SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
DIGITAL DESCRIPTOR SYSTEMS, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
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):
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4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / 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:
___________________________________________________________________________
DIGITAL DESCRIPTOR SYSTEMS, INC.
446 LINCOLN HIGHWAY
FAIRLESS HILLS, PA 19030
---------------------------
NOTICE OF ANNUAL MEETING
September 3, 2002
---------------------------
Dear Digital Descriptor Systems, Inc. Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Digital Descriptor Systems, Inc., a Delaware Corporation ("DDSI") to be held on
October 16, 2002 at 10:00 A.M., local time, at DDSI Headquarters, 446 Lincoln
Highway, Fairless Hills, Pennsylvania 19030.
At the Annual Meeting, the Stockholders will vote upon the following:
o The election of four directors.
o To approve and adopt an amendment to the Company's Restated
Certificate of Incorporation to increase the authorized number of
shares of Common Stock.
o To approve an amendment to the Certificate of Incorporation in order
to provide for a stock combination (reverse split) of the Common Stock
in an exchange ratio to be approved by the Board, from one newly
issued share for each ten outstanding shares of Common Stock to one
newly issued share for each twenty outstanding shares of Common Stock
o To approve the appointment of WithumSmith+Brown as auditors for
Digital Descriptor Systems, Inc.
Whether you plan to attend the Annual Meeting or not, it is important that you
promptly complete, sign, date and return the enclosed proxy card in accordance
with the instructions set forth on the card. This will ensure your proper
representation at the Annual Meeting.
I hope you will be able to attend the Annual Meeting and look forward to seeing
you on October 16, 2002.
Very truly yours,
Robert Gowell
Chairman of the Board
Chief Executive Officer
DIGITAL DESCRIPTOR SYSTEMS, INC.
446 LINCOLN HIGHWAY
FAIRLESS HILLS, PA 19030
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NOTICE OF ANNUAL MEETING
September 3, 2002
---------------------------
The Annual Meeting of Stockholders of Digital Descriptor Systems, Inc.
will be held at DDSI Headquarters, 446 Lincoln Highway, Fairless Hills,
Pennsylvania on October 16, 2002 at 10:00 a.m., local time, for the following
purposes:
1. To elect four directors to hold office until the next Annual Meeting
of Stockholders or until their successors are elected; and
2. To approve the action the Board has requested of increasing the stock
authorized to seven hundred fifty million (750,000,000) shares.
3. To approve an amendment to the Certificate of Incorporation in order
to provide for a stock combination (reverse split) of the Common Stock
in an exchange ratio to be approved by the Board, from one newly
issued share for each ten outstanding shares of Common Stock to one
newly issued share for each twenty outstanding shares of Common Stock
4. To approve the appointment of WithumSmith+Brown as auditors for
Digital Descriptor Systems, Inc.
5. To transact such other business as may properly come before the Annual
Meeting of Stockholders.
Holders of record of Common Stock at the close of business on September 3,
2002 are the only stockholders entitled to notice of and to vote at the Annual
Meeting of Stockholders.
Michael J. Pellegrino
Secretary
2
DIGITAL DESCRIPTOR SYSTEMS, INC.
446 LINCOLN HIGHWAY
FAIRLESS HILLS, PA 19030
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PROXY STATEMENT
---------------------------
September 3, 2002
This Proxy Statement and the accompanying Proxy card are furnished in
connection with the solicitation by the Board of Directors of Digital Descriptor
Systems, Inc. (the "Company") of proxies to be voted at the 2002 Annual Meeting
of Stockholders (the "Meeting"). The approximate mailing date of this Proxy
Statement is September 14, 2002. A Proxy may be revoked at any time before it is
voted at the Meeting by submitting a later-dated Proxy or by giving written
notice of such revocation to the Secretary of the Company. If you do attend the
Meeting, you may vote by ballot at the meeting and cancel any Proxy previously
given.
When you sign and return the enclosed Proxy the shares represented
thereby will be voted for the nominees for director listed in the Proxy card,
unless otherwise indicated on the Proxy. The enclosed Proxy also permits you to
withhold authority for one or more nominees.
