SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: March 31, 1997
[ ] Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934.
Commission File Number: 0-8125
_____________________
DETECTION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
State of New York 16-0958589
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
130 Perinton Parkway, Fairport, New York 14450
(Address of principal executive offices) (Zip Code)
(716) 223-4060
(Registrant's telephone number, including area code)
_____________________
Securities registered pursuant to Section 12(b) of the Act:
None
_____________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.05 Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of June 13, 1997 the aggregate market value of the voting
stock held by non-affiliates of the registrant was
approximately $65,301,302.
As of June 13, 1997 there were outstanding 4,709,003 shares of
the registrant's common stock, par value $.05 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1997 Annual Meeting of Shareholders -- See
Part III of this Form 10-K Annual Report for portions
incorporated by reference.
PART I
ITEM l. BUSINESS
GENERAL
Detection Systems, Inc. ("Company") designs, manufactures and
markets electronic detection, control and communication
equipment for the security, fire protection, access control and
CCTV (closed circuit television) industries. The Company's
product line includes a broad line of security, fire, access
control and CCTV components and systems. These products are
used worldwide by professional installation and service
companies to protect life and property in commercial,
industrial, institutional and residential environments.
Since its founding in 1968, Detection Systems has established a
reputation for outstanding performance, quality and service.
Until the early 1990's, the Company was primarily a niche
provider of intrusion detection devices for the domestic
market. In 1995, the Company's management adopted a strategy
which focused on expanding its product offering through
internal development and acquisitions, establishing an
international sales presence, increasing its manufacturing
capacity and improving its manufacturing cost structure. In
furtherance of this strategy, the Company has had five
acquisitions, opened sales offices in seven countries and
successfully established a manufacturing facility in Southeast
Asia. These activities have allowed the Company to
significantly expand its product catalog and market scope while
growing from $34 million in sales to $101 million in sales in a
two-year period.
The Company significantly expanded its product catalog by
adding: (i) control and communication equipment with its
purchases of Radionics, Inc. ("Radionics") in February 1996 and
Digital Audio Limited ("DA Systems") in May 1997, (ii) wireless
radio network products with its purchase of the certain assets
of Senses International ("Senses") in July 1996, (iii) in-
building wireless radio technology with its purchase of DA
Systems in May 1997, and (iv) an additional line of security
control panels with its acquisition of Seriee, SA ("Seriee") in
June 1997. In addition to acquisitions, the Company has been
able to supplement its product catalog with a number of
security, fire, access control and CCTV products by entering
into a number of strategic alliances with partners that have
technological capabilities that supplement and complement the
Company's internal capabilities.
The Company sells its products through a number of subsidiaries
as well as under a number of different brand names, which
include Detection Systems (DS), Radionics (Radx), Security
Escort, Safecom, and DS Vision.
An electronic alarm system consists of intrusion and fire
detectors as well as control and communication equipment. An
alarm system is turned on by setting the control instrument.
When a break-in or fire occurs, the intrusion or fire detector
senses the incident and activates the control instrument, which
in turn triggers the communication equipment and, in most
cases, a bell or siren to provide a local alarm. Communication
equipment may consist of an automatic telephone dialer, a
leased telephone line transmitter or a radio transmitter and is
used to transmit the alarm signal to a remote central alarm
monitoring service or directly to the police.
On May 8, 1997, Detection Systems acquired all of the
outstanding stock of Digital Audio Limited, more commonly known
as DA Systems, a leading U.K. manufacturer of security control
equipment, a wholly owned subsidiary of Numerex Corp. (NMRX).
This acquisition provides the Company with a line of controls
and communication devices that are approved for sale in the
U.K. market, and an important new in-building wireless radio
technology that is believed to be superior to competitive
offerings. DA Systems sells its products to a national
dealer/installer network which combines its products with other
components from other suppliers, including Detection Systems,
to form complete systems.
On February 12, 1996, Detection Systems acquired all of the
outstanding stock of Radionics, Inc., a leading U.S.
manufacturer of security, fire and access control systems, from
Expamet, Inc., a wholly-owned subsidiary of Expamet
International PLC, a United Kingdom corporation. This
acquisition more than doubled the sales rate of the Company.
Radionics designs and manufactures keypads,
control/communicators and central station receivers for the
intrusion alarm, fire alarm and access control markets.
Specifically, Radionics' product line includes basic
residential to complex high security control communication
systems; small to large specified fire systems; single to multi-
thousand user door access systems and integrated fire,
intrusion and access control systems. These products are
complementary to the Detection Systems' product line.
In addition to selling its own manufactured products, Radionics
buys and resells certain access control products manufactured
by PAC, its former U.K. affiliate, and certain sensors
manufactured by third parties. Radionics sells its products to
a national dealer/installer network which combines its products
with other components from other suppliers, including Detection
Systems, to form complete systems.
The acquisitions of DA Systems and Radionics were accounted for
as a purchase for financial reporting purposes and accordingly,
the assets and liabilities were restated to reflect their fair
market value as of the acquisition date.
On July 11, 1996, the Company acquired the assets of Senses,
International Inc. Senses manufactured long range wireless
alarm transmission equipment which it marketed under the name
of "Safecom". This acquisition provides the Company with an
important new technology, a patent covering transmission of
alarm signals from a digital communicator through a radio
network, and access to dealers who have installed 150 Safecom
radio networks. Safecom networks are operating in 19 countries
around the world, with the greatest penetration in the South
American market.
The Company has several subsidiaries other than DA Systems and
Radionics. During fiscal 1995, the Company provided an equity
investment of $100,000 to its Detection Systems International,
Inc. ("DSII") subsidiary for the purpose of marketing
international opportunities for its electronic security and
fire protection products. As a result of this investment, two
foreign subsidiaries were established, one in Hong Kong and the
other in Sydney, Australia. The Company provided an equity
investment of $300,000 each to Detection Systems (HK) Limited
and Detection Systems (AUST) Pty. Ltd. ("DS Australia").
Control of Hong Kong changes from British rule to Chinese rule
as of July 1, 1997. The Company does not believe it is
possible to determine the impact this change will have on its
operations.
During fiscal 1996, DS Australia established branch offices in
Melbourne and Brisbane. In addition, DSII established a branch
office in Paris, France, and opened a branch office in the
United Kingdom during the first quarter of 1997. Also, a
manufacturing facility was leased in Southeast Asia. The
Company began manufacturing operations and product shipments to
customers from that facility during the third fiscal quarter of
1996 and supplied approximately 40% of its manufactured volume
from this facility during fiscal 1997. The Company owns 100
percent of the common stock of DSII and its foreign
subsidiaries.
The Company maintains a separate Security Escort" subsidiary,
Emergency Communications, Inc. ("ECI"), to facilitate joint
ventures in the help call market, where there may be financial
requirements in excess of the Company's internal financing
capability. The Company initiated a promotional campaign of
its Security Escort" multiple user help call system in fiscal
1996 to engineered system companies, for use in diverse
environments such as apartment complexes, condominiums,
retirement communities, hospitals, correctional institutions,
government facilities and manufacturing facilities. Sales have
been made in Australia for use in correctional facilities and
total coverage systems are operational in two U.S. colleges.
The Company purchased all of ECI's common stock through an
initial equity investment of $100,000 and subsequently awarded
a portion of the shares to certain directors and employees.
During fiscal 1997, the Company repurchased all of the
outstanding shares held by directors and employees and as of
March 31, 1997, the Company owned approximately 99.3% of ECI's
common stock. At June 1, 1997, the Company had provided ECI
with approximately $1.1 million in loans.
During fiscal 1996, the Company's DSII subsidiary entered into
a joint venture agreement with the Chinese government for the
purpose of designing, manufacturing and distributing security
products internationally. The Company does not believe this
agreement will have a material impact on revenues and earnings
in fiscal 1998.
PRODUCT LINE
The Company's product lines consist of its traditional
security/fire detection line, its Radionics control system
line (which greatly expanded its historic control system
line), its newly acquired
DA Systems control, communicator and in-building wireless radio
system, and the Company's Security Escort multiple user help
call system.
The Company's security detectors operate on five basic
principles (1) passive infrared body heat detection, (2)
photoelectric beam interruption, (3) combination passive
infrared/microwave detection ("duals"), (4) acoustic glass
break detection and (5) vibration detection. These five types
of detectors complement each other in their system applications
and the types of environments in which they function best.
Several different types of detectors are often used in a single
alarm system. The Company's intrusion detection products
include both self-contained detectors which are connected both
directly (wired) and/or indirectly (wireless) to the alarm
system controller and detectors that are connected to other
detectors and to a detection zone control, which is in turn
connected to the system controller. The Company's products are
used in new alarm systems as well as to upgrade existing alarm
systems.
Many of the Company's security detectors feature enhanced
signature recognition techniques. The Company's newest duals
can be used in residential or commercial environments where
animals may be present.
During the past several years the Company has worked with
outside contractors for special purpose limited volume devices
important to its catalog that are sold under both the Detection
Systems and Radionics names.
The Company's fire detection product line includes beam smoke
detectors, photoelectric spot smoke detectors and ionization
spot smoke detectors. The photoelectric spot and ionization
spot detectors are available in both direct wire and separate
head and base configurations, where the separate head and base
units have interchangeable 2- and 4-wire bases. The Company's
smoke detector line is comprised of detectors for both
residential and commercial applications. The acquisition of
Radionics adds fire control panels to the Company's product
line.
The Company has a family of microprocessor-based alarm control
equipment for use in security/fire system applications. The
Company's control line is comprised of controls for both
residential and commercial applications including multiplex
systems used to monitor large security system applications.
The acquisition of DA Systems provides the Company with a
control system product line that is approved for sale in the
U.K. market as well as other select geographic markets.
Radionics and DA Systems have each been considered one of the
leading U.S. and U.K. based manufacturers of control and
communication equipment in their respective markets, partially
due to their success in marketing their products to dealer
networks.
The Company continues to work with a national customer to
provide long-range transmissions of security and fire alarm
signals over the ARDIS radio network. ARDIS, an acronym for
Advanced Radio Data Information Service, offers an alternative
to telephone lines as the means for contacting a central
monitoring station, and ultimately the police or fire
department. The use of ARDIS increases alarm system
reliability and reduces vulnerability to tampering.
During fiscal 1997, the Company signed a licensing agreement
with UPLINK Security Inc. to incorporate BellSouth's new
Cellemetry data service into its Radionics brand security
control panels for the wireless transmission of alarm signals
to a central station. The patented Cellemetry technology is
both affordable and reliable because it enables alarm equipment
to use existing cellular networks for its data communication.
Because it is deployed at the main cellular switch (MTSO)
rather than at cell sites, Cellemetry requires minimal up-front
investment from the cellular provider for deployment.
Detection Systems' Security Escort multiple user help call
system uses a digital micro-cellular architecture to provide
its subscribers with 24 hour protection. A hand-held Security
Escort transmitter enables an individual to simultaneously
trigger a strobe, sound a siren alarm and alert the appropriate
security personnel as to the subscriber's name, location,
address and any handicap. A unique test feature allows the
subscriber to test the system at any time and receive visual
confirmation that it is functioning properly.
MARKETING
The Company's products are installed in industrial, commercial,
institutional and residential buildings. The Company engages in
wholesale marketing and partnering to promote its security and
fire detection products. The Company markets directly to
professional installation and service companies through its
District Sales Managers, who are compensated on a salary plus
commission basis. The Company also sells its security products
to independent stocking distributors, who in turn sell to alarm
installation and service companies. The Company sells security
and fire detection products directly to several companies who
market electronic security and fire alarm systems under their
own "private label."
Radionics and DA Systems sell their products to national
dealer/installer networks which combine their products and
other supplier components to form complete systems. From its
inception, Radionics has sold its products to installation
companies in the high-end commercial, retail and governmental
markets. More recently, Radionics has broadened its product
offering by supplying lower-end products suitable for the
residential market where there is considerable growth.
Conversely DA Systems has sold its products to installation
companies and distributors in the small commercial and
residential markets where there is considerable growth.
Detection Systems is actively promoting the Security Escort"
multiple user help call system throughout North America and in
Australia. While the system was initially designed for the
protection of individuals on college and university campuses,
the technology is also suitable for other applications. The
Company is exploring additional distribution relationships to
expand its market coverage for the system to other
environments, such as apartment complexes, condominiums,
retirement communities, hospitals, correctional facilities,
governmental facilities and manufacturing facilities.
The Company continues to develop and expand partnering and
working relationships with its national and international
customers. Large regional and national accounts are supported
directly by Regional Sales and Service Managers. The Company's
sales managers provide technical support to customers regarding
system design, installation and service. The Company also
conducts regular training programs for its customers' as well
as technical seminars at national and regional shows. A call
to the Company's 800 sales number typically results in same day
shipment of most standard products from two warehouses. To
support the on-site installer or service person, toll-free 800
lines connect directly to the Technical Service Department.
For the Company's international program, sales offices have
been opened in Australia, China, France, Hong Kong and the
United Kingdom. Each office is staffed with qualified
professionals with extensive security industry sales
experience. They are charged with the responsibility of
promoting the Company's products in the targeted countries,
determining future customer needs and providing technical
support. In addition, the Company has established distributors
and/or sales representatives in over 40 additional countries.
The Company's sales strategy includes providing its customers
with a full product catalog to fulfill the majority of their
electronic security and fire protection detector and system
needs. Examples of this strategy were the Radionics and DA
Systems acquisitions. In other cases, this will be
accomplished through strategic alliances with other vendors to
allow the Company to be a full-line supplier. Foreign sales
(including sales to Canada) accounted for approximately 16% of
net sales in fiscal 1997. See Note 10 to the Company's
consolidated financial statements for more detailed information
about foreign operations and export sales.
Domestically, the combined companies of Detection Systems and
Radionics maintain regional sales/training personnel in
Arizona, California, Georgia, Florida, Illinois, Indiana,
Massachusetts, Nebraska, Pennsylvania, Ohio, Tennessee, Texas,
Virginia and Washington. In addition, Detection Systems
maintains stock at the Radionics' facility in Salinas,
California. Some of the Company's international sales efforts
are handled out of the corporate office in Fairport; however,
distribution centers have been established in Australia, the
U.K. and Hong Kong.
Although the Company has a broad customer base, it does have
several customers who individually account for substantial
amounts of business. In fiscal 1997, sales to the Company's
largest customers accounted for 11.9% and 10.4%, respectively,
of net sales. No other customer accounted for more than 10% of
the Company's net sales. In fiscal 1996, sales the Company's
largest customers were 14% and 10%, respectively, of net sales.
In fiscal 1995, sales the Company's largest customers were 23%
and 22%, respectively, of net sales. Although the Company's
business is not seasonal, a significant change in purchases by
one of these customers could result in fluctuations in sales
and profit. The Company believes that the combination of its
five acquisitions since February 1996, its international
initiative and its increased use of distributors have reduced
the effect of sales fluctuations associated with the Company's
largest customers.
MANUFACTURING
The Company manufactures electronic products intended primarily
for the security and fire protection industries at its
Fairport, New York, facility. It designs and prepares
specifications for the component parts used in its products,
including circuit boards, transistors, integrated circuits and
cabinetry, all of which it purchases from outside sources.
These components are assembled into finished products at the
Fairport facility. Emphasis on technological innovation and
reliability has resulted in the Company's products having an
excellent field reputation. Many units manufactured in the
1970's are still in active service today.
Before product assembly, components are sample tested for
compliance with quality control standards and critical
components are individually tested. The assembly of circuit
boards is accomplished by Company personnel with the aid of
both automatic and semi-automatic assembly equipment.
Assembled circuit boards are flow soldered and cleaned.
Intermediate quality control processes are used to evaluate
components and products being transferred between assembly
departments. Completed circuit boards are tested on a
computerized circuit board evaluator and they are calibrated
against performance standards.
The Company established a second manufacturing facility in
Southeast Asia during fiscal 1996. Manufacturing operations
and first product shipments began in October 1995. Detection
Systems initially duplicated in its Southeast Asia facility the
same proven manufacturing procedures and processes used in its
Fairport facility. During the intervening time, the Company's
Southeast Asia manufacturing management has fine tuned the
process to take advantage of local conditions. The Company is
currently transitioning products from Detection Systems and
Radionics to the Southeast Asia manufacturing facility to take
advantage of lower production costs at this facility. During
fiscal 1997, approximately 40% of the Company's production
volume was manufactured in Southeast Asia.
The Radionics' manufacturing facility also utilizes the same
quality proven technology as used in Fairport. During fiscal
1997, the Company steadily transitioned production out of this
facility. Since year-end, the Company has ceased using this
facility for regular product manufacturing and is currently
using the production area for product configuration.
COMPETITION
The Company believes it is in the top five of security industry
manufacturers in the United States market. The U.S. security
systems industry consists of approximately 40 manufacturers
providing a wide range of products, from simple sensor
components to complete systems. The Company believes its three
major competitors are Pittway Corporation, the Berwind Group
and C&K Systems. Professional installation and service
companies consider product reliability, both in performance and
testing, as well as the incorporation of advanced technological
features, ease of installation, sales support and price when
selecting intrusion and fire detection equipment. The Company
competes on the bases of performance, features, quality,
reliability and delivery of its products; its customer
technical support services offered; and on the basis of price.
Although the Company's principal method of competition is not
price, competitive market conditions have caused average sales
prices to decrease steadily since the Company's founding.
RESEARCH AND DEVELOPMENT
During the fiscal years ended March 31, 1995, 1996 and 1997,
the Company expended approximately $4,070,000, $4,700,000 and
$8,115,000, respectively, on research and development
activities relating to the development of new products and the
improvement of existing products.
The Company has continually placed significant emphasis on
research and development activities through internal efforts.
The acquisitions of Radionics, Safecom and DA Systems has
provided additional technologies to those it already possessed.
It is the Company's intent to continue with its development
efforts to keep pace with technological advances in the
security and fire protection industries by either further
internal efforts or by additional acquisitions.
The Company has been granted over 25 patents related to its
products. While the Company obtains patents as appropriate and
considers certain of its patents valuable, it does not believe
patents to be of material importance in the successful conduct
of its business. Trademarks, licenses, franchises and
concessions are not material factors in the Company's business.
EMPLOYEES
At March 31, 1997, the Company employed approximately 744
persons worldwide. None of the Company's employees is
represented by a collective bargaining organization, and the
Company's management believes employee relations are good.
BACKLOG, RAW MATERIALS, ENVIRONMENTAL AND OTHER MATTERS
Backlog is not significant in the business of the Company. In
general, orders are processed from inventory on a relatively
current basis. It is the Company's practice to maintain four
weeks of finished goods inventory for all products in order to
meet customer requirements.
Raw materials and components essential to the Company's
business are readily available and the Company is not
materially dependent upon any one source. The Company sources
raw materials and components internationally, including several
Pacific Rim countries.
Compliance with federal, state and local laws and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, have not had and are not
expected to have a material effect upon the capital
expenditures, earnings or competitive position of the Company.
A number of municipalities have enacted or are considering
enacting legislation which penalizes false alarms which trigger
responses by police or fire departments. The Company is unable
to quantify the effect such legislation will have on the
security and fire protection markets as a whole, but believes
false alarm legislation is causing many installation companies
to be more inclined toward the use of high quality equipment.
ITEM 2. PROPERTIES.
The Company's manufacturing, research and general office
operations are conducted at its 92,000 square foot facility at
130 Perinton Parkway, Fairport, New York. This plant was re-
financed as part of the Radionics acquisition and the mortgage
loan is secured by a lien on the land and building.
Radionics' manufacturing, research and general office
operations are conducted at its leased 156,000 square foot
facility located in Salinas, California. The lease extends to
July of 1999.
Internationally, the Company has leased a 70,000 square foot
manufacturing facility in Southeast Asia and has offices /
distribution centers located in Australia, France, Hong Kong
and the United Kingdom, as well as a manufacturing facility in
the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the Company's fourth quarter ending March 31,
1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
The Company's common stock trades on The Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol: DETC. On
June 13, 1997, the closing price, as reported by The Nasdaq
Stock Market, was $17.50 per share, and the number of
shareholders was approximately 3,200. Certain information
regarding the price range of the Company's Common Stock
(quarterly high and low) is presented below:
PRICE RANGE OF COMMON STOCK
The quarterly high and low bid of the Company's common stock during
the past
three years (in dollars):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Fiscal Fiscal Fiscal
1998* 1997** 1996** 1995**
High / Low High / Low High / Low High / Low
First
Quarter
ended
June 30 20-1/4 12-1/2 12-5/16 6-5/16 5-3/16 4-5/16 7 4
Second
Quarter
ended
Sept 30 13-13/16 9-11/16 5-3/16 5-3/8 6-5/16 4-1/16
Third
Quarter
ended
Dec 31 20-7/8 10-3/4 5-1/4 3-15/16 6-1/4 3-11/16
Fourth
Quarter
Ended
March 31 25-1/2 14-1/2 6-1/2 3-11/16 5-5/16 3-3/16
* Through June 17, 1997
** Restated to reflect the three-for-two stock split
distributed December 17, 1996.
In May of 1997, the Company acquired Digital Audio Limited from
Numerex Corp. in exchange for 226,168 shares of the Company's
common stock valued at $3.9 million. These shares are
callable, at the Company's option, at $17 per share plus
interest at 8.25% until June 30, 1998, and may be put by
Numerex to the Company at that price after that date. These
securities have not been registered with the Securities and
Exchange Commission in reliance upon exemption by Section 4(2)
of the Securities Act of 1933.
The Company has never paid cash dividends on its Common Stock.
The Company presently intends to retain all future earnings, if
any, for the operation and expansion of its business and does
not expect to pay any cash dividends on its common stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The fiscal 1997 and the fourth quarter fiscal 1996 results are
not comparable to the earlier periods due to the acquisition of
Radionics on February 12, 1996. Interim quarterly results for
the Company over the past three years were as follows
(thousands of dollars, except per share data)(unaudited):
data):
Fiscal Year Ending NET GROSS NET INCOME
March 31, SALES MARGIN INCOME PER SHARE*
- ------------------ ----- ------ ------ ---------
1997
Fourth Quarter $26,765 $11,159 $1,233 .24
Third Quarter 26,442 9,075 1,074 .22
Second Quarter 24,866 8,288 794 .17
First Quarter 23,178 7,813 624 .13
1996
Fourth Quarter $15,204 $4,359 ($7,353 ) ($1.72 )
Third Quarter 8,564 2,572 (596 ) (.14 )
Second Quarter 9,299 3,380 (69 ) (.01 )
First Quarter 8,791 3,568 163 .04
1995
Fourth Quarter $8,075 $3,193 $ 27 --
Third Quarter 9,416 3,759 569 $.13
Second Quarter 8,672 3,362 460 .11
First Quarter 8,173 3,192 458 .11
* Restated to reflect the three-for-two stock split
distributed December 17, 1996
The Company's five year summary of operations is presented
below:
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996* 1995*
---- ---- ----
Net Sales $101,251,000 $41,858,000 $34,336,000
Income (Loss) Before Taxes
and Cumulative Effect of
a Change in Accounting
Principle 5,250,000 (10,665,000) 2,592,000
Provision (Benefit)
for Taxes 1,525,000 (2,810,000) 1,078,000
Net Income (Loss) 3,725,000 (7,855,000) 1,514,000
AT YEAR END
Current Assets $50,501,000 $28,426,000 $17,953,000
Current Liabilities 19,434,000 12,714,000 2,990,000
Working Capital 31,067,000 15,712,000 14,963,000
Total Assets 68,276,000 45,897,000 24,745,000
Long term Debt and
Obligations under
Capital Lease 28,086,000 17,936,000 746,000
Deferred Compensation 1,751,000 1,746,000 1,528,000
Shareholders' Equity 17,831,000 11,569,000 19,194,000
Number of Employees 744 595 320
Number of Shareholders 4,000 3,200 3,000
PER SHARE AMOUNTS
Net Income (Loss) $.76 ($1.83) $.35
Shareholders' Equity $3.99 $2.75 $4.59
RATIOS/PERCENTAGES
Gross Profit (Loss) + Sales 35.9% 33.2% 39.3%
Pre-Tax Profit (Loss) + Sales 5.2% (25.5%) 7.5%
Net Income (Loss) + Sales 3.7% ( 18.8%) 4.4%
Current Ratio 2.6 to 1 2.2 to 1 6.0 to 1
</TABLE>
*Per share amounts have been restated to reflect the three-for-
two stock split distributed December 17, 1996.
<TABLE>
<S> <C> <C>
Year Ended March 31, 1994* 1993 *
---- ----
Net Sales $31,355,000 29,431,000
Income Before Taxes
and cumulative effect of
a change in Accounting 131,000
Principle 1,571,000 2,356,000
Provision for Taxes 427,000 919,000
Cumulative Effect of a
Change in Accounting
Principle 131,000
Net Income 1,275,000 1,437,000
AT YEAR END
Current Assets $15,836,000 $15,764,000
Current Liabilities 2,389,000 3,559,000
Working Capital 13,447,000 12,205,000
Total Assets 22,780,000 22,543,000
Long-term Debt and
Obligations under
Capital Lease 1,145,000 1,149,000
Deferred Compensation 1,424,000 1,229,000
Shareholders' Equity 17,492,000 16,059,000
Number of Employees 354 389
Number of Shareholders 3,000 2,800
PER SHARE AMOUNTS
Net Income $.30 $.34
Shareholders' Equity $4.33 $3.99
RATIOS/PERCENTAGES
Gross Profit + Sales 37.7% 38.7%
Pre-Tax Profit + Sales 5.0% 8.0%
Net Income + Sales 4.1% 4.9%
Current Ratio 6.6 to 1 4.4 to 1
</TABLE>
*Per share amounts have been restated to reflect the three-for-
two stock split distributed December 17, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
The Company designs, manufactures and markets electronic
detection, control and communication equipment for the
security, fire protection, access control and CCTV industries.
From its inception in 1968 until the early 1990s, the Company
was primarily a niche provider of intrusion detection devices
for the domestic market. In 1995, the Company adopted a
strategy which focused on expanding its product offerings,
establishing an international sales presence, increasing its
manufacturing capacity and improving its manufacturing cost
structure. The Company has since made five acquisitions,
opened sales offices in seven countries and successfully
established a manufacturing facility in China. These
initiatives have enabled the Company to significantly expand
its product catalog and market scope and to increase its net
sales from $34.3 million in fiscal 1995 to $101.3 million in
fiscal 1997.
The Company more than doubled its annualized net sales
with its purchase of Radionics, Inc. ("Radionics") in February
1996. The Radionics acquisition had a significant impact on
the comparative information for fiscal 1996 and 1997 with
respect to both the results of operations as well as asset and
liability balances. Radionics had annual net sales of $45.1
million for its year ended December 31, 1995. The Radionics
acquisition was funded by borrowings under a commercial credit
facility which has resulted in a significant increase in
interest expense for the periods following the acquisition.
