DATRON SYSTEMS INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MONDAY, AUGUST 9, 1999 AT 11:00 A.M.
To the Stockholders of Datron Systems Incorporated:
NOTICE IS HEREBY GIVEN that the annual meeting of
stockholders of DATRON SYSTEMS INCORPORATED will be held at the
Westgate Hotel, Coronet Room, 1055 Second Avenue, San Diego,
California on August 9, 1999 at 11:00 A.M. for the following
purposes:
1. To elect five directors to hold office
until the next annual meeting of stockholders and
until their successors are elected and qualified;
2. To approve an amendment to the 1995
Stock Option Plan to increase by 200,000 the
number of option shares available for grant and to
require all options be granted at the fair market
value at date of grant; and
3. To transact any other business that
properly comes before the meeting and any
adjournments thereof.
Only stockholders of record at the close of business on June
18, 1999 are entitled to notice of, and to vote at, the meeting
and any adjournments and postponements thereof.
By Order of the Board of Directors
Victor A. Hebert
Secretary
Vista, California
July 7, 1999
_________________________________________________________________
WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE SIGN AND RETURN THE
ACCOMPANYING PROXY CARD AS SOON AS POSSIBLE
IN THE ENCLOSED POSTPAID ENVELOPE.
________________________________________________________________
<PAGE> 1
DATRON SYSTEMS INCORPORATED
_________
PROXY STATEMENT
To the Stockholders of Datron Systems Incorporated:
The enclosed proxy is solicited on behalf of the Board of
Directors (the "Board") of Datron Systems Incorporated, a
Delaware corporation (the "Company"), for use at the Company's
Annual Meeting of Stockholders and any adjournments and
postponements thereof (the "Annual Meeting") to be held at 11:00
a.m. on Monday, August 9, 1999, at the Westgate Hotel, Coronet
Room, 1055 Second Avenue, San Diego, California 92101. The
Company's principal executive offices are located at 3030
Enterprise Court, Vista, California 92083; the Company's
telephone number is (760) 734-5454.
Only stockholders of record as of the close of business on
June 18, 1999 are entitled to notice of, and to vote at, the
Annual Meeting. At the close of business on that date,
2,693,753 shares of the Company's common stock, $0.01 par value,
(the "Common Stock") were outstanding. Holders of Common Stock
are entitled to one vote for each share of Common Stock held.
Any stockholder giving a proxy in the form accompanying this
Proxy Statement has the power to revoke the proxy prior to its
use. A proxy can be revoked (i) by an instrument of revocation
delivered prior to the Annual Meeting to the Secretary of the
Company, (ii) by a duly executed proxy bearing a later date or
time than the date or time of the proxy being revoked, or (iii)
by voting in person at the Annual Meeting. Attendance at the
Annual Meeting alone will not revoke a proxy.
A stockholder who abstains from voting on any or all matters
will be deemed present at the meeting for quorum purposes, but
will not be deemed to have voted on the particular matter (or
matters) as to which the stockholder has abstained. Similarly,
in the event a nominee (such as a brokerage firm) holding shares
for beneficial owners votes on certain matters pursuant to
discretionary authority or instructions from beneficial owners,
but with respect to one or more other matters does not receive
instructions from beneficial owners and/or does not exercise
discretionary authority (a so-called "non-vote"), the shares held
by the nominee will be deemed present at the meeting for quorum
purposes but will not be deemed to have voted on such other
matters.
The approximate date on which this Proxy Statement and the
accompanying proxy card are being mailed to the Company's
stockholders is July 7, 1999. Solicitation of proxies may be
made by directors, officers and other employees of the Company by
personal interview, telephone or facsimile. Costs of solicitation
will be borne by the Company.
<PAGE> 2
PROPOSAL 1 - NOMINATION AND ELECTION OF DIRECTORS
Nominees
Five directors are to be elected at the Annual Meeting to
serve until the next annual meeting and until their respective
successors are elected and qualified. The Company will nominate
the five incumbent directors. All of these directors were
elected at the Company's last annual meeting. Mr. John Copple
resigned his directorship on March 18, 1999. Mr. Adrian Cassidy
and Mr. Peter Scott will retire when their directorships expire
on August 9, 1999. If any nominee is unable or unwilling to
serve as a director, proxies may be voted for substitute nominees
designated by the Board. The Board has no reason to believe that
any of the persons named below will be unable or unwilling to
serve as a director if elected. Proxies received will be voted
"FOR" the election of the nominees named below unless marked to
the contrary. Pursuant to applicable Delaware law, assuming the
presence of a quorum, five directors will be elected from among
those persons duly nominated for such positions by a plurality of
the votes actually cast by stockholders entitled to vote at the
meeting who are present in person or by proxy. Thus, the five
nominees who receive the highest number of votes in favor of
their election will be elected, regardless of the number of
abstentions or non-votes.
The following table sets forth certain information regarding
each nominee as of June 18, 1999.
