June 22, 1995
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Detection Systems, Inc. to be held on Thursday,
August 3, 1995 at 130 Perinton Parkway, Fairport, New York,
commencing at 1:00 p.m., Eastern Time. Your Board of Directors
and management look forward to greeting personally those
shareholders able to attend.
This year, in addition to electing five directors and ratifying
independent auditors, you are being asked to amend the 1992 Stock
Option Plan. These matters are discussed in greater detail in
the
accompanying proxy statement.
Your Board of Directors recommends a vote FOR the election of
directors, FOR approval of independent auditors and FOR amendment
of the 1992 Stock Option Plan.
Regardless of the number of shares you own or whether you plan to
attend, it is important that your shares are represented and
voted
at the meeting. You are requested to sign, date and mail the
enclosed proxy promptly.
Your interest and participation in the affairs of the Company are
most appreciated.
Sincerely,
/s/ Karl H. Kostusiak
Karl H. Kostusiak
President
<PAGE>
DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14450
(716) 223-4060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 3, 1995
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Detection Systems,
Inc. will be held in the Company's facility at 130 Perinton
Parkway, Fairport, NY, on August 3, 1995, at 1:00 p.m. for the
following purposes:
(l) To elect five directors;
(2) To elect independent auditors for fiscal year 1996;
(3) To amend the 1992 Stock Option Plan; 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
June 15, 1995 as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
FRANK J. RYAN
Secretary
Fairport, New York
June 22, 1995
Shareholders are cordially invited to attend the meeting in
person. Even if you plan to attend, please complete, sign and
date the enclosed proxy and return it promptly in the enclosed
return envelope.
<PAGE>
DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14450
PROXY STATEMENT
First sent to Shareholders on June 22, 1995
The enclosed proxy is solicited by the Board of Directors of
Detection Systems, Inc. (the ''Company") for use at the Annual
Meeting of Shareholders to be held August 3, 1995, and at any
adjournments thereof. The record date for the determination of
shareholders entitled to notice of and to vote at this meeting is
the close of business June 15, 1995, at which time the Company
had outstanding 2,804,238 shares of Common Stock. Shareholders
are entitled to one vote for each share owned.
Directors are elected by a plurality of votes cast. A
majority of the votes cast is required to ratify the appointment
of auditors and a majority of outstanding shares entitled to vote
is required to amend the 1992 Stock Option Plan. Abstentions,
broker non-votes and withheld votes will not be considered votes
cast.
All shares represented by a proxy will be voted in
accordance with the specifications made thereon by the
shareholder
and, if no specification is made, will be voted for the election
as directors of the five nominees proposed by the Board of
Directors, for the election of Price Waterhouse as independent
auditors and for the amendment to the Company s 1992 Stock Option
Plan.
Shareholders can ensure that their shares are voted at the
meeting by signing and dating the enclosed proxy and returning it
in the envelope provided. Sending in a signed proxy will not
affect the right to attend the meeting and vote in person. A
shareholder may revoke a proxy at any time before it is voted by
notifying the Company s Transfer Agent, Chemical Mellon
Shareholder Services, 85 Challenger Road, Ridgefield Park, NJ
07660 in writing, or by executing a subsequent proxy, which
revokes the previously executed proxy.
ELECTION OF DIRECTORS
At the annual meeting, five directors, constituting the
entire Board of Directors, are to be elected to hold office for
the ensuing year and until their successors are elected and
qualified. The Board of Directors proposes to nominate the
following persons for election as directors: Donald R. Adair,
Mortimer B. Fuller, Karl H. Kostusiak, David B. Lederer and
Edward C. McIrvine. Each of these persons has consented to be
named in this proxy statement and to serve if elected. The
persons named in the proxy will vote for the election of these
nominees unless a shareholder giving a proxy withholds authority
to vote for one or more of them. If for any reason any of these
nominees become unavailable for election, the proxies may exercise
discretionary authority to vote for substitutes proposed by the Board
of Directors.
Messrs. Kostusiak and Lederer have held the indicated
positions since they founded the Company in 1968. Mr. Adair is a
partner of Adair & Stoner, a law firm in Rochester, New York. Mr.
Fuller is President and C.E.O. of Genesee and Wyoming Industries,
Inc., a holding company in Greenwich, Connecticut, which operates
regional and short line freight railroads and leases rail cars.
Dr. McIrvine is self-employed as a research and development
management consultant. Until 1991, he served as Dean of the
College of Graphic Arts and Photography at the Rochester Institute
of Technology.
During the fiscal year ended March 31, 1995, the Board of
Directors held five meetings, in which all directors participated.
The Board of Directors has an audit committee consisting of
Messrs. Adair, Fuller and McIrvine. This committee, which met
once during the last fiscal year, reviews reports of the
Company's financial condition, financial controls and accounting
procedures and approves and oversees services performed by the
Company's independent auditors. It also serves as a direct access
for the independent accountants to the non-employee members of the
Board of Directors.
There is a compensation committee consisting of Messrs.
Adair, Fuller and McIrvine. This committee, which is responsible
for establishing general compensation policies, establishing and
administering compensation plans and programs in which officers
participate and establishing the compensation arrangements for the
Company s executive officers, met three times during the last
fiscal year. Messrs. Adair, Fuller and McIrvine also serve on the
stock option committee. This committee, which met four times
during the year, is responsible for the granting of options
pursuant to the Company's 1992 Stock Option Plan. There is no
nominating committee of the Board of Directors. All of the
Directors attended more than 75 percent of the aggregate of all
meetings of the Board of Directors and the committees on which
they served during the fiscal year.
Directors who are not employees of the Company are paid an
annual fee of $10,000 as well as $1,000 plus travel expenses, if
any, for each day on which they attend Board meetings. Directors
receive $500 for Board meetings held by teleconference. Certain
information concerning the nominees and all officers and directors
of the Company, as a group, is set forth below.
