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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
DIVERSIFIED SECURITY SOLUTIONS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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Payment of Filing Fee
[X] No fee required.
DIVERSIFIED SECURITY SOLUTIONS, INC.
280 MIDLAND AVENUE
SADDLE BROOK, NEW JERSEY 07663
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 28, 2002
-------------------
To: The Shareholders of
DIVERSIFIED SECURITY SOLUTIONS, INC.
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Shareholders of
DIVERSIFIED SECURITY SOLUTIONS, INC. (the 'Company'), a Delaware corporation,
will be held at the American Stock Exchange, 86 Trinity Place, New York, NY
10006, on Monday, October 28, 2002, at 10:00 a.m., New York time, for the
following purposes:
1. To elect, seven directors to serve, subject to the provisions of the
By-laws, until the next Annual Meeting of Shareholders and until their
respective successors have been duly elected and qualified;
2. To consider and act upon a proposal to approve the Company's 2002 Stock
Option Plan;
3. To consider and act upon a proposal to approve the selection of Demetrius
& Company, L.L.C. as the Company's independent auditors for 2002 and
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on September 16, 2002
as the record date for the meeting and only holders of shares of record at that
time will be entitled to notice of and to vote at the Annual Meeting of
Shareholders or any adjournment or adjournments thereof.
By Order of the Board of Directors,
/s/ James E. Henry
-----------------------------------
JAMES E. HENRY
Chairman of the Board
Saddle Brook, New Jersey
September 27, 2002
IMPORTANT
IF YOU CANNOT PERSONALLY ATTEND THE MEETING, IT IS REQUESTED THAT YOU INDICATE
YOUR VOTE ON THE ISSUES INCLUDED ON THE ENCLOSED PROXY AND DATE, SIGN AND MAIL
IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES
DIVERSIFIED SECURITY SOLUTIONS, INC.
280 MIDLAND AVENUE
SADDLE BROOK, NEW JERSEY 07663
------------------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 28, 2002
------------------------------------------
September 27, 2002
The enclosed proxy is solicited by the Board of Directors (the 'Board') of
Diversified Security Solutions, Inc., a Delaware corporation (the 'Company'), in
connection with the 2002 Annual Meeting of Shareholders to be held at the
American Stock Exchange, 86 Trinity Place, New York, New York 10006 on Monday,
October 28, 2002, at 10:00 a.m., New York time, and any adjournments thereof,
for the purposes set forth in the accompanying Notice of Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit personally and by telephone. The Company's employees will receive no
compensation for soliciting proxies other than their regular salaries. The
Company may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy material to their principals and to
request authority for the execution of proxies. The Company may reimburse such
persons for their expenses in so doing.
Unless instructed to the contrary on the proxy, it is the intention of the
person named in the proxy to vote the proxies:
FOR the election as directors of the nominees listed below;
FOR the adoption of the Company's 2002 Stock Option Plan; and
FOR the confirmation of the selection of Demetrius & Company, L.L.C. as the
Company's independent auditors for 2002.
The Board does not know of any other matters that may be brought before the
Annual Meeting nor does it foresee or have reason to believe that proxy holders
will have to vote for substitute or alternate director nominees. In the event
that any other matter should come before the Annual Meeting or any director
nominee is not available for election, the person named in the enclosed proxy
will have discretionary authority to vote all proxies not marked to the contrary
with respect to such matters in accordance with their best judgment.
The record date with respect to this solicitation is the close of business
on September 16, 2002 and only shareholders of record at that time will be
entitled to vote at the meeting. The principal executive office of the Company
is 280 Midland Avenue, Saddle Brook, New Jersey 07663, and its telephone number
is (201) 794-6500. The shares represented by all validly executed proxies
received in time to be taken to the meeting and not previously revoked will be
voted at the meeting. This proxy may be revoked by the shareholder at any time
prior to its being voted. This proxy statement and the accompanying proxy were
mailed to you on or about September 27, 2002.
QUORUM AND REQUIRED VOTE
The number of outstanding shares entitled to vote at the meeting is
5,138,357 common shares, par value $.01 per share. Each common share is entitled
to one vote. The presence in person or by proxy at
the Annual Meeting of the holders of a majority of such shares shall constitute
a quorum. There is no cumulative voting. Assuming the presence of a quorum at
the Annual Meeting:
directors shall be elected by a plurality of the votes cast;
the affirmative vote of a majority of the common shares present at the
meeting and entitled to vote on each matter is required for:
the approval of the 2002 Stock Option Plan;
the confirmation of the selection of Demetrius & Company, L.L.C., as the
Company's independent auditors for 2002.
Prior to the Annual meeting, we will select one or more inspectors of
election for the meeting. Such inspector will canvas the shareholders present in
person at the meeting, count their votes and count the votes represented by
proxies presented. Abstentions and broker non-votes are counted as present for
purposes of determining the number of shares represented at the meeting, but are
deemed not to have voted on the proposal. Broker non-votes occur when a broker
nominee (which has voted on one or more matters at the meeting) does not vote on
one or more other matters at the meeting because it has not received
instructions to so vote from the beneficial owner and does not have
discretionary authority to so vote.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named in the accompanying proxy will vote for the election of
the following seven persons as directors, all of whom except for Sal Lifrieri
are currently members of the Board, to hold office until the next annual meeting
of shareholders and until their respective successors have been elected and
qualified. Unless specified to be voted otherwise, each proxy will be voted for
the nominees named below. All seven nominees have consented to serve as
directors if elected.
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- -----
James E. Henry............................ 48 Chairman, Chief Executive Officer and
Director 1999
Irvin F. Witcosky......................... 64 Chief Operating Officer, President,
Secretary and Director 1999
Louis Massad.............................. 64 Vice President, Treasurer, Chief Financial
Officer and Director 1999
Sal Lifrieri.............................. 44 Executive Vice President --
Leroy Kirchner............................ 60 Director 1999
Robert S. Benou........................... 68 Director 2001
Joseph P. Ritorto......................... 71 Director 2002
James E. Henry co-founded the Company's predecessor company in 1989 and
served as President, and Chief Executive Officer until December, 2001 when he
was elected Chairman of the Board. Mr. Henry continues to serve as Chief
Executive Officer. Mr. Henry graduated from the University of New Hampshire with
a bachelor of science degree in electrical engineering. In addition to his other
responsibilities, Mr. Henry has continued to design, install, integrate and
market security and communications systems as well as manage the Company's
research and development.
Irvin F. Witcosky co-founded the Company's predecessor company in 1989 and
served as the Company's Executive Vice President and Secretary until December,
2001 when he was elected the Company's Chief Operating Officer and President.
Mr. Witcosky continues to serve as Secretary. Mr. Witcosky graduated from
California Polytechnic University with a bachelor of science degree in
aeronautical engineering. In addition to his other responsibilities, Mr.
