DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14450
(716) 223-4060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 20, 1996
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Detection Systems, Inc. will be
held at the Company's corporate headquarters located at 130 Perinton
Parkway, Fairport, New York, on August 20, 1996, at 2:00 p.m. for the
following purposes:
(l) To elect five directors;
(2) To elect independent auditors for fiscal year 1997; and
(3) 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 July 5, 1996
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
July 17, 1996
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.
DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14450
PROXY STATEMENT
First sent to Shareholders on July 17, 1996
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 20, 1996, 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 on July 5, 1996, at which time the
Company had outstanding 2,834,159 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. Abstentions,
broker non-votes and withheld votes will be counted in determining the
number of shares represented at the meeting but 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 and for the election of
Price Waterhouse LLP as independent auditors.
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, American Stock
Transfer & Trust Co., 40 Wall Street, New York, NY 10005, 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 III, 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 the principal of Adair Law
Firm, in Rochester, New York. Mr. Fuller is President and Chief Executive
Officer 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, 1996, the Board of Directors
held seven meetings. 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. In addition, this
committee approves and oversees services performed by the Company's
independent auditors and enables the independent accountants to directly
access the non-employee members of the Board of Directors.
The Board of Directors also has 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 specific compensation arrangements for the Company's
executive officers, met four times during the last specific 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
granting options pursuant to the Company's 1992 Restated 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. There is no additional compensation for attendance
of committee meetings.
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 1997 fiscal year. Proxies received by the Board of Directors will
be so voted unless share owners specify in their proxies a contrary choice.
MANAGEMENT AND SECURITY OWNERSHIP
The following table lists the directors and executive officers of the
Company and reflects the number of shares of the Company's common stock that
were beneficially owned as of June 3, 1996 by each director, executive
officer and all directors and executive officers as a group.
Amount and
Nature of
NAME, AGE, PRINCIPAL Beneficial Percent
OCCUPATION AND POSITIONS OWNERSHIP(1) OF CLASS SINCE
Donald R. Adair (52) 1,034(2) 0.03% 1991
Director of the Company and
Principal of Adair Law Firm
George E. Behlke (38) 23,964(3)(4) 0.77% 1996
Vice President, Engineering, of the
Company; Prior -- Engineering Manager
R. Wayne Carlton (58) 55,131(3)(4) 1.78% 1994
Vice President, National Sales,
of the Company;
Prior -- National Accounts Manager
Mortimer B. Fuller, III (54) 3,780(3) 0.12% 1990
Director of the Company and President
of Genesee and Wyoming Industries, Inc.
Karl H. Kostusiak (57) 417,928(4) 13.51% 1968
Director, President and CEO
of the Company
David B. Lederer (56) 296,491(4) 9.58% 1968
Director and Executive Vice President
of the Company
Edward C. McIrvine (62) 19,550(3)(5) 0.63% 1981
Director of the Company and
self-employed Research and Development
Management Consultant
Frank J. Ryan (42) 52,300(3)(4)(6) 1.69% 1982
Vice President, Secretary Treasurer
of the Company
Lawrence R. Tracy (49) 50,267(3) 1.62% 1995
President of Detection Systems
International, Inc.and Radionics, Inc.,
subsidiaries of the Company
Prior -- President of a competitive
manufacturer of electronic security
equipment
All Directors and Executive 920,445(2)-(6) 29.74%
Officers as a Group (9 persons)
Footnotes to Beneficial Ownership Table:
(1) For all shares listed, each person possess both sole voting and
investment power, except for those shares indicated in notes (2) - (6)
below.
(2) Includes 783 shares held in custodianship for Mr. Adair's children under
the Uniform Gifts to Minors Act of New York for which Mr. Adair disclaims
beneficial ownership.
(3) Includes 3,000, 3,660, 2,700, 2,700, 900,14,000 and 26,900 shares which
may be acquired upon exercise of warrants and options held by Messrs.
Behlke, Carlton, Fuller, McIrvine, Ryan, Tracy and all directors and
executive officers as a group, respectively.
(4) Includes 4,920, 32,428, 113,714, 73,366, 4,920 and 229,348 hypothetical
shares credited to the accounts of Messrs. Behlke, Carlton, Kostusiak,
Lederer, Ryan and all directors and executive officers as a group,
respectively, pursuant to the Company's deferred compensation plans,
which shares may be acquired upon termination of employment.
(5) Includes 16,200 shares held by Dr. McIrvine's wife for which he
disclaims beneficial ownership.
(6) Includes 540 shares held in trust for Mr. Ryan's son under the Uniform
Gifts to Minors Act of New York for which Mr. Ryan disclaims beneficial
ownership.
