<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
STRATESEC Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the 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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
6,103,522 shares
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
STRATESEC INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 10, 1998
The 1998 Annual Meeting of the Shareholders of STRATESEC Incorporated, a
Delaware corporation (the "Company"), will be held on June 10, 1998 at 2:00 p.m.
local time at The Watergate Hotel, 2650 Virginia Avenue, N.W., Washington, D.C.
for the following purposes:
1. To elect a Board of seven Directors.
2. To approve an amendment to the Company's 1997 Stock Option Plan
that would increase the number of shares of Common Stock reserved for
issuance thereunder.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on May 12, 1998 are
entitled to notice of and to vote at the meeting.
A majority of the Company's outstanding shares must be represented at the
meeting (in person or by proxy) to transact business. To assure proper
representation at the meeting, please mark, sign, and date the enclosed proxy
and mail it promptly in the enclosed self-addressed envelope. Your proxy will
not be used if you revoke such proxy either before or at the meeting.
Elizabeth Schmitt
Secretary
Dated: April 28, 1998
IF YOU ARE UNABLE TO BE PERSONALLY PRESENT, PLEASE SIGN AND DATE THE ENCLOSED
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR VOTE IS IMPORTANT.
<PAGE> 3
STRATESEC INCORPORATED
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of the Board of Directors of
STRATESEC Incorporated (the "Company") for use at the Annual Meeting of
Shareholders to be held June 10, 1998 at 2:00 p.m. local time, or at any
adjournment or postponement thereof. The Annual Meeting will be held at The
Watergate Hotel, 2650 Virginia Avenue, N.W., Washington, D.C. The Company's
principal offices are located at 105 Carpenter Boulevard, Sterling, Virginia,
20164, and its telephone number is (703) 709-8686. These proxy solicitation
materials will be mailed to shareholders on or about May 14, 1998.
Shareholders of record at the close of business on May 12, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. On April 16, 1998,
6,003,522 shares of the Company's Common Stock were issued and outstanding. Each
share of Common Stock outstanding on the record date is entitled to one vote.
VOTES REQUIRED FOR APPROVAL
The seven nominees for director receiving the vote of the majority of the
shares present at the meeting in person or by proxy shall be elected.
The affirmative vote of the majority of the shares present in person or by
proxy is required for Proposal Two, approval of the amendment to the Company's
1997 Stock Option Plan. Abstentions and broker non-votes on Proposal Two will
have the effect of a negative vote on the outcome of Proposal Two.
All other matters will be approved if the votes cast at the meeting in
person or by proxy favoring the action exceed the votes cast opposing the
action. Except as described above regarding Proposals One and Two, abstentions
and broker non-votes will not be treated as votes cast and therefore will have
no effect on the outcome of the other matters to be voted on at the Annual
Meeting.
Any person may revoke a proxy at any time before its use by delivering to
the Company a written revocation or a duly executed proxy bearing a later date
or by attending the meeting and voting in person.
The cost of this solicitation will be borne by the Company. These costs
represent amounts normally expended for a solicitation for an election of
directors. The Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation, personally, by telephone or otherwise.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 1999 Annual Meeting must be received by the
Company no later than December 29, 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 16, 1998 certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to be the beneficial
<PAGE> 4
owner of more than 5% of the Company's voting securities, (ii) each of the
Company's directors (iii) each of the Named Executive Officers (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES(6) PERCENT OF TOTAL
------------------- ----------------
<S> <C> <C>
KuwAm Corporation........................................ 1,864,127 31.1%
2600 Virginia Avenue, N.W.
Washington, D.C. 20037(1)
Special Situation Investment Holdings, Ltd. ............. 1,656,333 27.6%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037(1)
Special Situation Investment Holdings, L.P. II........... 197,794 3.3%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037(1)
Fifth Floor Company for General Trading and
Contracting............................................ 366,707 6.1%
Wirt D. Walker, III(1)(3)(4)............................. 2,237,528 37.3%
Ronald C. Thomas(4)...................................... 131,846 2.2%
Franklin M. Sterling(4).................................. 68,333 1.1%
Albert A. Weinstein(4)................................... 10,000 *
Mishal Yousef Saud Al Sabah(1)(2)(4)..................... 2,258,893 37.6%
Larry Weaver(4).......................................... 13,333 *
Marvin P. Bush(4)(5)..................................... 78,896 1.3%
Robert B. Smith(4)....................................... 8,333 *
All Officers and Directors as a Group (8 persons)........ 3,113,890 51.9%
</TABLE>
- ---------------
* Less than one percent
(1) KuwAm Corporation, a Washington, D.C. based private investment firm, is the
general partner of SSIH, the Company's largest shareholder, and SSIH II. The
shareholders of KuwAm include Wirt D. Walker, III, the Chairman of the Board
and a director of the Company, and Mishal Yousef Saud Al Sabah, a director
of the Company. Mr. Walker is also the Managing Director of KuwAm and Mr. Al
Sabah is the Chairman of KuwAm. Shares beneficially owned by KuwAm consist
of 1,656,333 shares held by SSIH, 197,794 shares held by SSIH II, and 10,000
shares held by KuwAm Corporation.
