PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
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|X| Preliminary Proxy Statement |_| Confidential, for Use of the
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by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
Section 240.14a-12
DETECTION SYSTEMS, INC.
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Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
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As filed with the Commission on November 2, 2000
IMPORTANT
Your vote is important. Please take a moment to sign, date and promptly
mail your WHITE proxy card in the postage-paid envelope provided. If your
shares are registered in the name of a broker, only your broker can execute
a proxy and vote your shares and only after receiving your specific
instructions. Please contact the person responsible for your account and
direct him or her to execute a proxy on your behalf today. Your Board urges
you NOT to sign or return any BLUE proxy card sent to you by Ultrak. If you
have any questions or need assistance in voting your shares, please contact
our proxy solicitor:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
[email protected]
---------------------------
(212) 929-5500 (call collect)
or
Toll-Free (800) 322-2885.
[GRAPHICS OMITTED.]
DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14450
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 19, 2000
To Our Shareholders:
The Annual Meeting of shareholders of Detection Systems, Inc. will be
held on December 19, 2000, at 2:00 p.m., Eastern Time, at Company's
offices, located at 130 Perinton Parkway, Fairport, New York 14450, for the
following purposes:
1. To elect five directors;
2. To ratify the appointment of PricewaterhouseCoopers LLP
as the Company's independent auditors for the fiscal year
2001; and
3. To transact such other business as may properly come
before the meeting or any adjournments or postponements
thereof.
Only shareholders of record at the close of business on December 1,
2000 are entitled to notice of and to vote at the meeting and any
adjournments or postponements thereof.
This Annual Meeting is of particular importance to all shareholders
of the Company because of Ultrak's attempt to take over your Board.
Your Board urges you to sign and mail the enclosed WHITE proxy card
in the envelope provided. Please do not sign any BLUE proxy cards sent to
you by Ultrak. You can revoke any Ultrak proxy card you have previously
signed by signing, dating and mailing the enclosed WHITE proxy card in the
envelope provided.
By Order of the Board of Directors
FRANK J. RYAN
Secretary
Fairport, New York
November __, 2000
[GRAPHICS OMITTED.]
DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14450
PROXY STATEMENT
First sent to shareholders on or about November __, 2000
This proxy statement (the "Proxy Statement") and the enclosed form of
proxy are furnished by the Board of Directors of Detection Systems, Inc., a
New York corporation (the "Company"), for use at its Annual Meeting of
shareholders (the "Annual Meeting"), to be held on December 19, 2000, at
2:00 p.m. Eastern Time, at the Company's offices, located at 130 Perinton
Parkway, Fairport, New York 14450, and at any adjournments or postponements
thereof. Only holders of the Company's common stock, par value $.05 per
share ("Common Stock"), of record at the close of business on December 1,
2000 are entitled to notice of and to vote at the meeting and any
adjournments or postponements thereof. For additional voting information,
see the section entitled "Voting and Revocability of Proxies" on page 30.
THE PROXY CONTEST
As you may know, Ultrak, Inc. ("Ultrak"), led by George Broady
("Broady"), is seeking to take control of your Company's Board of Directors
to pursue a sale of the Company or "any alternative that might produce even
greater shareholder value."
In connection with the Company's longstanding objective of enhancing
value for all shareholders, the Company has decided to enter into
discussions with a limited number of parties regarding their strategic
interest in the Company, which may include a joint venture arrangement,
licensing agreement, minority investment or potential sale of the Company.
Neither Ultrak's nominees nor your Board can guarantee that they will be
able to effect a strategic transaction or enhance shareholder value.
However, we believe your Board and management are better qualified, due to
their significant knowledge and experience and other factors described
below.
Your Board is soliciting votes on the WHITE proxy card FOR the
election of the Company's nominees. We unanimously oppose Ultrak's
solicitation and urge you NOT to sign any BLUE proxy card sent to you by
Ultrak.
o YOUR BOARD AND MANAGEMENT ARE, IN OUR VIEW, IN THE BEST POSITION TO
ENHANCE SHAREHOLDER VALUE, BECAUSE THEY HAVE FIRST-HAND WORKING KNOWLEDGE
OF THE COMPANY'S STRATEGY, OPERATIONS AND TECHNOLOGY. Your Board and
management also have significant investment in the Company (which gives
them a personal stake in enhancing shareholder value) and a positive
financial track record. Your management led the Company to quadruple its
sales, nearly triple its operating income and double its book value per
share from fiscal 1995 to fiscal 2000. During this period, the Common Stock
price also rose 51% from $6.17 per share to $9.69 per share (as of March
31, 2000).
o WE HAVE DEVELOPED CUTTING-EDGE TECHNOLOGY DUE TO OUR SIGNIFICANT
INVESTMENTS. The Company has a long-term strategy to invest in product
development and expand its customer base. As a result of these investments,
we have already developed award-winning new technology and received new
commitments from major customers. Your Board wants to give you an
opportunity to participate in the increased value of the Company due to
these investments, and expects to focus on its bright future in its efforts
to enhance shareholder value.
o FROM MARCH 1998 UNTIL RIGHT BEFORE IT COMMENCED THIS PROXY CONTEST,
ULTRAK REGULARLY AND REPEATEDLY EXPRESSED INTEREST IN ACQUIRING YOUR
COMPANY AND ITS TECHNOLOGY. Ultrak also tried to hire at least three of the
Company's executives and interfered in our relationship with a prestigious
end-user during this period. Although Ultrak says that it wants to sell the
Company immediately, Ultrak's proxy materials have been carefully-crafted
so that its nominees would not be legally required to sell the Company, and
could instead approve a technology exchange with Ultrak, or after November
2, 2003, a merger between Ultrak and the Company!
o ULTRAK'S NOMINEES HAVE NO INDUSTRY EXPERIENCE OR INVESTMENT IN THE
COMPANY. These nominees were hand-picked by Ultrak, and Ultrak's proxy
materials do not state that they have any industry experience. Although we
recognize that, if elected, these nominees would have fiduciary obligations
to all shareholders, we believe that, due to their inexperience, they may
give significant consideration to Ultrak's opinions and advice.
o IF ULTRAK WINS THE PROXY CONTEST AND ITS NOMINEES DO NOT SELL THE
COMPANY IMMEDIATELY, THE COMPANY STANDS TO LOSE A SIGNIFICANT NUMBER OF
CUSTOMERS AND EMPLOYEES. At least six customers, which represented $4.9
million of the Company's sales in fiscal 2000, have informed us that, based
upon their business dealings with Ultrak and industry experience, they do
not trust Broady and Ultrak. Because Ultrak's nominees may place
significant emphasis on Ultrak's opinions (as described above), these
customers may immediately seek alternative suppliers or even remove some or
all of their business if Ultrak's nominees are elected. Most of our
management team and many of our employees, at all levels, have also
expressed concern. Also, if elected, Ultrak's nominees could change the
Company's strategy in a manner that is advantageous to Ultrak. For example,
Ultrak could use its influence on its nominees to unwittingly steer the
Company away from profitable ventures which would compete with or take
profits away from Ultrak.
o ULTRAK NEEDS CASH IMMEDIATELY. Ultrak's available cash has decreased
70% in its last two fiscal years! Even though these nominees would have
fiduciary duties to all shareholders, we believe they may be expected to
give significant weight to Ultrak's opinions (as described above). If
Ultrak's nominees seek advice from Ultrak in connection with a sale of the
Company, due to its cash needs, we believe that Ultrak may guide its
nominees to accept a price which does not reflect the full and fair value
of the Company.
BACKGROUND - WHO IS ULTRAK?
Ultrak is a competitor of the Company that designs, manufactures,
markets, sells and services electronic security and surveillance products
and systems. In the past two years, Ultrak has become Detection Systems'
largest shareholder, currently owning 21% of the Company's outstanding
shares.
Broady, Ultrak's Chairman and CEO, is its largest shareholder, owning
16% of Ultrak's common stock and 100% of Ultrak's preferred stock. As
Ultrak's only preferred stockholder, Broady receives $117,000 in annual
preferential dividends, and also receives 16.667 votes for each share of
preferred stock. Altogether, he controls approximately 31% of Ultrak's
voting power.
Broady has long considered Detection Systems to be an attractive
company. In December 1985, he was Chairman and CEO of Network Security
Corporation, which then owned 4.1% of Detection Systems' stock. We believe
that like Ultrak, Network Security experienced financial troubles under
Broady's direction. That time, a supplier asked Network Security to
transfer its Detection Systems shares to pay a trade debt, since it was
concerned that Network Security would not have the financial resources to
settle its obligation.
By 1998, Broady had again decided to invest in Detection Systems,
this time through Ultrak. On March 20, 1998, Ultrak disclosed that it had
acquired 5% of the Company's shares. Ultrak quickly amassed additional
shares, and by November 2, 1998, it had acquired 20% of the Company's
outstanding stock.
At the time of its initial 5% acquisition, Ultrak represented that
its shares were not acquired for the purpose of influencing the control of
the Company. However, soon afterward, Broady began to take an active
interest in the Company. From March 1998 until the commencement of the
proxy contest, Broady contacted Karl H. Kostusiak, the Company's Chairman
and Chief Executive Officer on almost a weekly basis. Their conversations
covered a broad range of topics, regularly including: (i) the Company's
initiatives, direction and expenditures and Broady's suggestions thereon;
(ii) Ultrak's interest in the Company's technology; (iii) Ultrak's interest
in a business combination transaction involving Ultrak and the Company,
through a third party acquisition or otherwise; (iv) Ultrak's financial
situation and cash needs; and (v) Ultrak's desire to sell the Company.
Broady not only regularly expressed his interest in a business
combination between Ultrak and the Company to Mr. Kostusiak, but also
mentioned such a transaction the first time he met one of the Company's
outside directors. Under New York law, a merger or other business
combination between Ultrak and Detection Systems is possible after November
2, 2003. A merger before that date is prohibited, because Ultrak's initial
20% stock acquisition was made without the prior approval of your Board.
Although Ultrak's proxy materials state that it is not interested in
acquiring your Company, Ultrak has carefully crafted its language such that
there is no legal obligation for its nominees to sell the Company. If
Ultrak's nominees decide not to sell the Company immediately, or are unable
to do so, we believe the Company would soon begin to lose customers and
employees. (See "Ultrak's Victory Would Create Uncertainty for Your
Company" below).
On May 12, 2000, Ultrak formally notified the Company of its
intention to commence the proxy contest.
YOUR BOARD AND MANAGEMENT ARE HIGHLY QUALIFIED
Your Company's Board and management have significant industry and
Company experience, first-hand knowledge of the Company's operations and
technology and a proven history of delivering solid financial results. In
contrast, Ultrak's nominees do not appear to have any experience in the
security industry, and Ultrak's management is responsible for Ultrak's
negative financial results.
Compare your management's financial results in the past six fiscal
years to those of Ultrak's management. As the graphs below illustrate, in
the last six fiscal years, your Company's net income rose 129% from $1.514
million to $3.468 million and the Common Stock price increased 51% from
$6.17 per share to $9.69 per share (as of March 31, 2000). In Ultrak's last
six fiscal years, its net income fell 78% from $2.600 million to $565
thousand and its stock price barely rose from $7.44 per share to $7.75 per
share.(1) Furthermore, Ultrak's 1999 net income was significantly boosted
because it included $1.9 million of Detection Systems' net income as its
own, due to its ownership of Detection Systems stock!
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1 Stock prices for Ultrak and Detection Systems are the closing prices
on the first and last trading days of the respective six fiscal year
periods, based upon publicly available information. Information for
Ultrak is from fiscal 1994 to fiscal 1999, because Ultrak has not yet
completed its fiscal year 2000. All financial information regarding
Ultrak contained in this proxy statement (other than stock price) is
based upon information filed by Ultrak with the Securities and
Exchange Commission ("SEC") in annual reports on Form 10-K. Copies of
these reports may be obtained from the SEC's website, www.sec.gov.
NET INCOME
LAST SIX FISCAL YEARS
(dollars in thousands)
DETECTION SYSTEMS ULTRAK
[ Graphics Omitted.] [Graphics Omitted.]
Your Board and management are also responsible for adopting a
long-term investment strategy, which has led to cutting-edge, award-winning
technology and new customer commitments. (See "Significant Investments and
New Business Opportunities" below). We have first-hand working knowledge of
the Company's strategy, operations and technology. Neither Ultrak's
nominees nor your Board can guarantee that they will be able to effect a
transaction to enhance shareholder value; however, because of their
significant knowledge and experience and proven track record, we believe
your Board and management are better qualified to pursue such a transaction
and to enhance value.