<TABLE>
Shares
Beneficially
Name, Age, Principal Owned as of Percent
Occupation and Positions June 1, 1995(1) of Class Since
- ----------------------- ------------ --------- ------
<S> <C> <C> <C>
Donald R. Adair (51) 1,034 0.03% 1991
Director of the Company
and Partner of Adair &
Stoner
Mortimer B. Fuller, III (53) 3,780(2) 0.13% 1990
Director of the Company
and President of Genesee
and Wyoming Industries, Inc.
Karl H. Kostusiak (56) 417,928(3) 13.81% 1968
Director and President
of the Company
David B. Lederer (55) 305,501(3) 10.09% 1968
Director and Executive Vice
President of the Company
Edward C. McIrvine (61) 19,550(2) 0.65% 1981
Director of the Company and
Self-employed Research and
Development Management
Consultant
All officers and directors 865,241(2)(3) 28.58%
as a group (8 persons
including those named above)
______________________
</TABLE>
Footnotes to Officers and Directors Table:
(1) For all shares listed, the nominees possess both sole voting
and investment power, except for those shares indicated in notes
(2) and (3) below.
(2) Includes 2,700, 2,700 and 16,720 shares which may be
acquired upon exercise of warrants and options held by Messrs.
Fuller, McIrvine and all officers and directors as a group,
respectively.
(3) Includes 113,714, 73,366 and 222,417 hypothetical shares
credited to the accounts of Messrs. Kostusiak, Lederer and all
officers and directors as a group, respectively, pursuant to the
Company's deferred compensation plans, which shares may be
acquired upon termination of employment.
The Board of Directors recommends a vote FOR the election of
Messrs. Adair, Fuller, Kostusiak, Lederer and McIrvine as
Directors of the Company for the 1996 fiscal year. Proxies
received by the Board of Directors will be so voted unless share
owners specify in their proxies a contrary choice.
EXECUTIVE COMPENSATION
The Company is committed to building shareholder value
through improved performance and growth. To achieve this
objective, the Company seeks to create an environment in which
employees are motivated to make the greatest possible
contribution
to shareholder value.
The Company uses a merit-based system of compensation to
encourage individual employees to achieve their productive and
creative potential and to link individual financial goals to
Company performance. The Company periodically compares its
compensation system with those of competitors and refines its
system as necessary to encourage maximum productivity.
Summary Compensation Table:
The following table sets forth information with respect to
the compensation of the Company s Chief Executive Officer and
other executive officers for services in all capacities to the
Company in fiscal years ended March 31, 1995, 1994 and 1993.
<TABLE>
Other All Other
Name and Annual Options/ Compen-
Principal Fiscal Salary Bonus Compen- SARS sation
Position Year ($) ($)(2) sation($)(#)(3) ($)(4)
- ---------- ---- ------ ------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Karl H. Kostusiak 1995 $196,110 $184,746 $ N/A 0 $ 2,625
President & Chief 1994 183,280 71,943 68,442 0 33,491
Executive Officer 1993 171,290 176,084 N/A 0 34,428
R. Wayne Carlton(1) 1995 $100,000 $ 28,386 $ N/A 2,500 $ 2,309
Vice President, 1994 94,320 19,299 7,760 0 3,049
National Sales 1993 N/A N/A N/A N/A N/A
David B. Lederer 1995 $156,897 $147,794 $ N/A 0 $ 2,625
Executive Vice 1994 146,633 57,554 59,880 0 27,592
President 1993 137,040 140,867 N/A 0 28,048
Frank J. Ryan 1995 $100,000 $ 35,017 $ N/A 1,500 $ 2,242
Vice President, 1994 93,890 10,774 8,497 0 3,032
Secretary/Treasurer 1993 88,180 23,278 N/A 0 2,741
Lawrence R. Tracy(1) 1995 $21,000 $102,154 $ N/A 40,000 $ 0
President of 1994 N/A N/A N/A N/A N/A
Detection Systems 1993 N/A N/A N/A N/A N/A
International, Inc.
All Executive 1995 $574,007 $498,349 $ N/A 44,000 $ 9,801
Officers as a Group 1994 518,123 159,570 144,580 0 67,164
(5 persons) 1993 396,510 340,229 N/A 0 65,217
</TABLE>___________________
Footnotes to Compensation Table:
(1) Mr. Carlton was promoted to Vice President, National Sales
on July 29 of fiscal 1994 and Mr. Tracy joined the Company as
President of Detection Systems International, Inc. on February 7
of fiscal 1995.
(2) Messrs. Kostusiak s, Lederer s and Ryan s bonuses were
primarily based on profit performance, Mr. Carlton s on sales
performance and Mr. Tracy s included a one-time employment bonus.
(3) These options are exercisable 35-40 percent after one year,
60 percent after two years, 80 percent after three years and 100
percent after four years.
(4) Contributions to the named executive officers under the
Company s 401(k) retirement savings plan.
Option/SAR Grants in Last Fiscal Year:
The following table sets forth information with respect to
options granted during fiscal 1995 to the named executive
officers.
<TABLE>
<S> <C> <C> <C> <C> <C>
Potential Reali-
Percent of zable Value at
Number of Total Op- Assumed Annual
Securities tions/SARs Exercise Rates of Stock
Underlying Granted to or Base Price Appreciation
Option/SARs* Employees Price Expir. for Option Term
Name Granted(#) in Fis Yr ($/Sh) Date 5%($)/10%($)
- ---- ---------- --------- ------ ----- ---------------
K. Kostusiak 0 0 0 n/a 0/0
R. Carlton 2,500 2.0% 7.25 7/12/99 5,025/11,075
D. Lederer 0 0 0 n/a 0/0
F. Ryan 1,500 1.2% 7.25 7/12/99 3,015/6,645
L. Tracy 40,000 32.5% 6.50 2/06/00 72,000/158,800
</TABLE>
*Each grant was for incentive stock options to purchase stock
under the Company s 1992 Stock Option Plan at an exercise price
equal to the market price on the date of grant. Options are
exercisable 35-40 percent after one year, 60 percent after two
years, 80 percent after three years and 100 percent after four
years.
