UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to __________
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 No.)
130 Perinton Parkway, Fairport, New York 14450
(Address of principal executive offices) (Zip Code)
(716) 223-4060
(Registrant's telephone number, including area code)
----------------------------
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 ____
As of November 6, 1998 there were outstanding 6,327,182 shares of the
registrant's common stock, par value $.05 per share.
<PAGE>
PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
Assets Sept. 30, 1998 March 31, 1998
Current assets: (Unaudited)
Cash and cash equivalents $1,759 $3,160
Accounts receivable, less allowance for
doubtful accounts ($1,215 and $1,033,
respectively) 24,570 23,505
Inventories 41,561 38,154
Other current assets 4,557 3,701
------ ------
72,447 68,520
Fixed assets, net 11,999 12,142
Goodwill and other intangibles 10,196 8,907
Other assets 4,761 4,475
------ ------
$99,403 $94,044
====== ======
Liabilities
Current liabilities:
Short term borrowings $7,186 $ 4,002
Current portion of long term debt 400 405
Accounts payable 10,995 12,368
Accrued payroll and benefits 1,859 1,636
Other current liabilities 7,641 5,165
------ ------
28,081 23,576
Other liabilities 2,365 2,655
Long term debt 15,442 16,549
Shareholders' equity:
Common stock, par value $.05 per share;
Authorized - 24,000 shares; Issued -
6,555 shares and 6,518 shares,
respectively 328 326
Capital in excess of par value 45,099 44,805
Retained earnings 12,038 9,976
------ ------
57,465 55,107
Less - Treasury stock, at cost (3,783) (3,785)
Notes receivable for stock purchases (146) (14)
Cumulative translation adjustment (21) (44)
------ ------
53,515 51,264
------ ------
$99,403 $94,044
====== ======
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings (Unaudited)
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
Sept. 30, 1998 Sept. 30, 1997
For the Three Months Ended: (Current Year) (Preceding Year)
-------------- ---------------
Net sales $35,455 $34,463
Costs and expenses:
Production 22,225 23,033
Research and development 1,956 2,203
Marketing, administrative and general 8,880 7,489
------ ------
Total costs and expenses 33,061 32,725
Operating income 2,394 1,738
Other income (expense)
Interest income 64 3
Interest expense (427) (817)
Other income (expense) (20) 23
------ ------
Income before income taxes 2,011 947
Provision for income taxes 781 275
------ ------
Net income $ 1,230 $ 672
====== ======
Retained earnings at beginning of period 10,808 9,740
------ ------
Retained earnings at end of period $12,038 $10,412
====== ======
Earnings per share
Basic $0.19 $0.14
==== ====
Diluted $0.18 $0.12
==== ====
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings (Unaudited)
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
Sept. 30, 1998 Sept. 30, 1997
For the Six Months Ended: (Current Year) (Preceding Year)
-------------- ---------------
Net sales $69,263 $62,671
Costs and expenses:
Production 43,511 40,589
Research and development 4,090 4,288
Marketing, administrative and general 17,508 13,876
------ ------
Total costs and expenses 65,109 58,753
Operating income 4,154 3,918
Other income (expense)
Interest income 118 6
Interest expense (836) (1,454)
Other income (expense) (62) 239
------ ------
Income before income taxes 3,374 2,709
Provision for income taxes 1,312 904
------ ------
Net income $ 2,062 $ 1,805
====== ======
Retained earnings at beginning of period 9,976 8,594
Amortization of redeemable common stock 13
------ ------
Retained earnings at end of period $12,038 $10,412
====== ======
Earnings per share
Basic $0.33 $0.38
==== ====
Diluted $0.30 $0.34
==== ====
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
(in thousands of dollars)
<TABLE>
<S> <C> <C>
For the Six Months Ended September 30, 1998 1997
Cash flows from operating activities: ---- ----
Net income $2,062 $1,805
----- -----
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,829 2,271
Deferred compensation 457
Stock based compensation 86
Changes in assets and liabilities:
Accounts receivable (950) (1,428)
Inventories (2,777) 3,773
Accounts payable (1,723) (3,228)
Accrued payroll and benefits 223 (11)
Other assets & liabilities 110 (4,980)
------ ------
Total adjustments (3,288) (3,060)
------ ------
Net cash used in operating activities (1,226) (1,255)
Cash flows from investing activities:
Capital expenditures (1,584) (1,212)
Acquisition of businesses (473) (6,816)
------ ------
Net cash used in investing activities (2,057) (8,028)
Cash flows from financing activities:
Proceeds from borrowings 3,322 6,718
Proceeds from issuance of common stock 24,259
Principal payments on debt and
capital lease obligations (1,372) (18,844)
Common stock transactions, net (91) 486
----- ------
Net cash provided by financing activities 1,859 12,619
Effect of exchange rates 23 (144)
----- -----
Net(decrease)increase in cash and cash equivalents (1,401) 3,192
Cash and cash equivalents, beginning of period 3,160 2,244
----- -----
Cash and cash equivalents, end of period $1,759 $5,436
===== =====
Cash paid during the period for:
Interest $ 863 $1,113
=== =====
Income taxes $ 458 $1,577
=== =====
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
NOTE 1. GENERAL
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (SEC). The interim consolidated financial statements include
the consolidated accounts of Detection Systems, Inc. and its majority-owned
subsidiaries (collectively, "the Company") with all significant intercompany
transactions eliminated. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the financial position, results of operations and cash flows for the interim
periods presented have been made. Certain footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles (GAAP) have been condensed or omitted pursuant to such SEC
rules and regulations. These financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended March 31, 1998.
Cash flow statement - During the first quarter of fiscal 1999, the Company
issued 28,161 shares of common stock in connection with the acquisition of
EFSEC. During the first quarter of fiscal 1998, the Company issued 221,738 and
34,141 shares of common stock in connection with the acquisitions of Digital
Audio Ltd. ("DA Systems") and Seriee S.A. ("Seriee"), respectively (see Note 3).
NOTE 2. INVENTORIES
Major classifications of inventory follow (in thousands):
<TABLE>
<S> <C> <C>
Sept. 30, 1998 March 31, 1998
-------------- --------------
Component Parts $18,711 $22,061
Work In Process 2,782 1,488
Finished Products 20,068 14,605
------ ------
$41,561 $38,154
====== ======
</TABLE>
NOTE 3. ACQUISITIONS
Fiscal 1999 Acquisitions - In June 1998, the Company acquired all of the
outstanding stock of EFSEC AB ("EFSEC")for approximately $1,250,000 comprised of
cash and 28,161 shares of its common stock. EFSEC is a Swedish distributor of
electronic security equipment and had annual net sales of approximately
$3,000,000 prior to its acquisition.
In June 1998, the Company acquired all of the outstanding stock of Alarm Center
Kft ("Alarm Center") for $125,000 in cash. Alarm Center is a Hungarian
distributor of electronic security equipment and had annual net sales of
approximately $500,000 prior to its acquisition.
<PAGE>
Fiscal 1998 Acquisitions - In May 1997, the Company acquired all of the
outstanding stock of DA Systems in exchange for 221,738 shares of its common
stock. The shares were callable at the Company's option at $17 per share plus
interest at 8.25% until June 30, 1998, and could be put to the Company at that
price after that date. The Company exercised its call option to repurchase these
shares in connection with the issuance of common stock in September 1997. The
cost of this acquisition was approximately $4,000,000. DA Systems is a British
manufacturer of security control equipment and had annual net sales of
approximately $10,800,000 prior to its acquisition.
In June 1997, the Company acquired 99.5% of the outstanding stock of Seriee of
France, in exchange for 34,141 shares of its common stock, valued at
approximately $600,000. Seriee is a manufacturer of electronic control and
communication equipment and had annual net sales of approximately $6,300,000
prior to its acquisition.
In June 1997, the Company acquired 98.7% of the outstanding stock of
Radio-Active Systems N.V.("RAS") of Belgium for approximately $3,600,000 in
cash. RAS had annual net sales of approximately $9,900,000 prior to its
acquisition.
In November 1997, the Company acquired all of the outstanding stock of Security
Supplies NZ Ltd. ("Security Supplies") of New Zealand for approximately $50,000
in cash. Security Supplies had annual sales of approximately $800,000 prior to
its acquisition.
In January 1998, the Company acquired all of the outstanding stock of
Electronics Design & Manufacturing Pty Limited ("EDM") of Australia in exchange
for 186,667 shares of its common stock and $2,800,000 in cash. EDM had annual
net sales of approximately $4,600,000 prior to its acquisition.
These transactions have been accounted for as purchases and, accordingly, the
results of DA Systems, Seriee, RAS, Security Supplies, EDM, EFSEC and Alarm
Center are included in the consolidated financial statements as of the date of
acquisition. The financial statements reflect the final allocation of the
purchase price for each business, except for EDM, EFSEC and Alarm Center, for
which the purchase price allocation has not been finalized. Unallocated excess
of purchase price over net assets acquired as of September 30, 1998 is
$3,331,000 and is included with goodwill and other intangibles.
NOTE 4 - EARNINGS PER SHARE
There are no significant reconciling items between net income as presented in
the consolidated statement of operations and net income available to common
shareholders used in the calculation of earnings per share. Reconciling items
between the number of shares used in the calculation of basic and diluted
earnings per share relate to deferred compensation plans, options and warrants,
as follows (in thousands):
<TABLE>
<S> <C> <C>
Three months Six months
ended Sept. 30, ended Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
Weighted average number of shares
outstanding 6,324 4,837 6,307 4,724
Shares associated with deferred
compensation, option and warrant plans 515 603 523 583
</TABLE>
<PAGE>
NOTE 5 - RESTRUCTURING
The Company recorded a restructuring charge of approximately $400,000 during the
first quarter of fiscal 1999 for severance costs related to the termination of
employees at the Fairport, New York and Southall, England facilities. The charge
has been included in the results from continuing operations and had a material
impact on operating results in the first quarter of 1999. These manufacturing
employees will be terminated during fiscal 1999, thus the accrual has been
included in other current liabilities at September 30, 1998.
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading supplier of equipment to the electronic protection
industry. The Company designs, manufactures and markets electronic detection,
control and communication equipment for security, fire protection, access
control and CCTV applications, offering products primarily for the commercial
and mid- to high-end residential portions of the market. From its founding in
1968 until 1995, the Company was primarily a niche provider of intrusion
detection devices for the domestic market. In 1995, the Company adopted a
strategy designed to substantially expand its product offerings, establish an
international sales presence, increase its manufacturing capacity and improve
its manufacturing cost structure. The Company has since made nine acquisitions
and established a manufacturing facility in China. Recent acquisitions are
described in Note 3. These acquisitions had a significant impact on the
comparative information for the six month and three month periods ending
September 30, 1998 and 1997 with respect to results of operations.
The Company recognizes net sales upon shipment of products to customers.
Production expenses include materials, direct labor and manufacturing overhead
as well as an allocated portion of indirect overhead. Outgoing freight, customs
and other costs associated with delivery of products to customers are classified
under marketing, administrative and general expenses. Research and development
expenses include costs associated with salaries and benefits for certain
engineering employees, supplies, agency approvals, depreciation and occupancy,
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.
<PAGE>
Results of Operations
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 Three Months Six Months
Ended March 31, Ended Sept. 30, Ended Sept. 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Production 66.4 64.2 62.7 66.8 62.8 64.8
Research and development 6.8 8.0 5.5 6.4 5.9 6.8
Marketing, administrative
and general 23.2 21.2 25.0 21.8 25.3 22.1
---- ---- ---- ---- ---- ----
Operating income 3.6 6.6 6.8 5.0 6.0 6.3
Other income (expense)
Interest income 0.2 0.1 0.2 0.0 0.2 0.0
Interest expense (1.8) (1.7) (1.2) (2.3) (1.2) (2.3)
Other income (expense) (0.2) 0.2 (0.1) 0.0 (0.1) 0.3
---- ---- ---- ---- ---- ----
Income before income taxes 1.8 5.2 5.7 2.7 4.9 4.3
Provision for income taxes 0.7 1.5 2.2 0.8 1.9 1.4
---- ---- ---- ---- ---- ----
Net income 1.1% 3.7% 3.5% 1.9% 3.0% 2.9%
=== === === === === ===
</TABLE>
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
The Company's net sales increased 2.9% to $35,455,000 in the fiscal 1999 period
from $34,463,000 in the comparable period in fiscal 1998. The net sales of
acquired businesses accounted for $2,839,000 of net sales. Net sales from
on-going operations were $32,616,000 in the fiscal 1999 period. Sales by the
Company's on-going operations have been impacted compared to the comparable
period of the prior year by lower sales to one of the Company's major customers
and by the acquisition of two of the Company's customers by other businesses who
are not standardized on the Company's products.
Production expenses decreased 3.5% to $22,225,000 in the fiscal 1999 period from
$23,033,000 in the comparable period in fiscal 1998. As a percentage of net
sales, production expenses decreased to 62.7% in the fiscal 1999 period compared
to 66.8% in the comparable period in fiscal 1998. The decrease in production
expenses in aggregate and as a percentage of net sales was primarily due to
changes in product mix and improvements in the Company's manufacturing cost
structure.
Research and development expenses decreased 11.2% to $1,956,000 in the fiscal
1999 period from $2,203,000 in the comparable period in fiscal 1998. The
decrease in research and development expenses is primarily attributable to the
reduced use of outside consultants. As a percentage of net sales, research and
development expenses decreased to 5.5% in the fiscal 1999 period from 6.4% in
the comparable period in 1998. The decrease in research and development expenses
as a percentage of net sales was primarily due to the reduced use of outside
consultants and the acquisition of redistributor businesses during fiscal 1999
and 1998 which have sales but do not incur research and development
expenditures.
<PAGE>
Marketing, administrative and general expenses increased 18.6% to $8,880,000 in
the fiscal 1999 period from $7,489,000 in the comparable period in fiscal 1998.
As a percentage of net sales, marketing, administrative and general expenses
increased to 25.0% in the fiscal 1999 period from 21.8% in the comparable period
in fiscal 1998. The increase in marketing, administrative and general expenses
in aggregate and as a percentage of net sales was primarily due to the
acquisition of businesses in fiscal 1999 and additional marketing expenditures
incurred by the Company's domestic businesses.
Interest expense decreased to $427,000 in the fiscal 1999 period from $817,000
in the comparable period in 1998. This decrease was primarily due to lower
borrowings outstanding. Approximately $18,800,000 in debt was repaid during the
second quarter of fiscal 1998 with proceeds from the Company's September 1997
public offering of common stock.
The Company's effective income tax rate for the fiscal 1999 period was 38.8%
compared to 29.0% for the comparable period in fiscal 1998. The higher effective
rate is attributable to changes in the mix of the Company's income generated
from domestic and international entities as well as the impact of non-deductible
goodwill.
Six Months Ended September 30, 1998 Compared to Six Months Ended September 30,
1997
The Company's net sales increased 10.5% to $69,263,000 in the fiscal 1999
period from $62,671,000 in the comparable period in fiscal 1998. The net sales
of acquired businesses accounted for $8,239,000 of net sales. Net sales from
on-going operations were $61,024,000 in the fiscal 1999 period. Sales during
this period by the Company's on-going operations have been impacted compared to
the comparable period of the prior year by lower sales to one of the Company's
major customers and by the acquisition of two of the Company's customers by
other businesses who are not standardized on the Company's products.
Production expenses increased 7.2% to $43,511,000 in the fiscal 1999 period
from $40,589,000 in the comparable period in 1998. As a percentage of net sales,
production expenses decreased to 62.8% in the fiscal 1999 period compared to
64.8% in the comparable period in fiscal 1998. 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 changes in product mix and improvements in the Company's
manufacturing cost structure.
Research and development expenses decreased 4.6% to $4,090,000 in the
fiscal 1999 period from $4,288,000 in the comparable period in fiscal 1998. The
decrease in research and development expenses is primarily attributable to the
reduced use of outside consultants. As a percentage of net sales, research and
development expenses decreased to 5.9% in the fiscal 1999 period from 6.8% in
the comparable period in 1998. The decrease in research and development expenses
as a percentage of net sales was primarily due to the reduced use of outside
consultants and the acquisition of redistributor businesses during fiscal 1999
and 1998 which have sales but do not incur research and development
expenditures.
Marketing, administrative and general expenses increased 26.2% to
$17,508,000 in the fiscal 1999 period from $13,876,000 in the comparable period
in fiscal 1998. As a percentage of net sales, marketing, administrative and
<PAGE>
general expenses increased to 25.3% in the fiscal 1999 period from 22.1% in the
comparable period in fiscal 1998. The increase in marketing, administrative and
general expenses was primarily due to the acquisition of businesses in fiscal
1998. In addition, a charge of approximately $400,000 was recorded in the first
quarter of fiscal 1999 relating to the restructuring of the Company's Fairport,
New York and Southall, England manufacturing facilities. This restructuring
relates to severance associated with the transfer of manufacturing from those
facilities to the Company's China facility. It is expected that these actions
will be substantially completed by the end of fiscal 1999. The Company expects
to save approximately $2.0 million annually in salaries and benefits as a result
of this action.
Interest expense decreased to $836,000 in the fiscal 1999 period from
$1,454,000 in the comparable period in 1998. This decrease was primarily due to
lower borrowings outstanding. Approximately $18,800,000 in debt was repaid
during the second quarter of fiscal 1998 with proceeds from the Company's
September 1997 public offering of common stock.
The Company's effective income tax rate for the fiscal 1999 period was
38.9% compared to 33.4% for the comparable period in fiscal 1998. The higher
effective rate is attributable to changes in the mix of the Company's income
generated from domestic and international entities as well as the impact of
non-deductible goodwill.
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 1995 implementation of the Company's strategy designed to enhance its
product offerings, manufacturing capacity and international operations,
particularly its acquisitions and the development of the China facility, the
Company has required external sources of financing to satisfy its liquidity
needs.
Six Months Ended September 30, 1998. During the six months ended September
30, 1998, the Company's operating activities used $1,226,000 of operating cash
flow. Net income, depreciation and amortization provided $3,891,000, an increase
in inventories used $2,777,000, and a decrease in accounts payable used
$1,723,000. Other account changes used $617,000 of operating cash flow.