Your Board and management want to act in the best interest of all
shareholders and take your concerns very seriously. We have been meeting
with and talking to shareholders to discuss their concerns and hear their
suggestions regarding enhancing shareholder value.
Your Independent and Qualified Board
Your Board currently consists of a majority of independent outside
directors. Mr. Adair has been a director of the Company for ten years. Dr.
McIrvine has been a director for twenty years, and also served a prior
directorship term of six years. Mr. Bidlack, a new nominee, is a
shareholder of the Company and has extensive sales, management and
manufacturing experience in the United States and abroad. The management
representatives on the Board are Mr. Kostusiak and David B. Lederer, who
founded the Company together in 1968, and have served as its two top
officers ever since. (For further information about the Company's nominees,
see "Proposal No. 1--Election of Directors" on page 16.)
If the Board of Directors' five nominees are elected at the Annual
Meeting, the Company intends to increase the size of its Board by one
director, and appoint C. Duncan Soukup to become a director of the Company.
Mr. Soukup is President and Chief Executive Officer of Lionheart Group,
Inc., which owns 5.2% of the Common Stock. The Board believes that Mr.
Soukup can make a significant contribution to the efforts to enhance
shareholder value, due to his valuable business experience and his interest
as a significant shareholder of the Company.
Your Experienced Management Team Has Delivered Solid Financial Results
We believe our experienced senior management team is one of our most
valuable resources. The team consists of highly-qualified individuals who
have extensive hands-on knowledge of every aspect of the Company and its
strategic, operational and financial opportunities and challenges. This six
member team has an aggregate of 120 years of experience with the Company.
Led by its senior management, the Company nearly tripled its
operating income from $2.6 million in fiscal 1995 to $7.2 million in fiscal
2000. As illustrated by the following graphs, the Company also quadrupled
its net sales from $34.336 million to $141.918 million and doubled its book
value per share from $4.57 to $9.13 during this period.
DETECTION SYSTEMS NET SALES DETECTION SYSTEMS
(dollars in thousands) BOOK VALUE PER SHARE
[Graphics Omitted.] [Graphics Omitted.]
We believe this growth is a result of: (i) the significant industry
and Company experience of our Board and management, as described above; and
(ii) our major investments in new technology and market development, as
described on pages 7 through 9. We expect that the Company's growth record,
together with the foundation it has laid for future growth, will be
fundamental in our efforts to enhance shareholder value.
Ultrak's Nominees have No Industry Experience
Ultrak's nominees to the Board consist of two lawyers and an
investment banker. We believe these nominees have no industry experience,
because Ultrak's proxy materials do not provide any information regarding
such experience. As explained below, we further believe Ultrak has its own
agenda for the Company because it is our competitor and it has expressed
interest in our technology. We recognize that Ultrak's nominees, if
elected, would owe fiduciary duties to all shareholders. However, we
believe these nominees may be expected to give significant consideration to
Ultrak's opinions because they have no experience and were hand-picked by
Ultrak. In addition, Ultrak's nominees would have the power to fire the
Company's experienced management team and replace it with Ultrak's
management! Because of Ultrak's position as a competitor of the Company,
its need for cash and its poor record of performance, we believe that
Ultrak's opinions may not serve the shareholders as well as the views of
the Company's current Board and management team.
Neither Ultrak's nominees nor your Board can guarantee that they can
effect a transaction to enhance shareholder value. However, your Board
believes that Ultrak's nominees do not have the industry background
necessary to effectively pursue such a transaction enhancing value for all
shareholders; as explained above, your Board is significantly more
qualified.
Ultrak's Management is not Qualified to Advise or Lead Your
Company or its Board
As explained earlier, we believe that Ultrak's nominees will give
significant weight to Ultrak's opinions regarding the Company's strategic
alternatives, or could even fire the Company's management and replace it
with Ultrak's management. We believe Ultrak's management is not qualified
to advise Ultrak's nominees regarding a sale of the Company or, if a sale
does not occur, the management of the Company because: (i) it has been
unable to produce financial results for Ultrak (see "Ultrak's Ulterior
Motives--Financial Issues" page 12) and (ii) we believe Ultrak's market
practices would be harmful to the Company.
Our customers share our concerns about Ultrak's management. We have
received letters from two customers informing us that, based upon their
industry experience and dealings with both the Company and Ultrak, they
believe that the financial results of "Detection Systems as compared to
[the financial results of] Ultrak speak for themselves on who is the most
qualified to lead" the Company, and that Ultrak's nominees will focus on
"short sighted goals" instead of "long term planning." Ironically, one of
these customers suggested that "Broady should step aside and allow [Mr.
Kostusiak] to run [Ultrak] and bring it to a level of profitability. These
customers constituted approximately $400,000 of the Company's sales in
fiscal 2000.
At least six customers, which constituted $4.9 million of the
Company's net sales in fiscal 2000, have expressed concern about the proxy
contest and indicated that they may remove some or all of their business if
Ultrak wins the proxy contest. Such customers have told us that, based upon
their experiences with Broady and Ultrak, they believe that if Ultrak's
nominees are elected, it "would adversely affect the quality of service"
and that the "products and company that [customers] have depended upon
would disappear." Customers have also informed us that they would
immediately seek "alternatives and contingencies to [the Company's]
products" or even remove their business if Ultrak wins the proxy contest.
Most of our management team and many of our employees, at all levels, have
also expressed concern about Ultrak.(2)
------------
2 Consent to reprint the material quoted in this section was neither
sought nor obtained.
In addition, we believe that Ultrak's approach to the electronic
security market conflicts with the practices of established security system
installers and service companies and is inappropriate for the Company. Most
security systems manufacturers directly solicit business from end-users.
However, manufacturers generally refer the end-user to an authorized dealer
or installer to negotiate price and terms. In contrast, Ultrak at times
negotiates prices with end-users and then informs the dealers or installers
that end-users are willing to purchase at a particular price. Certain
important dealers and installers have told us they find this approach
unfair and do not want any dealings with Ultrak. Therefore, if Ultrak's
nominees are elected and the Company is not immediately sold, the Company
believes its relationships with these dealers and installers would be
damaged.
SIGNIFICANT INVESTMENTS AND NEW BUSINESS OPPORTUNITIES
We expect that our investments in new technology and our new business
opportunities will translate into increased revenues and income for the
Company. We hope to translate this opportunity into enhanced value for all
shareholders.
Long-Term Investment Strategy
Five years ago, the Company set its sights on becoming a worldwide,
full-catalog supplier of electronic protection equipment to professional
installation and service companies. With these goals in mind, we adopted a
strategy to: (1) expand our product catalog, (2) expand our market reach,
(3) increase our manufacturing capacity and (4) improve our overall cost
structure. We are continuing to make great progress toward these goals and
increasingly providing dealers and customers throughout the world with a
comprehensive line of high quality, technologically-advanced products.
The Company has invested considerable financial, managerial and other
resources in connection with this strategy. In fiscal 2000, the Company
invested $10.5 million in product research and development, representing a
24% increase from the $8.5 million spent in fiscal 1999. The Company
expects to spend $11.4 million in research and development in fiscal 2001.
In fiscal 2000, the Company also hired 11 new employees in the
research and development area, and 50 new employees in sales, marketing and
customer support. In addition, in connection with the opening of new
international operations, the Company has spent $775,000 in direct selling,
marketing, general and administrative expenses.
Our significant investments in research and development allow us to
continue to develop exciting new products that demonstrate our leadership
in the industry. For example, our D6600 NetCom communications solution
provides the first end-to-end solution for reporting alarm events through a
local-area or wide-area network that can fully integrate with existing
equipment in the field. Our PC9000 Enterprise Conductor provides
intelligent integration, control and management of several security systems
within a multi-site business enterprise through a single graphical user
interface. Our new line of security detectors offer improved catch
performance, lower probability of false alarm and less stringent
installation requirements. Other exciting initiatives include in-building
wireless systems, closed circuit television products and commercial fire
products.
Already, three of our latest products have received Product
Achievement Awards from the Security Industry Association at the
International Security Conference held in August 2000:
o The DS835i PIR/Microwave Intrusion Detector received this award
for false alarm reduction. This product provides rapid
detection of human targets and significantly reduced false
alarms.
o The D6600 NetCom communications solution, sold under our
Radionics label, received this honor in the monitoring
category.
o The PC9000 Enterprise Conductor, another Radionics product,
received this award in the integrated systems category. The
PC9000 also received the Innovation Award for Best of Show,
awarded to the most innovative product in the security
industry.
We also recently formed a strategic partnership with Seaguard
Electronics to take advantage of Seaguard's high-speed security monitoring,
routing and notification services in the United States and Canada.
Seaguard's system provides wireless alarm capabilities that alert users by
telephone, voice messaging and the internet. This breakthrough technology
offers a lower-cost alternative for users who require high levels of
security protection.
In addition to our investments in new technology, we are continuing
to develop our global manufacturing and distribution infrastructure. We
recently increased the size of two manufacturing facilities to meet current
and anticipated demand, and we continue to refine production methods to
reduce costs. As a result, our gross margins reached a nine year high of
nearly 40% in fiscal 2000.
In fiscal 2000, we opened new sales offices in Spain and Argentina
and purchased a fire technology company in Italy. To expand our domestic
market, we recently signed an agreement with Timarron Partners, a
well-established sales organization, to sell our products in ten Central
and Southwestern U.S. states.
As a result of our investment strategy, we have already received new
commitments from ADT Security Services (a unit of Tyco International Ltd.),
SecurityLink (a unit of SBC Communications, Inc.) and Motorola to market
our leading technologies. Our products are also available through many
other dealers, including AFA Protection, Checkpoint Security, Diebold,
Greater Alarm, Honeywell, Simplex, Vector Security and members of Security
Network of America.
The promise shown through commitments to purchase our products is not
limited to the U.S. market. We see similar potential with major companies
in international markets, where we are steadily increasing our sales and
sales presence. The Company's sales to customers outside the United States
increased from $3.9 million (11% of the Company's revenues) in fiscal 1995
to $59.0 million (41% of the Company's revenues) in fiscal 2000. The
Company has also expanded its international sales presence from two
countries in 1995 to twelve countries in 2000. These opportunities give us
added confidence that we are a leader in developing technologically-advanced
products that are effective, reliable and easy to use.
WE WANT TO ENHANCE VALUE FOR ALL SHAREHOLDERS
We Are Exploring a Strategic Transaction to Enhance Shareholder Value
In response to current market conditions (including a sustained
reduction in the Common Stock price) and shareholder concerns, in July
2000, the Company retained the investment banking firm of Fleet Securities,
Inc. ("Fleet") to study strategic alternatives for enhancing value for all
shareholders.
In connection with this objective, the Company has decided to enter
into discussions with a limited number of parties regarding their strategic
interest in the Company, which may include a joint venture arrangement,
licensing agreement, minority investment or potential sale of the Company.
The Board's decision was based upon a number of factors, including: (i)
current market conditions; (ii) a review of Fleet's analysis; and (iii) the
Company's meetings and conversations with shareholders. Like Ultrak, the
Company cannot guarantee that its nominees will be able to sell the Company
or enhance shareholder value. However, we believe our nominees are best
qualified to enhance value for shareholders.
We Will Engage in a Transaction if the Terms are Attractive
to ALL Shareholders
Our recent discussions with Bosch Telecom, GmbH ("Bosch"), a
subsidiary of the large German conglomerate Robert Bosch, GmbH, demonstrate
our willingness to sell at the right price. Since 1997, the Company has had
intermittent discussions with Bosch regarding various potential business
transactions, arrangements and combinations. At Broady's suggestion, Bosch
again approached the Company in late 1999 to express its interest in an
acquisition. Recognizing its fiduciary duties to shareholders, the Board
authorized management to pursue discussions with Bosch regarding a total or
majority acquisition of the Company by Bosch.
In connection with such potential transactions, Bosch and the Company
met approximately four times between February and May 2000. Bosch's
representatives twice visited the Company's offices for presentations
regarding the Company's technology. Broady was present during one of these
presentations. Senior Detection Systems executives also met with Bosch and
its investment banker in New York City on one occasion. In addition, the
Company arranged for Bosch to visit its manufacturing facility in Zhuhai,
China. Several ongoing discussions between Bosch and the Company ensued
from these meetings and presentations. These discussions were primarily
focused on technology and product synergies. No proposals or agreements
were made as a result of these discussions, which the parties terminated in
approximately May 2000.
