<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
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):
[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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
<PAGE> 2
DIGITAL RECORDERS, INC.
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 11:00 A.M. ON APRIL 26, 1999
---------------------
To the Shareholders:
An Annual Meeting of the shareholders of Digital Recorders, Inc. (the
"Company") will be held in the auditorium at the Microelectronics Center of
North Carolina, 3021 Cornwallis Road, Research Triangle Park, North Carolina
27709 on Monday, April 26, 1999, at 11:00 a.m., followed by lunch in Conference
Rooms A and B at 12:00 p.m., for the following purposes:
1. To elect eight directors, each to serve for a one-year term
expiring in 2000 or until their successors shall have been duly
elected and qualified;
2. To consider and act upon a proposal to approve an amendment to the
Company's Incentive Stock Option Plan to permit the issuance of an
additional 160,000 shares of Common Stock pursuant to the plan;
3. To ratify the appointment of McGladrey & Pullen, LLP as independent
certified public accountants; and
4. To consider and transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 15, 1999 as
the record date for the determination of shareholders entitled to notice of and
to vote at such meeting and any adjournment thereof.
All Company employees will be in attendance to host our shareholders. We
value our shareholders and sincerely hope you will attend.
By order of the Board of Directors,
David L. Turney, Chairman of the Board
March 26, 1999
IMPORTANT
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
CANNOT ATTEND THE MEETING, PLEASE MARK, DATE, SIGN, NOTE ANY CHANGE OF ADDRESS
AND RETURN THE ENCLOSED PROXY CARD IMMEDIATELY IN THE ENCLOSED, SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. DELAY IN
RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE. IF YOU
ATTEND THE MEETING, WE WILL BE GLAD TO RETURN YOUR PROXY SO THAT YOU MAY VOTE IN
PERSON AT THE MEETING.
<PAGE> 3
DIGITAL RECORDERS, INC.
2300 ENGLERT DRIVE, SUITE B
DURHAM, NORTH CAROLINA 27713
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 26, 1999
INTRODUCTION
The enclosed proxy is solicited by the Board of Directors of Digital
Recorders, Inc. (hereinafter referred to as the "Company") for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the
Microelectronics Center of North Carolina, 3021 Cornwallis Road, Research
Triangle Park, North Carolina 27709, on Monday, April 26, 1999, at 11:00 a.m.,
for the purposes set forth in the foregoing Notice of Annual Meeting of
Shareholders. This Proxy Statement and the form of proxy will be mailed to
shareholders on or about March 26, 1999.
VOTING OF SECURITIES
The record date with respect to this solicitation is March 15, 1999 (the
"Record Date"). All holders of record of Common Stock of the Company as of the
close of business on the Record Date are entitled to vote at the Annual Meeting.
As of that date, the Company had 3,274,075 shares of Common Stock outstanding,
which shares constitute the only class of outstanding shares of the Company
entitled to notice of, and to vote at, the Annual Meeting. Each share of Common
Stock is entitled to one vote.
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Annual Meeting in order to constitute a quorum for the
transaction of business. If a quorum exists, a proposal is approved if the votes
cast in person or by proxy favoring the proposal exceed the votes cast opposing
the proposal. Directors are elected by a plurality of the votes cast at a
meeting at which a quorum is present. Shareholders may not cumulate their votes
for directors. Abstentions and broker non-votes are not counted in the
calculation of the vote. A proxy may be revoked by the shareholder at any time
prior to its being voted by giving notice to the Secretary of the Company, by
executing and delivering a proxy with a later date or by voting in person at the
Annual Meeting. Unless the proxy is revoked, or unless it is received in such
form as to render it invalid, the shares represented by it will be voted in
accordance with the instructions of the shareholder contained therein. If the
proxy is signed and returned without specifying choices, the shares will be
voted in accordance with the recommendations of the Board of Directors.
The cost of this solicitation will be borne by the Company, including
expenses incurred in connection with preparing and mailing this Proxy Statement.
Such expenses will include charges by brokers, banks or their nominees, other
custodians and fiduciaries for forwarding proxy material to the beneficial
owners of shares held in the name of a nominee. Proxies may be solicited
personally or by mail, facsimile, telephone or telegraph. Employees and
directors of the Company may solicit proxies but will not receive any additional
compensation for such solicitation.
As a matter of policy, proxies, ballots, and voting tabulations that
identify individual shareholders are held confidential by the Company. Such
documents are available for examination only by the inspectors of election who
are employees appointed to tabulate the votes. The identity of the vote of any
shareholder is not disclosed except as may be necessary to meet legal
requirements.