During the six months ended September 30, 1998, cash used for investing
activities was $2,057,000 and was utilized for the acquisition of EFSEC and
Alarm Center and for capital expenditures.
During the six months ended September 30, 1998, cash provided by financing
activities was $1,859,000, primarily representing proceeds from borrowings to
finance operations and capital expenditures.
Capital Resources. On September 30, 1998, the Company had cash balances of
$1,759,000. On that date, the Company had a $17,000,000 revolving credit
facility under which it had borrowed $5,784,000. This credit facility bears
interest based on the prime rate or the London Interbank Offered Rate, plus
applicable points based on the Company's degree of financial leverage. The
agreement matured on July 31, 1998. However, the line has now been renewed
through July 31, 2000.
<PAGE>
The Company expects to continue to pursue acquisitions and the development
of new products and markets. On-going capital expenditures will include
continued investment in facilities and equipment necessary to produce and market
its security, fire detection, access control and CCTV products. The Company also
plans to continue its efforts to market its products internationally.
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 1999.
Year 2000 Issues. The Company has appointed a team to assess the impact of
the year 2000 on its information systems, products, and business. This team
includes two members of senior management and is lead by the Vice President of
Operations. To ensure year 2000 compliance, the Company has established specific
categories to be reviewed:
Products. The Company has placed a high priority on ensuring its products are
year 2000 ready and is completing a comprehensive review of year 2000 readiness
of its products. The Company has reviewed all products that are manufactured
domestically and at its China manufacturing facility and believes these products
to be year 2000 compatible. The Company has also evaluated products purchased
for resale by its domestic businesses and believes these products to be year
2000 compatible. The Company is currently assessing year 2000 compatibility of
products manufactured and purchased for resale at its other foreign
subsidiaries. The Company does not expect significant issues with year 2000
readiness of product sold by its foreign subsidiaries as product sold by the
Company generally does not use date information for calculations or comparisons.
Manufacturing. Some of the tools and equipment (hardware and software) used to
develop and manufacture the Company's products are date-sensitive. The Company
believes that the critical tools and equipment used by it to manufacture
products will be "year 2000 ready" or will be made ready through upgrades by the
suppliers of the tools or equipment. As a result the Company does not expect
significant interruption to its manufacturing capabilities because of the
failure of tools and/or equipment.
Non-Manufacturing Business Applications. Throughout the business the Company is
fixing and testing all non-manufacturing business applications such as core
financial information and reporting systems, procurement, human
resources/payroll, factory applications, customer service systems, and revenue
systems, and does not expect any significant year 2000 problems in this area.
The Company's domestic business information systems required upgrades and
enhancements to be made year 2000 compliant. These upgrades have been made and
are currently being tested. Testing of year 2000 upgrades is expected to be
completed prior to the year 2000.
Most of the Company's non-US subsidiaries' information systems will require
various degrees of upgrade or replacement to be capable of handling year 2000
issues (excluding the Hong Kong subsidiary, which utilizes the Company's
domestic information system). The Company is in the process of converting each
of its non-US subsidiaries to new enterprise resource planning systems capable
of handling the year 2000. The Company expects to be capable of handling the
year 2000 at all locations without significant interruption to business
activity.
<PAGE>
Facilities and Infrastructure. The Company has evaluated its facilities and
infrastructure (health, safety and environment systems, buildings,
security/alarms/doors, desktop computers, networks) to ensure they are year 2000
ready. Upgrades are being implemented where needed and the Company does not
expect significant interruption to its operations because of year 2000 problems
with its facilities and infrastructure.
Logistics. The Company has devoted significant resources to ensure that its
operations are not disrupted because of services or products supplied to the
Company.
Of importance to the Company for year 2000 is the readiness of suppliers and the
products the Company procures from suppliers. The Company has a comprehensive
program to identify and obtain year 2000 information from its critical
suppliers. The program includes awareness letters, questionnaires, and a review
of suppliers' year 2000 web-sites. If a supplier is of concern regarding
non-year 2000 readiness, the Company will develop contingency and alternate
sourcing plans to minimize the year 2000 risk.
The Company estimates that the expected total aggregate costs for its year 2000
activities from 1997 through 2000 will be approximately $700,000. External costs
incurred through September 30, 1998 were approximately $145,000 and primarily
related to computer software. It is anticipated that the remaining year 2000
costs will relate to computer software, computer hardware and consulting fees.
The Company does not separately track internal costs relating to the year 2000
and they are not included in the Company's estimate of year 2000 costs. These
costs do not include estimates for potential litigation, which at the present
time is not viewed as a significant risk.
The Company reviews and updates data for costs incurred and forecasted costs
each quarter. These costs are based on management's estimates, which were
determined based on assumptions of future events, some within the Company's
control, but some outside the Company's control. Management's estimate of the
costs and completion dates are dependent on various factors including the
availability of skilled resources and the ability to locate and modify all
relevant software code. However, there can be no assurance that these costs will
not be greater than anticipated, or that corrective actions undertaken will be
completed before any year 2000 problems could occur.
For additional information regarding the risks associated with the Company's
compliance with year 2000, see "Risk Factors-Year 2000" in Item 1 of the
Company's Form 10-K for the year ended March 31, 1998.
Euro Conversion. The Company is assessing the potential impact that may
result from the euro conversion. The Company is assessing the potential impact
from the euro conversion in a number of areas, including the following: (1)
accounting and tax; (2) management information systems required to accommodate
euro-denominated transactions; (3) the impact on currency exchange costs and
currency exchange rate risk; and (4) the impact on existing contracts.
Since the Company is still in its assessment phase, the Company cannot yet
predict the anticipated impact of the euro conversion on the Company.
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.
<PAGE>
Forward-Looking Statements
This quarterly report contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, 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 in
this quarterly report that are not statements of historical fact may be deemed
to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may," "will," "expect," "believe," "plan,"
"anticipate," "intend," "could," "estimate," "continue," "goal" or "strategy" or
the negative or other variations thereof or comparable terminology are intended
to identify 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, including those described previously in the "Risk Factors"
section of the Company's 1998 Form 10-K for the year ended March 31, 1998.
<PAGE>
PART II OTHER INFORMATION
Item 5. Other Information
A. Shareholder Proposals - Deadline for Inclusion in Proxy Materials As
set forth in the Company's Proxy Statement for the 1998 Annual Meeting
of Stockholders, any proposal by a stockholder of the Company intended
to be presented at the 1999 Annual Meeting of Stockholders must be
received by the Company on or before April 29, 1999 to be included in
the proxy materials of the Company relating to such meeting.
B. Shareholder Proposals - Discretionary Voting of Proxies In accordance
with recent amendments to Rule 14a-4 under the Securities Exchange Act
of 1934, if notice of a proposal by a shareholder of the Company
intended to be presented at the 1999 Annual Meeting of Shareholders is
received by the Company after June 14, 1999, the persons authorized
under the Company's management proxies may exercise discretionary
authority to vote or act on such proposal if the proposal is raised at
the 1999 Annual Meeting of Shareholders.
Item 6. Exhibits and Reports for Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements 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: November 16, 1998 By: /s/ Karl H. Kostusiak
Karl H. Kostusiak, President
By: /s/ Frank J. Ryan
Frank J. Ryan, Vice President,
Secretary and Treasurer
(Principal Financial Officer)
By: /s/ Christopher P. Gerace
Christopher P. Gerace
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Item
No. Exhibits Location
3(a) Detection Systems, Inc. Included as Exhibit 3 of this
Certificate of Quarterly Report on Form 10-Q
Incorporation as amended
3(b) Detection Systems, Inc. Incorporated by reference to
By-Laws as amended Exhibit 3(b) of the Company's 1997
Annual Report on Form 10-K
10(a) Medical reimbursement plan Incorporated by reference to
Exhibit 10(b) of the Company's
1997 Annual Report on Form 10-K
10(b) Employee stock purchase plan Incorporated by reference to
Exhibit 10 of the Company's 1994
Annual Report on Form 10-K
10(c) Fleet Amended & Restated Included as Exhibit 10(c) of this
Credit Facility Agreement Quarterly Report on Form 10-Q
dated September 30, 1998
10(d) Deferred Compensation Plan Incorporation by reference to
and Deferred Bonus Plan. Exhibit 10(c) to the Company's
Quarterly Report on Form 10-Q, for
the quarter ended 12/31/97
10(e) 1992 Restated Stock Option Incorporated by reference to
Plan Exhibit 22 of the Company's 1995
Annual Report on Form 10-K
10(f) 1997 Stock Option Plan Incorporated by reference to
Exhibit 10(o)of the Company's
Registration Statement on Form S-2
(No. 333-31951) filed on 7/24/97
10(g) Executive Officer Cash Incorporated by reference to
Bonus Plan Exhibit 10(g) of the Company's
1998 Annual Report on Form 10-K
10(h) Executive employment Incorporated by reference to
contract with Karl H. Exhibit 10(h) of the Company's
Kostusiak. 1998 Annual Report on Form 10-K
10(i) Amendment #1 to executive Included as Exhibit 10(i) of this
employment contract with Quarterly Report on Form 10-Q
Karl H. Kostusiak
10(j) Executive employment Included as Exhibit 10(j) of this
contract with David B. Quarterly Report on Form 10-Q
Lederer.
10(k) Executive employment Incorporated by reference to
contract with Lawrence R. Exhibit 10 of the Company's 1995
Tracy. Annual Report on Form 10-K
10(l) Stock Purchase Agreements Incorporated by reference to
with Karl H. Kostusiak and Exhibit 10(l) of the Company's
David B. Lederer 1997 Annual Report on Form 10-K
10(m) Non-Employee Director Stock Included as Exhibit 10(m) of this
Option Plan Quarterly Report on Form 10-Q
11 Statement re: Computation Included as Exhibit 11 of this
of Per Share Earnings Quarterly Report on Form 10-Q
24 Powers of Attorney Incorporated by reference to
Exhibit 24 of the Company's 1998
Annual Report on Form 10-K
27 Financial Data Schedule Included as Exhibit 27 of this
Quarterly Report on Form 10-Q
<PAGE>
</TABLE>
CERTIFICATE OF INCORPORATION
OF
DETECTION SYSTEMS, INC.
[as amended through 9/17/98]
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.
<PAGE>
Fourth: The aggregate number of shares which the Corporation shall have
authority to issue is twenty-four million (24,000,000) 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.
1998 AMENDED AND RESTATED CREDIT FACILITY AGREEMENT
THIS AGREEMENT is made as of the 30th day of September, 1998, 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 NATIONAL BANK, a national banking association with
offices at One East Avenue, Rochester, New York 14638 (as successor to Fleet
Bank, "Bank").
This Agreement amends, clarifies and supersedes in its entirety the Amended
and Restated Credit Facility Agreement among the parties to this Agreement dated
as of June 24, 1997.
The parties hereby agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 The following terms shall have the following meanings unless otherwise
expressly stated herein:
"Affiliate" shall mean any entity which directly or indirectly, or
through one or more intermediaries, Controls or is Controlled By or is
Under Common Control with the Borrower.
"Agency" shall mean the County of Monroe Industrial Development
Agency, a public benefit corporation formed under the laws of the State of
New York.
"Applicable Base Rate Margin" shall mean the following amounts for the
following respective ratios of Funded Debt to EBITDA, calculated for the
Borrower and Subsidiaries on a consolidated basis and without duplication
in accordance with GAAP:
Ratio Margin (Basis Points)
3 to 1 or greater 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.
<PAGE>
"Applicable LIBOR Margin" shall mean the following amounts for the
following respective ratios of Funded Debt to EBITDA, calculated for the
Borrower and Subsidiaries on a consolidated basis and without duplication
in accordance with GAAP:
Ratio Margin (Basis Points)
3 to 1 or greater 155.50
2 to 1 or greater and
less than 3 to 1 118.75
1.75 to 1 or greater and
less than 2 to 1 90.00
Less than 1.75 to 1 70.00
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.
"Bank" shall mean Fleet National Bank (as successor to Fleet Bank) and
its successors, legal representatives, and assigns.
"Base Rate" shall mean the higher of the Federal Funds Rate plus 100
basis points, or the Prime Rate.
"Borrower" shall mean Detection and Radionics, collectively and both
of them, and their respective successors, legal representatives, and
assigns.
"Break Costs" shall mean an amount equal to the amount (if any)
required to compensate 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 prepaid), costs, and expenses (including
without limitation penalties) the Bank incurs as a result of or in
connection with such prepayment. If by reason of an Event of Default the
Bank elects to declare the Obligations to be immediately due and payable,
then any Break Costs with respect to the Obligations shall become due and
payable in the same manner as though Borrower had exercised a right of
prepayment.
"Business Day" shall mean, in respect of any date that is specified in
this Agreement to be subject to adjustment in accordance with the Modified
Following Business Day Convention, a day on which commercial banks settle
payments in New York or, if the payment obligation is calculated by
reference to any LIBOR Rate, London, England.
<PAGE>
"Controls" (including the terms "Controlled By" or "Under Common
Control") shall mean but not be limited to the ownership of twenty-five
percent(25%)or more of the outstanding shares of capital stock of any
corporation having voting power for the election of directors, whether or
not at the same time stock of any other class or classes has or might have
voting power by reason of the happening of any contingency, or ownership of
twenty-five percent (25%) or more of any interest in any partnership, or
any other interest by reason of which a controlling influence over the
affairs of the entity may be exercised.
"Current Assets" shall mean all assets treated as current assets in
accordance with GAAP.
"Current Liabilities" shall mean treated as current liabilities in
accordance with GAAP, including without limitation all obligations payable
on demand or within one year after the applicable measurement date as well
as installment, reimbursement, or sinking fund payments payable within one
year after the applicable measurement date, but excluding any such
liabilities which are renewable or extendable at the option of the obligor
to a date more than one year after the applicable measurement date. Current
Liabilities shall not include obligations to repurchase Borrower shares
pursuant to the Stock Purchase Agreement dated May 7, 1997 between
Detection Systems, Inc. and Numerix Corp.
"Current Ratio" shall mean Current Assets compared to Current
Liabilities.
"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. Debt
shall not include obligations to repurchase Borrower shares pursuant to the
Stock Purchase Agreement dated May 7, 1997 between Detection Systems, Inc.
and Numerix Corp.
<PAGE>
"Distributions" shall mean (i) dividends, payments, or distributions
of any kind in respect of the capital stock, securities or other equity
interests or rights to acquire such equity interests of the applicable
entity (except distributions in the form of such stock, equity securities,
equity interests, or rights to acquire equity interests or assets of a
business being acquired), and (ii) repurchases, redemptions, or
acquisitions of capital stock, securities, or other equity interests or
rights to acquire such equity interests of the Borrower or any Affilate.
"Domestic Subsidiaries" shall mean consolidated subsidiaries organized
under the laws of the United States of America or any state, territory or
instrumentality thereof that are wholly owned by Detection or Radionics.
All Domestic Subsidiaries are required to (a) be Guarantors, (b) provide
the Bank with security interests in all of their assets unless otherwise
agreed by the Bank, and (c) except for intercompany transactions with the
Borrower and other Subsidiaries, themselves comply in all respects with the
requirements set forth in Section 8.13, and 9.10, and with the same
requirements as are imposed upon the Borrower in Article 11 of this
Agreement.
"EBITDA" shall mean, for any period and determined in accordance with
GAAP, net operating income (calculated before Interest Expense, taxes,
extraordinary and unusual items, and income or loss attributable to equity
in Affiliates) plus depreciation and amortization of intangibles less
Distributions.
"Environment" means any water including but not limited to surface
water and ground water or water vapor; any land including land surface or
subsurface; stream sediments; air; fish; wildlife; plants; and all other
natural resources or environmental media.
"Environmental Laws" means all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws,
statutes, ordinances, regulations, codes and rules relating to the
protection of the Environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances and the regulations, rules, ordinances, bylaws,
policies, guidelines, procedures, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and
authorities with respect thereto.
"Environmental Permits" means all licenses, permits, approvals,
authorizations, consents or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use and/or
operation of the Improvements and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production or
disposal of Hazardous Substances.
"Environmental Report" means written reports, if any, prepared for the
Bank by an environmental consulting or environmental engineering firm.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall mean the occurrence of any event described in
Article 12 hereof.
<PAGE>
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Bank from three Federal funds brokers of recognized standing selected by
it.
"Fee Rate" shall mean the rate used in computing the unused fee and
computed as described in Section 2.7 of this Agreement.
"First Tier Foreign Subsidiary" shall mean a Foreign Subsidiary the
stock of which is owned directly by the Borrower or a Domestic Subsidiary.
"Fixed Charges" shall mean for the applicable period, (i) Interest
Expense, (ii) provision for taxes, (iii) capital expenditures not funded by
Funded Debt or out of additional paid in capital, and (iv) principal or
other payments due with respect to Debt which are Current Liabilities.
"Foreign Subsidiary" shall mean any Subsidiary formed under the laws
of a jurisdiction other than the United States of America or any state,
territory or instrumentality thereof.
"Funded Debt" shall mean all Debt that is not a Current Liability.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Guarantors" shall mean all persons or entities that have jointly and
severally guaranteed all of the Obligations in form satisfactory to the
Bank, including without limitation, all Domestic Subsidiaries. Unless the
Bank and the Borrower otherwise agree in writing, no Foreign Subsidiary
shall be a Guarantor.
"Hazardous Substances" means, without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane,
hazardous materials, hazardous wastes, hazardous or toxic substances and
any other material defined as a hazardous substance in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
42 U.S.C. Sections 9601, et. seq.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Sections 1801, et. seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Sections 6901, et.
seq.; Articles 15 and 27 of the New York State Environmental Conservation
Law or any other federal, state, or local law, regulation, rule, ordinance,
bylaw, policy, guideline, procedure, interpretation, decision, order, or
directive, whether existing as of the date hereof, previously enforced or
subsequently enacted. "Improvements" shall mean any real property owned or
used by the Borrower.
