PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X| Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use
of the Commission
Only (as permitted
by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant toss. 240.14a-12
DETECTION SYSTEMS, INC.
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N/A
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|_| Check box if any part of the fee is offset as provided by Exchange
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 of its filing.
1) Amount Previously Paid:________________________________________
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4) Date Filed: ___________________________________________________
As filed with the Commission on October 13, 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:
Stanley J. Kay, Jr.
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 9:30 a.m., Eastern Time, at Strong Museum,
One Manhattan Square, Rochester, New York 14607, 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
9:30 a.m. Eastern Time, at Strong Museum, One Manhattan Square, Rochester,
New York 14607, and at any adjournments or postponements thereof. Only
holders of the Company's common stock, par value $.05 per share, 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 27.
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. We believe that Ultrak is motivated by its own financial needs
and its interests as a competitor of your Company. We believe Ultrak's
actions are against the best interests of all other shareholders.
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.
As described in more detail below, your Board believes that:
o YOUR BOARD AND MANAGEMENT ARE HIGHLY QUALIFIED, due to their years of
industry experience, investment in the Company and 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. We believe the Company will continue to grow under
their leadership.
o WE HAVE A BRIGHT FUTURE DUE TO OUR SIGNIFICANT INVESTMENTS, WHICH WILL
ALLOW US TO CONTINUE DEVELOPING CUTTING-EDGE TECHNOLOGY AND ATTRACTING NEW
CUSTOMERS. 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. We believe this is just the beginning.
Your Board wants to give you an opportunity to participate in the expected
growth of the Company due to these investments.
o ULTRAK'S NOMINEES HAVE NO INDUSTRY EXPERIENCE AND ARE PROMISING
NOTHING, OTHER THAN TO REVIEW THE COMPANY'S STRATEGIC ALTERNATIVES. These
nominees were hand-picked by Ultrak. Because they have no industry
experience, we believe they may be more concerned about Ultrak's needs than
yours. Ultrak's proxy leaves room for Ultrak's nominees to reject an
immediate sale of the Company and instead approve a technology exchange
with Ultrak, or, after November 2, 2003, a merger with Ultrak!
o ULTRAK HAS REPEATEDLY EXPRESSED INTEREST IN ACQUIRING YOUR COMPANY'S
CUSTOMERS, EMPLOYEES AND TECHNOLOGY. Since Ultrak first became a 5%
shareholder in March 1998, it has repeatedly stated that its shares were
not acquired for the purpose of influencing the control of the Company.
However, Ultrak's relationship with your Company has been anything but
passive. Ultrak inquired about and made suggestions regarding our
operations on almost a weekly basis from March 1998 until the commencement
of the proxy contest in May 2000. In addition, Ultrak has repeatedly
expressed interest in acquiring our technology, tried to hire our key
employees and aggressively pursued our customers.
o ULTRAK'S PROXY CONTEST IS HURTING OUR BUSINESS; THIS HARM WILL INCREASE
IF ULTRAK'S NOMINEES ARE ELECTED. Although we have received numerous
inquiries about our award-winning new products, some customers have been
reluctant to make purchasing commitments due to the uncertainty created by
the proxy contest. Other customers have informed us that they do not trust
Broady and Ultrak, and that they intend to immediately seek alternative
suppliers or even remove their business if Ultrak's nominees are elected.
Some of our employees have expressed similar concerns.
o ULTRAK NEEDS CASH IMMEDIATELY. Ultrak's available cash has decreased
70% in its last two fiscal years! If Ultrak's nominees sell the Company,
they may accept a price which does not reflect the full and fair value of
the Company. Ultrak's nominees may therefore not consider the best
interests of all shareholders.
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 regularly contacted Karl H. Kostusiak, the Company's
Chairman and Chief Executive Officer, to request information and to make
suggestions regarding the Company's initiatives, direction and
expenditures.
Broady has repeatedly told Mr. Kostusiak that he considers the
technologies of Ultrak and the Company to be complementary, and that it
would be beneficial to combine these technologies, through a merger or by
acquisition of both companies by a third party. Broady also expressed his
interest in 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.