<PAGE> 4
COMMON STOCK OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of March 15, 1999 by (i) each person known by the
Company to own beneficially more than 5% of the outstanding Common Stock, (ii)
each director or nominee, (iii) each other executive officer named in the
Summary Compensation Table, and (iv) all executive officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
------------------------------
NAME NUMBER PERCENT
- ---- ------------ ----------
<S> <C> <C>
David L. Turney(2).......................................... 375,350 10.1%
Michael A. Conner, Jr. (3).................................. 6,667 *
Lawrence A. Hagemann (4).................................... 32,107 0.9%
Robert W. Huber (3)......................................... 5,667 *
Tanya Johnson (3)........................................... 24,903 *
Lawrence A. Taylor (4)...................................... 20,000 *
John D. Higgins, Sr. (5).................................... 32,700 *
J. Phillips L. Johnston (6)................................. 121,321 3.3%
C. James Meese, Jr. (4)..................................... 11,327 *
John K. Pirotte (7)......................................... 55,028 1.5%
John M. Reeves, II (8)...................................... 171,407 4.6%
Joseph Tang................................................. 400,000 10.7%
Juliann Tenney (9).......................................... 21,892 *
All current directors and officers as a group (13 persons)
(10)...................................................... 1,278,372 34.3%
</TABLE>
- ---------------
* Less than one percent of the shares of Common Stock.
(1) Beneficial ownership includes both outstanding Common Stock and shares
issuable upon exercise of options or warrants that are currently
exercisable or will become exercisable within 60 days after the date
hereof. Unless otherwise noted, sole voting and dispositive power is
possessed with respect to all Common Stock shown. All percentages are
calculated based on the number of outstanding shares plus shares which a
person or group has the right to acquire within 60 days. The address for
all persons listed is 4018 Patriot Drive, Suite 100, Durham, North Carolina
27709.
(2) Includes 250,000 shares subject to currently exercisable options.
(3) Consists solely of shares subject to currently exercisable options.
(4) Includes 29,107 shares subject to currently exercisable options.
(5) Includes 6,000 shares subject to currently exercisable options.
(6) Includes 50,000 shares subject to currently exercisable options.
(7) Includes 5,333 shares subject to currently exercisable options.
(8) Includes 2,667 shares subject to currently exercisable options and shares
owned of record by the Sarah C. Reeves Trust. Sara Reeves is the mother of
John M. Reeves, II.
(9) Includes 4,000 shares subject to currently exercisable options.
(10) Includes 415,674 of shares subject to currently exercisable options. Does
NOT include 29,897 shares subject to options and warrants which have not
yet become exercisable.
I. ELECTION OF DIRECTORS
The eight nominees for election as directors are identified below. All
nominees are now members of the Board of Directors. The Board of Directors knows
of no reason why any nominee would be unable to serve as a director. If any
nominee should for any reason become unable to serve, the shares represented by
all valid proxies will be voted for the election of such other person as the
Board of Directors may designate or the Board of Directors may reduce the number
of directors to eliminate the vacancy.
The following material contains information concerning the nominees,
including their recent employment, positions with the Company, other
directorships and age as of the date of this Proxy Statement.
2
<PAGE> 5
John D. Higgins, Sr., age 66, was elected a director of the Company in
February 1998. Since 1990, Mr. Higgins has been Senior Vice President of
Corporate Finance for Royce Investment Group, Inc. He is also a director of
Iatros Health Network Birman Managed Care, Inc., a publicly-held corporation
which performs specialized consulting and cost containment services to the
health care industry and IRATA, Inc., a publicly-owned company which operates
amusement park photo booths. Mr. Higgins holds BBA and MBA degrees from Hofstra
University.
J. Phillips L. Johnston, age 59, served on the Board of Directors and as
President and Special Programs Administrator of the Company from April 1998 to
May 15, 1998. From May 15, 1998 to December 31, 1998 he served as Special
Programs Administrator. Until April 1998 he had served as the Chairman of the
Board and Chief Executive Officer of the Company, and as President, since March
1991. He was the Administrator of the North Carolina Credit Union Division of
the North Carolina Department of Commerce from September 1987 to April 1990.
From October 1979 to September 1987, Mr. Johnston served as President and Chief
Executive Officer of Data Pix, Inc., Norman Perry, Chantry, Ltd., and
Erwin-Lambeth, Inc., each of which were privately-held companies based in North
Carolina. From 1971 through 1979, he was President and Chief Executive Officer
of Currier Piano Company, Marion, North Carolina. Mr. Johnston received his AB
degree in economics from Duke University and his law degree from the University
of North Carolina. Mr. Johnston left full time employee engagement with the
company as of December 31, 1998.
C. James Meese, Jr., age 57, has served as a director of the Company since
April 1991 and was an independent sales representative for the TCS business
group from February 1993 through May 1995. Since 1989 he has provided advice and
assistance to high growth companies on issues of market development,
capitalization, corporate governance and organizational structuring through
Business Development Associates, Inc., for which he currently serves as
President. Prior to 1989 he spent approximately 20 years in various senior
corporate marketing, business development and finance positions. Mr. Meese is
also a director of BillPayers, Inc., a Greensboro, North Carolina based consumer
financial services firm; and NECCO, an environmental contracting company based
in Winston-Salem, North Carolina. Mr. Meese received a B.A. degree in economics
the University of Pennsylvania and an M.B.A. from Temple University.
John K. Pirotte, age 49, became a director of the Company in May 1996.
Since 1990, he has served as Chairman and Chief Executive Officer of CORPEX
Technologies, Incorporated, a privately-held company that develops and markets
surface active chemical technology. In addition, Mr. Pirotte has operated a
private investment company since 1987. He was the Chief Financial Officer of The
Aviation Group, Inc. from 1979 to 1981 and Chairman and Chief Executive Officer
from 1981 until 1987. He also served in various capacities, including manager,
in Acquisition Advisory Services for an international public accounting firm
from 1972 to 1979. Mr. Pirotte was a director of Microwave Laboratories, Inc., a
venture capital-backed company, which filed a petition for bankruptcy in 1994.
