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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ | |
Filed by a Party other than the Registrant o | |
Check the appropriate box: |
þ Preliminary Proxy Statement | |
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
o Definitive Proxy Statement | |
o Definitive Additional Materials | |
o Soliciting Material Pursuant to §240.14a-12 |
Digital Recorders, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required. | |
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
1) Title of each class of securities to which transaction applies: |
2) Aggregate number of securities to which transaction applies: |
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
4) Proposed maximum aggregate value of transaction: |
5) Total fee paid: |
o Fee paid previously with preliminary materials. |
o 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: |
2) Form, Schedule or Registration Statement No.: |
3) Filing Party: |
4) Date Filed: |
SEC 1913 (11-01) | Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
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1. To approve an amendment to the Amended and Restated Articles of Incorporation of Digital Recorders, Inc. to remove the requirement that members of the Board of Directors serve staggered three-year terms so that, beginning with the directors elected at the Annual Meeting of Shareholders in 2005, each director so nominated and elected herein will instead serve an annual term; | |
2. To elect three Class One directors to serve until the Annual Meeting of Shareholders in 2006, unless the first proposal does not pass in which case these Class One directors would serve until the Annual Meeting of Shareholders in 2008; | |
3. To ratify the selection of independent auditors for fiscal year 2005; | |
4. To amend the Digital Recorders, Inc. 2003 Stock Option Plan to increase by 300,000 the number of shares that may be issued pursuant to awards granted under that Plan; and | |
5. To transact such other business as may be properly brought before the meeting and any adjournment or postponement thereof. |
By Order of the Board of Directors, |
Chairman, Chief Executive Officer and President |
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• | Three Class One directors (Stephanie L. Pinson, Lawrence A. Taylor, and Juliann Tenney, J.D.) | |
• | Three Class Two directors (C. James Meese Jr., John K. Pirotte, and David L. Turney) | |
• | Four Class Three directors (Russell C. Cleveland, Nuria I. Fernandez, John D. Higgins, and J. Phillips L. Johnston, J.D.) |
Current Position | ||||
Name | with Company | |||
Stephanie L. Pinson | Director | |||
Lawrence A. Taylor | Director | |||
Juliann Tenney, J.D. | Director |
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# Options | Old Plan Summary as of December 31, 2004 | |||
621,371 | Old Plan Options Outstanding to Employees | |||
89,000 | Old Plan Options Outstanding to Directors | |||
5,000 | Old Plan Options Outstanding to Others | |||
715,371 | Total Old Plan Options Outstanding | |||
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C. Number of Securities | ||||||||||||
Remaining Available for | ||||||||||||
A. Number of Securities | B. Weighted-Average | Future Issuance Under | ||||||||||
to Be Issued Upon | Exercise Price of | Equity Compensation | ||||||||||
Exercise of Outstanding | Outstanding | Plans (Excluding | ||||||||||
Options, Warrants and | Options, Warrants | Securities Reflected in | ||||||||||
Plan Category | Rights | and Rights | Column A) | |||||||||
Old Plan Options | 715,371 | 2.43 | None | |||||||||
Current Plan Options | 369,500 | 2.93 | 4,500 | |||||||||
Total | 1,084,871 | 2.60 | 4,500 | |||||||||
* | The Company has no equity compensation plans that have not been approved by security holders. |
# Options | Current Plan Summary | |||
175,000 | Total Current Plan Options Available for Awards as of April 30, 2003 | |||
200,000 | Plus Additional Options Approved by Shareholders on May 26, 2004 | |||
375,000 | Total Current Plan Options Approved for Awards as of April 15, 2005 | |||
215,500 | Less Total Current Plan Options Awarded to Employees as of April 15, 2005 | |||
141,000 | Less Total Current Plan Options Awarded to Directors as of April 15, 2005 | |||
18,500 | Total Current Plan Options Available for Awards as of April 15, 2005 | |||
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Exercise | |||||||||||||||||||||||||
or Base | |||||||||||||||||||||||||
Non-Employee | Price | Options | Vesting | Expiration | |||||||||||||||||||||
Name and Position | Year | Award Date | $ | Awarded | Schedule | Date | |||||||||||||||||||
Russell C. Cleveland, Director | 2004 | 08/13/04 | 2.90 | 5,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 13,000 | Three Years | 05/01/08 | ||||||||||||||||||||
Nuria I. Fernandez, Director | 2004 | 05/26/04 | 6.75 | 10,000 | Immediate | 05/26/09 | |||||||||||||||||||
08/13/04 | 2.90 | 5,000 | Immediate | 08/13/09 | |||||||||||||||||||||