<PAGE>
Option Exercises in Last Fiscal Year and Year-End Option Values:
The following table sets forth information with respect to
the named executive officers concerning the exercise of options
during fiscal 1995 and unexercised options held as of March 31,
1995. The value of the underlying securities was determined by
taking the market value at exercise or year end, as appropriate,
minus the exercise price. The market price of the Company's
stock
on March 31, 1995 was $7.625 per share.
<TABLE>
<S> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised In-the Money
(#)Shares Options at Options at
Acquired ($) 3/31/95 3/31/95
Name on Value Exer'ble/ Exerc'ble/
Exercise Realized Unexer'ble Unexer'ble
Kostusiak 31,450 $92,589 0/0 0/0
Carlton 2,160 7,565 4,968/2,932 $10,810/$1,308
Lederer 20,000 58,880 0/0 0/0
Ryan 6,480 7,941 3,888/1,932 $7,700/$933
Tracy 0 0 0/40,000 0/$45,000
</TABLE>
Recipients of options may elect to exercise their options
through an installment loan arrangement with the Company. During
fiscal 1995, Messrs. Kostusiak and Lederer had stock option loans
outstanding that totaled $203,401 and $153,739, respectively. As
of June 1, 1995, the outstanding balances of these loans were
$193,219 and $142,644, respectively. The loans were charged
interest rates ranging from 6.78% to 8.42%.
Subsidiaries:
Emergency Communications, Inc. (ECI) was formed in fiscal
1993 for the purpose of accomplishing further development, sales,
installation, servicing and financing (on a partnership basis
where appropriate) of a micro-cellular emergency call system,
called Security Escort, to be used on college campuses and other
similar environments. The Company provided the initial
capitalization by purchasing 6,000 shares of ECI's common stock
for $16.67 per share.
Activity Monitoring Systems, Inc. (AMS) was formed in fiscal
1994 for the purpose of accomplishing further development, sales,
installation, servicing and financing (on a partnership basis
where appropriate) of a wireless electronic house arrest product
line to be used by various government agencies. The Company
provided the initial capitalization by purchasing 6,001 shares of
AMS' common stock for $16.66 per share.
The Company entered into five-year renewable License and
Manufacturing Agreements with ECI and AMS. ECI and AMS were
granted nontransferable, exclusive licenses to exploit certain of
the Company's radio technology in the "emergency call" and "house
arrest" markets, respectively. The subsidiaries agreed to pay the
Company royalties on products sold under these licenses and that
the Company would be the exclusive manufacturer and supplier of
those products.
A portion of the ECI and AMS shares were subsequently
awarded to certain Company officers and employees during fiscal
1993 and 1994. Twenty percent of the shares awarded vested
immediately, and an additional twenty percent vest annually
thereafter. Subject to the completion of that vesting schedule,
Messrs. Kostusiak, Carlton, Lederer and Ryan will acquire from the
Company 1,500, 40, 1,200 and 40 shares, respectively, of each of
these two subsidiaries. The shares of ECI and AMS shares are
currently valued at $60 and $20 respectively.
During fiscal 1995, the Company provided an equity
investment of $700,000 to its Detection Systems International,
Inc. (DSII) subsidiary for the purpose of pursuing international
opportunities for its electronic security and fire protection
products. The Company owns 100 percent of the common stock for
this subsidiary.
The Board of Directors authorized the Company to make loans
to ECI, AMS and DSII while external sources of financing are
being investigated. As of June 1, 1995, outstanding loans were
$851,500, $0 and $4,000, respectively, to these subsidiaries.
The executive officers received no compensation from the subsidiaries
in fiscal 1995.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is
responsible for (a) establishing general compensation policies,
(b) establishing and administering compensation plans and programs
in which officers participate and (c) establishing the specific
compensation arrangements for the Company s executive officers.
The members of this Committee also serve on the Stock option
committee under the Company s Stock Option Plan.
Committee Objectives:
The Compensation Committee has sought four key objectives
for the Company s executive compensation plans, programs and
arrangements. These are to (a) tie executive compensation to the
Company s financial performance, (b) encourage equity ownership
in the Company by all executives, (c) tie executive compensation
programs to the achievement of long-term company strategic
objectives and (d) provide overall executive compensation that
will attract and retain an effective management team. The
Committee recognizes that different plans or arrangements will
serve one or more of those objectives in varying degrees, that the
relative significance of the stated objectives may shift from time
to time and that new objectives may arise and become key.
Tying Compensation to Company Financial Performance:
Beginning in 1988, the Company has entered into five-year
employment agreements with Messrs. Kostusiak and Lederer. Each
year, the agreements have been re-examined, reviewed and revised
as appropriate and then re-executed for a new five-year period.
Among other goals, the agreements seek to create a strong tie
between the compensation of Messrs. Kostusiak and Lederer and the
Company s financial performance. The agreements do this by
providing for (a) an opportunity for an annual cash bonus based
on pre-tax profits and (b) an opportunity for an annual stock bonus
based on growth of both sales and pre-tax profits.
Specifically, the cash bonus for Mr. Kostusiak is a
percentage of the amount by which the Company s pre-tax profits
for the fiscal year exceed $250,000. The stock bonus for Mr.
