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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. 1)
Filed by the Registrant þ | |
Filed by a Party other than the Registrant o | |
Check the appropriate box: |
o Preliminary Proxy Statement | |
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
þ 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 elect two Class One and three Class Two directors to serve until the Annual Meeting of Shareholders in 2007; | |
2. To ratify the selection of independent auditors for fiscal year 2006; | |
3. To approve partial payment for duty of members of the Board of Directors and employee cash compensation to key executive management of the Company in the form of Common Stock; | |
4. 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, | |
/s/DAVID L. TURNEY | |
Chairman, Chief Executive Officer and President | |
April 19, 2006 | |
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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) | |
• | Two Class Three directors (John D. Higgins and Russell C. Cleveland) |
Current Position | Term Expires | |||||||||||
Name | Director Class | with Company | (If Elected) | |||||||||
C. James Meese Jr. | Two | Director | 2007 | |||||||||
Stephanie L. Pinson | One | Director | 2007 | |||||||||
John K. Pirotte | Two | Director | 2007 | |||||||||
Juliann Tenney, J.D. | One | Director | 2007 | |||||||||
David L. Turney | Two | Director | 2007 |
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• | The monthly retainer fee compensation will be paid 50 percent in cash and 50 percent in Common Stock. | |
• | Shares of Common Stock payable under this plan will be issued on a quarterly basis. The number of shares payable will be determined by dividing the cash value of stock compensation by the higher of (1) the actual closing price on the last trading day of each month, or (2) the book value of the Company on the last day of each month. Fractional shares are rounded up to the next full share amount. | |
• | Individual directors may annually (as of each Annual Meeting of Shareholders) elect to opt in or out of thepayment-in-stock provision of the plan, effective the following January 1. |
• | Each key executive manager of the Company may make the election to receive up to $1,000 per month of his/her employee compensation in the form of Common Stock of the Company beginning in fiscal year 2006. | |
• | Shares of Common Stock payable under this plan will be issued on a quarterly basis. The number of shares payable will be determined by dividing the cash value of stock compensation by the higher of (1) the actual closing price on the last trading day of each month, or (2) the book value of the Company on the last day of each month. Fractional shares are rounded up to the next full share amount. | |
• | The election to participate will be on a yearly basis, effective January 1 of each year. If the election is made to participate, the commitment is for the full year, unless compelling and extenuating circumstances arise supporting doing otherwise. | |
• | Each year, this one-time election option will be addressed, subject to prior authorization from the Human Resources and Compensation Committee. |
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Name and Position | Cash Value of Compensation | Number of Shares | ||||||
David L. Turney , Chairman, Chief Executive Officer, and President, DRI, and Chairman and Managing Director, DRI-Europa AB | $ | 12,000 | 5,104 | |||||
David N. Pilotte, Executive Vice President, Chief Financial Officer, and Secretary, DRI, and Chief Operating Officer, North Carolina Operations | $ | 12,000 | 5,104 | |||||
Lawrence A. Hagemann, Executive Vice President and Chief Technology Officer | $ | 12,000 | 5,104 | |||||
Lawrence A. Taylor, Executive Vice President, Corporate Development, and Director, DRI, and Director, DRI-Europa AB | $ | 8,000 | 3,157 | |||||
Executive Officers as a Group (4 persons) | $ | 44,000 | 18,469 | |||||
Non-Executive Directors as a Group (5 persons) | $ | 60,000 | 25,520 |
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 | 495,800 | 2.50 | None | |||||||||
Current Plan Options | 573,500 | 2.83 | 116,833 | |||||||||
Total | 1,069,300 | 2.67 | 116,833 | |||||||||
* | The Company has no equity compensation plans that have not been approved by Shareholders. |
** | This table does not include securities under the plans submitted for Shareholder approval in Proposal Three of this Proxy Statement. |
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Corporate | Human | |||||||||||||||||||||||
Independent | Governance and | Resource and | ||||||||||||||||||||||
Name | Director(2) | Audit | Nominating | Executive | Compensation | Technology(2) | ||||||||||||||||||
David L. Turney | No | X | (1) | |||||||||||||||||||||
Russell C. Cleveland | Yes | |||||||||||||||||||||||
John D. Higgins | Yes | X | X | (1) | X | |||||||||||||||||||
C. James Meese Jr. | Yes | X | 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) |
1. | Committee Chairperson |
2. | At the invitation of the Board, Lawrence A. Hagemann, an Executive Vice President and Chief Technology Officer of DRI, serves as a voting non-director member of the Technology Committee. |
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John K. Pirotte (Chairman) | |