2003 | — | — | — | — | — | ||||||||||||||||||||
John D. Higgins, Director | 2004 | 08/13/04 | 2.90 | 8,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 10,000 | Three Years | 05/01/08 | ||||||||||||||||||||
J. Phillips L. Johnston, J.D., Director | 2004 | 08/13/04 | 2.90 | 8,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 10,000 | Three Years | 05/01/08 | ||||||||||||||||||||
C. James Meese Jr., Director | 2004 | 08/13/04 | 2.90 | 8,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 10,000 | Three Years | 05/01/08 | ||||||||||||||||||||
Stephanie L. Pinson, Director | 2004 | 08/13/04 | 2.90 | 5,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 13,000 | Three Years | 05/01/08 | ||||||||||||||||||||
John K. Pirotte, Director | 2004 | 08/13/04 | 2.90 | 8,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 10,000 | Three Years | 05/01/08 | ||||||||||||||||||||
Juliann Tenney, J.D., Director | 2004 | 08/13/04 | 2.90 | 8,000 | Immediate | 08/13/09 | |||||||||||||||||||
2003 | 05/01/03 | 2.35 | 10,000 | Three Years | 05/01/08 | ||||||||||||||||||||
Non-Executive Director Group | 141,000 | ||||||||||||||||||||||||
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Exercise | |||||||||||||||||||||||||
Award | or Base | Options | Vesting | Expiration | |||||||||||||||||||||
Name and Position | Year | Date | Price $ | Awarded | Schedule(1) | Date | |||||||||||||||||||
David L. Turney(2) | 2004 | 08/13/04 | 2.90 | 20,000 | Three Years | 08/13/14 | |||||||||||||||||||
Chairman, Chief Executive Officer, | 2003 | — | — | — | — | — | |||||||||||||||||||
President and Director, DRI, and Chairman and Managing Director, DRI-Europa AB | |||||||||||||||||||||||||
David N. Pilotte | 2004 | 10/25/04 | 3.70 | 30,000 | Three Years | 10/25/14 | |||||||||||||||||||
Vice President, Chief Financial Officer | 2003 | — | — | — | — | — | |||||||||||||||||||
Lawrence A. Taylor | 2004 | 08/13/04 | 2.90 | 15,000 | Three Years | 08/13/14 | |||||||||||||||||||
Secretary, Executive Vice President, | 2003 | 05/13/03 | 2.55 | 10,000 | Three Years | 05/13/13 | |||||||||||||||||||
Corporate Development, and Director, DRI, and Director, DRI-Europa AB | |||||||||||||||||||||||||
Lawrence A. Hagemann | 2004 | 08/13/04 | 2.90 | 15,000 | Three Years | 08/13/14 | |||||||||||||||||||
Executive Vice President, DRI, | 2003 | 05/13/03 | 2.55 | 10,000 | Three Years | 05/13/13 | |||||||||||||||||||
and Chief Operating Officer, North Carolina Operations | |||||||||||||||||||||||||
Named Executive Officer Group | 100,000 | ||||||||||||||||||||||||
Non-Executive Officer Employee Group | 115,500 | ||||||||||||||||||||||||
1. | One-third of each award vests annually over a three-year period from the award date. |
2. | Mr. Turney, at his personal and voluntary request, did not receive an award of any stock options from 1998 to 2003. Instead, he sought to facilitate a greater award of options to other key personnel during that time. |
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• | If on account of death, awards may be exercised any time during their term; | |
• | If on account of a participant’s retirement in good standing, awards may be exercised any time during their term; | |
• | If on account of resignation of the participant from employment, no unexercised award shall be exercisable to any extent after termination; | |
• | If on account of taking of a leave of absence for the purpose of serving the government or country in which the principal place of employment of the participant is located, either in a military or a civilian capacity, or for such other purpose or reason as the Human Resource and Compensation Committee may approve, a participant shall not be deemed during the period of any such absence alone to have terminated his or her service, except as the Human Resource and Compensation Committee may otherwise expressly provide; | |
• | If on account of termination of employment by the Company for cause, no unexercised award shall be exercisable to any extent after termination; | |
• | If on account of certified disability, awards may be exercised any time during their term; |
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• | In the case of general layoff or furlough of employees, the Human Resource and Compensation Committee shall have the sole discretion to decide the exercisability of awards; and | |
• | If for any reason other than those specified above, awards may be exercised within three months of such termination. |
• | Incentive stock options may be granted only to employees of the Company or of a subsidiary in which the Company has at least a 50 percent ownership interest. | |
• | Incentive stock options must be non-transferable. | |
• | The exercise price of incentive stock options shall not be less than 100 percent of the fair market value of the underlying shares of Common Stock on the date of the grant. | |
• | Incentive stock options must be exercised within 10 years of the date of grant. |
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Corporate | ||||||||||||||||||||||||
