STYLE="font: 10pt Times New Roman, Times, Serif">
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment
No. __)
Filed
by the Registrant [ ]
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 Pursuant to Rule 14a-12 |
Digital
Ally, 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 Rule 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: | |
Digital
Ally, Inc.
15612
College Boulevard
Lenexa,
Kansas 66219
_______,
2021
To
our Stockholders:
I
am pleased to invite you to attend the annual meeting of stockholders (the “Annual Meeting”) of Digital Ally, Inc. (“Digital
Ally” or the “Company”) to be held on Tuesday, June 22, 2021 at 11:15 a.m., EDT, at our Company facility at 15612 College
Boulevard, Lenexa, Kansas 66219. Details regarding admission to the Annual Meeting and the business to be conducted are more fully described
in the accompanying Notice of Annual Meeting of Stockholders (the “Notice”) and the Proxy Statement (“Proxy Statement”).
We
have elected to take advantage of U.S. Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their
stockholders on the Internet. We believe that the rules will allow us to provide our stockholders with the information they need, while
lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.
Your
vote is important. I hope that you will vote as soon as possible whether or not you plan to attend the Annual Meeting. Please review
the instructions on each of your voting options described in the Notice of Internet Availability of Proxy Materials (the “E-Proxy
Notice”), or if you received a printed copy of our proxy materials, the Proxy Statement and the Notice you received in the mail.
Thank
you for your ongoing support of, and continued interest in, Digital Ally.
Sincerely,
Stanton
E. Ross
President,
Chief Executive Officer and
Chairman
of the Board
Admission
to the Annual Meeting will be limited to stockholders. Please note that an admission ticket and picture identification will be required
to enter the Annual Meeting. For stockholders of record who received the E-Proxy Notice, your E-Proxy Notice is your admission ticket.
For stockholders of record who received a printed copy of our proxy materials, an admission ticket is printed on the back cover of our
proxy materials. If your shares are held in street name, you must request an admission ticket in advance by mailing a request, along
with proof of your ownership of our common stock as of the record date of April 23, 2021, to Digital Ally, Inc., 15612 College Boulevard,
Lenexa, Kansas 66219, telephone (913) 814-7774, Attention: Corporate Secretary. Proof of ownership would be a copy of a brokerage statement
or other documentation reflecting your stock ownership as of the record date. An individual arriving without an admission ticket will
not be admitted unless it can be verified that the individual was a Digital Ally stockholder as of the record date.
Backpacks,
cameras, cameras, recording equipment and other electronic recording devices will not be permitted at the Annual Meeting. Cell phones
will be permitted in the meeting venue but may not be used for any purpose at any time while in the meeting venue. Digital Ally reserves
the right to inspect any persons or items prior to their admission to the Annual Meeting. Failure to follow the meeting rules or permit
inspection will be grounds for exclusion from the Annual Meeting.
Notwithstanding
the foregoing or anything to the contrary contained herein, as a precaution due to the outbreak of the coronavirus (COVID-19), the Company
is planning for the possibility that there may be limitations on attending the Annual Meeting in person, or the Company may decide to
hold the Annual Meeting on a different date, at a different location or by means of remote communication (
i.e.
, a “virtual
meeting”).
Table
of Contents
Cautionary
Note Regarding Forward Looking Statements
Certain
statements in this Proxy Statement may be considered to be “forward-looking statements” as that term is defined in the U.S.
Private Securities Litigation Reform Act of 1995. In particular, these forward-looking statements include, among others, statements about,
opportunities for and growth of our business, our plans regarding product development and enhancements, and our expectations regarding
profitability. The words “believe,” “may,” “estimate,” “continue,” “anticipate,”
“intend,” “should,” “plan,” “could,” “target,” “potential,” “is
likely,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements speak only as of the date of this Proxy Statement. We assume no obligation to, and do not necessarily intend to, update these
forward-looking statements.
Digital
Ally, Inc.
15612
College Blvd
Lenexa,
Kansas 66219
(913)
814-7774
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on Tuesday, June 22, 2021
The
2021 Annual Meeting of the Stockholders (the “Annual Meeting”) of Digital Ally, Inc., a Nevada corporation (“Digital
Ally,” the “Company,” “we,” “ours” and “us”), will be held at the corporate facility
located at 15612 College Boulevard, Lenexa, Kansas, 66219 on Tuesday, June 22, 2021 at 11:15 a.m., EDT, for the following purposes:
1. | To elect four directors; | |
2. | To approve the amendment to the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan to increase the number of shares of common stock reserved for issuance under such Plan by 1,000,000 shares to 2,500,000 shares; | |
3. | To approve an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that we may issue from 100,000,000 shares to 200,000,000 shares, of which all 200,000,000 shares shall be classified as common stock, par value $0.001 per share; | |
4. | To approve an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that we may issue by an additional 10,000,000 shares and classify such shares as blank check preferred stock, par value $0.001 per share; | |
5. | To ratify the appointment of RBSM LLP as our independent registered public accounting firm; | |
6. | To act upon such other business as may properly come before the meeting or any adjournment thereof. |
The
foregoing items of business are more fully described in the Proxy Statement (“Proxy Statement”) accompanying this notice.
Only stockholders of record at the close of business on April 23, 2021 will be entitled to vote at the Annual Meeting or any adjournment
or postponement thereof. You are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting,
please sign, date and return your proxy to us promptly. Your cooperation in signing and returning the proxy will help avoid further solicitation
expense.
This
Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange
Commission (the “SEC”) on March 31, 2021 (our “2020 Annual Report on Form 10-K”), are being made available to
stockholders on or about April 26, 2021. On or about April 30, 2021, we expect to mail a printed copy of our proxy materials to our stockholders
who had requested them and provide a Notice of Internet Availability of Proxy Materials, which contains instructions on how to access
and review these materials and vote online, to all of our other stockholders. If you requested printed versions of our proxy materials
by mail, these printed proxy materials also include a proxy card for the Annual Meeting. Copies of our Notice of Annual Meeting, Proxy
Statement, and 2020 Annual Report on Form 10-K are also available at
www.digitalallyinc.com
.
Notwithstanding
the foregoing or anything to the contrary contained herein, as a precaution due to the outbreak of the coronavirus (COVID-19), the Company
is planning for the possibility that there may be limitations on attending the Annual Meeting in person, or the Company may decide to
hold the Annual Meeting on a different date, at a different location or by means of remote communication (
i.e.
, a “virtual
meeting”).
By order of the Board of Directors | |
 | |
Stanton E. Ross | |
Chairman of the Board, President and Chief Executive Officer |
______,
2021
Lenexa,
Kansas
1 |
YOUR
VOTE IS IMPORTANT
WHETHER
YOU PLAN TO ATTEND THE ANNUAL MEETING, WE URGE YOU TO VOTE AND SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE TO ENSURE THE PRESENCE OF A
QUORUM. TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY EXACTLY AS YOUR NAME APPEARS ON IT AND
RETURN IMMEDIATELY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR VOTE BY PROXY ON THE INTERNET
OR BY TELEPHONE.
DIGITAL
ALLY, INC.
FOR
THE 2021 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION
CONCERNING SOLICITATION AND VOTING
General
The
enclosed proxy is solicited on behalf of the Board of Directors of Digital Ally, Inc., a Nevada corporation, (referred to in this Proxy
Statement as “Digital Ally,” “we,” “our,” “us,” or the “Company”) in connection
with the solicitation of proxies by our Board of Directors (the “Board” or “Board of Directors”) for use at the
Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Tuesday, June 22, 2021 at 11:15 a.m., EDT, or at any
adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at our corporate facility, located at 15612 College Boulevard, Lenexa, Kansas, 66219. The telephone number
at that location is (913) 814-7774. Notwithstanding the foregoing or anything to the contrary contained herein, as a precaution due to
the outbreak of the coronavirus (COVID-19), the Company is planning for the possibility that there may be limitations on attending the
Annual Meeting in person, or the Company may decide to hold the Annual Meeting on a different date, at a different location or by means
of remote communication (
i.e.
, a “virtual meeting”).
On
or about April 30, 2021, we expect to mail a printed copy of our proxy materials to our stockholders who had requested them and provide
the Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to all of our other stockholders.
Who
is Entitled to Vote?
Our
Board of Directors has fixed the close of business on April 23, 2021 as the record date (the “Record Date”) for a determination
of stockholders entitled to notice of, and to vote at, the Annual Meeting. On the Record Date, _______ shares of our common stock, par
value $0.001 per share (the “Common Stock”), were issued, of which ____ are held in treasury, all of which are voting stock,
and are held of record by ____ stockholders.
Voting
You
are entitled to one vote for each share of Common Stock that you hold on the Record Date on each matter that may come before the Annual
Meeting.
What
is the Difference Between Holding Shares as a Record Holder and as a Beneficial Owner?
If
your shares are registered in your name with our transfer agent, Action Stock Transfer Corporation, you are the “record holder”
of those shares. If you are a record holder, we will provide these proxy materials directly to you.
If
your shares are held in a stock brokerage account, a bank or other holder of record, you are considered the “beneficial owner”
of those shares held in “street name.” If your shares are held in street name, these proxy materials will be forwarded to
you by that organization. As the beneficial owner, you have the right to instruct such organization on how to vote your shares.
Who
May Attend the Meeting?
Record
holders and beneficial owners may attend the Annual Meeting. If your shares are held in street name, you will need to bring a copy of
a brokerage statement or other documentation reflecting your stock ownership as of the Record Date.
How
Do I Vote?
Whether
you hold shares as a stockholder of record or as a beneficial owner, you may vote before the Annual Meeting by granting a proxy or, for
shares held in street name, by submitting voting instructions to your bank, broker or nominee. Most stockholders will have a choice of
voting through the Internet or, if you received a printed copy of the proxy materials, by completing a proxy card or voting instruction
card, as applicable, and returning it in a postage-prepaid envelope. Record holders also have the choice of voting by telephone. Please
refer to the instructions below and in the E-Proxy Notice.
2 |
Record
Holder
1. | Vote by Internet. You may vote through the Internet by going to the website address included on your E-Proxy Notice, or if you received a printed copy of the proxy materials, your proxy card, and following the instructions. You will need to have the E-Proxy Notice, or if you received a printed copy of the proxy materials, your proxy card, available when voting through the Internet. | |
2. | Vote by phone. Call 1 (800) 454-8683. You will need to have your E-Proxy Notice, or if you received a printed copy of the proxy materials, your proxy card, available when voting by telephone. | |
3. | Vote by mail. If you received a printed copy of our proxy materials, you may vote by marking, dating, signing and mailing promptly the enclosed proxy card (a postage-paid envelope is provided for mailing in the United States). If you received the E-Proxy Notice and would like to obtain a proxy card, please follow the instructions on the E-Proxy Notice for requesting a paper or email copy of our proxy materials. | |
4. | Vote in person. Attend and vote at the Annual Meeting. |
Beneficial
Owner (Holding Shares in Street Name)
1. | Vote by Internet. You may vote through the Internet by going to www.proxyvote.com and following the instructions. | |
2. | Vote by mail. If you received a printed copy of our proxy materials, you may vote by marking, dating, signing and mailing promptly the enclosed vote instruction form (a postage-paid envelope is provided for mailing in the United States). If you received the E-Proxy Notice and would like to obtain a voting instruction form, please follow the instructions on the E-Proxy Notice for requesting a paper or email copy of our proxy materials. | |
3. | Vote in person. Obtain a valid legal proxy from the organization that holds your shares and attend and vote at the Annual Meeting. |
If
you vote by Internet or phone, please DO NOT mail your proxy card.
Is
My Vote Confidential?
Yes,
your vote is confidential. Only the following persons have access to your vote: election inspectors, individuals who help with processing
and counting your votes and persons who need access for legal reasons. If you write comments on your proxy card, your comments will be
provided to the Company, but how you vote will remain confidential.
What
Constitutes a Quorum?
We
must have a quorum to carry on the business of the Annual Meeting. Our Amended and Restated Bylaws (the “Bylaws”) provide
that the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to
vote shall constitute a quorum for the transaction of business at the Annual Meeting or any adjournment thereof. Broker non-votes (see
definition below) and abstentions are counted as present to determine the existence of a quorum. The broker non-votes are counted because
there are routine matters presented at the Annual Meeting.
The
stockholders present at a duly called or convened meeting at which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum at the Annual Meeting or
any adjournment thereof, a majority in voting interest of those present in person or by proxy and entitled to vote, or any officer entitled
to preside at, or to act as secretary of, the Annual Meeting may adjourn the Annual Meeting until stockholders holding the amount of
stock requisite for a quorum are present in person or by proxy.
3 |
What
is a Broker Non-Vote?
If
your shares are held in “street name,” you must instruct your bank, broker or other nominee as to how to vote your shares
by following the instructions that the broker or other nominee provides to you. Brokers usually offer the ability for stockholders to
submit voting instructions by mail by completing a vote instruction form, by telephone or over the Internet. If you do not provide voting
instructions to your bank, broker or other nominee, your shares will not be voted on any proposal on which your broker or other nominee
does not have discretionary authority to vote, namely, “non-routine” matters. This is called a “broker non-vote.”
On the other hand, if you do not provide voting instructions to your bank, broker or other nominee, such party has the discretion to
vote your shares on “routine” matters.