John D. Higgins | |
C. James Meese Jr. | |
March 29, 2006 |
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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 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; | |
• | Act as an advisory committee to the Board of Directors related to populating committees (subsequently 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 in maintaining appropriate skill sets, experience, expertise, and knowledge for the Board 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 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. | |
March 29, 2006 |
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David L Turney (Chair) | |
Russell C. Cleveland | |
John D. Higgins | |
John K. Pirotte | |
March 29, 2006 |
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• | Public equity market management actions and effectiveness; | |
• | Strategic planning and execution; | |
• | Organizational, people management skills, and operating infrastructure matters; |
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• | 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. |
Juliann Tenney, J.D. (Chair) | |
Stephanie L. Pinson | |
March 29, 2006 |
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Nuria I. Fernandez (Chair) | |
John K. Pirotte | |
Lawrence A. Hagemann (Non-Director Member) | |
March 29, 2006 |
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John K. Pirotte (Chair) | |
John D. Higgins | |
Stephanie L. Pinson | |
March 29, 2006 |
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Cash and Equity Monthly 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 | ||||||
Premiums: Committee Chair (Except Audit) | $ | 500 | ||||||
Audit Committee Chair | $ | 1,000 | ||||||
Audit Committee Member | $ | 750 | ||||||
Equity — Options | ||||||||
Option Grant | At 100% of market value on date of grant; immediate vesting; as reflected in the table below titled “Stock Options Awarded to Non-employee Directors During Fiscal Year 2005.” Consideration of additional stock option grants from time to time as determined by action of the Human Resource and Compensation Committee. |
* | Subject to Shareholder approval of Proposal Three contained in this Proxy Statement, effective January 1, 2006, the monthly retainer fee compensation will be paid 50 percent in cash and 50 percent in Common Stock, with Common Stock issued quarterly. The number of shares payable will be determined by dividing the cash value of stock compensation by the higher of (1) the actual closing price on the last trading day of each month, or (2) the book value on the last day of the month. Fractional shares are rounded up to the next full share amount. Individual directors may annually (as of each Annual Meeting of Shareholders) elect to opt in or out of the payment in stock. |
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Individual Grants | ||||||||||||||||
% of Total | ||||||||||||||||
Number of | Options/SARs | |||||||||||||||
Securities | Granted to Non- | |||||||||||||||
Underlying | Employee | |||||||||||||||
Options/SARs | Directors in | Exercise/Base | ||||||||||||||
Name | Granted (#) | Fiscal Year 2005 | Price ($/Share) | Expiration Date | ||||||||||||
Russell C. Cleveland | 13,000 | 14.29 | % | 2.80 | August 23, 2010 | |||||||||||
Nuria I. Fernandez | 13,000 | 14.29 | % | 2.80 | August 24, 2010 | |||||||||||
John D. Higgins | 13,000 | 14.29 | % | 2.80 | August 25, 2010 | |||||||||||
C. James Meese Jr. | 13,000 | 14.29 | % | 2.80 | August 26, 2010 | |||||||||||
Stephanie L. Pinson | 13,000 | 14.29 | % | 2.80 | August 27, 2010 | |||||||||||
John K. Pirotte | 13,000 | 14.29 | % | 2.80 | August 28, 2010 | |||||||||||
Juliann Tenney, J.D. | 13,000 | 14.29 | % | 2.80 | August 28, 2010 |
Name | Position | |
David L. Turney | Chairman, Chief Executive Officer and President, DRI, and Chairman and Managing Director, DRI-Europa AB | |
David N. Pilotte | Executive Vice President, Chief Financial Officer, and Secretary, DRI, and Chief Operating Officer, North Carolina Operations | |
Lawrence A. Hagemann | Executive Vice President and Chief Technology Officer |
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Long-Term | |||||||||||||||||||||
Compensation | |||||||||||||||||||||
Awards(1) | |||||||||||||||||||||
Annual Compensation | Securities | All Other | |||||||||||||||||||
Underlying | Compensation | ||||||||||||||||||||
Name and Position | Year | Salary(2) | Bonus | Options/SARs | (3) | ||||||||||||||||
David L. Turney, | 2005 | $ | 284,350 | — | 9,000 | $ | 4,338 | ||||||||||||||
Chairman, Chief Executive Officer | 2004 | $ | 258,500 | — | 20,000 | $ | 9,913 | ||||||||||||||
and President, DRI, and Chairman and | 2003 | $ | 258,500 | — | — | — | |||||||||||||||
Managing Director, DRI-Europa AB | |||||||||||||||||||||
David N. Pilotte, | 2005 | $ | 191,525 | — | 20,000 | — | |||||||||||||||
Executive Vice President, Chief | 2004 | $ | 34,670 | — | 30,000 | — | |||||||||||||||
Financial Officer, and Secretary, DRI, | 2003 | — | — | — | — | ||||||||||||||||
and Chief Operating Officer, | |||||||||||||||||||||
North Carolina Operations | |||||||||||||||||||||
Lawrence A. Hagemann, | 2005 | $ | 192,583 | — | 20,000 | $ | 4,122 | ||||||||||||||