(7) In 1993 certain officers were awarded shares of stock of Emergency
Communications, Inc., a subsidiary of Detection Systems. Twenty percent
of these shares vested immediately; and an additional twenty percent vest
annually thereafter. Subject to the completion of that vesting schedule,
Messrs. Kostusiak, Behlke, Carlton, Kostusiak, Lederer and Ryan will own
1,500, 40, 40, 1200 and 40 shares, respectively.
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 3, 1996:
BENEFICIAL OWNERSHIP TABLE
Name and Amount and
Address of Nature of
TITLE BENEFICIAL BENEFICIAL Percent
OF CLASS OWNER OWNERSHIP(1)(2) OF CLASS
Common Stock Karl H. Kostusiak 417,928 13.51%
130 Perinton Parkway
Fairport, NY 14450
Common Stock David B. Lederer 296,491 9.58%
130 Perinton Parkway
Fairport, NY 14450
Common Stock Dimensional Fund Advisors, Inc. 164,148 5.30%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
- -------------------------------------
Footnotes to Beneficial Ownership Table:
(1) Messrs. Kostusiak and Lederer currently possess both sole voting and
investment power except with respect to 113,714 and 73,366 shares
respectively, which may be acquired upon termination of employment
pursuant to the Company's deferred compensation plans.
(2) Reflects shares held by Dimensional Fund Advisors Inc., a registered
investment advisor, as of December 31, 1995. The shares 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,
for all of which Dimensional Fund Advisors Inc. serves as investment
manager. Dimensional Fund Advisors Inc. disclaims beneficial ownership
of all such shares.
ELECTION OF AUDITORS
The Board of Directors has recommended that Price Waterhouse LLP be
elected as the independent auditors of the Company for the fiscal year
ending March 31, 1997. 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 elect
Price Waterhouse LLP as the independent auditors of the Company for the 1997
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.
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, 1996, 1995 and 1994.
ANNUAL COMPENSATION
Other
Annual
Name and Compen-
Principal Fiscal Salary Bonus sation
Position Year ($) ($)(1) ($)(2)
- ----------------- ----- ------ ------- -------
Karl H. Kostusiak 1996 205,926 1,419 26,186
President & Chief 1995 196,110 184,746 --(4)
Executive Officer 1994 183,280 71,943 68,442
R. Wayne Carlton 1996 105,000 18,518 --(4)
Vice President, 1995 100,000 28,386 --(4)
National Sales 1994 94,320 19,299 --(4)
David B. Lederer 1996 164,741 1,135 27,956
Executive Vice 1995 156,897 147,794 --(4)
President 1994 146,633 57,554 59,880
Frank J. Ryan 1996 105,000 723 --(4)
Vice President, 1995 100,000 35,017 --(4)
Secretary/Treasurer 1994 93,890 10,774 --(4)
Lawrence R. Tracy 1996 144,148 31,648 --(4)
President of 1995 21,000 102,405 --(4)
Detection Systems 1994 N/A N/A N/A
International, Inc. &
Radionics, Inc.
LONG-TERM COMPENSATION
Securities
Underlying All Other
Name and Options/ Compen-
Principal Fiscal SAR's sation
Position Year (#) ($)(3)
- -------------- ------ ---------- ---------
Karl H. Kostusiak 1996 0 2,542
President & Chief 1995 0 2,625
Executive Officer 1994 0 33,491
R. Wayne Carlton 1996 0 2,222
Vice President, 1995 2,500 2,309
National Sales 1994 0 3,049
David B. Lederer 1996 0 2,534
Executive Vice 1995 0 2,625
President 1994 0 27,592
Frank J. Ryan 1996 0 2,298
Vice President, 1995 1,500 2,242
Secretary/Treasurer 1994 0 3,032
Lawrence R. Tracy 1996 0 0
President of 1995 40,000 0
Detection Systems 1994 N/A N/A
International, Inc. &
Radionics, Inc.
- --------------------------
Footnotes to Compensation Table:
(1) Messrs. Kostusiak's, Lederer's, Ryan's and Tracy's bonuses were
primarily based on profit performance and Mr. Carlton's on sales
performance.
(2) During fiscal 1996, a total of $17,286 and $15,041 were paid toward
life, disability and long term care insurance premiums for the benefit of
Messrs. Kostusiak and Lederer, respectively. A total of $2,702 and
$2,876 were paid to Messrs. Kostusiak and Lederer, respectively, for
reimbursement of medical expenses not covered under the Company's medical
plans. A total of $2,608 and $8,554 were paid to Messrs. Kostusiak and
Lederer for reimbursement of automobile expenses.
(3) Contributions by the Company to accounts of the named executive officers
under the Company's 401(k) retirement savings plan.
(4) Less than the minimum amount required to be reported.