He is a founding director of North Carolina Enterprise Corp., a venture
capital fund and serves on the Advisory Board of Intersouth I, a venture capital
fund. Mr. Pirotte received his B.A. degree in economics from Princeton
University and an M.S. in accounting from New York University.
John M. Reeves, II, age 44, has served as a director of the Company since
April 1993. He co-founded and since March 1992 has served as President of First
Exim Financial Limited, which provides trade finance and factoring to exporters
and importers. From August 1991 to February 1992, he was employed by Allen
Commercial Services advising small, closely-held companies with respect to
capitalization issues. Since 1988 he has been engaged in real estate development
activities through Reeves Development Corporation, a company controlled by him.
Mr. Reeves is a director of Horizon Financial Services, a Hastings, England
firm. Mr. Reeves has both graduate and undergraduate degrees in civil
engineering from North Carolina State University and an M.B.A. from Duke
University.
Joseph Tang, age 51, is the founder of Lite Vision Corp. Ltd. and has
served as Chairman and CEO since 1990. From 1981 to 1990, Mr. Tang was the Vice
President of marketing for Taiwan Liton Electronics Corp. Ltd. Taiwan Liton is
the third largest LED (Light Emitting Diode) manufacturer in the world. Taiwan
Lite-On group, the parent company of Taiwan Liton electronics, has sustained
double digits growth for
3
<PAGE> 6
decades with a total turnover of 2 billion US dollars in 1998. Mr. Tang received
his B.S. degree in industrial engineering from Tung Hai University in Taiwan.
Juliann Tenney, age 46, has served as a director of the Company since April
1991. She is presently serving as Director of Strategic Initiatives at Duke
University School of Law. From July 1993 to August 1998, Ms. Tenney was an
instructor in the non-profit management program at Duke University. From August
1990 through July 1993, she served as Executive Director of the Southern Growth
Policies Board, an interstate alliance charged with designing economic
development and growth strategies for southern Governors and legislators. From
August 1988 to August 1990, Ms. Tenney served as Director for the Economic and
Corporate Development Division of the North Carolina Biotechnology Center and
also as their House Legal Counsel. From November 1987 to August 1988, Ms. Tenney
was Assistant Secretary at the North Carolina Department of Commerce. From
August 1985 to November 1987, she was Executive Director of the North Carolina
Technological Development Authority. Prior to that time, she was a practicing
attorney. Ms. Tenney received a B.A. degree from the University of North
Carolina and a law degree from Duke University.
David L. Turney, age 56, has served as Chairman of the Board and Chief
Executive Officer of the Company since May 1998 and as a director of the Company
since May 1996. Mr. Turney was co-founder, Chairman and CEO of Robinson Turney
International, Inc. ("RTI"), a consulting firm which was merged into the company
effective as of April 1998. RTI is engaged in business development, marketing
services, advisory services, and merger, acquisition and financing assignments
for selected clients. Until the date of merger, RTI clients included the Company
and all clients in the transit and transportation equipment industries. From
March 1994 to December 1995, Mr. Turney was also engaged in strategic planning
and development consulting services for his former employer, Mark IV Industries,
Inc. ("Mark IV"), a New York Stock Exchange listed company. From February 1991
to February 1994, he was President and Group Executive of Mark IV Transportation
Products Group, a group of nine companies, subsidiaries and operating units of
Mark IV serving transit and transportation markets worldwide, which group Mr.
Turney was responsible for developing. From 1984 to 1991, Mr. Turney was
President of the Luminator division of Gulton Industries, Inc., which became a
wholly-owned subsidiary of Mark IV in 1987. Prior to 1984, he served in various
managerial and engineering capacities in four corporations spanning the
telecommunications, industrial hard goods, consumer electronics and
electromagnetic components industries. Mr. Turney received his B.S. degree in
industrial management from the University of Arkansas.
BOARD COMPENSATION
No employee of the Company receives any additional compensation for his or
her services as a director. Non-management directors receive no salary for their
services as such although reasonable travel or other out-of-pocket expenses
incurred by non-management directors in attending meetings of the Board of
Directors and Committee meetings are reimbursed on an actual but reasonable
basis. Effective June 1998, the company instituted a meeting-fee schedule for
non-employee directors attending Board and Committee meetings. The fee related
to Board Meetings is $750 for regular meetings and $250 for telephonic meetings.
The fee for Committee meetings is $500/meeting with the Chair receiving an
additional $500/meeting. Certain directors of the Company are consultants or
advisors to the Company and receive compensation for such services. See "Certain
Relationships and Related Transactions". During the fiscal year 1998, the Board
of Directors granted 250,000 options to employee directors and 55,987 options to
non-employee, non-consultant directors. Such options are exercisable at a price
ranging from $2.00 to $3.00 a share.
EXECUTIVE OFFICERS
The following material contains information concerning the executive
officers of the Company who are not nominees for election as directors,
including their recent employment, positions with the Company and age as of the
date of this Proxy Statement.