<TABLE>
<CAPTION>
Positions Common Stock
with Beneficially Percentage
Name Age the Company Owned<F1><F2> Ownership
- -------------- ---- --------------- ------------ ----------
<S> <C> <S> <C> <C>
David A. Derby 57 Chairman of the 108,598 4.0%
Board,
President,
Chief Executive
Officer;
Director
Kent P. Ainsworth 53 Director 10,400 0.4%
Michael F. Bigham 41 Director 5,000 0.2%
William A. Preston 63 Director 6,650 0.3%
Robert D. Sherer 63 Director 5,400 0.2%
</TABLE>
- ---------------------
[FN]
<F1> Assumes the exercise of all outstanding options held by such
person to the extent exercisable on or before August 9, 1999
and that no other person has exercised any outstanding
options. Includes 39,000, 5,000, 5,000, 1,650 and 5,000
shares subject to options held by Messrs. Derby, Ainsworth,
Bigham, Preston and Sherer, respectively.
<F2> The persons named in the table have sole voting and
investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community
property laws where applicable and to the information
contained in the other footnotes to this table.
</FN>
Business Experience of the Nominees
-----------------------------------
David A. Derby has been a director, President and Chief
Executive Officer of the Company since May 1982. Mr. Derby was
elected Chairman of the Board effective April 1, 1998. He also
was President of the Company's wholly owned subsidiary, Datron
World Communications Inc. (formerly known as Trans World
Communications, Inc.), from March 1993 through March 1995 and was
President of its other wholly owned subsidiary, Datron/Transco
Inc., from August 1997 until March 1998. He has been a director
of AML Communications, Inc. since December 1995.
Kent P. Ainsworth has been a director of the Company since
May 1985. Since April 1996, he has been Executive Vice President
and Chief Financial Officer of U.R.S. Corporation. From January
1991 until April 1996 he was Vice President and Chief Financial
Officer of U.R.S. Corporation. From October 1987 through
February 1990, he was Chief Financial Officer of Di Giorgio
Corporation.
<PAGE> 3
Michael F. Bigham has been a director of the Company since
May 1996. Since July 1, 1996, he has been President and Chief
Executive Officer of Coulter Pharmaceutical Inc. He served as
Executive Vice President of Operations from April 1994 to June
1996 and Chief Financial Officer from April 1989 to June 1996 at
Gilead Sciences, Inc., a biotechnology company. While at Gilead,
he also served as Vice President of Corporate Development from
July 1988 to March 1992. He was Co-head of Healthcare Investment
Banking for Hambrecht & Quist LLC, an investment banking firm,
where he was employed from 1984 to 1988. He has been a director
of LJL Biosystems, Inc. since April 1997 and a director of
Coulter Pharmaceutical Inc. since June 1996.
William A. Preston has been a director of the Company since
February 1998. Since 1977, he has been Chairman and Chief
Executive Officer of APM, Inc. He was a director of Pacific
Scientific Corporation from 1979 to January 1998, and has been a
director of MATSI Inc. since 1988.
Robert D. Sherer has been a director of the Company since
May 1989. He is the President and owner of Quality Concepts,
Inc., which he founded in 1986. From 1959 to 1984 he was
employed by A.M. International, where his last position was
National Vice President of Sales.
All directors hold office until the next annual meeting of
stockholders and until their successors are elected and
qualified. There are no family relationships between any
directors or executive officers of the Company.
Meetings and Committees of the Board
------------------------------------
Regular meetings of the Board are generally held on a
quarterly basis, while special meetings are called when necessary.
The Board held four meetings during the fiscal year ended
March 31, 1999 ("Fiscal 1999"). During Fiscal 1999, each
nominated incumbent director attended 75% or more of the meetings
of the Board and of Board committees on which such director
served with the exception of Mr. Bigham, who attended 67% of such
meetings. Each director who is not an employee of the Company
received an attendance fee of $1,000 for each meeting of the
Board and $500 for each meeting of any committee on which the
director serves and an annual retainer of $5,000.
The Board presently has three standing committees, the Audit
Committee, the Compensation Committee and the Executive
Committee.
Audit Committee
During Fiscal 1999, the Audit Committee consisted of Messrs.
Ainsworth, Scott and Sherer. This committee consults with the
Company's auditors concerning their auditing plan, the results of
their audit, the appropriateness of accounting principles
utilized by the Company and the adequacy of the Company's general
accounting controls. This committee met two (2) times during
Fiscal 1999.
Compensation Committee
During Fiscal 1999, the Compensation Committee consisted of
Messrs. Ainsworth, Cassidy and Scott. The function of the
Compensation Committee is to recommend to the Board of Directors
the salary and bonus levels of officers and directors of the
Company and to administer the Company's 1985 Stock Option Plan,
the Company's 1995 Stock Option Plan (collectively, the "Stock
Option Plans") and the Employee Stock Purchase Plan. This
committee met three (3) times during Fiscal 1999.
Executive Committee
During Fiscal 1999, the Executive Committee consisted of
Messrs. Ainsworth, Bigham, Derby and Preston. The function of
the Executive Committee is to provide strategic direction to the
Company. This committee met five (5) times during Fiscal 1999.