(2) Consists of 1,656,333 shares held by SSIH, 197,794 shares held by SSIH II,
10,000 shares held by KuwAm Corporation, 366,707 shares held by Fifth Floor
Company for General Trading and Contracting, of which Mr. Al Sabah is a
principal, and 3,060 shares owned by Mr. Al Sabah's son.
(3) Consists of 1,656,333 shares held by SSIH, 197,794 shares held by SSIH II,
10,000 shares held by KuwAm Corporation, 278,302 shares held by Mr. Walker,
20,100 shares held by Mr. Walker's son and 50,000 shares owned by a trust
for Mr. Walker's son, of which Mr. Walker is the trustee.
(4) Includes shares issuable upon exercise of currently exercisable options, as
follows: Mr. Walker, 24,999 shares; Mr. Thomas, 24,999 shares; Mr. Sterling,
43,333 shares; Mr. Weinstein, 10,000 shares, Mr. Al Sabah, 24,999 shares,
Mr. Weaver, 13,333 shares, Mr. Bush, 24,999 shares, and Mr. Smith, 8,333
shares.
(5) Includes 53,897 shares held by Andrews-Bush, Inc.
(6) At April 16, 1998, executive officers and directors of the Company as a
group held options to purchase an aggregate of 620,000 shares of Common
Stock, representing approximately 49.3% of outstanding options at that date.
The numbers set forth in this table include an aggregate of 174,995 shares
which are currently exercisable within 60 days of such date.
2
<PAGE> 5
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors is to be elected at the Annual Meeting. Unless
marked to the contrary, all properly signed and returned proxies will be voted
for the election of management's seven nominees named below, all of whom are
presently directors of the Company. If any nominee is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies will be voted
for any nominee designated by the present Board of Directors to fill the
vacancy. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office of each person elected as a
director will continue until the next Annual Meeting of Shareholders or until a
successor has been elected and qualified.
The following sets forth certain information regarding each of the nominees
for election as director:
Wirt D. Walker, III, age 52, has served as a director of the Company since
1987, and as Chairman of the Board of Directors since 1992. Since 1982, Mr.
Walker has served as a director and the Managing Director of KuwAm Corporation,
a private investment firm. He is the Chairman of Commander Aircraft Company, a
publicly traded company that manufactures, markets and provides support for its
line of single engine, high performance aircraft, and Universal Communications,
Inc., a privately held advertising and marketing communications company.
Charles W. Archer, age 52, has served as President, Chief Executive Officer
and director since March 1998. Prior to joining the Company, Mr. Archer was
employed for fifteen years by the Federal Bureau of Investigation. During his
tenure with the F.B.I., Mr. Archer held a variety of management positions
involving large integrated technology projects and finance. From 1996 to 1997,
he was an Assistant Director of the F.B.I., in charge of its Criminal Justice
Information Services Division, the F.B.I.'s largest division.
Ronald C. Thomas, age 52, has served as Executive Vice President, Corporate
Development, since April 1998. Mr. Thomas served as the Company's President and
Chief Executive Officer from 1992 to March 1998. He has been a director of the
Company since 1992. Prior to joining the Company, Mr. Thomas was employed for
sixteen years by ADT Security Systems, Inc. During his tenure with ADT, he held
a variety of management positions involving systems engineering and design,
project planning and marketing and business unit management, and was Vice
President, Integrated Systems from 1988 to 1992. Mr. Thomas is Chairman of the
Standing Committee on Physical Security of the American Society for Industrial
Security ("ASIS"), a member of the Board of Directors of the Closed Circuit
Television Manufacturers Association, a member of the Institute of Electrical
and Electronic Engineers ("IEEE"), a member of the National Society of
Professional Engineers and a member of the National Fire Protection Association
("NFPA"). He is a past member of the Nuclear Standards Subcommittee of the IEEE,
the Proprietary Fire Systems Subcommittee of NFPA and the Architect/Engineer
Subcommittee of ASIS.