Which
Proposals are Considered “Routine” or “Non-Routine” for Brokers or Other Nominees?
The
following Proposals are “non-routine” and thus a broker discretionary vote is not allowed:
Proposal
1, “Election of Directors;”
Proposal
2, “Approve an amendment to the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan to increase the number of shares
of Common Stock reserved for issuance under such Plan by 1,000,000 shares to 2,500,000 shares;” and
Proposal
4, “Approve an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that
we may issue by an additional 10,000,000 shares and classify such shares as blank check preferred stock.”
The
following Proposals are “routine” and thus a broker discretionary vote is allowed:
Proposal
3, “Approve an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that
we may issue from 100,000,000 shares to 200,000,000 shares and classify such shares as Common Stock;” and
Proposal
5, “Ratify the appointment of RBSM LLP as our independent registered public accounting firm.”
How
Many Votes are Needed for Each Proposal to Pass and is Broker Discretionary Voting Allowed?
For
matters at the Annual Meeting, if a quorum is present, the following votes will be required for the Proposal to pass:
Proposal | Vote Required | Broker Discretionary Vote Allowed | |||
1. | Election of Directors | The votes cast for a nominee’s election must exceed the votes casts against such nominee’s election. | No | ||
2. | Amendment to the 2020 Stock Option and Restricted Stock Plan | The affirmative vote of the holders of a majority of the votes cast. | No | ||
3. |
| The affirmative vote of the holders of a majority of the outstanding shares on the Record Date. | Yes | ||
4. | Blank Check Preferred Amendment | The affirmative vote of the holders of a majority of the outstanding shares on the Record Date. | No | ||
5. | Ratify Appointment of RBSM LLP | The affirmative vote of the holders of a majority of the votes cast. | Yes |
4 |
How
are Abstentions Treated?
An
abstention occurs when a stockholder attends a meeting, either in person or by proxy, but specifically indicates an abstention from voting
on one or more of the proposals. If you vote by Internet or telephone, or submit a proxy card or provide proxy instructions to your broker
or other nominee, and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining
the presence of a quorum for the meeting, but will not be voted at the Annual Meeting. Abstentions only have an effect on the outcome
of any matter being voted on that requires a certain level of approval based on our total voting stock outstanding. Thus, abstentions
will have an effect on Proposal 3, “Amendment to Increase Authorized Common Stock” and Proposal 4, “Blank Check Preferred
Amendment,” but not on the other proposals.
What
Are the Voting Procedures?
In
voting by proxy on the proposals, you may vote for the proposal or against the proposal, or you may abstain from voting on the proposal.
You should specify your respective choices as discussed in the section “
How Do I Vote?
” on page 3.
Internet
Availability of Proxy Materials
We
are using the “e-proxy” rules adopted by the SEC to furnish proxy materials to stockholders through a “notice only”
model using the Internet. This allows us to reduce costs by delivering to stockholders an E-Proxy Notice and providing online access
to the documents.
If
you received an E-Proxy Notice by mail, you will not receive a printed copy of our proxy materials unless you specifically request one
as set forth below. The E-Proxy Notice instructs you on how to access and review the important information contained in the Proxy Statement
and our 2020 Annual Report on Form 10-K, as well as how to submit your proxy through the Internet. On or about April 30, 2021, we expect
to mail a printed copy of our proxy materials to our stockholders who had requested them and provide the E-Proxy Notice to all of our
other stockholders.
This
Proxy Statement, the form of proxy and voting instructions are being made available to stockholders on or about April 30, 2021, at the
website address included on your E-Proxy Notice, or if you received a printed copy of the proxy materials, on your proxy card for stockholders
of record and
www.proxyvote.com
for beneficial owners. If you are a stockholder of record and received the E-Proxy Notice and
would still like to receive a printed copy of the proxy materials, you may request a printed copy of this Proxy Statement and the form
of proxy by telephone at (801) 274-1088, or Internet at the website address included on your E-Proxy Notice. If you are a beneficial
owner and received the E-Proxy Notice and would still like to receive a printed copy of the proxy materials, you may request a printed
copy of this Proxy Statement and the form of proxy by telephone at 1-800-579-1639, or Internet at
www.proxyvote.com
.
Is
My Proxy Revocable?
You
may revoke your proxy and reclaim your right to vote up to and including on the day of the Annual Meeting by giving written notice to
the Corporate Secretary of Digital Ally or by voting in person at the Annual Meeting. If you provide more than one proxy, the proxy having
the latest date will revoke any earlier proxy. All written notices of revocation and other communications with respect to revocations
of proxies should be addressed to: Digital Ally, Inc., 15612 College Boulevard, Lenexa, Kansas 66219, telephone (913) 814-7774, Attention:
Corporate Secretary.
5 |
Who
is Paying for the Expenses Involved in Preparing and Mailing this Proxy Statement?
We
will pay all the expenses involved in preparing, assembling, and mailing these proxy materials and the E-Proxy Notice and all costs of
soliciting proxies. In addition to the solicitation by mail, proxies may be solicited by our officers and other employees by telephone
or in person. Such persons will receive no compensation for their services other than their regular salaries. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners
of the shares held of record by such persons, and we may reimburse such persons for reasonable out of pocket expenses incurred by them
in so doing.
What
Happens if Additional Matters are Presented at the Annual Meeting?
Other
than the items of business described in this Proxy Statement, we are not aware of any other business to be acted upon at the Annual Meeting.
If you grant a proxy, the persons named as proxy holders will have the discretion to vote your shares on any additional matters properly
presented for a vote at the Annual Meeting.
What
is “Householding” and How Does It Affect Me?
Record
holders who have the same address and last name will receive only one copy of the E-Proxy Notice, unless we are notified that one or
more of these record holders wishes to continue receiving individual copies. This procedure will reduce our printing costs and postage
fees.
If
you are eligible for householding, but you and other record holders with whom you share an address receive multiple copies of the E-Proxy
Notice, or if you hold Digital Ally stock in more than one account, and in either case you wish to receive only a single copy of each
of these documents for your household, please contact our transfer agent, Action Stock Transfer Corporation, in writing: Ms. Justeene
Blankenship, Action Stock Transfer Corporation, 7069 S. Highland Dr., Suite 300, Salt Lake City, UT 84121; or by telephone: (801) 274-1088;
or by facsimile: (801) 274-1099.
If
you participate in householding and wish to receive a separate copy of the E-Proxy Notice, or if you do not wish to continue to participate
in householding and prefer to receive separate copies in the future, please contact Action Stock Transfer Corporation as indicated above.
Beneficial owners can request information about householding from their brokers, banks or other holders of record.
Do
I Have Dissenters’ (Appraisal) Rights?
Appraisal
rights are not available to Digital Ally stockholders with any of the proposals described above to be brought before the Annual Meeting.
The
stockholder list as of the Record Date will be available for examination by any stockholder at our corporate office, 15612 College Boulevard,
Lenexa, Kansas 66219, beginning June 11, 2021, which is at least ten (10) business days prior to the date of the Annual Meeting and the
stockholder list will be available at the Annual Meeting.
Our
Board of Directors recommends that you vote:
● | FOR the four nominees to the Board of Directors; |
● | FOR the approval of the amendment to the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan to increase the number of shares reserved for issuance under such Plan by 1,000,000 shares to 2,500,000 shares; |
● | FOR an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that we may issue from 100,000,000 shares to 200,000,000 shares, of which all 200,000,000 shares shall be classified as Common Stock; |
● | FOR an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that we may issue by an additional 10,000,000 shares and classify such shares as blank check preferred stock; |
● | FOR ratification of the appointment of RBSM LLP as our independent registered public accounting firm; and |
● | On such other matters that may properly come before the Annual Meeting in accordance with the best judgment of the individual proxies named in the proxy. |
6 |
The
preliminary voting results will be announced at the Annual Meeting. The final voting results will be calculated by our Inspector of Elections
and published in our Current Report on Form 8-K, which will be filed with the SEC within four (4) business days of the Annual Meeting.
Deadline
for Receipt of Stockholder Proposals for 2021 Annual Meeting of Stockholders
As
a stockholder, you may be entitled to present proposals for action at an upcoming meeting if you comply with the requirements of the
proxy rules established by the SEC and our Bylaws. Stockholders wishing to present a proposal to be eligible for inclusion in the Proxy
Statement and form of proxy relating to our 2022 annual meeting of stockholders must submit such proposal to us by December 31, 2021,
which is the 120
th
calendar day prior to the one-year anniversary date on which this Proxy Statement is expected to be first
mailed to stockholders in connection with our 2021 Annual Meeting, or, if our 2022 annual meeting of stockholders is changed by more
than thirty (30) days from the anniversary date of our 2021 Annual Meeting, then a reasonable time before the Company begins to print
and mail its proxy materials in connection with the 2022 annual meeting of stockholders. Any such proposals should be in compliance with
our Bylaws and should be submitted to Digital Ally, Inc., 15612 College Boulevard, Lenexa, Kansas 66219, Attention: Thomas J. Heckman,
Secretary.
Other
than the proposals listed above, our Board of Directors does not intend to present any other matters to be voted on at the Annual Meeting.
Our Board of Directors is not currently aware of any other matters that will be presented by others for action at the Annual Meeting.
However, if other matters are properly presented at the Annual Meeting and you have signed and returned your proxy card, the proxy holders
will have discretion to vote your shares on these matters to the extent authorized under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”).
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 22, 2021:
Copies
of our Notice of Annual Meeting, Proxy Statement and 2020 Annual Report are available online at
www.digitalallyinc.com.
7 |
ELECTION
OF DIRECTORS
A
Board of four directors is to be elected at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the four nominees named below, all of which are presently directors of Digital Ally.
If
any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee
who shall be designated by the present Board of Directors to fill the vacancy. We are not aware of any nominee who will be unable or
will decline to serve as a director. The term of office for each person elected as a director will continue until the next annual meeting
of stockholders or until a successor has been elected and qualified. The names of the nominees and certain information about them as
of the date of this Proxy Statement are set forth below:
Name of Nominee | Principal Occupation | Age | Director Since | |||
Stanton E. Ross | Chairman, President and Chief Executive Officer | 59 | 2005 | |||
Leroy C. Richie (1)(2)(3) | Lead Outside Director, Chairman of the Nominating and Governance Committee and Compensation Committee and attorney | 79 | 2005 | |||
Daniel F. Hutchins (1) | Certified Public Accountant; Chairman of Audit Committee | 65 | 2007 | |||
Michael J. Caulfield (1)(2)(3) | Investment banking-retired | 65 | 2016 |
(1) | Member of Audit Committee | |
(2) | Member of Compensation Committee | |
(3) | Member of Nominating and Governance Committee |
Stanton
E. Ross
has served as Chairman, President and Chief Executive Officer since September 2005. From March 1992 to June 2005, Mr.
Ross was the Chairman and President of Infinity Energy Resources, Inc., a publicly held oil and gas exploration and development company
(“Infinity”) and served as an officer and director of each of Infinity’s subsidiaries. He resigned from all his positions
with Infinity in June 2005, except Chairman, but was reappointed President in October 2006. From 1991 until March 1992, he founded and
served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions, and financing for corporations
in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Lenexa, Kansas, where
he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York
Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985
to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he
was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially
as a salesman and later as National Sales Manager. Mr. Ross estimates he devoted most of his time to Digital Ally and the balance to
Infinity in 2020. In late 2007, Infinity sold a substantial portion of its operating assets and has not required a substantial amount
of his time since such point. Mr. Ross holds no public company directorships other than with the Company and Infinity and has not held
any others during the previous five years. The Company believes that Mr. Ross’s broad entrepreneurial, financial, and business
expertise and his experience with micro-cap public companies and his role as President and Chief Executive Officer give him the qualifications
and skills to serve as a Director.
Leroy
C. Richie
has been the Lead Outside Director of Digital Ally since September 2005. He is also the Chairman of the Compensation
Committee and Nominating and Governance Committee and a member of the Audit Committee. Since June 1, 1999, Mr. Richie has been a director
of Infinity Energy Resources, Inc., a publicly held oil and gas exploration and development company. Additionally, until 2017, Mr. Richie
served as a member of the board of directors of Columbia Mutual Funds, (or mutual fund companies acquired by or merged with Columbia
Mutual Funds), a family of investment companies managed by Ameriprise Financial, Inc. From 2004 to 2015, he was of counsel to the Detroit
law firm of Lewis & Munday, P.C. From 2007 to 2014, Mr. Richie served as a member of the board of directors of OGE Energy Corp. He
holds no other public directorships and has not held any others during the previous five years. Until 2019, Mr. Richie served as the
Vice-Chairman of the Board of Trustees and Chairman of the Compensation Committee for the Henry Ford Health System, in Detroit. Mr. Richie
was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs
for its automotive operations from 1986 until his retirement in 1997. Before joining Chrysler, he was an associate with the New York
law firm of White & Case (1973-1978) and served as director of the New York office of the Federal Trade Commission (1978-1983). Mr.
Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law,
where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship. The Company believes that Mr. Richie’s extensive experience
as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a Director.