Kostusiak is a maximum of 20,000 shares of Company common stock if
sales for the fiscal year have increased at least 10 percent over
the previous year and if the Company s pre-tax profits are at
least equal to 10 percent of the total sales. The stock bonus is
scaled back for lower performance levels, so that it will be zero
shares for zero sales growth and it will be zero shares if pre-tax
profit is 5 percent or less of total sales. The intention is to
provide strong incentives for managing the Company's financial
performance so that pre-tax profits will be greater than 5 percent
of sales and so that sales will increase significantly each year.
(Other aspects of these agreements are described below under
"Executive Agreements.") Since the cash bonuses are directly
dependent on pre-tax profits and the stock bonuses are directly
dependent on growth in both sales and pre-tax profits, the
Committee believes that a significant portion of the compensation
of Messrs. Kostusiak and Lederer is tied to corporate
performance. (See the table under "Executive Compensation.")
The Committee believes that these provisions of the
employment agreement functioned as intended during the past three
years. In particular, Mr. Kostusiak s bonus compensation was as
follows:
Fiscal Cash Stock Pre-Tax
Year Bonus Bonus Sales Profit
- ----- ------- ------ ------ -------
1995 $116,734 $59,290 $34,336,000 $2,592,000
1994 71,943 -- 31,355,000 1,571,000
1993 112,484 63,600 29,431,000 2,356,000
When the Company's employment agreement with Mr. Kostusiak
was renewed and extended at the beginning of fiscal 1995, the
Committee concluded that (a) the factors and criteria previously
used for bonuses, as described above, continued to be sound and
should be continued and (b) Mr. Kostusiak's base salary should be
increased as shown in the compensation table on page five to
reflect his sound general performance as Chief Executive Officer.
Thus, a very significant portion of his potential earnings
continue to depend on the Company's financial performance.
Equity Ownership by Management:
In addition to the stock bonus plan described above, the
Company maintains a plan for granting stock options to key
employees. Under the plan, options are granted at exercise prices
that equal or exceed the fair market value of the option shares
on the date of grant, and the option rights vest incrementally over
four years. From time to time, options are granted under the
plan by the Option Committee to Company executives and other key
employees. No options have been granted to Messrs. Kostusiak or
Lederer since 1987. The Committee believes that the options
themselves, even when unexercised, provide incentives for key
personnel to improve shareholder value, since only then will the
options become valuable.
In previous fiscal years, at the Committee's recommendation,
the Board of Directors awarded shares of certain Company
subsidiaries to key personnel including Mr. Kostusiak. It is the
Committee's belief that direct equity ownership in the Company's
subsidiaries, in selected cases, can provide added incentives for
key personnel to pursue the Company s strategic objectives in the
markets addressed by those subsidiaries, including the Company's
rights to manufacture products for those markets and to earn
royalties on the products sold.
Achievement of Long-Term Company Objectives:
The Committee believes that having officers who own
substantial equity positions in the Company and, in selected
cases, its subsidiaries, as discussed in the preceding sections,
provides considerable incentive for executive officers to pursue
the Company s long-term strategic objectives.
Attracting and Retaining Management:
The Committee believes that the Company is attracting and
retaining effective management personnel and that the Company's
approach to executive compensation is appropriate for achieving
that objective. The Committee anticipates that from time to
time, independent studies of the Company's overall executive
compensation and other investigations will be conducted so as to
test the Company's compensation approach against compensation
programs offered by others.
Compensation Committee
Donald R. Adair, Chairman
Mortimer B. Fuller
Edward C. McIrvine
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:
In the last fiscal year the Company and its subsidiaries
paid $15,980 to Adair & Stoner, of which Mr. Adair is a partner,
for legal services rendered for the Company and its Emergency
Communications Inc. subsidiary and $7,500 to Edward C. McIrvine
for consulting work performed for the Company regarding the house
arrest market. Messrs. Adair and McIrvine also served as members
of the compensation and stock option committees of the Board of
Directors.
EXECUTIVE AGREEMENTS
The Company has employment agreements with three of its
executive officers, Messrs. Kostusiak, Lederer and Tracy. The
agreements with Messrs. Kostusiak and Lederer are through May
2000 and the agreement with Mr. Tracy is through February 1999. The
agreements provide for severance benefits under certain
circumstances. The terms "change of control," "cause" and
"disability" are used in the following description as defined in
the agreements. These agreements terminate upon the executive's
death or permanent disability.
Under the agreements with Messrs. Kostusiak and Lederer, if
the Company terminates the executive's employment without cause,
the Company will continue compensation and benefits to the
executive for the then remaining balance of the term of employment
or for a period of three years from the date of termination,
whichever is longer. Under Mr. Tracy s agreement, the same
applies except that compensation will continue for the then
remaining balance of the term of employment or for a period of
one year from the date of termination, whichever is longer. The
continuation of compensation and benefits includes the
executive's base salary plus participation in all applicable executive
incentive compensation plans and fringe benefit packages.
Further, if Mr. Kostusiak's or Mr. Lederer's, employment is
terminated by the Company without cause after expiration of the
agreement but prior to the Company and the executive reaching
agreement with respect to the executive's retirement benefits,
the Company will also continue the executive's compensation and
benefits for a period of two years from the date of termination.
If the Company terminates Mr. Kostusiak's or Mr. Lederer's
employment for cause, each will receive compensation and benefits
for the remaining balance of the term of employment or for a
period of three years from the date of termination, whichever is
longer, provided that this compensation is reduced by any monetary
damage suffered by the Company due to the cause. The same applies
for Mr. Tracy, except that compensation and benefits will continue
for the remaining balance of the term of employment or for a
period of one year from the date of termination, whichever is
longer.
If, within four months after a change in control, Mr.
Kostusiak's or Mr. Lederer's employment is terminated by the
Company or the executive, each would be entitled to receive (a)
the base salary through the termination date, as in effect at the
time of termination or at the time the change in control occurs,
whichever is higher, plus any bonus which has been earned but not
yet paid; (b) an amount equal to three times the highest total
cash and stock bonus compensation paid to him in any of the
Company's preceding three fiscal years and (c) the continuation of
fringe benefits for three years after termination. No provision
relating to a change of control is included in Mr. Tracy's
agreement.