In a letter to the Company's Board of Directors dated September 23,
2000, Bosch formally proposed to acquire Detection Systems for $14 per
share in cash, subject to certain conditions. In reviewing Bosch's offer,
the Board consulted Fleet, and considered the Company's prospects as a
stand- alone entity, based upon the Company's track record of solid
financial results and its growth potential due to its significant
investments described above. After careful consideration of the Company's
prospects, Fleet's analysis of the Company's value and other factors, the
Board determined that $14 per share did not represent a fair value for the
Company and was not in the best interest of all shareholders. On October
13, 2000, the Company rejected Bosch's offer.
On August 30, 2000, at a meeting of the Company's Board, Fleet
reviewed certain analyses and valuations it had performed relating to the
Company's efforts to deliver value to shareholders. In connection with the
preparation of these analyses, Fleet, among other things: (i) reviewed
certain publicly-available financial statements and other business and
financial information of the Company; (ii) discussed with senior management
of the Company the strategy and future prospects of the Company; and (iii)
reviewed certain financial forecasts and other forward looking information
for the Company prepared by management, which involved both a base case
scenario as well as an upside scenario.
In its review and analyses, Fleet assumed and relied on the accuracy
and completeness of all of the financial and other information provided to
it (including financial projections and other information furnished to it
by the Company's management) or publicly available. Fleet did not attempt
to verify or assume responsibility for verifying any of this information.
Fleet did not obtain or make, or assume any responsibility for obtaining or
making, any independent evaluation or appraisal of the properties, assets
or liabilities of the Company, and Fleet was not furnished with any such
evaluation or appraisal.
With respect to the Company's forecasted financial performance and
projections and the assumptions and bases underlying this information that
Fleet reviewed, Fleet assumed that these forecasts and projections: (i) had
been prepared reasonably and in good faith on the basis of reasonable
assumptions; (ii) reflected the best available estimates and judgments as
to the future financial condition and performance of the Company; and (iii)
will be realized in the amounts and in the time periods estimated.
The following summarizes the analyses presented by Fleet.
Comparable Companies Analysis
Using publicly-available information, Fleet analyzed certain
financial, trading and valuation statistics for the most recent twelve
months and calendar year 2001, as well as resulting multiples, for certain
publicly-traded companies that were deemed by Fleet to have business and
operating profiles and characteristics similar to those of the Company.
Fleet then derived potential values for the Company by applying these
multiples to the historical results and the projections provided by the
Company's management.
Precedent Transaction Analysis
Using publicly-available information, Fleet analyzed the implied cash
flow multiples paid in prior acquisition transactions involving companies
deemed by Fleet to have business and operating profiles similar to those of
the Company. In analyzing these precedent transactions, Fleet evaluated the
consideration paid in such transactions as a multiple of the preceding
twelve months' earnings before interest, taxes, depreciation and
amortization and the preceding twelve months' earnings before interest and
taxes. Fleet then derived potential values for the Company by applying
these multiples to Company results.
Discounted Cash Flow
Fleet reviewed the after-tax free cash flows of the Company as
projected for fiscal years 2001 through 2006. Fleet derived potential
values for the Company by discounting these cash flows to present values
and adding the present value of future cash flows thereafter assuming
either a sale of the business at the end of 2006 or continued operation of
business in perpetuity, based upon certain assumptions regarding discount
rates, revenue and expense growth.
Strategic Alternatives Analysis
Fleet also analyzed the financial implications to the Company as well
as the potential valuations that might be realized upon certain strategic
alternatives. As part of this analysis, Fleet examined the potential debt
capacity of the Company and estimated theoretical values that may be paid
for the Common Stock in a business combination where such combination would
not be dilutive to a strategic acquirer's earnings in calendar year 2001.
Fleet reflected certain assumptions concerning potential cost savings
resulting from such business combination as provided by management of the
Company.
These analyses were presented to the Company's Board of Directors on
August 30, 2000 in connection with its general efforts to enhance
shareholder value , and were not presented with respect to any particular
offer or proposal that the Company had received. At the October 5, 2000
meeting of the Board of Directors, Fleet confirmed the methodologies
employed in these analyses and stated that, in their opinion, market
developments since August 30, 2000 did not materially affect the potential
valuations reflected in the analyses presented at that August 30, 2000
meeting.
Fleet did not express any opinion with respect to the prices that
shares of the Common Stock may be traded at any future time. Fleet provided
these analyses to the Company's Board of Directors for their consideration.
Fleet made no recomendation as to any particular strategic alternative or
third-party proposal, including remaining as an independent entity, nor as
to how the Company's Board of Directors or any shareholders should vote
with respect to any potential alternative or proposal. No limitations were
imposed by the Company's Board of Directors on Fleet with respect to the
investigations made or procedures followed by it in preparing its analyses.
Like Ultrak, the Company cannot guarantee that the Common Stock price
will increase or that the Company will be sold at $14 or a higher price if
its nominees are elected; however, the Company firmly believes that its
nominees are in a better position to enhance value for all shareholders
than Ultrak's nominees. As explained above, the Company's nominees have
significant industry and Company experience; Ultrak's nominees apparently
have none. Additionally, although Ultrak's nominees would have fiduciary
obligations to all shareholders, due to their inexperience, we believe they
would seek advice from Ultrak and be influenced by Ultrak's ulterior
motives (explained below).
ULTRAK'S ULTERIOR MOTIVES
The Company believes that Ultrak is motivated by interests that are
not aligned with those of the Company's other shareholders. First, because
Ultrak is a competitor, its interests are different than those of the
Company and its shareholders. Secondly, Ultrak has suffered from financial
setbacks in the past several years and a sale of the Company could provide
Ultrak with much-needed cash and an interest rate reduction.
Competitive Interests
We believe that Ultrak is motivated by its interests as a competitor
of the Company. Ultrak competes with the Company in the access control and
closed-circuit television segments of the security industry, which
constituted approximately 7.6% and 6.2%, respectively, of the Company's
sales in fiscal 2000. Ultrak also competes with the Company in the area of
enterprise systems, in which multiple product systems (i.e. burglar and
fire alarms, access control systems and CCTV systems) are used to provide a
comprehensive security solution to customers. Based upon customer feedback,
the Company believes that there will be significant future growth in this
segment of the industry. As described on page 7, the Company has spent
significant resources developing new integrated systems products, such as
the award-winning NetCom communications solution and PC9000 Enterprise
Conductor products. Although Ultrak does not manufacture many of the
products required for enterprise systems, it competes in this market by
offering its own products combined with those of other companies.
Although Ultrak claims that it is not interested in acquiring your
Company, Ultrak has carefully crafted its proxy statement to leave open
this possibility. Ultrak merely promises that its nominees will pursue a
sale of the Company, not that a sale will be completed. If for any reason
Ultrak's nominees determine that the Company should not be sold (or are
unable to sell the Company), they would have the power to approve an
exchange of technologies with Ultrak, or, after November 2, 2003, a
business combination between the Company and Ultrak! This would be
consistent with Broady's repeated statements to Mr. Kostusiak that he is
eager for such a technology exchange or business combination. We believe
that any such transaction with Ultrak is against the best interests of
Detection Systems and its other shareholders, because of Ultrak's history
of poor performance (described above).
Alternatively, if elected, Ultrak's nominees could change the
Company's strategy in a manner that is advantageous to Ultrak. For example,
Ultrak could use its influence on its nominees, who have no industry
experience, to unwittingly steer the Company away from profitable ventures
which would compete with or take profits away from Ultrak.
In addition, Ultrak has continued to interfere with the Company's
operations and relationships with customers and employees. Ultrak and
Broady, personally, have tried to recruit at least three of the Company's
executives. We also believe Ultrak has targeted our customers for its own
competitive interests.
The proxy contest itself is also putting the Company at a competitive
disadvantage because it requires the Company's resources, such as time and
money, which are necessary for, and would otherwise have been spent on, its
operations and the development of its business. In addition, Ultrak has
stated that it will seek to recover its attorneys' fees and expenses
related to litigation against the Company that has been voluntarily
dismissed as moot (see "Ultrak's Litigation" on page 15), and that, if it
is successful in the proxy contest, it will seek to recover all of its
related costs and expenses from the Company.
As described above, the Company's customers, management and
employees, at all levels, have expressed concern about the proxy contest. A
large potential customer who has expressed strong interest in our new
products has deferred making a purchasing commitment due to the uncertainty
created by the proxy contest. For the same reasons, a prestigious new
customer has been reluctant to train its employees on our new products.
Financial Issues
The Company believes that Ultrak is facing increased pressure to
generate cash due to poor financial results. Ultrak's financial challenges
and need for cash have been personally expressed to Mr. Kostusiak by Broady
and are supported by Ultrak's public financial statements.
Ultrak has experienced cash flow problems for the past several years.
Ultrak's operating activities did not generate a positive cash flow during
the five year period from 1994 to 1998. Cash used by operations during this
time period averaged nearly $3.3 million annually. Although Ultrak was able
to generate a positive cash flow in 1999, this result was obtained by
delaying payment of payables and reducing inventories and accounts
receivable.
As illustrated by the graph on page 4, Ultrak's net income decreased
78% from fiscal 1994 to fiscal 1999. Additionally, Ultrak's net income in
1999 would have been far lower if it had not been able to report $1.9
million in Detection Systems' income due to its 20% ownership of Detection
Systems stock.
From fiscal 1997 to fiscal 1999, Ultrak's available cash decreased
70% from $18.1 million to $5.4 million. In the same period, Ultrak's debt
increased from zero to $37 million.
ULTRAK'S CASH ULTRAK'S DEBT
(in thousands) (in thousands)
[Graphics Omitted.] [Graphics Omitted.]
Ultrak's current credit agreement (which has been amended five times
since August 1999) provides that if Ultrak sells its Detection Systems
Common Stock and uses the proceeds to pay down its outstanding debt, it
could almost immediately receive a 0.25% decrease in its interest rate if
certain other conditions are met.
The Board believes that Ultrak may be seeking to liquidate its
investment in the Company, due to these declining financial results. The
Board also believes that Ultrak may be unable to sell its Detection Systems
shares because: (i) it owns such a large amount of stock; (ii) the market
for the Common Stock is illiquid; and (iii) Broady told us he wants a
premium over the market price. In view of its apparent cash needs, we
believe that Ultrak might be willing to accept a price for the Company
which does not fully reflect the Company's expected future growth. (See
"Significant Investments and New Business Opportunities" beginning on page
7.) As explained above, although we recognize that Ultrak's nominees would
owe fiduciary duties to all shareholders, we believe their lack of
experience in the industry may make them susceptible to Ultrak's views as
to value. We are thus concerned that Ultrak's nominees may accept a price
which does not provide shareholders with the full and fair value for their
shares.
ULTRAK IS TRYING TO DISTRACT YOU FROM THE REAL ISSUE
We believe that Ultrak's proxy statement presents selective
information in an attempt to justify the proxy contest and draw attention
away from Ultrak's own financial issues and other ulterior motives.
Our Executive Agreements are Fair and Reasonable
As part of its strategy in the proxy contest, Ultrak has tried to
make an issue of the Company's longstanding executive contracts with
Messrs. Kostusiak and Lederer. Ultrak even brought a lawsuit against the
Company related to these contracts. (See "Ultrak's Litigation" below.) In
fact, these contracts existed long before Ultrak became a shareholder in
1998.
These agreements were modeled after contracts frequently used by
other companies to retain management, and were approved by the Compensation
Committee of the Company's Board of Directors, which is composed entirely
of outside directors. The purpose of this type of contract is to permit
executives to carry out their duties and consider potential takeovers free
of the concern that they may lose their jobs. The change in control
provisions in the contracts seek to remove this concern, making the
executives more impartial to takeover attempts. Since their adoption in
1988, these agreements have been amended annually based upon
recommendations of the Committee.
The Company believes the contracts have always been fair and
reasonable. However, the Committee hired Watson Wyatt & Company ("Watson
Wyatt"), a nationally-recognized, independent employee benefits consultant,
to assist in this year's review because: (i) of current market conditions,
including a sustained reduction in the Common Stock price; (ii) of concerns
expressed by some shareholders; and (iii) Ultrak made the contracts a
primary issue in the proxy contest, which the Company believes was
distracting shareholders from more important issues, such as the respective
qualifications of the nominees and Ultrak's ulterior motives.