VOTING SECURITIES
All holders of record of the Company's Common Stock at the close of
business on September 3, 2002 are entitled to vote at the Meeting. On that date,
58,156,490 shares of Common Stock were issued and outstanding. Each share
entitles the holder to one vote. The persons appointed by the enclosed Proxy
card have advised the Board of Directors that it is their intention to vote at
the meeting and comply with the instructions on the Proxy cards received from
stockholders and, if no contrary instruction is indicated on the Proxy card, for
the election of the persons nominated to serve as directors and in accordance
with the recommendations of the Board of Directors on any other matter brought
before the meeting.
Voting of Proxies
When you sign, date and return the enclosed Proxy, the shares
represented by the Proxy will be voted in accordance with your directions. You
can specify your voting instructions by marking the appropriate boxes on the
Proxy card. If your Proxy card is signed and returned without specific voting
instructions, your shares of the Common Stock will be voted as recommended by
the directors:
"FOR" the election of Robert Gowell, Vincent Moreno, Michael
Pellegrino and Anthony Shupin for directors;
"FOR" the approval to increase the stock authorized from one
hundred fifty million (150,000,000) to seven hundred fifty million
(750,000,000) shares.
3
"FOR" the approval to provide for a stock combination (reverse
split) of the Common Stock in an exchange ratio to be approved by the
Board, from one newly issued share for each ten outstanding shares of
Common Stock to one newly issued share for each twenty outstanding
shares of Common Stock
"FOR" the approval to appoint WithumSmith+Brown as auditors
for Digital Descriptor Systems, Inc.
You may revoke your Proxy at any time before it is voted at the Meeting
by submitting a later-dated proxy or by giving written notice of revocation to
the Secretary of the Company. If you do attend the Meeting, you may vote by
ballot at the Meeting and cancel any Proxy previously given.
Directors will be elected at the Meeting by a majority of the votes
cast at the meeting by the holders of shares represented in person or by Proxy.
Abstentions and broker non-votes are counted as shares present for determination
of a quorum, but are not counted as "For" or "Against" votes on any item to be
voted on and are not counted in determining the amount of shares voted on an
item.
The cost of all solicitation will be borne by the Company.
4
PROPOSAL ONE
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
The Board of Directors is composed of four members. The Board of
Directors has the responsibility for establishing broad corporate policies and
for overseeing the overall performance of the Company. Each director is elected
to hold office until the next annual meeting of stockholders or until a
director's successor is elected and qualified or until a director's death,
resignation or removal.
The following summary information sets forth information concerning the
Company's directors and nominees:
Robert Gowell was appointed Co-Chairman and Chief Executive Officer on
January 25, 2002. With the resignation of Garrett U. Cohn, he became Chairman of
the Board effective July 23, 2002. He is a retired Deputy U.S. Marshal who has
worked out of the New York and Pennsylvania offices. He earned his B.S. in
Management and Finance from the City University of New York. He is currently
working on his MBA at Kutztown University.
Vincent Moreno provides DDSI with over 30 years of experience from a
technical and business environment, with the past 23 years at the executive
management level. He served as Vice President of Technology for ADP for 13
years. For six years, as President and CEO, he ran Mainstem Corporation, a
national provider of software services. Most recently, he served as President
and General Manager of PayPlus Software, Inc., a provider of payroll software to
the Professional Employer Organization marketplace. Mr. Moreno is adept in
setting strategic direction and is experienced in the reengineering of corporate
operating units. As a member of the board, he brings guidance, direction, and
vision to the Companies' strategic planning.
Michael Pellegrino joined the Company in 1995. On January 25, 2002 he
was appointed President, Chief Operating Officer and Chief Financial Officer,
Secretary and a Director of the Company. For eleven years prior, Mr. Pellegrino
was Vice President and CFO of Software Shop Systems, Inc. Prior to that he was a
regional controller for Capital Cities/ABS for four years and for seven years
earlier as Director of Financial Systems for ADP. Mr. Pellegrino has a Bachelors
degree in accounting from MSU and a Masters in Finance from Rutgers University,
after which he worked at Touche Ross for 3 years.
Anthony Shupin's experience includes over 20 years of executive
management, sales and marketing management and project and program management
with technology computing, aerospace and professional services companies. As a
Business Development Executive in the Communications and Media practice at
Deloitte Consulting, Mr. Shupin directed activities and resources targeted at
strategic global accounts. Prior to Deloitte, he served as Vice President of
John Richard Associates, Inc. a management consulting firm specializing in
telecommunications. His background also includes roles as Director of
International Business Development at Space Imaging, L.P. where responsibilities
included supervising the International Groundstation Network and establishing
global strategic relationships concerning the acquisition and distribution of
high resolution satellite imagery. Mr. Shupin has also served as Vice President,
Sales and Marketing at Remark Industries, Inc., which marketed and manufactured
products such as on-line lottery and electronic gaming devices, medical
monitoring and analysis devices. Prior to Remark Industries, he held management
and account management positions at Wang Laboratories and Xerox Corporation in
Princeton, New Jersey. A graduate of Colby College, Waterville, Maine, Mr.