Witcosky has continued to design, integrate and market security and
communication systems as well as manage the Company's operations and
administration.
Louis Massad became our Vice President, Treasurer and Chief Financial
Officer in December, 1999. Mr. Massad has been a member of our Board since
November, 1999. From 1996 to December,
2
1999, he served as an independent accountant and financial advisor to several
companies, including us. Since 1995, Mr. Massad has been a director of Conolog
Corporation, a publicly-held company that manufactures electronic components and
subassemblies for communication equipment. He holds bachelor of science and
masters degrees in accounting from Cairo University in Egypt and a masters in
business administration in finance from Long Island University.
Sal Lifrieri became our Executive Vice President in August, 2002. Mr.
Lifrieri retired from the New York City Police Department in January, 2002 after
20 years of service. From January, 1996 to January, 2001, Mr. Lifrieri served as
the Director of Security and Intelligence Operations for the Office of Emergency
Management where he was responsible for the management of security intelligence
and counter surveillance operations for New York City. From 1994 to 1996, Mr.
Lifrieri was a member of New York City's Municipal Security Section where he
headed the Protective Operations Unit. As head of the Protective Operations
Unit, Mr. Lifrieri's responsibilities included protecting critical New York City
infrastructure and key public buildings.
Leroy Kirchner has been a member of our Board since December, 1999. Since
1999, Mr. Kirchner has acted as an independent consultant to the communications
industry. From May, 1999 to December 31, 2001, he also served as the Director of
Distribution for NeoWorld Communications, Inc. where his responsibilities
included setting up distribution networks for the resale of NeoWorld's
communication equipment and services. From 1966 through 1998, he worked in
various capacities for Motorola Inc., primarily in sales and marketing. From
1992 through 1998, he also served as a Vice President of Indirect Sales for a
Motorola subsidiary engaged in sales of related radio equipment and systems. Mr.
Kirchner holds a bachelor of science degree and a masters in business
administration degree from Fairleigh Dickinson University.
Robert S. Benou has been a member of our Board since June, 2001. He has been
a director of Conolog Corporation since 1968 and served as its President from
1968 until May, 2001 when he was elected Conolog's Chairman and Chief Executive
Officer. Mr. Benou is a graduate of Victoria College and holds a BS degree from
Kingston College, England and a BSEE from Newark College of Engineering, in
addition to industrial management courses at Newark College of Engineering.
Joseph P. Ritorto has been a member of our Board since January 2002. Mr.
Ritorto is the co-founder of First Aviation Services, Inc., which is located on
Teterboro Airport, Teterboro, New Jersey and provides a variety of aviation
support services. Mr. Ritorto has been an officer, in various capacities, of
First Aviation Services since 1986. From 1991, until he retired in May 2001, Mr.
Ritorto served as Senior Executive Vice Present and Chief Operating Officer of
Silverstein Properties, Inc. In this capacity, Mr. Ritorto's responsibilities
included overseeing operations and directing the lease administration of
Silverstein owned and managed properties.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 2001, the Board held two meetings and
acted by written consent 11 times. All of the directors, except Mr. Kirchner,
attended both of these meetings. The Board has established both a compensation
committee and an audit committee. All of the members of the audit committee are
independent outside directors. A majority of the members of the compensation
committee are independent, outside directors.
The audit committee reviews with the Company's independent public
accountants the scope and adequacy of the audit to be performed by them, the
Company's accounting practices, procedures and policies, and all related party
transactions. The audit committee has adopted an Audit Committee Charter, a copy
of which is attached hereto as Exhibit A. The audit committee did not meet
during 2001, but acted by written consent one time. The compensation committee
recommends to our Board the compensation to be paid to our officers and
directors, administers our incentive stock option plan and approves the grant of
options under the plan. The compensation committee did not meet during 2001, but
acted by written consent one time. Until August, 2002, Mr. Witcosky was one of
the members of the audit committee. We have since appointed Mr. Ritorto in his
place. In addition to Mr. Ritorto, Messrs. Benou and Kirchner are the other
members of the audit committee. Messrs. Ritorto, Witcosky
3
and Kirchner are members of the compensation committee. We consider Messrs.
Benou, Kirchner and Ritorto to be independent.
REPORT OF THE AUDIT COMMITTEE
The following shall not be deemed to be 'soliciting material' or to be
'filed' with the Securities and Exchange Commission nor shall such information
be incorporated by reference into any of the Company's future filing under the
Securities Act of 1933 or the Securities and Exchange Act of 1934.
With respect to the audit of the year ended December 31, 2001, the audit
committee met twice to review the end of year financial results and the
Company's audited consolidated financial statements.
In the course of these meetings, the audit committee discussed with the
Company's independent auditors those matters required to be discussed by the
Statement on Auditing Standards No. 61, as amended, 'Communication with Audit
Committees,' by the Auditing Standards Board of the American Institute of
Certified Public Accountants.
We have received and reviewed the written disclosures and the confirmation
from the independent auditors required by Independence Standards Board No. 1, as
amended, 'Independence Discussions with Audit Committee,' by the Independence
Standards Board and have discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommended to
the Board that the consolidated financial statements referred to above be
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2001.
Audit Committee: Irvin Witcosky
Leroy Kirchner
Robert Benou
March 20, 2002
2001 AUDIT FIRM FEE SUMMARY
During year ended December 31, 2001, the Company retained its principal
auditor, Demetrius & Company, L.L.C., to provide services in the following
category and amount:
Audit Fees................................ $45,000
All other Fees............................ $19,200
4
EXECUTIVE OFFICERS
The Company's executive officers are:
NAME AGE POSITION
---- --- --------
James E. Henry............. 48 Chairman, Chief Executive Officer and Director
Irvin F. Witcosky.......... 64 Chief Operating Officer, President, Secretary
and Director
Louis Massad............... 64 Vice President, Treasurer, Chief Financial Officer
and Director
Sal Lifrieri............... 44 Executive Vice President
BACKGROUND INFORMATION ABOUT CERTAIN KEY EMPLOYEES
Theodore Gjini has worked for the Company since 1988 in various capacities,
including as a sales engineer and project manager. In his current position as a
Vice President, he supervises the coordination of our personnel and their
activities in sales and marketing, project installations and maintenance. Mr.
Gjini graduated from the New Jersey Institute of Technology with a bachelor of
science degree in electrical engineering and William Paterson College with a
masters in business administration.
Emil J. Marone has worked for the Company since 1965 in various capacities,
including as a hospital communication system specialist, security systems
supervisor, systems engineer, and quality control specialist. In his current
position as our Chief Technology Officer, he is responsible for the development
of special products and testing procedures as well as quality assurance and
management. He holds an associate science degree from Bergen County Community
College.