Michael A. Connor, Jr., age 56, was named Vice President and General
Manager of Digital Audio Company (DAC) on February 1, 1997. From April 1994
until February 1997, he was Manager, Sales and Marketing for DAC. From November
1987 until April 1994, Mr. Connor was President and owner of
4
<PAGE> 7
Mike Connor Construction, Inc., a general contracting firm specializing in
high-end custom residential construction. Mr. Connor has a bachelor's degree in
aerospace engineering from the University of Florida and a master's degree in
mechanical engineering from Tulane University. Mr. Connor is a registered
professional engineer in North Carolina.
Lawrence A. Hagemann, age 55, has served as Executive Vice President and
General Manager of TwinVision Corp. of North America, Inc., a wholly-owned
subsidiary of the Company since February 1998. From July 1996 until February
1998, Mr. Hagemann was Vice President and General Manager of TwinVision Corp. of
North America, Inc. From July 1995 until July 1996, he served as Vice President
of ADDAX Sound Company, a privately-held company based in Illinois. From April
1991 to December 1993, he served as Assistant to the President of Vapor-Mark IV.
Since October 1993, he has served as a Director of Transtel Communications Ltd.,
a developer of news media software based in London, England. From 1973 through
December 1990, he served as Vice President of Sales and Marketing for Extel
Corporation of Illinois and as a Director of Excom Communications Limited (UK)
and Extel Overseas Limited (HK). He is a co-editor of the 1995 book titled
Hoover's Guide to Computer Companies. Mr. Hagemann received his bachelors degree
in electrical engineering from the University of Detroit and his M.B.A. from
Loyola University (Chicago).
Robert W. Huber, age 59, founded Transit-Media GmbH ("Transit-Media") on
August 1, 1995. Since May 1996 , he has served as Managing Director of
Transit-Media, now a wholly-owned subsidiary of the Company. From October 1989
to January 1885, Mr. Huber was Managing Director of Lawo-Luminator-Europa
("LLE"), a Mark IV Industries, Inc. company belonging to the Mark IV Industries
Transportation Products Group ("Mark IV TPG"), a group of nine companies,
subsidiaries and operating units serving transit and transportation markets
worldwide. Mark IV TPG was an operating group of Mark IV Industries, Inc., a New
York Stock Exchange listed company. Prior to 1989 and since 1981, Mr. Huber
served in various executive positions introducing the then entirely new product
of alpha-numeric destination sign systems for public transport vehicles in
Europe. After having been elected twice as Chairman of the Industry Council the
International Union of Public Transport ("UITP"), Mr. Huber now serves as
Honorary Chairman of the Industry Council of UITP. Mr. Huber started his
business career in a family owned business of manufacturing jewelry and
precision parts for the watch industry and gained experience working in foreign
countries including the U.S. with International Telephone & Telegraph ("ITT"),
and in Geneva, Switzerland with the United Nations.
Tanya L. Johnson, age 35, has served as Vice President and General Manager
of the Transit Communications ("TCS") business group since February 1998. She
has been employed in various management positions with the TCS business group
since November 1995. Ms. Johnson also served as Manager of Engineering for TCS
from June 1990 to October 1995 and as an Engineering Specialist from January
1988 to May 1989 and was, in that capacity, among the founders of the TCS
"Talking Bus" technology. Ms. Johnson served as a Component Engineer at Teletec
Corporation from June 1989 through May 1990. Ms. Johnson led the development of
the Talking Bus product line. Ms. Johnson holds a B.S. degree in electrical
engineering from Duke University.
Lawrence A. Taylor, age 52, has served as Chief Financial Officer and
Secretary of the Company since May 1998. From March 1997 to the present, Mr.
Taylor has been a partner with Tatum CFO Partners, LLP, a professional
partnership of career CFO's. From March 1995 to August 1996, Mr. Taylor was
Senior Vice President of Precept Business Products, Inc., a privately held
holding company whose principal businesses are a distributor of business forms,
construction and on demand courier delivery service. From May 1991 through
December 1994, Mr. Taylor was Vice President and Group Controller of Mark IV
Transportation Products Group ("Mark IV TPG"), a group of nine companies,
subsidiaries and operating units serving transit and transportation markets
worldwide. Mark IV TPG was an operating group of Mark IV Industries, Inc., a New
York Stock Exchange listed company. Prior to 1991, Mr. Taylor served in various
financial managerial capacities in the food processing, commercial construction,
and oil field supply industries as well as other manufacturing environments. Mr.
Taylor received a B.S. degree in accounting from Wayne State University. Mr.
Taylor is a certified public accountant.
5
<PAGE> 8
KEY EMPLOYEE
Dr. James E. Paul, Jr., age 55, has served as the Chief Scientist of DAC
since March 1997 with focus primarily on the technology needs of the DAC
business unit. Prior to assuming that position, he had served as President of
the DAC business group since February 28, 1995 when the Company acquired
substantially all of the assets of Digital Audio Corporation ("Digital Audio").