Shupin has extended his education at Rutgers University, Cook College in
Geographic Information Systems and Remote Sensing training. He has been an
invited speaker at various international symposiums and has published articles
regarding market analysis and access, education and technical assessment.
5
DIRECTORS' COMPENSATION
Each director will receive 1,000 shares of DDSI stock vested
immediately at the beginning of each year of service, and 50,000 options, plus
reimbursement for expenses in attending directors meetings where applicable.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
There were five (5) Board of Directors meetings held in year 2001. The
directors had the option to attend via conference call.
BOARD COMMITTEES
The Board of Directors has established three committees: the
Compensation Committee, the Stock Option Committee and the Audit Committee, each
of which is briefly described below. The Board of Directors has no other
committees.
Compensation Committee
The Compensation Committee reviews and approves the Company's
compensation philosophy and programs covering executive officers and key
management employees. The Committee also determines compensation of officers and
senior employees of the Company, other than the President, and makes
recommendations to the Board of Directors concerning the compensation of the
President of the Company. The Compensation Committee also determines any grants
of stock or stock options under the Consultants and Advisors Plan to
non-employee consultants and advisors. The Compensation Committee did not meet
in 2001.
Stock Option Committee
The Stock Option Committee reviews and approves the Company's stock
option and stock purchase plans covering employees, including the implementation
of new plans if desirable. The Committee also determines grants of stock options
under the 1994 Stock Option Plan and the terms of stock options granted,
including number of shares covered by an option, the date of grant and the
fixing of the exercise price. The Stock Option Committee did not meet in 2001.
Audit Committee
The Audit Committee meets with management to review the scope and
results of audits performed by the Company's independent accountants. The
Committee also meets with the independent auditors and with appropriate Company
financial personnel about internal controls and financial reporting. The
Committee is the agent of the Board of Directors in assuring the adequacy of the
Company's financial, accounting and reporting control processes. The Committee
is also responsible for recommending to the Board of Directors the appointment
of the Company's independent accountants. The Audit Committee met once in 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During May 1996, the Company loaned Mr. Cohn $125,000. Interest is
accrued on this amount at one point over prime and was payable together with the
principal on August 13, 1999. Accrued interest on this loan was $40,525 at
December 31, 2000. Subsequently, the Company's Board of Directors agreed to
extend the maturity date of this note indefinitely. On February 22, 2002 Mr.
Cohn made a payment of $23,615.39. In 2001, due to uncertainty as to whether the
Company will collect the note, a reserve for uncollectable notes was recorded in
the amount of $177,400.
6
Compensation of Directors and Executive Officers
The following table summarizes the compensation earned and paid by the
Company to each Officer and to all Executive Officers as a group for services
rendered in all capacities during the year ended December 31, 2001:
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other Securities All
and Annual Restricted Underlying Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation($) Award($) Sar (#) Payouts($) sation ($)
Garrett Cohn*
President/CEO 1999 $160,000 0 0 0 0 0 0
Michael J
Pellegrino
President & COO 2001 $110,000 0 0 0 0 0 0
Michael Ott**
V.P/ Director 2001 $110,000 0 0 0 0 0 0
Randy Hall
V/P 2001 $ 73,500 0 0 0 0 0 0
* Mr. Cohn resigned as President and Chief Executive Officer effective
January 25, 2002.
Mr. Cohn resigned as Co-Chairman of the Board of Directors effective
July 23, 2002
** Mr. Ott resigned from the Company effective March 30, 2001
Options/Sar Grants in Last Fiscal Year
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base
Name Granted Fiscal Year Price ($/Sh) Expiration Date
- ---- ------------- ----------- ------------ ---------------
Garrett U. Cohn*, CEO 0 N/A N/A N/A
Michael J. Pellegrino, CFO 0 N/A N/A N/A
Randy Hall, VP Operations 0 N/A N/A N/A
Aggregated Option/Sar Exercises
* Mr. Cohn resigned as President and Chief Executive Officer effective
January 25, 2002.