8 |
Daniel
F. Hutchins
was elected a Director in December 2007. He serves as Chairman of the Audit Committee and is the Board’s financial
expert. Mr. Hutchins, a Certified Public Accountant, is a Principal with the accounting firm of Hutchins & Haake, LLC and currently
serves as a director and the Chief Financial Officer of Infinity Energy Resources, Inc., a publicly held oil and gas exploration and
development company, of which Stanton E. Ross is the Chairman and President. Mr. Hutchins has served as an instructor for the Becker
CPA exam with the Keller Graduate School of Management and has over 17 years of teaching experience preparing CPA candidates for the
CPA exam. He has [over] 40 years of public accounting experience, including five years with Deloitte & Touche, LLP. He has served
on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned
his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas. Mr. Hutchins holds no other public
company directorships and has not held any others during the previous five years. The Company believes that Mr. Hutchins’ significant
experience in finance and accounting gives him the qualifications and skills to serve as a Director.
Michael
J. Caulfield
was elected a Director in May 2016. He is a member of the Audit Committee, Compensation Committee and Nominating
and Governance Committee. He served as Vice President – Strategic Development of the Company from June 1, 2009 to January 11, 2012.
Mr. Caulfield was most recently (2012-2016) a Vice-Chairman at Teneo Holdings, LLC, a global advisory firm where he was responsible for
the firm’s investment banking relationships with a broad range of industrial companies. From 2006 to 2009, Mr. Caulfield served
as a Managing Director at Banc of America Securities (“BAS”), where he was responsible for the merger, acquisition, divestiture
and restructuring advisory services for a number of large public and private companies. He was also in charge of BAS’s global investment
banking activities involving the Safety, Security, Engineering and Construction Industries. Prior to joining BAS, Mr. Caulfield spent
six years (2000-2006) as a Managing Director with Morgan Stanley in New York City, leading that global investment banking firm’s
efforts in the Aerospace and Defense Industries. He was also responsible for the investment banking relationships with a number of Morgan
Stanley’s largest clients. From 1989 to 2000, he worked at General Electric Capital Corp., where he served as a Managing Director
and head of the Corporate Finance Group. In this capacity, he advised GE Capital and the industrial divisions of General Electric on
such issues as capital structuring, mergers and acquisitions, and private equity transactions. Mr. Caulfield received an MBA from the
Wharton School of the University of Pennsylvania and a B.S. Degree from the University of Minnesota.
Our
Directors are elected annually and hold office until the next annual meeting of our stockholders or until their successors are elected
and qualified. Officers are elected annually and serve at the discretion of the Board of Directors. There is no family relationship between
any of our directors, director nominees and executive officers. Board vacancies are filled by a majority vote of the Board.
Vote
Required and Board Recommendation
If
a quorum is present and voting, the four nominees receiving the greatest number of votes will be elected to the Board of Directors. Votes
withheld from any nominee will be counted for purposes of determining the presence or absence of a quorum for transaction of business
at the meeting but will have no other legal effect upon the election of directors under Nevada law.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS
VOTE FOR EACH OF THE FOUR NOMINEES NAMED ABOVE.
Board
of Directors and Committee Meetings
Our
Board of Directors held four meetings and acted a number of times by unanimous consent resolutions during the fiscal year ended December
31, 2020. Each of our directors attended at least 75% of the meetings of the Board of Directors and the committees on which he served
in the fiscal year ended December 31, 2020. Our directors are expected, absent exceptional circumstances, to attend all Board meetings
and meetings of committees on which they serve and are also expected to attend our annual meeting of stockholders. All directors then
in office attended the 2020 annual meeting of stockholders.
9 |
Committees
of the Board of Directors
Our
Board of Directors currently has three committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.
Each committee has a written charter approved by the Board of Directors outlining the principal responsibilities of the committee. These
charters are also available on the Investor Relations page of our website. All of our directors, other than our Chairman and Chief Executive
Officer, have met in executive sessions without management present on a regular basis in 2020 and year-to-date 2021.
Audit
Committee
Our
Audit Committee appoints the Company’s independent auditors, reviews audit reports and plans, accounting policies, financial statements,
internal controls, audit fees, and certain other expenses and oversees our accounting and financial reporting process. Specific responsibilities
include selecting, hiring and terminating our independent auditors; evaluating the qualifications, independence and performance of our
independent auditors; approving the audit and non-audit services to be performed by our auditors; reviewing the design, implementation,
adequacy and effectiveness of our internal controls and critical accounting policies; overseeing and monitoring the integrity of our
financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;
reviewing any earnings announcements and other public announcements regarding our results of operations in conjunction with management
and our public auditors; conferring with management and the independent auditors regarding the effectiveness of internal controls, financial
reporting processes and disclosure controls; consulting with management and the independent auditors regarding Company policies governing
financial risk management; reviewing and discussing reports from the independent auditors on critical accounting policies used by the
Company; establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees
of concerns regarding questionable accounting or auditing matters; reviewing and approving related-person transactions in accordance
with the Company’s policies and procedures with respect to related-person transactions and applicable rules; reviewing the financial
statements to be included in our Annual Report on Form 10-K; discussing with management and the independent auditors the results of the
annual audit and the results of quarterly reviews and any significant changes in our accounting principles; and preparing the report
that the SEC requires in our annual proxy statement. The report of the Audit Committee for the year-ended December 31, 2020 is included
in this Proxy Statement.
The
Audit Committee is comprised of three Directors, each of whom is independent, as defined by the rules and regulations of the SEC and
The Nasdaq Stock Market LLC (“Nasdaq”) Rule 5605(a)(2). The Audit Committee held four meetings during the year-ended December
31, 2020. On September 22, 2005, the Company created the Audit Committee and adopted a written charter for it. The members of our Audit
Committee are Daniel F. Hutchins, Leroy C. Richie and Michael J. Caulfield. The Board of Directors determined that Mr. Hutchins qualifies
as an “audit committee financial expert,” as defined under the rules and regulations of the SEC and is independent as noted
above.
Under
the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company’s independent registered public accounting
firm must be approved in advance by the Audit Committee to assure that such services do not impair the auditor’s independence from
the Company. Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the “Policy”)
that sets forth the procedures and the conditions pursuant to which services to be performed by the independent auditors are to be pre-approved.
Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved
maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would be included under
the categories of Audit Fees, Audit-Related Fees and Tax Fees in the table, as well as services for limited review of actuarial reports
and calculations. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed
by the independent registered public accounting firm. In addition, any services that receive annual pre-approval but exceed the pre-approved
maximum fee level also will require separate approval by the Audit Committee prior to being performed. The Audit Committee may delegate
authority to pre-approve audit and non-audit services to any member of the Audit Committee but may not delegate such authority to management.
Our
Compensation Committee assists our Board of Directors in determining the development plans and compensation of our officers, directors
and employees. Specific responsibilities include approving the compensation and benefits of our executive officers; reviewing the performance
objectives and actual performance of our officers; administering our stock option and other equity compensation plans; and reviewing
and discussing with management the compensation discussion and analysis that the SEC requires in our future Form 10-Ks and proxy statements.
10 |
Our
Compensation Committee is comprised of two Directors, whom the Board considers to be independent under the rules of the SEC. The members
of our Compensation Committee are Leroy C. Richie, Chairman, and Michael J. Caulfield. The Compensation Committee held two meetings and
acted several times by unanimous written consent resolutions during the year ended December 31, 2020. Mr. Ross, our Chief Executive Officer,
does not participate in the determination of his own compensation or the compensation of directors. However, he makes recommendations
to the Compensation Committee regarding the amount and form of the compensation of the other executive officers and key employees, and
he often participates in the Compensation Committee’s deliberations about such persons’ compensation. Thomas J. Heckman,
our Chief Financial Officer, also assists the Compensation Committee in its deliberations regarding executive officer, director and employee
compensation. No other executive officers participate in the determination of the amount or the form of the compensation of executive
officers or directors. The Compensation Committee does not utilize the services of an independent compensation consultant to assist in
its oversight of executive and director compensation. On September 22, 2007, the Board of Directors adopted a written charter for the
Compensation Committee.
Nominating
and Governance Committee
Our
Nominating and Governance Committee assists our Board of Directors by identifying and recommending individuals qualified to become members
of our Board of Directors, reviewing correspondence from our stockholders, and establishing, evaluating, and overseeing our corporate
governance guidelines. Specific responsibilities include the following: evaluating the composition, size and governance of our Board
of Directors and its committees and making recommendations regarding future planning and appointing directors to our committees; establishing
a policy for considering stockholder nominees for election to our Board of Directors; and evaluating and recommending candidates for
election to our Board of Directors.
Our
Nominating and Governance Committee strives for a Board composed of individuals who bring a variety of complementary skills, expertise,
or background and who, as a group, will possess the appropriate skills and experience to oversee our business. The diversity of the members
of the Board relates to the selection of its nominees. While the Committee considers diversity and variety of experiences and viewpoints
to be important factors, it does not believe that a director nominee should be chosen or excluded solely or largely because of race,
color, gender, national origin or sexual orientation or identity. In selecting a director nominee for recommendation to our Board, our
Nominating and Governance Committee focuses on skills, expertise or background that would complement the existing members on the Board.
Accordingly, although diversity may be a consideration in the Committee’s process, the Committee and the Board of Directors do
not have a formal policy regarding the consideration of diversity in identifying director nominees.
When
the Nominating and Governance Committee has either identified a prospective nominee or determined that an additional or replacement director
is required, the Nominating and Governance Committee may take such measures as it considers appropriate in connection with its evaluation
of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement
of an outside search firm to gather additional information, or reliance on the knowledge of the members of the Board of Directors or
management. In its evaluation of director candidates, including the members of the Board eligible for re-election, the Nominating and
Governance Committee considers a number of factors, including: the current size and composition of the Board of Directors, the needs
of the Board of Directors and the respective committees of the Board, and such factors as judgment, independence, character and integrity,
age, area of expertise, diversity of experience, length of service and potential conflicts of interest.
The
Nominating and Governance Committee of the Board selects director nominees and recommends them to the full Board of Directors. In relation
to such nomination process, the Nominating and Governance Committee:
● | determines the criteria for the selection of prospective directors and committee members; |
● | reviews the composition and size of the Board and its committees to ensure proper expertise and diversity among its members; |
11 |
● | evaluates the performance and contributions of directors eligible for re-election; |
● | determines the desired qualifications for individual directors and desired skills and characteristics for the Board; |
● | identifies persons who can provide needed skills and characteristics; |
● | screens possible candidates for Board membership; |
● | reviews any potential conflicts of interests between such candidates and the Company’s interests; and |
● | shares information concerning the candidates with the Board and solicits input from other directors. |
The
Nominating and Governance Committee has specified the following minimum qualifications that it believes must be met by a nominee for
a position on the Board: the highest personal and professional ethics and integrity; proven achievement and competence in the nominee’s
field and the ability to exercise sound business judgment; skills that are complementary to those of the existing Board; the ability
to assist and support management and make significant contributions to our success; the ability to work well with the other directors;
the extent of the person’s familiarity with the issues affecting our business; an understanding of the fiduciary responsibilities
that are required of a member of the Board of Directors; and the commitment of time and energy necessary to diligently carry out those
responsibilities. A candidate for director must agree to abide by our Code of Ethics and Conduct.
After
completing its evaluation, the Nominating and Governance Committee makes a recommendation to the full Board of Directors as to the persons
who should be nominated to the Board, and the Board of Directors determines the nominees after considering the recommendation and report
of the Committee.
Our
Nominating and Governance Committee is comprised of two Directors, whom the Board considers to be independent under the rules of the
SEC. The Nominating and Governance Committee held one meeting during the year ended December 31, 2020. The members of our Nominating
and Governance Committee are Leroy C. Richie, who serves as Chairman, and Michael J. Caulfield. The Committee was created by our Board
of Directors on December 27, 2007, when the Board of Directors adopted a written charter, which was amended in February 2010.
Board
of Directors’ Role in the Oversight of Risk Management
We
face a variety of risks, including credit, liquidity, and operational risks. In fulfilling its risk oversight role, our Board of Directors
focuses on the adequacy of our risk management process and overall risk management system. Our Board of Directors believes that an effective
risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk
management strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of
risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit necessary
information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.
The
Board of Directors has designated the Audit Committee to take the lead in overseeing risk management at the Board of Directors level.
Accordingly, the Audit Committee schedules time for periodic review of risk management, in addition to its other duties. In this role,
the Audit Committee receives reports from management, independent registered public accounting firm, outside legal counsel, and other
advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature of the material
risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks.
Although
the Board of Directors has assigned the primary risk oversight to the Audit Committee, it also periodically receives information about
our risk management system and the most significant risks that we face. This is principally accomplished through Audit Committee reports
to the Board of Directors and summary versions of the briefings provided by management and advisors to the Audit Committee.
12 |
In
addition to the formal compliance program, our Board of Directors and the Audit Committee encourage management to promote a corporate
culture that understands risk management and incorporates it into our overall corporate strategy and day-to-day business operations.
Our risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for us. As a
result, the Board of Directors and the Audit Committee periodically ask our executives to discuss the most likely sources of material
future risks and how we are addressing any significant potential vulnerability.