<PAGE>
"Increased Cost" shall mean any additional amounts sufficient to
compensate the Bank and any assignee or participant of the Bank for any
increased costs of funding or maintaining the Obligations as a result of
any law (other than changes in tax laws imposed on the overall net income
or similar measure of profitability of the Bank) or guideline 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", or the adoption
after the date of this Agreement of any law or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing 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 regarding capital adequacy
(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 on the Bank's capital or on the capital of the Bank's
holding company (or the capital of any assignee or participant of the Bank
or any of their holding companies) as a direct consequence of the
transactions contemplated by this Agreement and all related documents and
agreements, the existence of the Bank's commitments hereunder, or the
Obligations to a level below that which the Bank or the Bank's holding
company (or any assignee or participant of the Bank or any of their holding
companies) would have achieved but for such adoption, change or compliance
(taking into consideration the Bank's, assignee's or participant's policies
on capital adequacy).
"Interest Expense" shall mean, for the applicable period, for the
Borrower and Subsidiaries determined on a consolidated basis without
duplication, all interest paid, capitalized, or accrued, and amortization
of debt discount with respect to all Debt less all related interest income
during such period and determined after giving effect to the net cost
associated with financial arrangements of any kind made to protect against
fluctuations in interest rates such as interest rate swap contracts,
interest rate cap agreements, and the like.
"LIBOR" shall mean the rate per annum (rounded upward, if necessary,
to the nearest 1/32 of one percent) as determined on the basis of the
offered rates for deposits in United States Dollars, for a period of time
comparable to the applicable LIBOR Interest Period which appears on the
Telerate Page 3750 as of 11:00 a.m., London time on the day that is two
London Banking Days preceding the first day of the applicable LIBOR
Interest Period (the "Interest Setting Date"); provided, however, if the
rate described above does not appear on the Telerate System on any
applicable Interest Setting Date, the LIBOR rate shall be the rate (rounded
upwards as described above, if necessary) for deposits in United States
Dollars for a the applicable Interest Period on the Reuters Page "LIBO" (or
such other page as may replace the LIBO Page on that service for the
purpose of displaying such rates), as of 11:00 a.m. (London Time) on the
day that is two (2) London Banking Days prior to the beginning of such
LIBOR Interest Period. If both the Telerate and Reuters system are
unavailable, then the rate for that date will be determined on the basis of
the offered rates for deposits in United States Dollars for a period of
time comparable to the applicable LIBOR Interest Period which are offered
by four major banks in the London interbank market at approximately 11:00
a.m. (London Time), on the day that is two (2) London Banking Days
preceding the first day of such LIBOR Interest Period. The principal London
office of each of the four major London banks will be requested to provide
a quotation of its United States Dollar deposit offered rate. If at least
two such quotations are provided, the rate for that date will be the
arithmetic mean of the quotations. If fewer than two quotations are
provided as requested, the rate for that date will be determined on the
basis of the rates quoted for loans in United States Dollars to leading
European banks for a period of time comparable to the applicable LIBOR
Interest Period offered by major banks in New York City at approximately
11:00 a.m. New York City time on the day that is two (2) London Banking
Days preceding the first day of such LIBOR Interest Period. In the event
that the Bank is unable to obtain any such quotation as provided above, it
will be deemed that LIBOR for the LIBOR Interest Period cannot be
determined.
<PAGE>
In the event that LIBOR cannot be determined, or there is any change
in any law or application thereof that makes it unlawful, or any central
bank or other governmental authority asserts that it is unlawful, for the
Bank to hold obligations if the rate is determined with reference to the
LIBOR (collectively, a "LIBOR End Date"), then borrowings with interest
based upon the LIBOR Rate shall not be available after the LIBOR End Date.
"LIBOR Interest Period" shall mean any particular one-month,
three-month, or six-month period during which an applicable LIBOR Rate
shall be in effect.
"LIBOR Rate" shall mean, with respect to any interest rate period, the
rate per anum equal to LIBOR, further adjusted to reflect any Increased
Cost.
"Loan Documents" shall mean all notes, instruments, security
agreements, assignments, pledges, mortgages, guarantees, and other
documents and agreements of any kind or nature related to this Agreement or
the Obligations.
"Modified Following Business Day Convention" shall mean the convention
for adjusting any relevant date if it would otherwise fall on a day that is
not a Business Day. Terms, when used in conjunction with the term,
"Modified Following Business Day Convention", and a date, shall mean that
an adjustment will be made if that date would otherwise fall on a day that
is not a Business Day so that the date will be the first following day that
is a Business Day.
<PAGE>
"Mortgage" shall mean the mortgage described in Section 5.5 of this
Agreement.
"Mortgage Loan" shall mean the mortgage loan described in Article 3 of
this Agreement.
"Mortgage Loan Note" shall mean the note evidencing the Obligations
related to the Mortgage Loan as described in Section 3.2 of this Agreement.
"Mortgaged Property" shall mean the property and improvements covered
by and more specifically described in the Mortgage.
"Obligations" shall include all of the Borrower's obligations owing to
the Bank or any participant or assignee of the Bank, including all
obligations related to this Agreement of any kind or nature, arising now or
in the future, including without limitation obligations under the Revolving
Line Note, the Mortgage Loan Note, and the Term Loan Note.
"Prime Rate" shall mean the variable per annum rate of interest so
designated from time to time by the Bank as its prime rate. The Prime Rate
is a reference rate and does not necessarily represent the lowest or best
rate being charged to any customer.
"Rate Change Date" shall mean the first day of each one-month,
three-month, or six-month period for which any LIBOR Rate applies.
"Release" has the same meaning as given to that term in Section
101(22) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601(22), and the
regulations promulgated thereunder.
"Revolving Line" shall mean the revolving line of credit established
pursuant to Section 2.1 of this Agreement.
"Revolving Line Note" shall mean the note evidencing Obligations
related to the Revolving Line as described in Section 2.2 of this
Agreement.
"Revolving Line Termination Date" shall mean the date on which the
Revolving Line terminates as described in Section 2.5 of this Agreement.
"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.
"Tangible Assets" shall mean total assets, after deduction of
depreciation, depletion, and reserves, but excluding accounts from and
other obligations payable by officers and Affiliates and further excluding
all assets required to be classified as intangible assets in accordance
with GAAP (including without limitation organizational expense, good will,
unamortized debt discount, research and development costs, patents,
trademarks, copyrights, other intellectual property rights, franchises, and
deferred assets).
<PAGE>
"Tangible Net Worth" shall mean Tangible Assets less Total Liabilities
as determined by GAAP.
"Term Loan" shall mean the Term Loan described in Article 3A of this
Agreement.
"Term Loan Note" shall mean the Term Loan Note the note evidencing
Obligations related to the Term Loan as described in Section 3A.2 of this
Agreement.
"Total Liabilities" shall mean the sum of all liabilities shown on the
balance sheet as of the applicable date of determination, determined in
accordance with GAAP.
ARTICLE 2 - REVOLVING LINE
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 Seventeen
Million Dollars ($17,000,000) 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 $17,000,000. Each borrowing request must be of at least $250,000.
2.2 Revolving Line Note. The Borrower shall execute, together with
this Agreement, a note evidencing Obligations related to the Revolving Line
in the form of Exhibit A attached hereto and made a part hereof.
2.3 Interest Rate and Payments. All outstanding amounts under the
Revolving Line, except as specifically provided herein, shall bear interest
until paid in full (including without limitation after acceleration,
maturity and judgment) at the Base Rate plus the Applicable Base Rate
Margin. Changes in the rate of interest applicable to the 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 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.
<PAGE>
All computations of interest shall be made on the basis of a three
hundred sixty (360) day year and the actual number of days elapsed.
2.4 Payments. Payments of all accrued interest under the 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.
2.5 Revolving Line Termination. Unless extended in writing by the Bank
on terms and conditions then acceptable to the Bank, the Revolving Line
will terminate on, the earlier of (i) July 31, 2000, and (ii) the date of
an Event of Default.
2.6 Break Costs. Any payment of any principal outstanding under the
Revolving Line Note which principal amount is then bearing interest at a
rate based upon the LIBOR Rate shall be accompanied by a payment of all
Break Costs unless such payment is on the Rate Change Date applicable to
that particular principal amount outstanding.
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
Subsidiaries on a consolidated basis and without duplication in accordance
with GAAP:
Ratio Fee Rate (Basis Points)
3 to 1 or greater 18.87
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: $17,000,000, 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.
2.8 Letters of Credit. Subject to the terms and conditions of this
Agreement, the Bank will make letters of credit available for the account
of the Borrower. The aggregate amount available for drawing under all
letters of credit outstanding shall reduce, dollar for dollar, the amount
then available for advances under the Revolving Line. The letters of credit
shall be in form satisfactory to the Bank and the expiration dates thereof
shall not be later than the Revolving Line Termination Date.
<PAGE>
The Borrower will pay the Bank's customary letter of credit
commissions in connection with each letter of credit.
The Borrower, if requested by the Bank, will execute reimbursement
agreements in form satisfactory to the Bank, documenting its Obligations
with respect to the Letter of Credit. All drawings under any letter of
credit shall be treated as immediate advances under the Revolving Line.
2.9 Facility Fee. The Borrower shall pay to the Bank a fee equal to
US$20,400 on the date hereof in connection with the renewed availability
under the Revolving Line.
ARTICLE 3 - MORTGAGE LOAN
3.1 Mortgage Loan. Subject to the terms and conditions of this
Agreement, the Bank shall make a mortgage loan to the Detection in the
original principal amount of Three Million Four Hundred Thousand Dollars
($3,400,000). The proceeds of the Mortgage Loan shall be used to repay a
portion of "Bridge Loan" Obligations to the Bank as defined in the Credit
Facility Agreement among the Bank and the Borrower dated as of February 12,
1996.
3.2 Mortgage Loan Note. The Obligations relating to the Mortgage Loan
outstanding on the date hereof shall be evidenced by a note dated as of the
date hereof in the form of Exhibit B attached hereto and made a part
hereof.
3.3 Interest Rate. Outstanding amounts of the Mortgage Loan except as
specifically provided herein, shall bear interest until paid in full
(including without limitation after acceleration, maturity or judgment) at
the Base Rate plus the Applicable Base Rate Margin. Changes in the rate of
interest applicable to the Mortgage Loan Note shall become effective
automatically and without notice at the time of changes in the Base Rate.
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.
All computations of interest shall be made on the basis of a three
hundred sixty (360) day year and the actual number of days elapsed.
Detection will make arrangements satisfactory to the Bank, such as the
purchase of interest rate caps, providing for protection of at least an
aggregate of $11,537,500 of Obligations under the Mortgage Loan and the
Term Loan from interest rate increases.
<PAGE>
3.4 Payments. Commencing on October 1, 1998, payments of all accrued
interest under the Mortgage Loan Note shall be due and payable on the first
day of each month. In addition, commencing on October 1, 1998, principal
payments of $20,987.65 each shall be due and payable on the first day of
each month.
The Mortgage Loan Note shall be due and payable in full on May 31,
2006.
3.5 Break Costs. Any payment of any principal outstanding under the
Mortgage Loan Note, which principal amount is then bearing interest at a
rate based upon the LIBOR Rate, shall be accompanied by a payment of all
Break Costs unless such payment is on the Rate Change Date applicable to
that particular principal amount outstanding.
ARTICLE 3A - TERM LOAN
3A.1 Term Loan. Subject to the terms and conditions of this Agreement,
the Bank shall make a term loan to the Detection in the principal amount of
Fourteen Million Three Hundred Fifty Thousand Dollars ($14,350,000). The
proceeds of the Term Loan shall be used to refinance certain outstanding
obligations of the Borrower owing to the Bank, and for working capital
purposes.
3A.2 Term Loan Note. The Term Loan shall be evidenced by a note dated
the date hereof in the form of Exhibit C attached hereto and made a part
hereof.
3A.3 Interest Rate. Outstanding amounts of the Term Loan except as
specifically provided herein, shall bear interest until paid in full
(including without limitation after acceleration, maturity or judgment) at
the Base Rate plus the Applicable Base Rate Margin. Changes in the rate of
interest applicable to the Term Loan Note shall become effective
automatically and without notice at the time of changes in the Base Rate.
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.
All computations of interest shall be made on the basis of a three
hundred sixty (360) day year and the actual number of days elapsed.
Detection will make arrangements satisfactory to the Bank, such as the
purchase of interest rate caps, providing for protection of at least an
aggregate of $11,537,500 of Obligations under the Mortgage Loan and the
Term Loan from interest rate increases.
3A.4 Payments. Commencing on October 1, 1998, payments of all accrued
interest under the Term Loan Note shall be due and payable on the first day
of each month. In addition, commencing on March 1, 2000, principal payments
of $217,424.24 each shall be due and payable on the first day of each
month.
<PAGE>
The Term Loan Note shall be due and payable in full on September 30, 2005.
3A.5 Break Costs. Any payment of any principal outstanding under the
Term Loan Note, which principal amount is then bearing interest at a rate
based upon the LIBOR Rate, shall be accompanied by a payment of all Break
Costs unless such payment is on the Rate Change Date applicable to that
particular principal amount outstanding.
3A.6 Facility Fee. The Borrower shall pay to the Bank a fee equal to
US$17,220 on the date hereof in connection with the initial advance of the
Term Loan.
ARTICLE 4 - EXPENSES/DEFAULT RATE INCREASES
4.1 Administrative Expenses. The Borrower shall pay any fees, expenses
and disbursements, including reasonable legal fees, of the Bank related to
this Agreement, the Obligations, the perfection of any collateral security
required hereunder, and the transactions contemplated by this Agreement.
Such payments shall be due from time to time upon the Bank giving the
Borrower notice of the amount of such expenses.
4.2 Collection Costs. At the request of the Bank, the Borrower shall
promptly pay any expenses, reasonable attorney's fees, costs, or
disbursements in connection with administration of the Obligations or
collection of any of the Obligations or enforcement of any of the Bank's
rights hereunder or under any note, security agreement, reimbursement
agreement, guarantee, or other agreement related hereto. This obligation
shall survive the payment of any notes executed hereunder. The Bank may
apply any payments of any nature received by it first to the payment of
Obligations under this Section 4.2, notwithstanding any conflicting
provision contained in this Agreement or any other agreement with the
Borrower.
4.3 Default Interest Rate. Upon the failure of the Borrower to comply
with any covenant contained in Section 8.1 or Article 10 of this Agreement,
the rate of interest on each of the Obligations shall be increased to a
rate at all times equal to two percentage points (2%) above the rate of
interest which would be in effect absent such failure of compliance, such
increased rate to remain in effect through and including the end of the
fiscal quarter in which such failure of compliance is remedied. Upon the
occurrence of an Event of Default, the provisions of this paragraph shall
be superseded by the provisions of the second paragraph of this Section 4.3
which relates to increases in the rate of interest in case of the
occurrence of an Event of Default.
Upon the occurrence of an Event of Default, the rate of interest on
each of the Obligations shall be increased to a rate at all times equal to
two percentage points (2%) above the rate of interest which would be in
effect absent such failure of compliance, such increased rate to remain in
effect through and including payment in full of all of the Obligations and
cancellation of further commitments to lend under this Agreement, or
written waiver of such Event of Default by the Bank.
<PAGE>
4.4 Late Payment Fees. If the entire amount of principal and/or
interest is not paid in full under any of the Loan Documents within ten
(10) days after the same is due, Borrower shall pay to the Bank a late fee
equal to two percent (2%) of the required payment.
4.5 Prepayments Upon Default. If by reason of an Event of Default the
Bank elects to declare the Obligations to be immediately due and payable,
then any Break Cost or prepayment charge with respect to the Obligations
shall become due and payable in the same manner as though the Borrower had
exercised a right of prepayment.
ARTICLE 5 - COLLATERAL AND GUARANTEES
5.1 Security Interests. As collateral for all Obligations, the
Borrower shall provide to the Bank, and shall cause each Guarantor to
provide to the Bank, a security interest and lien in all their respective
assets, including without limitation machinery, equipment, furniture,
fixtures, vehicles, accounts, inventory, chattel paper, interests in leases
and property under lease, intellectual property and proprietary interests,
documents, instruments, and general intangibles. Such security interests
shall be first liens on such assets, which shall not be otherwise
encumbered except as specified on Schedule 5.1 attached hereto and made a
part hereof.
Detection's assets, Radionics' assets, and the Guarantors' assets
located in Tennessee, as well as the security interest of the Bank in such
Tennesee assets, shall be limited to the aggregate principal amount of One
Hundred Fifty Thousand Dollars ($150,000) each, and in each case together
with all related interest, costs, expenses, fees, and charges of any kind
or nature.
5.2 Guarantees. Radionics shall provide its unconditional guarantee of
the Obligations of Detection related to the Mortgage Loan and the Term
Loan. The Borrower shall cause all Subsidiaries other than Foreign
Subsidiaries to become Guarantors. The Guarantor guarantees shall contain
an agreement that, except for intercompany transactions with the Borrower
or other Subsidiaries, such Guarantor shall comply in all respects with the
requirements set forth in Section 8.13, and 9.10, and with the same
requirements as are imposed upon the Borrower in Article 11 of this
Agreement.
5.3 Stock Pledge. The Borrower shall pledge to the Bank (a) all of
Borrower's shares of capital stock of Domestic Subsidiaries, and (b) in the
case of each First-Tier Foreign Subsidiary, 65% of the total combined
voting power of all classes of stock of such First-Tier Foreign Subsidiary
entitled to vote. No stock of any Foreign Subsidiary other than a First
Tier Foreign Subsidiary shall be pledged to the Bank.
5.4 Landlord Waivers. The Borrower shall deliver to the Bank a waiver
from each landlord and mortgagee of premises on which the Bank's collateral
is located and that is not owned by the Borrower.
<PAGE>
5.5 Mortgage. The Bank shall receive a Mortgage covering the fee and
leasehold interests of Detection and the Agency in the facility located at
130 Perinton Parkway, Town of Perinton, New York owned in part by Detection
and owned in part by the Agency and leased by the Agency to Detection. The
Mortgage shall secure the Mortgage Loan. Unencumbered (except as provided
on Schedule 5.1) and marketable title to the Mortgaged Property must be
acceptable to the Bank's attorneys. The lien of the Mortgage shall cover
all improvements to the Mortgaged Property, ingress and egress thereto, and
all easements and licenses necessary or appropriate in connection
therewith. The lien of the Mortgage also shall cover all fixtures,
equipment, and other personal property installed upon or affixed to the
Mortgaged Property including without limitation mechanical equipment.
5.6 Assignment of Leases. The Agency shall assign as collateral for
the Obligations the Lease Agreement made by the Agency to Detection dated
as of February 1, 1982 between the Agency and Detection.