Mr. Cohn resigned as Co-Chairman of the Board of Directors effective
July 23, 2002
None exercised
Directors will not receive compensation for their services as members
of the Board of Directors. Directors will receive reimbursement for expenses in
attending directors meetings where applicable. Under the 1996 Director Option
Plan, if approved by the stockholders, each director who is not an officer or
employee of the Company automatically receives a grant of an option to purchase
50,000 shares of the Company's Common Stock effective as of the date such person
becomes a director and thereafter a grant of an option to purchase 1,000 shares
of the Company's Common Stock on the date of each of the Company's regular
annual meeting if he or she has served on the Board of Directors for at least
six months.
7
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth current information relating to the
beneficial ownership of the Common Stock of the Company by (i) each person
owning beneficially more than 5 percent of the outstanding shares of Common
Stock, (ii) each Director of the Company and (iii) all Executive Officers and
Directors of the Company as a group: Percentage of beneficial ownership is based
upon 58,156,490 shares of Common Stock outstanding at September 3, 2002.
Beneficial Ownership
Name and Address of Common Stock
Of Beneficial Owner No. of Shares (3)
- ------------------- -----------------
Garrett U. Cohn
249 Willow Parkway
Buffalo Grove, IL 60089 1,695,000(1) 3.0%
Michael Pellegrino
33 Maple Lane
Brielle, NJ 08730 335,000 0.6%
Michael Ott
26415 212th Avenue
Delhi, IA 52223 215,000(2) 0.04%
Randolph Hall
505 Northridge Rd.
Collegeville, PA 19426 398,000 0.07%
Robert P. Martin
521-5th Avenue W., #1104
Seattle, WA 98119 3,099,000(3) 5.3%
Robert Gowell
264 Susquehanna Trail
Allentown, PA 18104 96,300 0.02%
Myrna Cohn Ph.D.
249 Willow Parkway
Buffalo Grove, IL 60089 15,000(4) 0.006%
Norman Cohn
200 Pine Tree Road
Radnor, PA 19087 840,000 1.4%
All Officers & Directors
As a Group 6,693,300(5) 12.0%
(1) Garrett U. Cohn owns 60,000 shares of stock. In addition, Mr. Cohn has the
right to vote 840,000 shares of stock held of record by Norman Cohn
pursuant to a Voting Trust Agreement described below, and, as a result of
such voting rights, such shares are included in the shares shown as
beneficially owned by Garrett U. Cohn. Mr. Cohn resigned as President and
Chief Executive Officer of Digital Descriptor Systems effective January 25,
2002. He resigned as Co-Chairman of the Board of Directors effective July
23, 2002
8
(2) Michael Ott resigned as a Director on February 26 2001.
(3) Mr. Martin holds 2,399,000 in direct holdings and 700,000 in indirect
holdings. Mr. Martin resigned from the Board of Directors on January 3,
2002.
(4) Myrna Cohn resigned from the Board of Directors effective January 14, 2002.
(5) Of the total Officers and Director's shares, 53,000 shares are options
which are 10 year options with a three-year vesting period, vesting 1/3
each year with a strike price of thirty-three cents ($0.33). Also included
is a ten-year option for 15,000 shares that vest over four years at a
strike price of three dollars and eighty-one cents ($3.81). Additionally,
there are 110,000 options which are 10 year options that vest over 4 years
a strike price of $3.30. The remaining 1,480,000 options are 10 year
options that are fully vested at varying strike prices.
(6) Includes all options which are exercisable within the next sixty (60) days.
Under the terms of the Voting Trust Agreement dated May 1, 1995, between Norman
Cohn and Garrett U. Cohn, as Trustee, Norman Cohn has transferred to the trust
940,000 shares of Common Stock of the Company, representing all of the shares of
Common Stock owned by him. Under the terms of the Voting Trust Agreement,
Garrett U. Cohn, as the Trustee, has the right to vote the stock in the Voting
Trust, except as to certain actions, including, but not limited to, any
amendment to the certification of incorporation of the Company, merger or sale
of substantially all of the assets of the Company or any action which will cause
a dilution in the outstanding shares of Common Stock. The term of the Voting
Trust is 10 years and shall terminate in April, 2005.