Our
Board of Directors does not have a policy on whether the roles of Chief Executive Officer and Chairman of the Board of Directors should
be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or
be an employee. Our Board of Directors believes that it should be free to make a choice from time to time in any manner that is in the
best interest of us and our stockholders. The Board of Directors believes that Mr. Ross’s service as both Chief Executive Officer
and Chairman of the Board is in the best interest of us and our stockholders. Mr. Ross possesses detailed and in-depth knowledge of the
issues, opportunities and challenges we face and is thus best positioned to develop agendas, with the input of Mr. Richie, the lead director,
to ensure that the Board’s time and attention are focused on the most critical matters. His combined role enables decisive leadership,
ensures clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders,
employees, customers, and suppliers, particularly during times of turbulent economic and industry conditions.
Our
Board of Directors also believes that a lead director is part of an effective Board leadership structure. To this end, the Board has
appointed Mr. Richie as the lead director. The independent directors meet regularly in executive sessions at which only they are present,
and the lead director chairs those sessions. As the lead director, Mr. Richie calls meetings of the independent directors as needed;
sets the agenda for meetings of the independent directors; presides at meetings of the independent directors; is the principal liaison
on Board issues between the independent directors and the Chairman and between the independent directors and management; provides feedback
to the Chairman and management on the quality, quantity and timeliness of information sent to the Board; is a member of the Compensation
Committee that evaluates the CEO’s performance; and oversees the directors’ evaluation of the Board’s overall performance.
The Nominating and Governance Committee and the Board believe that its leadership structure, which includes the appointment of an independent
lead director, is appropriate because it, among other things, provides for an independent director who gives board member leadership
and each of the directors, other than Mr. Ross, is independent. Our Board of Directors believes that the independent directors provide
effective oversight of management.
Stockholder
Communications with the Board of Directors
Stockholders
may communicate with the Board of Directors by writing to us as follows: Digital Ally, Inc., attention: Corporate Secretary, 15612 College
Boulevard, Lenexa, Kansas 66219. Stockholders who would like their submission directed to a member of the Board of Directors may so specify
and the communication will be forwarded as appropriate.
Policy
for Director Recommendations and Nominations
Our
Nominating and Governance Committee will consider candidates for Board membership suggested by Board members, management and our stockholders.
The policy of our Nominating and Governance Committee is to consider recommendations for candidates to the Board of Directors from any
stockholder of record in accordance with our Bylaws. A director candidate recommended by our stockholders will be considered in the same
manner as a nominee recommended by a Board member, management or other sources. In addition, a stockholder may nominate a person directly
for election to the Board of Directors at an annual meeting of stockholders, provided the stockholder meets the requirements set forth
in our Bylaws. We do not pay a fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees.
13 |
Stockholder
Recommendations for Director Nominations
.
Stockholder recommendations for director nominations may be submitted to the
Company at the following address: Digital Ally, Inc., Attention: Corporate Secretary, 15612 College Boulevard, Lenexa, Kansas 66219.
Such recommendations will be forwarded to the Nominating and Governance Committee for consideration, provided that they are accompanied
by sufficient information to permit the Board to evaluate the qualifications and experience of the nominees, and they are in time for
the Nominating and Governance Committee to do an adequate evaluation of the candidate before the Annual Meeting. The submission must
be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected
and to cooperate with a background check.
Stockholder
Nominations of Directors.
Our Bylaws provide that, in order for a stockholder to nominate a director at an annual meeting of
stockholders, the stockholder must give timely written notice to our Secretary and such notice must be received at our principal executive
offices not less than one-hundred-and-twenty (120) days before the date of our release of the proxy statement to stockholders in connection
with our previous year’s annual meeting of stockholders. Such stockholder’s notice shall include, with respect to each person
whom the stockholder proposes to nominate for election as a director, all information relating to such nominee that is required under
the Exchange Act, including such person’s written consent to being named in the proxy statement as a nominee and serving as a director,
and cooperating with a background investigation. In addition, the stockholder must include in such notice the name and address, as they
appear on our records, of the stockholder proposing the nomination of such person, and the name and address of the beneficial owner,
if any, on whose behalf the nomination is made, the class and number of shares of our capital stock that are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on whose behalf the nomination is made, and any material interest
or relationship that such stockholder of record and/or the beneficial owner, if any, on whose behalf the nomination is made may respectively
have in such business or with such nominee. At the request of the Board of Directors, any person nominated for election as a director
shall furnish to our Secretary the information required to be set forth in a stockholder’s notice of nomination that pertains to
the nominee.
To
be timely in the case of a special meeting or if the date of the annual meeting is changed by more than thirty (30) days from such anniversary
date, a stockholder’s notice must be received at our principal executive offices no later than the close of business on the tenth
(10
th
) day following the earlier of the day on which notice of the meeting date was mailed or public disclosure of the meeting
date was made.
Our
Board of Directors has adopted a
Code of Ethics and Conduct
that is applicable to all of our employees, officers and directors.
Our
Code of Ethics and Conduct
is intended to ensure that our employees, officers and directors act in accordance with the highest
ethical standards. The
Code of Ethics and Conduct
is available on the Investor Relations page of our website at
http://www.digitalally.com.
and the
Code of Ethics and Conduct
was filed as an exhibit to our Annual Report on Form 10-K filed March 4, 2008.
Our
non-employee directors received the stock option grants noted in the “Director Compensation” table below for their service
on the Board of Directors in 2020, including on the Audit, Nominating and Governance, and Compensation Committees.
In
May 2019, we granted to Messrs. Richie, Caulfield and Hutchins each options exercisable to acquire 60,000 shares of Common Stock at an
exercise price of $3.01 per share for their service on the Board of Directors until the next annual meeting of stockholders with vesting
to occur ratably through May 1, 2020, provided each person has remained a director at such dates.
In
September 2020, we granted to Messrs. Richie, Caulfield and Hutchins each options exercisable to acquire 75,000 shares of Common Stock
at an exercise price of $2.09 per share for their service on the Board of Directors until the next annual meeting of stockholders with
vesting to occur ratably through May 1, 2021, provided each person has remained a director at such dates.
14 |
Director
compensation for the year ended December 31, 2020 was as follows:
Director
Compensation
Name | Fees earned or paid in cash ($) | Stock awards ($) (2) | Option awards ($) (2) | Total ($) | ||||||||||||
Stanton E. Ross, Chairman of the Board of Directors (1) | $ | — | $ | — | $ | — | $ | — | ||||||||
Leroy C. Richie | $ | 75,000 | $ | — | $ | 122,277 | $ | 197,277 | ||||||||
Daniel F. Hutchins | $ | 65,000 | $ | — | $ | 122,277 | $ | 187,277 | ||||||||
Michael J. Caulfield | $ | 60,000 | $ | — | $ | 122,277 | $ | 182,277 | ||||||||
(1) | As a Named Executive Officer, Mr. Ross’s compensation and option awards are fully reflected in the “Summary Compensation” table, and elsewhere under “Executive Compensation.” He did not receive compensation or stock options for his services as a director. |
(2) | Represents aggregate grant date fair value pursuant to ASC Topic 718 for stock options and restricted stock granted. Please refer to Note 13 to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on March 31, 2021, for further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. |
Stock
Option and Restricted Stock Grants to Directors
Name of Individual | Number of Restricted Shares of Common Stock Granted | Number of Options Granted |
| |||||||||
Stanton E. Ross (1) | — | — | $ | — | ||||||||
Leroy C. Richie (2) | — | 75,000 | $ | 2.09 | ||||||||
Daniel F. Hutchins (2) | — | 75,000 | $ | 2.09 | ||||||||
Michael J. Caulfield (2) | — | 75,000 | $ | 2.09 | ||||||||
(1) | As a Named Executive Officer, Mr. Ross’s compensation and option awards are fully reflected in the “Summary Compensation” table, and elsewhere under “Executive Compensation.” He did not receive compensation or stock options for his services as a director. |
(2) | The stock option grants were issued on September 9, 2020 with vesting to occur ratably through May 1, 2021. |
15 |
Outstanding
Stock Options Held by Directors.
The
following table presents information concerning the outstanding equity awards for the Directors as of December 31, 2020:
Outstanding
Equity Awards at Fiscal Year-End
Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable |
| Option exercise price ($) | Option expiration date | |||||||||||||
Stanton E. Ross Chairman, CEO and President | 15,000 | — | — | $ | 4.80 | 1/12/2022 | ||||||||||||
18,750 | — | — | $ | 13.20 | 1/10/2021 | |||||||||||||
Leroy C. Richie Lead Outside Director | 75,000 | — | — | $ | 2.09 | 5/1/2030 | ||||||||||||
60,000 | — | — | $ | 3.01 | 5/24/2029 | |||||||||||||
50,000 | — | — | $ | 2.20 | 7/5/2028 | |||||||||||||
30,000 | — | — | $ | 3.00 | 8/14/2027 | |||||||||||||
10,000 | — | — | $ | 3.92 | 5/11/2026 | |||||||||||||
1,250 | — | — | $ | 13.20 | 1/10/2021 | |||||||||||||
Daniel F. Hutchins Director | 75,000 | — | — | $ | 2.09 | 5/1/2030 | ||||||||||||
60,000 | — | — | $ | 3.01 | 5/24/2029 | |||||||||||||
50,000 | — | — | $ | 2.20 | 7/5/2028 | |||||||||||||
30,000 | — | — | $ | 3.00 | 8/14/2027 | |||||||||||||
10,000 | — | — | $ | 3.92 | 5/11/2026 | |||||||||||||
8,750 | — | — | $ | 3.52 | 5/25/2022 | |||||||||||||
1,250 | — | — | $ | 9.52 | 6/3/2021 | |||||||||||||
1,250 | — | — | $ | 13.20 | 1/10/2021 | |||||||||||||
Michael J. Caulfield Director | 75,000 | — | — | $ | 2.09 | 5/1/2030 | ||||||||||||
60,000 | — | — | $ | 3.01 | 5/24/2029 | |||||||||||||
50,000 | — | — | $ | 2.20 | 7/5/2028 | |||||||||||||
30,000 | — | — | $ | 3.00 | 8/14/2027 | |||||||||||||
10,000 | — | — | $ | 3.92 | 5/11/2026 | |||||||||||||
TO
AMEND THE 2020 DIGITAL ALLY, INC. STOCK OPTION AND RESTRICTED STOCK PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
BY 1,000,000 SHARES TO 2,500,000 SHARES.
The
Company is seeking stockholder approval for an amendment to the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”)
to increase the number of shares reserved for issuance under the 2020 Plan from 1,500,000 shares of Common Stock to 2,500,000 shares
of Common Stock (the “2020 Plan Amendment”). The 2020 Plan Amendment was adopted by the Board on April 7, 2021, subject to
stockholder approval at the Annual Meeting. As of April 14, 2021, there were 838,341 shares subject to restricted stock awards or stock
options issued under the 2020 Plan since its adoption. We made such grants generally in lieu of cash bonuses and compensation, which
helped to conserve cash in 2020 and to-date in 2021 and plan to do the same during the remainder of 2021 and beyond. As a result of past
grants, as of April 14, 2021, we have 661,659 shares remaining available for awards under the 2020 Plan without consideration of the
additional shares proposed by the 2020 Plan Amendment. The 2020 Plan Amendment is attached to this Proxy Statement as
Appendix A
.
The
purpose of the 2020 Plan is to offer all our employees, directors, and key consultants an opportunity to acquire a proprietary interest
in our success and remain in service to the Company and to attract new employees, directors and consultants. The 2020 Plan provides both
for the direct award of shares, for the grant of options to purchase shares, as well as for the grant of Stock Appreciation Rights (SARs).
Options granted under the 2020 Plan may include non-statutory options as well as incentive stock options intended to qualify under Section
422 of the Internal Revenue Code.
16 |
The
Company has a policy of issuing new shares upon the exercise of stock options, awarding significant amounts of stock options or restricted
stock grants to new employees and regularly awarding such to employees on an annual basis. Stock options are generally granted at the
market price on the date of grant. Stock options and restricted stock grants have generally vested over one (1) or more years for officers
and employees, and one (1) year for directors. Stock options generally can be exercised within seven (7) to ten (10) years.
The
Board of Directors believes that it is in the best interests of the Company and our stockholders for the Company to approve the 2020
Plan Amendment. There are relatively few shares available for grant under the existing stock option plans of the Company. The Board believes
that equity awards assist in retaining, motivating and rewarding employees, executives and consultants by giving them an opportunity
to obtain long-term equity participation in the Company. In addition, equity awards are an important contributor to aligning the incentives
of the Company’s employees with the interests of our stockholders. The Board also believes equity awards are essential to attracting
new employees and retaining current employees. Further, the granting of options to new and existing employees frequently permits the
Company to pay lower salaries than otherwise might be the case. The Board of Directors believes that to remain competitive with other
technology companies in our long-term incentive plans, the Company must continue to provide employees with the opportunity to obtain
equity in the Company and that an inability to offer equity incentives to new and current employees would put the Company at a competitive
disadvantage in attracting and retaining qualified personnel. Our named executive officers and directors have an interest in this proposal
because they are expected to receive awards under the 2020 Plan if the 2020 Plan Amendment is approved at the Annual Meeting.