Mishal Yousef Saud Al Sabah, age 36, is a private investor who has been
involved in a broad range of investment activities in the United States and
overseas for the past eighteen years. Mr. Al Sabah has been a director of the
Company since 1991. He has served as the Chairman of the Board of Directors of
KuwAm Corporation since 1982 and is a director of Commander Aircraft Company and
Universal Communications, Inc.
Marvin P. Bush, age 40, has served as a director of the Company since 1993.
Mr. Bush is a director of the Winston Partners Group, Inc., a private investment
firm he founded in 1994, and has been a member of the Board of Directors of
Kerrco Inc., an oil and gas company, since 1989. Prior to founding the Winston
Group, Mr. Bush was a partner at John Stewart Darrell & Company, and investment
advisory firm, and was employed by Shearson Lehman Brothers as a Vice
President/Financial Consultant.
Robert B. Smith, Jr., age 60, has served as a director of the Company since
1995. Mr. Smith has been a private investor since 1984, and has been a director
of Sunshine Mining Company, a New York Stock Exchange listed silver mining
company, since 1993. He has been a trustee for the Dalkon Shield Claimants
3
<PAGE> 6
Trust, a public interest trust created to compensate those damaged by the Dalkon
Shield, since 1989. Mr. Smith was formerly Chief Counsel and Staff Director of
the Senate Government Operations Committee.
Lt. General James A. Abrahamson, USAF (Retired), age 64, has served as a
director of the Company since December 1997. General Abrahamson is the Chairman
and CEO of International Air Safety, LLC. He served as Chairman of the Board of
Directors of Oracle Corporation from 1992 to 1995 and held various executive
positions and served as a member of the board of Hughes Aircraft Company from
1989 to 1992. General Abrahamson was formerly Commissioner of the White House
Commission on Aviation Safety and Security (Gore Commission). Prior to 1989,
General Abrahamson served in the United States Air Force. During his tenure with
the Air Force he held a variety of positions, including Director of Development
of the F-16 International Fighter, Director of NASA's Space Shuttle Program and
Director of President Reagan's Strategic Defense Initiative ("Star Wars"
Program).
DIRECTOR COMPENSATION
Directors are paid an annual fee of $10,000, payable in equal quarterly
installments, for services as a director. Such fees are prorated when a director
does not serve for a full year. Directors receive no additional compensation for
committee participation or attendance at committee meetings, other than
reimbursement of travel and lodging expenses.
The 1997 Stock Option Plan provides for the automatic annual grant of a
stock option to purchase 15,000 shares of Common Stock to each eligible
non-employee and employee director of the Company; non-employee directors will
automatically receive a nonstatutory stock option and employee directors will
automatically receive an incentive stock option.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of four meetings during the fiscal year
ended December 31, 1997. The Board has two committees: the Audit Committee and
the Compensation Committee.
The Audit Committee, comprised of Directors Bush and Smith, recommends the
selection of the Company's independent accountants and approves the scope of the
audit to be conducted. The Committee is primarily responsible for reviewing and
evaluating the Company's accounting practices and its systems of internal
accounting controls. The Audit Committee held one meeting during fiscal 1997.
The Compensation Committee recommends the amount and type of compensation
to be paid to the Company's executive officers, reviews the performance of the
Company's key employees and administers and determines distributions under the
Company's Profit Sharing Plan. The Compensation Committee will also determine
the number of shares, if any, to be granted each employee under such plan and
the terms of such grants. The Compensation Committee held one meeting during
fiscal 1997.
Lt. General James A. Abrahamson attended one meeting of the Board of
Directors during fiscal 1997. Charles W. Archer has served as a director of the
Company since April 1998 and attended no Board Meetings during fiscal 1997. No
other director attended fewer than 75% of all meetings of the Board of Directors
held during fiscal 1997 or of all meetings of any committee upon which such
director served during fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Mr. Bush and Mr. Smith; neither
are employees of the Company. They are not eligible to participate in the
Company's Profit Sharing Plan. Both receive compensation for services as a
director (see "Director Compensation").
OTHER OFFICERS
Barry W. McDaniel, age 49, has served as Executive Vice President and Chief
Operating Officer since February 1997. Prior to joining the Company, Mr.
McDaniel was employed by BDM International from 1989 to 1996, most recently as
Vice President of Material Distribution and Management Systems. From 1989 to
4
<PAGE> 7
1992 he was Vice President, Business Development and Operations for the Systems
and Communications Group. Mr. McDaniel was previously employed, from 1988 to
1989, by Proxim, a real-time systems integration company as Vice President,
Government Systems Integration. From 1970 to 1987 he served as Deputy Director
of Readiness for the United States Army Materiel Command.