Based upon its review and advice from Watson Wyatt, the Committee
recommended certain amendments to the agreements, which were approved by
the Board. These amendments include: (i) a cap on the aggregate change in
control amounts payable under the two contracts equal to 5% of the
Company's market capitalization (2.77% for Mr. Kostusiak and 2.23% for Mr.
Lederer); (ii) the reduction of non-compete fees from $154,500 annually
through age 69 to a lump-sum equal to twice the executive's highest total
cash compensation during the three fiscal years prior to payment; (iii)
following a change in control, the transfer to each executive of certain
insurance policies upon his life and the elimination of the Company's
obligation to maintain these life insurance policies; (iv) a requirement
that, in the event of a potential change in control, the Company transfer
to an escrow account an amount sufficient to fund the required payments;
(v) the expansion of the term "change in control" to include a change in
control of the Board due to the settlement of a proxy contest; (vi) the
elimination of a retirement benefit increase upon a change in control and
the increase of the retirement wage benefit from 30% to 60% of the
executive's base salary at retirement, which increase is consistent with
Watson Wyatt's recommendation that a competitive retirement plan provide a
benefit of 2% of salary for each year of employment (which, in the case of
Messrs. Kostusiak and Lederer, is 32 years); and (vii) the reduction of the
normal retirement age of each executive from 69 to 68. Provisions of the
amended agreements are described in greater detail in the sections below
entitled "Executive Agreements" and "Retirement Benefits." Additionally,
the Company's Form 8-K filed with the SEC on September 27, 2000 includes
complete copies of the amended agreements.
Although Messrs. Kostusiak and Lederer had no legal obligation to
agree to the amendments, they believed it was in the best interests of the
Company and its shareholders to do so. The agreements were amended on
September 27, 2000. On the same date, Watson Wyatt issued an opinion to the
Committee that the amended agreements are competitive with industry norms
and fair and reasonable to Detection Systems.(3)
-----------
3 Watson Wyatt has consented to the use of its name and description of
its opinion in this section of the Proxy Statement.
In its proxy materials, Ultrak has tried to take credit for our
contract amendments, but failed to inform you that it intends to seek
reimbursement from your Company for its attorneys fees and expenses related
to the lawsuit!
Ultrak's Litigation
On June 30, 2000, Ultrak filed a purported shareholder derivative
action in federal district court in Rochester, New York against all five
members of the Company's Board of Directors (the "Directors") and the
Company as a nominal defendant. The Ultrak action included allegations
that: (i) the executive agreements in place prior to the September
amendments described above were excessive; (ii) the Board had breached its
fiduciary duty in agreeing to such agreements; and (iii) the agreements
should be set aside.
The Company and the Directors moved to dismiss Ultrak's action on the
ground that Ultrak was not a proper derivative plaintiff, since among other
things, Ultrak was motivated in bringing the action by its proxy contest,
and Ultrak's interests were potentially in conflict with those of other
shareholders. On September 27, 2000, the Company notified the Court that
the executive agreements had been amended and asserted that Ultrak's
lawsuit had become moot. On October 25, 2000 the Court issued an order
voluntarily dismissing the lawsuit as moot. Ultrak has stated that it
intends to seek to recover from the Company its attorneys fees and expenses
related to the action. The Company intends to vigorously contest any claim
by Ultrak for an award of its fees and expenses.
By-Law Amendments
In February 2000, the Board of Directors amended the Company's
By-Laws to require that all shareholder proposals may only be made at the
annual meeting or at a special meeting called by the Company. In addition,
the By-Laws were amended to require that shareholder proposals and
nominations for the Board be presented to the Company within 90 to 120 days
of the anniversary of the previous year's annual meeting. Ultrak charges
that the Board adopted these By-Law amendments to insulate itself from
accountability to shareholders. On the contrary, this proxy contest should
be sufficient proof that these amendments do not protect the Board! These
amendments enable the directors to better protect the rights of all
shareholders by providing them sufficient time to thoughtfully consider
matters and nominations, as required by their fiduciary duties to
shareholders. The Board continues to believe that the By-Law amendments are
a reasonable response to these concerns.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, five directors, constituting the entire Board
of Directors, are to be elected to hold office for the ensuing year or
until their respective successors are elected and qualified. Mortimer B.
Fuller III, who has served as director of the Company since 1990, is not
seeking to be re-elected due to the increasing demands of his business.
Since 1977, Mr. Fuller, age 58, has been Chairman and Chief Executive
Officer of Genesee & Wyoming, Inc., which owns and operates shortline
railroads and provides related services to railroads and shippers. The
persons nominated for election as directors at this year's Annual Meeting
are listed below. Each nominee has consented to serve as a member of the
Board of Directors if elected. If for any reason a nominee becomes
unavailable for election, the proxies may exercise discretionary authority
to vote for substitutes proposed by the Board.
DONALD R. ADAIR, age 57, has been a director of the Company since
1991 and also serves on the Board's Audit, Compensation, and Stock Option
Committees. He is a principal of Adair Law Firm, which was established in
1988 and focuses on serving businesses in Rochester, New York. He is a
graduate of Harvard College and Cornell Law School. Mr. Adair is also a
director of Stone Construction Equipment, Inc., in Honeoye, New York,
NetLink Transaction Services, LLC, in Victor, New York, and Victor
Insulators, Inc. in Victor, New York.
JERALD D. BIDLACK, age 64, is a first time nominee for director. Once
elected, Mr. Bidlack is expected to serve on the Board's Audit,
Compensation and Stock Option Committees. He has been the President of
Griffin Automation, Inc., a designer and manufacturer of special automation
machinery and systems since 1992. Mr. Bidlack is also the Chairman of
Graham Corporation, in Batavia, New York, a leading designer and builder of
vacuum and heat transfer equipment for process industries worldwide. From
1963 to 1991 Mr. Bidlack was employed by Moog, Inc. a designer and
manufacturer of electrohydraulic and electromechanical servocontrol
components and systems for industrial and defense markets, located in East
Aurora, New York. He served as a director and President of Moog's
International Group from 1973 to 1991, and also served as Vice Chairman
from 1988 to 1991. Mr. Bidlack is currently a director of Graham
Corporation, Bush Industries, Inc. in Jamestown, New York, and Erdle
Perforating Company in Rochester, New York, and a trustee of Keuka College,
Keuka Park, New York. He received a Bachelor of Science degree in
Mechanical Engineering from Tri-State University in Angola, Indiana. He
also completed graduate work at Wayne State University in Detroit,
Michigan. Mr. Bidlack is a licensed Professional Engineer in New York
State.
KARL H. KOSTUSIAK, age 61, is a founder of the Company and has served
as the Chief Executive Officer and President of the Company since its
establishment in 1968. He has been a director of the Company since 1968 and
also serves as Chairman of the Board. He received a Bachelor of Science
degree in Electrical Engineering from the State University of New York at
Buffalo and a Master of Science degree in Electrical Engineering from the
University of Rochester.
DAVID B. LEDERER, age 61, is also a founder of the Company, and
served as the Company's Executive Vice President from 1968 until April
1998. In April 1998, he reduced his employment to half- time and served as
Vice President, Business Development until April 2000, when he returned to
his prior full-time position as Executive Vice President. Mr. Lederer
received Bachelor and Master of Science degrees in Electrical Engineering
from the University of Nebraska.
EDWARD C. MCIRVINE, age 66, has been a director of the Company since
1981 and also serves on the Board's Audit, Compensation, and Stock Option
Committees. Dr. McIrvine also served as a director of the Company from
September 1973 to July 1979. Since 1987, he has been a self-employed
research and development management consultant and, from 1987 through 1991,
he served as Dean of the College of Graphic Arts and Photography at the
Rochester Institute of Technology in Rochester, New York. He received a
Bachelor of Science degree from the University of Minnesota and a Ph.D. in
Theoretical Physics from Cornell University.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors has Audit, Compensation and Stock
Option Committees. The Board does not have a Nominating Committee.
The Audit Committee was composed of Messrs. Adair, Fuller and
McIrvine for the fiscal year 2000, with Dr. McIrvine serving as Chairman.
The Committee members are "independent directors," as such term is defined
in Rule 4200(a)(14) of the National Association of Securities Dealers
Manual. The Audit Committee reviews reports of the Company's financial
condition, financial controls and accounting procedures. The Committee also
approves and oversees services performed by, and serves as an interface
between, the Company and its independent auditors. This Committee met four
times during the last fiscal year. A copy of the Audit Committee's written
charter is attached hereto as Appendix C.
The Compensation Committee was composed of Messrs. Adair, Fuller and
McIrvine for fiscal 2000, with Mr. Adair serving as Chairman. This
Committee is responsible for developing general compensation policies,
establishing and administering compensation plans and programs in which
officers participate and determining specific compensation arrangements for
the Company's executive officers. In addition to numerous informal
communications, the Committee had two formal meetings during fiscal 2000.
The Stock Option Committee was composed of Messrs. Adair, Fuller and
McIrvine for fiscal 2000, with Mr. Adair serving as Chairman. The Committee
is responsible for granting options pursuant to the Company's Employee
Stock Option Plans. The Committee met four times during the past fiscal
year.
During fiscal 2000, the Board of Directors held four regular meetings
and six special meetings. Each director attended at least 75% of the
aggregate of all meetings of the Board of Directors and of each committee
on which he served during the fiscal year.
Directors who are not employees of the Company were each paid an
annual fee of $12,000 as well as $1,000 plus travel expenses, if any, for
each day on which they attended Board meetings. These directors received
$500 for Board meetings held by teleconference. Messrs. Adair and McIrvine
were each paid annual fees of $8,000 for their service as Chairmen of the
Company's Compensation and Audit Committees of the Board of Directors. No
fees were paid to Mr. Adair for his services as Chairman of the Stock
Option Committee. In addition, the non-employee directors were each awarded
a 2,000 share stock option under the Company's Non-Employee Director Stock
Option Plan. Except as described in this paragraph, no director received
any compensation for attending any Board or committee meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
ADAIR, BIDLACK, KOSTUSIAK, LEDERER AND MCIRVINE AS DIRECTORS OF THE
COMPANY. PROXIES WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE IN THEIR PROXIES.
If the Board of Directors' five nominees are elected at the Annual
Meeting, the Company intends to increase the size of its Board by one
director, and appoint C. Duncan Soukup, President and Chief Executive
Officer of Lionheart Group, Inc., to become a director of the Company.
Lionheart Group, which owns 5.2% of the Common Stock, is a U.S. financial
services holding company founded by Mr. Soukup in 1994. Subsidiaries of
Lionheart Group manage or advise a number of hedge funds and U.S. pension
funds. Since January 2000, Mr. Soukup has also been the Managing Director
of Acquisitor plc, a public company incorporated in England and Wales,
which invests in companies it considers to be fundamentally undervalued.
From 1988 to 1994, Mr. Soukup served as a managing director of Bear,
Stearns & Co. Inc., and established and led that company's foreign Equity
Research and Sales department. Mr. Soukup has more than 20 years of
experience of making investments in public and private companies and was,
until recently, a director of Sage Laboratories, Inc., a U.S. public
company that was acquired by Filtronic plc of the United Kingdom.
Your Board and management believe that Mr. Soukup can make a
significant contribution to the Company due to his valuable business
experience and interest as a significant shareholder.
MANAGEMENT SECURITY OWNERSHIP
The following table shows: (i) the names and principal business
addresses of the Company's directors and executive officers for whom
compensation information is provided on page 21; (ii) the number of shares
of Common Stock that such persons beneficially owned or had the right to
acquire beneficial ownership of as of, or within sixty days of, November 1,
2000; and (iii) the percentage of the Company's outstanding shares that
such ownership constitutes. The principal business address of Messrs.
Behlke, Gerace, Kostusiak, Lederer and Ryan is that of the Company.
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
----------------------- ------------ ------------
Donald R. Adair 3,549(2)(3) *
Adair Law Firm
30 Corporate Woods,
Suite 280
Rochester, NY 14623
George E. Behlke 66,094(3)(4) 1.0%
Jerald D. Bidlack 7,200(5) *
Griffin Automation, Inc.