Dr. Paul founded Digital Audio in 1979 and had served as its President and chief
engineer since its inception. Digital Audio designed, manufactured and marketed
digital signal processing equipment to law enforcement agencies, and the Company
had employed Dr. Paul to continue such business operations as a business group
of the Company. From 1979 to 1981, Dr. Paul taught in the Electrical Engineering
and the Computer Science Departments of California State University, Fullerton.
From 1969 to 1979, he served as the senior research engineer and manager of the
Audio Science Group at Rockwell International Corporation. He received B.S.,
M.E.E. and Ph.D. degrees in electrical engineering from North Carolina State
University.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three fiscal years ended December 31, 1998 of David L. Turney, the Chief
Executive Officer and President of the Company from April 20, 1998 and Michael
A. Connor, Jr., Lawrence A. Hagemann, Robert W. Huber, Tanya L. Johnson and
Lawrence A. Taylor, the Company's executive officers other than Mr. Turney who
were serving as executive officers at the end of the fiscal year ended December
31, 1998 (the "Named Officers"). The listed individuals of J. Phillips L.
Johnston, Bruce R. Thomas, Jonathan E. Kennedy, John M. Cochran and Andrew L.
Turner, III held executive officer positions during the three years ended
December 31, 1998, but were not employees of the Company on December 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------
------------------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS/SARS(#)(1)
- --------------------------- ---- -------- ------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
David L. Turney.......................... 1998 $175,000(2) $ -- $ 3,645(3) 10,000
Chief Executive Officer
and President
J. Phillips L. Johnston.................. 1998 $131,250 $ -- $ 5,276(4) 50,000
Former Chief Executive 1997 150,000 -- 7,526(4) --
Officer 1996 150,000 70,000 14,975(4) --
Michael A. Connor, Jr.................... 1998 $ 80,507 $40,668 $ --(5) --
Vice President and 1997 58,333 49,825 12,993(6) 7,000
General Manager, DAC 1996 40,583 -- 28,657(6) --
Lawrence A. Hagemann..................... 1998 $115,416 $ -- $ -- 23,441
Executive Vice President and 1997 97,625 -- -- 4,000
General Manager, TwinVision 1996 85,000 -- -- 3,000
Robert W. Huber.......................... 1998 $ 98,824 $ -- $ 9,416(7) --
Managing Director 1997 95,729 -- 10,318(7) --
Transit-Media GmbH 1996 54,216 -- 6,885(7) --
Tanya L. Johnson......................... 1998 $ 72,791(8) $ -- $ 2,960(9) 10,000
Vice President and 1997 53,653 -- -- 2,000
General Manager, TCS 1996 52,000 -- -- --
Lawrence A. Taylor....................... 1998 $ 74,615(10) $ -- $ -- 20,000
Chief Financial Officer
and Secretary
Bruce R. Thomas.......................... 1998 $ 64,000(11) $ -- $ 52,985(6) --
Former Vice President 1997 46,000 -- 96,463(6) --
of Sales -- TCS 1996 40,000 -- 120,216(6) --
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------
------------------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS/SARS(#)(1)
- --------------------------- ---- -------- ------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Jonathan E. Kennedy...................... 1998 $ 65,337(12) $ -- $ -- --
Former Chief Financial Officer 1997 105,000 -- -- --
And Secretary 1996 9,375 -- -- --
John M. Cochran.......................... 1998 $ 50,000(13) $ -- $ 3,645(14) --
Former Vice President and 1997 100,000 29,130 6,240(14) --
General Manager, TCS 1996 93,750 -- 5,720(14) --
Andrew L. Turner, III.................... 1998 $ 49,638(15) $97,605 $ 1,500(16) --
Former Vice President and 1997 80,000 26,944 6,000(16) --
General Manager, HIS 1996 79,167 -- 6,000(16) --
</TABLE>
- ---------------
(1) Such options were granted pursuant to the Company's Incentive Stock Option
Plan.
(2) Mr. Turney was first employed as an executive officer of the Company April
20, 1998 with salary compensation retroactive to January 1, 1998.
(3) Represents usage of a Company leased automobile and medical expense
reimbursement.
(4) Represents usage of a Company leased automobile and medical expense
reimbursement.
(5) Commission on net sales replaced by EIC (bonus) plan based on net income.
(6) Represents commissions earned.
(7) Represents usage of a company leased automobile and accident insurance.
(8) Ms. Johnson became Vice President and General Manager in March 1998.
(9) Represents medical expense reimbursement.
(10) Mr. Taylor was first employed as an officer of the Company in May 1998.
(11) Mr. Thomas tendered his resignation effective December 31, 1998.
(12) Mr. Kennedy became an executive officer in 1996 and subsequently resigned
effective May 27, 1998.
(13) Mr. Cochran became an officer in 1996 and subsequently resigned effective
June 30, 1998.
(14) Represents usage of Company leased automobile, country club dues, and
related expenses.
(15) Mr. Turner was an officer of the company until the sale of HIS division
effective March 31, 1998.
(16) Represents an automobile expense allowance.