Governance | Human | |||||||||||||||||||||||
Independent | and | Resource and | ||||||||||||||||||||||
Name | Director(2) | Audit | Nominating | Executive | Compensation | Technology | ||||||||||||||||||
David L. Turney | No | X | (1) | |||||||||||||||||||||
Russell C. Cleveland | Yes | X | ||||||||||||||||||||||
John D. Higgins | Yes | X | X | (1) | ||||||||||||||||||||
Nuria I. Fernandez | Yes | X | (1) | |||||||||||||||||||||
J. Philips L. Johnston, J.D. | Yes | X | X | X | ||||||||||||||||||||
C. James Meese Jr. | Yes | X | X | |||||||||||||||||||||
Stephanie L. Pinson | Yes | X | X | |||||||||||||||||||||
John K. Pirotte | Yes | X | (1) | X | X | |||||||||||||||||||
Lawrence A. Taylor | No | |||||||||||||||||||||||
Juliann Tenney, J.D. | Yes | X | (1) | |||||||||||||||||||||
Lawrence A. Hagemann(2) | — | X |
1. | Committee Chairperson |
2. | At the invitation of the Board of Directors, Mr. Hagemann, an executive vice president of DRI and chief operating officer of its North Carolina Operations, serves as a non-director member of the Technology Committee. |
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John K. Pirotte (Chairman) | |
John D. Higgins | |
C. James Meese Jr. | |
April 4, 2005 |
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• | Clarify the duties and responsibilities of the Board of Directors and the Corporate Governance and Nominating Committee; | |
• | Evaluate Board of Directors structure and composition, including maintaining a substantial majority of non-executive directors with non-executive directors filling all seats on the Audit, Human Resource and Compensation, and Corporate Governance and Nominating Committees; | |
• | Monitor policies and practices of the Board of Directors including a Code of Conduct and Ethics; | |
• | Act to review and monitor the structure and performance of the Board of Directors, directors, and committees of the Board of Directors; and | |
• | Facilitate and lead, through a lead independent director concept, regular closed meetings of non-executive directors. |
• | Lead the initiative to identify, screen, recruit, interview, recommend, and (when so elected or appointed) orient individuals deemed to be appropriate to serve on the Board of Directors; | |
• | Consider recommendations from all sources as related to serving on the Board of Directors; and | |
• | Act as an advisory committee to the Board of Directors related to filling Committees (which subsequently are voted upon by the Board of Directors). |
• | Character, reputation, willingness and ability to serve; | |
• | Evidence of ability to be loyal to the Company and the best interest of its Shareholders; | |
• | Business, industry, market and financial knowledge and/or experience, including understanding of at least the basic principles of finance and accounting; | |
• | The needs of the Board of Directors in maintaining appropriate skill sets, experience, expertise, and knowledge for the Board of Directors to best carry out its responsibilities to the Shareholders; | |
• | Evidence of independent and strategic thinking orientation; and | |
• | Absence of any real, potential, or perceived present or past affiliation or activities that might, in the opinion of the Corporate Governance and Nominating Committee, not be in the best interest of the Shareholders. |
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John D. Higgins (Chair) | |
Stephanie L. Pinson | |
C. James Meese Jr. | |
April 4, 2005 |
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David L. Turney (Chair) | |
Russell C. Cleveland | |
J. Phillips L. Johnston, J.D. | |
John K. Pirotte | |
April 4, 2005 |
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• | Public equity market management actions and effectiveness; | |
• | Strategic planning and execution; | |
• | Organizational, people management skills, and operating infrastructure matters; | |
• | Evidence of effective management of Company relationships with third-party partners such as service providers, associations, financing institutions, and advisors, with the objective of strengthening the Company overall; and | |
• | Effective and appropriate management of the growth of the Company’s earnings over the longer term through both internal and external means such as mergers, acquisitions, and strategic alliances. |
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Juliann Tenney, J.D. (Chair) | |
J. Phillips L. Johnston, J.D. | |
Stephanie L. Pinson | |
April 4, 2005 |
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Nuria I. Fernandez (Chair) | |
J. Phillips L. Johnston, J.D. | |
John K. Pirotte | |
Lawrence A. Hagemann | |
April 4, 2005 |
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Cash Retainer | ||||||||
Payable at the End of Each Month | $ | 2,000 | ||||||
Premium for the Lead Director | $ | 250 | ||||||
Cash Meeting Fees | ||||||||
Base (Board and Committee) | $ | 1,000 | ||||||
Premium: Committee Chair (Except Audit) | $ | 500 | ||||||
Audit Committee Chair | $ | 1,000 | ||||||
