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 |_|
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|_| Preliminary Proxy Statement |_| Confidential, for Use of
the Commission Only (as
permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|X| Soliciting Material Pursuant Section 240.14a-12
DETECTION SYSTEMS, INC.
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
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it was determined):
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offsetting fee was paid previously. Identify the previous filing
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As filed with the Commission on July 7, 2000
DETECTION SYSTEMS, INC.
130 Perinton Parkway
Fairport, New York 14460
July 7, 2000
Dear Shareholder:
As you may be aware, Ultrak, Inc., led by George K. Broady, has
started a proxy contest to take control of Detection Systems. WE FIRMLY
BELIEVE THAT THIS CONTEST IS MOTIVATED BY ULTRAK'S OWN NEEDS AND IS AGAINST
YOUR BEST INTERESTS. WE URGE YOU TO OPPOSE ULTRAK AND BROADY.
Ultrak is burdened with negative cash flow and decreasing
profitability. Ultrak and Broady have sought our technology, attempted to
hire our personnel, and now want to auction your Company at a time when its
market value is depressed but its future is very promising.
DETECTION SYSTEMS' FUTURE IS BRIGHT
Detection Systems successfully competes on the basis of superior
quality and technical leadership. Since 1995, the Company has more than
tripled its revenues and its operating income. Laying the groundwork for
future growth, we continue to make huge investments in new technologies and
worldwide market development. Recent technology breakthroughs have resulted
in significant new commitments from major companies and are expected to
lead to more.
New technology investment categories include: (a) wireless,
network, and internet security communication, (b) enterprise integration,
(c) eldercare help call, (d) closed-circuit television, and (e) commercial
fire. Market development initiatives are in progress in Argentina, England,
France, Italy, Norway, and Spain.
Regarding the continuing consolidation in the U.S. market, we see
increased opportunity, not decreased as Broady suggests, because many
significant customers are concerned about being dependent on a single
supplier.
YOUR BOARD CONSIDERS THE BEST INTERESTS OF
ALL SHAREHOLDERS
Your Board takes its fiduciary responsibilities to its
shareholders very seriously. We will engage in a transaction if it is truly
in the best interests of all shareholders and provides them with the full
and fair value of their shares. WE STRONGLY RECOMMEND AGAINST A "FIRE SALE"
OF DETECTION SYSTEMS JUST TO MEET ULTRAK'S FINANCIAL NEEDS.
In 1999, Robert Bosch, GmbH expressed an interest in acquiring
your Company. After various meetings and other communications, your Board
ended these discussions, since it believed the valuation indicated by Bosch
was inadequate. Moreover, the valuation indicated by Bosch was below the
lowest price at which Broady said Ultrak would sell its Detection Systems
stock.
The Company then pursued an alternative transaction that would
benefit those shareholders, such as Ultrak, who wanted immediate cash,
while permitting other shareholders the opportunity to share in the future
growth of the Company. Discussions progressed satisfactorily with Bosch's
security systems division; however, Bosch senior management subsequently
decided not to proceed with the transaction.
We believe that the Bosch interaction demonstrates that your Board
is prepared to take actions that are in the best interests of all
shareholders.
ULTRAK IS MOTIVATED BY ITS OWN INTERESTS
We believe that Ultrak's interests are not the same as yours. We
believe that Ultrak's deteriorating cash position is motivating its desire
to liquidate its interest in Detection Systems. Ultrak's financial
challenges and need for cash have been expressed to me personally by
Broady. These are clearly supported by Ultrak's public financial
statements, which disclose:
o Ultrak's net income declined 84% from $3.6 million in 1998 to $566,000
in 1999, despite including nearly $1.9 million of income earned by
Detection Systems in 1999 (which Ultrak can report due to its ownership
of Detection Systems' stock). WITHOUT THIS INCOME FROM DETECTION
SYSTEMS, ULTRAK'S $3 MILLION DECREASE IN NET INCOME WOULD HAVE BEEN
FAR WORSE.
o In the first quarter of 2000, Ultrak suffered a net loss of $428,000.
o Ultrak's cash and cash equivalents declined from $10.9 million at March
31, 1999 to $3.3 million at March 31, 2000. IN THE SAME PERIOD, CURRENT
LIABILITIES INCREASED FROM $15.3 MILLION TO $29.6 MILLION.
Ultrak has an additional incentive for seeking a sale of Detection
Systems. Under its credit agreement, Ultrak will receive a reduction in the
interest rate on its debt if its shares of Detection Systems are sold and
other conditions are met.