In April 1995, the Company commenced development of a
manufacturing facility in China which became operational in
October 1995. This facility has significantly increased the
manufacturing capacity of the Company. The Company has
realized manufacturing efficiencies by transitioning to its
China facility a portion of its domestic manufacturing
operations, including substantially all of the manufacturing
operations previously conducted by Radionics. The Company
believes that these efficiencies, coupled with the volume
generated by its expanded product catalog and sales network,
will enable it to reduce its unit manufacturing costs and
increase its operating and gross profit margins.
The Company has recently completed four additional
acquisitions: (i) the purchase of certain assets of Senses
International, Inc. ("Senses") in October 1996 which had annual
net sales of approximately $2.0 million, (ii) the purchase of
Digital Audio Limited ("DA Systems") in May 1997 which had
annual net sales of approximately $10.8 million, (iii) the
purchase of Seriee, SA ("Seriee") in June 1997 which had annual
net sales of approximately $6.3 million, and (iv) the purchase
of Radio-Active Systems nv ("RAS") in June 1997 which had
annual net sales of approximately $10.0 million.
The Company recognizes net sales upon shipment of products
to customers. Production expenses include materials, direct
labor and overhead as well as an allocated portion of indirect
overhead. Outgoing freight, customs and other costs associated
with delivery of the product to customers are classified under
marketing, administrative and general expenses. Research and
development expenses include costs associated with salaries,
benefits and travel-related expenses for certain engineering
employees, supplies, agency approvals, depreciation and
telephone, as well as charges for independent testing and
independent contractors engaged for specific projects.
Marketing, administrative and general expenses include costs
related to the Company's sales efforts and corporate and
general administrative functions, including costs of executive,
administrative and sales personnel, marketing/selling supplies,
advertising, depreciation and professional fees.
The following table sets forth, for the periods indicated,
the percentages which certain items of income and expense bear
to net sales:
<TABLE>
<S> <C> <C> <C>
Fiscal Year Ended March 31, 1995 1996 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Costs and Expenses:
Production 60.7 66.8 64.1
Research and development 11.9 11.2 8.0
Purchased in - process research
and development -- 22.3 --
Marketing, administrative & 19.8 25.1 21.1
general ----- ----- -----
92.3 125.5 93.3
----- ----- -----
Operating income (loss) 7.7 ( 25.5 ) 6.7
Interest income 0.3 0.8 0.2
Interest expense 0.5 ( 0.8 ) ( 1.7 )
----- ----- -----
Income (loss) before income
taxes and cumulative effect of
a change in accounting 7.5 ( 25.5 ) 5.2
principle
Provision (benefit) for income 3.1 ( 6.7 ) 1.5
taxes
----- ----- -----
Income (loss) before cumulative
effect of a change in
accounting principle 4.4 ( 18.8 ) 3.7
----- ----- -----
Net income (loss) 4.4 % ( 18.8 )% 3.7%
===== ===== =====
</TABLE>
Year Ended March 31, 1997 Compared to Year Ended March 31, 1996
The Company's net sales increased 141.9% to $101.3 million in
fiscal 1997 from $41.9 million in fiscal 1996. The acquisition
of Radionics in February 1996 accounted for $45.6 million of
this increase, while international and domestic sales growth
accounted for $7.2 million and $6.5 million, respectively. See
Note 10 of the Notes to the Consolidated Financial Statements
for information regarding the Company's sales information by
geographic area.
Production expenses increased 132.0% to $64.9 million in fiscal
1997 from $28.0 million in fiscal 1996. As a percentage of net
sales, production expenses decreased to 64.1% in fiscal 1997
from 66.8% in fiscal 1996. The increase in production expenses
was primarily due to a corresponding increase in the Company's
net sales. The decrease in production expenses as a percentage
of net sales was primarily due to manufacturing efficiencies
achieved by transitioning a portion of its domestic
manufacturing to its China facility during fiscal 1997. This
decrease was achieved despite the lower gross margins
experienced by the Company from certain of its initial
international sales. The Company anticipates further cost
savings from the continued consolidation of its manufacturing
operations during fiscal 1998 and 1999.
Research and development expenses increased 72.7% to $8.1
million in fiscal 1997 from $4.7 million in fiscal 1996. As a
percentage of net sales, research and development expenses
decreased to 8.0% in fiscal 1997 from 11.2% in fiscal 1996.
The increase in research and development expenses was primarily
due to the addition of Radionics' research and development
expenses. The decrease in research and development expenses as
a percentage of net sales was primarily due to synergies
achieved by the consolidation of certain research and
development efforts of Radionics and the Company.
Marketing, administrative and general expenses increased 103.6%
to $21.4 million in fiscal 1997 from $10.5 million in fiscal
1996. As a percentage of net sales, marketing, administrative
and general expenses decreased to 21.1% in fiscal 1997 from
25.1% in fiscal 1996. The increase in marketing,
administrative and general expenses was primarily due to the
addition of Radionics' operations. The decrease in marketing,
administrative and general expenses as a percentage of net
sales was primarily due to savings derived from the
consolidation of Radionics into the Company's organization
Interest expense increased to $1.8 million in fiscal 1997 from
$0.3 million in fiscal 1996. This increase was primarily due
to the debt financing associated with the Radionics
acquisition. Interest income decreased to $0.2 in fiscal 1997
from $0.3 in fiscal 1996.
Income before income taxes was $5.2 million in fiscal 1997
compared to a loss of $10.7 million for fiscal 1996. The
fiscal 1996 results included a $9.4 million non-recurring
charge related to in-process research and development
associated with the Radionics acquisition. The remainder of the
improvement was due to the other factors described above.
The Company's effective income tax rate for fiscal 1997 was
29.0% compared to a benefit rate of 26.4% in fiscal 1996. The
fiscal 1997 effective rate reflects the benefits of certain
lower foreign tax rates used to promote economic growth and the
utilization of certain loss carryforwards from fiscal 1996.
Year Ended March 31, 1996 Compared to the Year Ended March 31,
1995
The Company's net sales increased 21.9% to $41.9 million in
fiscal 1996 from $34.3 million in fiscal 1995. The acquisition
of Radionics in February 1996 accounted for $6.0 million of
this increase. In addition, international sales grew by $4.9
million in fiscal 1996 as a result of the Company's
international sales initiative. This increase was partially
offset by a $3.4 million decline in domestic sales primarily
attributable to reduced sales to a single domestic customer.
See Note 10 of the Notes to the Consolidated Financial
Statements for information regarding the Company's sales
information by geographic area.
Production expenses increased 34.3% to $28.0 million in fiscal
1996 from $20.8 million in fiscal 1995. As a percentage of net
sales, production expenses increased to 66.8% in fiscal 1996
from 60.7% in fiscal 1995. The increase in production expenses
was primarily due to a corresponding increase in the Company's
net sales. The increase in production expenses as a percentage
of net sales was primarily due to the expensing of startup
costs associated with the Company's China manufacturing
facility.
Research and development expenses increased 15.5% to $4.7
million in fiscal 1996 from $4.1 million in fiscal 1995. As a
percentage of net sales, research and development expenses
decreased to 11.2% in fiscal 1996 from 11.9% in fiscal 1995.
The increase in research and development expenses was primarily
due to the addition of Radionics' research and development
expenses.
Marketing, administrative and general expenses increased 54.9%
to $10.5 million in fiscal 1996 from $6.8 million in fiscal
1995. As a percentage of net sales, marketing, administrative
and general expenses increased to 25.1% in fiscal 1996 from
19.8% in fiscal 1995. The increase in marketing,
administrative and general expenses, both in dollars and as a
percentage of net sales, was primarily due to costs associated
with the startup of foreign operations and the addition of
Radionics' operations.
Interest expense increased to $0.3 million in fiscal 1996 from
$0.2 million in fiscal 1995, and interest income increased to
$0.3 in fiscal 1996 from $0.1 in fiscal 1995.
The Company incurred a loss before income taxes of $10.7
million in fiscal 1996 compared to income of $2.6 million for
fiscal 1995. The fiscal 1996 results included a $9.4 million
non-recurring charge related to in-process research and
development associated with the Radionics acquisition. The
remainder of the decline was due to the other factors described
above.
The Company's effective income tax rate for fiscal 1996 was a
benefit of 26.4% compared to a tax rate of 41.6% in fiscal
1995. The benefit rate for fiscal 1996 resulted from the
Company's inability to fully recognize tax benefits associated
with certain subsidiary losses and certain other items not
deductible for tax purposes. The fiscal 1995 corporate tax rate
was consistent with domestic, federal and state effective rates
at that time.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its
long- and short-term cash requirements. Prior to 1996, those
requirements were primarily met by cash generated by the
Company's operating activities and cash reserves. Since the
implementation of the Company's strategy designed to enhance
the Company's product offerings, manufacturing capacity and
international operations, particularly the acquisition of
Radionics and the development of the Company's China
manufacturing facility, the Company has required external
sources of financing to satisfy its liquidity needs.
Year Ended March 31, 1997. During fiscal 1997, the
Company's operating activities used $6.6 million. The primary
factor contributing to this use of cash was a $15.9 million
increase in inventories which resulted from the transition of the
manufacturing of the Company's products to the China facility.
Sources of operating cash from net income, depreciation and
amortization totalled $6.5 million. Other balance sheet
changes contributed $2.9 million to operating cash flow. The
Company believes that the consolidation of its manufacturing
operations will enable the Company to reduce future inventory
levels.
During fiscal 1997, cash used for investing activities was $4.0
million which was expended for capital equipment for the
expansion of the Company's international operations and
production tooling relating to the Radionics' product lines.
During fiscal 1997, cash flows provided by financing activities
were $11.9 million. The two primary sources of this cash were:
(i) $10.0 million of borrowings under the Company's revolving
line of credit and (ii) receipt of $2.0 million from a private
placement of Common Stock which the Company completed with five
corporate pension funds in October 1996.
Year Ended March 31, 1996. During fiscal 1996, the
Company's operating activities used $3.4 million. The primary
factors contributing to this use of cash were a $7.9 million
loss from operations and an increase in inventories of $4.3
million during the year. Sources of operating cash included
depreciation and amortization of $2.0 million and a $9.4
million non-cash charge related to the write-off of in-process
research and development associated with the Radionics
acquisition. Other balance sheet changes used $2.7 million of
cash.
During fiscal 1996, cash used for investing activities was
$18.9 million, consisting of the purchase of Radionics for
$18.0 million and capital expenditures of $3.4 million, offset
by liquidation of short-term investments of $2.4 million.
During fiscal 1996, cash flows provided by financing activities
were $18.7 million. The source of this cash was $18.9 million
of borrowings under the Company's commercial credit facility,
offset by principal payments on capital lease obligations.
Capital Resources. On March 31, 1997, the
Company had cash balances of $2.2 million. On such date, the
Company has a $11.5 million bank commitment for a revolving
line of credit that was fully drawn upon. Subsequently, this
commitment has been increased to $17.0 million, a portion of
which was used for recent acquisitions. This commitment
extends into fiscal 1999 and includes an interest rate based on
the London Interbank Offered Rate plus applicable points based
on the Company's performance. The balance becomes fully due
and payable on the Revolving Line Termination Date of May 31,
1998.
The Company expects to continue expenditures on acquisitions
and the development of new products and markets. These
expenditures will include continued investment in security
detection, fire detection, security, fire and access control
products as well as several wireless projects. The Company
also plans to continue its efforts to market its products
internationally. The Company has budgeted $3.0 million for
capital expenditures during fiscal 1998.
The Company believes that the combination of its current cash
balances, cash flows from operations and existing credit
facilities will be sufficient to fund its planned operations
during fiscal 1998.
Dividend Policy. The Company is dedicated to
promoting shareholder value through long term profitability and
growth and believes that continued investments in future
product development are essential to this goal. For this
reason, it has been the Company's policy to not pay cash
dividends.
Inflation. During fiscal 1997, 1996,
and 1995, inflation did not have a significant impact on the
Company's business.
Forward-Looking Statements
The foregoing discussion and analysis contain certain
"forward-looking statements" within the meaning of Section 27A
of the Securities Act, which represent the Company's
expectations or beliefs, including, but not limited to,
statements concerning the Company's operations, performance,
financial condition, growth and acquisition strategies, margins
and growth in sales of the Company's products. For this
purpose, any statements contained therein that are not
statements of historical fact may be deemed to be
forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, certain of which
are beyond the Company's control, and actual results may differ
materially depending on a variety of important factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required in
this section are included as Exhibit 13 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The officers of the Company are as follows:
Name and Age Position, Offices Held and Year Appointed
Karl H. Kostusiak (58) President (1968)
David B. Lederer (57) Executive Vice President (1968)
George E. Behlke (39) Vice President, Engineering (1995)
Gary Holroyd (38) Vice President, Manufacturing (1996)
Frank J. Ryan (43) Vice President, Secretary and Treasurer (1982)
Lawrence R. Tracy (50) President, Radionics and Detection
Systems Inc.International, Inc., subsidiaries
of Detection Systems, Inc. (1995)
Each officer is elected to serve until the first meeting of the
Board of Directors held after the next annual meeting of
shareholders and until his successor is elected and has
qualified. There is no family relationship between any of the
above officers.
Messrs. Kostusiak and Lederer have been President and Executive
Vice President of the Company since it was formed in 1968. Mr.
Ryan has been employed by the Company in various financial
positions since 1980 and was promoted to Vice President in
1989. Mr. Holroyd has been employed by the Company since the
acquisition of Radionics in February 1996 and was promoted to
Vice President of Detection Systems in November 1996. Mr.
Tracy was hired in February 1995 as President of the Company's
Detection Systems International, Inc. subsidiary and was named
President of Radionics, Inc. on February 13, 1996. Mr. Behlke
has been employed by the Company in various engineering
positions since 1977 and was promoted in May 1995 to Vice
President.
The Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders contains the other information required by Item 10
of Form 10-K. That information is incorporated by reference to
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The "Executive Compensation" section of the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders contains
the information required by Item 11, and is incorporated by
reference to this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Company has stock purchase agreements with Messrs.
Kostusiak and Lederer which could in the future result in a
change of control of the registrant. These agreements are
included in Exhibit 10 of this Form 10-K.
The Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders contains the information required by Item 12, and
is incorporated by reference to this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders contains the information required by Item 13, and
is incorporated by reference to this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a)(I)
and (2) The required financial statements and
schedules are contained herein or as exhibits.
(a)(3) See Exhibit Index attached to this Report on
Form 10-K.
(b) There were no Form 8-K filings during the last
quarter of the period covered by this report
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DETECTION SYSTEMS, INC.
(Registrant)
Date: June 27, 1997 By: /s/ Karl H. Kostusiak
Karl H. Kostusiak
President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/ Karl H. Kostusiak President and Director June 27, 1997
Karl H. Kostusiak (Principal Executive
Officer)
/s/ Frank J. Ryan Vice President June 27, 1997
Frank J. Ryan
Secretary/Treasurer
(Principal Financial
Officer and Principal
Accounting Officer)
Donald R. Adair Director
Mortimer B. Fuller, III Director
David B. Lederer Director
By: s/s Karl H. Kostusiak, Attorney-in-Fact June 27, 1997
Karl H. Kostusiak
EXHIBIT INDEX
Item Exhibits Location
No.
2(a) Definitive Stock Incorporated by reference as
Purchase Exhibit 2 to the Company's
Agreement, dated Form 8K/A filed April 29,
February 12, 1996, for 1996
purchase of stock of
Radionics, Inc.
2(b) Asset Purchase Included as Exhibit 2(b) of
Agreement, dated July this Annual Report on Form
22, 1996, for the 10-K
purchase of the assets
of Senses
International
2(c) Stock Purchase Incorporated by reference as
Agreement, dated May Exhibit 2-1 to the Company's
7, 1997, for the Form-8K filed May 21, 1997
purchase of the stock
of Digital Audio
Limited
3(a) Detection Systems, Included as Exhibit 3(a) of
Inc. Certificate of this Annual Report on Form
Incorporation 10-K
3(b) Detection Systems, Included as Exhibit 3(b) of
Inc. this Annual Report on Form
By-Laws as amended 10-K
4 Rights of Holders of Incorporated by reference to
common Exhibit 4 of the Company's
stock - 1981 plan 1993 Annual Report on Form
10-K
10 Non-employee director Incorporated by reference to
(a) stock Exhibit 10(a) of the
option plan (warrant Company's 1994 Annual Report
plan) on Form 10-K
10 Medical reimbursement Included as Exhibit 10(b) of
(b) plan this Annual Report on Form
10-K
10 Employee stock Incorporated by reference to
(c) purchase plan Exhibit 10 of the Company's
1994 Annual Report on Form
10-K
10 Fleet Amended & Incorporated by reference to
(d) Restated Credit Exhibit 10(d) of the
Facility Agreement Company's 1996 Annual Report
dated February 12, on Form 10-K
1996
10 Included as Exhibit 10(d) of
(d) Amended and Restated this Annual Report on Form
Credit Facility 10-K
Agreement (Amendment
#1) dated May 31, 1996
10 Amended and Restated Included as Exhibit 10(d) of
(d) Credit Facility this Annual Report on Form
Agreement (Amendment 10-K
#2) dated February 13,
1997
10 Deferred Compensation Included as Exhibit 10(e) to
(e) Plan and Deferred this Annual Report on Form
Bonus Plan, both 10-K
amended January 1997.
10 1992 Restated Stock Incorporated by reference to
(f) Option Exhibit 22 of the Company's
Plan 1995 Annual Report on Form
10-K
10 Detection Systems, Included as Exhibit 10(g) of
(g) Inc. Executive Bonus this Annual Report on Form
Plan 10-K
10 Executive employment Incorporated by reference to
(h) contract with Karl H. Exhibit 10(h) of the
Kostusiak. Company's 1996 Annual Report
on Form 10-K
10 Executive employment Incorporated by reference to
(i) contract with David B. Exhibit 10(i) of the
Lederer. Company's 1996 Annual Report
on Form 10-K
10 Executive employment Incorporated by reference to
(j) contract with Lawrence Exhibit 10 of the Company's
R. Tracy. 1995 Annual Report on Form
10-K.
10 ECI Amended License Incorporated by reference to
(k) and Mfg. Agreement & Exhibit 10(k) of the
Amendment No. 1 Company's 1996 Annual Report
on Form 10-K
10 Shareholders Incorporated by reference to
(l) Agreements w/ Exhibit 10 of the Company's
ECI 1994 Annual Report on Form
10-K
10 Stock Purchase Included as Exhibit 10(n) of
(n) Agreements with Karl this Annual Report on Form
H. Kostusiak and David 10-K
B. Lederer
10 Joint Venture Incorporated by reference to
(o) Agreement for Exhibit 10(o) of the
Establishment of D.S. Company's 1996 Annual Report
First Systems on Form 10-K
(Beijing) Limited
11 Statement re: Included as Exhibit 11 of
Computation of Per this Annual Report on Form
Share Earnings 10-K
13 Excerpts from Annual Included as Exhibit 13 of
Report this Annual Report on Form
to Security Holders 10-K
22 Proxy Statement To be filed within 120 days
of the Company's fiscal year
end.
23 Consent of Independent Included as Exhibit 23 of
Accountants this Annual Report on Form
10-K
24 Powers of Attorney Included as Exhibit 24 of
this Annual Report on Form
10-K
27 Financial Data Included as Exhibit 27 of
Schedule this Annual Report on Form
10-K
EXHIBIT 2b
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is dated as of
July 22, 1996, by and between SENSES INTERNATIONAL, a
California corporation, dba SAFECOM PRODUCTS ("Seller") and
DETECTION SYSTEMS, INC., a New York corporation ("Buyer").
RECITALS
WHEREAS, Seller has determined that it is in its best
interest to sell substantially all of its assets to Buyer for
the price and on the terms and conditions set forth below; and
WHEREAS, Buyer is willing to buy those assets offered by
Seller for the price and on the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained in this
Agreement, the parties agree as follows:
AGREEMENT
1. Sale and Purchase of Assets.
a. Assets Transferred by Seller. Seller sells,
assigns, transfers and conveys to Buyer all the right, title
and interest of Seller in the following assets, together with
any and all goodwill adhering thereto, held by Seller
(collectively the "Assets"):
i. All U.S. and foreign patents and patent
applications, inventions and designs whether or not patentable
or otherwise registrable, more fully described on Schedule 1
("Patents").
ii. All U.S. and foreign copyrights, source
codes, permissions and licenses to use copyrighted material
owned by others, more fully described on Schedule 2
("Copyrights").
iii. Those certain trademarks, service marks,
trade names, logos and slogans more fully described on Schedule
3 ("Trademarks").
iv. Those certain contracts, including
executory contracts, related to or useful in the Seller's
business more fully described on Schedule 4. ("Contracts").
v. All customer lists, supplier lists, mailing
lists, advertising and promotional materials, catalogs, price
and product lists, sales and credit records and files, and
papers, software, correspondence and reports, including
computerized reports, relating thereto ("Business Records").
vi. Seller's claims and rights against third
parties relating to the Assets, including without limitation,
insurance claims, vendors' warranties, rights of recovery,
set-offs and credits.
vii. All trade secrets, know-how, procedures,
software files, market surveys and marketing know-how ("Trade
Secrets").
viii. All Underwriters Laboratories ("UL") and
Federal Communications Commission ("FCC") and National Fire
Protection Association ("NFPA") listings more fully described
on Schedule 5 ("Listings") to the extent such Listings are
transferable.
ix. Seller's inventory of raw materials, work
in process and finished goods exclusive of inventory determined
to be obsolete by Buyer pursuant to Section 4.a.(3) below
("Inventory").
x. Seller's accounts receivable, rights to
deposits, cash, prepayments and notes receivable, and all
proceeds thereof, other than those receivables purchased by
Concord Growth Corporation ("CGC") pursuant to (a) that certain
Factoring Agreement dated August 28, 1995, between Seller and
CGC, (b) that certain Continuation Agreement dated as of April
1, 1996 between Seller and CGC and (c) that certain Stipulation
Between Debtor And Concord Growth Corporation For Secured
Post-Petition Financing On A Priority Basis (the "Concord
Receivables") and the proceeds of such Concord Receivables.
However, the Concord Receivables and the proceeds of the
Concord Receivables shall not include any receivables or
proceeds of receivables which CGC redelivers to Seller pursuant
to any of the agreements described above. (Such accounts
receivable, rights to deposits, prepayments and notes
receivable, and all proceeds therefrom exclusive of (i) the
Concord Receivables and (ii) the proceeds of any Concord
Receivables are hereafter referred to as the "Receivables").
xi. All equipment, furniture, fixtures, and
other fixed assets more fully described on Schedule 6 ("Fixed
Assets").
xii. Seller's goodwill.
b. Assets Not Transferred by Seller. Seller does
not sell, assign, transfer and convey to Buyer, and Seller
retains all right, title and interest in and to, the following
assets:
i. Inventory determined to be obsolete by
Buyer pursuant to Section 4.a.(3) below.
c. No Assumption of Seller's Liabilities. Except
for any of the Contracts identified on Schedule 4, Buyer is not
assuming any obligations or liabilities of the Seller.
2. Purchase Price and Payment. The purchase price to
be paid by Buyer to Seller for the Assets ("Purchase Price")
shall consist of the following:
a. Cash. Cash in the amount of $400,000 payable in
good collected funds on the Closing Date, as defined below.
b. Promissory Note. A promissory note issued on
the Closing Date by Buyer in favor of Seller in the principal
amount of $200,000, in a form substantially similar to Exhibit
A (the "Note"), attached hereto and incorporated by this
reference, payable 180 days following the Closing Date, subject
to adjustment and prepayment as set forth in Section 4, below.
c. Royalty. Buyer shall pay to Seller a royalty
for a period of four (4) years, commencing with the Closing
Date ("Royalty"). The Royalty shall be derived from the
Safecom Product line which shall be defined as all existing
Safecom products and future products that are configured with
the Safecom proprietary software and/or firmware (hereinafter
referred to as "Safecom Product".) If the Safecom Product is
integrated into a Buyer product, then Buyer shall pay the
Royalty in the amount of 7% of all sales of the complete
product sold by Buyer; if the Safecom Product is sold as a
separate component, then Buyer shall pay the Royalty in the
amount of 7% of all sales of the Safecom Product component
only. The Royalty shall be net of all credits, allowances,
returns, taxes and freight. Buyer shall pay the Royalty within
fifteen (15) days of the last day of each calendar quarter
beginning September 30, 1996 and ending September 30, 2000, and
at such time shall also provide an appropriate accounting for
the calculation of the Royalty setting forth each product sold,
the quantity sold, the sales price and the Royalty calculated
thereon. The Buyer shall not enter into an agreement to sell
or license the Safecom Product including the proprietary
software and/or firmware to a third party during the four year
period following the Closing Date unless such agreement to sell
or license provides for payment of the Royalty as described
herein by such third party to Seller. Buyer shall provide
Seller with a copy of any such proposed agreement to sell or
license prior to the execution of the same. Buyer's execution
of an agreement to sell or license the Safecom Product that
does not comply with the Buyer's obligations under this
Section, shall constitute a material default under this
Agreement.
3. Closing Date. The closing of the purchase and sale of
the Assets shall occur eleven (11) days after the entry of any
order by the United States Bankruptcy Court, Northern District
of California ("Bankruptcy Court"), approving this Agreement
("Closing Date") unless extended by written agreement of the
parties.
4. Adjustments to Purchase Price.
a. Adjustment to Amounts Owing Under Note. Within
15 days after the Closing Date, Buyer will commence and
complete an appraisal of the Seller's Inventory, Receivables,
and Fixed Assets to determine their fair market value. Buyer
and Seller have agreed in entering into the Agreement, that
these assets shall have the following values ("Appraised
Value"):
(1) Fixed Assets shall have an Appraised Value
of $75,000 regardless of actual value;
(2) Receivables shall have an Appraised Value
equal to the amount of such Receivables collected within 180
days of the Closing Date, exclusive of any amount paid on
account of the Concord Receivables and any proceeds of the
Concord Receivables; and
(3) Inventory shall have an Appraised Value of
actual purchase price (cost basis) on the date of appraisal.
Inventory determined by Buyer to be obsolete shall have no
value and shall not be an asset transferred to Buyer under this
Agreement, but
If the combined Appraised Value for items (1), (2) and (3)
above is less than $700,000, the amount Buyer shall pay to
Seller under the Note shall be reduced dollar-for-dollar, for
every dollar less than $700,000, up to a maximum reduction of
$200,000, which would constitute a reduction of the Purchase
Price.
b. Prepayments. If the Appraised Value of the
Fixed Assets, Receivables as collected and Inventory exceed
$500,000 on or before ninety (90) days after the Closing Date,
Buyer will prepay the Note within 120 days of the Closing Date,
in part, dollar for dollar of the combined Appraised Value
exceeding the $500,000 as of ninety (90) days after the Closing
Date.