ARTICLE 6 - REPRESENTATIONS OF BORROWER
The Borrower represents and warrants to the Bank as follows:
6.1 Organization and Power. Detection is duly organized, validly
existing and in good standing under the laws of the State of New York, and
is duly qualified to transact business and in good standing in all states
in which it is required to qualify or in which failure to qualify could
have a material adverse impact on its business. Detection has full power
and authority to own its properties, to carry on its business as now being
conducted, to execute, deliver and perform this Agreement and all related
documents and instruments, and to consummate the transactions contemplated
hereby. Detection has no Subsidiaries or Affiliates except Radionics and
those listed on Schedule 6.1.
Radionics is duly organized, validly existing and in good standing
under the laws of the State of California, and is duly qualified to
transact business and in good standing in all states in which it is
required to qualify or in which failure to qualify could have a material
adverse impact on its business. Radionics has full power and authority to
own its properties, to carry on its business as now being conducted, to
execute, deliver and perform this Agreement and all related documents and
instruments, and to consummate the transactions contemplated hereby.
Radionics has no Subsidiaries or Affiliates except Detection and those
listed on Schedule 6.1.
Each 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 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.
<PAGE>
6.2 Proceedings of Borrower. All necessary action on the part of the
Borrower, 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 the Borrower hereunder and thereunder has been taken. This Agreement and
all related documents and instruments constitute legal, valid and binding
obligations of the Borrower, 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. The Borrower has no defenses, offsets,
claims, or counterclaims with respect to its obligations arising under this
Agreement and all related documents and instruments. The execution and
delivery by the Borrower of this Agreement and all related documents and
agreements, and the performance by the Borrower of its obligations under
this Agreement and all related documents and agreements will not violate
any provision of law or either of the Borrower's respective Certificates of
Incorporation or By-laws or organizational or other documents or
agreements. The execution, delivery and performance of this Agreement and
all related documents and agreements, 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
the Borrower 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.
All necessary action on the part of each 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 Subsidiary
hereunder and thereunder has been taken. All documents and instruments
related to this Agreement executed by each Subsidiary respectively
constitute legal, valid and binding obligations of such 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 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 Subsidiary or
all documents and agreements related to this Agreement, and the performance
by each Subsidiary of its obligations under this Agreement and all related
documents and agreements will not violate any provision of law or any
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 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.
6.3 Capitalization. All of the outstanding shares and other equity
interests of both of the Borrowers 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 the Borrower.
<PAGE>
All of the outstanding shares and other equity interests of each
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 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.
6.4 Litigation. Except as shown on Schedule 6.4, 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 the Borrower (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 Borrower.
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 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 Subsidiary.
6.5 Financial Statements. 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 Subsidiaries, as of the respective dates
thereof and the results of their respective operations for the respective
periods covered thereby.
6.6 Adverse Changes. 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
Subsidiaries, taken as a whole.
6.7 Taxes. The Borrower 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. Detection's tax returns have been
audited and tax years closed through and including fiscal 1994. Radionics
tax returns have been audited and tax years closed through and including
fiscal 1992. Each 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. The Borrower's tax returns are not
being audited on the date of this Agreement and the Borrower has not been
notified of any intention by any taxing authority to conduct such an audit.
<PAGE>
6.8 Properties. The Borrower and each of its 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 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 Subsidiaries, and all such leases are in full force and
effect.
6.9 Indebtedness. Except as disclosed in the most recent financial
statements referred to in Section 6.5 hereof, the Borrower and its
Subsidiaries have no outstanding Debt.
6.10 ERISA. No action, event, or transaction has occurred that could
give rise to a lien or encumbrance on the assets of the Borrower or its
Subsidiaries as a result of the application of relevant provisions of
ERISA, and the Borrower and its Subsidiaries are in material compliance
with all requirements of ERISA.
6.11 Margin Securities. No proceeds of the Obligations have been or
will be used for the purpose of purchasing or carrying Margin Securities as
defined in Regulation U of the Federal Reserve Board.
6.12 Compliance With Law. The Borrower and its 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 Subsidiaries. The Borrower and its 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
Subsidiaries.
6.13 Patents, Trademarks, and Authorizations. The Borrower and its
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.
6.14 Contracts and Agreements. The Borrower and its 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 Subsidiaries are in compliance in all material
respects with all contracts and agreements to which they are a party.
6.15 Year 2000. The Borrower and its Subsidiaries have reviewed the
areas within their business and operations that could be adversely affected
by, and have developed or are developing a program to address on a timely
basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower and its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999). Based on such review
and program, the Borrower reasonably believes that the "Year 2000 Problem"
will not have a material adverse effect on the business, operations or
financial conditions or prospects of the Borrower and its Subsidiaries.
<PAGE>
ARTICLE 7 - CONDITIONS OF LENDING
The following conditions must be satisfied before the Bank shall have
any obligation to make any advance under this Agreement:
7.1 Representations and Warranties. The representations and warranties
of the Borrower contained herein shall be true and correct as of the date
of making of each such advance, with the same effect as if made on and as
of such date.
7.2 No Defaults. There shall exist no condition or event that
constitutes (or that, with the giving of notice or the passage of time or
both, would constitute) an Event of Default under Article 12 hereof at the
time each advance is made.
7.3 Performance. The Borrower shall have performed and complied with
all agreements and conditions required to be performed or complied with by
it prior to or at the time the advance is made.
7.4 Opinion of Counsel. The Borrower shall have delivered an opinion
of its counsel, dated the date of this Agreement, and upon request
supplemental opinions dated the date of the advance, in form and substance
reasonably satisfactory to the Bank.
7.5 Documents to be Delivered. The Borrower shall have delivered to
the Bank all security agreements, reimbursement agreements, assignments,
guarantees, and any related documents necessary or desirable in connection
with the requirements of Article 5 hereof. All notes evidencing the
Obligations shall have been delivered to the Bank at the time of the making
of the respective loans.
7.6 Certified Resolutions. Each of the Borrowers and the Guarantors
shall have delivered a certificate of its corporate secretary certifying,
as of the date of the first advance, resolutions duly adopted by its
respective Board of Directors authorizing the execution, delivery and
performance of this Agreement, or in the case of Guarantors, its respective
guarantee, and all related documents and agreements and the consummation of
the transactions contemplated hereby, which resolutions shall remain in
full force and effect so long as any of the Obligations are outstanding or
any commitment to lend exists under this Agreement.
7.7 Fees and Taxes. The Borrower shall have paid all filing fees,
taxes, and assessments related to the borrowings and the perfection of any
interests in collateral security required hereunder.
7.8 Insurance. The Borrower shall have delivered evidence satisfactory
to the Bank of the existence of insurance required hereby.
<PAGE>
7.9 Organizational Documents. The Borrower shall have delivered to the
Bank copies of its then-effective Certificate of Incorporation, By-laws,
d/b/a certificates, and other organizational documents and instruments, and
upon request of the Bank, a written certificate that such documents and
instruments have not been changed or amended since the last advance to
Borrower pursuant to the terms of this Agreement.
7.10 Other Documents and Agreements. On or before the date of this
Agreement, the Borrower shall have delivered such other documents,
instruments, and agreements as the Bank and its legal counsel may require
in connection with the transactions contemplated hereby.
7.11 Certificates of Good Standing. On or before the date of this
Agreement the Borrower shall have delivered to the Bank certificates of
good standing from appropriate state officials to the effect that the each
of the Borrowers and each Domestic Subsidiary that owns a Foreign
Subsidiary is in good standing in the state of its formation as well as in
all other states in which qualification is necessary for each of the
Borrowers and such Domestic Subsidiaries to carry on its business in such
states.
7.12 Appraisal. The Borrower shall have delivered to the Bank prior to
the making of the Mortgage Note an appraisal in form satisfactory to the
Bank, prepared by appraisers satisfactory to the Bank, showing that the
principal amount of the Mortgage Note will not exceed eighty percent (80%)
of the fair market value of the Mortgaged Property.
7.13 Title Insurance. Prior to the making of the Mortgage Loan, the
Borrower shall have delivered to the Bank's legal counsel an updated
Abstract of Title and shall have delivered title insurance in the face
amount of the Mortgage Loan, with all title exceptions being subject to the
approval of the Bank's attorneys.
7.14 Survey. Prior to the making of the Mortgage Loan, the Borrower
shall have delivered to the Bank a survey prepared by a registered land
surveyor, showing all encroachments or easements across property lines.
Those encumbrances not acceptable to the Bank and its counsel must be
removed. Said survey is to be approved by, satisfactory to, and certified
to the Bank, the Bank's attorneys, and the title insurance company.
7.15 Real Estate Taxes. Prior to the making of the Mortgage Loan, the
Borrower must provide proof of payment of current real estate taxes and
assessments related to the Mortgaged Property, or payment of all payments
due under any payment-in-lieu-of-tax agreements, if any.
7.16 Environmental Report. The Borrower shall have provided to the
Bank an environmental inspection report covering the Mortgaged Property in
form and substance satisfactory to the Bank prepared by engineers
satisfactory to the Bank.
<PAGE>
ARTICLE 8 - AFFIRMATIVE COVENANTS OF BORROWER
So long as any Obligations to the Bank shall be outstanding or this
Agreement remains in effect, unless the Bank otherwise consents in writing,
the Borrower shall:
8.1 Financial Statements. Furnish to the Bank as soon as available,
but in no event later than one hundred twenty (120) days after the end of
each of its fiscal years, copies of its annual report containing its annual
financial statements audited by and with an unqualified opinion from an
independent certified public accountant satisfactory to the Bank. Said
financial statements shall be accompanied by (i) copies of its Form 10K for
the respective year, (ii) a schedule showing computation of financial
covenants, (iii) a copy of any management letter prepared by the Borrower's
accountants, and (iv) a certificate of the Chief Financial Officer or the
Chief Accounting Officer of the Borrower to the effect that no Event of
Default has occurred and no condition exists which with the passage of time
or the giving of notice would constitute an Event of Default.
The Borrower also shall furnish to the Bank copies of its
consolidating quarterly financial statements and Form 10Q not more than
fifty (50) days after the close of each quarter of its fiscal year. Said
statements shall be accompanied by (i) a schedule showing computation of
financial covenants, and (ii) a certificate of the Chief Financial Officer
or the Chief Accounting Officer of the Borrower to the effect that no Event
of Default has occurred and no condition exists which with the passage of
time or the giving of notice would constitute an Event of Default.
The Borrower shall provide to the Bank interim financial statements,
if any, prepared by the Borrower's independent accountants.
8.2 Other Reports and Inspections. Furnish to the Bank an annual
budget within 30 days of the commencement of any fiscal year, and such
additional information, reports, or financial statements as the Bank may,
from time to time, reasonably request.
The Borrower shall permit any person designated by the Bank to inspect
the property, assets, and books of the Borrower at reasonable times and,
prior to an Event of Default, upon reasonable notice, and shall discuss its
affairs, finances, and accounts at reasonable times with the Bank from time
to time as often as may be reasonably requested.
8.3 Taxes. Pay and discharge all taxes, assessments, levies, and
governmental charges upon the Borrower, its income and property, prior to
the date on which penalties are attached thereto; provided, however, that
the Borrower may in good faith contest any such taxes, assessments, levies,
or charges so long as such contest is diligently pursued and no lien or
execution exists or is levied against any of Borrower's assets related to
the contested items and so long as Borrower maintains all reserves required
by GAAP.
<PAGE>
8.4 Insurance. Maintain or cause to be maintained insurance, of kinds
and in amounts satisfactory to the Bank, with responsible insurance
companies on all of its real and personal properties in such amounts and
against such risks as are prudent, including but not limited to, full-risk
extended coverage hazard insurance to the full insurable value of real
property (co-insurance not being permitted without the prior written
consent of the Bank), all-risk coverage for personal property, business
interruption or loss of rents coverage, worker's compensation insurance,
and comprehensive general liability and products liability insurance. The
Borrower also shall maintain flood insurance covering any of its real
properties located in flood zones. The Borrower shall provide to the Bank,
no less often than annually and upon its request, a detailed list and
evidence satisfactory to the Bank of its insurance carriers and coverage
and shall obtain such additional insurance as the Bank may reasonably
request. Hazard insurance policies for real property shall name the Bank as
mortgagee, and for personalty, additional insured and loss payee, as its
interests may appear. All policies shall provide for at least thirty (30)
days' prior notice of cancellation to the Bank.
8.5 Existence. Cause to be done all things necessary to preserve and
to keep in full force and effect its existence, rights, and franchises and
to comply in all material respects with all valid laws and regulations now
in effect or hereafter promulgated by any properly constituted governmental
authority having jurisdiction.
8.6 Maintenance of Properties. At all times maintain, preserve,
protect, and keep its property used or useful in conducting its business,
in good repair, working order, and condition and, from time to time, make
all needful and proper repairs, renewals, replacements, betterments, and
improvements thereto, so that the business carried on may be properly and
advantageously conducted at all times.
8.7 Material Changes, Judgments. Notify the Bank immediately of any
material adverse change in the financial condition of the Borrower and of
the filing of any suits, judgments, or liens which, if adversely
determined, could have a material adverse effect on the business or
financial condition of the Borrower. The Borrower also shall notify the
Bank immediately of any change in the name, identity, or organizational
structure of the Borrower, or any change in any equity or ownership
interest in Radionics, the Guarantors, or any Foreign Subsidiary.
8.8 ERISA Compliance. Comply in all material respects with the
provisions of ERISA and regulations and interpretations related thereto.
8.9 Franchises/Permits/Laws. Preserve and keep in full force and
effect all franchises, permits, licenses, and other authority as are
necessary to enable it to conduct its business as being conducted on the
date of this Agreement and comply in all material respects with all laws,
regulations, and requirements now in effect or hereafter promulgated by any
properly constituted governmental authority having jurisdiction over it.
8.10 Payments. Make all payments as and when required by this
Agreement and the notes and other agreements related hereto or to the
Obligations.
<PAGE>
8.11 Deposits/Bank Services. Detection, and to the extent practical,
Radionics, shall maintain all of its main depository accounts at the Bank
and shall obtain its cash management services from the Bank.
8.12 Amendments. Give the Bank written notice of an amendment or
modification to the Certificate of Incorporation or other governing
documents or agreements of either Borrower.
8.13 Subsidiaries. Cause each 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.
ARTICLE 9 - NEGATIVE COVENANTS OF BORROWER
So long as any Obligations shall be outstanding, or this Agreement
shall remain in effect, unless the Bank otherwise consents in writing, the
Borrower shall not, directly or indirectly:
9.1 Debt/Liens. Create, incur, assume, or allow to exist, voluntarily
or involuntarily, any Debt, or any security interest, assignment, pledge,
lien or other encumbrance for the purpose of collateral of any kind
(including the charge upon property purchased under conditional sales or
other title retention agreements) upon any of its property or assets,
whether now owned or hereafter acquired, or become the general partner in
any partnership, excluding only (i) Obligations to and interests held by
the Bank, (ii) Debt described in Schedule 9.1 attached hereto and made a
part hereof, (iii) encumbrances described in Schedule 5.1, and (iv)
obligations and interests to which the Bank consents in writing.
9.2 Loans and Investments. Make any loan or advance to, or any
investment of any kind in, any person, firm, joint venture, corporation or
other entity whatsoever, except (i) short-term investments in certificates
of deposit of financial institutions and similar investments made in the
ordinary course of business, and (ii) to the extent permitted by this
Agreement, to or in any Subsidiary, provided however, that aggregate
investments and/or capital contributions by the Borrower and its Domestic
Subsidiaries in or to the Foreign Subsidiaries (taken as a whole) shall in
no event exceed $1,000,000 per year.
9.3 Mergers, Sales and Acquisitions/Change in Ownership Interests.
Enter into any merger or consolidation, or acquire all or substantially all
the stock or other ownership interests or assets of any person, firm, joint
venture, corporation, or other entity except for acquisition transactions
involving the expenditure by the Borrower and its Affiliates of not more
than $1,000,000 in total consideration in any one year or in any single
transaction; or sell, lease, transfer, or otherwise dispose of any material
portion of its assets except in the ordinary course of business.
<PAGE>
The Borrower will not allow any change in the ownership, legal or
equitable, of the shareholder or other equity interests in Radionics or in
the Subsidiaries except between or among the Borrower and the Domestic
Subsidiaries.
9.4 Amendments. Allow the amendment or modification of either of their
Certificates of Incorporation, By-laws, or other governing documents and
agreements in any material respect without the prior written consent of the
Bank.
9.5 Compensation. Compensate any person or entity, including without
limitation salaries, bonuses, consulting fees, or otherwise, in excess of
amounts reasonably related to services rendered to the Borrower.
9.6 Judgments. Allow to exist any judgments against Borrower in excess
of $100,000 which are not fully covered by insurance or for which an appeal
or other proceeding for the review thereof shall not have been taken and
for which a stay of execution pending such appeal shall not have been
obtained.
9.7 Margin Securities. Allow any proceeds of the Obligations to be
used for the purpose of carrying any Margin Securities as defined in
Regulation U of the Board of Governors of the Federal Reserve.
9.8 Tennessee Assets. Allow any of either of their respective assets
to be located in the State of Tennessee with a value in excess of the
dollar amount limitation of coverage by the respective Borrower's Security
Agreements related to Tennessee assets.
9.9 Negative Pledge. Assign, transfer, pledge or otherwise encumber to
or in favor of anyone other than the Bank any property, real, personal or
intangible, which the Borrower now or hereafter owns. Borrower will not at
any time enter into any agreement with anyone other than the Bank in which
the Borrower agrees not to assign, transfer, pledge or otherwise encumber
any property, real, personal or intangible, which the Borrower now or
hereafter owns.
9.10 Subsidiaries. Cause each 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, 9.8 and 9.9 of this Agreement.
ARTICLE 10 - FINANCIAL COVENANTS
The financial covenants set forth in Section 10.1, 10.2, 10.3 and 10.4
shall be determined by calculating such covenant for the Borrower and its
Subsidiaries on a consolidated basis and without duplication in accordance
with GAAP.
So long as any Obligations to the Bank shall be outstanding or this
Agreement remains in effect, unless the Bank otherwise consents in writing,
the Borrower, shall:
<PAGE>
10.1 Minimum Current Ratio. Maintain a minimum Current Ratio of at
least 2.0 to 1.0, as shown on each quarterly financial statement provided
to the Bank.
