STRATESEC INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 12, 2000
The 2000 Annual Meeting of the Shareholders of STRATESEC Incorporated,
a Delaware corporation (the "Company"), will be held on June 12, 2000 at 2:00
p.m. local time at 2600 Virginia Avenue, N.W., Suite 900, 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 4, 2000 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.
Xuan T. Ho
Secretary
Dated: May 15, 2000
- --------------------------------------------------------------------------------
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>
-1-
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 12, 2000 at 2:00 p.m. local time, or at any
adjournment or postponement thereof. The Annual Meeting will be held at 2600
Virginia Avenue, N.W., Suite 900, Washington, D.C. The Company's principal
offices are located at 105 Carpenter Drive, Sterling, Virginia, 20164, and its
telephone number is (703)709-8686. These proxy solicitation materials will be
mailed to shareholders on or about May 15, 2000.
Shareholders of record at the close of business on May 4, 2000 are
entitled to notice of, and to vote at, the Annual Meeting. On April 14, 2000,
8,326,377 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 a plurality of the votes cast
at the meeting in person or by proxy shall be elected.
The amendment to the Company's 1997 Stock Option Plan and 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. Abstentions and
broker non-votes will not be treated as votes cast and therefore will have no
effect on the outcome of the 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 costs 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 2001 Annual Meeting
Proposals of shareholders intended to be included in the Company's
proxy materials for its 2001 Annual Meeting must be received by the Company no
later than January 1, 2001. If a shareholder intends to submit a proposal at the
2001 Annual Meeting that is not eligible for inclusion in the proxy materials
relating to that meeting, the stockholder must do so no later than March 8,
2001. If the stockholder fails to comply with this notice provision, the proxy
holders will be allowed to use their discretionary voting authority when and if
the proposal is raised at the 2001 Annual Meeting. Such proposals should be
addressed to: Secretary, STRATESEC Incorporated, 2600 Virginia Avenue, N.W.,
Suite 900, Washington, D.C. 20037.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 14, 2000 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 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, and (iv) all executive officers and
directors of the Company as a group.
Number Percent
of Shares of Total
KuwAm Corporation 1,793,515 21.5%
2600 Virginia Avenue, N.W.
Washington, D.C. 20037 (1)
Special Situation Investment Holdings, Ltd. 1,606,333 19.3%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037 (1)
NetCom Solutions International, Inc. 700,000 8.4%
Wirt D. Walker, III (2)(3) 533,785 6.4%
Barry W. McDaniel (3) 73,333 *
Ronald C. Thomas (3) 158,163 1.9%
Albert Van Graves (3) 25,000 *
R. Michael Lagow (3) 30,000 *
Mishal Yousef Saud Al Sabah (3)(4) 522,937 6.3%
Emmit J. McHenry (5) 700,000 8.4%
Robert B. Smith (3) 5,000 *
James A. Abrahamson (3) 5,000 *
Charles W. Archer (3) 5,000 *
All Officers and Directors as a
Group (10 persons) (6) 2,058,218 24.8%
- -----------------------
* Less than one percent
(1) KuwAm Corporation, a Washington, D.C. based private investment firm, is the
general partner of Special Situation Investment Holdings, Ltd. ("SSIH"),
the Company's largest shareholder. The shareholders of KuwAm include Wirt
D. Walker, III, the Chairman of the Board, Chief Executive Officer 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
1,606,333 shares held by SSIH, and 187,182 shares held by KuwAm
Corporation.
(2) Consists of 405,785 shares held by Mr. Walker, 28,000 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.
(3) Includes shares issuable upon exercise of currently exercisable options, as
follows: Mr. Walker, 50,000 shares; Mr. McDaniel, 58,333 shares; Mr. Al
Sabah, 5,000 shares; Mr. Smith, 5,000 shares; Lt. Gen. Abrahamson, 5,000
shares; Mr. Archer, 5,000 shares; Mr. Van Graves, 25,000 shares; Mr. Lagow,
30,000 shares, and Mr. Thomas, 51,666 shares.
(4) Consists of 449,330 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.
(5) Shares held by NetCom Solutions International, Inc., of which Mr. McHenry
is the founder, President and CEO.
(6) At April 14, 1999, executive officers and directors of the Company as a
group held options to purchase an aggregate of 670,000 shares of Common
Stock, representing approximately 56% of outstanding options at that date.