5. Seller's Obligation Before Closing. Seller agrees
that from the date of this Agreement until the Closing Date:
a. Buyer's Access to Premises and Information.
Buyer and its counsel, accountants, and other representatives
shall have reasonable access during normal business hours to
all properties, books, accounts, records, contracts and
documents of Seller dealing with the sale of the Assets for the
sole purpose of allowing Buyer to complete its due diligence in
connection with the sale contemplated by this Agreement.
b. Conduct of Business in Normal Course. Except as
otherwise provided, Seller shall carry on its business
diligently and in substantially the same manner as it
previously has been carried out, and shall not make or
institute any unusual or novel methods of operation,
maintenance, management or accounting that will vary materially
from those methods used by Seller as of the date of this
Agreement; provided, however, that Seller shall comply with the
requirements of the Bankruptcy Court and applicable bankruptcy
laws.
c. Bankruptcy Court Approval. Seller shall use its
best efforts to obtain approval of the Bankruptcy Court to sell
the assets free and clear of liens and encumbrances and for any
appropriate orders, findings of fact and conclusions of law,
and other documentation as required by that Court. This
Agreement is subject to the approval of the Bankruptcy Court.
Buyer and Seller acknowledge that the sale of the Assets to
Buyer will be subject to such overbids as may be presented to
and approved by the Bankruptcy Court.
6. Buyer's Evidence of Necessary Approvals. Buyer has
delivered to Seller and Seller acknowledges receipt of written
approvals of the transaction contemplated by this Agreement
from the Buyer's Board of Directors and from Buyer's primary
lender, Fleet Bank.
7. Seller's Representations and Warranties. Seller
represents and warrants that:
a. Organization in Good Standing. Seller is a
California corporation, duly organized under the laws of the
State of California and has all necessary corporate powers to
own and transfer the Assets, as contemplated by this Agreement.
b. Authority and Consents. Seller has the right,
power, legal capacity and authority to enter into and perform
its obligations under this Agreement, subject to the approval
of the Bankruptcy Court. Seller's execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereunder have been duly authorized and no
further corporate authorization is necessary on the part of
Seller.
c. Absence of Undisclosed Liabilities and
Obligations. To the best of Seller's information, knowledge
and belief, Seller has no liabilities or obligations (whether
accrued, absolute, contingent or otherwise) other than the
liabilities and obligations set forth in the Seller's
Statements of Affairs and Schedules filed with the Bankruptcy
Court April 25, 1996, as they may be amended from time to time,
Seller's monthly operating reports as filed with the Bankruptcy
Court, or as otherwise disclosed to Buyer.
d. Licensing Agreements. To the best of Seller's
information, knowledge and belief, the Patents, Copyrights and
Trademarks are not subject to any license agreements,
encumbrances or impairments, except as otherwise disclosed to
Buyer.
e. List of Properties and Contracts. To the best
of Seller's information, knowledge and belief, Schedules 1
through 6 hereto contain accurate lists and summary
descriptions of the following:
(1) Schedule 1: Patents. All Patents of any
description and pending applications therefor, and inventions
and designs, whether or not patentable or otherwise
registrable.
(2) Schedule 2: Copyrights. All U.S. and
foreign copyrights, source codes, permissions and licenses to
use copyrighted materials, all copyright registrations and
pending applications therefor, and all other copyrights.
(3) Schedule 3: Trademarks. All registrations
of trademarks and of other marks, all registrations of trade
names, labels, or other trade rights, all registered user
entries, all pending applications for any such registrations or
entries, common law trademarks, and other marks, trade names
and other trade rights and licenses therefor (collectively,
"Trademarks").
(4) Schedule 4: Contracts. All contracts
related to or useful in the Seller's business ("Contracts").
(5) Schedule 5: Listings, Licenses and
Permits. All governmental or regulatory licenses, permits,
franchises, approvals and certificates, including but not
limited to UL listings, FCC listings and NFPA listings.
(6) Schedule 6: Fixed Assets. All items of
machinery, equipment, computer hardware, motor vehicles, office
furniture, fixtures, and other similar personal property owned
by Seller.
f. Accounts Receivable. To the best of Seller's
information, knowledge and belief, the Receivables have and
shall have arisen only from bona fide transactions in the
ordinary course of business and represent valid and binding
obligations of the account debtors to which such receivables
relate.
g. Hart-Scott-Rodino. The Seller together with all
such persons and entities which are controlled by, controlling
or under common control with the Seller do not have annual
total sales or net assets, as such terms are defined in 16 CFR
'801.11(c), of more than $10,000,000, and no pre-merger
notification is required under the Hart-Scott-Rodino Antitrust
Improvements Act (15 U.S.C. ' 18(a)).
8. Buyer's Representations and Warranties. Buyer
represents and warrants that:
a. Organization and Good Standing. Buyer is a New
York corporation which is duly organized, validly existing and
in good standing under the laws of the State of New York.
Buyer has all necessary corporate powers to own its properties
and to operate its business as now owned and operated by it.
b. Authority and Consents. Buyer has the right,
power, legal capacity and authority to enter into and perform
its obligations under this Agreement, and no approvals or
consents of any persons, other than Bankruptcy Court approval,
are necessary in connection with it. The execution and
delivery of this Agreement on behalf of Buyer has been duly
authorized by its Board of Directors.
9. Conditions to Buyer's Obligations at Closing. The
obligation of Buyer to consummate the transaction contemplated
hereby shall be subject to the fulfillment, or the waiver by
Buyer, on or before the Closing Date, of the following
conditions:
a. Seller shall execute and deliver to Buyer
assignments of the Patents in Schedule 1 in a form to be
prepared by Buyer, substantially similar to Exhibit B attached
hereto and incorporated by reference.
b. Seller shall execute and deliver assignments of
the Copyrights in Schedule 2 in a form prepared by Buyer
substantially similar to Exhibit C attached hereto and
incorporated by this reference.
c. Seller shall execute and deliver assignments of
the Trademarks on Schedule 3 in a form prepared by Buyer,
substantially similar to Exhibit D, attached hereto and
incorporated by reference.
d. Seller shall execute and deliver assignments of
the Contracts on Schedule 4 in a form prepared by Buyer,
substantially similar to Exhibit E, attached hereto and
incorporated by reference.
e. Seller shall execute and deliver assignments of
the Listings on Schedule 5 in a form prepared by Buyer,
substantially similar to Exhibit F, attached hereto and
incorporated by reference.
f. Seller shall execute and deliver a bill of sale
of all the Assets in a form prepared by Buyer, substantially
similar to Exhibit G, attached hereto and incorporated by
reference.
g. Seller shall make available to Buyer by the
Closing Date, or at such other time as is mutually agreed by
Buyer and Seller, all of the business records of Seller
reasonably necessary for purchase of the Assets and
continuation of the Safecom Product line.
h. Seller shall obtain an Order of the Bankruptcy
Court, authorizing the sale of the Assets free and clear of all
liens and encumbrances, and ensure its entry on the docket, in
form satisfactory to the Buyer in its sole discretion, eleven
days before the Closing Date of the sale of Assets contemplated
by this Agreement. The form of the Order (without exhibits)
approving the Agreement by the Bankruptcy Court is attached
hereto as Exhibit H and incorporated by reference.
i. All consents and approvals of any third parties,
court, governmental or entity required to permit the Buyer to
consummate the transactions contemplated hereby shall have been
obtained by the Buyer.
j. No material adverse change in the Assets shall
have occurred.
10. Conditions to Seller's Obligations at Closing. At
Closing, Buyer shall pay to the Seller that portion of the
Purchase Price in good collected funds as set forth in Section
2a. above, and shall issue and deliver to Seller the Note in
favor of Seller as set forth in Section 2b. above.
11. Broker's Indemnity. Each of the parties represents
and warrants that it has dealt with no broker or finder in
connection with any of the transactions contemplated by this
Agreement, and insofar as it knows, no broker or other person
is entitled to any commission or finder's fee in connection
with any of these transactions. Both Buyer and Seller shall
each for themselves indemnify and hold harmless one another
against any loss, liability, damage, cost, claim or expenses
incurred by reason of any brokerage, commission or finder's fee
alleged to be payable because of any act, omission or statement
of the indemnifying party.
12. Uniform Tax Treatment. The parties agree that the
allocation of consideration set forth herein shall be used by
them for all federal and state income tax purposes, including,
but not limited to, reporting pursuant to Section 1060 of the
Internal Revenue Code of 1986, as amended. In preparing and
filing IRS Form 8594 ("Asset Acquisition Statement Under
Section 1060"), the parties shall report that the allocation of
consideration set forth herein and the fair market value of the
assets to which such consideration is allocated is the same.
Prior to filing Form 8594 with respect to the transactions
described herein, the parties shall provide to each other a
true and correct copy of Form 8594 which each intends to file
with respect to these transactions.
13. Power of Attorney. The Seller hereby appoints the
Buyer, effective upon the Closing Date, its agent and attorney
to receive, collect, enforce and sue for any and all Assets and
to endorse any check or other instrument payable to the Seller
or to the order of the Seller received in payment therefor
either in the name of the Buyer or in the name of the Seller in
connection with the Assets, all as the Seller's agent and
attorney thereunto duly authorized, but, in any event, for the
use and benefit of the Buyer, the powers set forth herein being
irrevocable and powers given for security. The foregoing
powers are coupled with an interest and are and shall be
irrevocable whether by the Seller or by reason of the Seller's
dissolution or in any manner or for any reason whatsoever.
Subsequent to the Closing Date Seller will not use any of the
Assets for its own use or benefit or that of anyone else or
make any effort to receive, collect, enforce or sue for any of
the Assets at any time after the Closing Date, other than for
the benefit of the Buyer. If any proceeds of any of the Assets
or any payments thereon are for any reason received by the
Seller subsequent to the Closing Date, the Seller will remit
the same to the Buyer immediately and in the form in which
received together with all necessary assignments and
endorsements.
14. General Provisions.
a. Entire Agreement. This Agreement and the
documents referred to in it represent the entire agreement
between the parties with respect to the subject matter
contained in the Agreement and those other documents, and
supersede all prior and contemporaneous agreements,
representations, and understandings of the parties. All
Schedules attached hereto are a part hereof and are
incorporated herein.
b. Drafting of Agreement. The provisions of this
Agreement were negotiated by all of the parties to it and this
Agreement shall be deemed to have been drafted by all, and not
construed against any, of those parties.
c. Modification of Agreement. This Agreement may
not be altered, amended, modified, or otherwise changed in any
way, except in writing duly executed by the parties or their
authorized representatives.
d. Survival of Warranties and Representations.
Except as otherwise provided in this Agreement, the
representations and warranties contained in it shall survive
the sale and transfer of the Assets and Payment of the Purchase
Price and shall not be deemed merged in the documents to be
delivered by Seller under this Agreement, but shall remain in
full force and effect.
e. Validity of Terms. If any provision of this
Agreement or the application of it to any person or to any
circumstance shall be invalid or unenforceable to any extent,
the remainder of this Agreement and the application of that
provision to other persons or to other circumstances shall not
be affected thereby and shall be enforced to the greatest
extent permitted by law.
f. Waiver. No waiver of any of the provisions of
this Agreement shall be deemed, or constitute, a waiver of any
other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding
unless it is executed in writing by the party making the
waiver.
g. Attorneys' Fees. If any legal action,
arbitration, or other proceeding is brought to enforce this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation concerning the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled
to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief
to which it or they may be entitled.
h. Choice of Law. This Agreement shall be
construed in accordance with and governed by the laws of the
State of California.
i. Retention of Jurisdiction by Bankruptcy Court.
After the Closing Date, the Bankruptcy Court shall retain
jurisdiction to determine disputes between Buyer and Seller
under the Agreement or the interpretation thereof and to enter
such Orders as may be necessary or appropriate to implement or
consummate the provisions of this Agreement.
j. Expenses. Each party shall pay all costs and
expenses (including attorney's fees) it incurred or will incur
in negotiating, preparing and carrying out the terms of this
Agreement.
k. Parties in Interest. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons
other than the parties to it, their respective successors and
assigns, and any superseding trustee appointed in Seller's
bankruptcy case, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third
persons to either party hereto, nor shall any provision give
any third persons any right of subrogation or action over or
against any party hereto, their successors and assigns and any
superseding trustee appointed in Seller's bankruptcy case.
l. Assignment. This Agreement shall be binding on
and shall inure to the benefit of Buyer and Seller and their
respective successors and assigns. Except as provided in the
preceding sentence, this Agreement shall not be interpreted to
benefit any person other than the parties, their respective
successors and permitted assigns, and any superseding trustee
appointed in Seller's bankruptcy case. There are no other
intended or permitted beneficiaries of this Agreement.
m. Notices. All notices, requests, demands and
other communications under this Agreement shall be in writing
and shall be deemed to have been duly given on the date of
service if served personally or by receipted overnight courier
services (such as Federal Express) on the party to whom notice
is to be given, or on the third day after mailing if mailed to
the party to whom notice is to be given, by registered or
certified mail, postage prepaid, and properly addressed as
follows:
TO SELLER: Senses International
1605-B Marbury
San Jose, CA 95133
Attn: Mr. Steve Orrell, President
With a copy to: Murray & Murray
A Professional Corporation
3030 Hansen Way, Suite 200
Palo Alto, CA 94304-1009
Attn: Maureen C. Harrison
TO BUYER: Detection Systems, Inc.
130 Perinton Parkway
Fairport, NY 14450
Attn: David Lederer,
Executive Vice President
A party may change its address for purposes of this
section by giving the other parties written notice of the new
address in the manner set forth above.
n. Section Headings. The section headings used in this
Agreement are for convenience and reference only and shall not
be held to expand, modify, amplify or aid in the
interpretation, construction or meaning of this Agreement.
o. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties to this Asset Purchase
Agreement have duly executed it on the date first written
above.
SELLER: SENSES INTERNATIONAL,
a California corporation
By /s/ Steve Orell
Steve Orrell
President
BUYER: DETECTION SYSTEMS, INC.
a New York corporation
By /s/ David B. Lederer
David Lederer
Executive Vice President
[Exhibits to this agreement will be provided by Detection
Systems upon request.]
EXHIBIT 3a
CERTIFICATE OF INCORPORATION
OF
DETECTION SYSTEMS, INC.
[as amended]
Under Section 402 of the Business
Corporation Law of the
State of New York
First: The name of the corporation is:
DETECTION SYSTEMS, INC.
Second: The purposes for which it is formed are as
follows:
To design, develop, manufacture, assemble,
fabricate, import, lease, market, purchase
or otherwise acquire and generally to trade
and deal in and with, as principal or
agent, at wholesale, retail, on commission
or otherwise, materials, components and
devices of a mechanical, electrical,
optical or chemical nature for use in
detection systems, signal systems and other
systems.
To acquire by purchase, assignment, grant,
license or otherwise, to apply for, secure,
lease or in any manner obtain, to develop,
hold, own, use, exploit, operate, enjoy and
introduce, to sell, assign, lease,
mortgage, pledge, grant licenses and rights
of all kinds in respect of, or otherwise
dispose of, and generally to deal in and
with and turn to account for any or all
purposes, either for itself or as nominee
or agent for others:
(1) Any and all inventions, devices, processes, discoveries
and formulae, and improvements and modifications thereof and
rights and interests therein;
(2) Any and all letters patent or applications for letters
patent of the United States of America or of any other country,
state, locality or authority, and any and all rights, interests
and privileges connected therewith or incidental or
appertaining thereto;
(3) Any and all copyrights granted by the United States of
America or any other country, state, locality or authority, and
any and all rights, interests and privileges connected
therewith or incidental or appertaining thereto.
To purchase or otherwise acquire,
hold, own, sell, lease or otherwise
dispose of real property, improved or
unimproved, and personal property,
tangible or intangible, including,
without limitation, goods, wares and
merchandise of every description and
the securities and obligations of any
issuer, whether or not incorporated.
To do all and everything necessary, suitable, or
proper for the accomplishment of any of the purposes, the
attainment of any of the objects or the furtherance of any
of the powers hereinbefore set forth, either alone or
connection with other corporations, firms or individuals
and either as principals, or agents and to do every other
act or acts, thing or things incidental or appurtenant to
or growing out of or connection with the aforesaid
objects, purposes or powers or any of them.
The foregoing enumeration of specific powers
shall not be deemed to limit or restrict in any manner the
general powers of the corporation, and the enjoyment and
exercise thereof, as conferred by the laws of the State of
New York upon corporations organized under the provisions
of the Business Corporation Law.
Third: The office of the corporation within the
State of New York is to be located in the City of
Rochester, County of Monroe.
Fourth: The aggregate number of shares which the
Corporation shall have authority to issue is Twelve
Million (12,000,000) common shares, with par value of Five
Cents ($.05) per share.
Fifth: No holder of shares of the Corporation of
any class now or hereafter authorized, shall have any
preferential or preemptive right to subscribe for,
purchase or receive any shares of the corporation of any
class, now or hereafter authorized, or any options or
warrants for such shares, or any rights to subscribe to or
purchase such shares, or any securities convertible into
or exchangeable for such shares, which may at any time be
issued, sold or offered for sale by the Corporation.
Sixth: The Secretary of State is designated the
agent of the Corporation upon whom process against the
Corporation may be served. The post office address to
which the Secretary of State shall mail a copy of any
process against the Corporation so served upon him is 130
Perinton Parkway, Fairport, New York 14450.
EXHIBIT 3b
BY-LAWS
OF
DETECTION SYSTEMS, INC.
[as amended]
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meetings. The annual meeting
of the shareholders for the election of directors and the
transaction of other business shall be held each year on such
day and at such hour in July, or on such other date, as shall
be fixed by the Board of Directors. Annual meetings of
shareholders shall be held at the principal office of the
Corporation or at such other place, within or without the State
of New York, as may be fixed by the Board of Directors.
Section 2. Special Meetings. A special meeting
of the shareholders may be called at any time by the holders of
a majority of the outstanding shares, by the President, by the
Secretary or by the Board of Directors and shall be held at
such place, within or without the State of New York, on such
day and at such hour as is fixed in the call of the meeting.
Section 3. Record Date for Meetings and Other
Purposes. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any
dividend or entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment
of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in
advance, a date as the record date for any such determination
of shareholders. Such date shall not be more than fifty nor
less than ten days before the date of such meeting, nor more
than fifty days prior to any other action.
If no record date is so fixed by the Board of
Directors, (a) the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is not
given by reason of due waiver thereof, the day on which the
meeting is held, and (b) the record date for determining
shareholders for any other purpose shall be at the close of
business on the day on which the resolution of the Board of
Directors relating thereto is adopted.
A determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders, made in
accordance with this Section, shall apply to any adjournment
thereof, unless the Board of Directors fixes a new record date
under this Section for the adjourned meeting.
Section 4. Notice of Meetings. Notice of each
meeting of shareholders shall be in writing and shall state the
place, date, and hour of the meeting. Notice of a special
meeting also shall state the purpose or purposes for which the
meeting is called and shall indicate who called the meeting. A
copy of the notice of any meeting shall be given, personally or
by mail, not less than ten (10) nor more than fifty (50) days
before the date of the meeting, to each shareholder entitled to
vote at the meeting. If mailed, such notice is given when
deposited in the United States mail, with postage thereon
prepaid, directed to the shareholder at such address as appears
on the record of shareholders, or, if the shareholder shall
have filed with the Secretary a written request that notices be
mailed to some other address, then directed to the shareholder
at such other address.
Section 5. Organization. At each meeting of
shareholders, the President, or in the President's absence, a
Vice President, shall preside and the Secretary, or in the
Secretary's absence an Assistant Secretary, shall act as
secretary of the meeting. If none of those designated to
preside or to act as secretary of the meeting shall be present,
the shareholders present in person or by proxy and entitled to
vote at the meeting shall select someone to preside or to act
as secretary, as may be needed.
Section 6. Quorum. At each meeting of
shareholders, the holders of a majority of the shares entitled
to vote thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business.
Section 7. Voting. At each meeting of
shareholders, every shareholder of record shall be entitled to
cast one vote for every share of stock standing in his or her
name on the record of shareholders. All matters shall be
determined by a majority of the votes cast, except that
directors shall be elected by a plurality of the votes cast.
Section 8. Proxies. Every shareholder entitled
to vote at a meeting of shareholder or to express consent or
dissent without a meeting may authorize another person or
persons to act for her or him by proxy. Every proxy must by
signed by the shareholder or the shareholder's attorney-in-
fact. No proxy shall be valid after the expiration of eleven
months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the
shareholder executing it, except as otherwise provided by law.
Section 9. List of Shareholders at Meetings. A
list of shareholders as of the record date, certified by the
corporate officer responsible for its preparation or by a
transfer agent, shall be produced at any meeting of
shareholders upon the request thereat or prior thereto of any
shareholder.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Power. Except as otherwise
provided in the Certificate of Incorporation of the
Corporation, the business, property, and affairs of the
Corporation shall be managed under the direction of its Board
of Directors.
Section 2. Number. The number of directors
constituting the entire Board of Directors shall be such
number, not less than three, as shall be fixed from time to
time by the Board of Directors, provided that no decrease in
the number of directors shall shorten the term of any incumbent
director.
Section 3. Election and Term of Directors.
Directors shall be elected at the annual meeting of
shareholders. Each director shall hold office until the next
annual meeting and until the director's successor has been
elected and qualified.
Section 4. Meetings of the Board. An annual
meeting of the Board of Directors shall be held in each year
directly after adjournment of the annual meeting of
shareholders. Other regular meetings of the Board shall be held
at such times as may from time to time be fixed by resolution
of the Board. Special meetings of the Board may be held at any
time upon the call of the President or any two directors.
Meetings of the Board of Directors shall be held at such place,
within or without the State of New York, as from time to time
may be fixed by resolution of the Board or by order of the
President. If no place is so fixed, meetings of the Board shall
be held at the principal office of the Corporation.
Section 5. Notice of Meetings. Notice of regular
meetings of the Board of Directors need not be given. Notice of
each special meeting shall be mailed to each director,
addressed to the address last given by each director to the
Secretary or, if none has been given, at the director's
residence or usual place of business, at least three (3) days
before the day on which the meeting is to be held, or shall be
sent to the director by telegraph, cable, wireless, or similar
means so addressed or shall be delivered personally or by
telephone, at least twenty-four (24) hours before the time the
meeting is to be held. Each notice shall state the time and
place of the meeting but need not state the purposes thereof
except as otherwise expressly provided. Notices of any such
meeting need not be given to any director who submits a signed
waiver of notice whether before or after the meeting or who
attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice.
Section 6. Quorum and Manner of Acting. At each
meeting of the Board of Directors the presence of a majority of
the entire Board shall constitute a quorum for the transaction
of business, and the vote of a majority of the directors
present at the time of the vote, if a quorum is present at that
time, shall be the act of the Board.
Section 7. Action Without a Meeting. Any action
required or permitted to be taken by the Board or any committee
thereof may be taken without a meeting if all members of the
Board or the committee consent in writing to the adoption of a
resolution authorizing the action. The resolution and the
written consents thereto by the members of the Board or
committee shall be filed with the minutes of the proceedings of
the Board or committee.
Section 8. Participation in Board Meetings by
Conference Telephone. Any one or more members of the Board of
Directors or any committee thereof may participate in a meeting
of such Board or committee by means of a conference telephone
or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in
person at a meeting.
Section 9. Executive and Other Committees of
Directors. The Board of Directors, by resolution adopted by a
majority of the entire Board, may designate from among its
members an executive committee and other committees, each
consisting of three or more directors, and each of which, to
the extent provided in the resolution, shall have all the
authority of the Board, except that no such committee shall
have authority as to the following matters:
(1) The submission to shareholders of any action that needs
shareholders' approval under the New York Business Corporation
Law;
(2) The filling of vacancies in the Board of Directors or in
any committee;
(3) The fixing of compensation of the directors for serving on
the Board or on any committee;
(4) The amendment or repeal of the By-laws, or the adoption of
new By-laws; and
(5) The amendment or repeal of any resolution of the Board
which by its terms shall not be so amendable or repealable.
Unless a greater proportion is required by the resolution
designating a committee of the Board of Directors, a majority
of the entire authorized number of members of such committee
shall constitute a quorum for the transaction of business or of
any specified item of business, and the vote of a majority of
the members present at the time of such vote, if a quorum is
present at such time, shall be the act of the committee. The
Board may designate one or more directors as alternate members
of any such committee, who may replace any absent member or
members at any meeting of such committee.
Section 10. Resignation and Removal. Any
director may resign at any time by giving written notice to the
President or to the Secretary. Such resignation shall take
effect at the time specified therein or, if no time be
specified then on delivery and unless otherwise specified
therein, the acceptance of such resignation by the Board of
Directors shall not be needed to make it effective. Any or all
of the directors may be removed, at any time, with or without
cause, by vote of the shareholders at a special meeting of
shareholders, and any vacancy thereby created may be filled at
said meeting by vote of the shareholders and, if not so filled,
then by the directors as provided in Section 11 of this
Article.
Section 11. Vacancies. Newly created
directorships resulting from an increase in the number of
directors and vacancies occurring in the Board of Directors for
any reason may be filled by vote of a majority of the directors
then in office, even if less than a quorum exists. A director
elected to fill a newly created directorship or a vacancy shall
hold office until the next annual meeting of shareholders and
until such director's successor has been elected and qualified.
ARTICLE III
OFFICERS
Section 1. Officers Enumerated. The officers of
the Corporation shall be a President, one or more Vice
Presidents, a Secretary, and a Treasurer, and such other
officers as the Board of Directors may in its discretion elect.
Any two or more offices may be held by the same person, except
that the offices of President and Secretary may not be held by
the same person unless all of the issued and outstanding stock
of the Corporation is owned by that person.
Section 2. Election and Term of Office. All
officers shall be elected by the Board of Directors at its
first meeting held after the annual election of directors. The
officers need not be directors. Unless elected for a lesser
term, and subject always to the right of the Board of Directors
to remove an officer with or without cause, each officer shall
hold office for one year and until such officer's successor has
been elected and qualified.
Section 3. The President. The President shall
be the chief executive officer of the Corporation and, subject
to the determinations of the Board of Directors, shall have
general control and management of the business, property, and
affairs of the Corporation. The President shall preside at all
meetings of shareholders and of the Board. In the absence or
incapacity of any other officer of the Corporation, the
President shall have the authority and may perform the duties
of that officer.
Section 4. The Vice Presidents. Each Vice
President, if any, shall, in the absence or incapacity of the
President and in order of seniority as fixed by the Board, have
the authority and perform the duties of the President, and each
shall have such other authority and perform such other duties
as the Board of Directors may prescribe.
Section 5. The Secretary. The Secretary (a)
shall attend all meetings of the Board of Directors and all
meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that
purpose, (b) shall perform like duties for committees of the
Board when required, (c) shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings
of the Board of Directors, and (d) shall have such other
authority and perform such other duties as usually pertain to
the office or as may be prescribed by the Board of Directors.