Executive Vice President | 2004 | $ | 188,500 | — | 15,000 | — | |||||||||||||||
and Chief Technology Officer | 2003 | $ | 178,750 | — | 10,000 | — | |||||||||||||||
Lawrence A. Taylor, | 2005 | $ | 187,750 | — | — | — | |||||||||||||||
Executive Vice President, | 2004 | $ | 184,000 | — | 15,000 | — | |||||||||||||||
Corporate Development, and Director, | 2003 | $ | 184,000 | — | 10,000 | — | |||||||||||||||
DRI, and Director, DRI-Europa AB |
1. | All options awarded in fiscal years 2003, 2004 and 2005 were granted under the Company’s Current Plan. |
2. | Mr. Turney’s fiscal year 2005 salary amount includes additional compensation of $12,925 approved in fiscal year 2004 and paid to him in fiscal year 2005. |
3. | All other compensation to Mr. Turney and Mr. Hagemann consist of automobile lease payments. |
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Individual Grants | |||||||||||||||||||||||||
Potential Realizable | |||||||||||||||||||||||||
Number of | Value at Assumed | ||||||||||||||||||||||||
Securities | % of Total | Annual Rates of Stock | |||||||||||||||||||||||
Underlying | Options | Price Appreciation for | |||||||||||||||||||||||
Options | Granted to | Exercise or | Option Term(2) | ||||||||||||||||||||||
Granted in | Employees | Base Price | |||||||||||||||||||||||
Name and Position | 2005 | in 2005(3) | ($/Share) | Expiration Date | 5% | 10% | |||||||||||||||||||
David L. Turney, | 9,000 | 5.14 | % | 2.80 | August 23, 2015 | $ | 15,848 | $ | 40,162 | ||||||||||||||||
Chairman, Chief Executive | |||||||||||||||||||||||||
Officer and President, DRI, and | |||||||||||||||||||||||||
Chairman and Managing | |||||||||||||||||||||||||
Director, DRI-Europa AB | |||||||||||||||||||||||||
David N. Pilotte, | 20,000 | 11.43 | % | 2.80 | August 23, 2015 | $ | 35,218 | $ | 89,250 | ||||||||||||||||
Executive Vice President, Chief | |||||||||||||||||||||||||
Financial Officer, and Secretary, | |||||||||||||||||||||||||
DRI, and Chief Operating | |||||||||||||||||||||||||
Officer, North Carolina | |||||||||||||||||||||||||
Operations | |||||||||||||||||||||||||
Lawrence A. Hagemann, | 20,000 | 11.43 | % | 2.80 | August 23, 2015 | $ | 35,218 | $ | 89,250 | ||||||||||||||||
Executive Vice President and | |||||||||||||||||||||||||
Chief Technology Officer | |||||||||||||||||||||||||
Lawrence A. Taylor, | — | — | — | — | — | — | |||||||||||||||||||
Executive Vice President, | |||||||||||||||||||||||||
Corporate Development, and | |||||||||||||||||||||||||
Director, DRI, and Director, | |||||||||||||||||||||||||
DRI-Europa AB |
1. | All stock options granted during fiscal year 2005 were exercisable by employees as of December 31, 2005. |
2. | No stock options granted during fiscal year 2005 were in the money on the grant date. |
3. | Based on 175,000 total options granted to employees in fiscal year 2005. |
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Number of Securities | Value of Unexercised, | ||||||||||||||||||||||||
Underlying Unexercised | In-the-Money(*) | ||||||||||||||||||||||||
Options/SARs at Fiscal | Options/SARs at Fiscal | ||||||||||||||||||||||||
Shares | Year-End (#) | Year-End | |||||||||||||||||||||||
Acquired | Value | ||||||||||||||||||||||||
Name and Position | on Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||||||||||
David L. Turney, | — | — | 279,000 | — | — | — | |||||||||||||||||||
Chairman, Chief Executive | |||||||||||||||||||||||||
Officer and President, DRI, | |||||||||||||||||||||||||
and Chairman and Managing | |||||||||||||||||||||||||
Director, DRI-Europa AB | |||||||||||||||||||||||||
David N. Pilotte, | — | — | 50,000 | — | — | — | |||||||||||||||||||
Executive Vice President, | |||||||||||||||||||||||||
Chief Financial Officer, and | |||||||||||||||||||||||||
Secretary, DRI, and Chief | |||||||||||||||||||||||||
Operating Officer, North Carolina Operations | |||||||||||||||||||||||||
Lawrence A. Hagemann, | — | — | 135,000 | — | — | — | |||||||||||||||||||
Executive Vice President and | |||||||||||||||||||||||||
Chief Technology Officer | |||||||||||||||||||||||||
Lawrence A. Taylor, | — | — | — | — | — | — | |||||||||||||||||||
Executive Vice President, | |||||||||||||||||||||||||
Corporate Development, and | |||||||||||||||||||||||||
Director, DRI, and Director, | |||||||||||||||||||||||||
DRI-Europa AB |
* | Options or free-standing SARs arein-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, 2005, was $1.53. |
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Common Stock | ||||||||
Beneficially | % of | |||||||
Beneficial Owners | Owned(1) | Class(2) | ||||||
Barclays Global Investors, N.A.(3) | 686,476 | 7.0 | % | |||||
Dolphin Offshore Partners, L.P.(4) | 1,051,788 | 9.7 | % | |||||
Riverview Group, LLC(5) | 1,371,983 | 13.7 | % | |||||
Laurus Master Fund, Ltd.(6) | 550,000 | 5.3 | % |
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 of April 4, 2006. All percentages are calculated based on the number of outstanding shares at April 4, 2006, plus shares that a person or group has the right to acquire within 60 days thereafter. |
2. | Based on 9,773,509 shares of Common Stock outstanding as of April 4, 2006, plus, in the case of each Shareholder listed in this table, shares of Common Stock that such Shareholder has the right to acquire as noted in Note 1. |