Larry M. Weaver, age 47, has served as Executive Vice President and Chief
Financial Officer since June 1996. Mr. Weaver served as Chief Operating Officer
from June 1996 to February 1997. Prior to joining the Company, he was employed
by the Conduit and Foundation Corporation, most recently as its Chief Financial
Officer from July 1995 to June 1996. Previously, Mr. Weaver was employed, from
1988 to 1995, as Group Vice President of Finance at William Bowman Associates,
Inc., a residential real estate site development company, and from 1980 to 1988,
as Partner and Finance Manager at Skelly and Loy, an energy and environmental
consulting and engineering firm. Mr. Weaver has also served as Assistant
Controller at Buell Division of Envirotech and was a Senior Accountant at Price
Waterhouse.
Franklin M. Sterling, age 64, has served as Senior Vice President for the
Western Region since August 1995. Prior to joining the Company, Mr. Sterling
served as President of Franklin M. Sterling and Associates, Inc., an engineering
and consulting firm specialized in integrated building control systems, which he
founded in 1987. Previously, Mr. Sterling was employed by the Bechtel
Corporation for sixteen years, most recently as a project manager for a Bechtel
subsidiary, and has held positions with ITT Data Services and the RCA
Corporation. Mr. Sterling presently serves as Chairman of the Airport
Consultants Council Security System Standards Committee and is a member of the
Federal Aviation Administration's Advisory Committee on Security System
Standards. He is a senior member of the IEEE, the IEEE Control System Society,
the American Society for Industrial Security, the National Fire Protection
Association, the Construction Specification Institute and the National and
California Societies of Professional Engineers.
Albert M. Weinstein, age 66, has served as Vice President overseeing
corporate engineering and design since 1989. Prior to joining the Company, Mr.
Weinstein was Vice President and General Manager of the Electronic Security
Systems Division of Stoller Company, a nuclear consulting company, for 17 years.
R. Michael Lagow, age 39, has served as Vice President for Business
Development since August 1993. Prior to joining the Company, Mr. Lagow was
employed as National Sales Manager of Control Systems International, a security
systems company, since 1991.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows certain information concerning the compensation
of each of the Company's most highly compensated executive officers whose
individual remuneration exceeded $100,000 for services rendered in all
capacities to the Company for the fiscal years ended 1997 and 1996 ("the Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS
-------------------- AWARDED ALL OTHER
YEAR SALARY BONUS (IN SHARES) COMPENSATION(1)
---- --------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Ronald C. Thomas.......................... 1997 $153,461 $ -- 25,000 $10,000
Executive Vice President, Corporate 1996 140,000 35,000 25,000 38,000(2)
Development and Director(3)
Larry M. Weaver........................... 1997 $120,288 -- 15,000
Executive Vice President and 1996 43,269 -- 25,000
Chief Financial Officer
Charles C. Sander(4)...................... 1997 $135,000 $ -- 25,000 $ 5,000
Senior Vice President 1996 135,000 25,000 25,000 10,000
Albert A. Weinstein....................... 1997 $126,833 -- -- $ 9,600(5)
Vice President....................... 1996 88,620 -- 15,000 38,400(5)
</TABLE>
- ---------------
(1) Amounts paid as director fees unless otherwise indicated.
(2) In May 1996 Mr. Thomas acquired 53,320 shares of Common Stock for the
exercise of options, for which the Company waived the exercise price of $.53
per share. This amount includes the aggregate exercise price of such
options.
(3) Mr. Thomas served as President and Chief Executive Officer of the Company
until April 1,1998, when Charles W. Archer was appointed to those positions.
(4) Mr. Sander is no longer employed by the Company.
(5) Includes consulting fees paid.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AS OF DECEMBER
31, 1997
The following table shows the options exercised during fiscal 1997, the
number of shares of Common Stock represented by outstanding stock options held
by each executive officer as of December 31, 1997 and the value of such options
based on the closing price of the Company's Common Stock on December 31, 1997,
which was $9.75.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT FY END(#)(1) OPTIONS AT FY END($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Wirt D. Walker, III...... -- $ -- 8,333/41,667 $ 22,916/$114,584
Ronald C. Thomas......... 159,382 1,553,975 8,333/41,667 22,916/ 114,584
Larry M. Weaver.......... -- -- 8,333/31,667 22,916/ 87,084
Franklin M. Sterling..... -- -- 38,333/26,667 172,082/ 106,668
R. Michael Lagow......... 25,000 243,750 5,000/10,000 13,750/ 27,500
Albert A. Weinstein...... 25,000 243,750 5,000/10,000 13,750/ 27,500
Charles C. Sander........ 50,000 487,500 24,999/50,001 102,079/ 154,171
Matthew V. Wharton....... -- -- 21,666/18,334 92,914/ 67,087
Michael V. Toto.......... -- -- 16,666/ 8,334 79,164/ 39,587
</TABLE>
- ---------------
(1) Represents the total number of shares subject to stock options held by each
executive officer. These options were granted on various dates during fiscal
years 1995 through 1997 and are exercisable on various dates beginning in
1998 and expiring in 2001.