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, 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 five fiscal
years to those of Ultrak's management. As the graphs below illustrate, your
Company's net income rose 129% from $1.514 million to $3.468 million in the
last five fiscal years. In Ultrak's last five fiscal years, its net income
fell 78% from $2.600 million to $565 thousand.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 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 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 FIVE FISCAL YEARS
(dollars in thousands)
DETECTION SYSTEMS ULTRAK
----------------- ------
[Graphics Omitted.] [Graphics Omitted.]
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 of the Company for 20 years, and also served a
prior directorship term of 6 years. McBidlack, 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 13.)
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 we can continue our growth due to: (i) the significant
industry and Company experience of our Board and management, as described
above; (ii) our major investments in new technology and market development,
as described on pages 6 through 8; and (iii) new opportunities created by
industry consolidation, as described on page 8.
Ultrak's Management is Not Qualified to Lead Your Company
We believe Ultrak's management is not qualified to lead Detection
Systems because it has been unable to produce financial results for Ultrak.
(See "Ultrak's Ulterior Motives--Financial Issues" page 10.) Our customers
share our concerns about Ultrak's management. We have received letters from
customers who 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 customer suggested that "Broady should step aside and allow [Mr.
Kostusiak] to run [Ultrak] and bring it to a level of profitability.2
In addition, we believe that Ultrak's approach to the electronic
security market is risky and inappropriate for Detection Systems. We also
believe that Ultrak deals with end-users in a way that conflicts with the
practices of established security system installers and service companies.
A number of major companies in the industry have told us they dislike this
approach and do not want any dealings with Ultrak. If Ultrak's nominees are
elected, the Company could lose business from these customers.
Ultrak's Nominees have No Industry Experience
Ultrak's hand-picked nominees to the Board consist of two lawyers
and an investment banker. These nominees apparently have no experience in
the electronic security industry, and Ultrak has not given any particular
justification for nominating them. We believe Ultrak has its own agenda for
the Company because it is our competitor and it has expressed interest in
our technology. Especially because Ultrak's nominees have no industry
experience, we are concerned that they may be more interested in Ultrak's
agenda than your best interests.
The Board believes that Ultrak's nominees do not have the industry
background necessary to effectively evaluate the Company's strategic
alternatives and determine which alternative is likely to provide the
greatest value to all shareholders.
Ultrak's Control will Create Uncertainty for Your Company
There is no guarantee that Ultrak's nominees, if elected, will
sell, or even attempt to sell, the Company. If Ultrak wins the proxy
contest, its nominees would have the power to put Ultrak's management in
charge of Detection Systems. We believe that these nominees are likely to
rely on Ultrak's management, because they have no industry experience.
Some of our customers and employees are concerned about the
possibility of doing business with Ultrak. Customers have informed us that
they believe Ultrak's control over the Company "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.2
--------
2 Consent to reprint the material quoted in this paragraph was
neither sought nor obtained.
BRIGHT FUTURE DUE TO INVESTMENTS AND NEW BUSINESS OPPORTUNITIES
We expect that our investments in new technology and our new
business opportunities created by industry consolidation will translate
into increased revenues and income, with a corresponding growth in the
price of the Company's Common Stock.
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
remain convinced that our investment strategy will maximize shareholder
value by 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 in our long-term growth prospects and our leadership in
developing technologically-advanced products that are effective, reliable
and easy to use.
Industry Consolidation is Creating New Opportunities
We believe Ultrak's proxy statement incorrectly concludes that
consolidation in the security industry puts the Company at a competitive
disadvantage. Although we will continue to monitor the effects of industry
consolidation on our revenues, we believe consolidation is beginning to
work in our favor.
Due to consolidation, customers who have historically done business
with several smaller suppliers now find their suppliers merged into a
limited number of larger companies. Some of these customers have expressed
concern about being too dependent on a single source, and are looking to
diversify their supply sources. The Company has received new business
directly as a result of this concern. In addition, some retailers are
seeking new suppliers because competing retailers have purchased
traditional suppliers.