Audit Committee Member | $ | 750 | ||||||
Equity | ||||||||
Option Grant | At 100% of market value on date of grant with awards vesting immediately in amounts to bring: (1) each of John D. Higgins, J. Phillips L. Johnston, J.D., C. James Meese Jr., and John K. Pirotte to a total of 43,000 shares underlying their respective awards; (2) Juliann Tenney, J.D. to a total of 41,000 shares underlying the award; and (3) Russell C. Cleveland and Stephanie L. Pinson to a total of 25,000 shares each underlying their respective awards; (4) Nuria I. Fernandez to a total of 15,000 shares underlying the award. |
* | The amounts of each option grant were determined based on duration of service on the Board of Directors. |
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Individual Grants | ||||||||||||||||
% of Total | ||||||||||||||||
Number of | Options/SARs | |||||||||||||||
Securities | Granted to | |||||||||||||||
Underlying | Non-Employee | |||||||||||||||
Options/SARs | Directors in | Exercise or | ||||||||||||||
Name | Granted (#) | Fiscal Year 2004 | Base Price $ | Expiration Date | ||||||||||||
Russell C. Cleveland | 5,000 | 7.7 | % | 2.90 | August 13, 2009 | |||||||||||
Nuria I. Fernandez | 10,000 | 15.4 | % | 6.75 | May 26, 2009 | |||||||||||
Nuria I. Fernandez | 5,000 | 7.7 | % | 2.90 | August 13, 2009 | |||||||||||
John D. Higgins | 8,000 | 12.3 | % | 2.90 | August 13, 2009 | |||||||||||
J. Phillips L. Johnston, J.D. | 8,000 | 12.3 | % | 2.90 | August 13, 2009 | |||||||||||
C. James Meese Jr. | 8,000 | 12.3 | % | 2.90 | August 13, 2009 | |||||||||||
Stephanie L. Pinson | 5,000 | 7.7 | % | 2.90 | August 13, 2009 | |||||||||||
John K. Pirotte | 8,000 | 12.3 | % | 2.90 | August 13, 2009 | |||||||||||
Juliann Tenney, J.D. | 8,000 | 12.3 | % | 2.90 | August 13, 2009 |
Name | Position | |
David L. Turney | Chairman, Chief Executive Officer and President, DRI, and Chairman and Managing Director, DRI-Europa AB | |
David N. Pilotte | Vice President, Chief Financial Officer | |
Lawrence A. Taylor | Secretary, Executive Vice President, Corporate Development, and Director, DRI, and Director, DRI-Europa AB | |
Lawrence A. Hagemann | Executive Vice President, DRI, and Chief Operating Officer, North Carolina Operations |
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Long-Term | |||||||||||||||||||||
Compensation | |||||||||||||||||||||
Awards(1) | |||||||||||||||||||||
Annual Compensation | Securities | ||||||||||||||||||||
Underlying | All Other | ||||||||||||||||||||
Name and Position | Year | Salary | Bonus | Options/SARs | Compensation | ||||||||||||||||
David L. Turney | 2004 | $ | 258,500 | 20,000 | $ | 9,913 | (2) | ||||||||||||||
Chairman, Chief Executive Officer | 2003 | $ | 258,500 | — | — | ||||||||||||||||
and President, DRI, and Chairman and | 2002 | $ | 219,375 | $ | 32,500 | — | |||||||||||||||
Managing Director, DRI-Europa AB | |||||||||||||||||||||
David N. Pilotte | 2004 | $ | 34,670 | 30,000 | |||||||||||||||||
Vice President and Chief Financial Officer | 2003 | — | — | — | |||||||||||||||||
2002 | — | — | — | ||||||||||||||||||
Lawrence A. Taylor | 2004 | $ | 184,000 | 15,000 | |||||||||||||||||
Secretary, Executive Vice President, | 2003 | $ | 184,000 | — | 10,000 | ||||||||||||||||
Corporate Development, and Director, | 2002 | $ | 163,000 | $ | 20,000 | 10,000 | |||||||||||||||
DRI, and Director, DRI-Europa AB | |||||||||||||||||||||
Lawrence A. Hagemann | 2004 | $ | 188,500 | 15,000 | |||||||||||||||||
Executive Vice President, DRI, | 2003 | $ | 178,750 | — | 10,000 | ||||||||||||||||
and Chief Operating Officer, | 2002 | $ | 157,083 | — | 10,000 | ||||||||||||||||
North Carolina Operations |
1. | All options awarded in fiscal years 2003 and 2004 were granted under the Company’s Current Plan. |
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2. | All other compensation consists of automobile lease payments for Mr. Turney. |
Individual Grants | |||||||||||||||||||||||||
Potential Realizable | |||||||||||||||||||||||||
Number of | Value at Assumed | ||||||||||||||||||||||||
Securities | % of Total | Annual Rates of Stock | |||||||||||||||||||||||
Underlying | Options | Price Appreciation for | |||||||||||||||||||||||
Options | Granted to | Exercise or | Option Term(2) | ||||||||||||||||||||||
Granted in | Employees | Base Price | |||||||||||||||||||||||
Name and Position | 2004 | in 2004(3) | $ | Expiration Date | 5% | 10% | |||||||||||||||||||
David L. Turney | 20,000 | 13.6 | % | 2.90 | August 13, 2014 | $ | 36,476 | $ | 92,437 | ||||||||||||||||
Chairman, Chief Executive Officer and President, DRI, and Chairman and Managing Director, DRI-Europa AB | |||||||||||||||||||||||||
David N. Pilotte | 30,000 | 20.3 | % | 3.70 | October 25, 2014 | $ | 69,807 | $ | 176,905 | ||||||||||||||||
Vice President and Chief Financial Officer | |||||||||||||||||||||||||
Lawrence A. Taylor | 15,000 | 10.2 | % | 2.90 | August 13, 2014 | $ | 27,357 | $ | 69,328 | ||||||||||||||||
Secretary, Executive Vice President, Corporate Development, and Director, DRI, and Director, DRI-Europa AB | |||||||||||||||||||||||||