(2) Represents the difference between the exercise price and $9.75, which was
the closing price on December 31, 1997. Stock option exercise prices range
from $5.00 to $8.625.
6
<PAGE> 9
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into employment agreements with Messrs. Thomas and
Weaver, to serve in their respective current positions until March 31, 2002 and
2000, respectively, at annual base salaries of $148,500 and $112,500,
respectively. Both agreements provide for annual bonuses, periodic salary
increases and grants of stock options in the sole discretion of the Board of
Directors. In the event either executive's employment is terminated without
cause, he is entitled to continue to receive the salary and certain other
benefits provided for in such agreement for the remainder of its term. If such
termination occurs following a "change in control" of the Company, he is
entitled to receive an additional payment equal to two times his annual base
salary in effect at the time of such change in control. for purposes of the
employment agreements, a change in control occurs upon certain changes in the
stock ownership of the Company or upon certain changes in the membership of the
Board of Directors of the Company. A termination following a change in control
of the Company includes certain reductions of the executive's duties and
responsibilities, reductions in the salary paid to the executive, changes in the
location of the executive's office or a failure by the Company to obtain the
written assumption of the employment agreements by any successor of the Company.
The Company has also entered into a consulting agreement with Mr. Walker, to
provide strategic and corporate development services through March 31, 2002 for
an annual fee of $126,000. The consulting agreement also contain provisions
parallel to those of the executive employment agreements.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of Marvin Bush and Robert B. Smith. Both are independent outside
directors. The Committee is charged with the responsibility for reviewing the
performance and approving the compensation of key executives and for
establishing general compensation policies and standards for reviewing
management performance. The Committee also reviews both corporate and key
executive performance in light of established criteria and goals and approves
individual key executive compensation.
COMPENSATION PHILOSOPHY
The executive compensation philosophy of the Company is to provide
competitive levels of compensation that advance the Company's annual and
long-term performance objectives, reward corporate performance, and assist the
Company in attracting, retaining and motivating highly qualified executives. The
framework for the Committee's executive compensation programs is to establish
base salaries which are competitive to similarly sized companies and to create
incentives for excellent performance by providing executives with the
opportunity to earn additional remuneration linked to the Company's
profitability. The incentive plan goals are designed to improve the
effectiveness and enhance the efficiency of Company operations and to create
value for stockholders. It is also the Company's policy to encourage share
ownership by executive officers and non-employee directors through the grant of
stock options.
COMPONENTS OF COMPENSATION
The compensation package of the Company's executive officers consists of
base annual salary, participation in the Company's 401(k) Savings Plan and stock
option grants.
At executive levels, base salaries are reviewed but not necessarily
increased annually. Base salaries are fixed at levels slightly below competitive
amounts paid to individuals with comparable qualifications, experience and
responsibilities engaged in similar businesses as the Company, based on the
experience of the Committee members, directors and employees of the Company
within the security systems industry.
The Company uses stock options both to reward past performance and to
motivate future performance, especially long-term performance. The Committee
believes that through the use of stock options, executive interests are directly
tied to enhancing shareholder value. Stock options are granted at fair market
value as of the date of grant and generally have a term of three years. The
options vest 33% per year, beginning on the first anniversary date of the grant.
The stock options provide value to the recipients only when the market price of
7
<PAGE> 10
the Company's Common Stock increases above the option grant price and only as
the shares vest and become exercisable.
Section 162(m) of the Internal Revenue Code, which provides for a
$1,000,000 limit on the deductibility of compensation, presently is not
applicable to the Company. The Committee will review its policy with respect to
Section 162(m) when and if the section is applicable in the future.