All three agreements restrict the executives from competing
with the Company for various periods subsequent to termination of
employment, depending on the circumstances of the termination.
PRINCIPAL HOLDERS OF COMMON STOCK
Based on reports filed with the Securities and Exchange
Commission, the following persons beneficially own more than 5% of
the Company's outstanding Common Stock as of June 15, 1995.
BENEFICIAL OWNERSHIP TABLE
Number of
Name of Shares Percent
Title of Beneficial Beneficially of
Class Owner Owned Class
- ------ ------ ------ ------
Common Stock Karl H. Kostusiak
130 Perinton Parkway
Fairport, NY 14450 417,928 13.81%
Common Stock David B. Lederer
130 Perinton Parkway
Fairport, NY 14450 305,501 10.09%
Common Stock Dimensional Fund Advisors, Inc.
1299 Ocean Ave.
11th Floor
Santa Monica, CA 90401 160,448 5.76%
- --------------------
Footnotes to Beneficial Ownership Table:
(1) Messrs. Kostusiak and Lederer currently possess both sole
voting and investment power except for 113,714 and 73,366 shares
respectively, which may be acquired upon termination of employment
pursuant to the Company s deferred compensation plans.
(2) The shares held by Dimensional Fund Advisors Inc., a
registered investment advisor, are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional Fund Advisors
Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares. Persons who are officers
of Dimensional Fund Advisors Inc. also serve as officers of DFA
Investment Dimensions Group Inc. (the "Fund") and the DFA
Investment Trust Company (the "Trust"). In their capacities as
officers, these persons vote 44,124 additional shares which are
owned by the Fund and have shared power to vote 12,200 shares
which are owned by the Trust.
COMPARISON OF TOTAL SHAREHOLDER RETURN
The Company s common stock trades on The Nasdaq Stock Market
under the symbol: DETC. The following graph sets forth Detection
Systems Total Shareholder Return Index as compared to The Nasdaq
Index and the Nasdaq Electronic Component Stock Industry Index.
The graph is based on the assumption that $100 was invested in
each entity on March 31, 1990, and that all dividends were
reinvested.
Graph follows with the following data points:
Detection NASDAQ Nasdaq Electronic
Date Systems, Inc. Index Industry Index
- ----- ------------- ------ ---------------
3/28/91 124 114 111
3/31/91 97 146 137
3/31/93 143 167 225
3/31/94 171 181 273
3/31/95 132 201 359
PROPOSAL TO AMEND THE 1992 STOCK OPTION PLAN
The Board of Directors has adopted, subject to approval by
the shareholders, the Detection Systems, Inc. Restated 1992 Stock
Option Plan (the "Plan"), a copy of which is set forth as Exhibit
A to this proxy statement. The Plan was amended, restated and
renamed as a result of the Board's decision to increase the number
of authorized shares by 100,000 shares, to expand eligibility to
include certain nonemployees who perform services to or on behalf
of Detection Systems, Inc. and its subsidiaries and to remove
Messrs. Kostusiak and Lederer as potential recipients of option
shares under the Plan.
1992 Stock Option Plan as Amended:
The purpose of the Plan is to enable eligible key employees
and nonemployees of the Company and its subsidiaries to purchase
shares of Common Stock of the Company by means of stock options.
Through the use of such options, the Company expects to be able
to
attract and retain the best available talent and to encourage the
highest level of performance of its key personnel.
A total of 250,000 shares of Common Stock of the Company,
par value $.05 per share, shall be available for options under
the
Plan (with appropriate change in that number in the event of a
stock split, stock dividend or other change in the Company's
Common Stock). These shares may be either authorized and
unissued
shares or may be treasury shares. Options may be either incentive
stock options, as defined in Section 422 of the Internal Revenue
Code, or options which do not meet the requirements of that
section (nonqualified options). If an option expires, terminates
or is canceled without being exercised, new options may be
thereafter granted covering such shares. No stock option may be
granted more than ten years after the effective date of the Plan.
The Plan is administered by the stock option committee of
the Board of Directors ("Committee"), none of the members of which
is, or shall within a year prior to serving on the Committee, have
been eligible to receive any options under the Plan. The
Committee determines who shall be granted options under the Plan,
the number of shares to be awarded and the terms of such award,
and interprets the provisions of the Plan. The Board of Directors
may amend or terminate the Plan, without the approval of the
shareholders, except that it may not, without such approval,
materially increase the benefits accruing to participants under
the Plan, increase the number of shares subject to options, change
the minimum exercise price, change the class of employees eligible
to receive awards or extend the period during which awards may be
granted or exercised. No amendment of the Plan may, without a
recipient's consent, adversely affect his rights under an option
or warrant then held by him.
The Plan provides that options may be granted to key
employees or nonemployees of the Company and its subsidiaries.
However, options may not be granted to members of the Committee,
to directors who are not officers or employees of the Company or
its subsidiaries, nor to Mr. Kostusiak or Mr. Lederer. The Plan
places no limitation on the number of shares with respect to which
options may be granted to any such individual, except that
incentive options may not be granted in excess of any limitations
imposed by the Code. The Code presently imposes a limit on the
grant of incentive options. It imposes no limit on the grant of
nonqualified options.
The purchase price for each option may not be less than the
fair market value of the stock at the time such option is granted.
If an option is granted to an employee who, at the time of such
grant, owns stock possessing more than 10% of the voting power of
all stock of the Company, the purchase price shall be at least
110% of the fair market value of the stock subject to the option.