10.2 Minimum Fixed Charge Coverage. Maintain a ratio of (a) EBITDA
minus Distributions to (b) Fixed Charges, calculated for the quarter ending
on the measurement date plus the fewer of either (i) the last three
preceding quarters, or (ii) the number of quarters except the measurement
date quarter that have ended after March 31, 1998, as shown on the
quarterly financial statements provided to the Bank, of at least 1.5 to 1.0
for the quarter ending June 30, 1998 and thereafter.
10.3 Maximum Funded Debt Ratio. Maintain a ratio of Funded Debt to
EBITDA, calculated for the quarter ending on the measurement date plus the
three preceding quarters, not exceeding:
(a) 2.75 to 1.0 measured commencing September 30, 1998, and on
December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999 and
December 31, 1999
(b) 2.5 to 1.0 measured on March 31, 2000, June 30, 2000, September
30, 2000, and December 31, 2000,
(c) 2.25 to 1.0 measured on March 31, 2001, June 30, 2001, September
30, 2001, and December 31, 2001, and
(d) 2.0 measured on March 31, 2002 and at the end of each quarter
thereafter.
10.4 Minimum Tangible Net Worth. Maintain a minimum Tangible Net Worth
equal to at least ninety percent (90%) of the higher of Tangible Net Worth
of the Borrower (a) as of the date of this Agreement, and (b) as of
December 31, 1997, as shown on each quarterly financial statement provided
to the Bank. Such minimum Tangible Net Worth requirement shall be increased
in each succeeding fiscal year by an amount equal to seventy-five percent
(75%) of net operating income for the prior fiscal year plus one hundred
percent (100%) of the net proceeds from any sale of stock or other equity
interests in the Borrower.
10.5 Limitation on Foreign Intercompany Indebtedness. Ensure at all
times that aggregate indebtedness of all Foreign Subsidiaries owing to the
Borrower and all Domestic Subsidiaries at no time exceeds by more than
$29,900,000 the aggregate indebtedness of the Borrower and all Domestic
Subsidiaries owing to all Foreign Subsidiaries.
ARTICLE 11 - ENVIRONMENTAL MATTERS; INDEMNIFICATION
11.1 Environmental Representations. The Borrower represents and
warrants that, to the best of Borrowers's knowledge and except as shown on
Schedule 11.1:
(a) Neither the Improvements nor any property adjacent to the
Improvements is being or has been used for the storage, treatment,
generation, transportation, processing, handling, production or disposal of
any Hazardous Substance or as a landfill or other waste disposal site or
for the storage of petroleum or petroleum based products except in
compliance with all Environmental Laws.
<PAGE>
(b) Underground storage tanks are not and have not been located on the
Improvements except in compliance with all Environmental Laws.
(c) The soil, subsoil, bedrock, surface water and groundwater of the
Improvements are free of any Hazardous Substances.
(d) There has been no Release, nor is there the threat of a Release of
any Hazardous Substance on, at or from the Improvements or any property
adjacent to or within the immediate vicinity of the Improvements which
through soil, subsoil, bedrock, surface water or groundwater migration
could come to be located on the Improvements, and Borrower has not received
any form of notice or inquiry from any federal, state or local governmental
agency or authority, any operator, tenant, subtenant, licensee or occupant
of the Improvements or any property adjacent to or within the immediate
vicinity of the Improvements or any other person with regard to a Release
or the threat of a Release of any Hazardous Substance on, at or from the
Improvements or any property adjacent to the Improvements.
(e) All Environmental Permits relating to the Borrower and the
Improvements have been obtained and are in full force and effect.
(f) No event has occurred with respect to the Improvements which, with
the passage of time or the giving of notice, or both, would constitute a
violation of any applicable Environmental Law or non-compliance with any
Environmental Permit.
(g) There are no agreements, consent orders, decrees, judgments,
license or permit conditions or other orders or directives of any federal,
state or local court, governmental agency or authority relating to the
past, present or future ownership, use, operation, sale, transfer or
conveyance of the Improvements which require any change in the present
condition of the Improvements or any work, repairs, construction,
containment, clean up, investigations, studies, removal or other remedial
action or capital expenditures with respect to the Improvements.
(h) There are no actions, suits, claims or proceedings, pending or
threatened, which could cause the incurrence of expenses or costs of any
name or description or which seek money damages, injunctive relief,
remedial action or any other remedy that arise out of, relate to or result
from (i) a violation or alleged violation of any applicable Environmental
Law or non-compliance or alleged non-compliance with any Environmental
Permit, (ii) the presence of any Hazardous Substance or a Release or the
threat of a Release of any Hazardous Substance on, at or from the
Improvements or any property adjacent to or within the immediate vicinity
of the Improvements or (iii) human exposure to any Hazardous Substance,
noises, vibrations or nuisances of whatever kind to the extent the same
arise from the condition of the Improvements or the ownership, use,
operation, sale, transfer or conveyance thereof.
<PAGE>
11.2 Environmental Covenants. The Borrower covenants and agrees with
the Bank that, so long as this Agreement remains in effect, the Borrower
shall:
(a) Comply with, and shall cause all operators, tenants, subtenants,
licensees and occupants of the Improvements to comply with all applicable
Environmental Laws and shall obtain and comply with, and shall cause all
operators, tenants, subtenants, licensees and occupants of the Improvements
to obtain and comply with, all Environmental Permits.
(b) Not cause or permit any change to be made in the present or
intended use of the Improvements which would (i) violate any applicable
Environmental Law, (ii) constitute non-compliance with any Environmental
Permit or (iii) materially increase the risk of a Release of any Hazardous
Substance.
(c) Promptly provide Bank with a copy of all notifications which it
gives or receives with respect to any past or present Release or the threat
of a Release of any Hazardous Substance on, at or from the Improvements or
any property adjacent to the Improvements.
(d) Undertake and complete all investigations, studies, sampling and
testing and all removal and other remedial actions required by law to
contain, remove and clean up all Hazardous Substances that are determined
to be present at the Improvements in accordance with all applicable
Environmental Laws and all Environmental Permits.
(e) At all times allow the Bank and its officers, employees, agents,
representatives, contractors and subcontractors reasonable access after
reasonable prior notice to the Improvements for the purposes of
ascertaining site conditions, including, but not limited to, subsurface
conditions.
(f) Deliver promptly to the Bank: (i) copies of any documents received
from the United States Environmental Protection Agency, or any state,
county or municipal environmental or health agency concerning the
Borrower's operations or the Improvements; and (ii) copies of any documents
submitted by the Borrower to the United States Environmental Protection
Agency or any state, county or municipal environmental or health agency
concerning its operations or the Improvements.
<PAGE>
(g) If at any time the Bank obtains any reasonable evidence or
information which suggests that a material potential environmental problem
may exist at the Improvements, the Bank may require that a full or
supplemental environmental inspection and audit report with respect to the
Improvements of a scope and level of detail satisfactory to Bank be
prepared by an environmental engineer or other qualified person acceptable
to the Bank at Borrower's expense. Such audit may include a physical
inspection of the Improvements, a visual inspection of any property
adjacent to or within the immediate vicinity of the Improvements, personnel
interviews and a review of all Environmental Permits. If the Bank requires,
such inspection shall also include a records search and/or subsurface
testing for the presence of Hazardous Substances in the soil, subsoil,
bedrock, surface water and/or groundwater. If such audit report indicates
the presence of any Hazardous Substance or a Release or the threat of a
Release of any Hazardous Substance on, at or from the Improvements,
Borrower shall promptly undertake and diligently pursue to completion all
necessary, appropriate and legally authorized investigative, containment,
removal, clean up and other remedial actions, using methods recommended by
the engineer or other person who prepared said audit report and acceptable
to the appropriate federal, state and local agencies or authorities.
11.3 Indemnity. The Borrower agrees to indemnify, defend, and hold
harmless the Bank from and against any and all liabilities, claims,
damages, penalties, expenditures, losses, or charges, including, but not
limited to, all costs of investigation, monitoring, legal representation,
remedial response, removal, restoration or permit acquisition of any kind
whatsoever, which may now or in the future be undertaken, suffered, paid,
awarded, assessed, or otherwise incurred by the Bank (or any other person
or entity affiliated with the Bank or representing or acting for the Bank
or at the Bank's behest, or with a claim on the Bank or to whom the Bank
has liability or responsibility of any sort related to this Section 11.3)
relating to, resulting from or arising out of (a) the use of the
Improvements for the storage, treatment, generation, transportation,
processing, handling, production or disposal of any Hazardous Substance or
as a landfill or other waste disposal site, (b) the presence of any
Hazardous Substance or a Release or the threat of a Release of any
Hazardous Substance on, at or from the Improvements, (c) the failure to
promptly undertake and diligently pursue to completion all necessary,
appropriate and legally authorized investigative, containment, removal,
clean up and other remedial actions with respect to a Release or the threat
of a Release of any Hazardous Substance on, at or from the Improvements,
(d) human exposure to any Hazardous Substance, noises, vibrations or
nuisances of whatever kind to the extent the same arise from the condition
of the Improvements or the ownership, use, operation, sale, transfer or
conveyance thereof, (e) a violation of any applicable Environmental Law,
(f) non-compliance with any Environmental Permit or (g) a material
misrepresentation or inaccuracy in any representation or warranty or a
material breach of or failure to perform any covenant made by Borrower in
this Agreement. Such costs or other liabilities incurred by the Bank or
other entity described in this Section 11.3 shall be deemed to include,
without limitation, any sums which the Bank deems it necessary or desirable
to expend to protect its security interests and liens.
<PAGE>
11.4 No Limitation. The liability of Borrower under this Article 11
shall in no way be limited, abridged, impaired or otherwise affected by (a)
any amendment or modification of this Agreement or any other document
relating to the Obligations by or for the benefit of Borrower or any
subsequent owner of the Improvements except for an amendment or
modification which expressly refers to this Article 11, (b) any extensions
of time for payment or performance required by this Agreement or any other
document relating to the Obligations, (c) the release of Borrower, any
guarantor or any other person from the performance or observance of any of
the agreements, covenants, terms or conditions contained in this Agreement
or any other document relating to the Obligations by operation of law,
Bank's voluntary act or otherwise, (d) the invalidity or unenforceability
of any of the terms of provisions of this Agreement or any other document
relating to the Obligations, (e) any exculpatory provision contained in
this Agreement or any other document relating to the Obligations limiting
Bank's recourse to property encumbered by any mortgage or to any other
security or limiting Bank's rights to a deficiency judgment against
Borrower, (f) any applicable statute of limitations, (g) any investigation
or inquiry conducted by or on the behalf of Bank or any information which
Bank may have or obtain with respect to the environmental or ecological
condition of the Improvements, (h) the sale, assignment or foreclosure of
any interest in collateral for the Obligations, (i) the sale, transfer or
conveyance of all or part of the Improvements, (j) the dissolution and
liquidation of Borrower, (k) the death or legal incapacity of any
individual, (l) the release or discharge, in whole or in part, of Borrower
in any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceeding, or (m) any other
circumstances which might otherwise constitute a legal or equitable release
or discharge of Borrower, in whole or in part.
11.5 Survival. Notwithstanding anything to the contrary contained
herein, the Borrower's liability and obligations under Section 11.4 shall
survive the discharge, satisfaction or assignment of this Agreement by the
Bank and the payment in full of all of the Obligations.
11.6 Investigations. If the Borrower defaults on any of its
Obligations pursuant to this Agreement or any other Loan Document, the Bank
or its designee shall have the right, upon reasonable notice to the
Borrower, to enter upon the Improvements and conduct such tests,
investigation and sampling, including but not limited to installation of
monitoring wells, as shall be reasonably necessary for the Bank to
determine whether any disposal of Hazardous Substances has occurred on, at
or near the Improvements. The costs of all such tests, investigations and
samplings shall be considered as additional indebtedness secured by all
collateral for the Obligations and shall become immediately due and payable
without notice and with interest thereon at highest rate then borne by any
of the Obligations.
<PAGE>
11.7 No Warranty Regarding Information. The Borrower agrees that the
Bank shall not be liable in any way for the completeness or accuracy of any
Environmental Report or the information contained therein. The Borrower
further agrees that the Bank has no duty to warn the Borrower or any other
person or entity about any actual or potential environmental contamination
or other problem that may have become apparent or will become apparent to
the Bank.
ARTICLE 12 - DEFAULTS
12.1 Defaults. The following events (hereinafter called "Events of
Default") shall constitute defaults under this Agreement. Such Events of
Default shall be without prejudice to the Bank's rights to demand payment
in full of Obligations payable on demand, as specified in this Agreement or
the notes relating to such Obligations, at any time.
a. Nonpayment. Failure of the Borrower to make any payment of any type
under the terms of the Loan Documents within ten (10) days after the same
becomes due and payable.
b. Performance. Failure of the Borrower or any Subsidiary to observe
or perform any other condition, covenant or term of the Loan Documents;
provided, however, except with respect to Sections 8.1 and 8.4 and Article
10 of this Agreement, if such failure is susceptible to cure an Event of
Default shall not occur unless such failure is not cured within thirty (30)
days after the Bank gives the Borrower or the Subsidiary respectively
notice of same.
c. Other Obligations. Failure of the Borrower or any Subsidiary to
observe or perform any other condition, covenant, or term of any other
agreement with the Bank after any applicable cure or grace period related
thereto, or default by the Borrower or any Subsidiary under any agreement
involving Debt or any other material agreement with any third person or
entity.
d. Representations. (i) failure of any representation or warranty made
by the Borrower or any Guarantor in connection with the execution of the
Loan Documents, or any certificate of officers pursuant thereto, to be
truthful, accurate or correct in all material respects, or (ii) after
fifteen (15) days notice and failure to cure, failure of any representation
or warranty made by the Borrower or any Guarantor in connection with the
performance of the Loan Documents after the closing date, or any
certificate of officers pursuant thereto to be truthful, accurate or
correct in all material respects.
e. Financial Difficulties. Financial difficulties of the Borrower or
any Guarantor as evidenced by:
(i) any admission in writing of inability to pay debts as they become
due; or
(ii) the filing of a voluntary or involuntary petition in bankruptcy,
or under any chapters of the Bankruptcy Code, or under any federal or state
statute providing for the relief of debtors; or
(iii) making an assignment for the benefit of creditors; or
(iv) consenting to the appointment of a trustee or receiver for all or
a major part of any of its property; or
(v) the entry of a court order appointing a receiver or a trustee for
all or a major part of its property; or
(vi) the occurrence of any event, action, or transaction that could
give rise to a lien or encumbrance on the assets of the Borrower as a
result of application of relevant provisions of ERISA.
<PAGE>
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
Subsidiaries taken as a whole, or in the collateral for the Borrower's
Obligations.
12.2 Remedies. If any one or more Events of Default listed in Section
12.1 (e)(i)-(v) occur, (a) any further commitments or obligations of the
Bank shall be deemed to be automatically and without need for further
action terminated, and (b) all Obligations of the Borrower to the Bank,
automatically and without need for further action, shall become forthwith
due and payable without presentment, demand, protest, or other notice of
any kind, all of which are hereby expressly waived. If any one or more
Events of Default other than those listed in Section 12.1 (e)(i)-(v) occur,
the Bank may, at its option, take either or both of the following actions
at the same or different times: (a) terminate any further commitments or
obligations of the Bank, and (b) declare all Obligations of the Borrower to
the Bank, automatically and without need for further action, to be
forthwith due and payable without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived.
In case any such Events of Default shall occur, the Bank shall be
entitled to recover judgment against the Borrower for all Obligations of
the Borrower to the Bank either before, or after, or during the pendency of
any proceedings for the enforcement, of any security interests, mortgages,
pledges, or guarantees and, in the event of realization of any funds from
any security or guarantee and application thereof to the payment of the
Obligations due, the Bank shall be entitled to enforce payment of and
recover judgment for all amounts remaining due and unpaid on such
Obligations. The Bank shall be entitled to exercise any other legal or
equitable right which it may have, and may proceed to protect and enforce
its rights by any other appropriate proceedings, including action for the
specific performance of any covenant or agreement contained in this
Agreement and other agreements held by the Bank.
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.
<PAGE>
ARTICLE 13 - MISCELLANEOUS
13.1 Waiver. No delay or failure of the Bank to exercise any right,
remedy, power or privilege hereunder shall impair the same or be construed
to be a waiver of the same or of any Event of Default or an acquiescence
therein. No single or partial exercise of any right, remedy, power or
privilege shall preclude other or further exercise thereof by the Bank. All
rights, remedies, powers, and privileges herein conferred upon the Bank
shall be deemed cumulative and not exclusive of any others available.
13.2 Survival of Representations. All representations and warranties
contained herein shall survive the execution and delivery of this Agreement
and the execution and delivery of other agreements hereunder.
13.3 Additional Security/Setoff. The Borrower and Guarantors hereby
grant to the Bank a lien, security interest, and right of set off as
security for the Obligations upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Fleet
Financial Group, Inc., or in transit to any of them. At any time without
demand or notice, the Bank may set off the same or any part thereof and
apply the same to any liability or obligation of Borrower or Guarantors
even though unmatured and regardless of the adequacy of any other
collateral securing the Obligations. Any and all rights to require Bank to
exercise its rights or remedies with respect to any other collateral which
secures the Obligations, prior to exercising its right of set off with
respect to such deposits, credits, or other property of the Borrower or
Guarantors are hereby knowingly, voluntarily, and irrevocably waived.
13.4 Notices. Any notice or demand upon any party hereto shall be
deemed to have been sufficiently given or served for all purposes hereof
when delivered in person or by nationally recognized overnight courier with
receipt requested, or two Business Days after it is mailed certified mail
postage prepaid, return receipt requested, addressed as follows:
If to Bank: Fleet National Bank
One East Avenue
Rochester, New York 14638
Attention: Corporate Banking Department
Martin K. Birmingham
If to Borrower: Detection Systems, Inc.
130 Perinton Parkway
Fairport, New York 14450
Attention: President
Any party may change, by notice in writing to the other parties, the address to
which notices to it shall be sent.