OPTION GRANTS IN LAST FISCAL YEAR
The Committee approved the following stock option grants for the executive
officers during fiscal year 1997.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Wirt D. Walker, III.......... 25,000 21% $7.00 2/24/00 $27,584 $57,925
Ronald C. Thomas............. 25,000 21 7.00 2/24/00 27,584 57,925
Charles C. Sander............ 25,000 21 7.00 2/24/00 27,584 57,925
Larry M. Weaver.............. 15,000 13 7.00 2/24/00 16,551 34,755
</TABLE>
- ---------------
(1) Each option is non-transferable; vests as to 33% of the shares covered by
such option over three years, commencing on the first anniversary of the
date of issuance; is canceled prior to vesting in the event the holder
either resigns from the Company or is terminated for justifiable cause; and
is void after the date listed under the heading "Expiration Date." The
exercise price of the stock subject to options was equal to the market value
on the date of grant. The number of shares issuable upon exercise of each
option is subject to adjustment subsequent to any stock dividend, split-up,
recapitalization or certain other transactions.
During 1997, Messrs. Walker and Thomas, directors of the Company, were
granted options to purchase 25,000 shares of Common Stock prior to the
adoption of the 1997 Stock Option Plan.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee makes decisions regarding the compensation of the Chief
Executive Officer using the same philosophy set forth above. The Committee's
approach in setting Mr. Thomas' base compensation, as with that of the Company's
other executives, is to be competitive with other companies within the industry,
taking into consideration company size, operating conditions and compensation
philosophy and performance. Mr. Thomas served as Chief Executive Officer until
April 1998, when Charles W. Archer was appointed to the position. Charles W.
Archer's base compensation for 1998 is $160,000 per annum.
COMPENSATION COMMITTEE
Marvin Bush
Robert B. Smith
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and holders of more than ten percent of the
Company's Common Stock to file reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. The
Company believes that during the fiscal year ended December 31, 1997, its
officers, directors and holders of more than 10% of the Company's Common Stock
complied with all Section 16 (a) filing requirements.
8
<PAGE> 11
PROPOSAL TWO
AMENDMENT OF 1997 STOCK OPTION PLAN
INTRODUCTION
In February 1998, the Board of Directors of the Company unanimously
approved a resolution, subject to shareholder approval, approving an amendment
to the Company's 1997 Stock Option Plan (the "Plan") to increase the number of
shares of Common Stock that may be issued pursuant to stock options granted
thereunder by 350,000 shares. Before giving effect to the proposed amendment,
155,000 shares of Common Stock remain available for issuance pursuant to the
Plan, which originally provided for the issuance of up to 500,000 shares. Thus,
this proposal would increase the shares available for issuance under the plan to
505,000 shares.
The Board of Directors recommends that shareholders vote for the amendment
of the Plan. The Board believes the Plan provides a means for key employees and
directors upon whose judgment and interest the Company is and will be largely
dependent for the successful conduct of its business to increase their personal
ownership interest in the Company. It is believed that such incentive awards
will further the identification of directors' and key employees' interests with
those of the Company's shareholders.
A summary of the Company's 1997 Stock Option Plan follows.
ELIGIBILITY
Directors and employees of the Company or any subsidiary of the Company are
eligible to receive stock options under the Plan. The Plan also provides that
both employee directors and non-employee directors are eligible for automatic
grants of options.
ADMINISTRATION
The Plan is administered by the Option Committee, which is comprised of at
least two non-employee directors of the Company. In addition to having general
supervisory and interpretive authority over the Plan, the Committee determines,
upon the recommendation of management and subject to the terms and limits of the
Plan, the employees, if any, to whom options will be granted, the time at which
options are to be granted, the number of shares to be subject to each option,
and the terms and conditions of exercise of options.
AWARD OF STOCK OPTIONS
Employees
Options to purchase shares of Common Stock granted to employees under the
Plan may be incentive stock options or nonstatutory stock options. Incentive
stock options qualify for favorable income tax treatment under Code Section 422,
while nonstatutory stock options do not. The exercise price of shares of Common
Stock covered by an incentive stock option may not be less than 100% (or, in the
case of an incentive stock option granted to a 10% shareholder, 110%) of the
fair market value of the Common Stock on the date of the option grant. The
option price of Common Stock covered by a nonstatutory stock option granted to
an employee may not be less than 85% of the fair market value of the Common
Stock on the date of grant.
An incentive stock option shall be exercisable in any calendar year only to
the extent that the aggregate fair market value (determined at the date of
grant) of the Common Stock with respect to which incentive stock options are
exercisable for the first time during the calendar year does not exceed
$100,000.
Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement; provided
that, the provisions for incentive stock options shall meet certain requirements
set forth in the Plan.
Directors
Each eligible non-employee director and employee director of the Company
receives an option to purchase 15,000 shares of Common Stock following the
annual stockholders meeting.
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<PAGE> 12
The exercise price of these options is the market value of the Common Stock
on the date of grant, and they have a term of three years and one month and
become exercisable in three equal annual installments beginning on the first
anniversary of the date of grant.