<PAGE > 4
PROPOSAL 2 - APPROVAL OF AMENDMENT
TO THE 1995 STOCK OPTION PLAN
The Proposed Amendment
----------------------
The Company's Board of Directors approved amendments to the
Company's 1995 Stock Option Plan (the "Plan") to increase the
number of shares of Common Stock reserved for issuance under the
Plan by 200,000 shares from 206,700 shares to 406,700 shares.
Since as of June 18, 1999 there are only 21,740 shares remaining
available for issuance under the Plan, the Board believes that
adding shares to the Plan is necessary to permit the Company to
continue to attract and retain quality employees by providing
them with appropriate equity incentives and to remain competitive
in the industry. The proposed amendment also requires that all
options must have an exercise price at least equal to the fair
market value of shares underlying the option on the date of
grant. Stockholder approval of this amendment is being sought
for the purpose of insuring that the Company could, if it so
chooses, grant options to purchase any of such 200,000 shares as
incentive stock options ("ISOs"), as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
The Plan was adopted by the Board in February 1995 and
approved by the Company's stockholders in August 1995. The Plan
was adopted as the successor to the Company's 1985 Stock Option
Plan, which expired in May 1995. The Plan is effective for ten
years beginning February 7, 1995.
Set forth below is a summary of the principal features of
the Plan, which summary is qualified in its entirety by reference
to the terms and conditions of the Plan. The Company will
provide, without charge, to each person to whom a proxy statement
is delivered, upon request of such person and by first class mail
within one business day of receipt of such request, a copy of the
Plan. Any such request should be directed as follows: Chief
Financial Officer, Datron Systems Incorporated, 3030 Enterprise
Court, Vista, California 92083; telephone number (760)734-5454;
facsimile (760)745-3815.
Description of the Plan
-----------------------
The Plan is administered by the Compensation Committee of
the Board in accordance with the disinterested administration
requirements promulgated by the Securities and Exchange
Commission. Under the Plan, the Compensation Committee may grant
options to full-time employees of the Company or a parent or
subsidiary of the Company ("Affiliate"), as defined in the Code,
including officers and directors, but may grant only non-
qualified options ("NQOs") to nonemployee directors.
The exercise price of ISOs is the fair market value of the
underlying shares on the date of the grant. No ISO will be
granted to an employee who owns stock of the Company possessing
more than 10% of the total combined voting power of the Company's
stock, or the stock of any Affiliate of the Company, unless the
exercise price of the ISO at the time the option is granted is at
least 110% of the fair market value of the underlying stock at
the time of the grant, and the exercise period is no more than
five years. After giving effect to the proposed amendment, the
exercise price of NQOs may not be less than the fair market value
of the shares on the date of grant; formerly, NQOs could have
exercise prices as low as 85% of the fair market value of the
shares on the date of grant. NQOs must be exercised within ten years
and two days from their effective date and ISOs must be exercised
within ten years from their effective date (or five years for an
ISO granted to a person who owns more than 10% of the total combined
voting power of the Company's stock or the stock of any Affiliate),
unless an earlier date is specified by the Compensation Committee.
Unless otherwise provided by the Compensation Committee, options become
exercisable in three substantially equal annual installments
commencing one year after the effective date of the options.
The Plan grants the Compensation Committee the right to
issue stock appreciation rights ("SARs") to Plan participants.
As a result, a SAR may be granted with respect to shares of
Common Stock subject to any option ("Related Right") held by the
person (whether previously or concurrently granted), or may be
granted without reference to any Related Right. If a SAR is
exercised, the Related Right, if any, will be canceled to the
extent of the number of shares with respect to which the SAR was
exercised. Upon the exercise or termination of a Related Right,
a SAR granted with respect thereto also will terminate to the
extent of the number of shares as to which the Related Right was
exercised or terminated. The holder of a SAR is entitled upon
exercise to receive payment of an amount representing the
appreciation in the market value (as defined in the Plan) of the
number of shares with respect to which the SAR was granted over a
stated price specified in a written agreement evidencing grant of
the SAR. In the case of a SAR granted with respect to a Related
Right, the stated price will be the exercise price per share of
stock covered by the Related Right. Market value, in general, is
defined for this purpose as the market price of the Common Stock
on a national stock exchange or as quoted on NASDAQ on the date
on which the SAR is exercised or, if the SAR must be exercised
within a "window period," the highest market price of the Common
Stock during the window period in which the SAR is exercised. As
of June 18, 1999, no SARs have been issued under the Plan.
<PAGE> 5
Payment for shares acquired pursuant to the Plan may be, in
the discretion of the Compensation Committee, by cash, check, the
optionee's full recourse promissory note for a portion of the
aggregate exercise price of the option or the delivery of other
property of the optionee (including shares of Common Stock) to
the extent such property constitutes valid consideration for
shares of the Company's Common Stock. The Compensation Committee
may, in certain circumstances, make shares issued under the Plan
subject to repurchase at the option of the Company. The Board
may amend, alter, suspend or discontinue the Plan at any time
without stockholder approval, except to the extent that
stockholder approval is required by applicable law. No such
action can be taken, however, if the action would impair the
rights of any grantee under any option previously granted without
the grantee' s consent.