The Company believes that it is well-positioned to take advantage
of these conditions. As described above, we are continuing to expand our
products and customer base. We believe that our ability to provide a wide
range of security products gives us a competitive advantage over other
companies whose product offerings are more limited. Our status as an
independent company also makes us more attractive to new customers. If
Ultrak's nominees are elected to our Board, we may no longer be considered
independent, and may lose our ability to take advantage of these new
opportunities.
STRATEGIC ALTERNATIVES
Your Board believes this may not be the proper time to sell the
Company because the Company's stock price does not reflect its expected
growth. The Company's investments in the future have impacted its earnings,
and, since acquisitions are often priced as a multiple of recent earnings,
we believe this may be a particularly imprudent time to sell the Company.
We Hired Financial Advisors to Study Our Strategic Alternatives
In July 2000, the Company retained the investment banking firm of
Fleet Securities, Inc. ("Fleet") to study strategic alternatives for
maximizing value for the Company's shareholders. Fleet has provided
analyses to the Board regarding various potential strategic alternatives,
including continuing to operate as an independent entity. Based upon the
Board's assessment of the Company's future growth and its review of Fleet's
analysis, the Board believes that, at present: (i) a sale may not provide
shareholders with the full and fair value of their shares; and (ii)
shareholder value is most likely to be maximized if the Company continues
its long-term investment strategy.
We Will not Sell Unless the Terms are Attractive to ALL Shareholders
Although we believe this might not be the proper time to sell the
Company, we are willing to do so, or take any other action, 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. At that time, the Board believed that a sale was not likely to
provide shareholders with the full and fair value of their shares for the
reasons described above. However, recognizing its fiduciary duties to
shareholders, the Board authorized management to pursue discussions with
Bosch.
Bosch initially indicated that it considered the Common Stock to be
worth approximately $14 per share. The discussions with Bosch were
terminated because the Board believed:
o $14 per share did not represent the full and fair value of
the Company in light of the Board's beliefs about the
Company's growth prospects, as described above;
o Bosch appeared unlikely to make a proposal at a price
significantly greater than $14 per share;
o the price indicated by Bosch was not within Ultrak's
acceptable price range, as expressed on numerous occasions
by Broady; and
o such a transaction would not be in the best interests of all
shareholders.
The Company subsequently pursued a second transaction in which
Bosch would acquire a majority interest in the Company. Several meetings,
presentations and ongoing discussions between the parties ensued. Although
the Company attempted to continue negotiations, Bosch informed the Company
that it was not interested in a partial acquisition transaction.
Broady has attempted to portray these discussions with Bosch as
evidence that your Board is unwilling to entertain a sale of the Company.
On the contrary, we believe it demonstrates our willingness to consider a
sale, but also our determination to protect the interests of all
shareholders.
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 strategic alternatives 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.
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 has carefully crafted its proxy statement to leave open the
possibility of acquiring your Company or its technology. Ultrak merely
promises that its nominees will "review all strategic alternatives
available to the Company, including a sale of the Company." In other words,
Ultrak's nominees are not promising to sell the Company or take any action
other than to review the Company's alternatives. If for any reason Ultrak's
nominees determine that the Company should not be sold, 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.
Alternatively, if elected, Ultrak's nominees could change the
Company's strategy in a manner that is advantageous to Ultrak. For example,
the nominees could 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 some of the Company's key
employees. 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 is seeking to recover its attorneys' fees and expenses related to
litigation against the Company that it intends to discontinue (see
"Ultrak's Litigation" on page 12), and has also stated that, if it is
successful in the proxy contest, it will seek to recover all of its related
costs and expenses from the Company.
The Company's customers, management and employees, at all levels,
have expressed concern about the proxy contest. Some customers who have
expressed strong interest in our new products have been unwilling to make
purchasing commitments due to the uncertainty created by the proxy contest
or because they do not want to do business with Ultrak. For the same
reasons, a large 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, but is unable to find a buyer because it owns
such a large amount of stock and wants a premium over the market price. In
view of its apparent cash needs, we believe that Ultrak might accept a
price for the Company which does not take into account the Company's
expected future growth. (See "Bright Future Due to Investments and New
Business Opportunities" on page 6.)