Option Grants Table. The following table sets forth information concerning
grants of stock options to the Named Officers pursuant to the Company's stock
option plan during the fiscal year ended December 31, 1998
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED (SHARES) FISCAL YEAR ($/SHARE) EXPIRATION DATE
- ---- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
David L. Turney........................... 86,000 27.7% $2.00 20-April-08
David L. Turney........................... 14,000 4.5% 3.00 01-June-08
David L. Turney........................... 150,000 48.3% 3.00 02-July-08
Lawrence A. Hagemann...................... 5,000 1.6% 2.00 01-April-08
Lawrence A. Hagemann...................... 18,441 5.9% 3.00 01-June-08
Tanya L. Johnson.......................... 3,000 1.0% 2.00 20-April-08
Tanya L. Johnson.......................... 7,000 2.3% 3.00 01-June-08
Lawrence A. Taylor........................ 20,000 6.4% 3.00 01-June-08
</TABLE>
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<PAGE> 10
Fiscal Year-End Options/Option Values Table. No stock options were
exercised by the Named Officers in the fiscal year ended December 31, 1998. The
following table shows the stock option values for the Named Officers as of
December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED
LYING UNEXERCISED OPTIONS IN THE-MONEY OPTIONS AT
AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David L. Turney.................................. 250,000 -- -- --
Michael A. Connor, Jr............................ 6,667 1,333 -- --
Lawrence A. Hagemann............................. 29,107 1,333 -- --
Robert W. Huber.................................. 5,667 1,333
Tanya L. Johnson................................. 24,903 667 -- --
Lawrence A. Taylor............................... 20,000 -- -- --
</TABLE>
- ---------------
(1) The exercise price of all options exceeded $1.47 per share, the closing sale
price of the Common Stock on December 31, 1998.
401(k) Plan. In January of 1996, the Company implemented a defined
contribution savings plan ("Savings Plan") for all eligible employees (as
defined). The Savings Plan is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended. Under the Savings Plan, a participant
may contribute from one to fifteen percent of his or her compensation, not to
exceed an amount which would cause the plan to violate Section 401(k) and other
applicable sections of the Internal Revenue Code. The Company does not make any
matching contributions to the Savings Plan. All participant's contributions are
invested, in accordance with the participant's election, in various investment
funds managed by the plan trustee. The Savings Plan permits withdrawals in the
event of disability, death, attainment of age fifty nine and one-half,
termination of employment or proven financial hardship. The Company pays all the
costs of administering the Savings Plan.
BOARD COMMITTEES AND ADVISORY BOARD
The Board of Directors has delegated certain of its authority to an
Executive Compensation Committee, Audit Committee, Acquisition and Alliance
Committee, Nominating Committee, and Executive Committee. The Marketing
Committee and the Technology Advisory Board were discontinued as of January
1998. Other than the Executive Committee, of which Mr. Turney is Chairman, no
member of any committee is an officer or employee of the Company. Mr. Turney
serves as ex-officio members of all committees.
The Compensation Committee is currently composed of Ms. Tenney and Mr.
Higgins (who replaced Mr. Thomas in that capacity in February 1999) and is
chaired by Ms. Tenney. The Compensation Committee held no meetings in fiscal
year 1998 but acted in cooperation with the full board of Directors in two
special meetings. The primary function of the Compensation Committee is to
review and make recommendations to the Board with respect to certain
compensation policy matters and to administer the Company's stock option plan.
The Audit Committee is currently composed of Mr. Meese and Mr. Higgins with
Mr. Meese as Chairman. The Audit Committee held four meetings in fiscal year
1998. The function of the Audit Committee is to review and approve the scope of
audit procedures employed by the Company's independent auditors, to review and
approve the audit reports rendered by the Company's independent auditors and to
approve audit fees charged by the independent auditors. The Audit Committee
reports to the Board of Directors with respect to such matters and recommends
the selection of independent auditors.
The Acquisition and Alliance Committee is composed of Mr. Reeves and Mr.
Pirotte with Mr. Reeves serving as Chairman. The Alliance and Acquisition
Committee held two meetings in fiscal year 1998. The function of the Alliance
and Acquisition Committee is to research and evaluate potential business
acquisitions and alliances for the Company.
8
<PAGE> 11
The Nominating Committee is composed of Mr. Higgins as Chairman and Mr.
Reeves and met one time during 1998. The Nominating Committee makes advisory
recommendations to the Board of Directors about appropriate composition and
membership on the Board of Directors.
The Executive Committee consists of Mr. Pirotte, Mr. Reeves, Mr. Meese, and
Mr. Turney who also serves as Chairman. The Executive Committee met two times in
1998 and serves as an additional oversight of the Company in behalf for the
Board of Directors normally involving more details than would be practical for
the larger Board of Directors.
BOARD AND COMMITTEE ATTENDANCE
In fiscal year 1998, the Board of Directors held nine meetings. All
directors except Mr. Tang, who joined the Board of Directors as of June 1998,
attended more than 75% of the aggregate of board and committee meetings held
during fiscal year 1998.
THE BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE DIRECTOR NOMINEES IDENTIFIED ABOVE.
II. PROPOSAL TO APPROVE AMENDMENT TO THE INCENTIVE STOCK OPTION PLAN
The Company's Incentive Stock Option Plan (the "Plan") was adopted
effective April 27, 1993 and amended in June 1998. The Board of Directors
believes the Plan has proved to be of substantial value in recruiting new
employees as well as stimulating the efforts of existing employees. The Board of
Directors has adopted an amendment to the Plan to increase the number of shares
available for issuance under the Plan by an additional 160,000 shares of Common
Stock.