Summary
of the Amendment to the 2020 Stock Option and Restricted Stock Plan
Our
Board of Directors adopted the 2020 Plan on June 30, 2020 and the 2020 Plan was approved by the stockholders at the 2020 annual meeting
of stockholders held on September 9, 2020. At the Annual Meeting, we are asking stockholders to approve the 2020 Plan Amendment to increase
the number of shares of Common Stock issuable under the 2020 Plan by 1,000,000 shares. The 2020 Plan currently authorizes us to issue
1,500,000 shares of Common Stock upon exercise of options and grant of restricted stock awards, which will be increased to a total of
2,500,000 shares reserved if the stockholders approve the 2020 Plan Amendment. Stock options and restricted stock representing a total
of 838,341 shares of Common Stock have been granted under the 2020 Plan to date. The 2020 Plan authorizes us to grant (i) to the key
employees incentive stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock
and restricted stock awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock. As of
April 14, 2021, approximately eighty-nine (89) employees, two (2) executive officers, and three (3) non-employee directors were eligible
to participate in the 2020 Plan.
The
following paragraphs provide a summary of the principal features of the 2020 Plan and its operation. The following summary is qualified
in its entirety by reference to the 2020 Plan as set forth in Appendix A to the Company’s definitive proxy statement on Schedule
14A, filed with the SEC on July 24, 2020.
Objectives
.
The objective of the 2020 Plan is to provide incentives to our key employees, directors and consultants to achieve financial results
aimed at increasing shareholder value and attracting talented individuals to us. Persons eligible to be granted stock options or restricted
stock under the 2020 Plan will be those persons whose performance, in the judgment of the Compensation Committee of our Board of Directors,
can have significant impact on our success.
Oversight
.
Our Board will administer the 2020 Plan by making determinations regarding the persons to whom options or restricted stock should be
granted and the amount, terms, conditions and restrictions of the awards. The Board also has the authority to interpret the provisions
of the 2020 Plan and to establish and amend rules for its administration subject to the 2020 Plan’s limitations.
Number
of Shares of Common Stock Available Under the 2020 Plan
. There are currently 1,500,000 shares of our Common Stock reserved
for issuance under the 2020 Plan.
If our stockholders approve the 2020 Plan Amendment, a total of 2,500,000 shares of our Common
Stock will be reserved for issuance under the 2020 Plan.
17 |
Types
of Grants
.
The 2020 Plan allows for the grant of incentive stock options, non-qualified stock options and restricted stock
awards. The 2020 Plan does not specify what portion of the awards may be in the form of incentive stock options, non-statutory options
or restricted stock. Incentive stock options awarded to our employees are qualified stock options under the Internal Revenue Code.
Statutory
Conditions on Stock Option—Exercise Price
.
Incentive stock options granted under the 2020 Plan must have an exercise
price at least equal to 100% of the fair market value of the Common Stock as of the date of grant. Incentive stock options granted to
any person who owns, immediately after the grant, stock possessing more than 10% of the combined voting power of all classes of our stock,
or of any parent or subsidiary corporation, must have an exercise price at least equal to 110% of the fair market value of the Common
Stock on the date of grant. Non-statutory stock options may have an exercise price at least equal to 100% of the fair market value of
the Common Stock as of the date of the grant.
-
Dollar limit
.
The aggregate fair market value, determined as of the time an incentive stock option is granted, of the
Common Stock with respect to which incentive stock options are exercisable by an employee for the first time during any calendar year
cannot exceed $100,000. However, there is no aggregate dollar limitation on the amount of non-statutory stock options that may be exercisable
for the first time during any calendar year.
-
Expiration date
. Any option granted under the 2020 Plan will expire at the time fixed by our Board of Directors, which cannot
be more than ten years after the date it is granted or, in the case of any person who owns more than 10% of the combined voting power
of all classes of our stock or of any subsidiary corporation, not more than five years after the date of grant.
-
Exercisability
.
Our Board may also specify when all or part of an option becomes exercisable, but in the absence of such
specification, the option will ordinarily be exercisable in whole or in part at any time during its term. However, the board of directors
may accelerate the exercisability of any option at its discretion.
-
Assignability
.
Options granted under the 2020 Plan are not assignable. Incentive stock options may be exercised only while
we employ the optionee or within twelve months after termination by reason of death or disabilities or within three months after termination
for any other reason.
Payment
upon Exercise of Options
.
Payment of the exercise price for any option may be in cash, or with our consent, by withheld
shares which, upon exercise, have a fair market value at the time the option is exercised equal to the option price (plus applicable
withholding tax) or in the form of shares of Common Stock, subject to restrictions.
Restricted
Stock
.
Our Board is authorized to grant restricted stock awards. A restricted stock grant is a grant of shares of our
Common Stock, which is subject to restrictions on transferability, risk of forfeiture and other restrictions and which may be forfeited
in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Board of Directors.
A participant granted restricted stock generally has all the rights of a stockholder, unless otherwise determined by the Compensation
Committee.
Merger
or Sale of Assets
. If we merge with or into another corporation, or sell all or substantially all our assets, any unvested Awards
will vest immediately prior to closing of the event resulting in the change of control, and the Board shall have the power and discretion
to provide for each award holder’s election alternatives regarding the terms and conditions for the exercise of such awards. The
alternative may provide that each outstanding stock option and restricted stock award will be assumed or substituted for by the successor
corporation (or a parent or subsidiary or such successor corporation). If there is no assumption or substitution of outstanding awards,
the administrator will provide notice to the recipient of their alternatives regarding their right to exercise the stock option as to
all the shares subject to the stock option.
Amendment
and Termination of the 2020 Plan
.
The administrator has the authority to amend, alter, suspend, or terminate the 2020
Plan, except that stockholder approval will be required for any amendment to the 2020 Plan to the extent required by any applicable law,
regulation, or Nasdaq or stock exchange rule. Any amendment, alteration, suspension, or termination will not, without the consent of
the participant, materially adversely affect any rights or obligations under any stock option or restricted stock award previously granted.
The 2020 Plan has a term of ten (10) years beginning June 30, 2020, unless terminated earlier by the administrator.
18 |
The
following summary is a brief discussion of certain federal income tax consequences to U.S. taxpayers and to the Company of stock option
and restricted stock awards granted under the 2020 Plan. This summary is not intended to be a complete discussion of all the federal
income tax consequences of the 2020 Plan or of all the requirements that must be met in order to qualify for the tax treatment described
below. The following summary is based upon the provisions of U.S. federal tax law in effect on the date hereof, which is subject to change
(perhaps with retroactive effect) and does not constitute tax advice. In addition, because tax consequences may vary, and certain exceptions
to the general rules discussed in this summary may be applicable, depending upon the personal circumstances of individual recipients
and each recipient should consider his or her personal situation and consult with his or her own tax advisor with respect to the specific
tax consequences applicable to him or her. The following assumes stock options have been granted at an exercise price per share at least
equal to 100% of the fair market value of the Company’s common stock on the date of grant.
Tax
consequences of nonqualified stock options
. In general, an employee, director or consultant will not recognize income at the
time of the grant of nonqualified options under the 2020 Plan. When an optionee exercises a nonqualified stock option, he or she generally
will recognize ordinary income equal to the excess, if any, of the fair market value (determined on the day of exercise) of the shares
of the Common Stock received over the option exercise price. The tax basis of such shares to the optionee will be equal to the exercise
price paid plus the amount of ordinary income includible in his or her gross income at the time of the exercise. Upon a subsequent sale
or exchange of shares acquired pursuant to the exercise of a nonqualified stock option, the optionee will have taxable capital gain or
loss, measured by the difference between the amount realized on the sale or exchange and the tax basis of the shares. The capital gain
or loss will be short-term or long-term depending on holding period of the shares sold.
Tax
consequences of incentive stock options
. In general, an employee will not recognize income on the grant of incentive stock options
under the 2020 Plan. Except with respect to the alternative minimum tax, an optionee will not recognize income on the exercise of an
incentive stock option unless the option exercise price is paid with stock acquired on the exercise of an incentive stock option and
the following holding period for such stock has not been satisfied. For purposes of the alternative minimum tax, however, an optionee
will be required to treat an amount equal to the difference between the fair market value (determined on the day of exercise) of our
shares of the Common Stock received and the exercise price as an item of adjustment in computing the optionee’s alternative minimum
taxable income.
An
optionee will recognize long-term capital gain or loss on a sale of the shares acquired on exercise, provided the shares acquired are
not sold or otherwise disposed of before the earlier of: (i) two years from the date of grant of the option, or (ii) one year from the
date of exercise of the option. In general, the amount of gain or loss will equal the difference, if any, between the sale price of such
shares and the exercise price. If the stock is not held for the required period of time, the optionee will recognize ordinary income
to the extent the fair market value (determined on the day of exercise) of the stock exceeds the option price, but limited to the gain
recognized on sale. The balance of any such gain will be a short-term or long-term capital gain (depending on the applicable holding
period).
For
the exercise of a stock option to qualify for the foregoing incentive stock option tax treatment, an optionee generally must be our employee
continuously from the date of the grant until any termination of employment, and in the event of a termination of employment, the stock
option must be exercised within three months after the termination.
Tax
consequences of restricted stock awards
. In general, the recipient of a stock award that is not subject to restrictions will
recognize ordinary income at the time the shares are received equal to the excess, if any, of the fair market value of the shares received
over the amount, if any, the recipient paid in exchange for the shares. If, however, the shares are subject to vesting or other restrictions
(that is, they are nontransferable and subject to a substantial risk of forfeiture) when the shares are granted (for example, if the
employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize
income until the shares becomes vested or the restrictions otherwise lapse, at which time the recipient will recognize ordinary income
equal to the excess, if any, of the fair market value of the shares on the date of vesting (or the date of the lapse of a restriction)
less the amount, if any, the recipient paid in exchange for the shares. If the shares are forfeited under the terms of the restricted
stock award, the recipient will not recognize income and will not be allowed an income tax deduction with respect to the forfeiture.
19 |
A
recipient may file an election under Section 83(b) of the Internal Revenue Code with the Internal Revenue Service within thirty (30)
days of his or her receipt of a restricted stock award to recognize ordinary income, as of the award date, equal to the excess, if any,
of the fair market value of the shares on the award date less the amount, if any, the recipient paid in exchange for the shares. If a
recipient makes a Section 83(b) election, then the recipient will not otherwise be taxed in the year the vesting or restriction lapses,
and, if the stock award is forfeited, he or she will not be allowed an income tax deduction. If the recipient does not make a Section
83(b) election, dividends paid to the recipient on the shares prior to the date the vesting or restrictions lapse will be treated as
compensation income.
The
recipient’s tax basis for the determination of gain or loss upon the subsequent disposition of shares acquired as stock awards
will be the amount paid for such shares plus the amount includible in his or her gross income as compensation in respect of such shares.
Withholding
and other consequences
. Any compensation includible in the gross income of a recipient will be subject to appropriate federal
and state income tax withholding.
Tax
effect for the Company
. We are generally entitled to an income tax deduction in connection with a stock option or restricted
stock award granted under the 2020 Plan in an amount equal to the ordinary income realized by a recipient at the time the recipient recognizes
such income (for example, the exercise of a nonqualified stock option). Special rules may limit the deductibility of compensation paid
to our Chief Executive Officer and to each of our four most highly compensated executive officers under Section 162(m) of the Internal
Revenue Code to the extent that annual compensation paid to any of the foregoing individuals exceeds $1,000,000.
THE
FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND
EXERCISE OF STOCK OPTIONS, STOCK APPRECIATION RIGHTS, AND RESTRICTED STOCK AWARDS UNDER THE 2020 PLAN. IT DOES NOT PURPORT TO BE COMPLETE
AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A RECIPIENT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY STATE
OR FOREIGN COUNTRY IN WHICH THE RECIPIENT MAY RESIDE. THE FOREGOING SUMMARY IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED
BY ANY TAXPAYER, TO AVOID PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER.
Vote
Required and Recommendation
The
affirmative vote of the holders of a majority of the votes cast will be required to approve the 2020 Plan Amendment.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 2020 DIGITAL ALLY, INC. STOCK
OPTION AND RESTRICTED STOCK PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY 1,000,000 SHARES TO 2,500,000 SHARES.
APPROVAL
OF AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR CAPITAL STOCK THAT WE MAY ISSUE FROM
100,000,000 SHARES TO 200,000,000 SHARES, OF WHICH ALL 200,000,000 SHARES SHALL BE CLASSIFIED AS COMMON STOCK.
Proposal
3 seeks your approval of an amendment to our Articles of Incorporation (the “Additional Common Stock Authorization”) to increase
the number of authorized shares of capital stock that we may issue from 100,000,000 shares to 200,000,000 shares, of which all 200,000,000
shares shall be classified as Common Stock. The Additional Common Stock Authorization was adopted by the Board on April 7, 2021, subject
to stockholder approval at the Annual Meeting. The form of amendment to amend our Articles of Incorporation (the “Amended Articles”),
pursuant to which only the Additional Common Stock Authorization would be effected, but not the Blank Check Authorization (as defined
in Proposal 4), in the event Proposal 3 is approved by stockholders, but Proposal 4 is not approved by stockholders, at the Annual Meeting,
is attached to this Proxy Statement as
Appendix B
.