Federal Income Tax Consequences
-------------------------------
The following description of federal income tax consequences
is based upon current statutes, regulations, and interpretations
thereof, and has been prepared under the supervision of Heller,
Ehrman, White & McAuliffe.
Federal income tax consequences associated with stock options are
complex and vary depending upon an optionee's individual
circumstances. Accordingly, what follows is not a complete
description of the federal income tax consequences of the Plan or
transactions therewith.
Nonqualified Stock Options. Under current Treasury
Regulations, nonqualified stock options granted under the Plan do
not have readily ascertainable fair market value at the time of
grant. Thus, the optionee does not recognize income at the time
of grant. The optionee will recognize ordinary income at the
time the option is exercised to the extent that the fair market
value of the shares purchased exceeds the exercise price for
those shares. The optionee's tax basis for the purchased shares
will be their fair market value on the date the option is
exercised, and the holding period for purposes of determining
whether capital gain or loss upon sale is long or short-term will
begin on the date of purchase.
If shares acquired by exercise of a NQO are subject to a
right of repurchase by the Company, or if they are acquired by an
officer or director of the Company or other person subject to
Section 16(b) of the Exchange Act, Section 83 of the Code may
delay the time that the optionee has taxable income due to the
exercise of the NQO and the time that the holding period of the
shares begins for long-term capital gain or loss purposes, unless
the optionee makes an election under Section 83(b) of the Code.
The amount recognized as ordinary income by an optionee who
is an employee constitutes "supplemental wages" subject to
withholding of federal tax by the Company. The Company may
deduct the amount of "supplemental wages" related to the exercise
of NQOs when computing its taxable income.
Upon sale of the purchased shares for which the Company had
no right of repurchase and the optionee was not subject to
Section 16(b) of the Exchange Act, or for which a valid Section
83(b) election was made (and other than pursuant to the Company's
right of repurchase) or after the lapse of the Company's right of
repurchase or the Section 16(b) restriction, the optionee will
recognize capital gain or loss to the extent of the difference
between the sale price of the purchased shares and the optionee's
tax basis in the shares. Capital gain or loss will be long-term
if the shares are held more than one year.
<PAGE> 6
If an optionee uses other shares of the Company's Common
Stock (other than certain shares acquired by exercise of ISOs,
see below) to pay all or part of the option exercise price, the
optionee will not recognize gain or loss on the previously owned
shares (although the optionee will still recognize gain from the
exercise of the option). Under applicable rulings and
regulations, shares acquired upon exercise of a NQO that are
equal in value to the fair market value of the shares surrendered
in payment are treated as if they had been exchanged for the
surrendered shares, taking as their basis and holding period the
basis and holding period that the surrendered shares had in the
employee's hands. If the surrendered shares were acquired by
exercise of an ISO, and have not satisfied the one- and two-year
holding period requirements for favorable federal income tax
treatment at the time of the surrender, the newly acquired shares
substituted for them will remain subject to the federal income
tax rules governing the surrendered shares. See "Incentive Stock
Options" below. Other tax consequences are as described above,
determined as if the optionee had exercised the option with cash
equal to the fair market value of the surrendered shares.
Incentive Stock Options. An optionee recognizes no income
upon the grant or exercise of an option granted pursuant to the
Plan that qualifies as an ISO under Section 422 of the Code.
However, for purposes of determining whether an optionee will be
subject to the alternative minimum tax, the ISO rules do not
apply and the exercise of an ISO will be treated under the
general rules of Section 83. Generally, this means that the
amount by which the fair market value, measured at the exercise
date, of the shares received upon exercise of an ISO ("ISO
shares") exceeds the exercise price for such shares could subject
the optionee to the "alternative minimum tax." However, if the
ISO shares are subject to a right of repurchase or if the
optionee is subject to restrictions imposed by Section 16(b) of
the Securities Exchange Act, and the optionee does not make a
valid election under Section 83(b) of the Code, the amount by
which the fair market value of the shares at the time the
restriction lapses exceeds the exercise price will be included in
"alternative minimum taxable income." In general the alternative
minimum tax is payable only if it is more than the optionee's
regular federal income tax. "Alternative minimum taxable income"
includes various items of income not included in the "regular
tax" base, and does not permit certain deductions and exemptions,
such as itemized deductions. For purposes of computing the
alternative minimum tax, the optionee's basis in the ISO shares
will be determined under Section 83. In addition, any
alternative minimum tax paid as to certain tax preference items
and adjustments (including the ISO adjustment), for years after
1986 is generally creditable against any excess of an
individual's regular income tax over his or her alternative
minimum tax in later years.
An optionee generally will be entitled to long-term capital
gain treatment upon sale of ISO shares if the sale occurs after
both (1) two years from the grant date, and (2) one year from the
date the optionee receives the ISO shares. If the ISO shares are
sold or disposed of (other than in certain tax-free exchanges)
before these holding periods have expired (a "disqualifying
disposition"), the excess of the fair market value of the shares
at the time of exercise over the exercise price (but generally
not more than the amount of gain) is taxable as ordinary income.