The numbers set forth in this table include an aggregate of 234,999 shares
underlying options which are currently exercisable within 60 days of such
date.
<PAGE>
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 54, has served as Chief Executive Officer of
the Company since January 1999; he 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 and Chief Executive Officer of
Aviation General, Incorporated, a publicly traded holding company with two
wholly-owned subsidiaries: Commander Aircraft Company, which manufactures,
markets and provides support services for its line of single engine, high
performance Commander aircraft and provides consulting, brokerage and
refurbishment services for piston aircraft, and Strategic Jet Services, Inc. ,
which provides consulting, brokerage and refurbishment services for jet
aircraft.
Barry W. McDaniel, age 51, has served as President and as a director
since January 1999. Mr. McDaniel has served as Chief Operating Officer since
February 1998. 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 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 was employed by the U.S. Government with his last
assignment as a member of the Senior Executive Service (SES), serving as Deputy
Director of Readiness for the United States Army Materiel Command.
Charles W. Archer, age 54, has served as a director since March 1998.
Mr. Archer has been Vice President, Strategic Development for Litton/PRC since
January 1999. Mr. Archer served as the Company's President and Chief Executive
Officer from March 1998 to January 1999. Prior to 1998, Mr. Archer was employed
for twenty-seven 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.
Mishal Yousef Saud Al Sabah, age 38, is a private investor who has been
involved in a broad range of investment activities in the United States and
overseas for the past sixteen 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 Aviation General,
Incorporated.
Robert B. Smith, Jr., age 63, 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 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 66, 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).
Emmit J. McHenry, age 56, has served as a director of the Company since
March 2000. Mr. McHenry is the founder, President and CEO of NetCom Solutions
International, Inc., an international telecommunications, engineering,
consulting, and technical services company. Prior to founding NetCom Solutions
International in 1995, Mr. McHenry was a founder of Network Solutions, Inc., the
internet domain services provider. In the past, Mr. McHenry has held management
positions with IBM, Connecticut General, Union Mutual, and Allstate Insurance
Company. He is an active member of the State Department's Advisory Committee for
International Communications and Information Policy and serves as a Commissioner
for the Fairfax County Economic Development Authority. He is also a director of
James Martin Government Intelligence and Global Technology, L.L.C.
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, 1999. The Board has two committees: the Audit Committee
and the Compensation Committee.
The Audit Committee, comprised of Directors Abrahamson, Archer 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 year 1999.
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 year 1999. The members of the
Compensation Committee are Messrs. Abrahamson and Smith.
No director attended fewer than 75% of all meetings of the Board of
Directors held during fiscal 1999 or of all meetings of any committee upon which
such director served during fiscal 1999.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Messrs. Abrahamson and
Smith; neither are employees of the Company. They are not eligible to
participate in the Company's Profit Sharing Plan. All receive compensation for
services as a director (see "Director Compensation").
Other Officers
Ronald C. Thomas, age 54, 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. 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 a member and past chairman of the Standing Committee on
Physical Security of the American Society for Industrial Security ("ASIS"),as
well as a member of other professional organizations including the Closed
Circuit Television Manufacturers Association, a the Institute of Electrical and
Electronic Engineers ("IEEE"), and the National Society of Professional
Engineers.
R. Michael Lagow, age 42, has served as Executive Vice President since
January 2000. Mr. Lagow served in various executive positions with the company
from 1993 through 1999. Prior to joining the Company, Mr. Lagow was employed as
National Sales Manager of Control Systems International, a security systems
company, from 1991 to 1993. Prior to 1993, Mr. Lagow served as Vice President,
Network Security Corporation, developing and managing new markets for that
company.
Albert V. Graves, age 34, has served as Vice President of Finance since
June 1998. Prior to joining the Company, Mr. Graves was employed by Anadac
Corporation, most recently as its Corporate Controller. Previously, Mr. Graves
was employed from 1994 to 1998 as Accounting Manager at Titan Corporation, a
government contractor, and from 1991 to 1994 as Accounting Supervisor at
Technical Resources, Inc., a bio-medical and environmental consulting firm. Mr.
Graves has also served as an Accountant for Electronic Data Systems (EDS), and
Crestar Bank.