20 |
The
form of Amended Articles, pursuant to which both the Additional Common Stock Authorization and the Blank Check Authorization are effected,
in the event both Proposal 3 and Proposal 4 are approved by our stockholders at the Annual Meeting, is attached to this Proxy Statement
as
Appendix D
.
Increase
in Authorized Shares of Common Stock
We
believe that an increase in the number of our authorized shares of Common Stock is prudent to assure that a sufficient number of shares
of our Common Stock is available for issuance in the future if our Board of Directors deems it to be in the best interests of our stockholders
and us. Our Board of Directors has determined a total of 200,000,000 shares of Common Stock to be a reasonable estimate of what might
be required in this regard for the foreseeable future to (i) issue Common Stock in acquisitions or strategic transactions and other proper
corporate purposes that may be identified by our Board in the future; (ii) issue Common Stock to augment our capital and increase the
ownership of our Common Stock; and (iii) provide incentives through the grant of stock options and restricted stock to employees, directors,
officers, independent contractors, and others important to our business under our stock option plans. Immediately following this increase,
the Company will have approximately 148,422,791 shares of Common Stock authorized but unissued and available for issuance. As of the
Record Date, we have _____ shares of Common Stock issued of which _____ shares are held in treasury, _____ shares issuable upon exercise
of options granted under the Plans (defined below under “Information Regarding Plans and Other Arrangements Not Subject to Security
Holder Action”), and _____ shares issuable upon exercise of outstanding warrants to purchase common stock.
The
remaining authorized but unissued shares of capital stock will be available for issuance from time to time as may be deemed advisable
or required for various purposes, including those noted above. Our Board will be able to authorize the issuance of shares for the foregoing
purposes and other transactions without the necessity, and related costs and delays of either calling a special stockholders’ meeting
or waiting for the regularly scheduled annual meeting of stockholders in order to increase the authorized capital. If a particular transaction
required stockholder approval by law or was otherwise deemed advisable by the Board, then the matter would be referred to the stockholders
for their approval, even if we might have the requisite number of voting shares to consummate the transaction. The additional shares
of Common Stock to be authorized by the Additional Common Stock Authorization will have rights identical to the currently outstanding
Common Stock. Adoption of the Additional Common Stock Authorization and issuance of the additional shares of Common Stock authorized
thereby will not affect the rights of the holders of our currently outstanding Common Stock, except for effects incidental to increasing
the number of outstanding shares of our Common Stock, as discussed above.
We
do not currently have any plans, commitments, arrangements, understandings, or agreements, whether written or oral, to issue any of the
shares that will be newly available following the approval of the proposed increase in the number of authorized shares.
Effectiveness
of Additional Common Stock Authorization
The
Additional Common Stock Authorization, if approved by our stockholders at the Annual Meeting, will become effective once it is approved
at the Annual Meeting and the Amended Articles are filed with the Secretary of State of Nevada. Upon filing the Amended Articles with
the Secretary of State of Nevada, our authorized shares of Common Stock will increase from 100,000,000 shares to 200,000,000 shares.
Potential
Anti-Takeover effect of the Proposed Additional Common Stock Authorization
The
Additional Common Stock Authorization relating to the increase in the number of authorized shares of our Common Stock is not intended
to have any anti-takeover effect and is not part of any series of anti-takeover measures contained in our Articles of Incorporation or
Bylaws in effect on the date of this Proxy Statement. However, our stockholders should note that the availability of additional authorized
and unissued shares of Common Stock could make any attempt to gain control of the Company or the Board more difficult or time-consuming
and that the availability of additional authorized and unissued shares might make it more difficult to remove management. Although the
Board currently has no intention of doing so, shares of Common Stock could be issued by the Board to dilute the percentage of Common
Stock owned by any stockholder and increase the cost of, or the number of, voting shares necessary to acquire control of the Board or
to meet the voting requirements imposed by Nevada law with respect to a merger or other business combination involving us.
21 |
Our
Board of Directors did not propose this Additional Common Stock Authorization for the purpose of discouraging mergers, tender offers,
proxy contests, solicitation in opposition to management or other changes in control. We are not aware of any specific effort to accumulate
our Common Stock or obtain control of us by means of a merger, tender offer, solicitation or otherwise. We have no present intention
to use the increased number of authorized shares of Common Stock for anti-takeover purposes.
Vote
Required and Recommendation
The
affirmative vote of the holders of a majority of the issued and outstanding shares of Common Stock on the Record Date will be required
to approve the Additional Common Stock Authorization.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO OUR ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR CAPITAL STOCK THAT WE MAY ISSUE FROM 100,000,000 SHARES TO 200,000,000 SHARES, OF
WHICH ALL 200,000,000 SHARES SHALL BE CLASSIFIED AS COMMON STOCK.
APPROVAL
OF AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR CAPITAL STOCK THAT WE MAY ISSUE BY AN
ADDITIONAL 10,000,000 SHARES AND CLASSIFY SUCH SHARES AS BLANK CHECK PREFERRED STOCK.
Proposal
4 seeks your approval of an amendment to our Articles of Incorporation to increase the number of authorized shares of capital stock by
an additional 10,000,000 shares and classify such shares as blank check preferred stock (the “Blank Check Authorization”).
The Blank Check Authorization has the effect of creating a new class of stock: blank check preferred stock. The form of Amended Articles
to add the Blank Check Authorization was adopted by the Board on April 7, 2021, subject to stockholder approval at the Annual Meeting.
The form of Amended Articles, pursuant to which only the Blank Check Authorization would be effected, but not the Additional Common Stock
Authorization, as described in Proposal 3, in the event Proposal 4 is approved by stockholders, but Proposal 3 is not approved by stockholders,
at the Annual Meeting, is attached to this Proxy Statement as
Appendix C
.
The
form of Amended Articles, pursuant to which both the Additional Common Stock Authorization and the Blank Check Authorization are effected,
in the event both Proposal 3 and Proposal 4 are approved by our stockholders at the Annual Meeting, is attached to this Proxy Statement
as
Appendix D
.
Authorization
of Blank Check Preferred Stock
The
Blank Check Authorization will increase the number of shares of our capital stock by an additional 10,000,000 shares of blank check preferred
stock and authorizes the issuance of blank check preferred stock with such designations, rights and preferences as may be determined
from time to time by our Board of Directors. Accordingly, upon effectiveness of the Blank Check Authorization, our Board of Directors
will be authorized to issue the preferred stock without stockholder approval, except as may be required by applicable laws or rules.
For example, under the rules of Nasdaq, shareholder approval is required for any potential issuance of 20% or more of our outstanding
shares of Common Stock, including upon conversion of convertible preferred stock, in connection with acquisitions or discounted private
placements. In connection with the issuance of the preferred stock, the Board would have the authority to designate and issue series
of our preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or
other rights of the holders of our Common Stock, substantially dilute the common stockholders’ interests in us and depress the
price of our Common Stock. In addition, although we do not presently intend to use the blank check preferred stock provision for such
purpose, preferred stock authorized under such provision could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change of control of us.
22 |
Our
Board of Directors believes that authorization of blank check preferred stock is in the best interests of us and our stockholders because
it is advisable to have the ability to authorize such shares of preferred stock and have them available for, among other things, possible
issuances in connection with such activities as public or private offerings of shares for cash, acquisitions of other companies, pursuit
of financing opportunities and other corporate purposes. However, we do not have any plans, proposals or arrangements concerning the
issuance of shares of our blank check preferred stock.
There
will be an increase in the number of shares of our capital stock authorized by 10,000,000 in the form of preferred stock if this proposal
is approved. Immediately following the effectiveness of both the Additional Common Stock Authorization, described in Proposal 3, if approved
by our stockholders at the Annual Meeting, and the Blank Check Authorization, described in Proposal 4, we will have approximately 148,422,791
shares of Common Stock authorized but unissued and available for issuance and 10,000,000 shares of preferred stock authorized but unissued
and available for issuance. As of the Record Date, we had _____ shares of Common Stock issued, of which ____ shares are held in treasury,
_____ shares issuable upon exercise of options granted under the Plans (defined below under “Information Regarding Plans and Other
Arrangements Not Subject to Security Holder Action”), _____ shares issuable upon exercise of outstanding warrants to purchase Common
Stock and no preferred stock authorized or issued.
Effectiveness
of the Blank Check Authorization
The
amendment to our Articles of Incorporation to add the Blank Check Authorization described above, if approved by our stockholders at the
Annual Meeting, will become effective upon the filing of the Amended Articles with the Secretary of State of Nevada.
Potential
Anti-Takeover effect of the Proposed Blank Check Authorization
The
Blank Check Authorization , which provides for the authorization of 10,000,000 shares of blank check preferred stock is not intended
to have any anti-takeover effect and is not part of any series of anti-takeover measures contained in our Articles of Incorporation or
Bylaws in effect on the date of this Proxy Statement. However, our stockholders should note that the availability of shares of blank
check preferred stock could make any attempt to gain control of us or the Board more difficult or time-consuming and that the availability
of authorized and unissued shares of blank check preferred stock might make it more difficult to remove management. Although the Board
currently has no intention of doing so, shares of blank check preferred stock could be issued by the Board to dilute the beneficial ownership
of any stockholder and increase the cost of, or the number of, voting shares necessary to acquire control of the Board or to meet the
voting requirements imposed by Nevada law with respect to a merger or other business combination involving us. The issuance of preferred
stock with voting and conversion rights by our Board may adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others.
Our
Board of Directors did not propose this Blank Check Authorization for the purpose of discouraging mergers, tender offers, proxy contests,
solicitation in opposition to management or other changes in control. We are not aware of any specific effort to accumulate our Common
Stock or obtain control of us by means of a merger, tender offer, solicitation or otherwise. We have no present intention to use the
creation of the blank check preferred stock for anti-takeover purposes.
Vote
Required and Recommendation
The
affirmative vote of holders of a majority of the issued and outstanding shares of Common Stock on the Record Date will be required to
approve the Blank Check Authorization.
OUR
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF OUR CAPITAL STOCK THAT WE MAY ISSUE BY AN ADDITIONAL 10,000,000 SHARES AND CLASSIFY SUCH SHARES AS
BLANK CHECK PREFERRED STOCK.
23 |
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Audit Committee of the Board of Directors has appointed RBSM LLP as the independent registered public accounting firm to audit our financial
statements for the year ending December 31, 2021 and recommends that stockholders vote for ratification of such appointment. Although
we are not required to seek stockholder approval of this appointment, the Board believes it to be sound corporate governance to do so.
Notwithstanding the selection by the Audit Committee of RBSM LLP, the Audit Committee may direct the appointment of a new independent
registered public accounting firm at any time during the year if the Board of Directors determines that such a change would be in our
best interest and in that of our stockholders. If the appointment is not ratified, the Audit Committee will investigate the reasons for
stockholder rejection and will reconsider the appointment.
The
Audit Committee believes that RBSM LLP is well suited to provide the services that we require in 2021 and beyond. Representatives of
RBSM LLP are expected to be available for the Annual Meeting, where they will be available to respond to questions and, if they desire,
to make a statement.
The
following table is a summary of the fees billed to us by RBSM LLP for the fiscal years ended December 31, 2020 and 2019:
Fee Category |
|
| ||||||
Audit fees | $ | 119,250 | $ | 106,400 | ||||
Audit-related fees | 60,500 | — | ||||||
Tax fees | — | — | ||||||
All other fees | — | — | ||||||
Total fees | $ | 179,750 | $ | 106,400 | ||||
Audit
Fees
.
Such amount consists of fees billed for professional services rendered in connection with the audit of our annual
financial statements and review of the interim financial statements included in our quarterly reports. It also includes services that
are normally provided by our independent registered public accounting firms in connection with statutory and regulatory filings or engagements.
Audit-Related
Fees
.
Consists of fees billed for assurance and related services that are reasonably related to the performance of the
audit or review of our financial statements and are not reported under “Audit Fees.” These services include employee benefit
plan audits, consents issued for certain filings with the SEC, accounting consultations in connection with acquisitions, attest services
that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.
Tax
Fees
.
Tax fees consist of fees billed for professional services related to tax compliance, tax advice and tax planning.
These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers
and acquisitions, and international tax planning.
All
Other Fees
.
Consists of fees for products and services other than the services reported above.
The
Audit Committee’s practice is to consider and approve in advance all proposed audit and non-audit services to be provided by our
independent registered public accounting firm. All the fees shown above were pre-approved by the Audit Committee.
24 |
Vote
Required and Board Recommendation
If
a quorum is present, the affirmative vote of a majority of the shares present and entitled to vote at the Annual Meeting will be required
to ratify the appointment of RBSM LLP as our independent registered public accounting firm.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF RBSM LLP AS THE INDEPENDENT
REGISTERED ACCOUNTING FIRM OF DIGITAL ALLY, INC. FOR THE YEAR ENDING DECEMBER 31, 2021.
Notwithstanding
anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Exchange Act,
that might incorporate future filings, including this Proxy Statement, in whole or in part, the Audit Committee Report shall not be incorporated
by reference into any such filings.
Below
is the report of the Audit Committee with respect to our audited consolidated financial statements for the fiscal year ended December
31, 2020, which includes our consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the fiscal years ended December 31, 2020 and December 31, 2019 and
the notes thereto.