Michael Stretton is an Executive Vice President of Business Development of
Photo Scan Systems, Inc., a Los Angeles based security systems integrator
specializing in security systems for medical facilities, which was acquired by
the Company in May, 2002. From August, 2001 until Photo Scan was acquired by the
Company, Mr. Stretton served as its President. Since 1997, Mr. Stretton has been
the President of Secure Alarm Systems, Inc., which provides residential and
commercial security systems. Pursuant to Mr. Stretton's employment agreement
with the Company, the services he performs for Secure Alarm may not materially
interfere with his duties for the Company.
Patrick Warner has been a Vice President of Photo Scan Systems, Inc. since
September, 2002. Mr. Warner's responsibilities include managing Corporate
Security Integration LLC a securities integrator located in Phoenix, Arizona
which was acquired by Photo Scan in September, 2002. From April, 2001 until it
was acquired by Photo Scan, Mr. Warner was the chief corporate officer of
Corporate Security Integration, LLC.
Alex Pavlis has been a Vice President since April, 2002. From January, 2000
until March, 2001, Mr. Pavlis was a Vice President of Sales and Marketing at
Intellisec a securities integrator. In this capacity, Mr. Pavlis was responsible
for all integrated security system sales in Northern and Southern California and
in Arizona. From October, 1983 to January, 2000, Mr. Pavlis was a Vice President
of Sales and Marketing for UAC Security Systems where he oversaw UAC's
integrated security system sales and operations department.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to each executive
officer whose compensation was in excess of $100,000 for the last three fiscal
years ended December 31, 2001.
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SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------
AWARDS PAYOUTS
-------------- ------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(S) SALARY($) BONUS($) OPTIONS/SARS # ($)(1)
--------------------------- ------- --------- -------- -------------- ------
James E. Henry ........................ 2001 135,000 -- -- 2,700
Chairman and Chief Executive Officer 2000 135,000 13,500 -- 2,700
1999 60,000 -- -- --
Irvin F. Witcosky ..................... 2001 135,000 -- -- 2,700
President, Chief Operating Officer 2000 135,000 13,500 -- 2,700
and Secretary 1999 60,000 -- -- --
Louis Massad .......................... 2001 110,000 -- -- 2,200
Vice President, Treasurer and Chief 2000 110,000 11,000 9,000 2,200
Financial Officer
---------
(1) Company matching contribution under its Simple IRA Plan.
EMPLOYMENT AGREEMENTS
Messrs. Henry and Witcosky are serving as Chairman and Chief Executive
Officer and President, Chief Operating Officer and Secretary, respectively,
under employment agreements for five years which commenced January 1, 2000.
These agreements provide for an initial annual compensation of $135,000, an
increase of 10% in compensation as of January, 2002 and in each subsequent year
of the agreements and a one-year non-competition covenant covering the security
business that commences after termination of employment.
Mr. Massad has entered into a five year written employment contract with the
Company which commenced January 1, 2000. His initial annual compensation under
such contract is $110,000. The agreement also provides for a 10% increase per
annum as of January, 2002 and in each subsequent year of the agreement. Mr.
Massad was granted an option to purchase 9,000 shares of the Company's common
stock. This option was granted under the Company's Incentive Stock Option Plan
and is exercisable at $5.625 per share. Mr. Massad can currently exercise this
option to purchase 6,000 shares of the Company's common stock. Beginning on
December 23, 2002, Mr. Massad may exercise the option to purchase an additional
3,000 shares of the Company's common stock. The option expires in
December, 2009.
Mr. Lifrieri has entered into a five year written employment contract with
the Company which commenced on August 13, 2002. His initial annual compensation
under such contract is $135,000. Pursuant to his employment agreement, Mr.
Lifrieri was granted, subject to shareholder approval of the Company's 2002
Stock Option Plan, an option to purchase 50,000 shares of the Company's common
stock at a price of $7.20 per share. Mr. Lifrieri may exercise 20% of the option
per year beginning on August 12, 2003, subject to the terms of his option
agreement. The option will expire in August, 2014.
COMPENSATION OF DIRECTORS
Non-employee directors are entitled to be reimbursed for their travel,
lodging and other out-of-pocket expenses related to their attendance at board
and committee meetings. Additional compensation for non-employee directors may
be arranged for special projects. In May, 2002, the Board voted to grant,
subject to shareholder approval of the Company's 2002 Stock Option Plan, each
director who does not own more than 10% of the Company's issued and outstanding
common stock options to purchase 5,000 shares of the Company's Common Stock. The
options will be exercisable after approval of the 2002 Stock Option Plan and
will expire five years after the date of grant. The options are exercisable at
$7.95 per share.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full board of directors made all decisions concerning executive
compensation during 2001. Other than Mr. Massad, who is a member of the Board of
Directors and Audit Committee of Conolog Corporation, no executive officer of
the Corporation served as a member of the Board of Directors of another entity
during 2001.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 23, 2002 certain information
regarding beneficial ownership of the Company's common stock by each person who
is known by us to beneficially own more than 5% of our common stock. The table
also identifies the stock ownership of each of our directors, each of our
officers, and all directors and officers as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
Unless otherwise indicated, the address for each of the named individuals is
c/o Diversified Security Solutions Inc., 280 Midland Avenue, Saddle Brook, New
Jersey 07663.
Shares of common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise or conversion of options are deemed to
be outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
The applicable percentage of ownership is based on 5,138,357 shares
outstanding as of September 23, 2002.
PERCENTAGE OF
NUMBER OF COMMON
SHARES STOCK
BENEFICIALLY BENEFICIALLY
NAME, ADDRESS AND TITLE OF BENEFICIAL OWNER OWNED OWNED
------------------------------------------- ----- -----
James E. Henry, Chairman, Chief Executive Officer
and Director.............................................. 1,425,000 27.7%
Irvin F. Witcosky, Chief Operating Officer, President,
Secretary and Director.................................... 1,425,000 27.7%
Louis Massad, Chief Financial Officer, Treasurer
and Director(1)(2)........................................ 131,000 2.5%
Sal Lifrieri, Executive Vice President...................... -- *
Leroy Kirchner, Director(1)................................. 5,000 *
Robert Benou, Director(1)................................... 5,000 *
Joseph Ritorto, Director(1)................................. 40,000 *
Lee A. Kann(3).............................................. 283,566 5.6%
All executive officers and directors as a group
(7 persons)(4)............................................ 3,031,000 58.69%
---------
* less than 1%
(1) The amount shown for Messrs. Massad, Kirchner, Benou and Ritorto includes
options to purchase 5,000 shares each of the Company's common stock at $7.95
per share, subject to shareholder approval of the 2002 Stock Option Plan.