GENERAL
Adjustments will be made in the number of shares which may be issued under
the Plan in the event of a future stock dividend, stock split or similar pro
rata change in the number of outstanding shares of Common Stock or the future
creation or issuance to shareholders generally of rights, options or options for
the purchase of Company Common Stock or preferred stock.
EXERCISE OF OPTIONS
Generally, an option may only be exercised by payment of the full purchase
price in cash. If the option so provides, the option may be exercised by
delivering an exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds from the
option shares to pay the exercise price.
TRANSFERABILITY OF STOCK OPTIONS
No option may be sold, transferred, pledged, or otherwise disposed of,
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order. All rights granted to a participant under
the Plan shall be exercisable during his or her lifetime only by such
participant, or the participant's guardians or legal representatives. Upon the
death of a participant, his or her personal representative or beneficiary may
exercise the participant's rights under the Plan.
AMENDMENT OF THE PLAN AND STOCK OPTIONS
The Board of Directors may amend the Plan in such respects as it deems
advisable; provided that the shareholders of the Company must approve any
amendment for which shareholder approval is required by state or federal law,
exchange requirements, or the Internal Revenue Code.
FEDERAL INCOME TAX CONSEQUENCES
An employee or director will not incur federal income tax when he or she is
granted a stock option.
Upon exercise of a nonstatutory stock option, an employee or director
generally will recognize ordinary income (which in the case of an employee is
subject to income tax withholding by the Company) equal to the difference
between the fair market value of the Common Stock on the date of the exercise
and the option price. When an employee exercises an incentive stock option, he
generally will not recognize income, unless he is subject to the alternative
minimum tax. Non-employee directors are not granted incentive stock options
under the Plan.
The Company usually will be entitled to a business expense deduction at the
time and in the amount that the recipient of an incentive award recognizes
ordinary compensation income in connection therewith. As stated above, this
usually occurs upon exercise of nonstatutory options or the sale or other
impermissible disposition of an incentive stock option before the applicable
holding period has expired. Generally, the Company's deduction is contingent
upon the Company's meeting withholding tax requirements as to employees;
however, tax legislation, enacted August 10, 1993, generally imposes a
$1,000,000 limitation on the amount of the annual compensation deduction
allowable to a publicly-held company in respect of its chief executive officer
and its four most highly paid officers. An exception is provided for certain
performance-based compensation if certain shareholder approval and outside
director requirements are satisfied. Because of certain interpretation issues
under the statutory provisions, and in the absence of Internal Revenue Service
regulations, there can be no assurance that any of the options granted under the
Plan will qualify for this exception. No deduction is allowed in connection with
an incentive stock option, unless the employee disposes of Common Stock received
upon exercise in violation of the holding period requirements.
This summary of Federal income tax consequences of nonstatutory stock
options and incentive stock options does not purport to be complete. There may
also be state and local income taxes applicable to these transactions. Holders
of stock options should consult their own advisors with respect to the
application of the
10
<PAGE> 13
laws to them and to understand other tax consequences of the awards including
possible income deferral for insiders, alternative minimum tax rules, taxes on
parachute payments and the tax consequences of the sale of shares acquired under
this Plan.
VOTE REQUIRED
Approval of the proposal to amend the Plan requires the affirmative vote of
the majority of the shares present in person or by proxy at the annual meeting.
The Board of Directors recommends that you vote "for" the proposal to amend
the 1997 Stock Option Plan.
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Corporation
includes in this Proxy Statement a line-graph presentation comparing cumulative,
five-year shareholder returns on an indexed basis with (i) a broad equity market
index and (ii) either an industry index or peer group. An initial public
offering of the Company's stock occurred on October 2, 1997. The following graph
compares the percentage change in the cumulative total stockholder return on the
Company's Common Stock against the cumulative total return of the AMEX Market
Value Index and the Russell 2000 from October 2, 1997 through December 31, 1997.
Total return for the purpose of this graph assumes reinvestment of all
dividends, if any. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
COMPARISON OF 3 MONTH CUMULATIVE TOTAL RETURN*
AMONG STRATESEC, INC., THE AMEX MARKET VALUE INDEX
AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
AMEX
MEASUREMENT PERIOD STRATESEC, RUSSELL MARKET
(FISCAL YEAR COVERED) INC. 2000 VALUE
<S> <C> <C> <C>
10/03/97 100.00 100.00 100.00
12/31/97 93.00 97.00 98.00
</TABLE>
* $100 invested on 10/03/97 in stock or on 9/30/97 in index -- including
reinvestment of dividends. Fiscal year ending December 31.