In
accordance with the written charter adopted by the Board of Directors, the Audit Committee of the Board of Directors has the primary
responsibility for overseeing our financial reporting, accounting principles and system of internal accounting controls, and reporting
its observations and activities to the Board of Directors. It also approves the appointment of our independent registered public accounting
firm and approves in advance the services performed by such firm.
Review
and Discussion with Management
The
Audit Committee has reviewed and discussed with management our audited consolidated financial statements for the fiscal year ended December
31, 2020, the process designed to achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002, our assessment of internal control
over financial reporting and the report by our independent registered public accounting firm thereon.
Review
and Discussions with Independent Registered Public Accounting Firm
In
the performance of its oversight function and in accordance with its responsibilities under its charter, the Audit Committee has reviewed
and discussed with management and the independent registered public accounting firm the Company’s audited financial statements
as of and for the fiscal year ended December 31, 2020. The Audit Committee also discussed with our independent registered public accounting
firm the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 16 “Communications
with Audit Committee.” Finally, the Audit Committee received the written disclosures and the letter from our independent registered
public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent
registered public accounting firm’s communications with the Audit Committee concerning independence, and discussed with our independent
registered public accounting firm its independence.
Conclusion
Based
on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that our audited consolidated
financial statements for the fiscal year ended December 31, 2020 be included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020 for filing with the SEC.
Respectfully submitted by: | ||
| ||
Daniel F. Hutchins, Chairman | ||
Leroy C. Richie | ||
Michael J. Caulfield | ||
25 |
The
following table presents information concerning the total compensation of the Company’s Chief Executive Officer and Chief Financial
Officer (the “Named Executive Officers”) for services rendered to the Company in all capacities for the years ended December
31, 2020 and 2019:
Name and principal position | Year | Salary ($) | Bonus ($) | Stock awards ($) (1)(3)(4)(5)(6) | Option awards ($) (1) | All other compensation ($) (2) |
| |||||||||||||||||||
Stanton E. Ross | 2020 | $ | 165,625 | $ | 250,000 | $ | 339,230 | $ | — | $ | 23,981 | $ | 778,836 | |||||||||||||
Chairman, CEO and President | 2019 | $ | 250,000 | $ | 250,000 | $ | 727,500 | $ | — | $ | 18,089 | $ | 1,245,589 | |||||||||||||
Thomas J. Heckman | 2020 | $ | 164,738 | $ | — | $ | 212,953 | $ | — | $ | 17,902 | $ | 395,593 | |||||||||||||
CFO, Treasurer and Secretary | 2019 | $ | 230,000 | $ | 230,000 | $ | 436,500 | $ | — | $ | 7,845 | $ | 904,345 | |||||||||||||
(1) | Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted. Please refer to Note 13 to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on March 31, 2021, for a further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. |
(2) | Amounts included in all other compensation include the following items: the employer contribution to the Company’s 401(k) Retirement Savings Plan (the “401(k) Plan”) on behalf of the named executive. We are required to provide a 100% matching contribution for all who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for all employees’ elective deferral between 4% and 5%. The employee (i) is 100% vested at all times in the employee contributions and employer matching contributions; (ii) receives Company paid healthcare insurance; (iii) receives Company paid contributions to health savings accounts; and (iv) receives Company paid life, accident and disability insurance. See “All Other Compensation Table” below. |
(3) | Stock awards include the following restricted stock granted during 2019 to Mr. Ross: 250,000 shares at $2.91 per share that vest ratably over the two-year period ended January 2, 2021. |
(4) | Stock awards include the following restricted stock granted during 2019 to Mr. Heckman: 150,000 shares at $2.91 per share that vest ratably over the two-year period ended January 2, 2021. |
(5) | Stock awards include the following restricted stock granted during 2020 to Mr. Ross: 300,000 shares at $1.08 per share that vest ratably over the two-year period ending January 6, 2022 and 75,250 shares that vested on April 17, 2020. |
(6) | Stock awards include the following restricted stock granted during 2020 to Mr. Heckman: 150,000 shares at $1.08 per share that vest ratably over the two-year period ending January 6, 2022 and 55,384 shares that vested on April 17, 2020. |
26 |
All
Other Compensation Table
Name | Year | 401(k) Plan contribution by Company | Company paid healthcare insurance | Flexible & health savings account contributions by Company | Company paid life, accident & disability insurance | Other Contractual payments | Total | |||||||||||||||||||
Stanton E. Ross | 2020 | $ | 7,000 | $ | 15,359 | $ | 1,100 | $ | 522 | $ | — | $ | 23,981 | |||||||||||||
Chairman, CEO and President | 2019 | $ | 2,558 | $ | 13,910 | $ | 1,100 | $ | 521 | $ | — | $ | 18,089 | |||||||||||||
Thomas J. Heckman | 2020 | $ | 6,984 | $ | 9,596 | $ | 800 | $ | 522 | $ | — | $ | 17,902 | |||||||||||||
CFO, Treasurer and Secretary | 2019 | $ | 2,477 | $ | 4,347 | $ | 500 | $ | 521 | $ | — | $ | 7,845 | |||||||||||||
Compensation
Policy
. Our executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and
leadership necessary to enable us to achieve earnings and profitability growth to satisfy its stockholders. We must, therefore, create
incentives for these executives to achieve both our and individual performance objectives using performance-based compensation programs.
No one component is considered by itself, but all forms of the compensation package are considered in total. Wherever possible, objective
measurements will be utilized to quantify performance, but many subjective factors still come into play when determining performance.
Compensation
Components
. The main elements of its compensation package consist of base salary, stock options or restricted stock awards and
bonus.
Base
Salary
. The base salary for each executive officer is reviewed and compared to the prior year, with considerations given for
increase or decrease. The review is generally on an annual basis but may take place more often in the discretion of the Compensation
Committee.
For
fiscal year 2020, during January 2020 the Compensation Committee set the annual base salaries of Stanton E. Ross, President and Chief
Executive Officer, and Thomas J. Heckman, Chief Financial Officer, Treasurer and Secretary, at $250,000 and $230,000, respectively. This
represented no increase or decrease from the previous year. However, in order to address the Covid-19 global pandemic and its effect
on the business, on April 17, 2020 the Compensation Committee determined that the cash portion of the 2020 annual base salaries of Stanton
E. Ross, President and Chief Executive Officer, and Thomas J. Heckman, Chief Financial Officer, Treasurer and Secretary, would be reduced
to annual rates of $150,000 each for the balance of 2020 commencing May 1, 2020.
The
Compensation Committee also decided that the balance of the annual salaries of Messrs. Ross and Heckman for 2020, which are $69,231 and
$55,384, respectively, as of May 1, 2020 will be paid through the issuance of shares of restricted stock under the 2018 Stock Option
and Restricted Stock Plan with the Company paying the applicable federal and state taxes on such amounts. The Company issued Messrs.
Ross and Heckman 75,250 shares and 60,200 shares, respectively, effective April 17, 2020, based on a closing price of $0.92 per share
on such date.
On
January 7, 2021, the Compensation Committee restored the annual base salaries of Stanton E. Ross, President and Chief Executive Officer,
and Thomas J. Heckman, Chief Financial Officer, Treasurer and Secretary, at $250,000 and $230,000, respectively for 2021.
For
fiscal year 2019, the Compensation Committee set the annual base salaries of Stanton E. Ross, President and Chief Executive Officer,
and Thomas J. Heckman, Chief Financial Officer, Treasurer and Secretary, at $250,000 and $230,000, respectively. This represented no
increase or decrease from the previous year.
The
Compensation Committee plans to review the base salaries for possible adjustments on an annual basis. Base salary adjustments will be
based on both individual and our performances and will include both objective and subjective criteria specific to each executive’s
role and responsibility with us.
27 |
Stock
Options and Restricted Stock Awards
. The Compensation Committee determined stock option and restricted stock awards based on
numerous factors, some of which include responsibilities incumbent with the role of each executive with us, tenure with us, as well as
our performance. The vesting period of options and restricted stock is also tied, in some instances, to our performance directly related
to certain executive’s responsibilities with us. The Compensation Committee determined that Messrs. Ross and Heckman were eligible
for awards of stock options or restricted stock in 2020 based on their performance. Refer to the “Grants of Plan-Based Awards”
table below for restricted stock awards made in 2020. The Committee also determined that Messrs. Ross and Heckman would be eligible in
2021 for awards of restricted stock or stock options. On January 7, 2021, the Compensation Committee approved the award of 300,000 restricted
shares to Mr. Ross and 150,000 restricted shares to Mr. Heckman, both of which vested 50% on January 6, 2021, with the remaining 50%
vesting on January 6, 2022, provided each person is employed with us at such point.
Bonuses
.
The Compensation Committee determined to award bonuses to each of the executive officers in 2020 and 2019, as set forth in the foregoing
table. Refer to the “Summary Compensation Table” above for the bonuses paid to Messrs. Ross and Heckman in 2020 and 2019.
In fiscal 2020, Messrs. Ross and Heckman were eligible for bonuses of up to $250,000 and $230,000, respectively. Mr. Ross was awarded
his full 2020 bonus of $250,000. The Compensation Committee reviews each executive officer’s performance on a quarterly basis and
determines what, if any, portion of the bonus he has earned and will be paid as of such point.
Other
.
In July 2008, we amended and restated our 401(k) Plan. The amended 401(k) Plan requires us to provide a 100% matching contribution for
employees who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for employees’ elective
deferrals between 4% and 5%. We have made matching contributions for executives who elected to contribute to the 401(k) Plan during 2010.
Each participant is 100% vested at all times in employee and employer matching contributions. As of December 31, 2020, a total of 194,065
shares of our Common Stock were held in the 401(k) Plan. Mr. Heckman, as trustee of the 401(k) Plan, holds the voting power as to the
shares of our Common Stock held in the 401(k) Plan. We have no profit sharing plan in place for our employees. However, we may consider
adding such a plan to provide yet another level of compensation to our compensation plan.
The
following table presents information concerning the grants of plan-based awards to the Named Executive Officers during the year ended
December 31, 2020:
Name | Grant date | Date approved by Compensation Committee |
| Exercise or base price of option awards ($/Share) | Grant date fair value of stock awards ($) (3) | |||||||||||
Stanton E. Ross Chairman, CEO | January 7, 2020 | January 7, 2020 | 250,000 | (1) | $ | 2.91 | $ | 727,500 | ||||||||
and President | April 17, 2020 | April 17, 2020 | 75,250 | (2) | $ | 0.92 | $ | 69,231 | ||||||||
Thomas J. Heckman Vice President, CFO, Treasurer and | January 7, 2020 | January 7, 2020 | 150,000 | (1) | $ | 2.91 | $ | 436,500 | ||||||||
Secretary | April 17, 2020 | April 17, 2020 | 60,200 | (2) | $ | 0.92 | $ | 55,384 | ||||||||
(1) | These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a two-year period (50% on January 6, 2020 and 50% on January 6, 2021) contingent upon whether the individual is still employed by us at that point. |
28 |
(2) |
|
(3) | Stock awards noted represent the aggregate amount of grant date fair value as determined under ASC Topic 718. Please refer to Note 13 to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on March 31, 2021, for a further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. |
Employment
Contracts; Termination of Employment and Change-in-Control Arrangements
We
do not have any employment agreements with any of our executive officers. However, on December 23, 2008, we entered into retention agreements
with the following executive officers: Stanton E. Ross and Thomas J. Heckman. In April 2018 we amended these agreements.
Retention
Agreements - Potential Payments upon Termination or Change of Control
The
following table sets forth for each named executive officer potential post-employment payments and payments on a change in control and
assumes that the triggering event took place on January 1, 2021 and that the amendments to the retention agreements of each person were
in effect.
Retention
Agreement Compensation
Name | Change in control payment due based upon successful completion of transaction |
| Total | |||||||||
Stanton E. Ross | $ | 125,000 | $ | 500,000 | $ | 625,000 | ||||||
Thomas J. Heckman | $ | 115,000 | $ | 460,000 | $ | 575,000 | ||||||
Total | $ | 240,000 | $ | 960,000 | $ | 1,200,000 | ||||||
The
retention agreements guarantee the executive officers’ specific payments and benefits upon a Change in Control of the Company.
The retention agreements also provide for specified severance benefits if, after a Change in Control of the Company occurs, the executive
officer voluntarily terminates employment for “Good Reason” or is involuntarily terminated without “Cause.”
Under
the retention agreements, a “Change in Control” means (i) one party alone, or acting with others, has acquired or gained
control over more than 50% of the voting shares of the Company; (ii) the Company merges or consolidates with or into another entity or
completes any other corporate reorganization, if more than 50% of the combined voting power of the surviving entity’s securities
outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other reorganization; (iii) a majority of the Board of Directors is replaced
and/or dismissed by the stockholders of the Company without the recommendation of or nomination by the Company’s current Board
of Directors; (iv) the Company’s Chief Executive Officer (the “CEO”) is replaced and/or dismissed by stockholders without
the approval of the Board of Directors; or (v) the Company sells, transfers or otherwise disposes of all or substantially all of the
consolidated assets of the Company and the Company does not own stock in the purchaser or purchasers having more than 50% of the voting
power of the entity owning all or substantially all of the consolidated assets of the Company after such purchase.