240 Westminster Road
West Seneca, NY 14224
Mortimer B. Fuller, III 5,645(3) *
Chairman & CEO
Genesee & Wyoming, Inc.
66 Field Point Road
Greenwich, CT 06830
Christopher P. Gerace 17,000(3) *
Karl H. Kostusiak 579,561(3)(4) 8.9%
David B. Lederer 328,502(3),(4),(6) 5.6%
Edward C. McIrvine 6,000(3) *
1213 Forest Hill Drive
Hendersonville, NC 28791
Frank J. Ryan 78,514(3),(4),(7) 1.2%
All Directors and Executive 1,092,066(2)-(7) 17.3%
Officers as a Group (10 persons)
FOOTNOTES:
* Percentage of Common Stock owned is less than 1%.
(1) Owner possess both sole voting and investment powers for all shares
listed except as indicated in notes (2)-(6) below.
(2) Includes 1,173 shares held in custodianship for Mr. Adair's children
under the Uniform Gifts to Minors Act of New York, for which Mr.
Adair disclaims beneficial ownership.
(3) Includes 2,000, 27,920, 2,000, 17,000, 16,000, 8,000, 2,000, 6,552
and 81,472 shares which may be acquired upon exercise of warrants and
options held by Messrs. Adair, Behlke, Fuller, Gerace, Kostusiak,
Lederer, McIrvine, Ryan and all directors and executive officers as a
group, respectively.
(4) Includes 9,234, 179,840, 117,465, 8,492 and 315,031 hypothetical
shares credited to the accounts of Messrs. Behlke, Kostusiak, Lederer
and Ryan and all directors and executive officers as a group,
respectively, pursuant to the Company's deferred compensation plans,
which shares may be acquired upon retirement or resignation.
(5) Includes 4,000 shares owned by Griffin Automation, Inc., a
corporation of which Mr. Bidlack is the President.
(6) Includes 40,000 shares owned by the Lederer Family Limited
Partnership, in which Mr. Lederer and his spouse share equal voting
and investment powers, and 20,000 shares owned by Mr. Lederer's
spouse, who owns sole voting and investment power over such shares.
(7) Includes 810 shares held in trust for Mr. Ryan's son under the
Uniform Gifts to Minors Act of New York, for which Mr. Ryan disclaims
beneficial ownership.
PRINCIPAL HOLDERS OF COMMON STOCK
The following table lists all persons or groups of persons who, to
the Company's knowledge based on reports filed with the SEC, beneficially
own more than 5% of the Company's outstanding Common Stock as of November
1, 2000. The address of Messrs. Lederer and Kostusiak is that of the
Company.
AMOUNT AND
NAME AND ADDRESS NATURE OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
------------------- ------------------ ------------
Ultrak, Inc. 1,335,100(1) 21.0%
301 Waters Ridge Drive
Lewisville, TX 75057
Karl H. Kostusiak 579,561(2) 8.9%
Dimensional Fund Advisors, 388,872(3) 6.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
USGM Securities, Inc. 357,456(4) 5.7%
51 East Market Street
Corning, NY 14830
Lionheart Group, Inc. 330,200(5) 5.2%
230 Park Avenue, Suite 51b
New York, NY 10169
David B. Lederer 328,502(2)(6) 5.1%
FOOTNOTES:
* Percentage of Common Stock owned is less than 1%.
(1) Ultrak's share holdings are as reported on the amended Schedule 13D
it filed on June 19, 2000.
(2) Messrs. Kostusiak and Lederer currently possess both sole voting and
investment power except with respect to 179,840 and 117,465 shares,
respectively, which may be acquired upon retirement or resignation
pursuant to the Company's deferred compensation plans, and 16,000 and
8,000 shares, respectively, which may be acquired from the exercise
of stock options.
(3) Dimensional Fund Advisors' share holdings are as reported on the
Schedule 13G it filed on February 3, 2000.
(4) Includes 13,085 shares (representing less than 1% of the Common
Stock) owned by USGM Securities' parent, John G. Ullman & Associates,
Inc., P.O. Box 1424, Corning, NY 14830. Such holdings are as reported
in a Schedule 13G filed jointly by those companies on February 8,
2000.
(5) Lionheart's share holdings are as reported on the Schedule 13D it
filed on November 1, 2000.
(6) Includes 40,000 shares owned by the Lederer Family Limited
Partnership, in which Mr. Lederer and his spouse share equal voting
and investment powers, and 20,000 shares owned by Mr. Lederer's
spouse, who owns sole voting and investment power with respect to
such shares.
COMPLIANCE WITH EXCHANGE ACT SECTION 16(A)
To the Company's knowledge, based solely on review of Forms 3, 4 and
5 filed under Section 16(a) of the Securities Exchange Act of 1934, as
amended, and amendments thereto, all Section 16(a) filing requirements
applicable to the officers, directors and other principal shareholders of
the Company were complied with during fiscal 2000.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
compensation of the Company's Chief Executive Officer and four other most
highly compensated executive officers serving at the end of fiscal 2000 for
services in all capacities to the Company for the fiscal years 1998, 1999
and 2000.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
OTHER
NAME AND ANNUAL SECURITIES ALL OTHER
PRINCIPAL FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR ($) ($) ($)(1) OPTIONS(#) ($)(3)
-------------------- ------ ------- ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Karl H. Kostusiak 2000 333,795 0 68,138 0 4,859
Chairman and CEO 1999 325,714 89,740 --(2) 0 5,816
1998 240,504 0 35,814 20,000 2,640
George E. Behlke 2000 146,393 0 --(2) 5,000 2,686
Vice President, 1999 141,116 21,538 --(2) 15,000 2,554
Operations & General 1998 114,324 0 --(2) 10,000 2,734
Manager, Asia
David B. Lederer 2000 133,522 0 33,824 0 3,011
Executive Vice 1999 124,352 474 32,003 0 3,100
President 1998 192,418 0 32,865 10,000 2,525
Frank J. Ryan 2000 130,702 0 --(2) 2,000 2,386
Vice President, 1999 130,701 14,358 --(2) 0 2,492
Secretary & Treasurer 1998 113,788 0 13,874 5,000 2,616
Christopher P. Gerace 2000 102,403 0 --(2) 10,000 1,913
Vice President & Chief 1999 88,615 7,179 --(2) 10,000 1,586
Accounting Officer 1998(4) 44,034 0 --(2) 10,000 333
</TABLE>
FOOTNOTES:
(1) During fiscal 2000, $43,051 and $15,487 were paid toward life,
disability and long term care insurance premiums for the benefit of
Messrs. Kostusiak and Lederer, respectively. Mr. Lederer was
reimbursed $13,254 for car and gas expenses.
(2) Values are less than the minimum amount required to be reported.
(3) Represents contributions by the Company to accounts of the named
executive officers under the Company's 401(k) retirement savings
plan.
(4) Mr. Gerace was hired by the Company on September 1, 1997 and thus was
only employed for part of fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options
granted to named executive officers during the fiscal year 2000. Each grant
was for incentive stock options to purchase stock under the Company's 1992
or 1997 Stock Option Plans. These options are exercisable 40% after one
year, 60% after two years, 80% after three years and 100% after four years,
and each is subject to full vesting upon a change in ownership of the
Company. The Company did not grant any stock appreciation rights during
fiscal 2000.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTTON TO EMPLOYEES BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
K. Kostusiak 0 0 0 N/A N/A N/A
G. Behlke 5,000 5.74% $9.75 8/11/04 $13,469 $29,762
D. Lederer 0 0 0 N/A N/A N/A
F. Ryan 2,000 2.30% $9.75 8/11/04 $5,387 $11,905
C. Gerace 10,000 11.48% $9.75 8/11/04 $26,937 $59,525
</TABLE>
EXERCISED OPTIONS AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the options exercised during the
fiscal year 2000 and the unexercised options held as of March 31, 2000 by
the Company's named executive officers. The value of the underlying
securities was determined by subtracting the exercise price from the market
value at year end. The market price of the Common Stock on March 31, 2000
was $9.688 per share. The Company has not granted any stock appreciation
rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT MARCH 31, 2000 ON MARCH 31, 2000
ON VALUE EXERCISABLE / EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#) UNEXERCISABLE ($)
---- ----------- ----------- ------------------------- --------------------
<S> <C> <C> <C> <C>
K. Kostusiak 0 0 12,000/8,000 N/A
G. Behlke 3,000 $10,815 19,720/19,930 $2,753/$4,130
D. Lederer 0 0 6,000/4,000 N/A
F. Ryan 2,250 $6,845 4,752/4,438 N/A
C. Gerace 0 0 10,000/20,000 $2,001/$3,002
</TABLE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible
for (a) establishing general compensation policies, (b) establishing and
administering compensation plans and programs in which officers participate
and (c) establishing the specific compensation arrangements for the
Company's executive officers. The members of this Committee also serve on
the Stock Option Committee under the Company's 1992 and 1997 Stock Option
Plans.
COMMITTEE OBJECTIVES CONCERNING EXECUTIVE OFFICERS
The Compensation Committee has sought four key objectives for the
Company's executive compensation plans, programs and arrangements. These
are to (a) tie executive compensation to the Company's financial
performance, (b) encourage equity ownership in the Company by all
executives, (c) tie executive compensation programs to the achievement of
long-term Company strategic objectives, and (d) provide overall executive
compensation that will attract and retain an effective management team. The
Committee recognizes that different plans or arrangements will serve one or
more of those objectives in varying degrees, that the relative significance
of the stated objectives may shift from time to time, and that new
objectives may arise and become important.
Since fiscal 1999, two additional factors have affected the
Committee's determinations: (1) the Company's continuing expansion
activities and a need to motivate management personnel at various places
around the world; and (2) the need to continue working toward long-term
succession of management. Various changes have been made or proposed in
compensation arrangements during this period to respond to these issues.
EMPLOYMENT AGREEMENTS
In 1988, the Company entered into five-year employment agreements
with Messrs. Kostusiak and Lederer. Each year thereafter, the agreements
have been re-examined, reviewed and revised as appropriate and then
re-executed for a new five-year period.
TYING COMPENSATION TO THE COMPANY'S FINANCIAL PERFORMANCE
Among other goals, the employment agreements seek to create a strong
tie between the compensation of Messrs. Kostusiak and Lederer and the
Company's financial performance. Mr. Kostusiak's agreement pursues this
goal by providing for an opportunity for an annual cash bonus based on
pre-tax profits. This bonus program was also made available to other
full-time executive officers and key personnel of the Company with the goal
of aligning their compensation to the Company's financial performance. From
April 1998 to April 2000, Mr. Lederer was not eligible for payment under
this program due to his part-time employment. Mr. Lederer again became
eligible for the program in April 2000, when he resumed full-time
employment. During fiscal 1998, in response to the Company's growth, the
pre-tax profit threshold was changed from a fixed dollar amount
($2,000,000) to 4% of net sales, with no bonus for profits below 4% of
sales. This bonus is intended to provide incentives for managing the
Company's financial performance toward having pre-tax profits significantly
exceed 4% of sales.
During fiscal 1998, the Committee eliminated a previously used stock
bonus plan for executives and reverted to the use of stock options. In that
year, for the first time since 1987, stock options were granted to Messrs.
Kostusiak and Lederer for the purchase of 20,000 and 10,000 shares,
respectively, of stock at a price of $14.75 per share. No options were
granted to Mr. Kostusiak in fiscal 1999 or in fiscal 2000.
Executive officers who do not participate in the Company's annual
cash bonus program participate in the Company's general profit sharing
plan, which is available to most U.S. based employees. This plan, which was
revised at the beginning of fiscal 1999, provides a quarterly distribution
of 4% of pre-tax profits in excess of 4% of net sales. No executive
officers were eligible for payment under this general profit sharing plan
in fiscal 2000.
The Committee believes that the bonus provisions of the employment
agreements generally functioned as intended during the past three years. In
particular, Mr. Kostusiak's bonus compensation was as follows:
FISCAL YEAR CASH BONUSES SALES 4% OF SALES PRE-TAX PROFIT
----------- ------------ ----- ----------- --------------
2000 $0 $141,918,000 $5,676,720 $5,585,000
1999 $89,740 $138,045,000 $5,521,800 $7,307,000
1998 $0 $126,343,000 $5,053,720 $2,337,000
EQUITY OWNERSHIP BY MANAGEMENT
Since the Company's founding in 1968, Messrs. Kostusiak and Lederer
have each owned a substantial number of shares of the Company's Common
Stock. Over the years, other officers have been granted opportunities to
acquire stock through stock options and bonus stock programs. Under the
Company's current stock option plan, options are granted at exercise prices
that equal fair market value of the option shares on the date of grant, and
the option rights vest incrementally over a span of four years. From time
to time, the Stock Option Committee grants options under the plan to
Company executives and other key employees and, as noted above, in fiscal
1998, a 20,000-share option was granted to Mr. Kostusiak. The Committee
believes that the options themselves, even when unexercised, provide
incentives for key personnel to improve shareholder value, since only then
will the options become valuable.