<PAGE>
13.5 Entire Agreement. This Agreement and the documents referred to
herein embody the entire agreement and understanding among the parties and
supersede all prior agreements and understandings relating to the subject
matter hereof. This Agreement shall not be changed or amended without the
written agreement of all parties hereto. This Agreement embodies all
commitments to lend between the Bank and the Borrower and supersedes any
prior commitments.
13.6 Parties in Interest. All the terms and provisions of this
Agreement shall inure to the benefit of and be binding upon and be
enforceable by the parties and their respective successors and assigns and
shall inure to the benefit of and be enforceable by any holder of notes
executed hereunder. Upon any transfer of any Obligation or any interest
therein the Bank may deliver or otherwise transfer or assign to the holder
any collateral or guarantees for the Obligation, which holder shall
thereupon have all the rights of the Bank.
13.7 Business Days. All Loan Documents shall be governed by the
Modified Following Business Day Convention, but any extension of time
shall, in each such case, be included in the computation of any interest or
fees.
13.8 Oral and Telecopy Requests. As a convenience to the Borrower,
Borrower hereby authorizes the Bank to rely upon requests made by the
Borrower or its employees in writing or by telecopy, and to treat such
requests as if they were made in a writing delivered to the Bank. Any
advance of funds made by the Bank pursuant to any such request shall be
deemed to be authorized by the Borrower unless immediately repaid in full.
13.9 Severability. In the event that any one or more of the provisions
contained in this Agreement or any other agreement, document, or guarantee
related hereto shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or
such other agreement, document, or guarantee.
13.10 Governing Law. This Agreement and the notes and agreements
hereunder, together with all of the rights and obligations of the parties
hereto, shall be construed, governed and enforced in accordance with the
laws of the State of New York without regard to conflicts of laws
principles.
13.11 Participations; Assignments. All the terms and provisions of
this Agreement shall inure to the benefit of and be binding upon and be
enforceable by the parties and their respective successors and assigns and
shall inure to the benefit of and be enforceable by any holder of notes
executed hereunder.
Bank may at any time pledge all or any portion of its rights under the
Loan Documents, including any portion of any note evidencing the
Obligations, to any of the twelve (12) Federal Reserve Banks.
<PAGE>
The Bank shall have the unrestricted right at any time or from time to
time, and without Borrower's or any Guarantor's consent, to assign all or
any portion of its rights and obligations hereunder to one or more banks or
other financial institutions (each an "Assignee"), and Borrower agrees that
it shall execute, or cause to be executed, and shall cause each Guarantor
to execute, such documents, including without limitation, amendments to
this Agreement and to any other Loan Documents, as the Bank shall deem
necessary to effect the foregoing. In addition, at the request of the Bank
and any such Assignee, Borrower shall issue one or more new promissory
notes, as applicable, to any such Assignee and, if Bank has retained any of
its rights and obligations hereunder following such assignment, to Bank,
which new promissory notes shall be issued in replacement of, but not in
discharge of, the liability evidenced by the promissory note held by Bank
prior to such assignment and shall reflect the amount of the respective
commitments and loans held by such Assignee and Bank after giving effect to
such assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments, and any other documentation required by Bank in
connection with such assignment, and the payment by Assignee of the
purchase price agreed to by Bank and such Assignee, such Assignee shall be
a party to this Agreement and shall have all of the rights and obligations
of the Bank hereunder (and under any and all other Loan Documents) to the
extent that such rights and obligations have been assigned by the Bank
pursuant to the assignment documentation between the Bank and such
Assignee, and Bank shall be released from its obligations hereunder and
thereunder to a corresponding extent.
The Bank shall have the unrestricted right at any time and from time
to time, and without the consent of or notice to Borrower or Guarantor, to
grant to one or more banks or other financial institutions (each a
"Participant") participating interests in Bank's obligation to lend
hereunder and/or any or all of the Obligations. In the event of any such
grant by Bank of a participating interest to Participant, whether or not
upon notice to Borrower, Bank shall remain responsible for the performance
of its obligations hereunder and Borrower shall continue to deal solely and
directly with Bank in connection with Bank's rights and obligations
hereunder.
The Bank may furnish any information concerning Borrower in its
possession from time to time to prospective Assignees and Participants,
provided that the Bank shall require any such prospective Assignee or
Participant to agree in writing to maintain the confidentiality of such
information.
13.12 Clarification of Prior Agreements. This Agreement clarifies and
supersedes the Amended and Restated Credit Agreement dated as of June 24,
1997 between the Bank and the Borrower, and the credit facilities related
thereto.
13.13 Jurisdiction/TRIAL BY JURY. Grantor consents to jurisdiction and
service of process in the courts of the State of New York and in the courts
of the United States having jurisdiction hereof. BORROWER AND BANK MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL
BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR
BANK TO ACCEPT THIS AGREEMENT AND MAKE THE LOANS CONTEMPLATED HEREUNDER.
<PAGE>
13.14 Loss or Mutilation. Upon receipt of an affidavit of an officer
of Bank as to the loss, theft, destruction, or mutilation of any note
evidencing any Obligation or any other Loan Document which is not of public
record, and, in the case of any such loss, theft, destruction or
mutilation, upon surrender and cancellation of such note or other Loan
Document, Borrower will issue, in lieu thereof, a replacement note or other
Loan Document in the same principal amount thereof and otherwise of like
tenor.
13.15 Usury. All agreements between Borrower,any Guarantor and Bank
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration or maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Bank for
the use or the forbearance of the indebtedness evidenced hereby exceed the
maximum permissible under applicable law. As used herein, the term
"applicable law" shall mean the law in effect as of the date hereof,
provided, however that in the event there is a change in the law which
results in a higher permissible rate of interest, then the Loan Documents
shall be governed by such new law as of its effective date. In this regard,
it is expressly agreed that it is the intent of Borrower and Bank in the
execution, delivery and acceptance of this Agreement to contract in strict
compliance with the laws of the State of New York from time to time in
effect. If, under or from any circumstances whatsoever, fulfillment of any
provision hereof or of any of the Loan Documents at the time performance of
such provision shall be due, shall involve transcending the limit of such
validity prescribed by applicable law, then the obligation to be fulfilled
shall automatically be reduced to the limits of such validity, and if under
or from any circumstances whatsoever Bank should ever receive as interest
an amount which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the
principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between
Borrower and Bank.
13.16 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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
FLEET NATIONAL BANK
By: /s/Martin K. Birmingham, Vice President
DETECTION SYSTEMS, INC.
By: /s/Frank J. Ryan, Secretary & Treasurer
RADIONICS, INC.
By: /s/Frank J. Ryan, Secretary & Treasurer
<PAGE>
INDEX TO SCHEDULES
SCHEDULE 5.1 - Liens and Encumbrances
SCHEDULE 6.1 - Affiliates and Subsidiaries
SCHEDULE 6.4 - Litigation
SCHEDULE 9.1 - Obligations
SCHEDULE 11.1 - Environmental Matters
INDEX TO EXHIBITS
EXHIBIT A - Revolving Line Note
EXHIBIT B - Mortgage Loan Note
EXHIBIT C - Term Loan Note
<PAGE>
SCHEDULE 5.1
Liens and Encumbrances
<PAGE>
SCHEDULE 6.1
Affiliates and Subsidiaries
<PAGE>
SCHEDULE 6.4
Litigation
<PAGE>
SCHEDULE 9.1
Obligations
<PAGE>
SCHEDULE 11.1
Environmental Matters
<PAGE>
AMENDED AND RESTATED REVOLVING LINE NOTE
$17,000,000 September 30, 1998
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 September 30, 1998, between the undersigned ("Borrower") and Fleet
National Bank (as successor to Fleet Bank, "Bank"), as the same 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, as amended and restated by the
Amended and Restated Revolving Line Note dated February 18, 1997, as amended and
restated by the Amended and Restated Revolving Line Note dated June 24, 1997,
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
Seventeen Million Dollars ($17,000,000), 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.
<PAGE>
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. All agreements between Borrower and Bank are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to Bank for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however that in the event there is
a change in the law which results in a higher permissible rate of interest, then
this Note shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it the intent of Borrower and Bank in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of New York from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision hereof or of any
other documents between the Borrower and the Bank at the time of performance of
such provision shall be due, shall involve transcending the limit of such
validity prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever Bank should ever receive as interest and amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreements between Borrower and Bank.
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, Secretary & Treasurer
RADIONICS, INC.
By: /s/Frank J. Ryan, Secretary & Treasurer
<PAGE>
EXHIBIT B
AMENDED AND RESTATED MORTGAGE LOAN NOTE
$[3,400,000 - to be updated with current balance] September 30, 1998
Unless otherwise expressly provided herein, all capitalized terms in this
Mortgage Loan Note shall have the meanings given to them in the Amended and
Restated Credit Facility Agreement dated as of September 30, 1998 between the
undersigned ("Detection"), Radionics, Inc. and Fleet National Bank (as successor
to Fleet Bank, "Bank"), as the same may be amended, extended, replaced, or
modified from time to time (the "Credit Agreement").
This Amended and Restated Mortgage Loan Note evidences the same obligations
as evidenced by, and amends and restates in its entirety, the Mortgage Loan Note
dated May 31, 1996 in the original principal amount of $3,400,000 given by the
Borrower to the Bank, as amended and restated by the Amended and Restated
Mortgage Loan Note dated June 24, 1997 in the original principal amount of
$3,400,000, given by the Borrower to the Bank.
FOR VALUE RECEIVED, Detection 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 [Three Million Four Hundred
Thousand Dollars ($3,400,000)].
Interest. Outstanding principal amounts under this Mortgage Loan 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 Mortgage Loan Note
shall become effective automatically and without notice at the time of changes
in the Base Rate.
Detection, however, at least two 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 Mortgage Loan 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 at the rate required by
this Mortgage Loan Note until this Mortgage Loan Note is paid in full. The rate
of interest on this Mortgage Loan 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.
<PAGE>
Payments. Payments of all accrued interest under this Mortgage Loan Note
shall be due and payable on the first day of each month. In addition, commencing
on October 1, 1998, principal payments of $20,987.65 each shall be due and
payable on the first day of each month.
All Obligations under and related to this Mortgage Loan Note shall be due
and payable in full on May 31, 2006.
All payments shall be in lawful money of the United States in immediately
available funds. Unless canceled in writing by Detection, Detection authorizes
Bank to debit its accounts at Bank to make payments due hereunder, but such
authority shall not relieve Detection of the obligation to assure that payments
are made when due.
Late Charge. This Mortgage Loan Note is subject to the late charges
provided in the Credit Agreement.
Maximum Rate. All agreements between Borrower and Bank are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to Bank for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however that in the event there is
a change in the law which results in a higher permissible rate of interest, then
this Note shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it the intent of Borrower and Bank in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of New York from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision hereof or of any
other documents between the Borrower and the Bank at the time of performance of
such provision shall be due, shall involve transcending the limit of such
validity prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever Bank should ever receive as interest and amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreements between Borrower and Bank.
Prepayment. This Mortgage Loan 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 Mortgage Loan Note or any payment hereunder becomes due
on a Saturday, Sunday or other holiday on which the Bank is authorized to close,
the due date of this Mortgage Loan 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.
<PAGE>
Events of Default. At Bank's option, this Mortgage Loan Note shall become
immediately due and payable in full upon the happening of any Event of Default.
Modification of Terms. The terms of this Mortgage Loan Note cannot be
changed, nor may this Mortgage Loan 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 Mortgage Loan Note, such demand or acceptance shall not
be deemed to constitute a waiver of the right to demand the entire unpaid
balance of this Mortgage Loan 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. Detection on demand shall pay all expenses of Bank,
including without limitation reasonable attorneys' fees, in connection with
enforcement and collection of this Mortgage Loan Note.
Miscellaneous. To the fullest extent permissible by law, Detection waives
presentment, demand for payment, protest, notice of non-payment, and all other
demands or notices otherwise required by law in connection with the delivery,
acceptance, performance, default, or enforcement of this Mortgage Loan Note.
Detection 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 Detection's obligations under this Mortgage
Loan Note which shall be unconditional.
Laws. Detection agrees that this Mortgage Loan Note shall be governed by
the laws of the State of New York.
DETECTION SYSTEMS, INC.
By: /s/Frank J. Ryan, Secretary & Treasurer
<PAGE>
AMENDED AND RESTATED TERM LOAN NOTE
$14,350,000 September 30, 1998
Unless otherwise expressly provided herein, all capitalized terms in this
Term Loan Note shall have the meanings given to them in the Amended and Restated
Credit Facility Agreement dated as of September 30, 1998 between the undersigned
("Detection"), Radionics, Inc. and Fleet National Bank (as successor to Fleet
Bank, "Bank"), as the same may be amended, extended, replaced, or modified from
time to time (the "Credit Agreement").
This Amended and Restated Term Loan Note, in part, evidences the same
obligations as evidenced by, and amends and restates in its entirety, the Term
Loan Note dated May 31, 1996 in the original principal amount of $14,350,000
given by the Borrower to the Bank, as amended and restated by the Amended and
Restated Term Loan Note dated June 24, 1997 given by the Borrower to the Bank.
FOR VALUE RECEIVED, Detection 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 Fourteen Million Three Hundred
Fifty Thousand Dollars ($14,350,000).
Interest. Outstanding principal amounts under this Term Loan 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 Term Loan Note shall
become effective automatically and without notice at the time of changes in the
Base Rate.
Detection, however, at least two 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 Term Loan 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.
<PAGE>
Interest shall be calculated based on actual days elapsed divided by a year
of 360 days.
Interest shall continue to accrue after maturity at the rate required by
this Term Loan Note until this Term Loan Note is paid in full. The rate of
interest on this Term Loan 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 Term Loan Note shall
be due and payable on the first day of each month. In addition, commencing on
March 1, 2000, principal payments of $217,424.24 each shall be due and payable
on the first day of each month.
All Obligations under and related to this Term Loan Note shall be due and
payable in full on September 30, 2005.
All payments shall be in lawful money of the United States in immediately
available funds. Unless canceled in writing by Detection, Detection authorizes
Bank to debit its accounts at Bank to make payments due hereunder, but such
authority shall not relieve Detection of the obligation to assure that payments
are made when due.
Late Charge. This Term Loan Note is subject to the late charges provided in
the Credit Agreement.
Maximum Rate. All agreements between Borrower and Bank are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to Bank for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however that in the event there is
a change in the law which results in a higher permissible rate of interest, then
this Note shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it the intent of Borrower and Bank in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of New York from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision hereof or of any
other documents between the Borrower and the Bank at the time of performance of
such provision shall be due, shall involve transcending the limit of such
validity prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever Bank should ever receive as interest and amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreements between Borrower and Bank.
Prepayment. This Term Loan 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 Term Loan Note or any payment hereunder becomes due on a
Saturday, Sunday or other holiday on which the Bank is authorized to close, the
due date of this Term Loan 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 Term Loan Note shall become
immediately due and payable in full upon the happening of any Event of Default.
<PAGE>
Modification of Terms. The terms of this Term Loan Note cannot be changed,
nor may this Term Loan 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 Term Loan Note, such demand or acceptance shall not be deemed
to constitute a waiver of the right to demand the entire unpaid balance of this
Term Loan 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. Detection on demand shall pay all expenses of Bank,
including without limitation reasonable attorneys' fees, in connection with
enforcement and collection of this Term Loan Note.
Miscellaneous. To the fullest extent permissible by law, Detection waives
presentment, demand for payment, protest, notice of non-payment, and all other
demands or notices otherwise required by law in connection with the delivery,
acceptance, performance, default, or enforcement of this Term Loan Note.
Detection 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 Detection's obligations under this Term Loan
Note which shall be unconditional.
Laws. Detection agrees that this Term Loan Note shall be governed by the
laws of the State of New York.
DETECTION SYSTEMS, INC.
By: /s/Frank J. Ryan, Secretary & Treasurer
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is made as of the 23h day of October, 1998, between Karl H.
Kostusiak ("Executive") and Detection Systems, Inc. ("Company").
The parties entered into an Employment Agreement dated July 14, 1998 (the
"Employment Agreement") and a Non-Competition, Disability, and Retirement
Agreement dated the same date (the "Non-Competition Agreement"). Desiring in
this Amendment No. 1 to set forth certain agreed amendments to the Employment
Agreement and the Non-Competition Agreement, the parties hereby agree as
follows:
1. Amendment of Section 7(b) of Employment Agreement . The portion of
Section 7(b) of the Employment Agreement appearing before subsection 7(b)(1) is
hereby amended in its entirety to read as follows:
"(b) If:
(i) any Change in Control of the Company occurs while this
Agreement is effective, and
(ii) Executive gives notice to the Company or the Company
(acting upon a determination of its Board of Directors)
gives notice to Executive, in either case to the effect
that the six month period called for by this Section
7(b) shall begin to run, and
(iii)Executive's employment is terminated by Executive or
by the Company (other than for Executive's death or
disability) within six months after the date the notice
provided for in (ii) above is received (in Executive's
case the termination being effected by Executive giving
notice within that six month period, effective within
30 days after the notice is given, that his employment
is terminated), regardless the reason, if any, and
regardless which party gave the notice provided for in
(ii) above, then the Company shall pay, transfer, and
provide to Executive the following amounts, benefits,
and assets:"
2. Amendment of Section 4 of Non-Competition Agreement. The first paragraph
of Section 4 of the Non-Competition Agreement is hereby amended to read in its
entirety as follows:
<PAGE>
"4. Consulting Services. If this Agreement becomes effective upon the
occurrence of any contingency set forth in Section 19 other than subsection
19(b) or (c), beginning upon the date of that occurrence Executive shall
hold himself available to the Company for providing consulting services to
it as an independent contractor at mutually agreeable times and places; and
the Company shall have the right to call upon Executive, so long as
Executive is able, for up to 8 days of consulting services per year to
provide information concerning matters that occurred, were developed, or
were determined while Executive was a full-time or part-time employee of
the Company. Unless otherwise agreed, those consulting services shall be
rendered at a place and time mutually agreed (but within 25 miles of
Executive's residence at the time) and shall be paid at the rate of $1,500
per day (or up to 100 hours of consulting services per year at an hourly
rate to be agreed upon). Any other consulting services shall be provided
if, as, and when the parties may agree."