The Secretary shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors or
the President, affix the same to any instrument requiring it,
and when so affixed, it shall be attested by the signature of
the Secretary or Treasurer.
Section 6. The Treasurer. The Treasurer (a)
shall have the care and custody of all the moneys and
securities of the Corporation, (b) shall keep or cause to be
kept complete and accurate books of account of all moneys
received and paid on account of the Corporation, (c) shall sign
such instruments as require the Treasurer's signature, and (d)
shall have such other authority and perform such other duties
as usually pertain to the office or as the Board of Directors
may prescribe.
Section 7. Assistant Officers. Any Assistant
Vice President, Assistant Secretary, or Assistant Treasurer
elected by the Board of Directors, (a) shall assist the Vice
President, Secretary, or Treasurer, respectively, as the case
may be, (b) shall possess that officer's authority and perform
that officer's duties in that officer's absence or incapacity,
and, (c) shall have such other authority and perform such other
duties as the Board of Directors may prescribe.
Section 8. Appointed Officers. The Board of
Directors may delegate to any officer or committee the power to
appoint and to remove any subordinate officer, agent, or
employee.
Section 9. Securities of Other Corporations.
The President or the Treasurer may, with respect to any shares
of stock or other securities issued by any other corporation or
other business organization and held by the Corporation,
exercise voting and similar rights on behalf of the Corporation
and execute proxies for that purpose. In addition, any such
officer may endorse for sale or transfer and may sell or
transfer for and on behalf of the Corporation any such stock or
other securities and may appoint proxies or attorneys for that
purpose.
ARTICLE IV
SHARES AND THEIR TRANSFER
Section 1. Certificates of Stock. Every
shareholder shall be entitled to have one or more certificates,
in such form as the Board of Directors may from time to time
prescribe, representing in the aggregate the number of shares
of stock of the Corporation owned by said shareholder, which
certificates shall be signed by or in the name of the
Corporation by the president or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary.
Section 2. Transfers. Shares of stock of the
Corporation shall be transferable on the books of the
Corporation by the registered holder thereof in person or by
such holder's duly authorized attorney, but, except as
hereinafter provided in the case of loss, destruction, or
mutilation of certificates, no transfer of shares shall be
entered until the previously issued certificate representing
those shares shall have been surrendered and canceled. Except
as otherwise required by law, the Corporation shall be entitled
to treat the person registered as the holder of shares on its
books as the owner thereof for all purposes regardless of any
notice or knowledge to the contrary.
Section 3. Stock Transfer Books. In the event
of declaration of a dividend the stock transfer books of the
Company shall not be closed but a record date will be fixed
upon which the Company's transfer agent shall take a record of
all shareholders entitled to the dividend without actually
closing said stock transfer books.
Section 4. Lost, Destroyed or Mutilated
Certificates. The Corporation may issue a new certificate
representing shares of stock of the same tenor and the same
number of shares in place of a certificate theretofore issued
by it that is alleged to have been lost, stolen, or destroyed;
provided, however, that the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or such
owner's legal representative, to give the Corporation a bond of
indemnity, in form and with one or more sureties satisfactory
to the Board, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged
loss, theft, or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE V
GENERAL
Section 1. Seal. The seal of the Corporation
shall be in the form of a circle and shall bear matters deemed
appropriate by the Board of Directors.
Section 2. Indemnification of Directors and
Officers.
(a) Right to Indemnification. Except as prohibited by law or
as provided in Paragraph (b) below, the Corporation shall
indemnify each person against all reasonable expenses and any
other liability paid or incurred by such person in connection
with any actual or threatened claim, action, suit or
proceeding, whether civil, criminal, administrative,
investigative, or other, or whether brought by or in the right
of the Corporation or otherwise, in which such person may be
involved as a party or otherwise, by reason of the fact that
such person or such person's testator or intestate is or was a
director or officer of the Corporation, or serves or served in
any capacity at the request of the Corporation any other
corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (any such actual or threatened
claim, action, suit or proceeding hereinafter being referred to
as an "action"). To the maximum extent permitted by law, the
Corporation shall make advances of expenses incurred by such
person in connection with an action prior to final disposition
of such action, subject to receipt by the Corporation of an
undertaking by or on behalf of such person to repay such
advances to the extent such person is ultimately found not to
be entitled to indemnification. As used herein, "expenses"
shall include, without limitation, costs of investigation,
including experts, the costs of defense of actions and appeals
therefrom and fees and expenses of counsel selected by such
person. As used herein, "liability" shall include amounts of
judgments, excise taxes, fines and penalties, amounts paid in
settlement and any other amounts which the person may be
obligated to pay as a result of any action.
(b) Exclusions. No such indemnification shall be made to or
on behalf of any person if a judgment or other final
adjudication adverse to such person establishes that either (i)
such person's acts were committed in bad faith, or were the
result of active and deliberate dishonesty, and were material
to the action, or (ii) that such person gained in fact a
financial profit or other economic advantage to which such
person was not legally entitled.
(c) Indemnification Not Exclusive. The right of
indemnification provided for herein shall not be deemed
exclusive of any other rights to which persons seeking
indemnification hereunder may be entitled under applicable law,
by agreement or otherwise, and the provisions hereof shall
inure to the benefit of the heirs, beneficiaries and legal
representative of persons entitled to indemnification hereunder
and shall be applicable to actions arising from acts or
omissions occurring before or after the adoption hereof. The
Corporation is authorized to enter into agreements with any of
its directors or officers extending rights to indemnification
and advancement of expenses to such person to the fullest
extent permitted by applicable law, but the failure to enter
into any such agreement shall not affect or limit the rights of
such person pursuant to this By-law, it being expressly
recognized hereby that all directors or officers of the
Corporate, by serving as such after the adoption hereof, are
acting in reliance on this Section 2 and that the Corporation
is estopped to contend otherwise.
(d) Contract Rights. The right of indemnification under this
Section 2 shall be deemed to constitute a contract between the
Corporation and the persons entitled to indemnification and may
not, without the consent of such person, be amended or repealed
with respect to any event, act or omission occurring or
allegedly occurring prior to the end of the term of office such
person is serving when such amendment or repeal is adopted.
(e) Miscellaneous. Persons who are not directors or officers
of the Corporation shall be similarly indemnified and entitled
to advancement or reimbursement of expenses to the extent
authorized at any time by the Board of Directors. The
Corporation shall be deemed to have requested a person to serve
an employee benefit plan where the performance of such person's
duties also involves duties or services to the plan or its
participants or beneficiaries.
Section 3. Fiscal Year. The fiscal year of the
Corporation shall end at the close of business on March 31 of
each calendar year.
ARTICLE VI
AMENDMENTS
Section 1. Power to Amend. Both the
shareholders and the Board of Directors shall have the power to
adopt, amend, or repeal By-laws. Any By-law adopted by the
Board may be amended or repealed by the shareholders at any
annual or special meeting of the shareholders.
Section 2. Amendment Affecting Election of
Directors. If any By-law regulating an impending election of
directors is adopted, amended, or repealed by the Board, there
shall be set forth in the notice of the next meeting of
shareholders for the election of directors the By-law so
adopted, amended or repealed, together with a concise statement
of the changes made.
Exhibit 10b
MINUTES of a Meeting of the
Compensation Committee of
DETECTION SYSTEMS, INC.,
held at the offices of
Detection Systems, Inc.,
Fairport, New York on the
4th day of June, 1996.
A discussion was held concerning possible changes in
officer compensation. Then, upon motion duly made, seconded,
and unanimously approved, it was:
RESOLVED: That effective June 4, 1996, officers'
compensation and benefits through May 30, 1997 will be as
follows:
Medical expenses. That reimbursement of all personal
and family medical expenses not covered by Company
insurance plans, up to 10% of base salary, shall be
granted to the Company's officers.
EXHIBIT 10d
AMENDED AND RESTATED CREDIT FACILITY AGREEMENT
AMENDMENT NUMBER 1
THIS AMENDMENT is made as of the 27th day of January,
1997, by and among DETECTION SYSTEMS, INC., a corporation
formed under the laws of the State of New York with offices at
130 Perinton Parkway, Fairport, New York 14450 ("Detection"),
RADIONICS, INC., a corporation formed under the laws of the
State of California with offices at 1800 Abbott Street,
Salinas, California 93901 ("Radionics"), and FLEET BANK, a bank
and trust company formed under the laws of the State of New
York with offices at One East Avenue, Rochester, New York 14638
("Bank").
WHEREAS, the parties entered into an Amended and
Restated Credit Facility Agreement dated as of May 25, 1996
(the "Credit Agreement"), and
WHEREAS, the parties desire to amend the Credit
Agreement,
NOW THEREFORE, the parties hereby agree as follows:
1. The following definitions contained in Section
1.1 of the Credit Agreement are hereby amended to read in their
respective entireties as follows:
"Break Costs" shall mean an
amount equal to the amount (if any)
required to compensate the Bank, and any
assignee or participant of the Bank, for
any additional losses (including without
limitation any loss, cost, or expense
incurred by reason of the liquidation or
reemployment of deposits or funds acquired
by the Bank to fund or maintain the
Obligations), costs, and expenses
(including without limitation penalties) it
may reasonably incur as a result of or in
connection with any prepayment or failure
to make a prepayment after notice of the
same is given.
"Business Day" shall mean any day
except for a Saturday, Sunday, banking
holiday in the State of New York, or
banking holiday in London, England.
"Debt" for any person or entity
shall mean (i) indebtedness of such person
or entity for borrowed money, (ii)
obligations of such person or entity for
the deferred purchase price of property or
services (except trade payables incurred in
the ordinary course of business), (iii)
capitalized or capitalizable obligations of
such person or entity with respect to
leases, (iv) the amount available for
drawing under outstanding standby letters
of credit issued for the account of such
person or entity and the amount of other
off-balance sheet obligations or
liabilities, each to the extent not
otherwise treated separately as Debt, (v)
all obligations endorsed (other than for
collection in the ordinary course of
business) or guaranteed by such person or
entity directly or indirectly in any manner
including without limitation contingent
obligations to purchase, pay or supply
funds to any person or entity to assure a
creditor against loss, (vi) obligations of
such person or entity arising under
acceptance facilities, or bills, notes, or
similar instruments, and (vii) obligations
secured by a lien, security interest, or
other arrangement for the purpose of
security on property owned by such person
or entity whether or not the underlying
obligations have been assumed by such
person or entity.
"Eligible Subsidiaries" shall
mean consolidated Subsidiaries wholly owned
by Detection or Radionics that are
Guarantors, that have provided the Bank
with security interests in all of their
assets unless otherwise agreed by the Bank,
and that, except for intercompany
transactions with the Borrower and other
Eligible Subsidiaries, themselves comply in
all respects with the same requirements as
are imposed upon the Borrower in Articles
8, 9, 10, and 11 of this Agreement.
"Increased Cost" means any
additional amounts sufficient to compensate
the Bank and any assignee or participant of
the Bank for any reduction in any amount
receivable by such Bank or participant in
respect of the Obligations or any increased
costs of funding or maintaining the
Obligations as a result of the adoption of,
change of, or change in the interpretation
or administration of any law, regulation,
guideline or policy by any governmental
authority, central bank or comparable
agency charged with the interpretation or
administration thereof, or compliance by
the Bank or the Bank's holding company (or
any assignee or participant of the Bank or
any of their holding companies), with any
request or directive (whether or not having
the force of law) of any such authority,
central bank or comparable agency, which
has or would have the effect of reducing
the rate of return of the Bank, the Bank's
holding company, or any assignee or
participant of the Bank or any of their
holding companies, as a consequence of the
transactions contemplated by this Agreement
and all related documents and agreements,
the existence of the Bank's commitment, or
any note bearing interest at a rate based
on the LIBOR Rate, to a level below that
which the Bank, the Bank's holding company,
or any assignee or participant of the Bank
or their respective holding companies,
could have achieved but for such adoption,
change or compliance (taking into
consideration such Bank's, assignee's, and
participant's policies), including without
limitation including without limitation any
law, regulation, policy or guideline
relating to (i) capital adequacy including
among others any adopted pursuant to or
arising out of the July 1988 report of the
Basle Committee on Banking Regulations and
Supervisory Practices entitled
"International Convergence of Capital
Measurement and Capital Standards", (ii)
reserve requirements, (iii) taxation, (iv)
asset maintenance, (v) asset pledges, or
(vi) otherwise. A certificate of a
claiming bank detailing such Increased Cost
shall be deemed to be conclusive as to the
amount claimed absent manifest error.
"LIBOR Rate" shall mean, with
respect to any interest rate period, the
rate per anum equal to the quotient
obtained by dividing (and rounding to the
nearest 1/100 of 1%) (i) LIBOR by (ii) a
percentage equal to 100% minus the then
stated maximum rate of all reserve
requirements pursuant to Regulation D of
the Federal Reserve Board, including
without limitation any marginal, emergency,
supplemental, special, or other reserves
required by applicable law. The LIBOR Rate
shall be further adjusted to reflect any
Increased Cost.
"Subsidiary" shall mean for any
person or entity any corporation or other
business organization of which at least a
majority of the securities, equity, or
other ownership interests having absolute
or contingent voting power are directly or
indirectly owned by such person or entity.
2. A new paragraph is hereby added to the end of
the definition of "LIBOR" contained in Section 1.1 of the
Credit Agreement, to read as follows:
If at any time the Bank (acting
for itself or at the request of any of its
participants) notifies the Borrower that
LIBOR plus the applicable margin will not
adequately reflect the cost to any of them
of making, funding, or maintaining
Obligations for which the interest rate is
based upon LIBOR for any particular
interest rate period, the obligation of the
Bank to make advances available at a rate
based upon LIBOR shall be suspended until
the Bank (acting for itself and its
participants) notifies the Borrower that
the circumstances causing such suspension
no longer exist.
3. A new sentence is hereby added to the end of
Section 2.1 of the Credit Agreement to read in its entirety as
follows:
Each borrowing request must be of at
least $250,000.
4. The second paragraph of Section 2.3 of the
Credit Agreement is hereby amended to read in its entirety as
follows:
The Borrower, however, at least
three Business Days prior to each Rate
Change Date may notify the Bank of its
election to have a portion of the
outstanding principal amount under the
Revolving Line (which must be at least
$1,000,000 and must be an increment of
$100,000) bear interest for a one-month,
three-month, or six month period commencing
on such Rate Change Date at the LIBOR Rate
plus the Applicable LIBOR Margin.
5. The second paragraph of Section 3.3 of the
Credit Agreement is hereby amended to read in its entirety as
follows:
Detection, however, at least
three Business Days prior to each Rate
Change Date may notify the Bank of its
election to have a portion of the
outstanding principal amount under the
Mortgage Loan (which must be at least
$1,000,000 and must be an increment of
$100,000) bear interest for a one-month,
three-month, or six month period commencing
on such Rate Change Date at the LIBOR Rate
plus the Applicable LIBOR Margin.
6. The second paragraph of Section 3A.3 of the
Credit Agreement is hereby amended to read in its entirety as
follows:
Detection, however, at least
three Business Days prior to each Rate
Change Date may notify the Bank of its
election to have a portion of the
outstanding principal amount under the Term
Loan (which must be at least $1,000,000 and
must be an increment of $100,000) bear
interest for a one-month, three-month, or
six month period commencing on such Rate
Change Date at the LIBOR Rate plus the
Applicable LIBOR Margin.
7. A new final paragraph is hereby to added to
Section 6.1 of the Credit Agreement to read in its entirety as
follows:
Each Eligible Subsidiary is duly
organized, validly existing and in good
standing under the laws of the state or
country of its organization, and is duly
qualified to transact business and in good
standing in all states and countries in
which it is required to qualify or in which
failure to qualify could have a material
adverse impact on its business. Each
Eligible Subsidiary has full power and
authority to own its properties, to carry
on its business as now being conducted, to
execute, deliver and perform its
obligations under this Agreement and all
documents and instruments related to this
Agreement, and to consummate the
transactions contemplated hereby.
8. A new final paragraph is hereby added to Section
6.2 of the Credit Agreement to read in its entirety as follows:
All necessary action on the part
of each Eligible Subsidiary, including
shareholder approval to the extent
required, relating to authorization of the
execution and delivery of this Agreement
and all related documents and instruments,
and the performance of the Obligations of
Each Eligible Subsidiary hereunder and
thereunder has been taken. All documents
and instruments related to this Agreement
executed by each Eligible Subsidiary
respectively constitute legal, valid and
binding obligations of such Eligible
Subsidiary, enforceable in accordance with
their respective terms, except as
enforceability may be limited by applicable
bankruptcy, insolvency or similar law
affecting the rights of creditors
generally, and equitable principles. No
Eligible Subsidiary has defenses, offsets,
claims, or counterclaims with respect to
its obligations arising under all documents
and instruments related to this Agreement.
The execution and delivery by Each Eligible
Subsidiary or all documents and agreements
related to this Agreement, and the
performance by each Eligible Subsidiary of
its obligations under this Agreement and
all related documents and agreements will
not violate any provision of law or any
Eligible Subsidiary's Certificate of
Incorporation or By-laws or organizational
or other documents or agreements. The
execution, delivery and performance of all
documents and agreements related to this
Agreement, and the consummation of the
transactions contemplated hereby will not
violate, be in conflict with, result in a
breach of, or constitute a default under
any agreement to which any Eligible
Subsidiary is a party or by which any of
its properties is bound, or any order,
writ, injunction, or decree of any court or
governmental instrumentality, and will not
result in the creation or imposition of any
lien, charge or encumbrance upon any of its
properties except in favor of the Bank.
9. A new final paragraph is hereby added to Section
6.3 of the Credit Agreement to read in its entirety as follows:
All of the outstanding shares and
other equity interests of each Eligible
Subsidiary are duly authorized, validly
issued, and fully paid. There is no
existing contract, debenture, security,
right, option, warrant, call or similar
commitment of any character calling for or
relating to the issuance, retirement,
redemption, purchase, or repurchase of
shares or other equity interests of any
Eligible Subsidiary except with respect to
Emergency Communications, Inc. pursuant to
the Shareholders Agreement dated January
26, 1993, a complete copy of which has been
provided to the Bank prior to the date
hereof.
10. A new final paragraph is hereby added to Section
6.4 of the Credit Agreement to read in its entirety as follows:
There is no action, suit or
proceeding at law or in equity or by or
before any governmental instrumentality or
other agency pending or, to the knowledge
of the Borrower, threatened against or
affecting any Eligible Subsidiary (i) that
brings into question the legality, validity
or enforceability of this Agreement or the
transactions contemplated hereby or (ii)
that, if adversely determined, would have a
material adverse effect on the financial
condition or the business of the Eligible
Subsidiary.
11. Section 6.5 of the Credit Agreement is hereby
amended to read in its entirety as follows:
All financial statements
furnished by the Borrower to the Bank are
complete and correct, have been prepared in
accordance with generally accepted
accounting principles consistently applied
throughout the periods indicated, and
fairly present the financial condition of
the Borrower and its Eligible Subsidiaries,
as of the respective dates thereof and the
results of their respective operations for
the respective periods covered thereby.
12. Section 6.6 of the Credit Agreement is hereby
amended to read in its entirety as follows:
Since the most recent financial
statements described in Section 6.5 hereof
there has been no material adverse change
in the condition, financial or otherwise,
of the Borrower or its Eligible
Subsidiaries, taken as a whole.
13. A new final sentence is hereby added to Section
6.7 of the Credit Agreement to read in its entirety as follows:
Each Eligible Subsidiary has filed or
caused to be filed when due all federal tax
returns and all state and local tax returns
that are required to be filed, and has paid
or caused to be paid all taxes as shown on
said returns or any assessment received.
14. Section 6.8 of the Credit Agreement is hereby
amended to read in its entirety as follows:
The Borrower and each of its
Eligible Subsidiaries have good and
marketable title to all of their properties
and assets, including without limitation,
the properties and assets reflected in the
most recent financial statements referred
to in Section 6.5 hereof. The Borrower and
each of its Eligible Subsidiaries have
undisturbed peaceable possession under all
leases under which they are operating, none
of which contain unusual or burdensome
provisions that may materially affect the
operations of the Borrower and its Eligible
Subsidiaries, and all such leases are in
full force and effect.
15. Section 6.9 of the Credit Agreement is hereby
amended to read in its entirety as follows:
Except as disclosed in the most
recent financial statements referred to in
Section 6.5 hereof, the Borrower and its
Eligible Subsidiaries have no outstanding
Debt.
16. Section 6.10 of the Credit Agreement is hereby
amended to read in its entirety as follows:
No action, event, or transaction has
occurred that could give rise to a lien or
encumbrance on the assets of the Borrower
or its Eligible Subsidiaries as a result of
the application of relevant provisions of
ERISA, and the Borrower and its Eligible
Subsidiaries are in material compliance
with all requirements of ERISA.
17. Section 6.12 of the Credit Agreement is hereby
amended to read in its entirety as follows:
The Borrower and its Eligible
Subsidiaries are not in violation of any
laws, ordinances, governmental rules,
requirements, or regulations to which they
are subject which violation might
materially adversely affect the condition
(financial or otherwise) of the Borrower
and its Eligible Subsidiaries. The
Borrower and its Eligible Subsidiaries have
obtained and are in compliance with all
licenses, permits, franchises, and
governmental authorizations necessary for
the ownership of their properties and the
conduct of their business, for which
failure to comply could materially
adversely affect the condition (financial
or otherwise) of Borrower and its Eligible
Subsidiaries.
18. Section 6.13 of the Credit Agreement is hereby
amended to read in its entirety as follows:
The Borrower and its Eligible
Subsidiaries own or possess all patents,
trademarks, service marks, trade names,
copyrights, licenses, authorizations, other
intellectual property rights, and all
rights with respect to the foregoing,
necessary to the conduct of their business
as now conducted without any material
conflict with the rights of others.
19. Section 6.14 of the Credit Agreement is hereby
amended to read in its entirety as follows:
The Borrower and its Eligible
Subsidiaries are not parties to any
contract or agreement that materially
adversely affects their business, property,
assets, or condition, financial or
otherwise, and the Borrower and its
Eligible Subsidiaries are in compliance in
all material respects with all contracts
and agreements to which they are a party.
20. A new clause is hereby added to the end of
Section 8.3 of the Credit Agreement to read as follows:
and so long as Borrower maintains all
reserves required by GAAP
21. A new Section 8.13 is hereby added to the Credit
Agreement to read as follows:
8.13 Eligible Subsidiaries.
Cause each Eligible Subsidiary to comply in
all respects with the same requirements as
are imposed upon the Borrower in Sections
8.3, 8.4, 8.5, 8.6, 8.7, 8.8, and 8.9 of
this Agreement.
22. A new Section 9.9 is hereby added to the Credit
Agreement to read as follows:
9.9 Eligible Subsidiaries.
Cause each Eligible Subsidiary to comply in
all respects with the same requirements as
are imposed upon the Borrower in Sections
9.1, 9.2, 9.3, 9.5, 9.6, and 9.8 of this
Agreement.
23. Section 12.1(f) of the Credit Agreement is
hereby amended to read in its entirety as follows:
f. Material Change. After ten
(10) days notice to the Borrower, any
condition by reason of which the Bank
reasonably believes the Borrower's ability
to timely repay any Obligations to the Bank
is impaired, including without limitation
by reason of material or reasonably
projected material change in Borrower's
business or operations, or in any factor
affecting Borrower's business or
operations, or regarding any other
obligation or agreement of Borrower, or in
the financial condition of Borrower or its
Eligible Subsidiaries taken as a whole, or
in the collateral for the Borrower's
Obligations.
24. A new final paragraph is hereby added to Section
12.2 to read in its entirety as follows:
After any Event of Default, the
Bank may require the Borrower to deliver
cash collateral to the Bank, together with
agreements related thereto satisfactory to
the Bank in its sole discretion, in an
amount equal to the aggregate undrawn
outstanding amount of all letters of credit
issued pursuant to Section 2.8 of this
Agreement.
25. The reference to "business days" in Section 13.4
of the Credit Agreement is hereby amended to read "Business
Days".
26. A new Section 13.14 is hereby added to the
Credit Agreement to read as follows:
13.14 Time of Payments. In
the event that any payment is due from the
Borrower under this Agreement or any note,
instrument, agreement, or document related
hereto, such payment shall be made in
immediately available funds to the Bank at
or before 2:00 p.m. on the Business Day on
which such payment is due. Payments made
after such time shall continue to bear
interest until the next succeeding Business
Day at the rates otherwise provided in this
Agreement.
27. All other terms of the Credit Agreement shall
remain unchanged and in full force and effect.
28. Borrower represents and warrants that (a) each
of the representations and warranties set forth in the Credit
Agreement is true and correct as of the date hereof (and with
respect to the representations and warranties set forth in
Section 6.5 of the Credit Agreement, the financial statements
referred to therein shall mean the financial statements of the
Borrowers for the most recent quarterly period ended); and (b)
no Event of Default or event that, with the giving of notice or
the passage of time or both would constitute an Event of
Default, has occurred and is continuing.
IN WITNESS WHEREOF, the parties have executed this
Amendment on the date first above written.
FLEET BANK
By: /s/ Jeffrey Holmes
Title: Vice President
DETECTION SYSTEMS, INC.
By: /s/ Frank J. Ryan
Title: Vice President
RADIONICS, INC.
By: /s/ Frank J. Ryan
Title: CFO, Secretary,
Treasurer
EXHIBIT 10d
AMENDED AND RESTATED CREDIT FACILITY AGREEMENT
AMENDMENT NUMBER 2
THIS AMENDMENT is made as of the 13th day of February,
1997, by and among DETECTION SYSTEMS, INC., a corporation
formed under the laws of the State of New York with offices at
130 Perinton Parkway, Fairport, New York 14450 ("Detection"),
RADIONICS, INC., a corporation formed under the laws of the
State of California with offices at 1800 Abbott Street,
Salinas, California 93901 ("Radionics"), and FLEET BANK, a bank
and trust company formed under the laws of the State of New
York with offices at One East Avenue, Rochester, New York 14638
("Bank").
WHEREAS, the parties entered into an Amended and Restated
Credit Facility Agreement dated as of May 25, 1996, as amended
by Amended and Restated Credit Facility Agreement Amendment
Number 1 dated as of January 27, 1997 (the "Credit Agreement"),
and
WHEREAS, the parties desire to further amend the Credit
Agreement,
NOW THEREFORE, the parties hereby agree as follows:
The following definitions contained in Section 1.1 of the
Credit Agreement are hereby amended to read in their entirety
as follows:
"Applicable Base Rate Margin" shall mean the following
amounts for the following respective ratios of Funded Debt to
EBITDA, calculated for the Borrower and Eligible Subsidiaries
on a consolidated basis and without duplication in accordance
with GAAP:
Ratio Margin (Basis Points)
5 to 1 or greater 75.0
4 to 1 or greater and less than 5 to 1 50.0
3 to 1 or greater and less than 4 to 1 37.5
2 to 1 or greater and less than 3 to 1 12.5
Less than 2 to 1 0.0
The Applicable Base Rate Margin shall be adjusted at the
beginning of each three month period commencing either March 1,
July 1, September 1, and December 1 respectively, and shall be
established for that period based upon the average rolling
ratios shown by the Borrower's financial statements for the
four fiscal quarters ending on the most recent December 31,
March 31, June 30, or September 30 respectively.