The provisions of the existing Plan, as well as the proposed amendments
thereto, are summarized below.
SUMMARY OF THE INCENTIVE STOCK OPTION PLAN
The Company's Incentive Stock Option Plan (the "Plan") was adopted by the
Board of Directors and approved by the shareholders of the Company effective
April 1993 and amended in June 1998. An aggregate of 500,000 shares of Common
Stock are reserved for issuance under the Plan. The Plan provides for the
granting of incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), non-qualified stock options and stock appreciation rights ("SARs").
Non-qualified stock options may be granted to employees, directors and advisors
of the Company, while Incentive Stock Options may be granted only to employees.
No options may be granted under the Plan subsequent to April 2003.
The Plan is administered by the Compensation Committee of the Board of
Directors, which determines the terms and conditions of the options and SARs
granted under the Plan, including the exercise price, number of shares subject
to the option and the exercisability thereof.
The exercise price of all Incentive Stock Options granted under the Plan
must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. In the case of an optionee who owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, the exercise price of Incentive Stock Options
shall be not less than 110% of the fair market value of the Common Stock on the
date of grant. Approximately 107,000 options were repriced to $3.00 during the
year. The exercise price of all non-qualified stock options granted under the
Plan shall be determined by the Compensation Committee. The Company agreed with
the underwriter of its initial public offering that the exercise price of
options granted under the Plan will not be less than 85% of the fair market
value of the Common Stock. The term of options granted under the Plan may not
exceed ten years. The Plan may be amended or terminated by the Board of
Directors, but no such action may impair the rights of a participant under a
previously granted option.
The Plan provides the Board of Directors or the Compensation Committee the
discretion to determine when options granted thereunder shall become exercisable
and the vesting period of such options. Upon
9
<PAGE> 12
termination of a participant's employment, directorship or advisory relationship
with the Company, all unvested options terminate and are no longer exercisable.
Vested options either terminate immediately or remain exercisable for a
specified period of time depending on the nature and circumstances of the
termination.
The Plan provides that, in the event the Company enters into an agreement
providing for the merger of the Company into another corporation or the sale of
substantially all the Company's assets, any outstanding unexercised option shall
become exercisable at any time prior to the effective date of such agreement.
Upon the consummation of the merger or sale of assets, such options shall
terminate unless they are assumed or another option is substituted therefor by
the successor corporation.
The Plan provides the Board of Directors or the Compensation Committee
discretion to grant SARs in connection with any grant of options. Upon the
exercise of a SAR, the holder shall be entitled to receive a cash payment in an
amount equal to the difference between the exercise price per share of options
then exercised by him and the fair market value of the Common Stock as of the
exercise date. The holder is required to exercise options covering twice the
number of shares which are subject to the SAR so exercised. SARs are not
exercisable during the first six months after the date of grant, and may be
transferred only by will or the laws of descent and distribution.
As of December 31, 1998, a total of 465,400 non-qualified and qualified
Incentive Stock Options were outstanding, with exercise prices ranging from
$2.00 to $3.00. There were no SARs outstanding as of December 31, 1998.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT TO THE INCENTIVE STOCK OPTION
PLAN TO PERMIT THE ISSUANCE OF AN ADDITIONAL 160,000 SHARES PURSUANT TO THE
PLAN.
III. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of McGladrey & Pullen, LLP has examined the financial statements
of the Company for the year ended December 31, 1998. Subject to shareholder
approval, such firm has been re-appointed by the Board of Directors to serve as
the Company's independent auditors for the 1999 fiscal year. Representatives of
McGladrey & Pullen, LLP are expected to be present at the Annual Meeting with
the opportunity to make a statement if it is their desire to do so, and will be
available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF MCGLADREY &
PULLEN, LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission and the Company. Specific due dates for these
reports have been established and the Company is required to disclose in this
proxy statement any failure to file, or late filing, of such reports with
respect to the fiscal year 1997. To the Company's knowledge, based solely on a
review of the copies of reports furnished to the Company and written
representations with respect to filing of such reports, the Company believes
that all Section 16(a) filing requirements applicable to the Company's executive
officers, directors and greater than ten percent beneficial owners were complied
with for the fiscal year ended December 31, 1998.
10
<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective March 1996, the Company entered into various marketing,
distribution, licensing and management agreements with Robinson Turney
International, Inc., an entity in which David L. Turney, an officer and director
of the Company, holds a 50% ownership interest. The Company paid fees and
commissions earned under these various agreements totaling $55,013, $233,660,
and $173,880 during 1998, 1997 and 1996, respectively. This agreement ended at
April 1998 effective with the merger of RTI into the company.
In connection with the Company's acquisition on Digital Audio Corporation,
the Company entered into an agreement with Dr. James E. Paul, the former
President of the DAC business group, to lease the office building in which
Digital Audio Corporation had been headquartered to accommodate the new business
group. In March 1997, the Company entered into a new lease agreement with Dr.