3. Amendment of Section 9 of Non-Competition Agreement. The portion of
Section 9 of the Non-Competition Agreement appearing before subsection 9(b) is
hereby amended to read in its entirety as follows:
"9. Retirement. The Company hereby agrees that, if not ended sooner,
the Term of Service as used in the Employment Agreement shall end at the
close of business on December 31 of the year in which Executive attains the
age of 68, and beginning on the opening of business on January 1 of the
next year (and regardless whether the Term of Service ended prior to that
December 31), the Company will pay Executive retirement benefits for his
lifetime and for his spouse's lifetime, if his spouse survives him, as
follows:
(a) a retirement wage benefit initially equal to 20% of the base
salary rate being paid to Executive at the end of his full time employment
with the Company, increased for each year after the end of his full time
employment by any increase in the CPI (as defined below), except that the
retirement wage benefit shall be equal to 60% of that base salary rate at
the end of Executive's full time employment with the Company, plus CPI
increases, effective for any retirement year after a Change in Control and
after either Executive is no longer a full time employee of the Company or
Executive or the Company has given the notice provided for in Section
20(b)(ii) below, and except that the retirement wage benefit for his spouse
shall be 75% of the amount thus calculated for each year after the year of
Executive's death;"
<PAGE>
[Note that Section 20(b)(ii) is added in Section 4 below.]
Also, a new subsection (d) shall be added to Section 9, which shall read in
its entirety as follows:
"(d) The retirement benefits provided under this Section 9 (and,
if applicable, Section 10) shall be paid as provided herein regardless
whether the Company has any claims against Executive for default under
this Agreement or for any other breach of duty or otherwise, and, except
as otherwise provided in Section 7 above, the Company shall pay those
retirement benefits as provided and must pursue remedies for any such
default or other breach of duty or other claim separately and
independently."
4. Amendment of Section 20 of Non-Competition Agreement. The portion of
Section 20(b) of the Non-Competition Agreement appearing before subsection
20(b)(1) is hereby amended in its entirety to read as follows:
"(b) If:
(i) any Change in Control of the Company occurs while this
Agreement is effective, and
(ii) Executive gives notice to the Company or the Company
(acting upon a determination of its Board of Directors)
gives notice to Executive, in either case to the effect
that the six month period called for by this Section
20(b) shall begin to run, and
(iii)Executive's consulting services are terminated by
Executive or by the Company (other than for Executive's
death or disability) within six months after the date
the notice provided for in (ii) above is received (in
Executive's case the termination being effected by
Executive giving notice within that six month period,
effective within 30 days after the notice is given,
that his consulting services are terminated to the
extent permitted under Section 4 above), regardless the
reason, if any, and regardless which party gave the
notice provided for in (ii) above, then the Company
shall pay, transfer, and provide to Executive the
following amounts, benefits, and assets:"
5. Continuation of Agreements The parties acknowledge and agree that, as
amended by this Amendment No. 1, the Employment Agreement and the
Non-Competition Agreement remain binding and in full force and effect between
the Company and Executive.
IN WITNESS WHEREOF the Company and Executive have executed this Amendment
No. 1 as of the date set forth above.
/s/Karl H. Kostusiak, Executive
DETECTION SYSTEMS, INC.
By: /s/Donald R. Adair, Chairman of
the Compensation Committee of
the Board of Directors
PART-TIME EMPLOYMENT, NON-COMPETITION, DISABILITY, AND RETIREMENT AGREEMENT
AGREEMENT made as of the 23rd day of October, 1998 between David B.
Lederer ("Executive") and Detection Systems, Inc., a New York corporation
("Company"). It is the intent that this Agreement will supersede the
Part-Time Employment Agreement, dated August 15, 1997, which became effective
April 2, 1998.
WITNESSETH:
In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. Effectiveness and Terms. This Agreement shall be binding on
the parties as of its date set forth above (the "Commencement Date" herein).
"Term of Employment" as used herein shall mean the period commencing on the
Commencement Date and continuing thereafter through December 31 of the year in
which Executive's 68th birthday occurs, unless the Company and Executive agree
in writing to extend the Term of Employment, in which case the Term of
Employment shall have the meaning as determined at that time; provided,
however, that Executive's employment services may be earlier terminated as
hereinafter expressly set forth or as may be agreed between Executive and the
Company, in which event the Term of Employment shall mean the period from the
Commencement Date through the date of such earlier termination (but such a
termination shall not affect Executive's obligation to provide minimum
consulting services as provided in Section 5 below).
<PAGE>
2. Non-Competition. During any period (a) in which Executive is
being paid currently for employment services as provided in Section 4 below,
(b) in which Executive is being paid currently the compensation called for by
Section 3 below, (c) in which Executive is being paid currently for disability
benefits as provided under Section 11 below, or (d) in which Executive is
being paid currently for retirement benefits as provided under Section 9 or 10
below, Executive shall not, without the prior written consent of the Board of
Directors of the Company, engage, as an employee, partner, consultant,
venturer, entrepreneur, or otherwise, in the development or sale of any
product or service which is competitive with any product or service sold or
under active development by the Company during the Term of Employment.
3. Compensation for Non-Competition. After the Term of Employment
has ended, in consideration for Executive's non-competition as provided in
Section 2 above, the Company shall pay and provide to Executive the following
compensation and benefits through December 31 of the year in which Executive
attains the age of 68:
(a) An annual non-competition fee equal to or greater than $120,000,
that fee to be increased each year if and to the extent the CPI (defined
below) has increased during the preceding year (and any fees earned as a
director of the Company shall be credited to that fee), which fee shall be
paid in full on January 2 of each year;
(b) The Executive will not participate in any of the Company's
executive incentive compensation plans except for any such plan or plans which
expressly refer to this Agreement;
(c) Grants of options under any Company stock option plan that permits
such options, in such amounts as are determined by the Board of Directors or
the Committee of the Board administering the plan;
(d) Participation in Company pension, deferred compensation,
insurance, health and welfare and other benefit plans in effect on the date of
this Agreement; and
(e) Continuation of all plans in which the Executive participates,
including existing fringe benefits and executive perquisites to which
Executive is entitled as of the date immediately prior to the Commencement
Date under this Agreement.
Beginning on the January 1 after the year in which Executive attains the
age of 68, the retirement benefits set forth in Sections 9 and 10 below shall
be the full consideration to be paid to Executive for his non-competition.
<PAGE>
4. Employment. The Company hereby employs Executive in the capacity
of Vice President, Business Development for the Term of Employment commencing
on the Commencement Date. The Company agrees to provide Executive with such
offices and such operational and administrative support as is consistent with
his position and responsibilities under this Agreement. The compensation and
benefits which the Company shall provide Executive for his services during the
Term of Employment shall include, but not be limited to, (a) base salary equal
to or greater than $130,286 (including directors fees, if applicable) and (b)
the benefits listed in clauses (b), (c), (d), and (e) of Section 3 above.
Executive agrees that he will devote approximately half time and his best
efforts during reasonable business hours to performance of the duties and
responsibilities of his office during the Term of Employment. Executive also
agrees not to disclose trade secrets of the Company, or to engage in any other
activity which is detrimental to the interests of the Company, during the Term
of Employment.
Notwithstanding any of the other provisions of this Agreement, the Term
of Employment will automatically terminate upon Executive's death and
thereupon all payments and non-vested benefits payable hereunder and under
Section 3 above shall cease, except for any death benefits and any survivor
benefits for his spouse which are provided under the Company's employee plans
and except for the retirement benefits set forth in Section 9 for any
surviving spouse. Those retirement benefits shall be paid pursuant to Section
9 commencing after Executive's 68th birthday would have occurred, except that
the surviving spouse may elect, by written notice given to the Company's
President or Secretary, to receive early retirement benefits as provided in
Section 10 below, in which case the provisions of Section 9 below shall apply,
except that the initial retirement wage benefit shall be calculated as
provided in Section 10.
The Company may terminate Executive's services due to Executive's
permanent disability, as determined by the Board of Directors in good faith
based on the certification of an independent M.D., and thereupon all payments
and non-vested benefits under this Section 4 and under Section 3 shall cease
except that the disability and retirement benefits shall be paid in accordance
with the provisions of Sections 9, 10, and 11 below.
5. Minimum Consulting Services. After a termination of Executive's
services pursuant to Section 7, 8, or 9 below, the Company shall nevertheless
have the right to call upon Executive, so long as Executive is able, for up to
8 days of consulting services per year to provide information concerning
matters that occurred, were developed, or were determined while Executive was
a full-time or part-time employee of the Company. Unless otherwise agreed,
these consulting services shall be rendered at a place and time mutually
agreed (but within 25 miles of Executive's residence at the time) and shall be
paid at the rate of $1,200 per day (or up to 100 hours of consulting services
per year at an hourly rate to be agreed upon). Any other consulting services
shall be provided if, as, and when the parties may agree.
<PAGE>
6. Executive's Acceptance. Executive agrees to provide the
employment and the consulting services described in this Agreement.
7. Termination for Cause. The Company may terminate Executive's
services immediately and without prior notice to Executive for "Cause" as
defined below. The existence of Cause shall be determined by the Company's
Board of Directors (other than Executive) acting in good faith. "Cause" is
defined, and shall be limited to, a good faith determination by the Board of
Directors that any of the following has occurred:
(a) Executive has knowingly misappropriated for his benefit a material
amount of funds or property of the Company;
(b) Executive has obtained a material personal profit from any illegal
Company transaction with a third party;
(c) Executive has obtained a material personal profit from the use of
the Company's trade secrets other than on its behalf; or
(d) The Company has suffered material financial harm from knowingly
illegal action by Executive other than on the Company's behalf or for its
benefit.
If Executive's services are terminated by the Company for Cause, he
shall continue to be paid compensation and benefits for his non-competition in
accordance with the provisions of Section 3 above, for any minimum consulting
services provided pursuant to Section 5 above, and retirement benefits in
accordance with Section 9 and, if elected, Section 10 below, provided that his
cash compensation (including retirement benefit payments to be provided under
this Agreement) shall be reduced by the amount of any monetary damage suffered
by the Company due to the Cause, as determined by a court of competent
jurisdiction, prorated over the actuarially determined term of all such
payments beginning on such determination.
8. Resignation. If, at any time prior to Executive's retirement as
provided in Section 9 below, Karl H. Kostusiak is no longer employed as the
full time senior executive officer of the Company, Executive shall have the
option of resigning from his employment obligations under Section 4 of this
Agreement by giving written notice thereof to the Company's President or
Secretary, but no resignation shall affect Executive's obligation to provide
the minimum consulting services provided for in Section 5 above.
<PAGE>
9. Retirement. The Company hereby agrees that, if not ended sooner,
the Term of Employment as used in this Agreement shall end at the close of
business on December 31 of the year in which Executive attains the age of 68,
and beginning on the opening of business on January 1 of the next year (and
regardless whether the Term of Employment ended prior to that December 31),
the Company will pay Executive retirement benefits for his lifetime and for
his spouse's lifetime, if his spouse survives him, as follows:
(a) a retirement wage benefit initially equal to 20% of the base
salary rate being paid to Executive at the end of his full time employment
with the Company, increased for each year after the end of his full time
employment by any increase in the CPI (as defined below), except that the
retirement wage benefit shall be equal to 60% of that base salary rate at the
end of Executive's full time employment with the Company, plus CPI increases,
effective for any retirement year after a Change in Control and after the
conditions described in Section 20(b)(ii) below have occurred which would
allow Executive to give the notice described there (disregarding his
retirement, if any), and except that the retirement wage benefit for his
spouse shall be 75% of the amount thus calculated for each year after the year
of Executive's death;
(b) continuation of Executive's participation (for himself and his
spouse) in the health program in effect on the date of this Agreement
(including for dental and eye care coverage, an annual physical examination,
and similar benefits); and
(c) continuation of all other benefits provided at time of retirement,
such continuation limited in individual benefit cost to 60% of the maximum
annual cost of such benefit in any year prior to retirement, plus CPI
increases,
For these purposes:
(1) unless otherwise agreed or directed by law or a court,
"spouse" shall mean the person to whom Executive is married at the time any
benefit is to be paid, or, after Executive's death, the person to whom
Executive was married at the time of his death;
(2) "CPI" shall mean the Consumer Price Index, all Urban Wage
Earners as determined by the United States Department of Labor, Bureau of
Labor Statistics, or any successor governmental agency or, lacking any such
successor, any other authoritative source designated in good faith by the
Board of Directors; and the wage benefit shall be increased as of January 1
each year by multiplying the wage benefit paid during the previous year by any
fraction greater than one calculated by dividing the CPI most recently
computed and available at the end of that previous year by the CPI most
recently computed and available at the end of the year previous to that; the
CPI shall not be used to decrease the wage benefit.
The parties agree: (x) that the foregoing retirement benefits are in
addition to any other retirement benefits that may be available to Executive
(such as the Company's 401(k) savings plan), (y) that payment of these
retirement benefits may be terminated if a court of law determines that
Executive has violated the provisions of Section 2 above, and (z) that the
Company will purchase and maintain life insurance sufficient to fund the
estimated benefits for Executive's spouse (estimated no later than Executive's
retirement date; any excess policy proceeds to be available, if agreed, to
purchase shares of the Company's Common Stock held in Executive's estate) and
the policy or policies of such insurance shall be held in trust designated for
this purpose.
<PAGE>
(d) The retirement benefits provided under this Section 9 (and, if
applicable, Section 10) shall be paid as provided herein regardless whether
the Company has any claims against Executive for default under this Agreement
or for any other breach of duty or otherwise, and, except as otherwise
provided in Section 7 above, the Company shall pay those retirement benefits
as provided and must pursue remedies for any such default or other breach of
duty or other claim separately and independently.
10. Early Retirement Benefits. The parties agree that, in the
circumstances expressly provided in this Agreement, Executive and/or
Executive's spouse shall be paid early retirement benefits in accordance with
the following:
(a) The provisions of Section 9 shall apply to Executive's and the
spouse's retirement benefits as provided therein, except as expressly modified
by this Section 10, and shall be paid beginning at the time payment of the
early retirement benefits actually commences as provided in this Agreement;
(b) The initial retirement wage benefit shall not be the amount set
forth in Section 9(a) above, but shall be calculated as follows: multiply the
initial retirement wage benefit (calculated in accordance with Section 9(a)
above) by the actuarially determined number of years it would be paid during
Executive's then actuarially determined remaining lifespan as if Executive's
68th birthday had just occurred; then divide that amount by the number of years
then actuarially determined to be Executive's actual expected remaining
lifespan based on his actual age at that time. The amount thus calculated
shall be the initial annual retirement wage benefit for purposes of Section
9(a) above.
11. Disability. If Executive is determined to be permanently disabled
in accordance with the provisions of Section 4 above, Executive shall be paid
disability benefits from that date through December 31 of the year in which
Executive attains the age of 68, which disability benefits shall be equal to
the non-competition compensation and benefits and the salary that would have
been paid to Executive pursuant to Sections 3 and 4 above if he had not become
disabled, provided that, to the extent the disability wage benefits are not
taxable income to Executive under the U.S. Internal Revenue Code of 1986, as
amended, the disability benefit amount shall equal 60% of the compensation and
salary that would have been paid pursuant to Sections 3 and 4 above.
12. Stock Transfers by Executive and Executive's Estate and Heirs. So
long as this Agreement is in effect, Executive shall not sell any shares of
Company Common Stock except (a) in transactions approved in advance by the
Company's Board of Directors or (b) pursuant to all the conditions of Rule 144
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (or any rule thus promulgated which is a successor to Rule
144); provided, however, that no such sales shall be made in any block trade
or when there is any plan, program, or tender offer announced by any person
other than the Company to acquire shares of the Company's Common Stock and
that person was required to file a statement, schedule, or other report with
respect thereto with the U.S. Securities and Exchange Commission under Section
13 or 14 of the Securities Exchange Act of 1934, as amended, or the rules and
regulations thereunder. Executive agrees that restrictive legends referring
to the provisions of this Section 12 shall be placed upon all certificates
representing shares to which this Section 12 applies. The provisions of this
Section 12 shall terminate upon any Change in Control or Executive's death,
whichever may first occur and shall not apply thereafter.
<PAGE>
13. Expenses and Interest. If the Company is found by a court of
competent jurisdiction to have breached this Agreement, the Company shall pay
the costs and expenses (including reasonable attorneys fees) incurred by
Executive in any litigation seeking damages in respect of such breach or to
enforce the performance of this Agreement by Company, together with interest
on each installment of wages or benefits paid late by the Company calculated
to the date of actual payment at an annual rate equal to 3% over the highest
rate then paid by the Company under its short term borrowing arrangements with
an independent institutional lender (and if there is no such lender, then 4%
above the prevailing prime rate as reported in the Wall Street Journal).
14. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be delivered personally or given by prepaid,
certified, return receipt requested, first class mail addressed:
(a) if to the Company, to at least two members of the Board of
Directors, c/o the Company's Secretary at the address of the Company's
principal office;
(b) if to Executive, at his home mailing address on file with the
Company; and
(c) to such other address as the party to which such notice is to be
given shall have notified (in accordance with the provisions of this Section
14) as its substitute address for the purpose of this Agreement.
Any notice given as aforesaid shall be deemed conclusively to have been
received on the fifth business day after such mailing.
15. Amendment. It is agreed that no change or modification of this
Agreement shall be made except in a writing signed by both parties.
16. Severability. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal, or unenforceable in any
respect, the validity, legality, and enforceability of the remaining
provisions shall not be affected thereby.
17. Law Governing. The validity, interpretation, and effect of this
Agreement shall be governed by the laws of the State of New York.
<PAGE>
18. Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by
the Company during the Term of Employment and with respect to non-competition,
minimum consulting, and disability and retirement benefits (but does not
affect pension and other benefit plans and arrangements in which Executive
participates). There are no restrictions, agreements, promises, warranties,
covenants, or undertakings other than those expressly set forth herein with
respect to the Term of Employment. As of the Commencement Date this Agreement
supersedes all prior agreements, arrangements, and understandings between the
parties, whether oral or written, with respect to employment or consulting
services of Executive on and after the Commencement Date.