(2) The amount shown for Mr. Massad also includes a currently exercisable option
to purchase 6,000 shares of the Company's Common Stock at a price of $5.625
per share.
(3) Mr. Kann's address is 1406 Janeen Way, Anaheim, CA 92801. Mr. Kann was
issued common stock of the Company in payment of the purchase price of
National Safe of California, Inc., which was acquired by Photo Scan Systems,
Inc., a wholly owned subsidy of the Company. The amount shown for Mr. Kann
is based on a Schedule 13G filed by him on September 5, 2002.
(4) The amount shown includes currently exercisable options to purchase 26,000
shares of the Company's common stock.
7
CERTAIN TRANSACTIONS
On August 13, 2002 (the 'Closing'), the Company, Photo Scan Systems, Inc.,
Lee A. Kann and National Safe of California, Inc. entered into a stock purchase
agreement, pursuant to which Photo Scan, a wholly-owned subsidiary of the
Company, purchased all of the issued and outstanding stock of National Safe from
Mr. Kann. The purchase price of the acquisition was $2,000,000 which was paid by
issuing an aggregate of 283,566 unregistered and restricted shares of the
Company's common stock (the 'Shares'). As part of this transaction, Photo Scan
made a $500,000 non-recourse loan to Mr. Kann due August 12, 2003. As collateral
for the payment of the promissory note, Mr. Kann pledged 70,891 of the Shares.
The Stock Purchase Agreement provides that in the event that one year from the
Closing (the 'Reference Date'), the average closing sale price of the Company's
common stock for the ten trading days immediately prior to the Reference Date is
less than $7.053 per share (the 'Current Market Price'), the Company and/or
Photo Scan at their sole discretion shall within 10 days of the Reference Date
either purchase 212,675 of the Shares for $1,500,000 (subject to certain
adjustments detailed in the Stock Purchase Agreement) or pay Mr. Kann an amount
equal to the difference between (i) $1,500,000 and (ii) 212,675 (subject to
certain adjustments) multiplied by the Current Market Price.
In the early 1990's, Messrs. Henry and Witcosky and the Company had orally
agreed with Alfred Albrecht, to settle a variety of disputes. The settlement
agreement was memorialized in writing in December, 1999. Under the settlement
arrangements, the Company was obligated to pay an aggregate of $128,685, plus
accrued interest to Mr. Albrecht at the rate of 10% per annum until December 1,
2003 in monthly installments under two promissory notes. Messrs. Henry and
Witcosky were also obligors under these notes. The notes, including accrued
interest, were paid by the Company in May, 2002 and have been canceled.
Under a bank loan agreement between the Company and Hudson United Bank dated
September 1, 1999, Messrs. Henry and Witcosky personally guaranteed up to
$4,000,000 of the Company's bank line of credit, plus accrued interest. In
December, 2001, these guarantees were terminated.
PROPOSAL NO. 2
PROPOSED 2002 STOCK OPTION PLAN
There is being submitted to the shareholders for approval at the Annual
Meeting, the Diversified Security Solutions, Inc. 2002 Stock Option Plan which
authorizes the issuance of options to purchase up to 230,000 of the Company's
common stock. The 2002 Plan was approved by the Company's Board, subject to
shareholder approval, at a meeting held on May 10, 2002. If approved, the 2002
Plan will terminate on May 9, 2012.
Under the 2002 Stock Option Plan, the Company's employees, directors and
consultants are eligible to be granted stock options. All options granted under
the 2002 Plan shall be either 'Incentive Stock Options' ('ISOs'), as such term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options ('NQOs'); provided, however, ISOs shall be granted
only to employees of the Company. An option shall be identified as an ISO or NQO
in writing in the document or documents evidencing the grant of the option. We
believe that stock options play an important role in providing those eligible to
participate with an incentive and inducement to contribute fully to the further
growth and development of the Company because of the opportunity to acquire a
proprietary interest in the Company on an attractive basis.
All stock options granted under the 2002 Plan will be exercisable at such
time or times and in such installments, if any, as our compensation committee or
the Board may determine and expire no more than ten years from the date of
grant. The exercise price of the stock option will be the fair market value of
the Company's common shares on the date of immediately proceeding the date on
which the option is granted. Options are non-transferable except by will or by
the laws of descent and distribution. Each option granted under the 2002 Plan
will be evidenced by a written agreement.
Options granted under the 2002 Plan terminate three months after the
optionee's relationship with the Company is terminated except if termination is
for cause or by reason of death or disability unless otherwise provided in the
Stock Option Agreement between the optionee and the Company. In the case of
death or disability, the option terminates six months after the optionee's death
or termination of employment by reason of disability unless otherwise provided
in the optionee's Stock Option
8
Agreement. If an employee's employment is terminated for cause, then any
unexercised options held by the employee are canceled upon termination of
employment unless otherwise provided in the Optionee's Stock Option Agreement.
In the case of a non-employee director who has served his or her full term, all
vested options remain exercisable until the termination date set forth in the
stock option agreement to which such options relate.
The Board has a limited right to modify or amend the 2002 Plan which does
not include the right to increase the number of shares which is available for
the grant of options. The 2002 Plan will be administered by the compensation
committee appointed by the board of directors.
Those eligible to participate in the 2002 Plan, will receive, for no
consideration prior to exercise, the opportunity to profit from any rise in the
market value of the Company's common stock. This will dilute the equity interest
of the Company's other shareholders. The grant and exercise of the options also
may affect the Company's ability to obtain additional capital during the term of
any options.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2002 STOCK OPTION PLAN
The following is a summary of the Federal income tax consequences of
transactions under the 2002 Stock Option Plan, based on Federal income tax laws
in effect on January 1, 2002. This summary is not intended to be comprehensive
and does not describe state or local income tax consequences.
Benefits which may be granted pursuant to the 2002 Stock Option Plan include
incentive stock options and nonqualified stock options.
Incentive Stock Options. No income is realized by an optionee upon the grant
or exercise of an incentive stock option. If shares of common stock are
transferred to an optionee upon the exercise of an incentive stock option, and
if no disqualifying disposition of such shares is made by such optionee within
two years after the date of grant of the option or within one year after the
transfer of such shares to such optionee, then (1) upon the sale or exchange of
such shares, any amount realized in excess of the option exercise price will be
taxed to such optionee as a long-term capital gain and any loss sustained will
be treated as a long-term capital loss, and (2) no deduction will be allowed to
the Company for Federal income tax purposes. The exercise of an incentive stock
option will give rise to an item of tax preference that may result in
alternative minimum tax liability for the optionee.