3. | As reported in a Schedule 13G filed with the Securities and Exchange Commission on February 9, 2006, by Barclays Global Investors, NA., Barclays Global Fund Advisors, Barclays Global Investors, LTD, and Barclays Global Investors Japan Trust and Banking Company Limited. The amount shown represents shares held in trust accounts for the economic benefit of the beneficiaries of those accounts, and includes 686,476 shares of our Common Stock over which such entities have sole voting power and 686,476 shares of our Common Stock over which such entities have sole dispositive power. Barclays Global Investors, NA is a California-based bank whose address is 45 Fremont Street, San Francisco, California 94105. |
4. | Consists of 19,933 shares of outstanding Common Stock owned outright, 350 shares of Series G Preferred Stock that are presently convertible into 791,855 shares of Common Stock, and 240,000 shares of Common Stock issuable upon the exercise of presently exercisable warrants. Peter Salas is the sole principal of Dolphin Asset Management Corporation, the general partner of Dolphin Offshore Partners, L.P. The address of Dolphin Offshore Partners, L.P. is c/o Dolphin Asset Management Corporation, 129 E. 17th Street, New York, New York 10003. |
5. | Consists of 1,130,437 shares of Common Stock owned outright and 241,546 shares of Common Stock issuable upon exercise of presently exerciseable warrants. The managing member of Riverview is Millennium Holding Group, L.P. Millennium Management, L.L.C. is the general partner of Millennium Holding Group, L.P. The sole principal of Millennium Management, L.L.C. is Israel A. Englander. The address of Riverview Group, LLC is 666 Fifth Avenue, New York, New York 10103. |
6. | Consists of 550,000 shares of Common Stock issuable upon the exercise of presently exercisable warrants. Laurus Master Fund, Ltd. is managed by Laurus Capital Management, LLC. Eugene Grin and David Grin, through other entities, are the controlling principals of Laurus Capital Management, LLC. The address of Laurus Master Fund, Ltd. is 825 Third Avenue, New York, New York 10022. |
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Common Stock | |||||||||
Beneficially | % of | ||||||||
Named Executive Officers | Owned(1) | Class (2) | |||||||
David L. Turney(3) | 355,650 | 3.5 | % | ||||||
David N. Pilotte(4) | 50,000 | * | |||||||
Lawrence A. Hagemann(5) | 152,000 | 1.5 | % | ||||||
Non-Executive Directors | |||||||||
Russell C. Cleveland(6) | 321,334 | 3.3 | % | ||||||
John D. Higgins(7) | 381,442 | 3.8 | % | ||||||
C. James Meese Jr.(8) | 37,000 | * | |||||||
Stephanie L. Pinson(9) | 42,000 | * | |||||||
John K. Pirotte(10) | 61,695 | * | |||||||
Lawrence A. Taylor(11) | 59,300 | * | |||||||
Juliann Tenney, J.D.(12) | 63,982 | * | |||||||
Executive Officers and Non-Executive Directors as a Group (10 persons) | 1,524,403 | 14.1 | % |
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 of April 4, 2006. All percentages are calculated based on the number of outstanding shares at April 4, 2006, plus shares that a person or group has the right to acquire within 60 days thereafter. The address for all directors and officers listed in the chart is: c/o Digital Recorders, Inc.; 5949 Sherry Lane, Suite 1050; Dallas, TX 75225. |
2. | Based on 9,773,509 shares of Common Stock outstanding as of April 4, 2006, plus, in the case of each individual listed in this table, shares of Common Stock that such individual has the right to acquire as noted in Note 1. |
3. | Mr. Turney’s ownership consists of 76,650 shares of Common Stock owned outright as joint tenant with right of survivorship with Mr. Turney’s wife and 279,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
4. | Mr. Pilotte’s ownership consists of 50,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
5. | Mr. Hagemann’s ownership consists of 17,000 shares of Common Stock owned outright and 135,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
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6. | Mr. Cleveland’s ownership consists of 38,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. 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 PKC, for which he serves as U.S. portfolio manager. |
7. | Mr. Higgins’ ownership consists of 14,000 shares of Common Stock owned outright, 36,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006, 156,250 shares of Common Stock issuable upon conversion of debentures, 50 shares of Series H Preferred Stock that are presently convertible into 120,192 shares of Common Stock, and warrants to purchase 55,000 shares of Common Stock issuable upon the conversion of warrants. |
8. | Mr. Meese’s ownership consists of 1,000 shares of Common Stock owned outright, 36,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
9. | 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 38,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
10. | Mr. Pirotte’s ownership consists of 25,695 shares of Common Stock owned outright and 36,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
11. | Mr. Taylor’s ownership consists of 59,300 shares of Common Stock owned outright as joint tenant with right of survivorship with Mr. Taylor’s wife. |