<PAGE>
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 for
services rendered in all capacities to the Company for the fiscal years
ended 1999, 1998 and 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Securities
Underlying
Other Annual Options
Compenation Awarded
Year Salary Bonus (1) (in shares)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wirt D. Walker, III.................... 1999 -- -- $136,000(2) 65,000
Chairman and Chief Executive Officer 1998 -- -- $148,680(2) 50,000
and Director
Barry W. McDaniel...................... 1999 $150,000 -- $ 7,500 90,000
President, Chief Operating Officer 1998 $132,692 -- 50,000
and Director
Ronald C. Thomas....................... 1999 $145,000 $3,000 $ 2,600 25,000
Executive Vice President 1998 $156,496 -- $10,000 65,000
1997 $153,461 -- $10,000 25,000
R. Michael Lagow....................... 1999 $105,000 $21,000 -- 65,000
Executive Vice President
Charles W. Archer...................... 1999 $16,070 -- $10,000 15,000
Director (3) 1998 $116,934 -- $ 7,500 15,000
</TABLE>
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(1) Amounts paid as director fees unless otherwise indicated.
(2) Includes consulting fees paid.
(3) Mr. Archer served as President and Chief Executive Officer of the Company
until January 26, 1999, when Wirt D. Walker, III was appointed Chief
Executive Officer and Barry W. McDaniel was appointed President.
Option Grants in Last Fiscal Year
The Committee approved the following stock option grants for the
executive officers during fiscal year 1999.
<TABLE>
<CAPTION>
Potential Realizable Value
Percent of at Assumed Annual Rates of
Number of Total Options Stock Price Appreciation for
Securities Granted to Option Term
Underlying
Options Employees in
Name Granted (1) Fiscal Year Exercise Expiration
Price Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wirt D. Walker, III 50,000 7% $1.88 2/26/02 $14,817 $31,114
15,000 2% $1.25 6/25/02 $ 2,955 $ 6,206
------ --
65,000 9%
Barry W. McDaniel 75,000 10% $1.88 2/26/02 $22,225 $46,671
15,000 2% $1.25 6/25/02 $ 2,955 $ 6,206
------ --
90,000 12%
Albert V. Graves 15,000 2% $1.88 2/26/02 $ 4,445 $ 9,334
40,000 6% $1.25 6/25/02 $ 7,881 $16,550
40,000 6% $1.50 10/9/02 $ 9,458 $19,860
------ --
95,000 13%
Ron C. Thomas 25,000 3% $1.88 2/26/02 $ 7,389 $15,516
------ --
25,000 3%
R. Michael Lagow 40,000 6% $1.88 2/26/02 $ 11,853 $24,891
25,000 3% $1.50 10/9/02 $ 5,911 $12,413
------ --
65,000 9%
</TABLE>
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(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 1999, Messrs. Walker and McDaniel were each granted an option to
purchase 15,000 shares of Common Stock for their services as a
director, pursuant to the 1997 Stock Option Plan.
Aggregated Option Exercises in Last Fiscal Year and Option Values as of December
31, 1999
The following table shows the options exercised during fiscal 1999, the
number of shares of Common Stock represented by outstanding stock options held
by each executive officer as of December 31, 1999 and the value of such options
based on the closing price of the Company's Common Stock on December 31, 1999,
which was $1.438.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Number of Options at FY End (#) (1) Money Options at FY End ($)(2)
Shares Acquired Value Exercisable/
Name On Exercise (#) Realized(3) Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Wirt D. Walker, III --- --- 16,667/98,333 $0/0
Barry W. McDaniel --- --- 16,667/123,333 $0/0
Ronald C. Thomas --- --- 21,666/68,334 $0/0
Albert V. Graves --- --- 6,667/108,333 $0/0
R. Michael Lagow --- --- 8,333/81,667 $0/0
</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 1998 through 1999 and are exercisable on various
dates beginning in 1999 and expiring in 2002.
(2) Represents the difference between the exercise price and $1.438, which
was the closing price on December 31, 1999. Stock option exercise
prices range from $1.25 to $8.625, therefore no options were
in-the-money at December 31, 1999.
(3) No options were exercised in 1999.