Lawrence A. Hagemann | 15,000 | 10.2 | % | 2.90 | August 13, 2014 | $ | 27,357 | $ | 69,328 | ||||||||||||||||
Executive Vice President, DRI, and Chief Operating Officer, North Carolina Operations |
1. | No stock options granted during fiscal year 2004 were exercisable by employees. |
2. | No stock options granted during fiscal year 2004 were in the money on the grant date. |
3. | Based on 147,500 total options granted to employees in fiscal year 2004. |
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Number of Securities | |||||||||||||||||||||||||
Underlying Unexercised | Value of Unexercised, | ||||||||||||||||||||||||
Options/SARs at Fiscal | In-the-Money(1) Options/SARs | ||||||||||||||||||||||||
Shares | Year-End (#) | at Fiscal Year-End | |||||||||||||||||||||||
Acquired | Value | ||||||||||||||||||||||||
Name and Position | on Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable(2) | |||||||||||||||||||
David L. Turney | — | — | 250,000 | 20,000 | $ | 311,000 | $ | 20,000 | |||||||||||||||||
Chairman, Chief Executive Officer and President, DRI, and Chairman and Managing Director, DRI-Europa AB | |||||||||||||||||||||||||
David N. Pilotte | — | — | — | 30,000 | — | $ | 6,000 | ||||||||||||||||||
Vice President and Chief Financial Officer | |||||||||||||||||||||||||
Lawrence A. Taylor | — | — | 83,333 | 21,667 | $ | 124,600 | $ | 24,000 | |||||||||||||||||
Secretary, Executive Vice President, Corporate Development, and Director, DRI, and Director, DRI-Europa AB | |||||||||||||||||||||||||
Lawrence A. Hagemann | — | — | 93,333 | 21,667 | $ | 140,312 | $ | 24,000 | |||||||||||||||||
Executive Vice President, DRI, and Chief Operating Officer, North Carolina Operations |
1. | Options or free-standing SARs are in-the-money if the fair market value of the underlying securities exceeds the exercise or base price of the option or SAR. The closing market price of the Common Stock on December 31, 2004, was $3.90. |
2. | All unexercisable stock options are in-the-money. |
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Common Stock | ||||||||
Beneficially | % of | |||||||
Beneficial Owners | Owned(1) | Class(2) | ||||||
Barclays Global Investors, N.A.(3) | 661,374 | 6.9 | % | |||||
Riverview Group, LLC(4) | 1,449,275 | 15.1 | % |
1. | Beneficial ownership includes both outstanding Common Stock and shares issuable upon the conversion of convertible securities or the exercise of options or warrants that are currently convertible or exercisable or will become convertible or exercisable within 60 days after the date hereof. Unless otherwise noted, sole voting and dispositive power is possessed with respect to all Common Stock shown. |
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2. | Based on 9,660,848 shares of Common Stock outstanding as of April 15, 2005, plus, in the case of each Shareholder, shares of Common Stock that such Shareholder has the right to acquire within 60 days thereafter. |
3. | Consists of 661,374 shares of outstanding Common Stock owned outright. The address of Barclays Global Investors, N.A. is 45 Fremont Street, San Francisco, CA, 94105. |
4. | Consists of 1,207,729 shares of outstanding Common Stock owned outright and 241,546 shares of Common Stock issuable upon the exercise of presently exercisable warrants. The address of Riverview Group, LLC is 666 Fifth Avenue, New York, New York, 10103. |
Beneficially | % of | ||||||||
Named Executive Officers | Owned(1) | Class(2) | |||||||
David L. Turney(3) | 321,650 | 3.2 | % | ||||||
David N. Pilotte(4) | 0 | 0 | % | ||||||
Lawrence A. Taylor(5) | 140,970 | 1.4 | % | ||||||
Lawrence A. Hagemann(6) | 113,670 | 1.2 | % | ||||||
Non-Executive Directors | |||||||||
Russell C. Cleveland(7) | 304,001 | 3.1 | % | ||||||
Nuria I. Fernandez(8) | 15,000 | 0.2 | % | ||||||
John D. Higgins(9) | 158,667 | 1.6 | % | ||||||
J. Phillips L. Johnston(10) | 106,949 | 1.1 | % | ||||||
C. James Meese Jr.(11) | 30,667 | 0.3 | % | ||||||
Stephanie L. Pinson(12) | 24,667 | 0.3 | % | ||||||
John K. Pirotte(13) | 45,362 | 0.5 | % | ||||||
Juliann Tenney(14) | 47,649 | 0.5 | % | ||||||
Executive Officers and Non-Executive Directors as a Group (12 persons) | 1,309,252 | 12.6 | % |
1. | Beneficial ownership includes both outstanding Common Stock and shares issuable upon the conversion of convertible securities or the exercise of options or warrants that are currently convertible or exercisable or will become convertible or exercisable within 60 days after the date hereof. Unless otherwise noted, sole voting and dispositive power is possessed with respect to all Common Stock shown. All percentages are calculated based on the number of outstanding shares at April 15, 2005, plus shares which a person or group has the right to acquire within 60 days thereafter. | |
2. | Based on 9,660,848 shares of Common Stock outstanding as of April 15, 2005. | |