If the ISO shares are purchased subject to a right of repurchase
by the Company or if the optionee would be subject to Section
16(b) of the Exchange Act and the optionee does not file an
election under Section 83(b) of the Code within 30 days after the
purchase date, the fair market value of the ISO shares will be
measured at the date that the repurchase right or the Section
16(b) restriction lapses, not at the purchase date. If gain on a
disqualifying disposition exceeds the amount treated as ordinary
income, the excess will be capital gain, which will be long-term
if the shares are held more than one year. The holding period is
measured from (i) the purchase date if the shares were not
subject to any restrictions or if a valid Section 83(b) election
has been filed or (ii) from the date the Company's repurchase
right or the Section 16(b) restriction, if any, lapses, if no
Section 83(b) election has been made.
The Company receives no deduction upon grant or exercise of
an ISO but is entitled to a deduction equal to the ordinary
income taxable to the optionee upon a disqualifying disposition.
To enable the Company to learn of a disqualifying disposition and
ascertain the amount of the deduction to which it is entitled, an
optionee is required to notify the Company in writing, before the
disqualifying disposition, of the intended date and terms of the
disposition and to comply with any other requirements that may be
included in the Option Agreement to ensure that the Company is
able to secure any tax deduction to which it is entitled and to
report any compensation attributable to the disqualifying
disposition as may be required. The Company may also give
appropriate instructions, which may take the form of legends on
share certificates, to insure that such requirements are
satisfied before stock may be transferred.
<PAGE> 7
If shares of Common Stock (other than certain "statutory
option stock" surrendered in a disqualifying disposition) are
delivered in payment of the exercise price of an ISO,
appreciation in value of the surrendered shares is generally not
taxed at that time. Under proposed Treasury Regulations, shares
acquired upon exercise which are equal in value to the fair
market value of the surrendered shares take as their basis and
holding period for capital gain or loss purposes (but not for
purposes of the ISO holding period requirements) the basis and
holding period which the surrendered shares had in the optionee's
hands, but otherwise are treated as newly acquired under the ISO.
Additional shares acquired by exercise of the ISO are treated as
shares newly acquired under the ISO with zero basis. In the
event of a disqualifying disposition, shares with the lowest
basis are deemed disposed of first. If "statutory option stock"
(ISO shares or shares acquired under a qualified employee stock
purchase plan) is surrendered to exercise an ISO before the holding
periods for favorable tax treatment for such stock have been met,
then the transferred statutory option stock is treated as sold
in a "disqualifying disposition" on the date of the surrender.
Outstanding Options Under the Plan
----------------------------------
At June 18, 1999, a total of 36 persons held options under
the Plan and under the 1985 Stock Option Plan to purchase an
aggregate of 327,490 shares of Common Stock with a weighted
average exercise price of $8.79 per share. At June 18, 1999,
there were 21,740 shares remaining available for grant under the
Plan; the amendment will increase this number to 221,740. Of the
327,490 option shares outstanding under the Plan and under the
1985 Stock Option Plan, the Company's executive officers (Messrs.
Derby and Stephan) have been granted 107,500 shares; all outside
directors as a group have been granted 60,000 shares; and all
employees as a group have been granted the balance of 159,990
shares. All of the outstanding options under the Plan expire
from May 16, 2000 to May 24, 2009, subject to earlier termination
if an optionee's relationship with the Company terminates.
Required Vote
-------------
The Company is requesting that stockholders approve the
amendments to the Plan described above. Approval of the
amendments require the affirmative vote of a majority of the
votes cast by stockholders who are present or represented by
proxy at the meeting.
<PAGE> 8
EXECUTIVE COMPENSATION
Summary Compensation Table
--------------------------
The following table sets forth information regarding the
compensation for services in all capacities paid or accrued for the
Fiscal Years indicated by the Company (a) to the Chief Executive
Officer of the Company and (b) to the Chief Financial Officer of
the Company. No other executive officer of the Company received
salary and bonus of more than $100,000 during Fiscal 1999.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- ------------
Awards
------------
Other Securities All
Fiscal Annual Underlying Other
Name and Year Compen- Options/ Compen-
Principal Ended Salary Bonus sation<F1> SARs<F2> sation<F3>
Position March 31, ($) ($) ($) (#) ($)
- --------------- -------- ------- ------ ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
David A. Derby, 1999 250,000 58,406 5,316 0 20,775
Chairman,
President and 1998 249,999 0 2,269 25,000 10,111
Chief Executive
Officer 1997 249,995 0 2,250 0 21,804
- -------------------------------------------------------------------------------
William L. 1999 162,014 29,203 3,138 0 19,746
Stephan, Vice
President, Chief 1998 138,307 0 564 30,000 8,097
Financial Officer
and Treasurer 1997 135,371 0 329 0 20,024
- ------------------------------------------------------------------------------
</TABLE>
[FN]
<F1> Amounts paid under an arrangement by which the Company
reimburses officers of the Company for medical expenses and
life insurance not paid for under the Company's regular
health insurance plan.
<F2> Options granted were ISOs with a term of ten years. The
options vest in substantially equal portions at the end of
the first, second and third years following the date of
grant. The exercise price for each option was set at 100%
of the fair market value of the Company's Common Stock at
the date of grant.