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 year
1996 and unexercised options held as of March 31, 1996. Options are
exercisable 35-40% after one year, 60% after two years, 80% after three
years and 100% after four years. 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, 1996 was $9.75 per share.
<TABLE>
<S> <C> <C> <C> <C>
Number Of
Shares (#) Securities Underlying Value Of Unexerciesd
Acquired ($) Unexercised Options In-The-Money Options
On Value At March 31, 1996 (#) At March 31, 1996
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
K. Kostusiak 0 $0 0 / 0 0 / 0
R. Carlton 3,240 7,711 3,160 / 1,500 $8,939 / $3,750
D. Lederer 0 0 0 / 0 0 / 0
F. Ryan 2,160 4,601 2,760 / 900 $7,939 / $2,250
L. Tracy 0 0 14,000 / 26,000 $45,500 / $84,500
</TABLE>
Recipients of options may elect to exercise their options through an
installment loan arrangement with the Company. During fiscal year 1996,
Messrs. Kostusiak, Lederer and Ryan had stock option loans outstanding that
totaled $195,027, $144,141 and $66,999, respectively. As of June 7, 1996,
the outstanding balances of these loans were $180,479, $132,107 and $66,228,
respectively. The loans were charged interest rates ranging from 5.54% to
8.42%.
No options or stock appreciation rights ("SAR's") were granted during
fiscal 1996 to the named executive officers.
PENSION PLANS:
Effective April 1996, the Company approved the addition of a pension
plan for Messrs. Kostusiak and Lederer (each, an "Executive") in their
Executive Agreements, described below. Under the terms of the Executive
Agreements, the Company will pay each Executive retirement benefits for his
lifetime and for his spouse's lifetime, if his spouse survives him, as
follows: (a) a retirement wage benefit initially equal to 12% of
Executive's base salary on the date of his retirement or death, increased
each year thereafter by any increase, less 0.5%, in the Consumer Price Index
(except that the wage benefit shall be 75% of that amount after Executive's
death); (b) continuation of Executive's full health insurance or similar
benefit for Executive and his spouse; and (c) continuation of any other
benefit programs that provide continuation pursuant to their terms.
Based on a 5% compounded annual increase in their base compensation,
and assuming that they each retire at age 65, the estimated initial annual
benefit that would be payable to Messrs. Kostusiak and Lederer under the
pension plan provision in their Executive Agreements would be $34,771 and
$27,817, respectively.
The Executive Agreements further provide that: (a) the payment of
retirement benefits may be terminated if a court of law determines that an
Executive has violated the non-competition provisions of his Executive
Agreement, and (b) that the Company will purchase and maintain life
insurance sufficient to fund the estimated benefits for the spouse (any
excess policy proceeds to be available, if agreed, to purchase shares of the
Company's Common Stock held in Executive's estate) and the policy or
policies of such insurance shall be held in a trust designed for this
purpose.
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 CONCERNING EXECUTIVE OFFICERS:
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
important.
During fiscal year 1996 and subsequently, three additional factors have
affected the Committee's determinations: (1) the hiring in February 1995 of
Mr. Tracy and the plan to have him spearhead offshore development of
manufacturing and markets, (2) the Company's acquisition of Radionics, Inc. in
February 1996, and (3) the long-term need to assure succession of management.
Various changes have been made in compensation arrangements during this period
to respond to these factors.
TYING COMPENSATION TO THE COMPANY'S FINANCIAL PERFORMANCE:
In 1988, the Company entered into five-year employment agreements with
Messrs. Kostusiak and Lederer. Each year thereafter, 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. Beginning with the fiscal year ending March 31, 1997, the $250,000
threshold has been increased to $500,000. 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. Beginning with the fiscal year
ending March 31, 1997, the cash bonus and the stock bonus will not be earned
unless the Company achieves an earnings-per-share goal established by the Board
of Directors. If the earnings-per-share goal is not achieved, but the other
requirements for a bonus are achieved, the opportunity to be paid that bonus
will be carried forward for up to five fiscal years and may become earned, or
partly earned, in any year in which the earnings-per-share goal for that year
is exceeded. The fiscal year 1997 earnings-per-share goal for purposes of
these bonus plans has been established by the Board at $1.00 per share. The
intention of these bonus programs is to provide strong incentives for managing
the Company's financial performance toward three goals: (1) having pre-tax
profits greater than 5 percent of sales, (2) having sales increase
significantly each year, and (3) the Company achieving an earnings-per-share
goal established early each year by the Board of Directors. (Other aspects of
these agreements are described below under "Executive Agreements.") Since cash
bonuses are directly dependent on pre-tax profits, stock bonuses are directly
dependent on growth in both sales and pre-tax profits, and both bonuses will
be dependent on after-tax earnings-per-share, 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.")