An option shall be exercised upon written notice to the
Company accompanied by payment in full for the shares being
acquired. The payment shall be made in cash; by check; by
delivery of certificates for Common Stock of the Company endorsed
in blank, the value of which will be deemed equal to the closing
market price of such shares on the date of delivery; by a
loan/installment payment arrangement, if the Committee permits and
upon such terms as the Committee specifies, or by a combination of
the foregoing. With respect to a loan/installment payment
arrangement to an optionee who is a director of the Company,
approval of the Plan by the shareholders will constitute
authorization of such loan in accordance with Section 714 of the
New York Business Corporation Law.
Each option will have a maximum term of ten years, or such
lesser period as the Committee specifies, except that an incentive
option granted to an employee who, at the time of the grant, owns
stock possessing more than 10% of the voting power of all stock of
the Company will have a term not in excess of five years. Options
are exercisable at such time or times and under such conditions as
may be impaired by the Committee and set forth in an option agreement.
The benefits or amounts that will be received or allocated
in the future under the Plan are not determinable. The following
table indicates the number of options granted under the plan for
fiscal year 1995, subject to shareholder approval.
Number of Dollar Value
Name and Position Options of Options
Granted Granted
- ------------------ --------- -----------
K. Kostusiak, President (1) 0 0
R. Carlton, Vice President,
National Sales 2,500 18,125
D. Lederer, Executive
Vice President (1) 0 0
F. Ryan, Vice President 1,500 10,875
L. Tracy, President of
Detection Systems
International, Inc. 40,000 260,000
Executive Group 44,000 289,000
Non-Executive Director Group (1) 0 0
Non-Executive Officer Employee
Group(3) 110,000 807,875
__________________________
Footnotes to above table:
(1) Neither Mr. Kostusiak, Mr. Lederer nor the Company's non-
executive directors are eligible for benefits under the revised
plan.
(2) Options were granted at prices ranging from $6.50 to $7.625
and with expiration dates ranging from 7/12/99 and 3/9/00.
(3) Includes a total of 32,000 shares valued at $240,000 that
were granted subject to shareholder approval of the Restated 1992
Stock Option Plan.
There are currently outstanding options exercisable for
122,000 shares and there are 28,000 shares available for grant
under the Plan. An additional 32,000 shares have been granted
subject to shareholder approval of the revised Plan. On June 1,
1995, the high, low and closing bids for the Company's Common
Stock, as reported by The Nasdaq Stock Market, were each $6.750.
Should the amendment not be approved, the 1992 Plan will
remain in force as originally adopted, and the option grants as
described above will not be effective.
The Board of Directors recommends a vote FOR the proposal to
amend the 1992 Stock Option Plan. Proxies received by the Board
of Directors will be so voted unless share owners specify in their
proxies a contrary choice.
ELECTION OF AUDITORS
The Board of Directors has recommended that Price Waterhouse
LLP be elected independent auditors of the Company for the fiscal
year ending March 31, 1996. They have served the Company as
independent auditors since 1968. Representatives of that firm
will be present at the meeting, will have an opportunity to make a
statement if they desire to do so and will be available to respond
to appropriate questions from shareholders.
The Board of Directors recommends a vote FOR the proposal to
ratify the appointment of Price Waterhouse LLP as independent
auditors of the company for the 1996 fiscal year. Proxies
received by the Board of Directors will be so voted unless share
owners specify in their proxies a contrary choice.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the
Company. In addition to solicitation by mail, employees of the
Company may, without extra remuneration, solicit proxies
personally, or by telephone or facsimile. The Company has
retained D. F. King & Co., Inc. to aid in the solicitation of
proxies for shares held of record by banks, brokers and other
custodians, nominees and fiduciaries. The Company will pay D. F.
King & Co., Inc. an anticipated fee of $4,500, plus expenses, for
these services, and will also reimburse such record holders for
their expenses in forwarding proxies and proxy soliciting material
to the beneficial owners of the shares held by them.
OTHER MATTERS
The Board of Directors knows of no matters to be presented
at the meeting other than those described in this proxy statement.
However, if any other matters properly come before the meeting,
it is intended that the persons named in the enclosed proxy will vote
on such matters in accordance with their best judgment.
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers and
persons who own more than 10 percent of a registered class of the
Company's equity securities, to file with the Securities and
Exchange Commission reports of ownership of common stock of the
Company. Officers, directors and greater than 10-percent
shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that
no other reports are required, all Section 16(a) filing
requirements applicable to its officers, directors and greater
than 10-percent beneficial owners were complied during the fiscal
year ended March 31, 1995.
The Company paid a premium of $34,885 in fiscal 1995 for
director and officer liability insurance. This policy is renewed
annually and provides protection for the directors and officers of
Detection Systems and its subsidiaries.
In order to be eligible for inclusion in the Company's proxy
materials for next year's Annual Meeting, shareholder proposals
for presentation at that meeting must be received at the
Company's principal executive offices by February 28, 1996.
Shareholders are urged to sign, date and return the enclosed
proxy in the enclosed return envelope. Prompt response is
helpful, and your cooperation will be appreciated.
SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K. REQUESTS SHOULD BE
DIRECTED TO:
Detection Systems, Inc.
Ella D. Gardner, Accounting Manager
130 Perinton Parkway
Fairport, New York 14450
Dated: June 22, 1995
NOTE: The Company's 1992 RESTATED STOCK OPTION PLAN was
included as exhibit A to this proxy statement.
DETECTION SYSTEMS, INC.
1992 RESTATED STOCK OPTION PLAN
(included as Exhibit A of proxy statement)
The Detection Systems, Inc. 1992 Stock Option Plan is hereby
amended, restated and renamed as the Detection Systems, Inc.
Restated 1992 Stock Option Plan (the "Plan"), effective January
24, 1995, to reflect the Board's decision to increase the number
of authorized shares and to expand eligibility to include certain
nonemployees who perform services to or on behalf of Detection
Systems, Inc. (the "Company") and its subsidiaries.