19. [Intentionally left blank]
20. Change in Control.
(a) A "Change in Control" of the Company shall be deemed to have occurred
if:
(1) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company or any corporation owned,
directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of
the Company), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
(2) there is elected 35% or more of the members of the
Board of Directors of the Company without the approval of the
nomination of such members by a majority of the Board serving
prior to such election;
(3) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent more than 75% of the combined
voting power of the voting securities of the Company, or such
surviving entity, outstanding immediately after such merger or
consolidation; or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined above) acquires more
than 25% of the combined voting power of the Company's
then-outstanding securities; or
(4) The shareholders of the Company approve an agreement
for the sale or disposition by the Company and all or
substantially all of the Company's assets.
<PAGE>
(b) If:
(i) any Change in Control of the Company occurs while this Agreement
is effective, and
(ii) Executive gives notice to the Company or the Company (acting upon
a determination of its Board of Directors) gives notice to
Executive, in either case to the effect that the six month period
called for by this subsection 20(b) shall begin to run (provided
that Executive shall not have the right to give that notice
unless Karl H. Kostusiak is no longer employed as the full time
senior executive officer of the Company at the time or he either
has consented in writing to the giving of that notice or has
given a similar such notice for himself under his applicable
agreement with the Company), and
(iii)Executive's employment is terminated by Executive or by the
Company (other than for Executive's death or disability) within
six months after the date the notice provided for in (ii) above
is received (in Executive's case the termination being effected
by Executive giving notice within that six month period,
effective within 30 days after the notice is given, that his
employment is terminated to the extent permitted under Section 8
above), regardless the reason, if any, and regardless which party
gave the notice provided for in (ii) above,
then the Company shall pay, transfer, and provide to Executive the following
amounts, benefits, and assets:
(1) The Company shall pay to Executive the sum of
Executive's full non-competition compensation and salary through
the effective date of termination of his employment at the rate in
effect at the time of termination or at the time the Change in
Control occurs, whichever is higher, and an amount equal to the
amount of any bonus which has been earned by him but not yet paid
to him. These two amounts shall be paid to Executive in a lump
sum within five days following the effective date of termination,
or in the case of a bonus which is not readily calculable at that
time, within five days after the bonus can be calculated.
(2) The Company shall pay to Executive an amount equal to
three times the highest total cash compensation (including any
base salary, non-competition compensation, bonuses, and consulting
fees) paid Executive in any of the Company's last three fiscal
years completed prior to such termination. This amount shall be
paid to Executive as provided in the last sentence of subsection
(1) above.
<PAGE>
(3) The Company shall pay to Executive an amount equal to
the total amounts that would be expended for the benefits to be
provided Executive under Section 3 above on the assumption that
Executive will continue to be compensated for non-competition for
three years after the termination. This amount shall be paid to
Executive as provided in the last sentence of subsection (1) above
either in cash or in the form of an annuity contract issued by an
independent insurance company licensed to do business in New York
that will provide payment of all such total amounts.
(4) All options and other rights that Executive may hold
to purchase or otherwise acquire Common Stock of the Company shall
immediately become exercisable in full for the total number of
shares that are or might become purchasable thereunder, in each
case without further condition or limitation except the giving of
notice of exercise and the payment of the purchase price
thereunder (but without amendment of the plan under which they
were issued). At his discretion, Executive may elect to surrender
to the Company his rights in any such options and rights held by
him and, upon that surrender, the Company shall pay him an amount
in cash equal to the aggregate spread between the exercise prices
of all those options and rights and the value of the Common Stock
purchasable thereunder (or of any other security into which the
Common Stock has been exchanged or converted) as of the date of
the termination of employment, the value to be determined by the
reported last sale price of the Common Stock or that other
security (or the mean between the reported last bid and asked
prices) on that date on NASDAQ (or, if it is not NASDAQ, on
whatever may then be the principal exchange or quotation system on
which the Company's Common Stock or that other security is traded
at that time).
(5) The Company shall repay any policy loans previously
taken on the Company's life insurance policies on Executive's
life (provided that the directors of the Company were given
written notice promptly after the making of any such loans which
were made while Executive was an officer of the Company), and then
shall transfer to Executive any and all of its right, title, and
interest in and to all Company life insurance policies on
Executive's life (and upon that transfer, Executive shall be deemed
to have released the Company from any and all obligations it then
owes to him to maintain and pay premiums on those policies, all
other provisions of any agreements under which those policies were
agreed to be maintained, however, to remain in effect).
<PAGE>
(6) In addition to the amounts specified in clauses (1)
through (5) of this paragraph (b), the Company shall pay to
Executive, at the same time as those amounts are paid, an
additional amount which, after taking into account all federal,
state, and local income and excise taxes that Executive is
required to pay with respect to receipt of the additional amount
under this clause (6), will render the net after-tax payment to
Executive under this clause (6) equal to the sum of:
(A) all federal, state, and local excise taxes that
Executive is required to pay with respect to the payments
made pursuant to clauses (1) through (5) above; and
(B) all federal, state, and local income and excise
taxes that Executive is required to pay with respect to the
payment made pursuant to this clause (6).
The foregoing amounts of federal, state, and local income and
excise taxes shall be determined initially by a nationally
recognized firm of independent public accountants retained by
Executive at his expense or, at Executive's option, by independent
public accountants at the Company's expense, and such
determination and the basis therefor shall be furnished in writing
to Executive and the Company. Payment shall be made by the
Company in accordance with that initial determination regardless
whether there is a dispute over the accuracy thereof. If either
party disputes that initial determination the matter shall
promptly be referred to a nationally recognized firm of
independent public accountants selected by the Executive (which
firm shall not have been involved in the initial determination),
and Executive and the Company shall promptly furnish to that firm
such information as it reasonably requests. The Company shall
make such additional payment to Executive or Executive shall
refund to the Company, as the case may be, in accordance with the
latter firm's determination. The fees and expenses of that firm
shall be borne by the Company.
(c) The Company may withhold from any payments due to Executive
under paragraph (b) such amounts as its independent public accountants may
determine are required to be withheld under applicable federal, state, and
local tax laws.
(d) If applicable, the provisions of this Section 20 shall
control over the provisions of Section 7. In the event that Executive's
employment is not terminated by the Company or the Executive within the six
month period specified in Section 20(b), the provisions of Section 7 once
again shall be applicable thereafter.
(e) In addition, if any Change in Control of the Company occurs
while this Agreement is effective, the Company shall purchase and fully pay
for an annuity policy sufficient to pay the retirement benefits called for by
Section 9 of this Agreement and shall transfer ownership thereof to a "rabbi"
trust for the benefit of Executive (but subject to the claims of Company
creditors to the extent required under applicable tax laws so that the
transfer to the trust will not itself be an event upon which Executive
recognizes income for federal or state income tax purposes). In lieu of
purchasing the annuity policy, the Company may deposit cash into such a trust
sufficient to provide, based on assumptions believed reasonable in the written
opinion of a nationally recognized employee benefits organization, for
assuring payment of those retirement benefits to Executive and his spouse.
<PAGE>
(f) Payment of the amounts called for by this Section 20 shall
not affect the Company's obligation to pay non-competition compensation and
benefits under Section 3 above or retirement benefits under Section 9 and, if
elected by Executive, Section 10 above.
21. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the heirs, legatees, administrators, successors, and
assigns of the respective parties.
IN WITNESS WHEREOF, Executive for himself, and the undersigned director
of the Company, acting on behalf of the Company by authority of its Board of
Directors, have executed this Agreement as of the day and year first above
written.
October 23, 1998 /s/David B. Lederer, Executive
DETECTION SYSTEMS, INC.
October 23, 1998 By:/s/Donald R. Adair, Chairman of the
Compensation Committee of the Board of
Directors
DETECTION SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Adopted by the Board of Directors
September 4, 1998
This is a stock plan pursuant to which options to purchase the Common Stock
of Detection Systems, Inc., a New York corporation (the "Corporation"), may be
granted to non-employee directors of the Corporation as partial compensation for
their service as directors. This plan shall be known as the Non-Employee
Director Stock Option Plan (the "Plan"). The purpose of the Plan is to obtain
and retain the services of qualified persons who are not full-time employees of
the Corporation to serve as directors.
SECTION 1. Administration. The Plan shall be administered by the
Corporation's Board of Directors (the "Board"). The Board shall, subject to the
provisions of the Plan and Section 9 in particular, grant options under the Plan
and shall have the power to construe the Plan, to determine all questions
thereunder, and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable.
SECTION 2. Shares Available. The Board shall reserve for the purposes of
this Plan, out of the authorized but unissued shares of Common Stock of the
Corporation, or out of shares of Common Stock held in its Treasury, or partly
out of each, as shall be determined by the Board, a total of 50,000 shares of
the Common Stock (or the number and kind of shares of stock or other securities
which, in accordance with Section 7 of this Plan, shall be substituted for those
shares or to which those shares shall be adjusted). In the event that an option
granted under the Plan to any non-employee director expires or is terminated
unexercised as to any shares covered thereby, the shares not purchased under it
shall thereafter again be available for the purposes of this Plan.
SECTION 3. Eligibility. Each member of the Corporation's Board of Directors
who is not a full-time employee of the Corporation ("non-employee director")
shall be eligible to receive stock options under this Plan.
SECTION 4. Grants and Terms of Options; Option Agreements. The Board of
Directors may grant options from time to time under this Plan, provided that any
options granted prior to ratification of this Plan by the Corporation's
shareholders as provided in Section 8 below shall be subject to receipt of that
ratification. The number of shares purchasable under each option and all other
terms and conditions of the option shall be as determined by the Board of
Directors, provided that, unless this Plan is validly amended as provided in
Section 9 below, in the case of any inconsistency between this Plan and the
terms and conditions of any option, the provisions of this Plan shall prevail.
As soon as practicable after the grant of an option under the Plan, the
Corporation and the non-employee director shall enter into a Stock Option
Agreement evidencing the option so granted and its terms and conditions. That
agreement shall be in such form, consistent with the Plan, as the Board shall
deem appropriate.
<PAGE>
SECTION 5. Exercise and Term of Options.
(a) Options granted under the Plan shall be exercisable as provided in the
terms of the option grant and the related Stock Option Agreement.
(b) The option exercise price of the shares of Common Stock subject to
options shall be 100% of the market value of the shares on the day the option is
granted. The option price will be subject to adjustment in accordance with the
provisions of Section 7 of this Plan. For purposes of this Plan, the market
value of a share of Common Stock on any day shall be the closing price of such a
share on that day on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if there is no such price on that day, the
closing price of such a share on NASDAQ on the last preceding day on which there
was such a price, except that, if the Board determines that NASDAQ is not the
principal trading market system for the Corporation's Common Stock, then the
market value shall be the reported closing price of the Common Stock on such
other market system or exchange as the Board determines is then the principal
trading market for shares of the Corporation's Common Stock.
(c) Options granted under the Plan shall have a term of up to ten years
from the date of the granting thereof, provided, however, that each option shall
automatically terminate at the close of business on the 210th day after the day
on which the non-employee director ceases to be a director of the Corporation
and if that day is not a regular business day at the Corporation's principal
office, then at the close of business of the next such regular business day.
(d) Options granted under this Plan shall not be transferable by the
non-employee director otherwise than by will, or if he or she dies intestate, by
the laws of descent and distribution of the state of domicile at the time of
death, and options shall be exercisable during the director's lifetime only by
the director.
SECTION 6. Manner of Exercise of Option. Options granted hereunder shall be
exercised by the directors or the director's executor or administrator
("optionee") delivering to the Corporation, from time to time within the time
limits specified in Section 6 hereof, a written notice specifying the number of
shares the optionee then desires to purchase together with (i) check payable in
United States currency to the order of the Corporation for an amount equal to
the option price for the shares being purchased, or (ii) shares of the
Corporation's Common Stock owned by the optionee duly endorsed to the order of
the Corporation, equal in value to the option price for such number of shares,
valued as of the close of business on the immediately preceding business day
(except that payment in shares may, in whole or in part, be by way of
constructive transfer of shares in lieu of actual transfer and physical delivery
of certificates so that, to the extent of any payment by constructive transfer,
the director will receive the number of shares being purchased by that payment,
less the number of shares that the director is deemed to have transferred to the
Corporation in making that payment), or (iii) any combination of the foregoing,
and such other instruments or agreements duly signed by the optionee as in the
opinion of counsel for the Corporation may be necessary or advisable in order
that the issuance of such number of shares comply with applicable rules and
regulations under the Securities Act of 1933, any appropriate state securities
laws or any applicable requirement of any national stock exchange or quotation
or market system on which the shares of Common Stock may then be traded. As soon
as practicable after any such exercise of the option in whole or in part by the
optionee, the Corporation will deliver to the optionee at the principal offices
of the Corporation, a certificate for the number of shares with respect to which
the option shall have been so exercised, issued in the optionee's name. The
stock certificate shall carry such appropriate legend, and such written
instructions shall be given to the Corporation's transfer agent, as may be
deemed necessary or advisable by counsel to the Corporation in order to comply
with the requirements of the Securities Act of 1933 or any state securities
laws.
<PAGE>
SECTION 7. Adjustment of Number of Shares. If a dividend or stock split
shall hereinafter be declared upon the Common Stock of the Corporation payable
in shares of Common Stock of the Corporation, then the number of shares of
Common Stock then subject to any outstanding option under the Plan, the number
of shares reserved for issuance under those outstanding options, and the number
of shares reserved for issuance pursuant to the Plan but not yet covered by an
option shall be adjusted by adding to each such share the number of shares which
would be distributable thereon if the share had been outstanding on the date
fixed for determining the Shareholders entitled to receive the stock dividend or
stock split. If the outstanding shares of the Common Stock of the Corporation
shall be changed into or exchanged for a different number or kind of shares of
stock or other securities of the Corporation whether through reorganization,
recapitalization or reclassification, then there shall be substituted for each
share of Common Stock subject to any outstanding option under the Plan and for
each share of Common Stock reserved for issuance pursuant to the Plan but not
yet covered by an option, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged.
If, prior to the delivery by the Corporation of all the shares in respect
of which an option has been granted hereunder, a merger, consolidation, or
dissolution in which the Corporation is not the surviving corporation shall
occur or a transfer of substantially all the assets of the Corporation shall
occur:
(a) If provision has been made in writing in connection with the
transaction for the assumption and continuance of any such option granted, or
the substitution for such option of a new option covering the shares of the
successor corporation, with appropriate adjustment as to number and kind of
shares and prices, the option granted, or the new option substituted therefor,
as the case may be, shall continue in the manner and under the terms provided.
(b) If provision has not been made in the transaction for the continuance
and assumption of an option granted hereunder or for the substitution of an
option covering the shares of the successor corporation, then the holder of an
option granted hereunder shall be entitled, prior to the effective date of any
the transaction, to purchase the full number of shares under the option, failing
which purchase, any unexercised portion shall be deemed canceled as of the
effective transaction date.
If there is any change, other than as specified above in this Section 7, in
the number or kind of outstanding shares of Common Stock of the Corporation or
of any stock or other securities into which the Common Stock has been changed or
for which it has been exchanged, then appropriate adjustment shall be made in
the number and kind of shares subject to and reserved for issuance pursuant to
this Plan and as to which outstanding options or portions then unexercised shall
be exercisable, to the end that the proportionate interest of the holder of an
option and a prospective holder, with respect to options theretofore granted and
to be granted, shall be maintained as before the occurrence of the change or
exchange. In the case of any such substitution or adjustment as provided for in
this Section, the option price for each share covered thereby prior to such
substitution or adjustment will be the option price for all shares of stock or
other securities which shall have been substituted for the share or to which the
share has been adjusted pursuant to this Section. No adjustment or substitution
provided for in this Section 7 shall require the Corporation to sell a
fractional share, and the total substitution or adjustment with respect to each
option shall be limited accordingly.
<PAGE>
SECTION 8. Effective Date and Duration of Stock Plan. The effective date of
the Plan shall be September 4, 1998, the date of its adoption by the Board. The
duration of the Plan shall be ten years from the effective date. The Plan and
all options granted hereunder prior to the Corporation's 1999 annual meeting of
shareholders shall be subject to ratification by shareholders at that or any
prior meeting.
SECTION 9. Amendment of the Plan. The Board shall have the right to amend,
suspend, or terminate this Plan at any time, except that shareholder approval
shall be required for any amendment which:
(a) increases the maximum number of shares subject to the Plan
(subject to Section 7 above);
(b) changes the provisions of the Plan regarding the determination of the
option exercise price (subject to Section 7 above);
(c) changes the maximum period during which any options may be granted or
remain outstanding; or
(d) changes the requirements as to the class of persons eligible to receive
options.
Termination or suspension of the Plan or any amendment of it shall not,
without the consent of a holder of an outstanding option issued under the Plan,
affect the holder's rights under that option.
Date: ___________________ Approved by: /s/Frank J. Ryan, Vice President
Exhibit 11
DETECTION SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<S> <C> <C>
Three Months Ended September 30, 1998 1997
---- ----
Net income $1,230 $672
===== =====
Weighted average number of shares 6,324 4,837
===== =====
Basic earnings per share $0.19 $0.14
===== =====
Shares attributable to deferred
compensation plans and stock
options and warrants 515 603
==== ====
Diluted earnings per share: $0.18 $0.12
==== ====
Six Months Ended September 30, 1998 1997
---- ----
Net income $2,062 $1,805
Plus: amortization of redeemable stock 13
----- -----
Income available to common stockholders 2,062 1,818
===== =====
Weighted average number of shares 6,307 4,724
===== =====
Basic earnings per share $0.33 $0.38
===== =====
Shares attributable to deferred
compensation plans and stock
options and warrants 523 583
==== ====
Diluted earnings per share: $0.30 $0.34
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,759
<SECURITIES> 0
<RECEIVABLES> 25,785
<ALLOWANCES> (1,215)
<INVENTORY> 41,561
<CURRENT-ASSETS> 72,447
<PP&E> 31,113
<DEPRECIATION> (19,114)
<TOTAL-ASSETS> 99,403
<CURRENT-LIABILITIES> 28,081
<BONDS> 0
0
0
<COMMON> 328
<OTHER-SE> 53,187
<TOTAL-LIABILITY-AND-EQUITY> 99,403
<SALES> 35,455
<TOTAL-REVENUES> 35,455
<CGS> 22,225
<TOTAL-COSTS> 33,061
<OTHER-EXPENSES> 44
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 2,011
<INCOME-TAX> 781
<INCOME-CONTINUING> 1,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,230
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