Upon the acquisition of Radionics, Inc., the concept of "sales growth"
was redefined for the bonus program so as to encourage acquisitions that serve
the Company's long-term strategic objectives while taking into account possible
start-up costs and variability of overall sales in the initial years after an
acquisition. Thus, "sales growth" is now defined as the greater of (a) growth
in actual sales or (b) "equivalent sales growth" (which is defined as an
assumed 20% compounded annual sales growth beyond the actual sales of the year
prior to any year in which sales growth was more than 20%, provided that the
resulting assumed sales level for the year in question is not more than the
actual sales of the year in question).
The Committee believes that these provisions of the employment agreements
functioned as intended during the past three years. In particular, Mr.
Kostusiak's bonus compensation was as follows:
Fiscal Year Cash Bonus Stock Bonus Sales Pre-Tax Profit
1996 $1,419 -- $41,858,000 (Loss)
1995 $116,734 $59,290 $34,336,000 $2,592,000
1994 $71,943 -- $31,355,000 $1,571,000
When the Company's employment agreement with Mr. Kostusiak was renewed
and extended at the beginning of fiscal year 1996, 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 Executive Compensation section of
this proxy 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.
During fiscal year 1996, the bonus programs were modified to increase the
pre-tax earnings threshold for the cash bonus to $500,000 (effective in fiscal
1997) and to refine the definition of "sales growth," as discussed above.
EQUITY OWNERSHIP BY MANAGEMENT:
Since the Company's founding in 1968, Messrs. Kostusiak and Lederer have
each owned a substantial number of shares of the Company's common stock.
During fiscal year 1996 and subsequently, at Mr. Tracy's request, the Company
sold to him a total of 30,000 shares of common stock for cash at prices
approximating the market price at the time of the sales.
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 stock 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 parent Company's
rights to manufacture products for those markets and to earn royalties on the
products sold through those subsidiaries.
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 a considerable incentive for executive
officers to pursue the Company's long-term strategic objectives. As noted
above with respect to the stock bonus program, the concept of "equivalent sales
growth" was added recently to increase the weight toward achieving long-term
objectives with that program.
Additionally, in order to serve long-term objectives, in particular to
help build a succession plan for senior management, during fiscal year 1996 the
Company added to the employment contracts of Messrs. Kostusiak and Lederer
commitments to pay retirement wage benefits as described previously under
Pension Plans. The commitment made so far is modest, balancing the need to
start such a plan now while not adding significant expenses in a year of
losses. The Committee anticipates eventually increasing the commitment so that
the retirement wage benefit would start at 60% of final base wages, but future
increases in the commitment moving toward that goal probably will be made only
if and when the financial circumstances of the Company seem appropriate.
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, III
Edward C. McIrvine
EXECUTIVE AGREEMENTS
The Company has employment agreements with three of its executive
officers, Messrs. Kostusiak, Lederer and Tracy ( the "Executive Agreements").
The Executive Agreements with Messrs. Kostusiak and Lederer are through May
2001 and the agreement with Mr. Tracy is through February 1999. The Executive
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 Executive Agreements. The Executive Agreements
terminate upon the executive's death or permanent disability except as
described under Pension Plans.
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 such circumstances, Mr. Tracy's
agreement provides that his 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 base salary and 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.
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 will also request banks, brokers and others, who hold shares for
the benefit of other persons, to forward proxy materials to such beneficial
owners and will reimburse such record holders for their expenses in forwarding
this material to the beneficial owners of the shares held by them.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the compensation committee of the Board of Directors are
Messrs. Adair, Fuller and McIrvine. In the last fiscal year, the Company and
its subsidiaries paid $13,200 to Adair Law Firm, of which Mr. Adair is the
principal, for legal services. Mr. Adair also served on the stock option
committee of the Board of Directors.
COMPARISON OF TOTAL SHAREHOLDER RETURN
The Company's common stock trades on The Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol: DETC. The following graph sets
forth the Company's 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 28,
1991, and that all dividends were reinvested.
(Picture of graph titled: Comparison of five year cumulative total return
among Detection Systems, Inc., The Nasdaq Index & the Nasdaq electronic
industry index.)
Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96
Detection Systems, Inc. 100 78 115 138 106 136
The Nasdaq Index 100 127 147 158 176 239
Electronic Industry Index 100 123 203 246 322 424
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, 1996.
The Company paid a premium of $115,324 in fiscal year 1996 for director
and officer liability insurance. This policy is renewed annually and provides
protection for the directors and officers of the Company 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
3/19/97. 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, Controller
130 Perinton Parkway
Fairport, New York 14450
Dated: July 17, 1996