If common stock acquired upon the exercise of an incentive stock option is
disposed of prior to two years after the grant date or one year after the
exercise date, generally (1) the optionee will realize compensation (i.e.,
ordinary income) in the year of disposition in an amount equal to the excess (if
any) of the fair market value of such shares at exercise (or if less, the amount
realized on the disposition of such shares, if the shares are disposed of by
sale or exchange) over the option exercise price paid for such shares, and
(2) the Company will be entitled to deduct the amount of compensation income,
which was taxed to the optionee for Federal income tax purposes, if it complies
with applicable reporting requirements (the 'reporting requirements') and if the
amount represents an ordinary and necessary business expense of the Company (the
'ordinary and necessary text'). Any further gain (or loss) realized by the
optionee will be taxed as short-term or long-term capital gain (or loss), as the
case may be, and will not result in any deduction by the Company.
Options are eligible for favorable tax treatment as incentive options only
to the extent that not more than $100,000 in fair market value at the date of
grant (generally measured by the exercise price) first becomes exercisable in
any one calendar year. For purposes of this rule, option grants are aggregated
and a series of option grants over several years may in the aggregate result in
more than $100,000 of options that first became exercisable in any one calendar
year. Moreover, options that accelerate in the event of a change in control may
also cause more than $100,000 of options to become exercisable in the year of
acceleration. If more than $100,000 of options first become exercisable in any
one year, the excess option are non-qualified options regardless of the
characterization in the grant agreement.
Non-qualified Stock Options. Except as noted below, in the case of
nonqualified stock options: (1) no income is realized by the optionee at the
time the option is granted; (2) the optionee realizes ordinary income at
exercise in an amount equal to the difference between the option exercise price
paid for the shares and the fair market value of the shares of the date of
exercise; (3) the Company is entitled to a Federal income tax deduction equal to
the amount of income taxed to the optionee as
9
ordinary income, subject to the Company's satisfaction of the reporting
requirements and the ordinary and necessary text; and (4) upon disposition of
the common stock acquired by exercise of the option, appreciation (or
depreciation) occurring after the date of exercise is treated as either
short-term or long-term capital gain (or loss), depending on the recipient's
holding period of the shares.
Change of Control Event. The 2002 Stock Option Plan provides for the early
exercisability of outstanding options in the event of a Change of Control Event
as defined in the 2002 Stock Option Plan. The acceleration of these benefits may
be deemed to constitute a 'parachute payment' under the Code. 'Excess parachute
payments,' as defined in the Code, will subject the recipient thereof to an
additional 20% excise tax and are not deductible by the Company.
The Board is Recommending the Adoption of the 2002 Plan. The description of
the proposed 2002 Plan set forth above is qualified in its entirety by reference
to the text of the 2002 Plan as set forth in Exhibit B.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF AUDITORS
Our board of directors recommends the selection of Demetrius & Company,
L.L.C. as independent auditors to examine our financial statements for the
fiscal year ending December 31, 2002.
Representatives of Demetrius & Company, L.L.C. are expected to be present at
the annual meeting of shareholders with the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals by any shareholder intended to be included in the Proxy Statement
for the Annual Meeting of Shareholders to be held in the year 2003 must be
received at the principal executive offices of the Company on or before
March 14, 2003.
UNDERTAKING
The Company undertakes to provide without charge to each person solicited by
this Proxy Statement a copy of the Company's Annual Report on Form 10-KSB,
including the financial statements and financial statement schedules, required
to be filed with the Securities and Exchange Commission for the year ended
December 31, 2001. The request made in writing shall be addressed to Louis
Massad, Diversified Security Solutions, Inc., 280 Midland Avenue, Saddle Brook,
New Jersey 07663.
By Order of the Board of Directors,
/s/ James E. Henry
-----------------------------------
JAMES E. HENRY
Chairman of the Board
10
EXHIBIT A
DIVERSIFIED SECURITY SOLUTIONS, INC.
AUDIT COMMITTEE
CHARTER
The Audit Committee of the Board of Directors (the 'Committee') of
Diversified Security Solutions, Inc. (the 'Corporation') shall assist the Board
of Directors of the Corporation (the 'Board') in fulfilling its fiduciary and
other obligations with respect to accounting and financial matters.
Specifically, and without limiting the generality of the foregoing, the
Committee shall:
1. Be comprised of at least three members of the Board; all of whom shall
be independent directors as set forth in Section 121(A) of the American
Stock Exchange Listing Standards, Policies and Requirements, as
applicable, and as may be modified or supplemented. The Board shall also
appoint the chairperson of the Committee. Each member of the Committee
shall be financially literate at the time of his or her appointment, as
determined by the Corporation's Board in its business judgment. At least
one member of the Committee shall have accounting or related financial
management expertise, as determined by the Board in its business
judgment.
2. Review and evaluate the qualification, performance and independence of
the Corporation's independent auditor and recommend an independent
auditor for appointment annually by the Board.
3. Not accept, other than in his or her capacity as a member of the Board
or any Committee of the Board, any consulting or advisory or other
compensatory fees from the Corporation or be an affiliated person of the
Corporation or any of its subsidiaries.
4. Confirm and assure the independence of the Corporation's independent
auditor. With respect to the independence of the independent auditor,
the Committee must:
(a) Ensure that the independent auditor submits on a periodic basis to
the Committee a formal written statement delineating all
relationships between the independent auditor and the Corporation.
This statement must comply with Independence Standards Board
Standard No. 1, as may be modified or supplemented;
(b) Actively engage in a dialogue with the Corporation's independent
auditor with respect to any disclosed relationships or services that
may impact the objectivity and independence of the independent
auditor; and
(c) Recommend that the Board take appropriate action in response to the
independent auditor's report to satisfy itself of the independent
auditor's independence.
5. Establish an open avenue of communications among the independent
accountants, financial and senior management and the Board of Directors.
Affirm that the independent accountants report directly to the
Committee.
6. Review with the independent auditor the adequacy and effectiveness of
the Corporation's system of internal financial controls and accounting
practices to achieve reliability and integrity in the Corporation's
financial statements, and initiate such examinations of such controls
and practices as the Committee deems advisable. As part of this process,
the Committee shall review the auditor's SAS61 letter each year.
7. Review the authority and duties of the Corporation's chief financial
officer and the performance by him or her of his or her respective
duties.
8. Prior to the commencement of the Corporation's annual external audit,
review with the Corporation's independent auditor the scope of their
audit function and estimated audit fees.
9. Subsequent to the completion of the Corporation's annual external audit,
review the report and recommendations of the independent auditor with
the independent auditor and the
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Corporation's management, as well as any difficulties encountered during
the course of the audit.
10. Review the annual and quarterly consolidated financial statements of the
Corporation and other financial disclosures of the Corporation and the
accounting principles being applied in such statements and disclosures.
11. Review with management and the independent accountants, prior to public
release, the financial results for the prior year including the
Corporation's annual report on Form 10-KSB.