"Applicable LIBOR Margin" shall mean the following amounts
for the following respective ratios of Funded Debt to EBITDA,
calculated for the Borrower and Eligible Subsidiaries on a
consolidated basis and without duplication in accordance with
GAAP:
Ratio Margin (Basis Points)
5 to 1 or greater 200.0
4 to 1 or greater and less than 5 to 1 175.0
3 to 1 or greater and less than 4 to 1 162.5
2 to 1 or greater and less than 3 to 1 125.0
Less than 2 to 1 112.5
The Applicable LIBOR Margin shall be adjusted at the
beginning of each three month period commencing either March 1,
July 1, September 1, and December 1 respectively, and shall be
established for that period based upon the average rolling
ratios shown by the Borrower's financial statements for the
four fiscal quarters ending on the most recent December 31,
March 31, June 30, or September 30 respectively.
2. Section 2.1 of the Credit Agreement is hereby amended
to read in its entirety as follows:
2.1 Revolving Line. Subject to the terms and conditions
of this Agreement, the Bank hereby establishes for the benefit
of the Borrower a revolving line of credit in the maximum
principal amount of Eleven Million Five Hundred Thousand
Dollars ($11,500,000) outstanding at any one time. The
proceeds of the Revolving Line shall be used for Borrower's
working capital purposes. Subject to the terms of this
Agreement, the Borrower (or either of them) may borrow, repay,
and reborrow under the Revolving Line so long as the aggregate
principal amount outstanding at any time to the Borrower does
not exceed $11,500,000. Each borrowing request must be of at
least $250,000.
3. The second paragraph of Section 2.4 of the Credit Agreement
is hereby deleted.
4. Section 2.7 of the Credit Agreement is hereby amended to
read in its entirety as follows:
2.7 Unused Fee. The Borrower shall pay to the Bank an unused
fee computed at the following applicable Fee Rate for the
respective applicable ratio of Funded Debt to EBITDA,
calculated for the Borrower and Eligible Subsidiaries on a
consolidated basis and without duplication in accordance with
GAAP:
Ratio Fee Rate (Basis Points)
5 to 1 or greater 25.00
4 to 1 or greater and less than 5 to 1 18.75
3 to 1 or greater and less than 4 to 1 18.75
2 to 1 or greater and less than 3 to 1 18.75
Less than 2 to 1 12.50
Each Fee Rate shall be adjusted at the beginning of each
three month period commencing either March 1, July 1, September
1, and December 1 respectively, and shall be established for
that period based upon the average rolling ratios shown by the
Borrower's financial statements for the four fiscal quarters
ending on the most recent December 31, March 31, June 30, or
September 30 respectively.
The unused fee shall be computed as follows: $11,500,000,
minus the average daily outstanding principal balance of the
Revolving Line, times the Fee Rate per annum. At the end of
each fiscal quarter, the Bank will bill the Borrower for the
unused fee.
5. On the date of execution of this Amendment, the
Borrower shall pay to the Bank an amendment fee of $20,000 in
connection with the amendments to the Credit Agreement made
hereby.
6. Exhibit A to the Credit Agreement is hereby amended
to read in its entirety in the form of Exhibit A to this
Amendment.
7. All other terms of the Credit Agreement shall remain
unchanged and in full force and effect.
8. Borrower represents and warrants that (a) each of the
representations and warranties set forth in the Credit
Agreement is true and correct as of the date hereof (and with
respect to the representations and warranties set forth in
Section 6.5 of the Credit Agreement, the financial statements
referred to therein shall mean the financial statements of the
Borrowers for the most recent quarterly period ended); and (b)
no Event of Default or event that, with the giving of notice or
the passage of time or both would constitute an Event of
Default, has occurred and is continuing.
IN WITNESS WHEREOF, the parties have executed this
Amendment on the date first above written.
FLEET BANK
By: /s/ Jeffrey Holmes
Title: Vice President
DETECTION SYSTEMS, INC.
By: /s/ Frank J. Ryan
Title: Vice President
RADIONICS, INC.
By: /s/ Frank J. Ryan
Title: CFO, Secretary, Treasurer
EXHIBIT A
AMENDED AND RESTATED REVOLVING LINE NOTE
$11,500,000 February 13,
1997
Unless otherwise expressly provided herein, all
capitalized terms in this Amended and Restated Revolving Line
Note ("Revolving Line Note") shall have the meanings given to
them in the Amended and Restated Credit Facility Agreement
dated as of May 31, 1996, between the undersigned ("Borrower")
and Fleet Bank ("Bank"), as the same has been and may be
amended, extended, replaced, or modified from time to time (the
"Credit Agreement").
This Revolving Line Note amends, replaces, and restates in
its entirety the Revolving Line Note dated as of May 31, 1996
given by the Borrower in favor of the Bank.
FOR VALUE RECEIVED, the Borrower, jointly and severally,
hereby promises to pay to the order of the Bank, at any of its
banking offices, or at such other places as Bank may specify in
writing to Borrower, the principal sum of Eleven Million Five
Hundred Thousand Dollars ($11,500,000), or if less, the
aggregate unpaid principal amount of all advances made by Bank
to Borrower. Bank shall maintain a record of amounts of
principal and interest payable by Borrower from time to time,
and the records of Bank maintained in the ordinary course of
business shall be prima facie evidence of the existence and
amounts of the Borrower's obligations recorded therein. In
addition, Bank may mail or deliver periodic statements to
Borrower indicating the date and amount of each advance
hereunder (but any failure to do so shall not relieve Borrower
of the obligation to repay any advance). Unless Borrower
questions the accuracy of an entry on any periodic statement
within fifteen business days after such mailing or delivery by
Bank, Borrower shall be deemed to have accepted and be
obligated by the terms of each such periodic statement as
accurately representing the advances hereunder. In the event
of transfer of this Revolving Line Note, or if the Bank shall
otherwise deem it appropriate, Borrower hereby authorizes Bank
to endorse on this Revolving Line Note the amount of advances
and payments to reflect the principal balance outstanding from
time to time. Bank is hereby authorized to honor borrowing and
other requests received from purported representatives of
Borrower orally, by telecopy, in writing, or otherwise. Oral
requests shall be conclusively presumed to have been made by an
authorized person and Bank's crediting of Borrower's account
with the amount requested shall conclusively establish
Borrower's obligation to repay the amount advanced.
Interest. All outstanding amounts under this Revolving
Line Note shall bear interest until paid in full at the Base
Rate plus the Applicable Base Rate Margin. Changes in the rate
of interest applicable to this Revolving Line Note shall become
effective automatically and without notice at the time of
changes in the Base Rate.
The Borrower, however, at least three business days prior
to each Rate Change Date may notify the Bank of its election to
have a portion of the outstanding principal amount under this
Revolving Line Note (which must be at least $1,000,000 and must
be an increment of $100,000) bear interest for a one-month,
three-month, or six month period commencing on such Rate Change
Date at the LIBOR Rate plus the Applicable LIBOR Margin.
Interest shall be calculated based on actual days elapsed
divided by a year of 360 days. Interest shall continue to
accrue after maturity, including after acceleration and
judgment, at the rate required by this Revolving Line Note
until this Revolving Line Note is paid in full. The rate of
interest on this Revolving Line Note may be increased under the
circumstances provided in the Credit Agreement. The right of
Bank to receive such increased rate of interest shall not
constitute a waiver of any other right or remedy of Bank.
Payments. Payments of all accrued interest under this
Revolving Line Note shall be due and payable on the first day
of each month.
All remaining outstanding principal and accrued interest
shall be due and payable in full on the Revolving Line
Termination Date.
All payments shall be in lawful money of the United States
in immediately available funds. Unless canceled in writing by
Borrower, Borrower authorizes Bank to debit its accounts at
Bank to make payments due hereunder, but such authority shall
not relieve Borrower of the obligation to assure that payments
are made when due.
Late Charge. This Revolving Line Note is subject to the
late charges provided in the Credit Agreement.
Maximum Rate. At no time shall Borrower be obligated or
required to pay interest under this Revolving Line Note at a
rate which exceeds the maximum rate permitted by applicable law
or regulation. If by the terms of this Revolving Line Note
Borrower is at any time required or obligated to pay interest
at a rate in excess of such maximum rate, the rate of interest
under this Revolving Line Note shall be deemed to be
immediately reduced to such maximum rate and each payment of
interest that exceeds such maximum rate shall be deemed a
voluntary prepayment of principal.
Prepayment. This Revolving Line Note is freely prepayable
in whole or in part at any time, subject to payment of Break
Costs, if any, as provided in the Credit Agreement.
Holidays. If this Revolving Line Note or any payment
hereunder becomes due on a day not a Business Day, the due date
of this Revolving Line Note or payment shall be extended to the
next succeeding Business Day, but any interest or fees shall be
calculated based upon the actual time of payment.
Events of Default. At Bank's option, this Revolving Line
Note shall become immediately due and payable in full, without
further presentment, protest, notice, or demand, upon the
happening of any Event of Default.
Modification of Terms. The terms of this Revolving Line
Note cannot be changed, nor may this Revolving Line Note be
discharged in whole or in part, except by a writing executed by
Bank. In the event that Bank demands or accepts partial
payments of this Revolving Line Note, such demand or acceptance
shall not be deemed to constitute a waiver of the right to
demand the entire unpaid balance of this Revolving Line Note at
any time in accordance with the terms hereof. Any delay or
omission by Bank in exercising any rights hereunder shall not
operate as a waiver of such rights.
Collection Costs. Borrower on demand shall pay all
expenses of Bank, including without limitation reasonable
attorneys' fees, in connection with enforcement and collection
of this Revolving Line Note.
Miscellaneous. To the fullest extent permissible by law,
Borrower waives presentment, demand for payment, protest,
notice of nonpayment, and all other demands or notices
otherwise required by law in connection with the delivery,
acceptance, performance, default, or enforcement of this
Revolving Line Note. Borrower consents to extensions,
postponements, indulgences, amendments to notes and agreements,
substitutions or releases of collateral, and substitutions or
releases of other parties primarily or secondarily liable
herefor, and agrees that none of the same shall affect
Borrower's obligations under this Revolving Line Note which
shall be unconditional.
Laws. Borrower agrees that this Revolving Line Note shall
be governed by the laws of the State of New York.
DETECTION SYSTEMS, INC.
By: /s/ Frank J. Ryan
Title: Vice President
RADIONICS, INC.
By: /s/ Frank J. Ryan
Title: CFO, Secretary, Treasurer
EXHIBIT 10e
DETECTION SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
Revised January 1, 1997
1. Purpose
Detection Systems, Inc. (the "Company") has adopted this
Deferred Compensation Plan (the "Plan") for the benefit of its
officers who wish to defer the receipt of salary or bonuses
which they may be entitled to receive from the Company. The
purposes of the Plan are to assist the officers with their
individual tax and retirement income planning and to permit the
Company to remain competitive in attracting, retaining,
motivating and rewarding key executives who can directly
influence the Company's operating results. The Plan was
originally adopted as of August 1, 1986. This restatement is
effective as of January 1, 1997.
2. Eligibility
Any officer of the Company may elect to participate in
this Plan.
3. Amount of Deferral
A participant may elect to defer receipt of up to 10
percent of his or her base salary and up to 100 percent of any
bonus otherwise payable to the participant by the Company
during a calendar year.
4. Time for Electing Deferral
An election to commence a deferral may be made at any time
in accordance with the procedures set forth in section 5,
provided that any election to defer compensation must be made
prior to the time that such compensation is to be earned by the
participant. Any election so made shall remain in effect until
the participant elects in writing to change his or her
election.
5. Manner of Electing Deferral
A participant shall elect a deferral by giving written
notice to the Committee in a form prescribed by the Committee.
The notice shall include (1) the amount to be deferred; (2) the
period with respect to which the deferral relates; (3) an
election of a lump sum payment or the number of monthly
installments (not to exceed 120) for the payment of the
deferred amounts; and (4) the date benefit payments are to be
made or to commence. A participant may designate any date for
the commencement of benefit payments but in the event the
participant retires or otherwise terminates employment, benefit
payments shall commence within 60 days of retirement or
termination notwithstanding any later date specified in the
participant's election form.
6. Participant Accounts
For each participant there shall be established both a
Participant Interest Account and a Participant Stock Account
(collectively referred to as the Participant Account). Each
Participant Interest Account shall be credited with the amounts
deferred on behalf of a participant plus an assumed annual
interest on such amounts at a rate designated by the Committee
from time to time as the benchmark assumed interest rate. This
assumed interest shall be compounded annually and treated as
earned from the date of crediting to the date of withdrawal.
The Participant Stock Account shall be credited at the end
of each month with the number of shares of Company Common Stock
that could be purchased at the Common Stock's then fair market
value with the amounts deferred each month plus any
hypothetical dividends payable during such month on the Company
Common Stock previously credited to the Participant Stock
Account. The value of each Participant Interest and Stock
Account shall be adjusted no less frequently than monthly to
reflect contributions to the Account, payments from the Account
as hereinafter provided, and assumed interest on the Interest
Account or additional stock purchases from hypothetical
dividends on the Stock Account. The Stock Account shall also
be adjusted no less frequently than monthly to reflect any
gains (or losses) in the fair market value of Company Common
Stock.
All amounts credited to Participant Accounts shall be
fully vested at all times. Except for the possible claims of
the Company's general creditors, they shall not be subject to
forfeiture on account of any action by a participant or by the
Company, including termination of employment.
The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to
acquire or set aside any particular assets for the discharge of
its obligations, nor is any participant to have any property
rights in any particular assets held by the Company, whether or
not held for the purpose of funding the Company's obligations
hereunder.
7. Payment of Deferred Amounts
No withdrawal may be made from a Participant Account
except as provided in this section 7. Payments from an Account
shall normally commence within 60 days following a
participant's retirement or other termination of employment
unless an earlier date had been specified by the participant in
the election form to which the deferred amounts relate. In the
case of financial hardship, the Committee, in its sole
discretion, may distribute all or a portion of an Account
before termination of employment but the amount of the
distribution shall not exceed the amount needed to relieve the
financial hardship.
At any time prior to his becoming eligible to commence
receiving benefits, the participant shall make a single,
irrevocable election with the Committee to receive his benefits
from either his Participant Interest Account or his Participant
Stock Account. If no such election is made or in the event of
the participant's death, payment shall be made from whichever
account has the higher value, measured at the time of the
benefit commencement date. Payments from an Interest Account
shall be made only in cash and payments from a Stock Account
shall be made only in stock, provided that any fractional
shares from a Stock Account shall be paid in cash.
An aggregate of 182,250 shares of Company Common Stock
(subject to substitution or adjustment as provided below) shall
be available for stock payments under this Plan. Such shares
may be authorized and unissued shares or may be treasury
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.
All payments from a Participant Account shall be made in
the form of either a lump sum payment or monthly installments
over a period of years not to exceed ten as elected by the
participant. This election shall be made on the participant's
deferral notice, provided that the participant may change this
election, by written notice to the Committee at any time up to
36 months prior to the actual benefit commencement date. Any
requested change of an earlier election that is made within the
36 month period preceding the actual benefit commencement date
shall not be effective and shall be disregarded by the
Committee. Where payments are made in monthly installments,
the balance credited to a Participant Account shall be adjusted
periodically for assumed interest or stock purchases as
provided in section 6.
If installment payments are elected, the first installment
shall equal the value of the Participant Account at such time
multiplied by a fraction, the numerator of which is one and the
denominator of which is the total number of monthly
installments to be made. All subsequent installments shall
equal the value of the Participant Account as of the last
valuation date preceding the installment which is to be paid
multiplied by a fraction, the numerator of which is one and the
denominator of which is the total number of installments
elected minus the number of installments already paid.
In the event of a participant's death before the
participant has received all of the deferred payments to which
the participant is entitled hereunder, the remaining number of
installments which would have been paid to the participant
shall be paid to the participant's estate in the same manner
that the participant would have received them.
Notwithstanding a participant's election of installment
payments, the Committee, in its sole discretion, shall have a
right to accelerate any such payments or to make payment of the
balance in a Participant Account in a lump sum.
8. Participant's Rights Unsecured
The right of any participant or, if applicable, the
participant's estate, to receive benefits under the provisions
of this Plan shall be an unsecured claim against the general
assets of the Company. Any amounts held in a Participant
Account are a part of the Company's general assets and shall be
reachable by the general creditors of the Company.
9. Statement of Account
Statements will be sent to participants no less frequently
than annually setting forth the value of their Participant
Accounts.
10. Transferability
The rights of a participant under this Plan shall not be
transferable other than by will or the laws of descent and
distribution and are excercisable during the participant's
lifetime only by him or by his guardian or legal
representative.
11. Plan Administrator
The administrator of this Plan shall be a committee of the
Board of Directors of the Company as from time to time
designated by the Board. The Committee's members shall be
non-employees of the Company. The Committee shall have the
authority to adopt rules and regulations for carrying out the
Plan and to interpret, construe and implement the provisions of
the Plan.
12. Amendment
This Plan may at any time or from time to time be amended,
modified or terminated by the Company's Board of Directors. No
amendment, modification or termination shall, without the
consent of a participant, adversely affect such participant's
accruals in his or her Participant Account.
13. Governing Law
This Plan and any participant elections hereunder shall be
interpreted and enforced in accordance with the laws of the
State of New York.
14. Effective Date
The effective date of this restated Plan is January 1,
1997.
DETECTION SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
Election Form
To: DETECTION SYSTEMS, INC.
In accordance with the provisions of the Plan, I hereby
elect to defer future salary or bonuses otherwise payable to me
by the Company as follows:
1. AMOUNT OF SALARY DEFERRAL (fill in one
space):
______________ (amount per pay period); or
______________ (percent of salary per pay
period).
2. AMOUNT OF BONUS DEFERRAL (fill in one
space):
______________ (amount per year); or
______________ (percentage of bonus).
3. DATE DEFERRALS ARE TO BE PAID (check one)
/ / termination of employment; or
/ / the earlier of ______________
(fill in date you wish to receive deferrals) or
termination of employment).
4. PAYMENT OF DEFERRED AMOUNTS
The amounts deferred, plus any assumed earnings
thereon, are to be paid to me as follows (check one):
/ / a lump sum; or
/ / installment payments over
___ years (not in excess of 10).
In the event of my death before I have received all of the
deferred payments, the payments which would have been paid to
me shall be paid to my estate in the same manner I would have
received them as noted above.
This election is subject to all of the terms of the
Detection Systems, Inc. Deferred Compensation Plan on file with
the records of the company.
Dated: ________________ ___________________________________
Signature of Employee
Accepted on the day of ______________, l9___,
on behalf of Detection Systems, Inc.
By___________________________________________
Federal Tax Aspects
The Plan is a non-qualified deferred compensation plan
under the provisions of the Internal Revenue Code. At the time
a deferral of compensation is made, it is intended that the
participants will not recognize income, for Federal income tax
purposes, on the amounts of salary or bonus they elect to
defer. In addition, assumed interest and hypothetical
dividends will not be treated as income at the time they are
credited to the participant accounts.
Participants will recognize ordinary income at the time
the deferred amounts, together with the earnings credited to
these amounts, are actually paid out or made available to the
participants. The amount of such ordinary income will equal
the amount of cash received plus the fair market value, on the
date of payment, of any shares paid or made available.
The ultimate sale or exchange of any shares of common
stock received under the Plan will result in either long-term
or short term capital gain, or loss depending on the holding
period. Under current law, long term capital gains or losses
will result upon the disposition of shares that are held for
more than six months. A participant's basis in the shares will
be the amount of income he recognizes at the time the shares
were actually paid or made available to the participant.
The Company is not entitled to deduct the amount of salary
or bonus deferred into the Plan or the assumed interest or
hypothetical dividends credited to an account. Instead, the
Company is entitled to take a deduction at the time a
participant recognizes income. The amount of the deduction is
the amount of income that a participant must recognize.
For Social Security tax (F.I.C.A.) purposes the amounts of
salary or bonus deferred under the Plan are taxable as "wages"
at the time the services are performed. This will result in
Social Security taxes to a participant and to the Company only
where a participant is otherwise below the Social Security Wage
Base at the time the deferrals are made.
The Plan is not a tax-qualified plan under Section 401(a)
of the Internal Revenue Code and is not subject to ERISA. The
Company has not received any ruling from the Internal Revenue
Service concerning the tax consequences of the Plan.
- 6 -
ROC09:114360
EXHIBIT 10e
DETECTION SYSTEMS, INC.
DEFERRED STOCK BONUS PLAN
1. Purpose
Detection Systems, Inc. (the "Company") has adopted this
Deferred Stock Bonus Plan (the "Plan") for the benefit of its
key personnel who wish to defer the receipt of stock bonuses
which they may be entitled to receive from the Company. The
purposes of the Plan are to assist key personnel with their
individual tax and retirement income planning and to permit the
Company to remain competitive in attracting, retaining,
motivating and rewarding personnel who can directly influence
the Company's operating results. The Plan was originally
adopted as of January 1, 1989. This restatement is effective
as of January 1, 1997.
2. Eligibility
All key personnel selected by the Committee established
under Section 11 shall be eligible to participate in this Plan.
3. Amount of Deferral
A participant may elect to defer receipt of up to 100
percent of any stock bonus otherwise payable to the participant
by the Company during a calendar year.
4. Time for Electing Deferral
An election to commence a deferral may be made at any time
in accordance with the procedures set forth in section 5,
provided that any election to defer a stock bonus must be made
prior to the time that such stock bonus will be earned by the
participant. Any election so made shall remain in effect until
the participant elects in writing to change his or her
election.
5. Manner of Electing Deferral
A participant shall elect a deferral by giving written
notice to the Committee in a form prescribed by the Committee.
The notice shall include (1) the amount to be deferred; (2) the
period with respect to which the deferral relates; (3) an
election of a lump sum payment or the number of monthly
installments (not to exceed 120) for the payment of the
deferred amounts; and (4) the date benefit payments are to be
made or to commence. A participant may designate any date for
the commencement of benefit payments but in the event the
participant retires or otherwise terminates employment, benefit
payments shall commence within 60 days of retirement or
termination notwithstanding any later date specified in the
participant's election form.
6. Participant Accounts
For each participant there shall be established both a
Participant Interest Account and a Participant Stock Account
(collectively referred to as the Participant Account). Each
Participant Interest Account shall be credited with the fair
market value, determined as of the date of the deferral, of the
stock bonus deferred on behalf of a participant plus an assumed
annual interest on such amounts at a rate designated by the
Committee from time to time as the benchmark assumed interest
rate. This assumed interest shall be compounded annually and
treated as earned from the date of crediting to the date of
withdrawal.
The Participant Stock Account shall be credited at the end
of each month with the number of shares of Company Common Stock
whose payment is deferred plus any hypothetical dividends
payable on the Company Common Stock previously credited to the
Participant Stock Account. The value of each Participant
Interest and Participant Stock Account shall be adjusted no
less frequently than monthly to reflect contributions to the
Account, payments from the Account as hereinafter provided, and
assumed interest on the Interest Account or additional stock
purchases from hypothetical dividends on the Stock Account.
The Stock Account shall also be adjusted as of the end of the
Company's fiscal year to reflect gains (or losses) in the fair
market value of Company Common Stock. For purposes of this
Plan, the fair market value of the Company's Common Stock shall
equal the Stock's average share value during the fiscal year
preceding the date on which the valuation is performed. The
Committee has the discretion to determine the precise method
for calculating the average share value.
All amounts credited to Participant Accounts shall be
fully vested at all times. Except for the possible claims of
the Company's general creditors, they shall not be subject to
forfeiture on account of any action by a participant or by the
Company, including termination of employment.
The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to
acquire or set aside any particular assets for the discharge of
its obligations, nor is any participant to have any property
rights in any particular assets held by the Company, whether or
not held for the purpose of funding the Company's obligations
hereunder.
7. Payment of Deferred Amounts
No withdrawal may be made from a Participant Account
except as provided in this section 7. Payments from an Account
shall normally commence within 60 days following the earlier of
(1) the benefit commencement date contained in the
participant's initial deferral notice or (2) the participant's
retirement or other termination of employment. At the election
of a participant who could be subject to suit under section
16(b) of the Securities Exchange Act of 1934, payment can be
delayed for up to six months and a day following termination of
employment. In the case of financial hardship, the Committee,
in its sole discretion, may distribute all or a portion of an
Account before the normal benefit commencement date determined
above but the amount of the distribution shall not exceed the
amount needed to relieve the financial hardship.
At any time prior to his benefit commencement date, the
participant shall make a single, irrevocable election with the
Committee to receive his benefits from either his Participant
Interest Account or his Participant Stock Account. If no such
election is made or in the event of the participant's death,
payment shall be made from whichever account has the higher
value, measured at the time of the benefit commencement date.
Payments from an Interest Account shall be made only in cash
and payments from a Stock Account shall be made only in stock,
provided that any fractional shares from a Stock Account shall
be paid in cash.
The number of shares of Company Common Stock (subject to
substitution or adjustment as provided below) that shall be
available for stock payments under this Plan shall be limited
to the number of shares that have been deferred into this Plan.
Such shares may be authorized and unissued shares or may be
treasury 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.
All payments from a Participant Account shall be made in
the form of either a lump sum payment or monthly installments
over a period of years not to exceed ten as elected by the
participant. This election shall be made on the participant's
deferral notice, provided that the participant may change this
election, by written notice to the Committee at any time up to
36 months prior to the actual benefit commencement date. Any
purported change of an earlier election that is made within the
36 month period preceding the actual benefit commencement date
shall not be effective and shall be disregarded by the
Committee. Where payments are made in monthly installments,
the balance credited to a Participant Account shall be adjusted
periodically for assumed interest or stock purchases as
provided in section 6.
In the event of a participant's death before the
participant has received all of the deferred payments to which
the participant is entitled hereunder, the remaining number of
installments which would have been paid to the participant
shall be paid to the participant's estate in the same manner
that the participant would have received them.
Notwithstanding a participant's election of installment
payments, the Committee, in its sole discretion, shall have a
right to accelerate any such payments or to make payment of the
balance in a Participant Account in a lump sum.
8. Participant's Rights Unsecured
The right of any participant or, if applicable, the
participant's estate, to receive benefits under the provisions
of this Plan shall be an unsecured claim against the general
assets of the Company. Any amounts held in a Participant
Account are a part of the Company's general assets and shall be
reachable by the general creditors of the Company.
9. Statement of Account
Statements will be sent to participants no less frequently
than annually setting forth the value of their Participant
Accounts.