There are no arrangements known to the Company that at a later date may result
in a change in control of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and
directors, and persons who own more than 10% of a registered class of our equity
securities to file reports of ownership and changes in ownership with the SEC
and NASDAQ. These persons are required by regulation of the SEC to furnish us
with copies of all Section 16(a) forms they file.
Accountants
WithumSmith+Brown have been the independent public accountants of the
Company for the year ending December 31, 2001 to examine the Company's financial
statements and have been selected to be the independent public accountant for
the year ending December 31, 2002. One or more members of WithumSmith+Brown are
expected to be present at the Annual Meeting, to respond to questions and to
make a statement if they desire to do so.
9
PROPOSAL TWO
DIRECTORS' PROPOSAL TO INCREASE THE AUTHORIZED SHARES OF
COMMON STOCK FROM 150,000,000 TO 750,000,000
(Item 2 on the Proxy Card)
At the Annual Meeting, shareholders will be asked to approve and
consent to amend the Company's restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 150,000,000 to 750,000,000
shares.
The principal purpose of the proposed amendment to the Certificate is
to authorize additional shares of Common Stock which will be available to
facilitate the current raising of additional capital through the sale of
securities, to grant options or other stock incentives to the Company's
employees, for a possible acquisition of another company or its business or
assets, or to seek to establish a strategic relationship with a corporate
partner. If the amendment is approved by the stockholders, the Board of
Directors does not intend to solicit further stockholder approval prior to the
issuance of any additional shares of Common Stock, except as may be required by
applicable law.
10
PROPOSAL THREE
APPROVE AN AMENDMENT TO COMPANY'S CERTIFICATE OF INCORPORATION
TO PROVIDE FOR A REVERSE SPLIT OF THE COMMON STOCK
(Item 3 on the Proxy Card)
The Board has unanimously adopted resolutions proposing, declaring
advisable and recommending that stockholders authorize an amendment to the
Certificate of Incorporation to: (i) provide for a stock combination (reverse
split) of the Company's Common Stock in an exchange ratio to be approved by the
Board, from one (1) newly issued share for each ten (10) outstanding shares of
Common Stock to one (1) newly issued share for each twenty (20) outstanding
shares of Common Stock (the "Reverse Split"); and (ii) provide that no
fractional shares or scrip representing fractions of a share shall be issued,
but in lieu thereof, each fraction of a share that any stockholder would
otherwise be entitled to receive shall be rounded up to the nearest whole share.
There will be no change in the number of the Company's authorized shares of
Common Stock and no change in the par value of a share of Common Stock.
If the Reverse Split is approved, the Board will have authority,
without further stockholder approval, to effect the Reverse Split pursuant to
which the Company's outstanding shares (the "Old Shares") of Common Stock would
be exchanged for new shares (the "New Shares") of Common Stock, in an exchange
ratio to be approved by the Board, from one (1) New Share for each ten (10) to
twenty (20) Old Shares. The number of Old Shares for which each New Share is to
be exchanged is referred to as the "Exchange Number". The Exchange Number may,
within such range, be a whole number or a whole number and fraction of a whole
number.
In addition, the Board will have the authority to determine the exact
timing of the effective date and time of the Reverse Split, which may be any
time prior to December 31, 2004, without further stockholder approval. Such
timing and Exchange Number will be determined in the judgment of the Board, with
the intention to raise financing, to issue shares of Common Stock pursuant to
outstanding contractual obligations, and for other intended benefits as the
Company finds appropriate. See "Purposes of the Reverse Split," below.
The Board also reserves the right, notwithstanding stockholder approval
and without further action by stockholders, to not proceed with a Reverse Split
if, at any time prior to filing this amendment with the Secretary of State of
the State of Delaware, the Board, in its sole discretion, determines that the
Reverse Split is no longer in the best interests of the Company and its
stockholders. The Board may consider a variety of factors in determining whether
or not to implement the Reverse Split and in determining the Exchange Number
including, but not limited to, the approval by the stockholders of Proposal 2
which would increase the number of the authorized Common Stock, overall trends
in the stock market, recent changes and anticipated trends in the per share
market price of the Common Stock, business and transactional developments and
the Company's actual and projected financial performance.
Purposes of the Reverse Split
The purpose of the Reverse Split would be to increase the market price
of the Common Stock in order to make the Common Stock more attractive to raise
financing and as a possible currency for acquisitions and other transactions.