1. PURPOSE
The purpose of this Plan is to enable eligible key employees
and nonemployees of the Company and its subsidiaries to purchase
shares of Common Stock of the Company by means of incentive stock
options and nonqualified stock options (collectively referred to
as "options"). Through the use of such options, the Company
expects to be able to attract and retain the best available talent
and to encourage the highest level of performance of its key
personnel.
2. ADMINISTRATION
The Plan shall be administered by a Stock option committee
(the "Committee") consisting of not less than three members
appointed by the Board of Directors of the Company, none of which
during the twelve months prior to commencement of service on the
Committee, or during such service, has been granted or awarded any
equity security or derivative security of the Company pursuant to
the Plan or, except as permitted by Rule 16b-3 (c)(2)(i) pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any other plan of the Company. The Board shall fill any
vacancy on the Committee.
Subject to the provisions of the Plan, the Committee shall
possess the authority, in its discretion, (a) to determine from
among those persons who perform services to the Company to whom,
and the time or times at which, options will be awarded, the
number of shares included in the option and any other terms and
conditions that may apply to such option; (b) to determine whether
the options shall be incentive or nonqualified options; (c) to
interpret the Plan; (d) to make and amend rules and regulations
relating thereto; (e) to prescribe the form and conditions of the
option agreements; and (f) to make all other determinations
necessary or advisable for the administration of the Plan. The
Committee's determinations shall be conclusive and binding upon
the Company, the participants and all other persons.
3. ELIGIBILITY
Options may be awarded under the Plan only to key employees
and key nonemployees of the Company and its subsidiaries (which
shall include all corporations of which at least fifty percent of
the voting stock is owned by the Company directly or through one
or more corporations at least fifty percent of the voting stock of
which is so owned). Notwithstanding the foregoing, none of the
following shall be eligible to participate in this Plan: the
members of the Committee, any director who is not an officer or
employee of the Company or one of its subsidiaries, Karl H.
Kostusiak or David B. Lederer.
4. SHARES AVAILABLE
An aggregate of 250,000 shares of the Common Stock (par
value $.05 per share) of the Company (subject to substitution or
adjustment as provided in Section 8 hereof) shall be available for
options under the Plan. Such shares may be authorized and
unissued shares or may be treasury shares. If an option expires,
terminates or is canceled without being exercised, new options may
be thereafter granted covering such shares. No stock option may
be granted more than ten years after the effective date of the
Plan.
5. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Incentive stock options may be granted only to employees of
the Company and its subsidiaries. Each incentive stock option
granted under the Plan to an employee shall be designated as such
and shall be evidenced by an incentive stock option agreement in
such form as the Committee shall approve from time to time, which
agreement shall conform with this Plan and which shall contain the
following terms and conditions:
(a) Number of Shares. The option agreement shall specify
the number of shares to which it pertains.
(b) Purchase Price. The purchase price for each option
shall be not less than the fair market value of the stock at the
time such option is granted. The Committee shall determine the
purchase price. If an option is granted to an employee who at the
time of grant owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company
(a "10-percent Shareholder"), the purchase price shall be at least
110 percent of the fair market value of the stock subject to the
option.
(c) Duration of Option. Each stock option by its terms
shall not be exercisable after the expiration of ten years from
the date such option is granted. In the case of an incentive
stock option granted to a 10-percent Shareholder, the option by
its terms shall not be exercisable after the expiration of five
years from the date such option is granted.
(d) Options Nontransferable. Each option by its terms
shall not be transferable by the optionee otherwise than by will
or the laws of descent and distribution, and shall be exercisable
during his lifetime, only by the optionee, the optionee's guardian
or the optionee's legal representative.
(e) Exercise Period. Subject to the restriction in
Section 5(f), the exercise of each option shall be subject to such
conditions as may be imposed by the Committee and specified in the
option agreement. The Committee may, among other things, specify
a minimum length of employment and may stagger the period of
exercise by providing that only a certain percentage of options
may be exercised each year.
(f) Payment of Option Price. An option shall be exercised
upon written notice to the Company accompanied by payment in full
for the shares being acquired. The payment shall be made in cash
or by check or by delivery of shares of Common Stock of the
Company registered in the name of the optionee, duly assigned to
the Company with the assignment guaranteed by a bank, trust
company or member firm of the New York Stock Exchange, or by a
combination of the foregoing, any such shares so delivered to be
deemed to have a value per share equal to the fair market value of
the shares on such date.
With the approval of the Committee, the Company may loan to
the employee a sum equal to an amount up to 100 percent of the
purchase price of the shares so purchased, such loan to be
evidenced by the execution and delivery of a promissory note.
Interest shall be paid annually on the unpaid balance of the
promissory note at such rate as shall be published from time to
time by the IRS as the appropriate arm's length interest rate.
Such promissory note shall be secured by the pledge to the Company
as collateral security of shares having an aggregate purchase
price equal to or greater than the amount of the note. An
optionee shall have, as to such pledged shares, all rights of
ownership, including dividend and voting rights, even though
subject to the security interest of the Company. Such shares
shall be released by the Company when the proportionate amount of
the note secured thereby is repaid to the Company. All notes
executed hereunder shall be payable at such times and in such
amounts and shall contain such other terms as shall be designated
by the Committee and stated in the option agreement. Approval of
this Plan by a majority vote of the shareholders of the Company
shall constitute authorization under Section 714 of the New York
Business Corporation Law for any loan made hereunder to any
employee who is also a director of the Company.
(g) Maximum Value of Shares. No incentive option shall be
granted to an employee under this Plan or any other incentive
stock option plan of the Company or its subsidiaries to purchase
shares as to which the aggregate fair market value (determined as
of the date of grant) of the Common Stock which first become
exercisable by the employee in any calendar year exceeds $100,000.