ACHIEVEMENT OF LONG-TERM COMPANY OBJECTIVES
The Committee believes providing executive officers an opportunity to
own substantial equity positions in the Company provides a considerable
incentive for them to pursue the Company's long-term strategic objectives.
The Committee further believes that the Company's longstanding employment
contracts with Messrs. Kostusiak and Lederer provide additional such
incentives. These contracts were initially entered into in 1988 and are the
product of lengthy negotiations between the Compensation Committee and such
executives.
In 1996, retirement provisions were added to these employment
contracts, which require the Company to pay retirement benefits to such
executives, beginning at a specified age. In addition to providing
incentives to pursue the Company's long-term objectives, these retirement
provisions help provide for an orderly transition plan for the Company's
senior management.
In addition, the Committee increased Mr. Kostusiak's base salary by
3% during fiscal 2000 and continued the extended non-competition commitment
from him which was first implemented in fiscal 1999. The Committee
determined that any pay increase above the modestly increased base pay
should be derived from the cash bonus plan, which is based on pre-tax
profits as described above.
As part of the continuing development of a long-term succession plan,
the Committee continues to consider implementation of certain trusts for
holding Company assets that are intended to fund deferred compensation
obligations and other benefit commitments. While those assets might
continue to be subject to the claims of Company creditors, the use of such
trusts could become a helpful part of the overall retirement and management
transition plan.
For a description of the current executive agreements, see "Executive
Agreements" and "Retirement Benefits" below.
ATTRACTING AND RETAINING MANAGEMENT
The Committee believes that the Company is attracting and retaining
effective management personnel and that the Company's approach to executive
compensation continues to be appropriate for achieving that objective. The
Committee anticipates that, from time to time, independent studies of the
Company's overall executive compensation and other investigations will be
conducted so as to test the Company's compensation approach against
compensation programs offered by others.
COMPENSATION COMMITTEE
Donald R. Adair, Chairperson
Mortimer B. Fuller, III
Edward C. McIrvine
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors
are Messrs. Adair, Fuller and McIrvine. None of these directors received
any compensation from the Company other than their fees and stock options
as directors of the Company.
EXECUTIVE AGREEMENTS
On September 27, 2000, the Company amended its employment agreements
with Messrs. Kostusiak and Lederer (the "Executive Agreements"). The
Company's Form 8-K filed with the Securities and Exchange Commission on
September 27, 2000 includes complete copies of the amended agreements.
The current Executive Agreements terminate in July 2005. Mr.
Lederer's employment commitment was reduced to half-time in April 1998. Mr.
Lederer resumed full-time employment as the Company's Executive Vice
President in April 2000, and his Executive Agreement was amended
accordingly.
The Executive Agreements provide for severance benefits under certain
circumstances. The terms "change in control," "cause," "disability" and
"potential change in control" are used in this section with the meanings
set forth in the Executive Agreements. The Executive Agreements terminate
the executive's employment upon his death or permanent disability and
provide that disability income will be paid during disability, until
retirement (normally the January 1 after the executive's 68th birthday) and
then a retirement wage benefit will be paid for the executive's life and to
any surviving spouse for life (see "Retirement Benefits" below).
Under the Executive Agreements, if the Company terminates the
executive's employment without cause, the Company must continue
compensation and benefits to the executive for the then remaining balance
of the five year term of employment or for a period of three years from the
date of termination, whichever is longer. The continuation of compensation
and benefits includes the executive's base salary plus participation in all
applicable executive incentive compensation plans and fringe benefit
packages. The Company thereafter must pay non-competition fees as described
below and retirement benefits as described under "Retirement Benefits."
If the Company terminates Mr. Kostusiak's or Mr. Lederer's employment
for cause, the terminated executive will receive the same compensation and
benefits for the remaining balance of the five year term of employment or
for a period of three years from the date of termination, whichever is
longer, plus non-competition fees and benefits, retirement benefits and
possible disability benefits. This compensation and benefits will be
reduced by any monetary damage suffered by the Company due to the cause.
The Executive Agreements provide that each executive may not compete
with the Company during the term of his full-time employment and
thereafter. In exchange for the executive's agreement not to compete with
the Company following the term of employment, the executive is entitled to
receive a one time non-competition fee equal to twice the highest annual
cash compensation (including base salary and cash bonus) he received during
the three-year period immediately preceding the date his employment is
terminated and, beginning on the retirement date, the retirement wage
benefit described below.
If a majority of the Company's outside Directors determines that a
"potential change in control" has occurred, the Company must transfer to an
escrow account an amount in cash sufficient to fund (or an amount in cash
sufficient to purchase an annuity to fund) the following payments and
benefits: (a) the executive's base salary through the termination date, as
in effect at the time of termination or at the time the change in control
occurs, whichever is higher, and any bonus earned by the executive but not
yet paid; (b) an amount equal to three times the highest total cash
compensation (including base salary and bonuses) paid to the executive in
any of the Company's preceding three fiscal years; (c) an amount equal to
the total amounts that would have been expended for benefits over the next
three years if the executive had continued as an employee; (d) an
acceleration of the right to exercise all rights or options he then holds
to acquire the Company's Common Stock, upon which he may either (x)
exercise the rights and options or (y) elect to receive cash for the
aggregate spread between the exercise price and the then market value for
the stock; (e) assignment to the executive of all rights in certain life
insurance policies then held by the Company on the executive's life; (f)
reimbursement for any amount of excise taxes he might have to pay on his
receipt of items (a) through (e), such that the Company bears all direct
and indirect costs of any such excise taxes; (g) the executive's
non-competition fees; and (h) the executive's retirement payments and
benefits(4) (as described more fully below). The aggregate amount of the
payments described in (a) through (g) above may not exceed 2.77% and 2.23%
for Messrs. Kostusiak and Lederer, respectively, of the Company's market
capitalization at the time they are transferred to the escrow account.
The election of all three (but not less than three) of Ultrak's
nominees would constitute a change in control under each of Mr. Kostusiak
and Mr. Lederer's agreements. If the Board determines that there is a
"potential change in control" prior to the election, the Company must
transfer to an escrow account an cash amount sufficient to fund the
executives' change in control payments. The value of such payments would be
equal to 2.77% and 2.23% of the market capitalization of the Company at the
time of transfer for Messrs. Kostusiak and Mr. Lederer, respectively. For
example, assuming the Company's market capitalization is equal to its
market capitalization of $76,000,896 as of November 1, 2000 on the date of
transfer, the Company would be required to transfer to an escrow account
$2,105,224 and $1,694,819 to fund change in control payments for Messrs.
Kostusiak and Lederer, respectively. The actual amounts to be transferred
to the escrow account may be significantly different than these amounts,
because they would depend upon the Company's market capitalization at the
time of transfer.
If a change in control (such as the election of all three Ultrak
nominees) occurs, the Company or the executive(5) may give notice to start
running a six month termination period. If the executive's employment is
terminated by the Company or the executive during that six month period,
the executive would be entitled to receive the amounts then held in the
escrow account. Such amount paid to the executive will be subject to the
market capitalization percentage limitations described above, based upon
the Company's market capitalization immediately prior to the change in
control (and thus may be different than the amounts in the escrow account,
which were based on the Company's market capitalization at the time of the
potential change in control). If no change in control occurs after a
potential change in control or the notice period described above expires,
the amounts held in the escrow account will be returned to the Company.
--------
4 The Company maintains a life insurance policy for each executive. If
there is a "potential change in control," the Company must contribute
to the escrow account those policies and a cash amount sufficient to
fund the executives' retirement benefits.
5 Mr. Lederer may only give such notice or terminate his employment
following similar action by Mr. Kostusiak.
Upon termination of employment, the executive becomes obligated to
provide up to 8 days of consulting services per year to the Company.
Messrs. Kostusiak and Lederer will be paid for $1,500 and $1,200 per day,
respectively, for consulting services.
The Company also maintains a longstanding severance policy with
respect to its corporate officers, which provides that if a corporate
officer is terminated other than for "cause," or the officer terminates
employment following certain relocations, reductions in compensation or
diminutions in responsibility, the officer will receive continued salary
and medical benefits for a non-compete period which is negotiated
individually with each officer. The Company has entered into letter
agreements with Messrs. Behlke, Gerace and Ryan confirming such policy for
non-compete periods of 21, 6 and 19 months, respectively.
RETIREMENT BENEFITS
The current Executive Agreements require the Company to pay
retirement benefits to each executive for his lifetime and for his spouse's
lifetime, if she survives him.
Assuming each executive retires at the end of the calendar year in
which he reaches age 68, his benefits would be as follows: (a) a retirement
wage benefit initially equal to 60% of his base salary for the last year of
his full time employment, increased each year thereafter by the annual
increase in the Consumer Price Index (although the wage benefit for his
spouse shall be 75% of that amount after executive's death); (b)
continuation of full health insurance or similar benefit for him and his
spouse; and (c) continuation of any other benefit programs that provide for
continuation pursuant to their terms. The amount of the benefit paid under
(c) will be limited to 60% of the maximum annual cost of this benefit in
any year prior to retirement, increased annually by the Consumer Price
Index.
Assuming a 5% compounded annual increase in the base compensation,
and assuming each executive will retire at age 68, the estimated initial
annual benefit that would be payable to Messrs. Kostusiak and Lederer under
the pension plan provision in their Executive Agreements would be $277,842
and $233,388 respectively.
The Executive Agreements further provide that: (a) the Company may
terminate payment of retirement benefits if a court determines that the
executive has violated the non-competition provisions of his Executive
Agreement and (b) the Company must purchase and maintain life insurance
sufficient to fund the estimated spousal benefits (any excess policy
proceeds to be available, if agreed, to purchase shares of the Company's
Common Stock held in the executive's estate). Upon a potential change in
control, the Company must place these insurance policies in a trust
designated for this purpose. Thus, if all three Ultrak nominees are
elected, the Company must transfer $2,745,000 and $2,049,000 to an escrow
account to fund the retirement payments and benefits for Messrs. Kostusiak
and Lederer, respectively. These amounts would be used to fund the ordinary
retirement payments and benefits that each executive is entitled to receive
(and would have received even if there was no change in control).
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors met four
times during fiscal 2000. The Committee's primary purpose is to monitor:
(1) the integrity of the Company's financial statements; (2) the Company's
compliance with legal and regulatory requirements; and (3) the independence
and performance of the Company's internal auditing function and external
auditors.
Representatives from the Company's independent auditors,
PricewaterhouseCoopers ("PwC"), were present at each of the Committee's
four meetings. The Committee discussed with PwC the Company's financial
management and financial structure and the matters relating to the conduct
of the audit required to be discussed by Statement on Auditing Standards
61.
The Committee and PwC also discussed PwC's independence. PwC reported
to the Committee that its recent internal independence audit confirmed that
its independence has been maintained. On June 1, 2000, the Committee
received from PwC the written disclosures and the letter regarding PwC's
independence required by Independence Standards Board Standard No. 1.
In addition, the Committee reviewed and discussed with the Company's
management the Company's audited financial statements relating to fiscal
2000.
Based upon the review and discussions described above, the Committee
recommended to the Company's Board of Directors that the Company's audited
financial statements prepared by PwC be included in the Company's 2000
Annual Report on Form 10-K.
AUDIT COMMITTEE
Edward C. McIrvine, Chairperson
Donald R. Adair,
Mortimer B. Fuller, III
COMPARISON OF TOTAL SHAREHOLDER RETURN
The Company's Common Stock trades on The Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol: DETC. The following graph sets
forth the Company's Total Shareholder Return Index as compared to The Total
Return Index for the Nasdaq Stock Market (U.S.), the Russell 2000 Index and
the Total Return Index for Nasdaq Electronic Components Stocks. The Russell
2000 Index consists of 2000 small market capitalization companies and is
widely accepted and used. The Company believes that the Russell 2000 Index
represents the Company's market capitalization better than the Total Return
Index for Nasdaq Electronic Components Stocks, which includes larger
companies. The Company will not include the latter index in future graphs
comparing shareholder return.