12. | Ms. Tenney’s ownership consists of 27,082 shares of Common Stock owned outright and 36,000 shares of Common Stock issuable upon the exercise of options presently exercisable or exercisable within 60 days of April 4, 2006. |
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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 | Dec01 | Dec02 | Dec03 | Dec04 | Dec05 | |||||||||||||||
Digital Recorders Inc. | 53.60 | 0.00 | 14.17 | 42.34 | —60.77 | |||||||||||||||
S&P 500 Information Technology | —25.87 | —37.41 | 47.23 | 2.56 | 0.99 | |||||||||||||||
NASDAQ® Index | —20.68 | —30.86 | 49.51 | 8.83 | 1.37 |
Indexed Returns Years Ending | ||||||||||||||||||||||||
Base Period | ||||||||||||||||||||||||
Company/Index | Dec00 | Dec01 | Dec02 | Dec03 | Dec04 | Dec05 | ||||||||||||||||||
Digital Recorders Inc. | 100 | 153.60 | 153.60 | 175.36 | 249.60 | 97.92 | ||||||||||||||||||
S&P 500 Information Technology | 100 | 74.13 | 46.40 | 68.31 | 70.06 | 70.75 | ||||||||||||||||||
NASDAQ® Index | 100 | 79.32 | 54.84 | 81.99 | 89.23 | 90.46 |
* | This table was prepared by the Total Return Service of Standard & Poor’s Investment Services. |
35
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36
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By Order of the Board of Directors, | |
/s/DAVID L. TURNEY | |
Chairman, Chief Executive Officer and President | |
April 19, 2006 | |
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A-2
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• | The Audit Committee will be composed of not less than three members of the Board of Directors. | |
• | The Board, upon recommendation of the CGN Committee, will appoint Committee members annually for a term of one year, subject to the appointment of their respective successors or the abolishment of the Committee. | |
• | The members of the Audit Committee shall meet the independence and experience requirements of The NASDAQ® Stock Market (“NASDAQ®”) and the requirements for audit committee service set forth in the Act, and the rules and regulations of the Securities and Exchange Commission (the “SEC”). | |
• | At least one member of the Committee shall be an “audit committee financial expert” as determined by the Board in compliance with criteria established by the SEC. | |
• | The Audit Committee shall, from time to time, appoint a chairperson (the “Chair”) from among its members. | |
• | Each Committee member shall be financially literate as required by the pronouncements of the SEC and NASDAQ® or other regulatory authority, possess appropriate accounting or equivalent financial expertise, and maintainup-to-date knowledge related to the duties herein. | |
• | Committee members shall not serve on the audit committees of more than three other public companies unless the Board determines that such service does not impair the member’s ability to serve effectively on the Committee and discloses this determination in the Company’s proxy statement. | |
• | Each Committee member shall be a current shareholder of the Company. | |
• | Each Committee member shall have attended at least 75% of all meetings of the Board of Directors in the preceding fiscal year unless the Board of Directors in its discretion, with adequate reason, elects to waive this requirement. | |
• | Each Committee member shall reasonably believe that he or she will be able to attend not less than 75% of the Committee’s meetings during the fiscal year of such person’s service. | |
• | The Audit Committee shall be comprised solely of directors who are free from any relationship that, in the opinion of the Board of Directors or the director in question, could reasonably be expected to interfere with the exercise of independent judgment as a Committee member. The Chief Financial Officer and Chief Executive Officer of the Company may attend Audit Committee meetings as “ex-officio” or non-voting attendees subject to closed executive sessions as determined from time to time by the Committee Chairman. | |
• | A majority of the Committee’s members will constitute a quorum for Audit Committee meetings and the Committee shall be entitled to act by a majority vote of its members present at a meeting. | |
• | The Committee will meet at least four times a year, upon notice properly given, or more frequently as required, and at such times, means, and places as it deems advisable. The Committee may meet telephonically, in person, by videoconference or any other means that in its sole opinion, is appropriate for the subject matter to be addressed. | |
• | Any member of the Audit Committee shall be entitled to call a meeting of the Audit Committee upon ten days’ written notice of time, date, location and agenda, with copy to all Board members and executive management. |
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• | The Committee will maintain minutes and the Committee Chair will report to the Board of Directors at its regular Board meetings regarding deliberations, findings, and actions occurring since the last such report. | |
• | The independent auditors and counsel to the Company will have the right to appear before and be heard by the Audit Committee, subject to the Committee’s right to meet in executive session. |
• | Evaluate whether management has established and is maintaining an adequate internal control structure and procedures for financial reporting. | |