10. Transferability
The rights of a participant under this Plan shall not be
transferable other than by will or the laws of descent and
distribution and are excercisable during the participant's
lifetime only by him or by his guardian or legal
representative.
11. Plan Administrator
The administrator of this Plan shall be a committee of the
Board of Directors of the Company as from time to time
designated by the Board. The Committee's members shall be
non-employees of the Company. The Committee shall have the
authority to adopt rules and regulations for carrying out the
Plan and to interpret, construe and implement the provisions of
the Plan.
12. Amendment
This Plan may at any time or from time to time be amended,
modified or terminated by the Company's Board of Directors. No
amendment, modification or termination shall, without the
consent of a participant, adversely affect such participant's
accruals in his or her Participant Account.
13. Governing Law
This Plan and any participant elections hereunder shall be
interpreted and enforced in accordance with the laws of the
State of New York.
14. Effective Date
The effective date of this restated Plan is January 1,
1997.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this Plan document on its behalf
this ___ day of _____________, 1997.
DETECTION SYSTEMS, INC.
By ____________________________
Its ___________________________
DETECTION SYSTEMS, INC.
DEFERRED STOCK BONUS PLAN
Election Form
To: DETECTION SYSTEMS, INC.
In accordance with the provisions of the Plan, I hereby
elect to defer future stock bonuses otherwise payable to me by
the Company as follows:
1. Amount of Bonus Deferral (fill in one
space):
shares (number to be deferred);
or
(percentage of stock bonus).
2. Date Deferrals are to be Paid (check one)
/ / termination of employment; or
/ / the earlier of (fill in
date you wish to receive deferrals) or
termination of employment).
3. Payment of Deferred Amounts
The amounts deferred, plus any assumed earnings
thereon, are to be paid to me as follows (check one):
/ / a lump sum; or
/ / installment payments over
years (not in excess of 10).
In the event of my death before I have received all of the
deferred payments, the payments which would have been paid to
me shall be paid to my estate in the same manner I would have
received them as noted above.
This election is subject to all of the terms of the
Detection Systems, Inc. Deferred Stock Bonus Plan on file with
the records of the company.
Dated: _________________
___________________________________
Signature of Employee
Accepted on the day of
______________, l9___,
on behalf of Detection Systems, Inc.
By
__________________________________
EXHIBIT 10g
DETECTION SYSTEMS, INC.
EXECUTIVE BONUS PLANS
As approved by the Board of
Directors in corporate resolutions dated
6/4/96, 8/21/96, 11/7/96 and 1/22/97
PART 1: EXECUTIVE CASH BONUS PLAN
In accordance with the definitions, conditions, and
limitations set forth below, the Company shall pay a Cash Bonus
to each Eligible Executive as follows:
1.1 Specific Designation, Percentage, and EPS Goal Limitation.
Each fiscal Year, the Board may designate: (a) Executives who
will be Eligible Executives for this Executive Cash Bonus Plan
for that Year, (b) for each such Eligible Executive, the
Executive's Cash Bonus Percentage for that Year, and (c) the
EPS Goal for the Year.
1.2. Group Designation and Percentage.
1.2.1 Group Cash Bonus Percentage. Each fiscal Year,
the Board may designate a Cash Bonus Percentage that will
be made available to a group of Company Executives for
that Year (excluding those specified pursuant to paragraph
1.1 above).
1.2.2. Executive Eligibility for the Group, and Individual
Percentages. Each fiscal Year, the President shall
determine which Executives will be Eligible Executives for
purposes of the group Cash Bonus Percentage, and the
President shall determine the Cash Bonus Percentage for
each individual member of that group.
1.3. Amount of Cash Bonus. Subject to the provisions of
paragraph 1.4 below, the Cash Bonus for an Eligible Executive
shall be equal to the Post-Bogey Profits for the Year
multiplied by the Eligible Executive's Cash Bonus Percentage.
1.4. Conditions and Limitations on Cash Bonuses. Each Cash
Bonus is subject to the following:
1.4.1 EPS Goal Limitations and Carryovers. The EPS
Goal limitations and carryovers provisions set forth in
Part 3 below apply to Cash Bonuses under this Plan.
1.4.2 Part Year Employment. If an Eligible Executive
is employed by the Company for only part of the Year or
the Executive's employment is terminated before Year end,
that Executive's Cash Bonus for that Year will be pro
rated based on the portion of the Year the Executive was
employed by the Company.
1.5. Payment After Year End. [Except for any Eligible
Executives who elect to defer receipt pursuant to the Company's
Deferred Compensation Plan,] Cash Bonuses shall be paid as soon
as practicable after the end of the Year in which they are
earned, but not until after the Company's annual audited
financial statements have been prepared.
PART 2: EXECUTIVE STOCK BONUS PLAN
In accordance with the definitions, conditions, and
limitations set forth below, the Company shall pay a Stock
Bonus to each Eligible Executive in accordance with the
following:
2.1 Specific Designation, Percentage, and Limitations. Each
fiscal Year, the Board may designate: (a) Executives who will
be Eligible Executives for this Executive Stock Bonus Plan for
that Year, (b) for each such Eligible Executive, the maximum
number of Bonus Shares the Executive can receive for that Year,
(c) the EPS Goal for that Year, and (d) the Percentage of
Profit Limitation that will apply for the Year.
2.2. Group Designation and Percentage.
2.2.1 Group Bonus Shares Amount. Each fiscal Year,
the Board may also designate a number of Bonus Shares that
will be made available to a group of Company Executives
for that Year (excluding those specified pursuant to
paragraph 2.1 above).
2.2.2. Group Executive Eligibility and Individual Bonus
Shares Amount. Each fiscal Year, the President shall
determine which Executives will be Eligible Executives for
purposes of the group Bonus Shares amount, as well as the
maximum number of Bonus Shares that may be earned that
Year by each individual member of that group.
2.3. Number of Bonus Shares. Subject to the provisions of
paragraph 2.4 below, the number of Bonus Shares earned by each
Eligible Executive shall be determined by multiplying (a) the
maximum number of Bonus Shares designated for that Eligible
Executive, as provided in paragraph 2.1 or 2.2 above, by (b)
the Sales Growth Factor, and by (c) the Pre-tax Profit Factor,
which Factors shall be calculated as follows:
2.3.1 Sales Growth Factor. The Sales Growth Factor
shall be:
(a) 100% if Sales Growth for the Year is 10% or
more,
(b) 0% if Sales Growth for the Year is 0% or less,
and
(c) between 100% and 0% if Sales Growth for the Year
is between 10% and 0%. The percentage in between
shall be determined by a linear scaling so that, if
Sales Growth is 4%, the Sales Growth Factor will be
40%, and if Sales Growth is 7.5%, the Sales Growth
Factor will be 75%.
2.3.2 Pre-Tax Profit Factor. The Pre-tax Profit
Factor shall be:
(a) 100% if Pre-tax Profits for the Year are 10% or
more of Sales,
(b) 0% if Pre-tax Profits for the Year are 5% or
less of Sales, and
(c) between 100% and 0% if Pre-tax Profits for the
Year are between 10% and 5%. The percentage in
between shall be determined by a linear scaling so
that, if Pre-tax Profits are 6% of Sales, the Pre-
tax Profit Factor will be 20%, and if Pre-tax
Profits are 8.5%, the Pre-tax Profit Factor will be
70%. (6% is 20% of the way between 5% and 10%; and
8.5% is 70% of the way between 5% and 10%.)
2.4. Conditions and Limitations on Stock Bonuses. Each Stock
Bonus is subject to the following:
2.4.1 EPS Goal Limitations and Carryovers. The EPS
Goal limitations and carryovers provisions set forth in
Part 3 below apply to Stock Bonuses under this Plan.
2.4.2 Percentage of Profit Limitation. The Percentage
of Profit limitations and carryovers provisions set forth
in Part 3 below apply to Stock Bonuses granted under this
Plan.
2.4.3 Part Year Employment. If an Eligible Executive
is employed by the Company for only part of the Year or
the Executive's employment is terminated before Year end,
that Executive's Cash Bonus for that Year will be pro
rated based on the portion of the Year the Executive was
employed by the Company.
2.4.4 Rounding. All share calculations shall be
rounded to the nearest whole share.
2.4.5 Other Agreements. Prior to receipt of a Stock
Bonus, each Eligible Executive shall execute and deliver a
stock bonus securities agreement and other agreements, as
the Company shall reasonably require in order to assure
compliance with applicable legal, stock listing, or other
regulatory requirements.
2.5. Payment After Year End. [Except for any Eligible
Executives who elect to defer receipt pursuant to the Company's
Deferred Compensation Plan,] Stock Bonuses shall be paid as
soon as practicable after the end of the Year in which they are
earned, but not until after the Company's annual audited
financial statements have been prepared.
PART 3: EPS GOAL AND PERCENTAGE OF PROFIT LIMITATIONS AND
CARRYOVERS
[Note: the words "Bonuses determined under paragraphs 1.3 and
2.3" are used in this Part in several places to describe
Bonuses which satisfied the criteria of Part 1 or 2 but were
not earned because of the Earned Surplus and/or Percentage of
Profit Limitations, but it probably will be better to define a
Bonus as "Conditionally Earned" (or the like) for those
Bonuses.]
3.1 Earnings Surplus. "Earnings Surplus" shall mean the
amount, if any, by which the Company's EPS in a given Year
exceed the EPS Goal for that Year, multiplied by the number of
outstanding shares of Common Stock used to calculate the EPS.
3.2 Initial Year. Except as additionally limited in paragraph
3.7 below, Cash Bonuses and Stock Bonuses shall be earned in
the Year in which the amounts of the Bonuses are determined
under paragraphs 1.3 and 2.3 only for the amount of the Bonuses
equal in the aggregate to the amount which, net of tax effect,
would eliminate the Earnings Surplus for that Year, if any, and
the categories and individual amounts of Bonuses thus earned
shall be determined as provided in paragraph 3.4 below.
3.3 Earning of Carryforward Bonuses. Any amount of Bonuses
determined under paragraphs 1.3 and 2.3 which are not earned in
the initial Year as provided in paragraphs 3.2 and 3.7 shall
constitute "Carryforward Bonuses," which shall be earned, or
partly earned, in any of the next five Years in which there is
an Earnings Surplus, subject to the following:
(a) Any Bonuses earned in a given Year in accordance with
paragraph 3.2 shall become earned before any Carryforward
Bonuses become earned that Year.
(b) For any Year in which there is an Earnings Surplus
but that Surplus is not sufficient for the earning of all
Carryforward Bonuses, that amount of the Carryforward
Bonuses equal in the aggregate to the amount which, net of
tax effect, would eliminate the Earnings Surplus shall be
earned for that Year.
(c) All Carryforward Bonuses from a given Year shall be
earned before Carryforward Bonuses from a subsequent Year
may be earned.
(d) Any remaining amount of any Carryforward Bonuses,
and/or any Bonuses determined under paragraphs 1.3 and 2.3
for that Year and not yet earned, shall be carried forward
to any future Year in which there is an Earnings Surplus.
3.4 Priorities Among Bonus Types and Pro Ration. The Bonuses
shall be earned in accordance with the following priorities and
prorationing:
(a) All other employee benefits, including any general
employee bonuses, shall have been paid or set aside for
payment before any Bonuses may be determined under
paragraphs 1.3 and 2.3 and before any Earnings Surplus may
be calculated.
(b) Subject to the provisions of paragraph 3.7, Stock
Bonuses for any given Year for Eligible Executives
designated in accordance with paragraph 2.2 shall be
earned prior to the earning of any other Bonuses for that
Year.
(c) Cash Bonuses for any given Year shall be earned prior
to the earning of Stock Bonuses for any given Year for
Eligible Executives designated under paragraph 2.1 for
that Year.
(d) If only a portion of any one category of Bonuses set
forth in (b) or (c) above is earned in any Year, the
individual Bonuses within that category shall be earned on
a pro rata basis.
3.5 Five Year Carryforward Limit. No Carryforward Bonus or
portion thereof may be earned in any Year more than five Years
after the Year in which the Bonus was determined under
paragraphs 1.3 or 2.3.
3.6 Termination of Employment. A person who was designated as
an Eligible Executive or who pursuant to an employment
agreement is treated as an Eligible Executive, for a Bonus in a
Year when the Bonus becomes a Carryforward Bonus shall earn and
be paid that Carryforward Bonus when it becomes earned pursuant
to the provisions of this Part 3, regardless whether the person
continues as an officer, Eligible Executive, or employee of the
Company after the person was designated as an Eligible
Executive; provided that this paragraph 3.6 shall not affect
the provisions of paragraphs 1.4.2 and 2.4.3.
3.7 Percentage of Profit Limitation on Stock Bonuses.
Notwithstanding any of the preceding provisions of this Part 3,
if the aggregate market value of all Stock Bonuses that become
earned in any given Year in accordance with those preceding
provisions exceeds the Dollar amount of the Percentage of
Profit Limitation for that Year, then the aggregate amount of
those Stock Bonuses that become earned in that Year shall be
reduced to the Dollar Amount of the Percentage of Profit
Limitation, disregarding the effects of share rounding. In any
such case, the remainder of those Stock Bonuses shall become or
remain Carryforward Bonuses and the Cash Bonuses earned that
Year may be increased accordingly, all in accordance with the
provisions of this Part 3.
PART 4: DEFINITIONS
[Note: Final numbers will be inserted for these definitions
when the definitions seem complete - to avoid renumbering until
then)
Unless the context otherwise required the following
definitions shall apply in these Executive Bonus Plans:
4. "Board" means the Company's Board of Directors.
4. "Bonus Share" means the shares of the Company's Common Stock
that each Eligible Executive may receive as a Stock Bonus under
the Executive Stock Bonus Plan set forth in Part 2 above.
4. "Bonus" means a Cash Bonus or a Stock Bonus, or both, as the
context may require.
4. "Carryforward Bonus" is defined in paragraph 3.3 above.
4. "Cash Bonus" means a bonus payable to a Company Executive,
in accordance with the terms of the Executive Cash Bonus Plan
set forth in Part 1 above.
4. "Cash Bonus Percentage" means the percentage that will be
applied to the Post-Bogey Profits to determine a Cash Bonus for
an Eligible Executive or a group of Eligible Executives.
4. "Company" means Detection Systems, Inc. and its subsidiaries
that are consolidated with it on its published financial
statements.
4. "Earnings Surplus" is defined in paragraph 3.1 above.
4. "Eligible Executive" means an Executive who has been
designated by the Board or the President as eligible to receive
a Bonus under the Executive Cash Bonus Plan or the Executive
Stock Bonus Plan, or both, as in effect for a Year.
4. "EPS" means earnings per issued and outstanding share of
Common Stock of Detection Systems, Inc. for the Year involved,
calculated in accordance with GAAP.
4. "EPS Goal" means an EPS goal for a given Year, as
established by the Board. The EPS Goal shall be adjusted for
stock splits, stock dividends, and any other comparable
transactions.
4. "Executive" shall mean an officer or key employee of the
Company, including an officer or key employee of any of its
consolidated subsidiaries.
4. "GAAP" means generally accepted accounting principles as
applied and approved for the period involved by the Company's
independent accountants.
4. "Percentage of Profit Limitation" means a specific
percentage of Pre-tax Profits for the Year, designated by the
Board as provided in paragraph 2.1.4 above, which shall serve
as a limit on the aggregate market value of all Stock Bonuses
granted under the Executive Stock Bonus Plan for that Year.
The percentage of Pre-tax Profits may be a fixed percentage or
may be a formula that yields a specific percentage when the Pre-
tax Profits are known.
4. "Post-Bogey Profits" means the Pre-tax Profits of the
Company, less the Pre-tax Profit Bogey.
4. "Pre-tax Profit Factor" means the Pre-tax Profit Factor
calculated under paragraph 2.3.2 above.
4. "Pre-tax Profit Bogey" means a dollar threshold amount for
Pre-tax Profits which is established by the Board each Year.
(see "Post-Bogey Profits.")
4. "Pre-tax Profits" means the total profits of the Company for
the Year after all deductions except for taxes based on income
and except for Bonuses, as reported in accordance with GAAP.
4. "President" means the President of Detection Systems, Inc.
4. "Sales" means the Actual Sales for the Year, except that, if
equivalent Sales Growth is appropriately calculated for the
Year (as provided in the definition of Sales Growth), "Sales"
means the lesser of Actual Sales or Equivalent Sales for the
Year. The "Actual Sales" for the Year shall be the actual
gross sales of the Company for the Year, less discounts,
returns, and allowances, all calculated in accordance with
GAAP. The "Equivalent Sales" for the Year shall be calculated,
if applicable, as the sales level for the Year that would
result from using the Equivalent Sales Growth for the Year
(calculated as provided in the definition for Sales Growth).
4. "Sales Growth" shall mean the "Actual Sales Growth," which
is the fraction obtained by dividing the Sales for a given Year
by the Sales for the previous Year and then subtracting 1, the
result then being stated as a percentage; except that, after a
Year in which Actual Sales Growth exceeded 20%, Sales Growth in
any subsequent Year shall be the greater of the Actual Sales
Growth for that subsequent Year or Equivalent Sales Growth.
For these purposes, "Equivalent Sales Growth" shall mean an
assumed 20% annual compounded Sales Growth after the Year that
preceded the Year in which Actual Sales Growth exceeded 20%;
provided that the resulting assumed Sales for the Year shall
not be more than the Actual Sales for the Year (calculated as
provided in the definition of Sales).
4. "Sales Growth Factor" means the Sales Growth Factor
calculated under paragraph 2.3.1 above.
4. "Stock Bonus" means a bonus payable to a Company Executive
in accordance with the terms of the Executive Stock Bonus Plan
set forth in Part 2 above.
4. "Year" shall mean one of the Company's fiscal years.
EXHIBIT 10n
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated October 20, 1994, is between
DETECTION SYSTEMS, INC. ("Company"), a New York corporation,
and the "Shareholder" who has signed below [Karl H. Kostusiak].
The Shareholder is an executive officer and director of
the Company and owns a substantial block of the issued and
outstanding shares of its Common Stock, par value $0.05 per
share ("Shares").
Believing it in their mutual best interests to provide for
the purchase and sale of some of the Shares owned by the
Shareholder upon his death, the parties hereby agree as
follows:
1. Death of Shareholder
(a) Option on Death. Upon the death of the Shareholder,
his estate shall have the option to sell Shares to the Company
pursuant to the terms of this Agreement. This option may be
exercised by the executor or administrator of his estate at any
time within twelve months of the date of death (or, if later,
three months of the date of the executor's or administrator's
appointment) by giving written notice of exercise to the
Company personally or by registered or certified mail, postage
prepaid. The option may be exercised with respect to any
number of the Shares owned by the Shareholder at his death, up
to the maximum number calculated as provided in Subsection 1(c)
below. The purchase price for the Shares shall be as provided
in Section 2 below and shall be tendered within 30 days after
the notice of exercise is given or, if later, 20 days after the
Company receives the proceeds of the life insurance described
below.
(b) Life Insurance. The Company agrees to maintain life
insurance on the life of the Shareholder to provide proceeds
for the purpose of paying the purchase price under Section 2
for the Shareholder's Shares. That life insurance is listed on
Exhibit A attached hereto, and the Company agrees to execute a
new Exhibit A if at any time the facts stated thereon should
change. The Company agrees to hold the proceeds of such life
insurance in trust for use in paying the purchase price for the
deceased Shareholder's Shares, and, except as provided in
Section 3 below, those proceeds shall not be an asset of the
Company for use for any purpose other than repurchasing Shares
under this Section 1. If the Company breaches the foregoing
agreement to maintain life insurance, that breach shall not
give rise to any liability of the Company hereunder unless:
(1) the Shareholder ceases to be an executive officer of the
Company, or ceases to be a director of the Company, and the
breach occurs thereafter or (2) the breach is made pursuant to
a directive of the Company's board of directors. The Company
additionally agrees that it will promptly pay the premiums on
the policies, will not transfer the policies or any interest
therein except as provided in this Agreement, and will not
borrow against the policies.
(c) Shares to be Purchased. Promptly upon the
Shareholder's death, the board of directors of the Company
shall value the Company's Shares as provided in Section 2
below. The per Share value thus determined shall be divided
into the amount of the total life insurance proceeds received;
and the result thus obtained (rounded down to the nearest whole
Share) shall be the maximum number of Shares that the Company
shall be obligated to purchase pursuant to this Section 1.
(d) Right of First Refusal. If the Shareholder's estate
receives a "Third Party Offer" at any time within 12 months of
the date of the Shareholder's death, then the Shareholder's
estate shall first offer to sell the Shares involved to the
Company as provided in this Subsection. For these purposes, a
Third Party Offer shall be a bona fide written offer made by
another person to purchase Shares. Upon receipt of the Third
Party Offer, the Shareholder's estate shall send a copy of it
to the Company, along with a statement that the estate offers
the Shares to the Company and that, unless purchased by the
Company pursuant to this Subsection, the estate intends to
transfer the Shares pursuant to that Third Party Offer. Upon
receipt of those items, the Company shall have 30 days to
accept the offer. Acceptance shall be made in a writing
delivered personally or sent registered or certified mail,
postage prepaid, to the estate within the required acceptance
period. The Company may accept the offer for some or all of
the Shares involved and may use the proceeds from life
insurance provided for in this Section. Any shares not sold to
the Company pursuant to this Subsection may be sold pursuant to
the Third Party Offer, provided that the sale is completed
within 20 days after expiration of the 30 day period described
above, and provided that the sale is made pursuant to the same
price and terms as those set forth in the Third Party offer.
(e) During the 12 month period after the Shareholder's
death, the Shareholder's estate and his heirs and legatees
shall not sell any Shares except that: (i) Shares may be sold
as provided in this Section 1, (ii) this Section 1 shall no
longer bind any party after the maximum number of Shares
described in Subsection (c) above have been sold to the Company
under this Section 1, and (iii) the Shareholder's estate may
sell Shares to or through others during any six month period up
to 1% of the outstanding shares of the Company's Common Stock.
2. Price
The purchase price to be paid for each Share purchased
pursuant to Section 1 shall be the fair market value as
provided in this Section, calculated as of the date of death
(without consideration of the proceeds of the life insurance to
be received as provided in Section 1). The fair market value
per Share for these purposes shall be 95% of the closing sale
price of the stock as reported on NASDAQ for the last day
immediately preceding the day of death for which trades are
reported, provided, however, that the fair market value (i)
shall not be less than 95% of the book value per Share
calculated in accordance with generally accepted accounting
principles as of the end of the Company's fiscal quarter ended
most recently prior to the death and (ii) shall not be less
than the weighted market price per Share calculated as follows:
(a) Mean Sale Price. The "Mean Sale Price" for trading
reported on NASDAQ for a given day shall be the midpoint
between the reported high and low trade prices for the
day, calculated to the nearest tenth of a cent.
(b) Dollar Volume Per Day. The "Dollar Volume" for a
given trading day shall be the Mean Sale Price thus
calculated for each day multiplied by the reported total
number of shares traded that day.
(c) Calculation Periods. The Dollar Volume for each
trading day shall be calculated for the five years
preceding the date of death and then the Total Dollar
Volume (defined below) shall be calculated for each of
three time periods, namely the one year preceding the date
of death, the three years preceding that date, and the
five years preceding that date (each such time period
being a "Calculation Period").
(d) Total Dollar Volumes. The Dollar Volumes for all
days for which trades are reported during each Calculation
Period shall be added together to reach "Total Dollar
Volume" for that Calculation Period.
(e) Total Shares Traded. The reported number of shares
traded each day during each Calculation Period shall be
added to the same number for each such other day to reach
the "Total Shares Traded" during that Calculation Period.
(f) Weighted Fair Market Value. The Total Dollar Volume
for each Calculation Period shall be divided by the Total
Shares Traded during that Calculation Period to reach a
weighted market price for that Calculation Period. The
weighted market price for purposes of this Agreement shall
be the highest price calculated with respect to the three
Calculation Periods.
For purposes of this Agreement: (1) "NASDAQ" shall mean the
National Association of Securities Dealers Automated Quotation
System for each day during the Calculation Period on which that
System is the principal United States market for the Shares,
and for any day when it is not, then whatever established
public trading market may be the principal United States
market, and (2) reported trading volume and prices shall be
based on the most reliable sources from which that information
is received regularly by the Company.
3. Proceeds Available to Company.
To the extent that the proceeds of life insurance received
by the Company pursuant to Section 1 above are not used to
purchase Shares owned by the Shareholder on his death, the
proceeds may be retained and used by the Company for its own
business purposes.
4. Delivery of Shares
Upon tender of the purchase price pursuant to this
Agreement, the Shareholder's estate shall deliver certificates
representing the Shares to be sold, duly endorsed in blank or
accompanied by duly executed stock transfer powers in blank,
with signatures guaranteed and with any necessary stock
transfer stamps attached, and accompanied by an incumbency
certificate of the person or persons who signed the
endorsements or powers and by necessary inheritance tax waivers
or affidavits.
5. Notice
Any notice or other writing mailed pursuant to this
Agreement shall be sent (a) to the Company at its principal
place of business, to the attention of the Company's Secretary,
and (b) to the Shareholder or his estate at his latest address
as set forth in the Company's records. The Company agrees to
use its reasonable efforts to keep its records current for
these purposes. Any such writing is sent or given when
delivered personally or when deposited in the U.S. mail with
proper postage thereon.
6. Termination of Agreement
This Agreement shall terminate in its entirety upon the
happening of the following event: the written consent of the
Shareholder and the Company.
7. Transfer of Policies
If as a result of a bankruptcy proceeding, sheriff's levy,
or for any other reason, the Company is required by law to sell
or transfer the life insurance policies called for in Section 1
above, or if the Company (contrary to its obligations
hereunder) determines to sell the policies or to cease making
premium payments thereon or takes any other action contrary to
the terms of this Agreement, the Shareholder shall have the
first option to acquire those policies while they remain in
force. The purchase price for the policies shall be equal to
85% of their respective cash surrender values at the time of
purchase, and that price may be paid by delivery to the Company
of the Shareholder's promissory note for that amount, bearing
interest at the Applicable Federal Rate as of the date of
transfer, with principal and all interest becoming due 60 days
after the death of the Shareholder. The Company agrees that,
upon request by the Shareholder, the Shareholder (or some other
person or entity designated by the Shareholder to be the
Shareholder's agent for these purposes) shall be granted a
security interest in or a contingent assignment of the
policies, with at least 30 days prior notice of any transfer,
cancellation, or borrowing, so as to assure that the
Shareholder's option will be enforced. Nothing in this Section
7 shall relieve the Company from its obligations to secure and
maintain those life insurance policies as provided in Section 1
above and nothing in this Section or consequent to its
provisions shall limit the liability of the Company resulting
from a breach of this Agreement by the Company.
8. Miscellaneous
(a) Law Applicable. This Agreement shall be governed
and construed under the laws of the State of New York without
regard to its principles of conflict of laws.