11
<PAGE> 14
CERTAIN TRANSACTIONS
In 1996, the Company purchased a 114B aircraft from Commander Aircraft
Company ("Commander") for $335,000, the list price of the aircraft, which is the
price at which Commander typically sells to retail customers. KuwAm Corporation
is the general partner of two stockholders of the Company that currently own in
the aggregate approximately 73% of the outstanding Common Stock of Commander,
and Wirt D. Walker, III, the Chairman of the Company, is the Chairman of
Commander and the Managing Director of KuwAm. Mishal Y.S. Al Sabah, a director
of the Company, is a director of Commander and the Chairman of KuwAm.
The aircraft was repurchased by Commander Aircraft Company on February 20,
1998 for $240,000, determined to be the fair market value for such an aircraft.
During 1995, 1996 and 1997 the Company sold $3.4 million aggregate
principal amount of 10% subordinated debentures (the "Debentures"), together
with warrants to purchase 478,580 shares of Common Stock at an exercise price of
$7.00 per share to certain limited partners of SSIH. The net proceeds from the
sale of the Debentures, after deduction of the 5% investment banking fee payable
to KuwAm and other expenses, were $3.2 million.
Between January 1 and March 10, 1997, an aggregate of $700,000 of the
proceeds from the Debentures was invested in limited partnership interests of
SSIH. KuwAm, of which Mr. Walker is the Managing Director and Mr. Al Sabah is
Chairman, is the general partner of SSIH. Under the terms of the limited
partnership subscription agreement, KuwAm received 3% of the amount of the
Company's investment as reimbursement for accounting, legal and administrative
expenses related to the organization and operation of the partnership. In
addition, pursuant to SSIH's limited partnership agreement, KuwAm receives (i)
an annual administration fee equal to 2% of SSIH's assets and (ii) an annual
capital appreciation fee equal to 10% of the increase in the value of SSIH's
assets in each year.
Immediately following the Company's initial public offering, on October 8,
1997, the Company's limited partnership interest in SSIH was redeemed at
$700,000. KuwAm Corporation also paid the Company $23,700, representing interest
at 5% through September 30, 1997.
INDEPENDENT AUDITORS
The Board of Directors has approved a resolution retaining Grant Thornton
LLP as its independent auditors for fiscal 1997.
A representative of Grant Thornton LLP will be present at the Annual
Meeting and will have an opportunity at the meeting to make a statement if he
desires to do so and will be available to respond to appropriate questions.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
Elizabeth Schmitt
Secretary
Dated: April 28, 1998
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<PAGE> 15
STRATESEC INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 10, 1998
The undersigned, having received the Annual Report to the Stockholders and the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement dated
April 28, 1998 hereby appoints Wirt D. Walker, III, Elizabeth Schmitt and each
of them, proxies with full power of authorization, and hereby authorizes them to
represent and vote the shares of Common Stock of STRATESEC INCORPORATED (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of Stockholders of the Company to be held on June 10, 1998
at 2:00 p.m. local time, and any adjournment thereof, and especially to vote
<TABLE>
<S> <C> <C>
1. PROPOSAL ONE -- ELECTION OF DIRECTORS WITHHOLD AUTHORITY
FOR all nominees listed below [ ] to vote for all nominees listed below [ ]
Wirt D. Walker, III, Charles W. Archer, Ronald C. Thomas, Mishal Yousef Saud Al Sabah, Robert B. Smith, Jr.,
Marvin P. Bush, Lt. General James A. Abrahamson, USAF (Retired)
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.
- ----------------------------------------------------------------------------------------------------------------
2. PROPOSAL TWO -- To consider and vote upon the proposal to amend the Company's 1997 Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. IN THEIR DISCRETION the proxies are authorized to vote upon such other business as may properly come before
the meeting.
</TABLE>
(Continued, and to be signed, on the other side.)
(Continued from the reverse side.)
In the ballot provided for that purpose, if you specify a choice as the action
to be taken this proxy will be voted in accordance with such choice. If you do
not specify a choice, it will be voted FOR Proposal One and Two as described in
the Proxy Statement.
Any proxy or proxies previously given for the meeting are revoked.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Dated:
------------------------------------------------------------------------------
, 1998.
------------------------------
(Signature)
------------------------------
(Signature if held jointly)
Please sign exactly as name
appears hereon. When shares
are held by joint tenants,
both should sign. When signing
as attorney, executor,
administrator, trustee or
guardian please give full
title of each. If a
corporation, please sign in
full corporate name by
president or other authorized
office. If a partnership,
please sign in partnership
name by authorized person.