• | Assess the effectiveness of the internal control structure and financial reporting procedures at the end of each fiscal year. | |
• | Evaluate whether management is appropriately communicating the importance of internal controls to everyone involved in the finance, accounting and auditing processes. | |
• | Evaluate the extent to which the independent auditors examine computer systems and applications, the security of such systems and contingency plans for processing financial information in the event of a systems breakdown. | |
• | Evaluate whether internal control recommendations made by the independent auditors are addressed by management in a timely and effective fashion. | |
• | Ensure that the independent auditors and counsel to the Company have unimpeded access to the Audit Committee with regard to issues of fraud, deficiencies in internal controls and related matters. | |
• | Review the results of annual audits of expense reimbursements, compensation, and perquisites of and to directors and officers including their use of corporate assets together with any required or appropriate reporting of same for tax or public company disclosure purposes. | |
• | Periodically assess, in conjunction with management, whether the establishment of an internal audit department would benefit the Company. |
General |
• | Review, under Statement of Auditing Standards No. 71, all financial information and accompanying text (annual, quarterly, and all other) to be filed with the SEC (normally excluding public and shareholder relations news releases not a part of quarterly or annual SEC reporting of the Company; however, the Committee may elect, at its sole discretion, to review such fromtime-to-time), together with pertinent related communication with the independent auditors of the Company. | |
• | Review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and understand their impact upon the Company’s financial statements. | |
• | Discuss with management and the independent auditors significant risks and exposures and the Company’s plans to minimize such risks. |
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Annual Financial Statements |
• | Discuss judgment areas such as those involving valuation of assets and liabilities, including, without limitation, the accounting for and disclosure of revenue recognition and reserves. | |
• | Review and discuss the annual audited financial statements with management and the independent auditors, including the disclosures under the caption “Management Discussion and Analysis of Financial Condition and Results of Operations.” The Committee shall make a recommendation to the Board as to whether the audited financial statements should be included in the Company’s annual report on Form 10-K. | |
• | Obtain and review annually, prior to the completion of the independent auditors’ annual audit of the Company’s year-end financial statements (the “Annual Audit”), a report from the independent auditors describing (i) any transactions to which management obtained any Statement on Auditing Standards No. 50 letters, (ii) all critical accounting policies and practices to be used in the financial statements, (iii) all alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors, and (iv) other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. Review any reports on such topics or similar topics prepared by management, including any significant financial reporting issues and judgments made in connection with the preparation of the financial statements. Discuss with the independent auditors any material issues raised in such reports. | |
• | Review with management and the independent auditors the effect of regulatory and accounting initiatives on the Company’s financial statements. | |
• | Meet with management and the independent auditors together and separately to discuss the financial statements and the results of the audit. | |
• | Discuss with the independent auditors accounting and reporting issues on which it consulted its national office including matters of audit quality and consistency. If deemed appropriate, discuss these issues with the national office directly. | |
• | Review the annual report before its release and consider whether the information contained therein is consistent with members’ knowledge about the Company and its operations. | |
• | Obligate the independent auditors to communicate any required or appropriate matters to the Committee. |
Interim Financial Statements |
• | Be briefed on how management develops and summarizes quarterly financial information, and the extent to which the independent auditors have reviewed quarterly financial information. | |
• | Review the quarterly financial report before its release and consider whether the information contained therein is consistent with members’ knowledge about the Company and its operations. | |
• | Discuss judgment areas such as those involving valuation of assets and liabilities, including, without limitation, the accounting for and disclosure of revenue recognition and reserves. | |
• | Meet with management and with the independent auditors, either telephonically or in person, to discuss the interim financial statements and the results of the review. |