12. Meet at least annually with the chief executive officer, chief financial
officer and the independent auditor, in separate executive sessions, to
review the financial affairs of the Corporation and to discuss any
matters that the Committee or these groups believe should be considered
privately.
13. Review the insurance programs of the Corporation including professional
malpractice, general liability, director and officer liability and
property insurance, and the insurers carrying the Corporation's
insurance.
14. Oversee the establishment and thereafter periodically review a corporate
code of conduct and the Corporation's policies on ethical business
practices.
15. Review the Committee's charter annually and revise as appropriately.
16. Define a policy on corporate securities trading.
17. Establish procedures to receive and address complaints regarding
accounting, internal control or auditing issues.
18. Establish procedures that enable the Corporation's employees to
anonymously submit their concerns regarding accounting or auditing
matters.
19. Engage independent counsel and other advisors as the Committee shall
determine is necessary.
20. Hold Audit Committee meetings at least quarterly.
21. Review and oversee all related party transactions entered into by the
Corporation.
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EXHIBIT B
DIVERSIFIED SECURITY SOLUTIONS, INC.
2002 STOCK OPTION PLAN
1. Purpose of Plan. This 2002 Stock Option Plan (the 'Plan') is designed to
assist Diversified Security Solutions, Inc. (the 'Company') in attracting and
retaining the services of employees, Non-Employee Directors (as hereinafter
defined) and such consultants as may be designated and to provide them with an
incentive and inducement to contribute fully to the further growth and
development of the business of the Company and its subsidiaries.
2. Legal Compliance. It is the intent of the Plan that all options granted
under it shall be either 'Incentive Stock Options' ('ISOs'), as such term is
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
'Code'), or non-qualified stock options ('NQOs'); provided, however, ISOs shall
be granted only to employees of the Company. An option shall be identified as an
ISO or NQO in writing in the document or documents evidencing the grant of the
option. All options that are not so identified as ISOs are intended to be NQOs.
It is the further intent of the Plan that it conform in all respects with the
requirements of Rule 16b-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended ('Rule 16b-3'). To the extent that
any aspect of the Plan or its administration shall at any time be viewed as
inconsistent with the requirements of Rule 16b-3 or, in connection with ISOs,
the Code, such aspect shall be deemed to be modified, deleted or otherwise
changed as necessary to ensure continued compliance with such provisions.
3. Definitions. In addition to other definitions contained elsewhere in the
Plan, as used in the Plan the following terms have the following meanings unless
the context requires a different meaning:
'Board' means the Board of Directors of the Company.
'Code' means the Internal Revenue Code of 1986, as the same may from
time to time be amended.
'Committee' means the committee referred to in Section 5 hereof.
'Common Stock' means the Common Stock of the Company, par value $.0l per
share.
'Designated Beneficiary' means the person designated by an optionee to
be entitled on his death to any remaining rights arising out of an option,
such designation to be made in accordance with such regulations as the
Committee or Board may establish.
'Fair Market Value' means the closing price of the Common Stock on the
American Stock Exchange on the date immediately proceeding the date of grant
(the 'Closing Price') or if the Common Stock is no longer traded on the
American Stock Exchange, the Closing Price on Nasdaq or any other automated
quotation system, or if the Common Stock shall not be included in any
automated quotation system, as determined by the Committee or the Board in
good faith based on all relevant factors.
'Non-Employee Directors' means a director who is not currently an
officer of or employed by the Company or any of its majority-owned
subsidiaries.
'Stock Options' means any stock options granted to an optionee under the
Plan.
'Stock Option Agreement' means a stock option agreement entered into
pursuant to the Plan.
4. Stock Options: Stock Subject to Plan.
The stock to be issued upon exercise of Stock Options granted under the Plan
shall consist of authorized but unissued shares, or of treasury shares, of
Common Stock, as determined from time to time by the Board. The maximum number
of shares for which Stock Options may be granted under the Plan is 230,000
shares, subject to adjustment as provided in Section 9 of the Plan. If any Stock
Option granted under the Plan should expire or terminate for any reason
whatsoever without having been exercised in full, the unpurchased shares shall
become available for new option grants.
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5. Administration.
(a) The Plan shall be administered by the Compensation Committee or, if such
Committee is not appointed, then it shall be administered by the Board. Options
may be granted by the Board or the Committee. For purposes of the Plan, the
Board or its appointed Committee shall be referred to as the 'Committee.' The
Committee, if any, shall be appointed by the Board and shall consist of not less
than two members. The Board shall establish the number of members to serve on
the Committee, shall fill all vacancies or create new openings on the Committee,
and may remove any member of the Committee at any time with or without cause.
The Committee shall select its own chairman and shall adopt, alter or repeal
such rules and procedures as it may deem proper and shall hold its meetings at
such times and places as it may determine. The Committee shall keep minutes of
its meetings and of actions taken by it without a meeting. A majority of the
Committee present at any meeting at which a quorum is present, or acts approved
in writing by all members of the Committee without a meeting, shall be the acts
of the Committee.
(b) Unless otherwise determined by the Board, the Committee shall have full
and final authority in its discretion, but subject to the express provisions of
the Plan, to:
(i) prescribe, amend and rescind rules and regulations relating to the
Plan;
(ii) interpret the Plan and the respective Stock Options; and
(iii) make all other determinations necessary or advisable for
administering the Plan. All determinations and interpretations by the
Committee or the Board shall be binding and conclusive upon all parties. No
member of the Committee or the Board shall be liable for any action or
determination made in good faith in respect of the Plan or any Stock Option
granted under it.
(c) The provisions of this Section 5 shall survive any termination of the
Plan.
6. Grants of Options.
(a) Employees, employee directors, Non-Employee Directors, Employees of the
Company or any of its subsidiaries shall be eligible to be selected by the
Committee to receive stock option grants.
(b) Subject to the provisions of the Plan, the Committee shall determine and
designate the persons to whom grants will be made, the number of Stock Options
to be granted and the terms and conditions of each grant.
7. Terms and Exercise of Stock Option.
(a) Unless otherwise determined by the Committee, each Stock Option shall
terminate no later than ten years (or such shorter term as may be fixed by the
Committee) after the date on which it shall have been granted. The date of
termination pursuant to this paragraph is referred to hereinafter as the
'termination date' of the option.
(b) Stock Options shall be exercisable at such time or times and in such
installments, if any, as the Committee or Board may determine. In the event any
Stock Option is exercisable in installments, any shares which may be purchased
during any year or other period which are not purchased during such year or
other period may be purchased at any time or from time to time during any
subsequent year or period during the term of the Stock Option unless otherwise
provided in the Stock Option Agreement.