Paul for expanded office space. The lease agreement, as amended, contains
monthly rental rates ranging from $4,241 to $5,013 during the life of the
agreement, which is from April 1997 to December 2002. The Company paid Dr. Paul,
$50,892, $43,396, and $20,800 in rental fees during 1998, 1997, and 1996,
respectively.
In April 1996, the Company modified an existing distributor agreement with
First Exim Financial Limited ("Exim"), an affiliate of John M. Reeves, II, a
principal shareholder and director of the Company, to change the work scope to
acquisition consulting services only. The agreement was renewed for an
additional year in April 1997 and ended as of June 1998. The Company paid fees
under this agreement to Exim totaling $18,000, $36,000, and $33,250 during 1998,
1997, and 1996, respectively.
The Company purchases electronic components supporting the transportation
products segment from a major stockholder, Lite Vision Corporation ("Lite
Vision"), a public Taiwan company. Lite Vision holds 12.2% of the outstanding
shares of common stock. The components consist primarily of light emitting
diodes (LED) printed circuit boards and power supplies. The Company purchased
approximately $4.0 million, $3.9 million and $ .7 million during 1998, 1997 and
1996, respectively.
The Company has adopted a policy pursuant to which material transactions
between the Company and its executive officers, directors and principal
shareholders (i.e. shareholders owning beneficially 5% or more of the
outstanding voting securities of the Company) shall be submitted to the Board of
Directors for approval by a disinterested majority of the directors voting with
respect to the transaction.
SHAREHOLDER PROPOSALS
Shareholders who intend to submit proposals for inclusion in the Proxy
Statement for the 2000 Annual Meeting of Shareholders must do so by sending the
proposal and supporting statements, if any, to the Company no later than January
31, 2000. Such proposals should be sent to the attention of Mr. Lawrence A.
Taylor, 4018 Patriot Drive, Suite 100, Durham, North Carolina 27709.
OTHER MATTERS
Except for the matters described herein, management does not intend to
present any matter for action at the Annual Meeting and knows of no matter to be
presented at such Annual Meeting that is a proper subject for action by the
shareholders. However, if any other matters should properly come before the
Annual Meeting, it is intended that votes will be cast pursuant to the authority
granted by the enclosed Proxy in accordance with the best judgment of the person
acting under the Proxy.
11
<PAGE> 14
ANNUAL REPORT
The Annual Report to Shareholders for the fiscal year ended December 31,
1998 is being sent to all shareholders with this Proxy Statement. The Annual
Report to Shareholders does not form any part of the material for the
solicitation of any Proxy.
A COPY OF THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1998
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, IS
AVAILABLE WITHOUT CHARGE TO ANY SHAREHOLDER OF THE COMPANY UPON WRITTEN REQUEST
TO MR. LAWRENCE A. TAYLOR, 4018 PATRIOT DRIVE, SUITE 100, DURHAM, NC 27709.
12
<PAGE> 15
DIGITAL RECORDERS, INC.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 26, 1999
KNOW ALL MEN BY THESE PRESENTS: that the undersigned shareholder of Digital
Recorders, Inc. (the "Company") hereby constitutes and appoints David L. Turney
and Lawrence A. Taylor, or either of them, as attorneys and proxies, each with
the power to appoint his substitute, and hereby authorizes them to represent and
vote, as designated below, all of the shares of stock of the Company which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held April 26, 1999, and at any and all adjournments thereof with
respect to the matters set forth below and described in the Notice of Annual
Meeting of Shareholders and Proxy Statement dated March 26, 1999, receipt of
which is acknowledged.
1. To consider and act upon a proposal to elect the nominees presented below as
directors to hold office for one-year terms or until their successors are
elected and qualified.
<TABLE>
<S> <C>
[ ] FOR election of all nominees listed [ ] WITHHOLD AUTHORITY to vote for all nominees listed
(Except as shown below)
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee, strike
through the nominee's name below:
David L. Turney, J. Phillips L. Johnston, John D. Higgins, Sr.,
C. James Meese, Jr., John K. Pirotte, John M. Reeves, II, Juliann Tenney,
Joseph Tang
2. To consider and act upon a proposal to approve an amendment to the Company's
Incentive Stock Option Plan to permit the issuance of an additional 160,000
shares of Common Stock pursuant to the Plan.
[ ] FOR PROPOSAL [ ] AGAINST PROPOSAL [ ] ABSTAIN
3. To ratify the appointment of McGladrey & Pullen LLP as the independent
certified public accountants of the Company.
[ ] FOR RATIFICATION [ ] AGAINST RATIFICATION [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any and all adjournments
thereof.
[ ] AUTHORIZED TO VOTE [ ] ABSTAIN
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). IF NO INDICATION IS MADE, THIS PROXY
WILL BE VOTED FOR THE NOMINEES LISTED AND FOR PROPOSALS 2 AND 3 AND THE PROXY
HOLDERS WILL VOTE ON ANY PROPOSAL UNDER 4 IN THEIR DISCRETION AND IN THEIR BEST
JUDGMENT.
Please mark, date, and sign exactly as your name appears on your stock
certificate. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full 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.
Dated: , 1999
------------------
------------------------------
Signature
Dated: , 1999
------------------
------------------------------
Signature
If this Proxy is not dated,
the Proxy will be deemed to
bear the date the form was
mailed to the shareholder.