[Graphics Omitted.]
MAR-95 MAR-96 MAR-97 MAR-98 MAR-99 MAR-00
Detection Systems 100 128 344 235 157 191
Russell 2000 100 127 131 184 152 204
Nasdaq Stock Market (U.S.) 100 136 151 229 309 574
Nasdaq Electronic
Component Stocks 100 132 231 265 386 1141
FOOTNOTE:
(1) Assumes $100 was invested in each entity on March 31, 1995, and that
all dividends were reinvested.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has recommended that shareholders ratify the
appointment of PricewaterhouseCoopers LLP as the independent auditors of
the Company for the fiscal year ending March 31, 2001.
PricewaterhouseCoopers has served as the Company's independent auditors
since 1968. Representatives of the firm will be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR 2001. PROXIES WILL
BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY CHOICE IN THEIR PROXIES.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Under the Company's By-Laws, the Company's Secretary must receive
notice of shareholder nominations to the Board of Directors and all other
shareholder proposals between August 21, 2001 and September 20, 2001.
Shareholder proposals intended to be presented at the 2001 annual meeting
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, must be received by the Company's secretary no later than August
21, 2001 in order to be considered for inclusion in the 2001 proxy
statement. In order for shareholder proposals made outside of Rule 14a-8 to
be considered timely withing the meaning of Rule 14a-4(c) under the
Exchange Act, such proposals must be received by the Secretary of the
Company no later than _______, 2001.
VOTING AND REVOCABILITY OF PROXIES
The record date for determining shareholders entitled to notice of
and to vote at the Annual Meeting is the close of business on December 1,
2000. As of the date hereof, there are 6,333,408 outstanding shares of
Common Stock. Shareholders are entitled to one vote for each share owned.
The Company's 2000 Annual Report was mailed during the week of
September 11, 2000 to shareholders of record. Along with the mailing of
this Proxy Statement and the proxy card on November __, 2000, the Company
mailed the Annual Report to all shareholders of record on such date who
were not previously sent the Annual Report.
The Company scheduled its 2000 annual meeting of shareholders on
December 19, 2000 and set a record date of December 1, 2000 to allow Fleet
and the Board adequate time to consider the Company's strategic
alternatives and to communicate with shareholders. To allow sufficient time
for solicitation of proxies prior to the meeting, the Company first mailed
this Proxy Statement and the enclosed proxy card to shareholders prior to
the record date. The Company is aware that certain persons may become
shareholders of record between November __, 2000 and December 1, 2000. The
Company believes that all such persons will already be aware of the proxy
contest and familiar with the issues. The Company will closely monitor
purchases of its stock during this period, and will mail this Proxy
Statement, the proxy card and the Annual Report to such persons as soon as
possible.
All proxies in the enclosed form that are properly executed and
received by the Company prior to or at the Annual Meeting and not revoked
will be voted at the Annual Meeting in accordance with the instructions
thereon. All properly executed and received proxies dated prior to December
1, 2000 shall be considered valid if the executing person is a shareholder
of record as of December 1, 2000. If no instructions are given with respect
to any properly executed and received proxy, such proxy shall be voted FOR
approval of the election of each of the Company's proposed nominees for
director, as described in this Proxy Statement and FOR approval and
ratification of the selection of PricewaterhouseCoopers LLP as the
independent auditors for the Company and its subsidiaries for the fiscal
year 2001.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. A shareholder may revoke
any proxy (whether such proxy was solicited by the Company or Ultrak) at
any time prior to its exercise by submitting to the Company or Ultrak a
written revocation or duly executed proxy bearing a later date or by
attendance at the Annual Meting and voting in person. Attendance at the
Annual Meeting will not in and of itself constitute a revocation of a
proxy. Accordingly, any later-dated proxy would have the effect of revoking
any earlier-dated proxy, whether such proxy was delivered to the Company or
Ultrak. Only your latest-dated proxy will count at the Annual Meeting;
thus, you will not be able to give an effective proxy at the same time to
both the Company and Ultrak.
Under New York law and the Company's By-Laws, the presence of a
quorum, represented in person or by proxy by a majority of the total
outstanding shares of Common Stock entitled to vote, is required at the
Annual Meeting. Shares represented by proxies that are marked "abstain"
will be counted as shares present for purposes of determining the presence
of a quorum on all matters. Proxies relating to "street name" shares that
are voted by brokers on some but not all of the matters will be treated as
shares present for purposes of determining the presence of a quorum on all
matters, but will not be treated as shares entitled to vote at the Annual
Meeting on those matters as to which authority to vote is withheld by the
broker (the "Broker Non-Votes").
Directors of the Company are elected by a plurality vote. The five
nominees receiving the highest vote totals will be elected as directors of
the Company. With respect to the election of directors, votes may be cast
in favor of nominees or withheld. Broker Non-Votes will not affect the
outcome of the election of directors. The affirmative vote of the holders
of a majority of the votes cast at the Annual Meeting by the shareholders
entitled to vote thereon will be required to approve and ratify the
appointment of PricewaterhouseCoopers LLP as the independent auditors for
the Company. Broker Non- Votes and abstentions will not be counted as votes
cast for the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors, and, therefore, will not have any effect on the
outcome of such vote.
METHOD AND COST OF PROXY SOLICITATION
Proxies may be solicited without additional compensation by all
directors and such officers of the Company listed in Appendix B by e-mail,
the internet, telephone, facsimile, telegram, in person or otherwise.
Appendix B sets forth certain information relating to such persons who will
be soliciting proxies on the Company's behalf (the "Participants").
The Company will bear all costs related to the solicitation of
proxies pursuant to this Proxy Statement, including the preparation,
printing and mailing of proxy materials. The Company has spent
approximately $115,000 thus far in connection with the solicitation of
proxies and estimates that it will spend a total of $357,000 beyond what it
would normally spend for the solicitation of proxies in connection with an
annual meeting.
The Company has retained MacKenzie Partners, Inc. to assist in
soliciting proxies. MacKenzie Partners will employ approximately 35
employees in connection with the solicitation, at an approximate cost of
$125,000.
The Company requests that banks, brokers and other custodians,
nominees and fiduciaries forward proxy materials to the beneficial owners
of the Company's stock and obtain their voting instructions. The Company
will reimburse those firms for their expenses in accordance with SEC rules.
YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS ESPECIALLY IMPORTANT.
PLEASE SIGN AND DATE THE ENCLOSED WHITE PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE PROMPTLY.
WE URGE YOU NOT TO SIGN OR RETURN ANY PROXY CARD THAT MAY BE SENT TO
YOU BY ULTRAK, EVEN AS A PROTEST VOTE AGAINST ULTRAK. If you previously
voted on an Ultrak BLUE proxy card, you have every legal right to change
your vote. You can do so simply by signing, dating and returning the
enclosed WHITE proxy card. A person giving any proxy has the power to
revoke it (whether such proxy was solicited by the Board of Directors or by
Ultrak) at any time before the voting by submitting to the Company or to
Ultrak a written revocation or duly executed proxy card bearing a later
date. ONLY YOUR LATEST DATED PROXY CARD WILL COUNT. Please refer to "Voting
and Revocability of Proxies" on page 30 for a discussion of how to revoke
your proxy.
FORWARD LOOKING STATEMENTS
Statements made by the Company in this Proxy Statement that are not
strictly historical facts are "forward looking" statements that are based
on current expectations about the markets in which the Company does
business and assumptions made by management. Such statements should be
considered as subject to risks and uncertainties that exist in the
Company's operations and business environment and could render actual
outcomes and results materially different than predicted. For a description
of some of the factors and uncertainties which could cause actual results
to differ, reference is made to the section entitled "Risk Factors" in the
Company's 2000 Annual Report on Form 10-K, as amended.
OTHER MATTERS
The Board of Directors knows of no matters to be presented at the
Annual Meeting other than those described in this Proxy Statement. However,
if any other matters properly come before the Annual Meeting, it is
intended that the persons named in the enclosed proxy will vote on such
matters in accordance with their best judgment.
Shareholders are urged to sign, date and return the enclosed WHITE
proxy in the enclosed return envelope. Prompt response is helpful, and your
cooperation will be appreciated.
Shareholders may obtain without charge a copy of the Company's annual
report on Form 10-K for the fiscal year ended March 31, 2000. Requests
should be directed to Detection Systems, Inc., 130 Perinton Parkway,
Fairport, New York 14450, Attn: Shareholder Relations or:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
[email protected]
(212) 929-5500 (call collect)
or
Toll-Free (800) 322-2885.
Dated: November __, 2000
IMPORTANT
If your shares of Common Stock are held in the name of a brokerage
firm, bank, nominee or other institution, only it can sign a WHITE proxy
card with respect to your shares and only upon specific instructions from
you. Please contact the person responsible for your account and give
instructions for a WHITE proxy card to be signed representing your shares
of the Company's stock. We urge you to confirm in writing your instructions
to the person responsible for your account and to provide a copy of such
instructions to the Company's proxy solicitor, MacKenzie Partners, Inc., at
the address indicated below so that MacKenzie Partners can attempt to
ensure that your instructions are followed.
If you have any questions about executing your proxy or require
assistance, please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
[email protected]
(212) 929-5500 (call collect)
or
Toll-Free (800) 322-2885
Banks and brokerage firms please call collect: (212) 929-5500.
APPENDIX A
INFORMATION CONCERNING
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages, principal occupations
and business experience for the past five years of the Company's executive
officers (other than Messrs. Kostusiak and Lederer whose information is
given on page 17). The principal business address of each person listed is
that of the Company.
BUSINESS EXPERIENCE OF OFFICERS
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
George E. Behlke (42) Vice President, Operations, and General Manager,
Asia, of the Company (since May 2000) Vice
President, Operations of the Company (June 1999
- April 2000) Vice President, Engineering and
Operations of the Company (April 1998 - May
1999) Vice President, Engineering of the Company
(June 1995 - April 1998) Various engineering and
engineering management positions with the
Company (October 1977 - May 1995)
Christopher P. Gerace (33) Vice President & Chief Accounting Officer of the
Company (since June 1999) Chief Accounting
Officer of the Company (September 1997 - May
1999) Senior Manager, Price Waterhouse LLP
(April - August 1997) Manager, Price Waterhouse
LLP (April 1994 - March 1997) Various accounting
and accounting supervisory positions, Price
Waterhouse LLP (September 1989 - March 1994)
Frank J. Ryan (46) Vice President, Secretary and Treasurer of the
Company (since June 1988) Secretary and
Treasurer of the Company (June 1986 - June 1988)
Controller of the Company (July 1982 - May 1986)
Various accounting and accounting supervisory
positions with the Company (April 1980 - June
1982)
Jeffrey M. Swan (35) Vice President of Engineering of the Company
(since June 1999) Various engineering and
engineering supervisory positions with the
Company (1992 - May 1999) Various engineering
and engineering supervisory positions, Smith
Corona Corporation (1987 - 1991)
APPENDIX B
INFORMATION REGARDING PARTICIPANTS IN THE SOLICITATION
The following table sets forth the purchases and sales of the
Company's equity securities by the Participants during the past two years.
Unless otherwise indicated, all transactions took place in the open market.