(b) Amendment. This Agreement may not be amended except
by a writing signed by the parties.
(c) Rights of Others. Except as expressly provided
herein, neither the Company, nor any holder or beneficial owner
of Shares, nor any other person, shall acquire or enforce any
rights under this Agreement.
(d) Heirs, Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, legatees, executors,
administrators, successors and assigns, but the rights and
obligations under this Agreement shall not be assignable.
(e) Mergers, Etc. In case of any merger, consolidation
or other reorganization of the Company or any recapitalization
of the capital stock of the Company, the "Shares" as used
herein shall include the securities received by the Shareholder
in respect of or in exchange for his existing Shares.
(f) Additional Actions. Each party agrees to execute
and deliver all such documents and to take such further action
as may be necessary to carry out the purposes and provisions of
this Agreement. Without limiting the preceding sentence, (i)
the Company agrees that, upon written request of the
Shareholder, the Company will transfer ownership in the life
insurance policies to a grantor trust or will arrange for the
proceeds of the policies to be paid directly to a trust, so as
to better assure the attainment of the purposes and provisions
of this Agreement and (ii) the Shareholder agrees that, upon
written request of the Company, the Shareholder will submit
Share certificates for placement thereon of a restrictive
legend referring to the provisions of this Agreement.
IN WITNESS WHEREOF the Company and the Shareholder have
executed this Agreement.
Company: DETECTION SYSTEMS INC.
By: /s/ Donald R. Adair, Director
Shareholder:
/s/ Karl H. Kostusiak
EXHIBIT A
To Stock Purchase Agreement
LIST OF INSURANCE POLICIES
In connection with Section 1 of the Stock Purchase
Agreement, the Company maintains life insurance (with the
Company as the beneficiary and with the proceeds to be
received, held and paid out as provided in Section 1 of the
Agreement) as follows:
Death
Policy Company Insured Benefit
9 626 691 Massachusetts Mutual Karl H. Kostusiak
$1,000,000
2 660 835 Phoenix Home Mutual Karl H. Kostusiak
$1,000,000
DETECTION SYSTEMS, INC.
By: /s/ Donald R. Adair
Its: Chairman, Compensation Committee
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated October 20, 1994, is between
DETECTION SYSTEMS, INC. ("Company"), a New York corporation,
and the "Shareholder" who has signed below [David B. Lederer].
The Shareholder is an executive officer and director of
the Company and owns a substantial block of the issued and
outstanding shares of its Common Stock, par value $0.05 per
share ("Shares").
Believing it in their mutual best interests to provide for
the purchase and sale of some of the Shares owned by the
Shareholder upon his death, the parties hereby agree as
follows:
1. Death of Shareholder
(a) Option on Death. Upon the death of the Shareholder,
his estate shall have the option to sell Shares to the Company
pursuant to the terms of this Agreement. This option may be
exercised by the executor or administrator of his estate at any
time within twelve months of the date of death (or, if later,
three months of the date of the executor's or administrator's
appointment) by giving written notice of exercise to the
Company personally or by registered or certified mail, postage
prepaid. The option may be exercised with respect to any
number of the Shares owned by the Shareholder at his death, up
to the maximum number calculated as provided in Subsection 1(c)
below. The purchase price for the Shares shall be as provided
in Section 2 below and shall be tendered within 30 days after
the notice of exercise is given or, if later, 20 days after the
Company receives the proceeds of the life insurance described
below.
(b) Life Insurance. The Company agrees to maintain life
insurance on the life of the Shareholder to provide proceeds
for the purpose of paying the purchase price under Section 2
for the Shareholder's Shares. That life insurance is listed on
Exhibit A attached hereto, and the Company agrees to execute a
new Exhibit A if at any time the facts stated thereon should
change. The Company agrees to hold the proceeds of such life
insurance in trust for use in paying the purchase price for the
deceased Shareholder's Shares, and, except as provided in
Section 3 below, those proceeds shall not be an asset of the
Company for use for any purpose other than repurchasing Shares
under this Section 1. If the Company breaches the foregoing
agreement to maintain life insurance, that breach shall not
give rise to any liability of the Company hereunder unless:
(1) the Shareholder ceases to be an executive officer of the
Company, or ceases to be a director of the Company, and the
breach occurs thereafter or (2) the breach is made pursuant to
a directive of the Company's board of directors. The Company
additionally agrees that it will promptly pay the premiums on
the policies, will not transfer the policies or any interest
therein except as provided in this Agreement, and will not
borrow against the policies.
(c) Shares to be Purchased. Promptly upon the
Shareholder's death, the board of directors of the Company
shall value the Company's Shares as provided in Section 2
below. The per Share value thus determined shall be divided
into the amount of the total life insurance proceeds received;
and the result thus obtained (rounded down to the nearest whole
Share) shall be the maximum number of Shares that the Company
shall be obligated to purchase pursuant to this Section 1.
(d) Right of First Refusal. If the Shareholder's estate
receives a "Third Party Offer" at any time within 12 months of
the date of the Shareholder's death, then the Shareholder's
estate shall first offer to sell the Shares involved to the
Company as provided in this Subsection. For these purposes, a
Third Party Offer shall be a bona fide written offer made by
another person to purchase Shares. Upon receipt of the Third
Party Offer, the Shareholder's estate shall send a copy of it
to the Company, along with a statement that the estate offers
the Shares to the Company and that, unless purchased by the
Company pursuant to this Subsection, the estate intends to
transfer the Shares pursuant to that Third Party Offer. Upon
receipt of those items, the Company shall have 30 days to
accept the offer. Acceptance shall be made in a writing
delivered personally or sent registered or certified mail,
postage prepaid, to the estate within the required acceptance
period. The Company may accept the offer for some or all of
the Shares involved and may use the proceeds from life
insurance provided for in this Section. Any shares not sold to
the Company pursuant to this Subsection may be sold pursuant to
the Third Party Offer, provided that the sale is completed
within 20 days after expiration of the 30 day period described
above, and provided that the sale is made pursuant to the same
price and terms as those set forth in the Third Party offer.
(e) During the 12 month period after the Shareholder's
death, the Shareholder's estate and his heirs and legatees
shall not sell any Shares except that: (i) Shares may be sold
as provided in this Section 1, (ii) this Section 1 shall no
longer bind any party after the maximum number of Shares
described in Subsection (c) above have been sold to the Company
under this Section 1, and (iii) the Shareholder's estate may
sell Shares to or through others during any six month period up
to 1% of the outstanding shares of the Company's Common Stock.
2. Price
The purchase price to be paid for each Share purchased
pursuant to Section 1 shall be the fair market value as
provided in this Section, calculated as of the date of death
(without consideration of the proceeds of the life insurance to
be received as provided in Section 1). The fair market value
per Share for these purposes shall be 95% of the closing sale
price of the stock as reported on NASDAQ for the last day
immediately preceding the day of death for which trades are
reported, provided, however, that the fair market value (i)
shall not be less than 95% of the book value per Share
calculated in accordance with generally accepted accounting
principles as of the end of the Company's fiscal quarter ended
most recently prior to the death and (ii) shall not be less
than the weighted market price per Share calculated as follows:
(a) Mean Sale Price. The "Mean Sale Price" for trading
reported on NASDAQ for a given day shall be the midpoint
between the reported high and low trade prices for the
day, calculated to the nearest tenth of a cent.
(b) Dollar Volume Per Day. The "Dollar Volume" for a
given trading day shall be the Mean Sale Price thus
calculated for each day multiplied by the reported total
number of shares traded that day.
(c) Calculation Periods. The Dollar Volume for each
trading day shall be calculated for the five years
preceding the date of death and then the Total Dollar
Volume (defined below) shall be calculated for each of
three time periods, namely the one year preceding the date
of death, the three years preceding that date, and the
five years preceding that date (each such time period
being a "Calculation Period").
(d) Total Dollar Volumes. The Dollar Volumes for all
days for which trades are reported during each Calculation
Period shall be added together to reach "Total Dollar
Volume" for that Calculation Period.
(e) Total Shares Traded. The reported number of shares
traded each day during each Calculation Period shall be
added to the same number for each such other day to reach
the "Total Shares Traded" during that Calculation Period.
(f) Weighted Fair Market Value. The Total Dollar Volume
for each Calculation Period shall be divided by the Total
Shares Traded during that Calculation Period to reach a
weighted market price for that Calculation Period. The
weighted market price for purposes of this Agreement shall
be the highest price calculated with respect to the three
Calculation Periods.
For purposes of this Agreement: (1) "NASDAQ" shall mean the
National Association of Securities Dealers Automated Quotation
System for each day during the Calculation Period on which that
System is the principal United States market for the Shares,
and for any day when it is not, then whatever established
public trading market may be the principal United States
market, and (2) reported trading volume and prices shall be
based on the most reliable sources from which that information
is received regularly by the Company.
3. Proceeds Available to Company.
To the extent that the proceeds of life insurance received
by the Company pursuant to Section 1 above are not used to
purchase Shares owned by the Shareholder on his death, the
proceeds may be retained and used by the Company for its own
business purposes.
4. Delivery of Shares
Upon tender of the purchase price pursuant to this
Agreement, the Shareholder's estate shall deliver certificates
representing the Shares to be sold, duly endorsed in blank or
accompanied by duly executed stock transfer powers in blank,
with signatures guaranteed and with any necessary stock
transfer stamps attached, and accompanied by an incumbency
certificate of the person or persons who signed the
endorsements or powers and by necessary inheritance tax waivers
or affidavits.
5. Notice
Any notice or other writing mailed pursuant to this
Agreement shall be sent (a) to the Company at its principal
place of business, to the attention of the Company's Secretary,
and (b) to the Shareholder or his estate at his latest address
as set forth in the Company's records. The Company agrees to
use its reasonable efforts to keep its records current for
these purposes. Any such writing is sent or given when
delivered personally or when deposited in the U.S. mail with
proper postage thereon.
6. Termination of Agreement
This Agreement shall terminate in its entirety upon the
happening of the following event: the written consent of the
Shareholder and the Company.
7. Transfer of Policies
If as a result of a bankruptcy proceeding, sheriff's levy,
or for any other reason, the Company is required by law to sell
or transfer the life insurance policies called for in Section 1
above, or if the Company (contrary to its obligations
hereunder) determines to sell the policies or to cease making
premium payments thereon or takes any other action contrary to
the terms of this Agreement, the Shareholder shall have the
first option to acquire those policies while they remain in
force. The purchase price for the policies shall be equal to
85% of their respective cash surrender values at the time of
purchase, and that price may be paid by delivery to the Company
of the Shareholder's promissory note for that amount, bearing
interest at the Applicable Federal Rate as of the date of
transfer, with principal and all interest becoming due 60 days
after the death of the Shareholder. The Company agrees that,
upon request by the Shareholder, the Shareholder (or some other
person or entity designated by the Shareholder to be the
Shareholder's agent for these purposes) shall be granted a
security interest in or a contingent assignment of the
policies, with at least 30 days prior notice of any transfer,
cancellation, or borrowing, so as to assure that the
Shareholder's option will be enforced. Nothing in this Section
7 shall relieve the Company from its obligations to secure and
maintain those life insurance policies as provided in Section 1
above and nothing in this Section or consequent to its
provisions shall limit the liability of the Company resulting
from a breach of this Agreement by the Company.
8. Miscellaneous
(a) Law Applicable. This Agreement shall be governed
and construed under the laws of the State of New York without
regard to its principles of conflict of laws.
(b) Amendment. This Agreement may not be amended except
by a writing signed by the parties.
(c) Rights of Others. Except as expressly provided
herein, neither the Company, nor any holder or beneficial owner
of Shares, nor any other person, shall acquire or enforce any
rights under this Agreement.
(d) Heirs, Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, legatees, executors,
administrators, successors and assigns, but the rights and
obligations under this Agreement shall not be assignable.
(e) Mergers, Etc. In case of any merger, consolidation
or other reorganization of the Company or any recapitalization
of the capital stock of the Company, the "Shares" as used
herein shall include the securities received by the Shareholder
in respect of or in exchange for his existing Shares.
(f) Additional Actions. Each party agrees to execute
and deliver all such documents and to take such further action
as may be necessary to carry out the purposes and provisions of
this Agreement. Without limiting the preceding sentence, (i)
the Company agrees that, upon written request of the
Shareholder, the Company will transfer ownership in the life
insurance policies to a grantor trust or will arrange for the
proceeds of the policies to be paid directly to a trust, so as
to better assure the attainment of the purposes and provisions
of this Agreement and (ii) the Shareholder agrees that, upon
written request of the Company, the Shareholder will submit
Share certificates for placement thereon of a restrictive
legend referring to the provisions of this Agreement.
IN WITNESS WHEREOF the Company and the Shareholder have
executed this Agreement.
Company: DETECTION SYSTEMS INC.
By: /s/ Donald R. Adair, Director
Shareholder:
/s/ Karl H. Kostusiak
EXHIBIT A
To Stock Purchase Agreement
LIST OF INSURANCE POLICIES
In connection with Section 1 of the Stock Purchase
Agreement, the Company maintains life insurance (with the
Company as the beneficiary and with the proceeds to be
received, held and paid out as provided in Section 1 of the
Agreement) as follows:
Death
Policy Company Insured Benefit
9 626 691 Massachusetts Mutual Karl H. Kostusiak
$1,000,000
2 660 835 Phoenix Home Mutual Karl H. Kostusiak
$1,000,000
DETECTION SYSTEMS, INC.
By: /s/ Donald R. Adair
Its: Chairman, Compensation Committee
Exhibit 11
DETECTION SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996* 1995*
---- ----- -----
Income (loss) before
cumulative effect of a
change in accounting
principle $3,725,284 ($7,855,243) $1,514,489
Add-Interest on deferred
compensation 15,277 51,032
--------- ---------- ---------
Income (loss) before
cumulative effect of a
change in accounting
principle applicable
to common stock 3,725,284 (7,839,966) 1,565,521
--------- --------- ---------
Adjusted net income
(loss) applicable
to common stock $3,725,284 ($7,839,966)$1,565,521
========= ========== =========
Number of shares:
Weighted average number
of shares 4,358,608 4,196,914 4,120,134
Add-Common stock
equivalents due to -
Assumed exercise of
stock options and warrants 224,524 2,295 46,327
Assumed conversion of
shares earned in deferred
compensation plan 350,409 86,029 317,245
------- ------ -------
Total common and common
equivalent shares 4,933,541 4,285,238 4,483,706
========= ========= =========
Earnings (loss) per common
and common equivalent share:
Cumulative effect of a change in
accounting principle $.76 ($1.83) $.35
---- ------ ----
Net income (loss) $.76 ($1.83) $.35
==== ===== ====
</TABLE>
NOTES:
*Per Share amounts have been adjusted to reflect the December
17, 1996 three-for-two stock split.
DETECTION SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE
<TABLE>
<S> <C> <C>
Year Ended March 31, 1994* 1993*
---- ----
Income before cumulative effect of a
change in accounting principle $1,144,641 $1,436,852
Add - Interest on 9% convertible
debentures** 13,500
Add - Interest on deferred compensation 30,296 33,071
--------- ---------
Income before cumulative effect
of a change in accounting principle
applicable to common stock 1,174,937 1,483,423
Cumulative effect of change in
accounting principle 130,800
--------- ---------
Adjusted net income applicable
to common stock $1,305,737 $1,483,423
========== ==========
Number of shares:
Weighted average number of shares 4,023,813 3,949,218
Add - Common stock equivalents
due to -
Assumed exercise of stock
options and warrants 69,541 97,960
Assumed conversion of shares
earned in deferred compensation
plan 313,755 281,593
Assumed conversion of
convertible debentures** 47,462
--------- ---------
Total common and common
equivalent shares 4,407,109 4,376,233
========= =========
Earnings (loss) per common and
common equivalent share:
Income before cumulative effect of a
change in accounting principle $.27 $.34
Cumulative effect of a change in
accounting principle .03
---- ----
Net income $.30 $.34
==== ====
</TABLE>
NOTES:
*Per Share amounts have been adjusted to reflect the December
17, 1996 three-for-two stock split.
**During 1993, convertible debentures were dilutive only in the
first quarter.
EXHIBIT 13
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Shareholders of
Detection Systems, Inc.
Our audits of the financial statements referred to in our
report dated June 2, 1997 appearing in Exhibit 13 of the 1997
Annual Report on Form 10-K of Detection Systems, Inc. also
included an audit of the Financial Statement Schedules listed
in the preceding index of this Form 10-K. In our opinion,
these Financial Statement Schedules present fairly, in all
material respects, the information set forth therein when read
in conjunction with the related financial statements
/s/ PRICE WATERHOUSE LLP
Rochester, New York
June 2, 1997
DETECTION SYSTEMS, INC.
SCHEDULE VIII - RESERVES
Year ended March 31, 1997
-------------------------
<TABLE>
<S> <C> <C> <C> <C>
Additions
Balance at charged to Deduction: Balance
beginning costs and Write-off at end
Description of year expenses of assets of year
- ----------------------------------- -------- --------- -------
Allowance for doubtful
accounts $235,000 $83,600 $4,800 $313,800
Allowance for obsolete
inventory 979,200 878,100 242,000 1,615,300
------- ------- ------- ---------
$1,214,200 $961,700 $246,800 $1,929,100
========= ======= ======= =========
</TABLE>
Year ended March 31, 1996
-------------------------
<TABLE>
<S> <C> <C> <C> <C>
Additions
Balance at charged to Deduction: Balance
beginning costs and Write-off at end
Description of year expenses of assets of year
- ----------------------------------- -------- --------- -------
Allowance for doubtful
accounts $100,000 $270,000 $135,000 $235,000
Allowance for obsolete
inventory 375,000 1,025,000 420,800 979,200
-------- --------- -------- ---------
$475,000 $1,295,000 $555,800 $1,214,200
======= ========= ======== =========
</TABLE>
Year ended March 31, 1995
-------------------------
<TABLE>
<S> <C> <C> <C> <C>
Additions
Balance at charged to Deduction: Balance
beginning costs and Write-off at end
Description of year expenses of assets of year
- ----------- -------- -------- --------- -------
Allowance for doubtful
accounts $100,000 $349,550 $349,550 $100,000
Allowance for obsolete
inventory 235,000 178,742 38,742 375,000
-------- -------- -------- --------
$335,000 $528,292 $388,292 $475,000
======= ======= ======= =======
</TABLE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Detection Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations and retained earnings and
of cash flows present fairly, in all material respects, the financial
position of Detection Systems, Inc. and its subsidiaries at March 31,
1997, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Rochester, New York
June 2, 1997
DETECTION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Assets
Current assets:
Cash and cash equivalents $2,244,265 $930,012 $4,597,047
Short term investments 2,421,546
Accounts receivable, less
allowance for doubtful
accounts ($313,800 in 1997,
$235,000 in 1996 and
$100,000 in 1995) 15,246,309 10,482,660 4,916,052
Inventories 29,995,215 14,065,843 5,255,724
Deferred income taxes 2,132,156 1,554,900 354,500
Prepaid expenses and
other assets 883,137 1,392,913 408,406
---------- ---------- ----------
50,501,082 28,426,328 17,953,275
---------- ---------- ----------
Fixed assets, net 11,057,256 7,085,357 3,920,571
Property under capital
lease, net 190,915 2,491,475 2,725,513
Deferred income taxes 3,046,200 3,983,200
Goodwill and other
intangibles, net 2,942,626 3,762,327
Other assets 537,772 148,891 145,934
---------- ---------- ----------
$68,275,851 $45,897,578 $24,745,293
========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $1,183,750
Current portion of long
term debt $953,648
Current portion of capital
lease obligation 147,574 559,860 $434,934
Accounts payable 12,259,380 6,231,737 1,213,958
Accrued payroll and benefits 2,818,487 1,566,777 1,074,103
Other accrued liabilities 3,254,593 3,171,914 266,526
---------- ---------- ---------
19,433,682 12,714,038 2,989,521
---------- ---------- ---------
Long term liabilities 1,173,694 1,931,900 288,200
Obligations under capital
leases 54,125 186,471 745,733
Long term debt 28,031,802 17,750,000
Deferred compensation 1,751,281 1,745,886 1,527,638
Shareholders' equity:
Common stock, par value $.05
per share
Authorized - 12,000,000 shares
Issued - 4,478,993 shares in
1997, 2,811,361 shares in
1996 and 2,792,489 shares
in 1995 223,950 140,56 139,624
Capital in excess of par value 9,448,917 6,972,431 6,853,246
Retained earnings 8,594,306 4,869,022 12,724,265
---------- ---------- ----------
18,267,173 11,982,021 19,717,135
Less - Treasury stock, at cost (52,553) (12,363) (36,326)
Notes receivable for stock
purchases (378,373) (392,514) (486,608)
Cumulative translation
adjustment (4,980) (7,861)
---------- ---------- ----------
17,831,267 11,569,283 19,194,201
---------- ---------- ----------
$68,275,851 $45,897,578 $24,745,293
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
DETECTION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<S> <C> <C> <C>
Year ended March 31, 1997 1996 1995
---- ---- ----
Net sales $101,251,380 $41,857,809 $34,336,336
Costs and expenses:
Production 64,916,410 27,978,460 20,829,843
Research and develop-
ment 8,114,671 4,699,643 4,070,443
Purchased in-process
research and
development 9,350,000
Marketing, administrative
and general 21,411,444 10,514,797 6,788,924
---------- ---------- ----------
94,442,525 52,542,900 31,689,210
---------- ---------- ----------
Operating income (loss) 6,808,855 (10,685,091) 2,647,126
Interest income 206,049 340,311 113,420
Interest expense (1,764,620) (320,463) (168,557)
---------- ---------- ----------
Income (loss) before
income taxes 5,250,284 (10,665,243) 2,591,989
Provision (benefit)
for income taxes 1,525,000 (2,810,000) 1,077,500
---------- ---------- ----------
Net income (loss) 3,725,284 (7,855,243) 1,514,489
Retained earnings at
beginning of year 4,869,022 12,724,265 11,209,776
---------- ---------- ----------
Retained earnings at
end of year $ 8,594,306 $ 4,869,022 $12,724,265
========== ========== ==========
Earnings (loss) per
common and common
equivalent share $.76 ($1.83) $.35
=== ===== ===
</TABLE>
See accompanying notes to consolidated financial statements.
DETECTION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Cash flows from
operating activities:
Net income (loss) $3,725,284 ($7,855,243) $1,514,489
--------- --------- ---------
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 2,737,438 2,043,373 1,502,516
Purchased in-process
research and development 9,350,000
(Gain) loss on
disposition of fixed
assets (14,670) 275,349 8,561
Deferred compensation 5,395 218,248 103,933
Deferred income taxes 177,800 (3,536,000) (123,500)
Stock based compensation 146,950 34,763 48,800
Changes in operating assets and
liabilities:
Accounts receivable (4,763,649) (1,156,325) 480,783
Inventories (15,929,372) (4,264,800) 590,227
Prepaid expenses and
other assets 120,895 (634,523) 3,069
Accounts payable 6,027,687 2,354,624 514,680
Accrued payroll and
benefits 1,251,710 190,159 102,232
Other accrued liabilities (99,684) (460,930) (62,592)
---------- --------- --------
Total adjustments (10,339,500) 4,413,933 3,168,709
Net cash (used in)
provided by operating
activities (6,614,216) (3,441,310) 4,683,198
--------- --------- ---------
Cash flows from investing
activities:
Purchase of Radionics net
of cash acquired (17,965,381)
Capital expenditures (3,968,349) (3,376,867) (1,358,009)
Short term investments 2,421,546 (2,437,842)
--------- --------- ---------
Net cash (used in)
investing activities (3,968,349) (18,920,702) (3,795,851)
--------- ---------- ---------
Cash flows from
financing activities:
Notes payable 1,183,750
Proceeds from long
term debt 10,047,007 17,750,000
Principal payments on
long term debt and
capital lease
obligations (539,939) (434,336) (401,815)
Issuance of common stock 2,238,805 94,295 140,375
Stock options exercised 148,064 109,129 47,733
---------- ---------- --------
Net cash provided by
(used in) financing
activities 11,893,937 18,702,838 (213,707)
---------- ---------- -------
Effect of exchange rate
changes 2,881 (7,861)
Net increase (decrease)
in cash and cash
equivalents 1,314,253 (3,667,035) 673,640
Cash and cash equivalents
at beginning of year 930,012 4,597,047 3,923,407
Cash and cash equivalents
at end of year $2,244,265 $930,012 $4,597,047
========= ======= =========
Cash paid during the year for:
Interest $1,574,812 $226,929 $173,709
========= ======= =======
Income taxes $1,095,754 $1,041,284 $1,141,276
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
DETECTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
NOTE 1 - DESCRIPTION OF OPERATIONS AND ACCOUNTING POLICIES:
DESCRIPTION OF OPERATIONS -
Detection Systems, Inc. is a leader in the design, development,
manufacturing and marketing of high performance electronic
instrumentation devices for the security and fire protection
industries. Such devices primarily include intrusion and fire
detectors, and, to a lesser extent, alarm control equipment.
On February 12, 1996, Detection Systems, Inc. consummated the
purchase of Radionics, Inc. a leader in the design,
development, manufacturing and marketing of alarm control
devices (Note 2).
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements of Detection Systems,
Inc. (collectively, the Company) include all majority-owned
U.S. and non-U.S. subsidiaries. Intercompany accounts,
transactions and profits are eliminated. Certain amounts in
the prior years' financial statements have been reclassified to
conform with the current year's presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at year-end as well as the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -
Cash equivalents include time deposits and highly liquid
investments with original maturities of three months or less.
INVESTMENTS -
The Company accounts for its investment securities in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." All of the Company's reported investments
are classified as available for sale. Accordingly, unrealized
holding gains and losses, net of applicable taxes, are excluded
from income and recognized as a separate component of
shareholders' equity until realized.
INVENTORIES -
Inventories, which include materials, labor and overhead, are
recorded at the lower of cost, determined by the first-in,
first-out method, or market value.
FIXED ASSETS AND PROPERTY UNDER CAPITAL LEASE -
The building and related improvements are depreciated using the
straight-line method over an estimated useful life ranging from
twenty-six to forty years. Land improvements, machinery and
equipment, production tooling and furniture are depreciated on
the straight-line method over estimated useful lives ranging
from three to ten years. Expenditures for maintenance and
repairs are charged to expense as incurred. Major
improvements are capitalized.
GOODWILL AND OTHER INTANGIBLES-
Goodwill and other intangibles represents the excess of the
cost of net tangible assets acquired in business combinations
over their fair value. Goodwill and other intangibles are
amortized using the straight-line method over periods ranging
from three to twenty years. The Company evaluates goodwill and
intangibles for impairment at least annually by comparing its
best estimate of undiscounted future cash flows to the
respective carrying amount. Accumulated amortization at March
31, 1997 and 1996 was approximately $494,000 and $69,000,
respectively.