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• | Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation andfollow-up (including disciplinary action) on any fraudulent acts or accounting irregularities. | |
• | Periodically obtain updates from management to verify compliance with laws and regulations. | |
• | Review the findings of any examinations by regulatory agencies such as the SEC, NASDAQ® and other such entities. | |
• | Review with management and the independent auditors any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies. |
• | Instruct the independent auditors that the Board of Directors and the Audit Committee, as the shareholders’ representatives, are the independent auditors’ clients. | |
• | Review the independent auditors’ proposed audit scope, approach and staff. | |
• | Subject only to consultation with the Board from time to time regarding such matters, periodically review the performance of the independent auditors and appoint, retain and discharge the independent auditors as the Committee shall deem appropriate and in the best interests of the Company. This foregoing grant shall include the right to review the experience and qualifications of the senior members of the independent auditor team and the quality control procedures of the independent auditors and assure the regular rotation of the lead audit partner and the audit partner responsible for reviewing the audit as required by law. | |
• | Obtain and review, at least annually, a report from the independent auditors describing (i) the independent auditors’ internal quality-control procedures, (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditors, and any steps taken to deal with any such issues and (iii) all relationships between the independent auditors and the Company, consistent with Independence Standard No. 1, and actively engage in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors. | |
• | Discuss with the independent auditors items required to be communicated to audit committees in accordance with Statement on Auditing Standards No. 61, Communications with Audit Committees, as currently in effect, including any audit problems or difficulties encountered in performing the audit and management’s response (including any restrictions on the auditors’ scope of activities or access to required information), disagreements with management and any changes required in the planned scope of the independent audit. | |
• | Obtain assurance from the independent auditors that the audit was conducted in a manner consistent with Section 10A of the Act. | |
• | Establish policies for the Company’s hiring of employees or former employees of the independent auditors who participated in any capacity in the audit of the Company. |
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• | Meet with the independent auditors and management in separate executive sessions to discuss any matters that the Committee or these groups believe should be discussed privately. | |
• | Establish and monitor policies for pre-approval of the retention and fees of the independent auditors or their affiliates for any non-audit services and review and approve the retention of the independent auditors and the fees and other contractual arrangements for any such services. The foregoing shall be an Exclusive Power. The Audit Committee Pre-Approval Policy is set forth below. | |
• | Take such steps as shall be necessary and consistent with its authority to ensure that significant findings and recommendations made by the independent auditors are addressed by the Company’s management in a timely fashion, or provide a report to the Board to the extent that it is unable to do so. | |
• | Review with Company counsel any legal matters that the Committee believes could reasonably be expected to have a material impact on the Company’s results of operations, financial condition or the presentation of the Company’s financial results. | |
• | Review any information submitted to the Audit Committee pursuant to Section 10A of the Private Securities Litigation Reform Act of 1995 and further as anticipated in the Sarbanes-Oxley Act of 2002. | |
• | Establish with management guidelines for the Company to follow with respect to any proposed financial activities by the Company relating to the issuance of or investment in securities. | |
• | If necessary and consistent with its duties under this Charter, and following consultation with the Board, the Committee may institute special investigations and, if appropriate, retain special counsel or experts to assist therein, all at the Company’s expense. | |
• | Perform other oversight functions as requested by the Board of Directors including a review of the annual strategic plan and annual financial plan (budget) prepared by management which, once revised as deemed appropriate in discussion with management, shall be referred, with the Committee’s recommendation, to the full Board of Directors for consideration. | |
• | Review and update the Charter of the Committee annually and receive approval of changes from the Board of Directors. | |
• | Annually prepare a report to shareholders, as required by the SEC, to be included in the Company’s annual proxy statement. The foregoing shall be an Exclusive Power. | |