3. | Mr. Turney’s ownership consists of 71,650 shares of Common Stock owned outright as joint tenant with right of survivorship with Mr. Turney’s wife and 250,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. The address for Mr. Turney is: 5949 Sherry Lane, Suite 1050; Dallas, TX 75225. | |
4. | Mr. Pilotte owns no shares of Common Stock. |
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5. | Mr. Taylor’s ownership consists of 54,300 shares of Common Stock owned outright as joint tenant with right of survivorship with Mr. Taylor’s wife, and 86,670 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. | |
6. | Mr. Hagemann’s ownership consists of 17,000 shares of Common Stock owned outright and 96,670 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. | |
7. | Mr. Cleveland’s ownership consists of 0 shares of Common Stock owned outright and 20,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. He also may be deemed to beneficially own 141,667 shares held by Renaissance U.S. Growth Investment Trust PLC, of which he serves as director and manager, and 141,667 shares held by BFSUS Special Opportunities Trust PLC, for which he serves as U.S. portfolio manager. | |
8. | Ms. Fernandez’s ownership consists of 0 shares of Common Stock owned outright and 15,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. | |
9. | Mr. Higgins’ ownership consists of 4,000 shares of Common Stock owned outright and 29,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof, and 125,000 shares of Common Stock issuable upon conversion of debentures. |
10. | Mr. Johnston’s ownership consists of 27,282 shares of Common Stock owned outright, 29,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof, and 50,000 shares of Common Stock issuable upon conversion of warrants. |
11. | Mr. Meese’s ownership consists of 1,000 shares of Common Stock owned outright, 29,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. |
12. | Ms. Pinson’s ownership consists of 4,000 shares of Common Stock owned outright as joint tenant with right of survivorship with Ms. Pinson’s husband and 20,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. |
13. | Mr. Pirotte’s ownership consists of 15,695 shares of Common Stock owned outright and 29,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. |
14. | Ms. Tenney’s ownership consists of 17,982 shares of Common Stock owned outright and 29,667 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days after the date hereof. |
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* | This chart was prepared by the Total Return Service of Standard & Poor’s Investment Services. |
Annual Return Percentage Years Ending | ||||||||||||||||||||
Company/ Index | Dec00 | Dec01 | Dec02 | Dec03 | Dec04 | |||||||||||||||
Digital Recorders, Inc. | -59.68 | 53.60 | 0.00 | 14.17 | 42.34 | |||||||||||||||
S&P 500 Information Technology | -40.90 | -25.87 | -37.41 | 47.23 | 2.56 | |||||||||||||||
NASDAQ Index | -39.69 | -20.68 | -30.86 | 49.51 | 8.83 |
Indexed Returns Years Ending | ||||||||||||||||||||||||
Base Period | ||||||||||||||||||||||||
Company/ Index | Dec99 | Dec00 | Dec01 | Dec02 | Dec03 | Dec04 | ||||||||||||||||||
Digital Recorders, Inc. | 100 | 40.32 | 61.94 | 61.94 | 70.71 | 100.65 | ||||||||||||||||||
S&P 500 Information Technology | 100 | 59.10 | 43.81 | 27.42 | 40.37 | 41.40 | ||||||||||||||||||
NASDAQ Index | 100 | 60.31 | 47.84 | 33.07 | 49.45 | 53.81 |
* | This table was prepared by the Total Return Service of Standard & Poor’s Investment Services. |
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45
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By Order of the Board of Directors, |
Chairman, Chief Executive Officer and President |
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1. The name of the Corporation is Digital Recorders, Inc. | |
2. The following amendment to the Articles of Incorporation of the Corporation was adopted by its Shareholders in the manner prescribed by law: |
Article VIII of the Articles of Incorporation shall be deleted in its entirety and the following substituted in lieu thereof: |
“The number of directors shall be not be less than three, nor more than twelve, and the number of directors may be increased or decreased from time to time, within such minimum and maximum, by resolution of the Board of Directors. Directors shall be elected at the annual meeting of the shareholders in accordance with the corporation’s bylaws.” |
3. The date of the adoption of these Articles of Amendment by the Common Stock Shareholders was , 2005. | |
4. These Articles of Amendment do not effect an exchange, reclassification or cancellation of issued shares of the Corporation. |
DIGITAL RECORDERS, INC. |
By |
David L. Turney | |
Chairman of the Board |
A-1
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1. | Purpose |
2. | Definitions |
B-1
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3. | Administration |
(1) construe and interpret the Plan; | |
(2) promulgate, amend and rescind rules relating to the implementation of the Plan; | |