The Common Stock traded on The NASDAQ OTC:BB at market prices ranging from
approximately $.0.0021 to approximately $0.28 from July 1, 2001 through August
15, 2002. This range has reduced the attractiveness of using the Common Stock or
instruments convertible or exercisable into Common Stock in order to raise
financing to support the Company's operations and to increase the Company's net
worth and as consideration for potential acquisitions (which, when coupled with
the Company's need to deploy its available cash for operations, has rendered
acquisitions difficult to negotiate). Furthermore, the Company believes that
listing the Company's Common Stock on The NASDAQ SmallCap Market may provide the
Company with a broader market for its Common Stock and, therefore, facilitate
the use of the Common Stock in acquisitions and financing transactions in which
the Company may engage.
11
THERE CAN BE NO ASSURANCE, HOWEVER, THAT, EVEN AFTER CONSUMMATING THE REVERSE
SPLIT, THE COMPANY WILL BE ABLE TO UTILIZE ITS COMMON STOCK IN ORDER TO
EFFECTUATE FINANCING OR ACQUISITION TRANSACTIONS.
The Reverse Split will not change the proportionate equity interests of
the Company's stockholders, nor will the respective voting rights and other
rights of stockholders be altered, except for possible immaterial changes due to
rounding up to eliminate fractional shares. The Common Stock issued pursuant to
the Reverse Split will remain fully paid and non-assessable. The Company will
continue to be subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended.
Certain Effects of the Reverse Split
The following table illustrates the principal effects of the Reverse
Split to the 58,156,490 shares of Common Stock outstanding as of September 3,
2002:
Prior to After 1 for 10 After 1 for 20
Reverse Reverse Reverse
Number of Shares Stock Split Stock Split Stock Split
Common Stock:
Authorized 150,000,000 150,000,000 150,000,000
Outstanding (2) 58,156,490 5,815,649 2,907,825
----------- ----------- -----------
Available for Future
Issuance 91,843,510 144,184,351 147,092,175
Common Stock
Authorized (1) 750,000,000 750,000,000 750,000,000
Outstanding 58,156,490 5,815,649 2,907,825
----------- ----------- -----------
Available for Future
Issuance 691,843,510 744,184,351 747,092,175
Less Conversion of Convertible
Debentures 40,603,560(3) 22,981,980(4) 405,891,600(5)
----------- ----------- -----------
Available for Future
Issuance 285,951,910 703,580,791 724,110,195
(1) If Proposal # 2 were approved by the stockholders, there would be
750,000,000 shares of Common Stock authorized.
12
(2) Gives effect to the Reverse Split, excluding New Shares to be issued in
lieu of fractional shares. Stockholders should recognize that, if the
Reverse Split is effectuated, they will own a fewer number of shares than
they presently own (a number equal to the number of shares owned
immediately prior to the filing of the amendment regarding the Reverse
Split divided by the Exchange Number, as adjusted to include New Shares to
be issued in lieu of fractional shares). While the Company expects that a
Reverse Split will result in an increase in the market price of the Common
Stock, there can be no assurance that the Reverse Split will increase the
market price of the Common Stock by a multiple equal to the Exchange Number
or result in a permanent increase in the market price (which is dependent
upon many factors, including the Company's performance and prospects).
Also, should the market price of the Company's Common Stock decline after
the Reverse Split, the percentage decline may be greater than would pertain
in the absence of the Reverse Split. Furthermore, the possibility exists
that liquidity in the market price of the Common Stock could be adversely
affected by the reduced number of shares that would be outstanding after
the Reverse Split. In addition, the Reverse Split will increase the number
of stockholders of the Company who own odd-lots (less than 100 shares).
Stockholders who hold odd-lots typically will experience an increase in the
cost of selling their shares, as well as greater difficulty in effecting
such sales. Consequently, there can be no assurance that the Reverse Split
will achieve the desired results that have been outlined above.
(3) Assuming $907,000 of 12% Convertible Debentures ($500,000 plus $37,480
interest dated December 31, 2001 and $407,000 plus $70,249 interest dated
March 9, 2001) converted at fifty percent (50%) of stock price of $0.005.
(4) Assuming $907,000 of 12% Convertible Debentures ($500,000 plus $37,480
interest dated December 31, 2001 and $407,000 plus $70,249 interest dated
March 9, 2001) converted at fifty percent (50%) of stock price of $0.05.