NUMBER OF
SHARES
ACQUIRED
NAME OR SOLD DATE PRICE OF ACQUISITION/SALE
---- ------- ---- -------------------------
Donald R. Adair 0 N/A N/A
Jerald D. Bidlack(1) 1000 8/22/00 $9,375 (Purchased)
1000 8/23/00 $9,250 (Purchased)
1000 8/25/00 $9,250 (Purchased)
1000 8/31/00 $9,250 (Purchased)
Mortimer B. Fuller III 0 N/A N/A
Christopher P. Gerace 0 N/A N/A
Karl H. Kostusiak 200 5/5/00 $1,950 (Gifted)
200 6/2/98 $2,000 (Gifted)
David Lederer 500 6/1/99 $4,375 (Gifted)
20,000 9/29/98 $205,000 (Transferred)(2)
20,000 9/29/98 $205,000 (Transferred)(3)
Edward McIrvine 1,500 2/17/00 $14,288 (Sold)
2,000 2/16/00 $18,812 (Sold)
2,000 11/6/98 $23,125 (Sold)
5,806 9/8/98 (Acquired)(4)
1,331 11/16/98 (Transferred)(5)
Frank J. Ryan 2,250 6/14/99 $10,875 (Purchased/Exercised Option)
C. Duncan Soukup(6) 4,000 8/24/98 $9.07 (Purchased)
9,600 9/18/98 $8.75 (Purchased)
200 9/28/98 $9.63 (Purchased)
900 11/30/98 $9.59 (Purchased)
500 12/7/98 $9.16 (Purchased)
100 12/22/98 $9.63 (Purchased)
7,000 12/30/98 $9.06 (Purchased)
2,900 12/31/98 $9.10 (Purchased)
6,000 1/6/99 $8.91 (Purchased)
3,000 1/13/99 $9.45 (Purchased)
6,500 2/23/99 $9.32 (Purchased)
6,000 2/25/99 $8.88 (Purchased)
1,100 2/26/99 $9.27 (Purchased)
5,000 3/19/99 $8.93 (Purchased)
6,300 3/30/99 $8.19 (Purchased)
9,700 3/31/99 $8.16 (Purchased)
7,200 4/13/99 $7.28 (Purchased)
2,800 4/30/99 $9.05 (Purchased)
1,000 6/30/99 $8.46 (Purchased)
5,000 9/22/99 $10.63 (Purchased)
1,000 9/30/99 $10.21 (Purchased)
6,200 10/27/99 $9.47 (Sold)
9,400 11/10/99 $9.56 (Purchased)
1,000 11/30/99 $9.00 (Purchased)
2,500 12/6/99 $9.13 (Sold)
7,000 12/7/99 $9.35 (Purchased)
6,000 12/9/99 $9.19 (Purchased)
5,000 12/10/99 $9.17 (Purchased)
6,200 12/14/99 $9.19 (Purchased)
4,000 12/15/99 $9.19 (Purchased)
5,000 12/16/99 $9.19 (Purchased)
1,500 12/17/99 $9.19 (Purchased)
1,500 12/20/99 $9.31 (Purchased)
6,000 12/22/99 $9.44 (Purchased)
700 12/23/99 $9.44 (Purchased)
6,500 12/27/99 $9.44 (Purchased)
500 12/31/99 $9.56 (Purchased)
10,000 1/12/00 $9.75 (Purchased)
5,500 1/1400 $10.03 (Purchased)
9,800 2/18/00 $10.50 (Purchased)
5,000 2/2900 $10.16 (Purchased)
4,000 3/6/00 $10.75 (Sold)
40,000 3/13/00 $12.84 (Sold)
1,700 3/14/00 $12.00 (Purchased)
3,000 3/28/00 $10.19 (Purchased)
20,000 3/31/00 $9.91 (Purchased)
5,000 4/17/00 $8.88 (Purchased)
6,400 5/12/00 $8.98 (Purchased)
1,400 5/24/00 S9.75 (Purchased)
3,000 5/25/00 $9.56 (Purchased)
4,500 5/26/00 $9.85 (Purchased)
2,000 5/30/00 $9.69 (Purchased)
1,000 5/31/00 $9.88 (Purchased)
9,000 6/20/00 $9.60 (Purchased)
700 6/30/00 $9.56 (Purchased)
1,300 7/17/00 $10.63 (Sold)
800 7/27/00 $9.56 (Purchased)
9,000 8/24/00 $9.50 (Purchased)
500 8/31/00 $9.25 (Purchased)
1,400 9/13/00 $8.63 (Purchased)
2,100 9/14/00 $8.81 (Purchased)
6,200 9/18/00 $8.52 (Purchased)
5,000 9/20/00 $8.69 (Purchased)
2,500 9/21/00 $9.03 (Purchased)
7,500 9/26/00 $9.06 (Purchased)
1,500 9/29/00 $9.31 (Purchased)
6,400 10/4/00 $9.00 (Purchased)
1,000 10/5/00 $9.00 (Purchased)
16,000 10/6/00 $9.06 (Purchased)
5,000 10/9/00 $8.88 (Purchased)
6,600 10/10/00 $9.06 (Purchased)
2,500 10/11/00 $8.94 (Purchased)
6,500 10/12/00 $8.94 (Purchased)
2,000 10/17/00 $10.63 (Purchased)
2,500 10/20/00 $11.00 (Purchased)
6,000 10/23/00 $11.05 (Purchased)
12,000 10/24/00 $10.58 (Purchased)
2,500 10/25/00 $10.56 (Purchased)
FOOTNOTES:
(1) Shares were purchased by Griffin Automation, Inc., a company of which
Mr. Bidlack is President.
(2) Transferred to spouse, and transferred by spouse to Lederer Family
Limited Partnership.
(3) Transferred to Lederer Family Limited Partnership.
(4) Shares acquired from former spouse in connection with divorce
settlement.
(5) Shares transferred to AFSC Charitable Remainder Unitrust for life
income benefit of former spouse in connection with divorce
settlement.
(6) Represents shares purchased by Lionheart Group, Inc., a company of
which Mr. Soukup is the President and Chief Executive Officer.
FLEET SECURITIES
Certain employees of Fleet, the Company's financial advisor, may also
assist the Company in the solicitation of proxies, including by
communicating in person, by telephone, by e-mail or otherwise with a
limited number of institutions, brokers or other persons who are
shareholders of the Company. Fleet will not receive any separate fee for
such solicitation activities. Fleet does not admit that it or any of its
directors, officers, employees or affiliates are a "participant," as
defined in Schedule 14A promulgated under the Securities Exchange Act of
1934 by the SEC, or that such Schedule 14A requires the disclosure of
certain information concerning Fleet.
The following officers and employees of Fleet may assist in the
solicitation of proxies: George J. Holder (Managing Director); Michael A.
Papile (Director); Kristine Sullivan (Vice President); Michael A. Flynn
(Senior Associate); and Rebecca E. Tarby (Analyst). No such person owns any
shares of Common Stock or has engaged in any transaction involving Common
Stock during the past two years. The principal business address of each
such person is Fleet Securities, Inc., 100 Federal Street, 11th Floor, Mail
Stop: MA DE 10011H, Boston, Massachusetts 02110.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as otherwise described in this Proxy Statement (including the
Appendices hereto), none of the participants nor any of their respective
affiliates or associates (together, the "Participant Affiliates"), (i)
directly or indirectly beneficially owns any shares of Common Stock of the
Company or any securities of any subsidiary of the Company or (ii) has had
any relationship with the Company in any capacity other than as a
shareholder, employee, officer and/or director. Furthermore, except as
otherwise described in the Proxy Statement, no Participant Affiliate is
either a party to any transaction or series of transactions in the fiscal
year 2000, or has knowledge of any currently proposed transaction or series
of transactions, (i) to which the Company or any of its subsidiaries was or
is to be a party, (ii) in which the amount involved exceeds $60,000, and
(iii) in which any Participant Affiliate had, or will have, a direct or
indirect material interest.
Except as otherwise described in the Proxy Statement, no Participant
or Participant Affiliate has entered into any agreement or understanding
with any person respecting any future employment by the y or its affiliates
or any future transactions to which the Company or any of its affiliates
will or may be a party. Except as otherwise described in the Proxy
Statement, there are no contracts, arrangements or understandings by any
Participant or Participant Affiliate within the last fiscal year with any
person with respect to the Company's securities.
APPENDIX C
CHARTER
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF DETECTION SYSTEMS, INC.
Adopted by the Board of Directors on June 2, 2000
The Audit Committee is appointed by the Board of Directors to assist
the Board in monitoring (1) the integrity of the financial statements of
the Company, (2) the compliance by the Company with legal and regulatory
requirements and (3) the independence and performance of the Company's
internal auditing function and external auditors.
The members of the Audit Committee shall meet the independence and
experience requirements of the Nasdaq Stock Market, Inc. The members of the
Audit Committee shall be appointed by the Board.
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit
Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditor to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing
principles and practices as well as the adequacy of internal
controls that could significantly affect the Company's
financial statements.
3. Review an analysis prepared by management and the independent
auditor of significant financial reporting issues and judgments
made in connection with the preparation of the Company's
financial statements.
4. Review with management and the independent auditor the
Company's quarterly financial statements prior to the filing of
its Form 10-Q.
5. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to
monitor and control such exposures.
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent
auditor or management.
7. Recommend to the Board the appointment of the independent
auditing firm, which firm is ultimately accountable to the
Audit Committee and the Board.
8. Approve the fees to be paid to the independent auditor.
9. Receive periodic reports from the independent auditor regarding
the auditor's independence consistent with Independence
Standards Board Standard 1, discuss such reports with the
auditor, and if so determined by the Audit Committee, take or
recommend that the full Board take appropriate action to
oversee the independence of the auditor.
10. Evaluate together with the Board the performance of the
independent auditor and, if so determined by the Audit
Committee, recommend that the Board replace the independent
auditor.
11. Review any significant reports to management, and management's
responses, regarding accounting and control procedures or
personnel.
12. Meet with the independent auditor prior to the audit to review
the planning and staffing of the audit.
13. Obtain from the independent auditor assurance that Section 10A
of the Securities Exchange Act of 1934 has not been implicated.
14. Obtain reports from management and the independent auditor that
the Company's subsidiary/foreign affiliated entities are in
conformity with applicable legal requirements and the Company's
Business and Ethics Code of Conduct.
15. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to
the conduct of the audit.
16. Review with the independent auditor any problems or
difficulties the auditor may have encountered and any
management letter provided by the auditor and the Company's
response to that letter. Such review should include:
a. Any difficulties encountered in the course of the audit
work, including any restrictions on the scope of
activities or access to required information.
b. Any changes required in the planned scope of the audit.
17. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual
proxy statement.
18. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and
regulations and with the Company's Business Ethics and Code of
Conduct.
19. Review with the Company's legal counsel legal matters that may
have a material impact on the financial statements, the
Company's compliance policies and any material reports or
inquiries received from regulators or governmental agencies.
20. Meet at least annually with the chief financial officer and the
independent auditor in separate executive sessions.
While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine whether or not the Company's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. This is the responsibility of management
and the independent auditor. Nor is it the duty of the Audit Committee to
conduct investigations, to resolve disagreements, if any, between
management and the independent auditor or to assure compliance with laws
and regulations and the Company's Business Ethics and Code of Conduct.
APPENDIX D
FORM OF PROXY
DETECTION SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 19, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DETECTION
SYSTEMS, INC. (THE "COMPANY") FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 19, 2000.
The undersigned hereby appoints Karl H. Kostusiak, David B. Lederer and
Frank J. Ryan, and each of them, with full powers of substitution, as
attorneys and proxies to represent the undersigned at the Annual Meeting of
shareholders of the Company to be held on December 19, 2000, and at any
adjournment or postponement thereof, according to the number of votes that
the undersigned would be entitled to cast if personally present. Unless
indicated to the contrary, the undersigned hereby revokes any and all
proxies which the undersigned may have given to Ultrak, Inc. in its proxy
solicitation.
PROPERLY EXECUTED PROXIES WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN, SUCH PROXIES WILL BE
VOTED FOR ALL NOMINEES REFERRED TO IN PROPOSAL 1 AND FOR THE PROPOSAL
REFERRED TO IN PROPOSAL 2.
[X] Please mark your votes as in this example.
------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2
------------------------------------------------------------------------------
1. To elect the following nominees as directors to serve until the next
Annual Meeting of shareholders and until their successors are elected
and qualified: D. Adair, J. Bidlack, K. Kostusiak, D. Lederer and E.
McIrvine.
FOR all nominees listed above [ ] WITHHOLD AUTHORITY [ ]
(except asindicated to the contrary below):
----------------------------------------------
2. The ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent auditors for the fiscal year 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To consider and take action upon such other matters as may properly
come before the meeting, or any adjournment or postponement thereof.
PLEASE COMPLETE, DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE
* * * YOUR PROXY VOTE IS IMPORTANT * * *
No matter how many shares you own, please sign, date and mail your proxy
now, even if you plan to attend the meeting.
The undersigned revokes any prior proxies with respect to the
shares covered by this proxy.
Date: , 2000
-----------------------------------------------------
Signature
Signature
Title(s)
(This Proxy should be dated and signed by each shareholder
exactly as his or her name appears hereon and returned promptly
in the enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held by joint
tenants or as community property, both should sign.) PLEASE
SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