(3) make all determinations necessary or advisable for the administration of the Plan, including but not limited to the selection of Employees, Consultants and affiliated individuals who shall be granted Options, the number of shares of Common Stock or Units to be subject to each Option, the Option price, the Vesting or duration of Options, the time permitted for proper exercise of an Option and sale of the underlying shares under existing corporate governance provisions or applicable law and regulations, and the designation of Options as incentive stock options or non-qualified stock options; | |
(4) determine whether Options will be granted alone or in combination or in tandem with other Options; | |
(5) determine whether cash will be paid or Options will be granted in replacement of, or as alternatives to, other grants under the Plan or any other incentive or compensation plan of the Corporation, a Subsidiary or an acquired business unit. |
4. | Eligibility |
B-2
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5. | Shares Available |
6. | Term |
7. | Stock Options — Employees |
(1) The exercise price shall be the price set by the Committee but may not be less than one hundred percent of the Fair Market Value of the underlying shares of Common Stock on the date of the grant. | |
(2) The exercise price shall be paid in cash (including check, bank draft, or money order), or at the sole discretion of the Committee, all or part of the purchase price may be paid by delivery of Common Stock already owned by the Participant for at least six (6) months and valued at its Fair Market Value, by the surrender of all or part of an Option (including the Option being exercised), in other property, rights and credits, deemed acceptable by the Committee including, but not limited to, written notice of non-cash exercise if permitted under the applicable statutes, rules and regulations, as may be provided in the grant, to the Corporation at the principal office of the Corporation or any combination of the foregoing methods of payment. | |
(3) Promissory notes may not be given as payment of the exercise price. | |
(4) The term of an Option may not be greater than ten (10) years from the date of the grant. | |
(5) C. The following special terms shall apply to grants of incentive stock options: | |
(6) Subject to Section 7.C.(2) of the Plan, the exercise price of each incentive stock option shall not be less than 100% of the Fair Market Value of the underlying shares of Common Stock on the date of the grant. | |
(7) No incentive stock option shall be granted to any Employee who directly or indirectly owns stock possessing more than 10% of the total combined voting power of all classes of stock of the |
B-3
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Corporation, unless at the time of such grant the exercise price of the Option is at least 110% of the Fair Market Value of the underlying shares of Common Stock subject to the Option and such Option is not exercisable after the expiration of five (5) years from the date of the grant. | |
(8) No incentive stock option shall be granted to a person in his capacity as an Employee of a Subsidiary if the Corporation has less than a 50% ownership interest in such Subsidiary. | |
(9) Options shall contain such other terms as may be necessary to qualify the Options granted therein as incentive stock options pursuant to Section 422 of the Code, or any successor statute, including that such incentive stock options shall be granted only to Employees, that such incentive stock options are non-transferable, and which shall conform to all other requirements of the Code. |
8. | Options to Non-Employee Directors |
9. | Options to Consultants |
(1) The exercise price shall be the Fair Market Value of the underlying shares of Common Stock on the date of the grant, payable in accordance with the alternatives stated in Sections 7.B.(2) of the Plan; | |
(2) The term of the options shall be not more than five (5) years; the Options shall be subject to Section 14 of the Plan. |
10. | Restricted Stock |
11. | Performance Units and Performance Shares |
B-4
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12. | Stock Appreciation Rights |
13. | Deferral of Options |
14. | Exercise of Stock Options or Options Upon Termination of Employment or Services |
(1) A. (1) Employees. Unless otherwise provided herein, Options granted to Participants who are employees of the Corporation hereunder may permit the exercise of Options upon the Participant’s termination of employment within the following periods, or such shorter periods as determined by the Committee at the time of grant: |
(a) If on account of death, Options may be exercised any time during their term by the person or persons to whom the Participant’s rights pass by will or the laws of descent or distribution. | |
(b) If on account of a Participant’s retirement in good standing (as defined from time to time by Corporation policy), Options may be exercised any time during their term. | |
(c) If on account of resignation of the Participant from employment, no unexercised Option shall be exercisable to any extent after termination. |