Employment and Consulting Agreements
The Company has 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 contains provisions
parallel to those of the executive employment agreement.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of Robert B. Smith, Jr. and Lt. General James A. Abrahamson. They
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) 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 offers a 401(k) pre-tax employee savings plan to all
eligible employees. Employees may contribute 1% to 15% of pre-tax earnings up to
a maximum of $8,899. The Company contributes 25% of the first 5% of an
employee's contributed earnings or a maximum of 1.25% of an employee's total
earnings.
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
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.
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 the Chief Executive Officer's 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. Archer served as Chief Executive
Officer from April 1998 until January 1999, when Wirt D. Walker, III was
appointed to the position. Mr. Walker receives compensation of $126,000 pursuant
to a consulting agreement with the Company. He receives no additional
compensation for his services as Chief Executive Officer.
COMPENSATION COMMITTEE
Robert B. Smith
Lt. General James A. Abrahamson
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, 1999, its
officers, directors and holders of more than 10% of the Company's Common Stock
complied with all Section 16(a) filing requirements.
<PAGE>
PROPOSAL TWO
AMENDMENT OF 1997 STOCK OPTION PLAN
Introduction
In March 2000, 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 750,000 shares. Before giving effect to the proposed amendment,
5,000 shares of Common Stock remained available for issuance pursuant to options
granted under the Plan, which provides for the grant of options to purchase up
to 1,200,000 shares of Common Stock. Thus, this proposal would increase the
shares available for issuance pursuant to options granted under the Plan to
755,000 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 Compensation 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.
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 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.
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company
include 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, 1999.
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.
[graph produced by Research Data Group]
Cumulative Total Return
10/3/97 12/97 12/98 12/99
Stratesec, Inc. 100.0 114.71 17.65 16.92
Amex Market Value 100.0 100.23 107.58 137.43
Russell 2000 100.0 101.68 95.12 93.71
<PAGE>
CERTAIN TRANSACTIONS
During 1998 the Company sold $1.85 million aggregate principal amount
of 10% subordinated debentures (the "Debentures"), together with warrants to
purchase 185,000 shares of Common Stock at an exercise price of $2.50 per share,
to certain limited partners of SSIH and to Commander Aircraft Company. The debt
securities were due on December 31, 1999 and convertible into Common Stock at
$8.50 per share. Commander Aircraft Company purchased $1,000,000 principal
amount of the debt. In February 1999, the Company prepaid 80% ($800,000) of the
principal amount of Commander's investment, in return for which Commander agreed
to accelerate the expiration date of the accompanying 100,000 warrants to
December 31, 1999, which warrants expired unexercised. The Company also prepaid
80% ($120,000) of the principal amount of a limited partner of SSIH's
investment. In turn for which, the limited partner agreed to accelerate the
expiration date of the accompanying 15,000 warrants to December 31, 1999, which
warrants also expired unexercised. In September 1999, the Company converted the
remaining $200,000 principal amount of Debentures held by Commander into 133,333
shares of the Company's common stock and the remaining $730,000 of Debentures
held by certain limited partners of SSIH into 486,667 shares of common stock. In
November 1999, Commander purchased 66,667 shares of the Company's common stock
at $1.50 per share.
In February 1998, the Company's Board of Directors authorized the
purchase of up to 500,000 shares of the Company's common stock. The Company has
to date purchased 302,000 shares, 50,000 shares of which were purchased from the
majority stockholder of the Company at a price of $1.50 per share.
INDEPENDENT AUDITORS
The Board of Directors has approved a resolution retaining Keller,
Bruner & Co., LLP as its independent auditors for fiscal 2000.
A representative of Keller, Bruner & Co., 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.
Xuan T. Ho
Secretary
Dated: May 15, 2000
<PAGE>
STRATESEC INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 12, 2000
The undersigned, having received the Annual Report to the Stockholders
and the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement dated May 15, 2000 hereby appoints Wirt D. Walker, III, Xuan T. Ho 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
12, 2000 at 2:00 p.m. local time, and any adjournment thereof, and especially to
vote
1. PROPOSAL ONE -- ELECTION OF DIRECTORS WITHHOLD AUTHORITY
FOR all nominees listed below _ to vote for all nominees
listed below _
Wirt D. Walker, III, Barry W. McDaniel, Mishal Yousef Saud Al Sabah,
Robert B. Smith, Jr., Emmit J. McHenry, Charles W. Archer, 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.
ON 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:__________________________________, 2000
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(Signature)
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(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.