<F3> Represents contributions to the Company's Qualified Employee
Profit Sharing Plan and contributions to the Company's Non-
Qualified Supplemental Executive Profit Sharing Plan and
earnings accrual under that plan.
</FN>
Fiscal 1999 Option Grants
-------------------------
No options were granted during Fiscal 1999 to the Company's
executive officers.
<PAGE> 9
Fiscal Year 1999 Aggregated Option Exercises in Last
Fiscal Year and
Fiscal Year-End Option Values
The following table sets forth information with respect to
the options held at the end of Fiscal 1999 by the Company's Chief
Executive Officer and the Chief Financial Officer named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
------- ------- -------------------- --------------------
Value of Unexercised
Number of Unexercised In-the-Money Options/SARs
Shares Options/SARs at at Fiscal Year-End<F1>
Acquired Fiscal Year-End (#) $
on Value ------------------- --------------------
Exercise Realized Exercis- Unexercis- Exercis- Unexercis-
Name (#) ($) able able able able
- ---------- -------- ------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
David A. 0 0 39,000 8,500 0 0
Derby, CEO
William L. 0 0 33,200 16,800 0 0
Stephan
</TABLE>
[FN]
<F1> Market value of the underlying securities at fiscal year-end
minus the exercise price of "in the money" options.
Employment Contracts and Indemnification Agreements
Employment Contracts
The Company has an employment agreement with Mr. Derby (the
"Agreement") providing for Mr. Derby's services as President and
Chief Executive Officer of the Company pursuant to which he is
currently paid an annual salary of $275,000, with vacation,
holidays, insurance and other benefits permitted under policies
established by the Board. The Agreement provides that, upon an
assignment of the Agreement by the Company, Mr. Derby has the
right to terminate the Agreement if any successor entity is not
acceptable to him. The Agreement will expire upon notice not
less than two years from its next anniversary date, unless sooner
terminated under terms of the Agreement. The Company may
terminate the Agreement if Mr. Derby commits any material act of
dishonesty in the discharge of his duties.
The Company has a severance agreement with Mr. Stephan that
provides twelve months of severance pay through salary
continuance in the event Mr. Stephan is involuntarily terminated
from the Company for any reason other than cause. If within the
twelve-month period following involuntary termination, Mr.
Stephan engages in activities directly competing with the
Company, severance benefits would cease.
Indemnification Agreements
Mr. Derby and Mr. Stephan (as well as the Company's other
officers and directors) are parties to Indemnification Agreements
with the Company in substantially the form approved by the
stockholders at the 1992 Annual Meeting.
Loans
In 1988, the Company established the Key Employee Stock
Purchase Plan to assist key employees in acquiring an equity
stake in the Company. Pursuant to the plan, Mr. Derby has been
loaned money by the Company to acquire shares of the Company's
Common Stock. Mr. Derby has outstanding a full recourse
promissory note in the original principal amount of $164,000
payable to the Company on April 10, 2002, the proceeds of which
he used to acquire 25,000 shares of Common Stock on April 11,
1988.
In June 1995, Mr. Derby exercised an incentive stock option
to acquire 15,000 shares of Common Stock granted to him under the
1985 Stock Option Plan. As partial payment for the exercise
price, Mr. Derby was loaned $80,000 by the Company and he
executed a full recourse promissory note in the same amount
payable to the Company on June 11, 2001.
<PAGE> 10
Compensation Committee Report on Executive Compensation
Set forth below is a report of the Compensation Committee
with respect to the Company's compensation policies during Fiscal
1999 as they affect the Company's Chief Executive Officer and the
Company's Chief Financial Officer.
Compensation Policies For Executive Officers
The Company's compensation policies for its executive
officers are designed to provide compensation levels that are
competitive with those of other similar companies, thereby
permitting the Company to attract and retain qualified
executives. More specifically, the Company's compensation
policies aim, through a combination of base salary, annual bonus
and equity-based compensation, to motivate executive officers to
meet the Company's annual and long-range business objectives,
thereby enhancing stockholder value. The cumulative effect of
the Company's compensation policies for executive officers is to
tie such compensation closely to the Company's performance.
Each of the Company's executive officers receives a base
salary. The Company sets base salary for executive officers
based upon a number of factors, including the particular
qualifications of the executive, levels of pay for similar
positions at public and private companies of comparable size and
in comparable businesses to those of the Company, the degree to
which the executive can help the Company achieve its goals, and
direct negotiation with the executive.
An important element of the Company's compensation for
executive officers are bonuses tied closely to the Company's
annual financial results. The executive officers named in the
Summary Compensation Table participate in three bonus plans. The
first of these is the Company's Qualified Employee Profit Sharing
Plan (the "Qualified Plan"). The Qualified Plan provides
employees with supplemental retirement benefits through a plan
treated favorably for tax purposes. The Qualified Plan reflects
the belief that some portion of all employees' compensation
should be tied to the performance of the Company in order to
provide a sound incentive to enhance that performance and to keep
the Company's compensation policies competitive with those of
other similar companies. All employees of the parent company,
Datron Systems Incorporated, are eligible to participate in the
Qualified Plan beginning on the April 1 following their date of
employment. Annual contributions to the plan are determined by
the Board. Fiscal 1999 contributions were $11,376 each for Mr.