RETIREMENT PLANS -
The Company has two defined contribution pension plans which,
in aggregate, cover substantially all domestic employees. The
first plan requires the Company to match 100% of an employee's
contribution up to one percent of the employee's base salary
and 25% of an employee's contribution between two and four
percent of the employee's base salary. The second plan permits
employees to contribute up to 20% of their eligible earnings.
Annual contributions by the Company, out of its net profits,
are in amounts approved by the Company's Board of Directors.
The Company's contributions to these plans were approximately
$155,000, $117,000 and $113,000 in 1997, 1996 and 1995,
respectively.
During the first quarter of fiscal 1997 the Company established
a defined benefit pension plan for certain key executives. The
plan provides for an annual benefit of 12% of their ending
annual compensation and medical expense coverage for life after
retirement. The liability is being recognized over their
remaining service periods.
REVENUE RECOGNITION -
Revenues are recognized when product is shipped.
RESEARCH AND DEVELOPMENT COSTS -
All product development costs are charged to operations during
the period incurred.
FOREIGN CURRENCY TRANSLATION -
Assets and liabilities of non-U.S. subsidiaries are translated
at current exchange rates, and related revenues and expenses
are translated at average exchange rates in effect during the
period. Resulting translation adjustments are recorded as a
separate component of shareholders' equity.
STOCK BASED COMPENSATION -
The Company applies Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," which
requires compensation cost to be recognized based on the
difference, if any, between the quoted market price of the
stock on the grant date and the amount an employee must pay to
acquire the stock.
INCOME TAXES -
The Company accounts for certain income and expense items
differently for financial reporting and income tax purposes in
accordance with SFAS 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of
assets and liabilities applying enacted statutory rates in
effect for the year in which the differences are expected to
reverse.
STOCK SPLIT -
On November 7, 1996, a meeting of the Board of Directors was
held authorizing a three-for-two stock split effective December
17, 1996 for shareholders of record at the close of business on
November 27, 1996. All references in the consolidated
financial statements referring to share prices, per share
amounts and stock plans have been adjusted retroactively for
the three-for-two stock split.
EARNINGS PER SHARE -
The computation of earnings (loss) per common and common
equivalent share is based upon the weighted average number of
common and common equivalent shares outstanding during the
period. The weighted average common and common equivalent
shares used in this calculation, as adjusted to reflect the
three-for-two stock split were 4,933,541, 4,285,238 and
4,483,706 in 1997, 1996 and 1995, respectively.
The earnings per share computations do not consider common
equivalent shares when the Company is in a loss position or
when the effect of such inclusion is anti-dilutive. There was
no material difference between primary and fully diluted
earnings per share in 1997, 1996 and 1995, respectively.
CONCENTRATION OF CREDIT RISK -
Financial instruments which potentially expose the Company to
concentration of credit risk consist principally of bank
deposits, temporary investments and accounts receivable. The
Company performs on-going credit evaluations of its customers'
financial condition and the Company maintains an allowance for
uncollectible accounts receivable based upon the expected
collectibility of all accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
The carrying amount of the Company's financial instruments,
including cash and cash equivalents, short-term investments,
accounts receivable and notes payable, approximates their fair
value at March 31, 1997 and 1996 as the maturity of these
instruments is short term. The carrying amount of the
Company's long term debt obligations approximates their fair
value as the interest rates on such obligations approximate the
market rate at March 31, 1997 and 1996.
CASH FLOW STATEMENT -
The Company accepted notes receivable from employees for stock
purchases in the amount of $22,758, $13,314 and $258,071 in
1997, 1996 and 1995, respectively.
NEW ACCOUNTING STANDARDS -
In February 1997, SFAS No. 128, "Earnings Per Share," was
issued by the Financial Accounting Standards Board. SFAS No.
128 specified modifications to the calculation of earnings per
share from that currently used by the Company. Under SFAS No.
128, "basic earnings per share" is calculated based upon the
weighted average number of common shares actually outstanding,
and "diluted earnings per share" is calculated based upon the
weighted average number of common shares outstanding and other
potential common shares (e.g. stock options and warrants) if
they are dilutive. SFAS No. 128 is effective for periods
ending after December 15, 1997 and will be adopted at that
time. Had the Company determined earnings per share in
accordance with SFAS No. 128, for the years ended March 31,
1997, 1996 and 1995, basic pro forma earnings (loss) per share
would have been $.85, ($1.87) and $.37, respectively, and pro
forma diluted earnings (loss) per share would have been $.75,
($1.87) and $.34, respectively.
NOTE 2 - ACQUISITION
In July 1996, the Company acquired certain assets and patent
rights of Senses International, Inc., a manufacturer of long
range wireless alarm transmission equipment. The Company paid
approximately $600,000 for these assets.
In February 1996, the Company acquired all of the stock of
Radionics, Inc. (Radionics) for a total cash purchase price,
including expenses, of approximately $18 million. Funding for
the acquisition was provided by borrowings from a commercial
bank pursuant to a term loan facility (Note 6).
The acquisition was accounted for under the purchase method,
and Radionics' results of operations have been consolidated
with the Company's results of operations effective as of the
acquisition date. The Company made a determination and
allocation of the purchase price as of the acquisition date and
finalized this allocation during fiscal 1997. The allocation
of purchase price consisted of the following:
Accounts receivable $ 4,410,300
Inventories 4,545,300
Other current assets 1,638,100
Accounts payable and other current liabilities (6,032,000)
---------
Net working capital acquired 4,561,700
Fixed assets 1,803,600
Purchased in-process research and development 9,350,000
Goodwill and other intangibles 3,351,400
Other non-current items, net (899,500)
----------
Total purchase price, including expenses $18,167,200
==========
The valuation of technology, including other intangibles, was
accomplished through the application of an income approach.
Projected debt-free income, revenue net of provision for
operating expenses, income taxes and returns on requisite
assets were discounted to a present value. This approach was
used for each of the Radionics product lines. Technology was
divided into two categories: current products and in-process
research and development.
Current products included those products currently in the
market place as of the acquisition date and products which,
while still in the development stage at the acquisition date,
were technologically feasible. The fair market value of the
purchased current products was determined to be $890,000. This
amount is recorded as an intangible asset and is being
amortized on a straight line basis over three years.
Purchased in-process research and development included the
value of products still in the development stage, but not
considered to have reached technological feasibility. As a
result of the valuation, the fair market value of the purchased
in-process research and development was determined to be
$9,350,000. In accordance with generally accepted accounting
practice, this amount was expensed upon acquisition in the
fourth quarter of fiscal 1996.
The following table summarizes, on an unaudited, pro forma
basis, the estimated combined results of operations of the
Company as though the acquisition was made at the beginning of
1996 and 1995. For purposes of preparing the unaudited pro
forma information, the results from Detection Systems' years
ended March 31, 1996 and 1995 have been combined with the
results of Radionics' years ended December 31, 1995 and 1994,
respectively. The pro forma amounts do not necessarily reflect
the results that actually would have been obtained had the
transaction taken place at the beginning of periods indicated,
nor are they intended to be a projection of future results:
1996 1995
---- ----
(Unaudited)
Net revenues $81,285,000 $78,550,000
Costs and expenses 93,509,000 84,671,000
Loss before taxes (12,224,000) (6,121,000)
Net loss (7,706,000) (3,780,000)
Net loss per share ($1.80) ($.88)
The charge for in process research and development of
$9,350,000 is reflected in the fiscal year 1996 amounts above.
NOTE 3 - INVENTORIES:
Major classifications of inventory are as follows.
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Component parts $20,636,368 $ 6,924,870 $2,300,894
Work in process 2,697,459 705,473 475,927
Finished products 8,276,688 7,414,700 2,853,903
---------- ---------- ---------
31,610,515 15,045,043 5,630,724
Less-Reserve for
obsolescence (1,615,300) (979,200) (375,000)
---------- ---------- ---------
$29,995,215 $14,065,843 $5,255,724
========== ========== =========
</TABLE>
NOTE 4 - FIXED ASSETS:
Major classifications of fixed assets are as follows.
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Land and improvements $ 714,582 $ 219,435 $211,735
Building and improvements 4,001,527 2,490,409 1,503,103
Machinery and equipment 14,080,783 9,802,633 7,099,144
Production tooling 3,865,900 3,134,229 3,140,152
Furniture 1,268,455 1,120,620 701,142
---------- ---------- ----------
23,931,247 16,767,326 12,655,276
Less - Accumulated
depreciation (12,873,991) (9,681,969)(8,734,705)
---------- --------- ---------
$11,057,256 $7,085,357 $3,920,571
========== ========= =========
</TABLE>
Total depreciation expense on fixed assets was approximately
$2,126,700, $1,711,100 and $1,197,700 in 1997, 1996 and 1995,
respectively.
NOTE 5 - CAPITAL LEASES:
During 1982, the Company entered into an agreement with a local
government agency under which the agency's bond proceeds of
$3,800,000 were used to purchase land and construct an
operating facility for lease to the Company. These
expenditures had been recorded as property under capital lease.
The lease, which required quarterly principal payments of
$63,330 plus interest at two-thirds of a designated bank's
prime lending rate, extended to October 1997. However, all
outstanding principal on this obligation was repaid in June
1996, at which time title to the property passed to the
Company.
The Company has various equipment under capital lease
agreements which require payments of principal and interest of
$156,117 in 1998; $38,934 in 1999 and $28,682 in 2000.
Property under capital lease consists of the following.
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Land and improvements $ 495,147 $ 495,147
Building 2,938,072 2,938,072
Machinery and equipment $1,316,044 1,327,591 1,327,591
--------- --------- ---------
1,316,044 4,760,810 4,760,810
Less - Accumulated
depreciation (1,125,129) (2,269,335) (2,035,297)
--------- --------- ---------
$ 190,915 $2,491,475 $2,725,513
========= ========= =========
</TABLE>
Obligations under capital leases are summarized below.
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Operating facility $443,510 $696,830
Production and office
equipment $201,699 302,821 483,837
------- ------- ---------
201,699 746,331 1,180,667
Less - Current portion (147,574) (559,860) (434,934)
------- ------- ---------
$ 54,125 $186,471 $745,733
======= ======= =========
</TABLE>
Total depreciation expense on property under capital leases was
approximately $185,000, $263,000, and $294,800 in 1997, 1996
and 1995, respectively.
NOTE 6 - INDEBTEDNESS
During 1996, the Company had a line of credit secured by
general business assets of the Company allowing borrowings of
up to $6,500,000. At March 31, 1996, borrowings on the line of
credit aggregated $1,183,750 at approximately 7.4%. The
maximum amount of borrowings on the line of credit outstanding
during 1996 was $1,183,750.
During 1997, the Company increased this line of credit to
$11,500,000. At March 31, 1997, borrowings on the line of
credit aggregated $11,230,757 at approximately 9.25%. This
line requires interest only payments through May 1998, at which
time all outstanding principal is due. Consequently,
borrowings on this line of credit outstanding as of March 31,
1997 are classified as long term. The maximum amount of
borrowings on the line of credit outstanding during 1997 was
$11,230,757.
In connection with the acquisition of Radionics, the Company
borrowed $17,750,000, of which $3,400,000 is secured by certain
real estate and matures in April 2006. The remaining
$14,350,000 is secured by general business assets and matures
in April 2003. At March 31, 1997 and 1996, the interest rate
on these borrowings was approximately 7.4%.
Interest on the outstanding debt accrues based upon either the
federal funds rate, the prime rate or LIBOR, each adjusted by a
factor which varies based upon the rates of funded debt to
earnings before interest, tax, depreciation and amortization.
Pursuant to the terms of the debt agreements for the
obligations listed above, the Company has certain levels and
covenants to maintain with respect to such items as working
capital, funded debt and fixed charges. Failure to comply with
these guidelines constitutes default and obligations become
currently due. The Company is in compliance with all covenants
and requirements under the terms of the borrowing agreements.
Annual maturities of the Company's long term debt for the next
five years are approximately: 1998 - $953,600; 1999 -
$14,091,700; 2000 - $2,860,900; 2001 - $2,860,900; and 2002 -
$2,860,900.
NOTE 7 - DEFERRED COMPENSATION PLANS:
The Company's deferred compensation plan allows certain
employees to defer the receipt of salary or bonuses which they
may be entitled to receive. The compensation is normally
payable at retirement, and is fully vested when deferred. For
salaries or bonuses deferred, the employee elects, at the time
of deferral, to be paid in either stock or cash plus interest
which has accrued from the date of deferral.
Unissued common share equivalents are limited to 145,800 shares
under provisions of the plan. As of March 31, 1997, 1996 and
1995, unissued common share equivalents of 98,019, 97,537 and
89,636 respectively, existed under the plan.
The Company's stock bonus plan provides for bonuses payable in
stock to certain officers and key personnel if specified sales
growth, pretax profit growth and earning per share goals are
attained. The plan also provides that recipients may defer
receipt of stock bonuses until retirement. The bonus is fully
vested when deferred. Unissued common share equivalents
existing under the plan were 252,390 in 1997, 252,390 in 1996
and 227,610 in 1995.
NOTE 8 - SHAREHOLDERS' EQUITY:
The following table presents the changes in shareholders'
equity balances during the three years ended March 31, 1997.
<TABLE>
<S> <C> <C> <C>
Common stock Treasury stock Capital in
------------ -------------- excess of
Shares Amount Shares Amount par value
------ ------ ------ ------ ---------
Balances,
March 31, 1994 2,771,489 $138,574 80,727 $322,778 $6,724,970
========= ======= ====== ======= =========
Distribution
of stock bonuses (6,550) (32,157) 16,643
Exercise of options and
warrants (69,184)(276,570) (27,692)
Treasury stock purchases 2,475 22,275
Common stock issued 21,000 1,050 139,325
--------- ------- ------ ------- ---------
Balances,
March 31, 1995 2,792,489 139,624 7,468 36,326 6,853,246
========= ======= ====== ======= =========
Distribution of stock
bonuses 2,400 120 (2,500) (11,953) 22,690
Exercise of options
and warrants 2,972 149 (7,029) (20,313) 2,875
Treasury stock purchases 4,268 8,303
Common stock issued 13,500 675 93,620
--------- ------- ------ ------- ---------
Balances,
March 31, 1996 2,811,361 140,568 2,207 12,363 6,972,431
========= ======= ====== ======= =========
Distribution of stock
bonuses 11,200 560 84,140
Exercise of options
and warrants 39,697 1,986 (7,679) (12,355) 172,127
Treasury stock purchases 9,609 52,545
Three-for-two
stock split 1,482,449 74,122 1,786 (74,122)
Common stock issued 134,286 6,714 2,232,091
Other 62,250
--------- ------- ------ ------- ---------
Balances,
March 31, 1997 4,478,993 223,950 5,923 52,553 9,448,917
========= ======= ====== ======= =========
</TABLE>
On December 17, 1996, the Company distributed a three-for-two
stock split effected in the form of a stock dividend to
shareholders of record on November 27, 1996. This distribution
increased the number of shares outstanding by 1,482,449. The
amount of $74,122 was transferred from capital in excess of par
to common stock. All per share amounts in this report have
been restated to reflect this stock split.
In October 1996, the Company authorized a private placement
offering for the sale of 114,286 shares from its authorized but
unissued shares of common stock at a pre-split price of $17.50
per share. The Company received approximately $2,000,000 in
cash from this transaction.
In May 1995, the Company's Board of Directors authorized the
repurchase of up to 100,000 shares of its outstanding common
stock for issuance in connection with incentive stock option
and stock bonus plans. As of March 31, 1997, the Company had
not repurchased any of its outstanding common stock pursuant to
this plan.
The Company has a fixed stock option plan whereby options for a
total of 250,000 shares of the Company's common stock may be
granted to key employees or non-employees of the Company by the
Board of Directors. The exercise price of the options must
equal or exceed the market value of the Company's common stock
on the date of grant. Options are generally exercisable at a
rate of 40% in the second year after grant, 60% in the third
year after grant, 80% in the fourth year after grant and in
full thereafter. Options expire up to ten years after the date
of grant.
Pro forma net earnings and earnings per share information, as
required by SFAS No. 123, "Accounting for Stock-Based
Compensation," has been determined as if the Company had
accounted for employee stock options under SFAS No. 123's fair
value method. The fair value of these options was estimated at
the grant date using a Black-Scholes option pricing model with
the following weighted-average assumptions: a risk-free
interest rate based on the anticipated length of time until
exercise ranging from 5.06% to 7.66%; expected life of 4.0 to
5.0 years; and an expected volatility of 80%. For purposes of
pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period
(generally 4 years). The Company's pro forma information
follows:
1997 1996 1995
---- ---- ----
Net earnings (loss)
As reported $3,725,000 ($7,855,000) $1,514,000
Pro forma $3,439,000 ($8,072,000) $1,263,000
Net earnings (loss) per common
and common equivalent share
As reported $.76 ($1.83) $.35
Pro forma $.70 ($1.88) $.28
This disclosure is not likely to be representative of the
effects on reported net earning for future years, because
options vest over four years and additional awards generally
are made each year.
A summary of the status of the Company's stock option plan as
of March 31, 1997, 1996 and 1995, and changes during the years
ending on those dates, is presented below:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996*
----- -----
Weight- Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Outstanding at beginning
of year 362,493 $4.45 227,690 $4.57
Granted 50,100 14.54 171,825 4.17
Exercised (48,198) 4.65 (15,002) 3.19
Forfeited (25,875) 3.97 (22,020) 4.75
------- ---- ------- ----
Outstanding at end
of year 338,520 5.95 362,493 4.45
======= ==== ======= ====
Options exercisable at
year-end 140,820 4.51 98,568 4.68
Weighted-average fair
value of options granted
during the year $8.18 $1.75
1995*
--------
Weight-
Average
Exercise
Shares Price
------ --------
Outstanding at beginning
of year 144,710 $2.92
Granted 184,500 4.64
Exercised (95,676) 2.31
Forfeited (5,844) 4.34
------- ----
Outstanding at end
of year 227,690 4.57
======= ====
Options exercisable at
year-end 33,921 3.91
Weighted-average fair
value of options
granted during
the year $2.11
</TABLE>
*Amounts have been adjusted to reflect the three-for-two stock
split during fiscal 1997.
<TABLE>
Options Outstanding Options Exercisable
<S> <C> <C> <C> <C> <C>
Weighted
Number average Weighted Weighted
Range of Outstand- Remaining average Number average
Exercise ing at Contrac- Exercise Outstanding Exercise
prices March 31, tual Life price per at March price
Per Share 1997 Years share 31, 1997 per share
$3 - $5 283,420 3.1 $ 4.43 139,270 $4.49
$5 - $7 5,000 2.2 $ 5.52 1,550 $6.06
$10 - $14 29,625 4.5 $11.24
$19 - $23 20,475 4.8 $19.32
$3 - $23 338,520 3.3 $5.95 140,820 $4.51
</TABLE>
A summary of changes in outstanding warrants as of March 31,
1997, 1996 and 1995, and changes during the years ending on
those dates is presented below:
1997 1996*
----- -----
Weight- Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Outstanding at
beginning of year 23,100 $ 4.03 8,100 $4.40
Granted 1,500 13.50 15,000 3.83
Exercised (8,100) 4.40
------ ----- ------ ----
Outstanding at
end of year 16,500 $ 4.71 23,100 $4.03
====== ===== ====== ====
1995*
---------------
Weight-
Average
Exercise
Shares Price
------ --------
Outstanding at
beginning of year 16,200 $4.40
Granted
Exercised (8,100) $4.40
------ ----
Outstanding at end
of year 8,100 $4.40
====== ====
* Amounts have been adjusted to reflect the three-for-two stock
split during fiscal 1997.
NOTE 9 - INCOME TAXES:
The provision (benefit) for income taxes consists of the
following.
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Federal
Current $1,184,000 $594,400 $997,200
Deferred (314,300) (2,433,600) (98,800)
State
Current 415,500 131,600 203,800
Deferred (73,100) (728,500) (24,700)
Foreign
Current 103,300
Deferred 209,600 (373,900)
--------- --------- ---------
$1,525,000 ($2,810,000) $1,077,500
========= ========= =========
</TABLE>
A reconciliation of the statutory federal income tax rate to
the effective rate is as follows.
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Statutory federal rate 34.0% (34.0%) 34.0%
State taxes, net of federal
benefit 4.5 (3.6) 7.9
Write-off of intangibles 6.4
Foreign tax rate differences (8.1) 2.1
Change in valuation allowances .8 2.0
Research and development credits (4.5) (3.0)
Recapture of subsidiary excess
losses 6.5
Foreign sales corporation benefit (.6) (.5) (2.1)
Other 2.9 1.2 (1.7)
----- ----- -----
Effective income tax rate 29.0% (26.4%) 41.6%
===== ===== =====
Deferred tax assets (liabilities) are comprised of the following:
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended March 31, 1997 1996 1995
---- ---- ----
Book accruals not currently
deductible for tax 1,200,900 1,593,500 42,200
Deferred compensation 733,200 706,500 618,200
Inventory obsolescence reserve 467,500 141,600 164,100
Accrued payroll and
related costs 965,200 780,300 119,000
State investment tax credit
carryforwards 303,600 303,600 310,900
Subsidiary net operating loss
carryforwards 399,800 741,000 48,300
Tax basis of intangibles in
excess of book 796,400 688,300
Other 161,100 345,000 134,000
--------- --------- ---------
Total deferred tax assets 7,027,700 7,299,800 1,436,700
--------- --------- ---------
Depreciation (962,700) (1,016,200) (951,300)
Prepaid assets (61,500) (100,000) (34,900)
Other (121,700) (66,000) (25,000)
--------- --------- ---------
Total deferred tax liabilities (1,145,900) (1,182,200) (1,011,200)
--------- --------- ---------
Deferred tax asset valuation
reserve (703,400) (579,500) (359,200)
--------- --------- ---------
Net deferred tax asset $5,178,400 $ 5,538,100 $ 66,300
========= ========== =========
</TABLE>
Realization of the tax loss and credit carryforwards, which
expire at various times between 2002 and 2011, is contingent on
future taxable earnings. Valuation allowances have been
recorded for these and other asset items which may not be
realized.
Deferred income taxes have not been provided on the
undistributed earnings of foreign subsidiaries. The amount of
such earnings included in consolidated retained earnings at
March 31, 1997 was approximately $1.8 million. These earnings
have been substantially reinvested and the Company does not
plan to initiate any action that would precipitate the payment
of income taxes thereon.
NOTE 10 - GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The Company currently operates in one industry segment. During
1995, the Company established a manufacturing and marketing
subsidiary in Hong Kong and a marketing subsidiary in
Australia. The Company also maintains a sales presence in
Canada and Europe. Sales by the Company's domestic operations
to customers outside the United States represent 7.0%, 12.3%
and 11.3% of the Company's consolidated net sales for the years
ended March 31, 1997, 1996 and 1995, respectively.
During 1997, sales to the Company's largest customer accounted
for 11.9% and 10.4% of net sales, respectively. Accounts
receivable from the Company's largest customer represents 14.3%
of the accounts receivable balances at March 31, 1997. During
1996, sales to the Company's largest customers accounted for
14% and 10%, respectively, of net sales. During 1995, sales to
the Company's largest customers accounted for 23% and 22%,
respectively, of net sales.
Inter-area sales are presented on a basis intended to reflect
the market value of the products as nearly as possible.
Identifiable assets are those assets of the Company that are
identified with the operations in each geographic area.
The following table presents sales and other financial
information by geographic area:
Year Ended March 31, 1997 1996 1995
---- ---- ----
Net sales
United States $85,379,837 $38,234,057 $34,336,336
Foreign 15,871,543 3,623,752
Inter-area 33,956,925 1,394,684
- ---------- ---------- ----------
Eliminations (33,956,925) (1,394,684)
- ----------- ---------- ----------
$101,251,380 $41,857,809 $34,336,336
=========== ========== ==========
Income (loss) before
income taxes
United States $3,631,097 ($8,917,291) $2,591,989
Foreign 2,191,278 (1,432,217)
Eliminations (572,091) (315,735)
----------- ---------- ----------
$ 5,250,284 ($10,665,243) $ 2,591,989
=========== ========== ==========
Identifiable assets
United States $48,142,435 $40,830,577 $24,745,293
Foreign 20,133,416 5,067,001
----------- ---------- ----------
$ 68,275,851 $45,897,578 $24,745,293
=========== ========== ==========
NOTE 11 - COMMITMENTS
The Company leases certain facilities pursuant to operating
lease agreements. Operating lease expense for offices and
other equipment was approximately $1,208,000 in 1997, $470,000
in 1996 and $16,000 in 1995. Future minimum rental payments
under noncancelable operating lease agreements are as follows:
1998 - $1,498,000; 1999 - $1,335,000 and 2000 - $379,000.
NOTE 12 - SUBSEQUENT EVENTS
On May 8, 1997, the Company announced its purchase of Digital
Audio Limited, (DA Systems), from Numerex Corporation in
exchange for 226,168 shares of the Company's common stock
valued at $3.9 million. The shares are callable, at the
Company's option, at $17 per share plus interest at 8.25% until
June 30, 1998, and may be put by Numerex to the Company at that
price after that date.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on
Form S-8 (No. 2-88316) of Detection Systems, Inc. of our report
dated June 2, 1997, appearing in this Annual Report on Form 10-
K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears in
Exhibit 13 of this Form 10-K.
/S/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
June 27, 1997
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, being a director of Detection Systems,
Inc. ("Company"), hereby constitutes and appoints Karl H.
Kostusiak, Frank J. Ryan and David B. Lederer, or any of them,
his true and lawful attorneys and agents, each with full power
and authority to act as such without the other, to sign the
name of the undersigned to the Company's fiscal 1997 Annual
Report on Form 10-K, and any amendments thereto, filed with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934 and the related rules and regulations
thereunder, the undersigned hereby ratifying and confirming all
that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed and
delivered these presents as of the date(s) shown below:
/s/ Donald R. Adair 6/6/97
/s/ Mortimer B. Fuller III 6/6/97
/s/ David B. Lederer 6/6/97
/s/ Edward C. McIrvine 6/6/97
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,244,265
<SECURITIES> 0
<RECEIVABLES> 15,246,309
<ALLOWANCES> (313,800)
<INVENTORY> 29,995,215
<CURRENT-ASSETS> 50,501,082
<PP&E> 25,247,291
<DEPRECIATION> 13,999,120
<TOTAL-ASSETS> 68,275,851
<CURRENT-LIABILITIES> 19,433,682
<BONDS> 0
0
0
<COMMON> 9,241,941
<OTHER-SE> 8,589,326
<TOTAL-LIABILITY-AND-EQUITY> 68,275,851
<SALES> 101,251,380
<TOTAL-REVENUES> 101,457,429
<CGS> 64,916,410
<TOTAL-COSTS> 94,442,525
<OTHER-EXPENSES> 29,526,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,764,620
<INCOME-PRETAX> 5,250,284
<INCOME-TAX> 1,525,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,725,284
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