(h) Rights as a Shareholder. The optionee shall have no rights
as a shareholder with respect to any shares for which he is
granted an option until the date of issuance to him of a stock
certificate for such shares and no adjustment shall be made for
any dividends or other rights the record date for which is prior
to the date such stock certificate is issued.
(i) General Restriction. Each option shall be subject to the
requirement that, if at any time the Board of Directors shall
determine, in its discretion, that the listing, registration or
qualification of the shares subject to such option upon any
securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with,
the granting of such option or the issuance or purchase of shares
thereunder, such option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors.
6. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Options other than incentive stock options may be granted
under this Plan to both eligible employees and eligible
nonemployees. Each such nonqualified option shall be evidenced by
a nonqualified stock option agreement, shall be designated as a
"nonqualified stock option," and shall conform to the foregoing
provisions of Section 5 except the purchase price requirements of
Section 5(b), the 10-percent Shareholder restriction of Section
5(c) and the maximum value of grants of Section 5(g). The
Committee may include, in its discretion, any terms or conditions
in addition to those specified in Section 5. To the extent an
option exceeds the limitations of Section 5(g), it shall be deemed
a nonqualified option and shall otherwise remain in full force and
effect. A nonqualified option may have a duration of 10 years and
one day from the date such option is granted.
7. TERMINATION OF EMPLOYMENT - EFFECT ON OPTIONS
If the employment of an optionee terminates for any reason
other than death or disability, an option may be exercised by him
at any time prior to the earlier of the expiration date of the
option or the expiration of three months after the date of
termination, but only if, and to the extent that, he was entitled
to exercise the option at the date of such termination.
Notwithstanding the foregoing, an option may not be exercised
after termination of employment if the Committee determines that
the termination of employment of such optionee resulted from
willful acts, or failure to act, by the optionee detrimental to
the Company or any of its subsidiaries. The Committee shall
determine whether an authorized leave of absence shall constitute
a termination of employment for purposes of this Plan.
If an optionee's employment terminates by reason of
disability (within the meaning of Section 105 (d)(4) of the
Internal Revenue Code) or death, his option may be exercised at
any time prior to the earlier of the expiration of the option or
the expiration of one year following the date employment
terminated due to disability or death. If after termination of
employment but before the expiration of the earlier of the option
period or the three-month period, the optionee dies, the option
shall continue to be exercisable only for the remainder of either
such period (whichever is shorter) and the one-year period shall
not be applicable.
If employment of the optionee terminates for any reason
other than disability, retirement or death, any unpaid balance
remaining on any promissory note used in the purchase of stock
shall become due and payable upon not less than three months'
notice from the Company, which notice may be given at any time
after such termination; provided, however, that such unpaid
balance on such promissory note shall become due and payable five
years from the date of such termination, unless the note has an
earlier due date. In the case of termination due to death, any
unpaid balance remaining on such note on the date of death shall
become due and payable one year from such date. "Retirement"
shall mean early or normal retirement as defined in the Company's
retirement plan or, in the event there is no such plan, age 65.
8. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the
Company by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination, or
exchange of shares, or rights offering to purchase Common Stock at
a price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares
which thereafter may be optioned and sold under the Plan and the
number and kind of shares subject to option in outstanding option
agreements and the purchase price per share thereof shall be
appropriately adjusted consistent with such change in such manner
as the Committee may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available
for, participants in the Plan.
9. NO EMPLOYMENT RIGHTS
Neither the Plan nor any options granted under it shall
confer upon any recipient any right with respect to continuance of
employment by the Company or any subsidiary, nor shall they
interfere in any way with the right of the Company or any
subsidiary by which a recipient is employed to terminate his
employment at any time.
10. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan to an employee
pursuant to the exercise of a nonqualified stock option, the
Company shall have the right to require the recipient to remit to
the Company an amount sufficient to satisfy any federal, state or
local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares.
11. CHANGE IN CONTROL
Upon acquisition of thirty percent or more of the Company's
outstanding shares of stock having general voting rights by an
unaffiliated person, entity or group, the Committee shall notify,
in writing, each holder of an outstanding option of such change in
control. Notwithstanding any other provision of this Plan or any
option agreement, all options shall become fully exercisable on
receipt of such notice. All outstanding options shall expire if
not exercised within 30 days of receipt of the notice of a change
of control.
12. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
shareholders of the Company or by the Board of Directors, except
that the Board may not, without approval of the shareholders,
materially increase the benefits accruing to participants under
the Plan, increase the maximum number of shares as to which
options may be granted under the Plan, change the minimum option
price, change the class of eligible employees, extend the period
for which options may be granted or exercised, or withdraw the
authority to administer the Plan from a Committee consisting of
directors not eligible to receive options under the Plan.
Notwithstanding the foregoing, to the extent permitted by law, the
Committee may amend the Plan without the approval of shareholders,
to the extent it deems necessary to cause the Plan to comply with
Securities and Exchange Commission Rule 16b-3 or any successor
rule, as it may be amended from time to time. Except as required
by law, no amendment, modification, or termination of the Plan
may, without the written consent of a participant to whom any
option shall theretofore have been awarded, adversely affect the
rights of such participant under such option.
13. EFFECTIVE DATE
The effective date of this restated Plan is January 24,
1995, provided that the Plan is adopted by the shareholders of the
Company within twelve months of such date.
14. GOVERNING LAW
To the extent not inconsistent with the provisions of the
Internal Revenue Code that relate to incentive stock options and
nonqualified stock options, this Plan and any option agreement
adopted pursuant to it shall be construed under the laws of the
State of New York.
Dated: 1/24/95 DETECTION SYSTEMS, INC.
By: /s/ Frank J. Ryan
Title: Vice President, Secretary