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, in light of current market conditions, the Committee
hired Watson Wyatt & Company ("Watson Wyatt"), a nationally-recognized,
independent employee benefits consultant, to assist in this year's review.
Based upon its review and advice from Watson Wyatt, the Committee
recommended certain amendments to the agreements, which were approved by
the Board. 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.
In its proxy materials, Ultrak has tried to take credit for our
contract amendments, but failed to inform you that it is still trying to
recover from your Company its attorneys fees and expenses related to the
lawsuit!
Provisions of the amended agreements are described in greater
detail in the sections below entitled "Executive Agreements" and
"Retirement Benefits." The Company's Form 8-K filed with the SEC on
September 27, 2000 includes complete copies of the amended agreements.
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 alleged that the
executive agreements in place prior to the September amendments described
above were excessive, that the Board had breached its fiduciary duty in
agreeing to such agreements, and that 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. In response, Ultrak advised the Court that it
wished to voluntarily discontinue the action, but that it intended to seek
to recover its attorneys fees and expenses from the Company. The Company
continues to believe that Ultrak's action should be dismissed as moot and
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, these amendments do not
protect the Board of Directors. This proxy contest should be sufficient
proof of that! The By-Law amendments enable the Board to better protect the
rights of all shareholders by providing the Board sufficient time to
thoughtfully consider matters and nominations, as required by its 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. No director received any additional compensation for attending
any 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.
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 17; (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, October 12,
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.
71 Lewis Street
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) 5.1%
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 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 October
12, 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, Inc. 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
David B. Lederer 328,502(2)(5) 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) 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 President 1999 124,352 474 32,003 0 3,100
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 $13,254 for car and gas expenses.
(2) Values are less than the minimum amount required to be reported.
(3) Represents contributions by the Company to accounts of the named
executive officers under the Company's 401(k) retirement savings
plan.
(4) Mr. Gerace was hired by the Company on September 1, 1997 and thus
was only employed for part of fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options
granted to named executive officers during the fiscal year 2000. Each grant
was for incentive stock options to purchase stock under the Company's 1992
or 1997 Stock Option Plans. These options are exercisable 40% after one
year, 60% after two years, 80% after three years and 100% after four years,
and each is subject to full vesting upon a change in ownership of the
Company. The Company did not grant any stock appreciation rights during
fiscal 2000.
<TABLE>
<CAPTION>
NAME NUMBER OF PERCENT OF TOTAL EXERCISE OR POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS GRANTED BASE PRICE EXPIRATION ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS TO EMPLOYEES ($/SH) DATE PRICE APPRECIATION FOR OPTION
GRANTED (#) IN FISCAL YEAR TERM
------------------------
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 $9.688 per share. The Company has not granted any stock appreciation
rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS ON
ACQUIRED OPTIONS AT MARCH 31, 2000 MARCH 31, 2000
ON VALUE EXERCISABLE / EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) 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, a stock option was granted to
Mr. Kostusiak for the purchase of 20,000 shares 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 3 (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.
If a "change in control" occurs, the Company or the executive4 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." 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.
-------------------
3 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.
4 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.
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 $227,842
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.
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.]
<TABLE>
<CAPTION>
MAR-95 MAR-96 MAR-97 MAR-98 MAR-99 MAR-00
<S> <C> <C> <C> <C> <C> <C>
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 Components Stocks 100 132 231 265 386 1141
</TABLE>
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 6,328,167 outstanding shares of
Common Stock. Shareholders are entitled to one vote for each share owned.
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. If no instructions are given, proxies will 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 27 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:
Stanley J. Kay, Jr.
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:
Stanley J. Kay, Jr.
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 13). 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)
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.
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
Company 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.
(continued and to be signed on the other side)
[X] Please mark your votes as in this example.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2
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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 as indicated to the
contrary below):
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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.