(5) Assuming $907,000 of 12% Convertible Debentures ($500,000 plus $37,480
interest dated December 31, 2001 and $407,000 plus $70,249 interest dated
March 9, 2001) converted at 50 percent (50%) of stock price of $0.10. March
9, 2001 Debentures converted for $0.05 (50% of $0.10 stock price) and
December 31, 2001 Debentures converted at $0.04 (based on maximum
conversion price per contract).
Stockholders should also recognize that, as indicated in the foregoing
table, there would be an increase in the number of shares, which the Company
will be able to issue from authorized but un-issued shares of Common Stock. As a
result of any issuance of shares, the equity and voting rights of holders of
outstanding shares may be diluted.
Procedure for Effecting Reverse Split and Exchange of Stock Certificates
If this amendment is approved by the Company's stockholders, and if the
Board determines that a Reverse Split is in the best interests of the Company
and its stockholders, the Company will file the amendment with the Secretary of
State of the Commonwealth of Pennsylvania at such time as the Board has
determined the appropriate Exchange Number and the appropriate effective time
for such split. The Board may delay effecting the Reverse Split until as late as
December 31, 2004 without re-soliciting stockholder approval. The Reverse Split
will become effective on the date of filing the amendment at the time specified
in the amendment (the "Effective Time"). Beginning at the Effective Time, each
certificate representing Old Shares will be deemed for all corporate purposes to
evidence ownership of New Shares.
As soon as practicable after the Effective Time, stockholders will be
notified that the Reverse Split has been effected and of the exact Exchange
Number. The Company expects that its transfer agent will act as exchange agent
(the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the Exchange
Agent certificates representing Old Shares in exchange for certificates
representing New Shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Exchange Agent. No new certificates will
be issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the Exchange Agent. Any Old Shares
submitted for transfer, whether pursuant to a sale or other disposition, or
otherwise, will automatically be exchanged for New Shares at the exchange ratio.
Stockholders should not destroy any stock certificate and should not submit any
certificate until requested to do so by the Company or the Exchange Agent.
13
Fractional Shares
No scrip or fractional certificates will be issued in connection with
the Reverse Split. Any fraction of a share that any stockholders of record
otherwise would be entitled to receive shall be rounded up to the nearest whole
share.
No Dissenter's Rights
Under Delaware's law, stockholders are not entitled to dissenter's
rights with respect to the proposed amendment.
Federal Income Tax Consequences of the Reverse Split
The following is a summary of certain material U.S. federal income tax
consequences of the Reverse Split and does not purport to be complete. It does
not discuss any state, local, foreign or minimum income or other U.S. federal
tax consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the U.S. federal income tax law as of the date
hereof, which is subject to change retroactively as well as prospectively. This
summary also assumes that the Old Shares were, and the New Shares will be, held
as a "capital asset," as defined in the Code (generally, property held for
investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. Each stockholder should
consult with such stockholder's own tax advisor with respect to the consequences
of the Reverse Split.
The Reverse Split is an isolated transaction and is not part of a plan
to periodically increase any stockholder's proportionate interest in the assets
or earnings and profits of the Company. As a result, no gain or loss should be
recognized by a stockholder of the Company upon such stockholder's exchange of
Old Shares for New Shares pursuant to the Reverse Split. The aggregate tax basis
of the New Shares received in the Reverse Split will be the same as the
stockholder's aggregate tax basis in the Old Shares exchanged therefore. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the Reverse Split.
14
PROPOSAL FOUR
THE APPOINTMENT OF WITHUMSMITH+BROWN AS AUDITORS FOR
DIGITAL DESCRIPTOR SYSTEMS, INC.
(Item 4 on the Proxy Card)
The Board of Directors of the Company has selected WithumSmith+Brown to
audit the consolidated financial statements of the Company and its subsidiaries
for the fiscal year ending December 31, 2002. WithumSmith+Brown has served in
this capacity since February 4, 2002. Representatives of WithumSmith+Brown are
expected to be present at the Annual Meeting and will be available to respond to
appropriate questions of stockholders and to make a statement if they desire.
The affirmative vote of a majority of the votes cast on this proposal
will constitute ratification of the appointment of WithumSmith+Brown.
The Board of Directors is submitting the approval of WithumSmith+Brown
to stockholders as a matter of good corporate practice, although it is not
required to do so. Should the stockholders fail to provide such ratification,
the Board of Directors will reconsider its approval of WithumSmith+Brown as the
Company's independent public accountants for the year ended December 31, 2002.