(c) A Stock Option shall be exercised by written notice to the Secretary or
Treasurer of the Company at its then principal office. The notice shall specify
the number of shares as to which the Stock Option is being exercised and shall
be accompanied by payment in full of the purchase price for such shares;
provided, however, that an optionee at his or her discretion may, in lieu of
cash payment, to the Company, (i) deliver Common Stock already owed by him or
her, valued at fair market value on the date of delivery, as payment for the
exercise of any Stock Option provided such shares have been owned by the
optionee for at least six months prior to exercise or were not acquired,
directly or indirectly, from the Company, or (ii) instruct a broker to notify
the Company of optionee's exercise and sell stock to cover the exercise price
and tax withholding. In the event a Stock Option is being exercised, in whole or
in part pursuant to Section 8(c) hereof by any person other than the optionee, a
notice of election shall be accompanied by proof satisfactory to the Company of
the rights of such person to exercise said Stock Option. An optionee shall not,
by virtue of the granting of a Stock Option,
B-2
be entitled to any rights of a shareholder in the Company and such optionee
shall not be considered a record holder of shares purchased by him or her until
the date on which he or she shall actually be recorded as the holder of such
shares upon the stock records of the Company. The Company shall not be required
to issue any fractional shares upon exercise of any Stock Option and shall not
be required to pay to the person exercising the Stock Option the cash equivalent
of any fractional share interest unless so determined by the Committee.
(d) In the event an optionee elects to deliver Common Stock already owned by
such optionee or to request that Common Stock be withheld in accordance with
subsection (c) above, upon exercise of a Stock Option granted hereunder, the
Company shall be entitled to require as a condition thereto that the optionee
remit an amount which the Company deems sufficient to satisfy all Federal, state
and other governmental withhold ing tax requirements related thereto. The
Company shall have the right, in lieu of or in addition to the foregoing to
withhold such sums from compensation otherwise due to the optionee.
8. Other Stock Option Conditions.
(a) Except as expressly permitted by the Board, no Stock Option shall be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution. During the lifetime of the optionee the Stock Option shall be
exercisable only by such optionee, by his or her legal representative or by a
transferee permitted under the terms of the grant of the Stock Option.
(b) Unless otherwise determined by the Committee, in the event of the
termination of an optionee's employment by the Company at any time for any
reason (excluding disability or death), the portion of his or her Stock Option
which is exercisable at the date of termination of employment and all rights
thereunder shall terminate on the date of termination of the optionee's
relationship with the Company, except that the optionee shall have the right to
exercise his or her Stock Option (to the extent that the optionee was entitled
to exercise it as of the date of termination), within three (3) months of the
date of termination, but in no event later than the termination date of his or
her Stock Option; provided, however, if the optionee is terminated for cause,
the Stock Option shall terminate on the date of termination of employment. The
Committee or the Board, may determine, in their sole discretion, whether the
date of termination will be based on the last day the optionee performed
services for the Company rather than the date of termination. Notwithstanding
the foregoing, unless otherwise determined by the Committee, in the event an
optionee is permanently and totally disabled (within the meaning of section
105(d)(4), or any successor section, of the Code), the portion of his or her
Stock Option which is exercisable at the date of disability and all rights
thereunder shall be exercisable by the optionee (or his or her legal
representative) at any time within six (6) months of termination of
employment -- but in no event later than the termination date of his Stock
Option.
(c) Unless otherwise determined by the Committee, if an optionee shall die
while in the employ of the Company, the portion of his or her Stock Option which
is exercisable at the date of death may be exercised by his or her designated
beneficiary or beneficiaries (or if none have been effectively designated, by
his or her executor, administrator or the person to whom his or her rights under
his or her Stock Option shall pass by will or by the laws of descent and
distribution) at any time within six (6) months after the date of death, but not
later than the termination date of his or her Stock Option.
(d) Nothing in the Plan or in any option granted pursuant hereto shall
confer on an employee any right to continue in the employ of the Company or
prevent or interfere in any way with the right of the Company to terminate his
employment at any time, with or without cause.
(e) Notwithstanding anything to the contrary herein, in the event a Non-
Employee Director has served his full term, his Stock Options that are
exercisable shall be exercisable until the termination date of his Stock Option.
If a Non-Employee Director shall die while serving on the Board, the portion of
his Stock Option which is exercisable at the date of death may be exercised by
his designated beneficiary or beneficiaries (or, a person who has been
effectively designated, by his executor, administrator or the person to whom his
rights under his Stock Option shall pass by his will or by the laws of descent
and distribution) at any time within one year after the date of his death, but
not later than the termination date of his Stock Option. Nothing in the Plan or
in any Stock Option granted
B-3
pursuant hereto shall confer on any Non-Employee Director any right to continue
as a director of the Company.
(f) Each Stock Option granted pursuant to the Plan shall be evidenced by a
written Stock Option Agreement duly executed by the Company and the optionee, in
such form and containing such provisions as the Committee may from time to time
authorize or approve.
9. Adjustments. The Stock Option Agreements shall contain such provisions as
the Committee shall determine to be appropriate for the adjustment of the kind
and number of shares subject to each outstanding Stock Option, or the Stock
Option prices, or both, in the event of any changes in the outstanding Common
Stock of the Company by reason of stock dividends, stock splits, liquidation,
recapitalizations, reorganizations, mergers, consolidations, combinations or
exchanges of shares or the like. In the event of any such change or changes in
the outstanding Common Stock, and as often as the same shall occur, the kind and
aggregate number of shares available under the Plan may be appropriately
adjusted by the Committee or the Board, whose determination shall be binding and
conclusive.
10. Amendment and Termination.
(a) Unless the Plan shall have been otherwise terminated as provided herein,
it shall terminate on, and no option shall be granted thereunder, after May 9,
2012. The Board may at any time prior to that date alter, suspend or terminate
the Plan as it may deem advisable, except that it may not without further
shareholder approval (i) increase the maximum number of shares subject to the
Plan (except for changes pursuant to Section 9); (ii) permit the grant of
options to anyone other than the officers, employee directors, Non-Employee
Directors and consultants; (iii) change the manner of determining the minimum
stock exercise prices (except for changes pursuant to Section 9); or
(iv) extend the period during which Stock Options may be granted or exercised.
Except as otherwise hereinafter provided, no alteration, suspension or
termination of the Plan may, without the consent of the optionee to whom any
Stock Option shall have theretofore been granted (or the person or persons
entitled to exercise such Stock Option under Section 8(c) of the Plan),
terminate such optionee's Stock Option or adversely affect such optionee's
rights thereunder.
