pursuant to such severance agreement. In the event of a change of control on June 30, 2024, vesting of options to purchase 86,000, 66,000, 14,976 and 16,000 shares of Common Stock of the Company would have accelerated for Messrs. Buchel, Carrieri, Spinelli and Vuono, respectively. The value of such accelerated options would have been $1,736,260, 1,147,160, 577,183.68 and $40,960 for Messrs. Buchel, Carrieri, Spinelli and Vuono, respectively, based on a closing price of $51.95 per share of the Company’s Common Stock on the NASDAQ Global Market on June 30, 2024. Each of the agreements with Mr. Carrieri and Mr. Buchel contains non-compete restrictions for three years after the employee’s termination of employment. The agreement with Mr. Vuono contains non-compete restrictions for two years after the employee’s termination of employment.

  21. CEO Pay Ratio - 2024

    CEO Pay Ratio - 2024 The 2024 annual total compensation of our CEO was $1,822,245, the 2024 annual total compensation of our median compensated employee (74% of whom are employed at the Company’s factory in the Dominican Republic) was $4,360 and the ratio of these amounts is 418 to 1. We determined our median compensated employee by using base salary, bonuses, commissions, and grant date fair value of equity awards granted to employees in fiscal 2024. We applied this measure to our global employee population as of June 30, 2024, the last day of our 2024 fiscal year, and annualized base salaries for permanent full-time and part-time employees that did not work the full year. The global employee population utilized to identify the median employee used in the calculation includes the Company’s factory employees in the Dominican Republic, which make up a 74% of employees of the Company and typically have substantially lower compensation than those employees located in the United States.

  22. Pay versus Performance

    Pay versus Performance The following table reports the compensation of our CEO and the average compensation of the other Named Executive Officers (non-CEO NEOs) as reported in the Summary Compensation Table for the past three fiscal years, as well as their “compensation actually paid” as calculated pursuant to recently adopted SEC rules and certain performance measures required by the rules.

  23. Pay versus Performance

    | Fiscal Year(1) | Summary Compensation Table Total for CEO(2) ($) | Compensation “Actually Paid” to CEO(3) ($) | Average Summary Compensation Table Total for Non-CEO NEOs(2) ($) | Average Compensation “Actually Paid” to Non-CEO NEOs(3) ($) | Value of Initial Fixed $100 Investments Based on: | | Net Income ($ in thousands)(5) | Net Revenues ($ in thousands)(6) | Adjusted EBITDA* ($ in thousands)(6) | | | | | | | Company Total Shareholder Return(4) ($) | Peer Group Total Shareholder Return(4) ($) | | | | | (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | | 2024 | 1,822,245 | 2,400,057 | 1,169,220 | 1,657,196 | 449.40 | 176.29 | 49,818 | 188,820 | 58,394 | | 2023 | 1,339,208 | 2,488,616 | 602,344 | 1,140,988 | 298.22 | 137.07 | 27,127 | 169,997 | 34,295 | | 2022 | 2,359,952 | 2,544,060 | 1,012,918 | 1,073,660 | 176.03 | 109.64 | 19,599 | 143,593 | 22,626 | | 2021 | 1,243,026 | 1,324,206 | 556,143 | 667,086 | 155.41 | 144.19 | 15,413 | 114,035 | 20,063 |

  24. Pay versus Performance

    | (1) The CEO and non-CEO NEOs for each year reported were as follows: Richard Soloway (PEO); Kevin Buchel, Michael Carrieri, Stephen Spinelli (Non-CEO NEO’s). Andrew J. Vuono was a non-CEO NEO only for 2024 due to being hired in June of 2024. |

  25. Pay versus Performance

    | (2) The 2024 Summary Compensation Table totals reflected are as reported for the CEO and the average of the non-CEO NEOs for each of the fiscal years ended June 30, 2024, 2023, and 2022. |

  26. Pay versus Performance

    | (3) Compensation Actually Paid: The dollar amounts reported in columns (c) and (e) represent the amount of compensation “actually paid” to the CEO and the average amount of compensation “actually paid” to the Non-CEO NEOs as a group, as computed in accordance with Item 402(v) of Regulation S-K. The following table details the applicable adjustments that were made to the CEO’s and the Non-CEO NEOs’ total compensation for each year to determine the compensation “actually paid” (all amounts are averages for the Non-CEO NEOs other than the CEO). |

  27. Pay versus Performance

    | | | | Option Award Adjustments | | | | Fiscal Year(1) | Executives | Reported Summary Compensation Table (SCT) Total ($) | Stock Option Awards Deducted from SCT Totals ($) | Stock Option Awards Added to Compensation “Actually Paid” ($) | Total Compensation “Actually Paid” ($) | | | | (a) | (b) | (c) | (d) | | 2024 | CEO | 1,822,245 | — | 577,812 | 2,400,057 | | | Non-CEO NEOs | 1,169,220 | (674,900) | 1,162,876 | 1,657,196 | | 2023 | CEO | 1,339,208 | (133,600) | 1,283,008 | 2,488,616 | | | Non-CEO NEOs | 602,344 | (111,333) | 649,977 | 1,140,988 | | 2022 | CEO | 2,359,952 | (1,082,600) | 1,266,708 | 2,544,060 | | | Non-CEO NEOs | 1,012,918 | (532,017) | 592,759 | 1,073,660 | | 2021 | CEO | 1,243,026 | — | 81,180 | 1,324,206 | | | Non-CEO NEOs | 556,143 | (108,682) | 219,626 | 667,086 |

  28. Pay versus Performance

    | (4) The Company’s TSR and the Company’s Peer Group TSR reflected in these columns for each applicable fiscal year is determined based on the value of an initial fixed investment of $100 on June 30, 2020. The Peer Group TSR represents TSR of the Nasdaq Composite Index, which is the industry peer group used for purposes of Item 201(e) of Regulation S-K. |

  29. Pay versus Performance

    | (5) Represents, in thousands, the amount of net income, reflected in the Company’s audited financial statements for the year indicated. |

  30. Pay versus Performance

    | (6) The Company has identified Net Revenues and Adjusted EBITDA* as our company-selected measure, as it represents the most important financial measure used to link compensation actually paid to the CEO and the non-CEO NEOs in 2024 to the Company’s performance. We define Adjusted EBITDA as GAAP net income plus income tax expense, net interest expense, non-cash stock-based expense, non-recurring legal expense, other non-recurring income and depreciation and amortization expense. Non-GAAP operating income does not include amortization of intangibles or stock-based compensation expense. |

  31. Pay versus Performance

    Relationship Between Pay and Performance: Compensation Actually Paid versus Company Performance The Relationship between compensation actually paid and the Company’s financial performance over the three-year period shown in the tables above is shown in the tables below.