We also believe that Broady is not considering your interests as a
shareholder of the Company, and may continue to ignore these interests if
his hand-picked nominees gain control of Detection Systems. For example,
while trying to orchestrate a sale of the Company, Ultrak aggressively
pursued one of your Company's most prestigious end-user accounts and also
attempted to hire several of the Company's key employees, including a
senior executive. We are concerned that Ultrak's nominees to the Board,
none of whom appears to have any experience in the security industry, may
be more interested in Ultrak's needs than in your needs.
BASED ON THESE FACTS, WE BELIEVE THAT BROADY'S PROXY CONTEST TO
TAKE CONTROL OF YOUR BOARD AND SELL DETECTION SYSTEMS IS MOTIVATED
PRIMARILY BY HIS AND ULTRAK'S ULTERIOR MOTIVES AND SELFISH INTERESTS.
BROADY IS EAGER FOR A SALE OF DETECTION SYSTEMS. BUT ULTRAK'S
NEEDS, HOWEVER URGENT, SHOULD NOT BE THE DRIVING FORCE BEHIND A SALE OF
YOUR COMPANY. WE BELIEVE THAT YOUR BOARD SHOULD CONTROL THE COMPANY'S
DESTINY SO THAT IT CAN WORK IN THE BEST INTERESTS OF ALL SHAREHOLDERS, NOT
JUST ULTRAK.
Ultrak's threatened proxy contest is of significant concern to
many of the Company's customers and employees. We believe it is
increasingly harmful to the Company's business.
We are currently talking with a number of financial advisors to
more fully explore the Company's strategic alternatives for resolving this
proxy contest. We intend to schedule our 2000 annual meeting of
shareholders after we have had an opportunity to study these alternatives.
We appreciate your continuing support and interest in Detection
Systems and our plans for its future. If you have any questions or if you
would like additional information about the Company, please call the
Company and ask for Investor Relations, or call MacKenzie Partners at
800-322-2885.
On Behalf of the Board of Directors
Very truly yours,
Karl H. Kostusiak
Chairman and
Chief Executive Officer
This letter is not a proxy statement. The Company's proxy
statement is not currently available and will be mailed to you prior to the
2000 annual meeting of shareholders. It will contain important information
and should be read carefully by all shareholders when it arrives. The proxy
statement will also be available on the Securities and Exchange
Commission's website (http://www.sec.gov) or without charge by request from
the Company.
Requests should be directed to Detection Systems, Inc., Investor
Relations, 130 Perinton Parkway, Fairport, New York 14450
or
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
[email protected]
(212) 929-5500 (call collect)
or
Toll-Free (800) 322-2885
PARTICIPANT INFORMATION
Detection Systems, Inc. (the "Company"), and certain persons named
below may be deemed to be participants in the solicitation of proxies in
connection with the Company's 2000 annual meeting of shareholders. The
participants in such solicitation may include the following of the
Company's officers and directors (collectively, the "Participants"): Donald
R. Adair (Director); George E. Behlke (Vice President, Operations & General
Manager, Asia); Mortimer B. Fuller, III (Director); Christopher P. Gerace
(Vice President and Chief Accounting Officer); Karl H. Kostusiak (Chairman
and Chief Executive Officer); David B. Lederer (Executive Vice President);
Edward C. McIrvine (Director) and Frank J. Ryan (Vice President, Secretary
and Treasurer). As of the date of this communication, Messrs. Kostusiak,
Lederer and Ryan beneficially owned, or had the right to acquire beneficial
ownership of, 575,561, 326,502 and 77,514 shares of the Company's common
stock, representing 8.8%, 5.1% and 1.2% of the Company's outstanding
shares, respectively. As of the date hereof, none of the Participants other
than Messrs. Kostusiak, Lederer or Ryan beneficially owned in excess of 1%
of the Company's common stock and the Participants, as a group,
beneficially owned 16.9% of the common stock.
The Company is also party to employment and consulting agreements
with certain of the Participants which provide that, upon the occurrence of
certain events following a change in control of the Company, such
Participants may be entitled to receive compensation and other payments.
Additionally, certain of the Participants own options to acquire shares of
the Company's common stock, which are unvested as of the date hereof, but
which will vest upon a change in control of the Company, if certain other
conditions are met.
FORWARD-LOOKING STATEMENTS
This letter contains forward-looking information which involves
expressions of management's current expectations. All forward-looking
information is subject to various risks and uncertainties that may be
beyond the Company's control and may cause results to differ materially
from management's current expectations. Information concerning factors that
could cause actual results to differ materially from management's current
expectations are set forth in the section entitled "Risk Factors" in the
Company's 2000 Annual Report on Form 10-K.