Derby and Mr. Stephan. Participant accounts in the Qualified
Plan vest over a seven-year period beginning after three years of
service.
The second bonus plan is the Company's Non-Qualified
Supplemental Executive Profit Sharing Plan (the "Non-Qualified
Plan"). The Non-Qualified Plan was established to provide the
executive officers named in the Summary Compensation Table with
retirement benefits in excess of those permitted by the Qualified
Plan. The benefits provided by the Non-Qualified Plan are in the
form of deferred compensation, which is not treated favorably for
tax purposes. The Non-Qualified Plan is designed to supplement
retirement benefits provided by the Qualified Plan, which are
limited by federal regulation and which the Compensation
Committee believes are not competitive with other similar
companies. The Board determines which executive officers are
eligible to participate in the Non-Qualified Plan and the amount
of annual contributions. Fiscal 1999 contributions and earnings
accruals were $9,399 for Mr. Derby and $8,370 for Mr. Stephan.
Participant accounts in the Non-Qualified Plan vest over a seven-
year period beginning after three years of service.
The third bonus plan is the Company's Key Employee Incentive
Plan (the "Key Employee Plan"). The Key Employee Plan further
ties key executive compensation to Company financial performance
by providing a cash bonus to be allocated among designated
employees selected by the Board, upon recommendation by the
Compensation Committee, after pre-determined profit goals and
other criteria have been reached and after provision for the
Qualified Plan and the Non-Qualified Plan. Income and profit
goals for the Key Employee Plan, and associated contributions to
the bonus pool, are determined annually by the Board. Fiscal
1999 contributions were $58,406 for Mr. Derby and $29,203 for Mr.
Stephan.
<PAGE> 11
The fourth element in the Company's executive officer
compensation package is equity-based compensation. The
Compensation Committee believes that by providing executive
officers with an equity interest in the Company those officers
are provided with additional incentives to work to maximize
stockholder value over the long term. Such incentives have been
provided principally by the granting of options under the
Company's 1995 Stock Option Plan. Under the 1995 Stock Option
Plan, options vest over a three-year period and are designed to
encourage officers to continue in the employ of the Company. As
such, they provide a longer term incentive than do the annual
bonus plans. There were no stock options granted to executive
officers during Fiscal 1999; however, Mr. Derby received a grant
of 10,000 stock options in May 1999.
CEO Compensation
----------------
Mr. Derby has been President and Chief Executive Officer of
the Company since 1982 and Chairman since April 1998. Mr.
Derby's base salary for Fiscal 1999 remained at $250,000 pursuant
to his employment agreement. His base salary was increased to
$275,000 in May 1999. Mr. Derby's participation in the Company's
Qualified Plan, Non-Qualified Plan and Key Employee Plan,
pursuant to which his bonus is determined, provides an incentive
to maximize Company profitability on an annual basis. Through
his equity ownership in the Company, consisting of 69,598 shares
of Common Stock and options to purchase 57,500 shares of Common
Stock, and his participation in the Employee Stock Purchase Plan,
Mr. Derby shares with the other stockholders of the Company a
significant stake in the long-range success of the Company's
business.
COMPENSATION COMMITTEE
----------------------
Kent P. Ainsworth
Adrian C. Cassidy
Peter F. Scott
Compensation Committee and Insider Participation
------------------------------------------------
As noted above, during Fiscal 1999 executive compensation
policy was set by the Compensation Committee. Each member of the
Compensation Committee is a non-employee director of the Company.
<PAGE> 12
COMPARATIVE STOCK PERFORMANCE
Set forth below are line graphs which illustrate for the
purpose of comparison the percentage change in the cumulative
total stockholder return on the Company's Common Stock from March
31, 1994 through March 31, 1999 with the percentage change in the
cumulative total return over the same period on (i) the CRSP
Index for the NASDAQ Stock Market - U.S. Companies, and (ii) the
CRSP Index for the NASDAQ Stock Market - U.S. Communications
Equipment Companies. This graph assumes an initial investment of
$100 in each of the Company's Common Stock, the CRSP Index for
the NASDAQ Stock Market - U.S. Companies and the CRSP Index for
the NASDAQ Stock Market - U.S. Communications Equipment Companies
on March 31, 1994 and that all dividends, if any, were
reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
AMONG DATRON SYSTEMS INCORPORATED, CRSP NASDAQ-U.S. COMPANIES AND
CRSP NASDAQ - U.S. COMMUNICATIONS EQUIPMENT COMPANIES
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
- ---------------------
CRSP Nasdaq- Communications
Measurement Datron Systems U.S. Equipment
Point Incorporated Companies Companies
- ----------- -------------- ------------ --------------
<S> <C> <C> <C>
FYE 3/31/94 $100 $100 $100
FYE 3/31/95 $123 $111 $135
FYE 3/31/96 $123 $151 $197
FYE 3/31/97 $ 95 $168 $179
FYE 3/31/98 $ 86 $254 $234
FYE 3/31/99 $ 65 $342 $274
</TABLE>
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 18, 1999, unless
otherwise noted in the footnotes, certain information concerning
(a) each person known to the Company to own beneficially more
than 5% of the Common Stock, (b) each of the executive officers
named in the Summary Compensation Table, and (c) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Name/Address Shares of
of Beneficial Owner Common Stock<F1> % of Class
- ---------------------- ---------------- ----------
<S> <C> <C>
Heartland Advisors, Inc. 793,100<F2> 29.4%
790 North Milwaukee Street
Milwaukee, WI 53202
Shufro, Rose & Ehrman 198,900 7.4%
745 Fifth Avenue
New York, NY 10151-0108
Dimensional Fund Advisors 160,304<F3> 6.0%
1299 Ocean Avenue,
11th Floor
Santa Monica, CA 90401
David A. Derby 108,598<F4> 4.0%
William L. Stephan 36,222<F4> 1.3%
All directors and 196,392<F4> 7.0%
executive officers
as a group (8 persons)
</TABLE>
- --------------
[FN]
<F1> Information with respect to beneficial ownership is based
upon information furnished by each stockholder or contained
in filings made with the Securities and Exchange Commission.