(b) Anything herein to the contrary notwithstanding, in the event that the
Board shall at any time declare it advisable to do so in connection with any
proposed sale or conveyance of all or substantially all of the property and
assets of the Company or of any proposed consolidation or merger of the Company
(each of the foregoing a 'Change of Control Event'), the Company may (i)
accelerate the vesting schedule in such manner as the Company may decide in its
sole discretion, or (ii) give written notice to the holder of any Stock Option
that the portion of his or her Stock Option which is exercisable on the date of
the notice may be exercised only within thirty (30) days after the date of such
notice but not thereafter, and all rights under said Stock Option which shall
not have been so exercised shall terminate at the expiration of such thirty (30)
days, provided that the proposed sale, conveyance, consolidation or merger to
which such notice shall relate shall be consummated within six (6) months after
the date of such notice. If such Change of Control Event shall not be
consummated within said time period, no unexercised rights under any Stock
Option shall be affected by such notice except that such Stock Option may not be
exercised between the date of expiration of such thirty (30) days and the date
of the expiration of such six month period. Alternatively, outstanding Stock
Options under the Plan may be assumed or converted to similar options in any
surviving or acquiring entity, but, if the surviving or acquiring entity shall
refuse to assume, or convert, said Stock Options, they shall be terminated if
not exercised according to the requirements set forth above.
11. Option Exercise Price. The price per share to be paid by the optionee at
the time an ISO is exercised shall not be less than one hundred percent (100%)
of the Fair Market Value of one share of the optioned Common Stock on the date
immediately preceding the date on which the Stock Option is granted. No ISO may
be granted under the Plan to any person who, at the time of such grant, owns
(within the meaning of Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company unless the exercise price of such ISO is at least equal to one
hundred and ten percent (110%) of Fair Market Value. The price per share to be
paid by the optionee at the time an NQO is exercised shall not be less than
eighty-five percent
B-4
(85%) of the Fair Market Value on the date immediately preceding the date on
which the NQO is granted, as determined by the Committee.
12. Ceiling of ISO Grants. The aggregate Fair Market Value (determined at
the time any ISO is granted) of the Common Stock with respect to which an
optionee's ISOs, together with incentive stock options granted under any other
plan of the Company are exercisable for the first time by such optionee during
any calendar year shall not exceed $100,000. If an optionee holds such incentive
stock options that become first exercisable (including as a result of
acceleration of exercisability under the Plan) in any one year for shares having
a fair market value at the date of grant in excess of $100,000, then the most
recently granted of such ISOs, to the extent that they are exercisable for
shares having an aggregate Fair Market Value in excess of such limit, shall be
deemed to be NQOs.
13. Indemnification. Any member of the Committee or the Board who is made,
or threatened to be made, a party to any action or proceeding, whether civil or
criminal, by reason of the fact that such person is or was a member of the
Committee or the Board insofar as it relates to the Plan shall be indemnified by
the Company, and the Company may advance such person's related expenses, to the
full extent permitted by law and/or the Certificate of Incorporation or By-laws
of the Company.
14. Effective Date of the Plan; Termination of the Plan and Stock Options.
The Plan shall become effective on the date of adoption by the Board, provided,
however, that the Plan shall be subject to approval by the affirmative vote of
the holders of the majority of Common Stock of the Company on or before December
31, 2002.
15. Expenses. Except as otherwise provided herein for the payment of
Federal, State and other governmental taxes, the Company shall pay all fees and
expenses incurred in connection with the Plan and the issuance of the stock
hereunder.
16. Government Regulations, Registrations and Listing of Stock.
(a) The Plan, and the grant and exercise of Stock Options thereunder, and
the Company's obligation to sell and deliver stock under such Stock Options
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any regulatory or governmental agency as may, in the
opinion of the Company, be necessary or appropriate.
(b) The Company may in its discretion require, whether or not a registration
statement under the Securities Act of 1933 and the applicable rules and
regulations thereunder (collectively the 'Act') is then in effect with respect
to shares issuable upon exercise of any Stock Option or the offer and sale of
such shares is exempt from the registration provisions of such Act, that as a
condition precedent to the exercise of any Stock Option the person exercising
the Stock Option give to the Company a written representation and undertaking
satisfactory in form and substance to the Company that such person is acquiring
the shares for his or her own account for investment and not with a view to the
distribution or resale thereof and otherwise establish to the Company's
satisfaction that the offer or sale of the shares issuable upon exercise of the
Stock Option will not constitute or result in any breach or violation of the Act
or any similar act or statute or law or regulation in the event that a
Registration statement under the Act is not then effective with respect to the
Common Shares issued upon the exercise of such Stock Option; the Company may
place upon any stock certificate appropriate legends referring to the
restrictions on disposition under the Act.
(c) In the event the class of shares issuable upon the exercise of any Stock
Option is listed on any national securities exchange or Nasdaq, the Company
shall not be required to issue a certificate for such shares upon the exercise
of any Stock Option, or to list the shares so issuable on such national
securities exchange or Nasdaq.
B-5
Appendix 1
DIVERSIFIED SECURITY SOLUTIONS, INC.
PROXY
Annual Meeting of Shareholders - Monday, October 28, 2002.
The undersigned shareholder of Diversified Security Solutions, Inc.
(the "Company") hereby appoints James E. Henry the attorney and proxy of the
undersigned, with full power of substitution, to vote, as indicated herein, all
the common shares of the Company standing in the name of the undersigned at the
close of business on September 16, 2002 at the Annual Meeting of Shareholders of
the Company to be held at the American Stock Exchange, 86 Trinity Place, New
York, New York 10006 at 10:00 am, New York time, on Monday, October 28, 2002,
and at any and all adjournments thereof, with all the powers the undersigned
would possess if then and there personally present and especially (but without
limiting the general authorization and power hereby given) to vote as indicated
on the proposals, as more fully described in the Proxy Statement for the
meeting.
(Please fill in the reverse side and return promptly in the enclosed envelope.)
Please mark boxes [o] or [X] in blue or black ink.
1. Election of Directors.
FOR all nominees [ ]
WITHHOLD authority only for those nominees whose name(s) I have crossed out
below [ ]
WITHHOLD authority for ALL nominees [ ]
Nominees for Directors are: Robert S. Benou
James E. Henry
Leroy Kirchner
Sal Lifrieri
Louis Massad
Joseph P. Ritorto
Irvin F. Witcosky
--------------------------------------------------------------------------------
2. Proposal to approve the Company's 2002 Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
--------------------------------------------------------------------------------
3. Proposal to approve the selection of Demetrius & Company, L.L.C. as the
Company's independent auditors for the year ending December 31, 2002.
For [ ] Against [ ] Abstain [ ]
--------------------------------------------------------------------------------
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE
ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS OTHERWISE
INDICATED.
2
[Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.]
SIGNATURE(S) should be exactly as name or names appear on this proxy. If stock
is held jointly, each holder should sign. If signing is by attorney, executor,
administrator, trustee or guardian, please give full title.
Dated , 2002
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Signature
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Print Name
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Signature
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Print Name
3