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(d) If termination of employment by the Corporation for cause (as defined from time to time by Corporation policy), no unexercised Option shall be exercisable to any extent after termination. | |
(e) If on account of the taking of a leave of absence for the purpose of serving the government or the country in which the principal place of employment of the Participant is located, either in a military or a civilian capacity, or for such other purpose or reason as the Committee may approve, a Participant shall not be deemed during the period of any such absence alone, to have terminated his service, except as the Committee may otherwise expressly provide. | |
(f) If on account of certified disability, Options may be exercised any time during their terms. | |
(g) In the case of a general layoff or furlough of employees, the Committee shall have the sole discretion to decide the exercisability of Options. | |
(h) If for any reason other than death, retirement, resignation, cause, or disability, Options may be exercised within three (3) months of such termination. |
(2) Directors and Consultants. Upon cessation of service in good standing as a Non-Employee Director or Consultant, any and all Options issuable to such persons for services rendered, but which have not been granted and delivered as of the date of cessation of service, for services rendered by the Non-Employee Director or Consultant since the grant date immediately preceding the date of cessation of service, shall be promptly granted and delivered and shall remain exercisable until the expiration of the term of the Option. In addition, all Options granted and held by the Non-Employee Director or Consultant as of the date of cessation of service may be exercised by the Non-Employee Director, or Consultant or his/her heirs or legal representatives until the expiration of the term. |
15. | Assignability |
16. | Adjustment of Shares Available |
17. | Payment of Withholding Taxes |
B-6
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18. | Amendments |
19. | Regulatory Approvals and Listings |
20. | No Right to Continued Employment or Grants |
21. | No Right, Title, or Interest in Corporation Assets |
22. | Special Provision Pertaining to Persons Subject to Section 16 of Exchange Act |
23. | Indemnification |
B-7
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24. | Merger, Reorganization, Exchange or Sale of Assets |
25. | Governing Law |
B-8
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PROXY [Side One]
This Proxy for the Annual Meeting of Shareholders in 2005 is
Solicited on Behalf of the Board of Directors
DIGITAL RECORDERS, INC.
The undersigned appoints David L. Turney and Lawrence A. Taylor, and each of them, as proxies, each with the power to appoint his substitute, and authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of common stock of Digital Recorders, Inc. held of record by the undersigned at the close of business on April 15, 2005, at the Annual Meeting of Shareholders of Digital Recorders, Inc. to be held on June 3, 2005, or at any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
PROXY [Side Two]
This proxy will be voted as directed, or if no direction is indicated, will be voted “for” the election of each nominee listed below and each of the other proposals. This proxy is solicited on behalf of the Board of Directors. | Please mark your vote like this:ý |
1. | PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF DIGITAL RECORDERS, INC. TO REMOVE THE REQUIREMENT THAT MEMBERS OF THE BOARD OF DIRECTORS SERVE STAGGERED THREE-YEAR TERMS SO THAT, BEGINNING WITH THE DIRECTORS ELECTED AT THE ANNUAL MEETING OF SHAREHOLDERS IN 2005, EACH DIRECTOR WILL INSTEAD SERVE AN ANNUAL TERM | For / / | Against / / | Abstain / / | ||||||
2. | PROPOSAL TO RE-ELECT CLASS ONE DIRECTORS TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2006, UNLESS THE FIRST PROPOSAL DOES NOT PASS IN WHICH CASE THESE CLASS ONE DIRECTORS WOULD SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2008 (To withhold authority to vote for any individual nominee, strike a line through that nominee’s name in the list below) | For / / | Withhold Authority / / | |||||||
· Stephanie L. Pinson | ||||||||||
· Lawrence A. Taylor | ||||||||||
· Juliann Tenney, J.D. | ||||||||||
3. | PROPOSAL TO RATIFY THE SELECTION OF PRICEWATERHOUSE COOPERS LLC AS INDEPENDENT AUDITORS FOR FISCAL YEAR 2005. | For / / | Against / / | Abstain / / | ||||||
4. | PROPOSAL TO APPROVE AND RATIFY THE AMENDMENT OF THE 2003 STOCK OPTION PLAN TO INCREASE BY 300,000 THE NUMBER OF SHARES THAT MAY BE ISSUED PURSUANT TO AWARDS GRANTED UNDER THAT PLAN. | For / / | Against / / | Abstain / / | ||||||
5. | In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. |
Company ID: | ||||
Proxy Number: | ||||
Account Number: | ||||
Signature: Signature: Date: | ||||
NOTE:Please sign name exactly as your name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. |