<F2> As of June 17, 1999, the shares of common stock are held of
record in various investment advisory accounts of Heartland
Advisors, Inc. ("Heartland"), including 250,000 shares held
by the Heartland Value Fund. Heartland has sole voting and
dispositive power as to 486,100 shares and sole dispositive,
but no voting power as to 307,000 shares.
<F3> Dimensional Fund Advisors Inc. ("Dimensional"), an
investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, furnishes investment advice
to four investment companies registered under the Investment
Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled
group trusts. (These investment companies and investment
vehicles are the "Portfolios.") In its role as investment
advisor and investment manager, Dimensional possesses both
voting and investment power over 160,304 shares of Datron
Systems Incorporated stock as of March 31, 1999. The
Portfolios own all securities reported in this statement,
and Dimensional disclaims beneficial ownership of such
securities.
<F4> Includes 39,000 and 33,200 shares obtainable upon the
exercise of stock options held by Messrs. Derby and Stephan,
respectively.
</FN>
<PAGE> 14
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has acted as the Company's independent
auditors since March 1983. A representative of Deloitte & Touche
LLP will be present at the Annual Meeting, will have an
opportunity to make a statement if he or she desires to do so,
and will be available to respond to appropriate questions.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report to Stockholders for the year
ended March 31, 1999, containing the audited consolidated balance
sheets as of March 31, 1999 and March 31, 1998 and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the past three fiscal years, is being mailed
with this Proxy Statement to stockholders entitled to notice of
the Annual Meeting.
STOCKHOLDER PROPOSALS
The Company will, in future proxy statements of the Board,
include stockholder proposals complying with the applicable rules
of the Securities and Exchange Commission and any applicable
state laws. In order for a proposal by a stockholder to be
included in the proxy statement of the Board relating to the
Annual Meeting of Stockholders to be held in 2000, the proposal
must be received in writing by the Secretary of the Company no
later than March 10, 2000.
OTHER MATTERS
The Board knows of no other matters that will be presented
at the Annual Meeting. If, however, any matter is properly
presented at the Annual Meeting, the proxy solicited hereby will
be voted in accordance with the judgment of the proxyholders.
By Order of the Board of Directors
Victor A. Hebert
Secretary
Vista, California
July 7, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED
TO SIGN AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTPAID ENVELOPE.
<PAGE>
PROXY
DATRON SYSTEMS INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) DAVID A. DERBY and WILLIAM
L. STEPHAN, or either one of them, each with full power of
substitution, the lawful attorneys and proxies of the undersigned
to vote as designated below, and, in their discretion, upon such
other business as may properly be presented to the meeting, all
of the shares of DATRON SYSTEMS INCORPORATED which the
undersigned shall be entitled to vote at the Annual Meeting of
Stockholders to be held on August 9, 1999, and at any
adjournments or postponements thereof.
(Continued, and to be marked, dated and signed, on the other side)
- -----------------------------------------------------------------
<PAGE>
Please mark your votes as indicated in this example [X]
1. To elect as director, David A. Derby, Kent P. Ainsworth,
Michael F. Bigham, William A. Preston and Robert D. Sherer.
FOR all nominees listed (except as indicated below) [ ]
WITHHOLD AUTHORITY to vote (as to all nominees) [ ]
To withhold authority to vote for one or more individual
nominees, write such name(s) on the line provided below:
___________________________________________________________
2. To approve the proposed amendments to the 1995 Stock Option
Plan to increase the number of authorized shares by 200,000
and to require all options be granted at fair market value.
FOR approval [ ] AGAINST approval [ ] ABSTAIN with respect [ ]
to amendments
This proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE NOMINEES OR PROPOSALS
LISTED ABOVE. This proxy may be revoked at any time prior to the
time it is voted by any means described in the accompanying Proxy
Statement.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED POSTPAID ENVELOPE.
(Signature)________________(Signature)____________Date___________,1999
Please date and sign exactly as name(s) appear(s) hereon. If
shares are held jointly, each holder must sign. Please give full
title and capacity in which signing if not signing as an
individual.