Even if the selection is ratified, the Board of Directors, in its discretion,
may direct the appointment of a new independent accounting firm at any time
during the fiscal year if the Board of Directors feels that such a change would
be in the best interests of the Company and its stockholders.
Audit Fees
The aggregate fees billed by WithumSmith+Brown for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31, 2001 were $34,000.
All Other Fees
The were no other aggregate fees billed for services rendered by
WithumSmith+Brown, other than for services covered by the preceding two
paragraphs for the fiscal year ended December 31, 2001.
The Audit Committee has considered and determined that the services
provided by WithumSmith+Brown are compatible with WithumSmith+Brown maintaining
its independence.
15
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any
other matters before the Annual Meeting and does not know of any other matter
that may be brought before the Annual Meeting.
Submission of 2002 Stockholder Proposals
Proposals of stockholders that are intended to be presented at the
Annual Meeting in 2003 must be received by the Secretary of Digital Descriptor
Systems, Inc., 446 Lincoln Highway, Fairless Hills, Pennsylvania 19030, not
later than December 31, 2002 to be considered for inclusion in the Company's
2002 Proxy material.
A copy of the Company's Form 10-KSB may be obtained by written request
from Michael Pellegrino, Vice President, Finance, at the Company, 446 Lincoln
Highway, Fairless Hills, Pennsylvania 19030.
The above Notice and Proxy Statement are sent by order of the Board of
Directors.
By order of the Directors
Michael J. Pellegrino
Secretary
Dated: September 3, 2002
DIGITAL DESCRIPTOR SYSTEMS, INC.
Proxy for the Annual Meeting of Stockholders to be held on October 16, 2002
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Owen Naccarato, Esq., attorney with full power
of substitution, to vote as directed below all shares of Common Stock of Digital
Descriptor Systems, Inc. (the "Company"), registered in the name of the
undersigned, or which the undersigned may be entitled to vote, at the Annual
Meeting of Stockholders to be held at the offices of the Company, 446 Lincoln
Highway, Fairless Hills, Pennsylvania, on October 16, 2002 at 10:00 a.m. local
time, and at any adjournment or postponement thereof (the "Meeting").
1. TO ELECT FOUR DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF
STOCKHOLDERS OR UNTIL THEIR SUCCESSORS ARE ELECTED
( ) FOR all nominees listed below (except as marked to the contrary)
( ) WITHHOLD AUTHORITY to vote for all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through than nominee's name.
Robert Gowell Vincent Moreno
Michael Pellegrino Anthony Shupin
2. THE PROPOSED AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 150,000,000 TO 750,000,000.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION IN ORDER TO PROVIDE FOR A STOCK COMBINATION (REVERSE SPLIT)
OF THE COMMON STOCK IN AN EXCHANGE RATION TO BE APPROVED BY THE BOARD, FROM
ONE NEWLY ISSUED SHARE FOR EACH TEN OUTSTANDING SHARES OF COMMON STOCK TO
ONE NEWLY ISSUED SHARE FOR EACH TWENTY OUTSTANDING SHARES OF COMMON STOCK.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. TO APPROVE THE APPOINTMENT OF WITHUMSMITH+BROWN AS AUDITORS FOR DIGITAL
DESCRIPTOR SYSTEMS, INC.
( ) FOR ( ) AGAINST ( ) ABSTAIN
5. AS SUCH PROXIES MAY IN THEIR DISCRETION DETERMINE IN RESPECT OF ANY OTHER
BUSINESS PROPERLY TO COME BEFORE THE MEETING (THE BOARD OF DIRECTORS
KNOWING OF NO SUCH OTHER BUSINESS). THE DIRECTORS RECOMMEND A VOTE FOR
ITEMS 1 THROGUH 4.
UNLESS THE UNDERSIGNED DIRECTS OTHERWISE THIS PROXY WILL BE VOTED FOR ITEMS 1
THROUGH 5 AS PROPOSED.
PLEASE SIGN, DATE, AND RETURN IN THE ENVELOPE PROVIDED.
DATED , 2002
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Signature:
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Signature:
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Please sign in the same form as your name or names
appear hereon. For joint accounts, Both owners much
sign. Executors and other fiduciaries should indicate
their title. If Signed on behalf of a corporation, give
the title of the officer signing.