• | Periodically solicit assessment by the Board of Directors and perform self-assessment of Audit Committee performance. | |
• | Regularly update the Board of Directors about Committee activities and recommendations. | |
• | Consider and arrange for such continuing education and other instruction for members of the Committee as shall be appropriate under applicable law or the circumstances. | |
• | Establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and (ii) the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters. Review periodically with management and internal auditors, if any, these procedures and any significant complaints received. | |
• | Annually review the Company’s compliance program for its Code of Conduct and Ethics. | |
• | Perform any other relevant tasks delegated to the Committee by the Board of Directors. |
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Statement of Principles |
Delegation |
Audit Services |
Audit-Related Services |
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Tax Services |
Routine Non-Audit Services |
Prohibited Non-Audit Services |
• | Bookkeeping or other services related to the accounting records or financial statements of the Company; | |
• | Financial information systems design and implementation; | |
• | Appraisal or valuation services, fairness opinions, orcontribution-in-kind reports; | |
• | Actuarial services; |
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• | Internal audit outsourcing services; | |
• | Management functions; | |
• | Human resources; | |
• | Broker-dealer, investment adviser, or investment banking services; | |
• | Legal services; or | |
• | Expert services unrelated to the audit. |
All Other Services |
Pre-Approval Fee Levels |
Supporting Documentation |
Procedures |
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• | The monthly retainer fee compensation will be paid 50 percent in cash and 50 percent in Common Stock. | |
• | Shares of Common Stock payable under this plan will be issued on a quarterly basis. | |
• | Individual directors may annually (as of each Annual Meeting of Shareholders) elect to opt in or out of thepayment-in-stock provision of the plan, effective the following January 1. |
• | Each key executive manager of the Company may make the election to receive up to $1,000 per month of his/her employee compensation in the form of Common Stock. | |
• | Shares of Common Stock payable under this plan will be issued on a quarterly basis. | |
• | The election to participate will be on a yearly basis, effective January 1 of each year. If the election is made to participate, the commitment is for the full year, unless compelling and extenuating circumstances arise supporting doing otherwise. | |
• | Each year, this one-time election option will be addressed, subject to prior authorization from the Human Resources and Compensation Committee. |
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Number of Shares | |||||||||||||
Actual Closing Price of | Due Per the | Number of Shares | |||||||||||
Last Trading Date of Each Month | Closing Price | Formula | Received | ||||||||||
July 29, 2005 | $ | 3.10 | 322.580 | 323 | |||||||||
August 31, 2005 | $ | 2.66 | 375.939 | 376 | |||||||||
September 30, 2005 | $ | 2.54 | 393.700 | 394 | |||||||||
Total Number of Shares | 1,092.219 | 1,093 |
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PROXY
This Proxy for the Annual Meeting of Shareholders in 2006 is
Solicited on Behalf of the Board of Directors
DIGITAL RECORDERS, INC.
The undersigned appoints David L. Turney and David N. Pilotte, 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 4, 2006, at the Annual Meeting of Shareholders of Digital Recorders, Inc. to be held on May 24, 2006, or at any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
Table of Contents
ANNUAL MEETING OF SHAREHOLDERS OF
DIGITAL RECORDERS, INC.
May 24, 2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
â Please detach along perforated line and mail in the envelope provided.â
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. 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. | ||||
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. | PLEASE MARK YOUR VOTE LIKE THIS:x | |||
1. | PROPOSAL TO ELECT CLASS ONE AND CLASS TWO DIRECTORS TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2007 | ||||||
NOMINEES: | |||||||
o | FOR ALL NOMINEES | O Stephanie L. Pinson O Juliann Tenney, J.D. | |||||
o | WITHHOLD AUTHORITY FOR ALL NOMINEES | O C. James Meese Jr. O John K. Pirotte | |||||
o | FOR ALL EXCEPT (See instructions below) | O David L. Turney | |||||
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark“FOR | |||||||
ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here:l | |||||||
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o | ||||||
FOR | AGAINST | ABSTAIN | ||||||
2. | PROPOSAL TO RATIFY THE SELECTION OF | o | o | o | ||||
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR 2006. | ||||||||
3. | PROPOSAL TO APPROVE PARTIAL PAYMENT OF BOARD MEMBERS AND KEY EXECUTIVE MANAGEMENT’S COMPENSATION IN THE FORM OF COMMON STOCK. | o | o | o | ||||
4. | 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 of Shareholder | Date: | Signature of Shareholder | 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. |