29 |
“Good
Reason” means either (i) a material adverse change in the executive’s status as an executive or other key employee of the
Company, including without limitation, a material adverse change in the executive’s position, authority, or aggregate duties or
responsibilities; (ii) any adverse change in the executive’s base salary, target bonus or benefits; or (iii) a request by the Company
to materially change the executive’s geographic work location.
“Cause”
means (i) the executive has acted in bad faith and to the detriment of the Company; (ii) the executive has refused or failed to act in
accordance with any specific lawful and material direction or order of his or her supervisor; (iii) the executive has exhibited, in regard
to employment, unfitness or unavailability for service, misconduct, dishonesty, habitual neglect, incompetence, or has committed an act
of embezzlement, fraud or theft with respect to the property of the Company; (iv) the executive has abused alcohol or drugs on the job
or in a manner that affects the executive’s job performance; and/or (v) the executive has been found guilty of or has plead
nolo
contendere
to the commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. Prior
to termination for Cause, the Company shall give the executive written notice of the reason for such potential termination and provide
the executive a 30-day period to cure such conduct or act or omission alleged to provide grounds for such termination.
If
any Change in Control occurs and the executive continues to be employed as of the completion of such Change in Control, upon completion
of such Change in Control, as payment for the executive’s additional efforts during such Change in Control, the Company shall pay
the executive a Change in Control benefit payment equal to three months of the his base salary at the rate in effect immediately prior
to the Change in Control completion date, payable in a lump sum net of required tax withholdings. If any Change in Control occurs, and
if, during the one-year period following the Change in Control, the Company terminates the executive’s employment without Cause
or the executive submits a resignation for Good Reason (the effective date of such termination or resignation, the “Termination
Date”), then:
(a)
The Company shall pay the executive severance pay equal to 12 months of his base salary at the higher of the rate in effect immediately
prior to the Termination Date or the rate in effect immediately prior to the occurrence of the event or events constituting Good Reason,
payable on the Termination Date in a lump sum net of required tax withholdings, plus all other amounts then payable by the Company to
the executive less any amounts then due and owing from the executive to the Company;
(b)
The Company shall provide continuation of the executive’s health benefits at the Company’s expense for 18 months following
the Termination Date; and
(c)
The executive’s outstanding employee stock options shall fully vest and be exercisable for a 90-day period following the Termination
Date.
The
executive is not entitled to the above severance benefits for a termination based on death or disability, resignation without Good Reason
or termination for Cause. Following the Termination Date, the Company shall also pay the executive all reimbursements for expenses in
accordance with the Company’s policies, within ten days of submission of appropriate evidence thereof by the executive.
The
following table presents information concerning the outstanding equity awards for the Named Executive Officers as of December 31, 2020:
Outstanding
Equity Awards at Fiscal Year-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Number of securities underlying unexercised options (#) exercisable (1) | Number of securities underlying unexercised options (#) unexercisable | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (1) | Market value of shares or units of stock that have not vested (2) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested | Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested | |||||||||||||||||||||||||
Stanton E. Ross Chairman, CEO and President | 15,000 | — | — | $ | 4.80 | January 13, 2022 | 425,000 | $ | 994,500 | — | $ | — | ||||||||||||||||||||||
18,750 | — | — | $ | 13.20 | January 10, 2021 | — | $ | — | — | $ | — | |||||||||||||||||||||||
Thomas J. Heckman CFO, Treasurer and Secretary | 12,500 | — | — | $ | 13.20 | January 11, 2021 | 225,000 | $ | 526,500 | — | $ | — | ||||||||||||||||||||||
(1) | These stock option and restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over the prescribed period contingent upon whether the individual is still employed by the Company at that point. |
(2) | Market value based upon the closing market price of $2.34 on December 31, 2020. |
30 |
The
following table presents information concerning the stock options exercised and the vesting of restricted stock awards during 2020 for
the Named Executive Officers for the year ended December 31, 2020:
(1) | Based on the closing market price of our Common Stock of $1.03 on January 2, 2020, the date of vesting for 125,000 shares of Common Stock for Mr. Ross and 75,000 shares of Common Stock for Mr. Heckman, and $0.92 on April 17, 2020, the date of vesting for 75,250 shares of Common Stock for Mr. Ross and 60,200 shares of Common Stock for Mr. Heckman. |
The
number of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans (defined below
under “Information Regarding Plans and Other Arrangements Not Subject to Security Holder Action”) is in the discretion of
the administrator and therefore cannot be determined in advance. The Board of Directors’ policy in 2020 was to grant officers an
award of 300,000 restricted shares of Common Stock to our CEO/President and 150,000 restricted shares of Common Stock to our CFO/Treasurer
and each non-employee director an award of options to purchase 75,000 shares of Common Stock, all subject to vesting requirements.
The
following table sets forth (a) the aggregate number of shares of Common Stock subject to options granted under the Plans during the year
ended December 31, 2020 and (b) the average per share exercise price of such options.
Stock
Option and Restricted Stock Grants
Name of Individual or Group | Number of Restricted Shares of Common Stock Granted |
|
| |||||||||
Stanton E. Ross, Chairman of the Board of Directors, CEO & President | 375,250 | — | $ | — | ||||||||
Leroy C. Richie, Director | — | 75,000 | $ | 2.09 | ||||||||
Daniel F. Hutchins, Director | — | 75,000 | $ | 2.09 | ||||||||
Michael J. Caulfield, Director | — | 75,000 | $ | 2.09 | ||||||||
Thomas J. Heckman, Vice President, CFO, Treasurer & Secretary | 210,200 | — | $ | — | ||||||||
All executive officers, as a group | 585,450 | — | $ | — | ||||||||
All directors who are not executive officers, as a group | — | 225,000 | $ | 2.09 | ||||||||
All employees who are not executive officers, as a group | 261,141 | — | $ | — | ||||||||
31 |
INFORMATION
REGARDING PLANS AND OTHER ARRANGEMENTS NOT SUBJECT TO SECURITY HOLDER ACTION
Securities
Authorized for Issuance under Equity Compensation Plans
Our
Board of Directors adopted the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”) on September 1, 2005. The 2005
Plan authorized us to reserve 312,500 shares of our Common Stock for issuance upon exercise of options and grant of restricted stock
awards. The 2005 Plan terminated in 2015 with 19,678 shares reserved for awards that are now unavailable for issuance. Stock options
granted under the 2005 Plan that remain unexercised and outstanding as of December 31, 2020 total 7,563.
On
January 17, 2006, our Board of Directors adopted the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”). The 2006
Plan authorizes us to reserve 187,500 shares of Common Stock for future grants under it. The 2006 Plan terminated in 2016 with 25,849
shares of Common Stock reserved for awards that are now unavailable for issuance. Stock options granted under the 2006 Plan that remain
unexercised and outstanding as of December 31, 2020 total 39,750.
On
January 24, 2007, our Board of Directors adopted the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”). The 2007
Plan authorizes us to reserve 187,500 shares of Common Stock for future grants under it. The 2007 Plan terminated in 2017 with 89,651
shares of Common Stock reserved for awards that are now unavailable for issuance. Stock options granted under the 2007 Plan that remain
unexercised and outstanding as of December 31, 2020 total 5,000.
On
January 2, 2008, our Board of Directors adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”). The 2008
Plan authorizes us to reserve 125,000 shares of Common Stock for future grants under it. The 2008 Plan terminated in 2018 with 9,249
shares of Common Stock reserved for awards that are now unavailable for issuance. Stock options granted under the 2008 Plan that remain
unexercised and outstanding as of December 31, 2020 total 31,250.
On
March 18, 2011, our Board of Directors adopted the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”). The 2011
Plan authorizes us to reserve 62,500 shares of Common Stock for future grants under it. At December 31, 2020, there were 726 shares of
Common Stock reserved for awards available for issuance under the 2011 Plan. Stock options granted under the 2011 Plan that remain unexercised
and outstanding as of December 31, 2020 total 9,750.
32 |
On
March 22, 2013, our Board of Directors adopted the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”). The 2013
Plan was amended on March 28, 2014 and November 14, 2014 to increase the number of shares of Common Stock authorized and reserved for
issuance under the 2013 Plan to a total of 300,000. At December 31, 2020, there were 100 shares of Common Stock reserved for awards available
for issuance under the 2013 Plan. Stock options granted under the 2013 Plan that remain unexercised and outstanding as of December 31,
2020 total 20,000.
On
March 27, 2015, our Board of Directors adopted the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”). The 2015
Plan was amended on February 25, 2016 and May 31, 2017 to increase the number of shares of Common Stock authorized and reserved for issuance
under the 2015 Plan to a total of 1,250,000. At December 31, 2020, there were 3,686 shares of Common Stock reserved for awards available
for issuance under the 2015 Plan, as amended. Stock options granted under the 2015 Plan that remain unexercised and outstanding as of
December 31, 2020 total 130,000.
On
April 12, 2018, our Board of Directors adopted the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”). The 2018
Plan was amended on May 21, 2019 to increase the number of shares of Common Stock authorized and reserved for issuance under the 2018
Plan to a total of 1,750,000. At December 31, 2020, there were 625,500 shares of Common Stock reserved for awards available for issuance
under the 2018 Plan. Stock options granted under the 2018 Plan that remain unexercised and outstanding as of December 31, 2020 total
340,000.
On
June 30, 2020, our Board of Directors adopted the 2020 Plan, which was approved by our stockholders at the 2020 annual meeting of stockholders.
The 2020 Plan currently authorizes us to reserve 1,500,000 shares for future grants under it. At December 31, 2020, there were 408,341
shares reserved for awards available for issuance under the 2020 Plan. Stock options granted under the 2020 Plan that remain unexercised
and outstanding as of December 31, 2020 total 255,000.
The
2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan and 2020 Plan are collectively referred to as
the “Plans.”
The
Plans authorize us to grant (i) to the key employees’ incentive stock options (except for the 2007 Plan) to purchase shares of
Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards, and (ii) to non-employee
directors and consultants’ non-qualified stock options and restricted stock. The Compensation Committee of our Board of Directors
administers the Plans by making recommendations to the Board of Directors or determinations regarding the persons to whom options or
restricted stock should be granted and the amount, terms, conditions, and restrictions of the awards.
The
Plans allow for the grant of incentive stock options (except for the 2007 Plan), non-qualified stock options and restricted stock awards.
Incentive stock options granted under the Plans must have an exercise price at least equal to 100% of the fair market value of the Common
Stock as of the date of grant. Incentive stock options granted to any person who owns, immediately after the grant, stock possessing
more than 10% of the combined voting power of all classes of our stock, or of any parent or subsidiary corporation, must have an exercise
price at least equal to 110% of the fair market value of the Common Stock on the date of grant. Non-statutory stock options may have
exercise prices as determined by our Compensation Committee.
The
Compensation Committee is also authorized to grant restricted stock awards under the Plans. A restricted stock award is a grant of shares
of the Common Stock that is subject to restrictions on transferability, risk of forfeiture and other restrictions and that may be forfeited
in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Compensation Committee.
We
have filed various registration statements on Form S-8 and amendments to previously filed Form S-8 filings with the SEC which registered
a total of 5,675,000 shares of Common Stock issued or to be issued upon exercise of the stock options underlying the various stock option
plans.
33 |
The
following table sets forth certain information regarding the stock option plans adopted by the Company as of December 31, 2020:
Equity
Compensation Plan Information
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by stockholders | 833,313 | $ | 3.15 | 1,064,346 | ||||||||
Equity compensation plans not approved by stockholders | 5,000 | 11.36 | — | |||||||||
Total all plans | 838,313 | $ | 3.20 | 1,064,346 | ||||||||
We
believe that such awards better align the interests of our employees with those of our stockholders. Option awards have been granted
with an exercise price equal to the market price of our stock at the date of grant with such option awards generally vesting based on
the completion of continuous service and having ten-year contractual terms. Restricted stock awards have also been made under the Plans.
A restricted stock award is a grant of shares of the common stock that is subject to restrictions on transferability, risk of forfeiture
and other restrictions and that may be forfeited in the event of certain terminations of employment or service prior to the end of a
restricted period specified by the Compensation Committee. These option and restricted stock awards typically provide for accelerated
vesting if there is a change in control (as defined in the Plans). We have registered all shares of Common Stock that are issuable under
our Plans with the SEC. A total of 1,064,346 shares remained available for awards under the various Plans as of December 31, 2020.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of April 14, 2021, information regarding beneficial ownership of our Common Stock, as adjusted to reflect
the sale of the securities offered by us in this offering for:
● | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock; | |
● | each of our executive officers; | |
● | each of our directors; and | |
● | all of our current executive officers and directors as a group |
Beneficial
ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if
he, she or it possesses sole or shared voting or investment power of that security, including securities that are currently exercisable
or exercisable within sixty (60) days of April 14, 2021. Except as indicated by the footnotes below, we believe, based on the information
furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Common
Stock shown that they beneficially own, subject to community property laws where applicable.
Common
Stock subject to securities currently exercisable or exercisable within sixty (60) days of April 14, 2021 are deemed to be outstanding
for computing the percentage ownership of the person holding such securities and the percentage ownership of any group of which the holder
is a member but are not deemed outstanding for computing the percentage of any other person.
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Unless
otherwise indicated, the address of each beneficial owner listed in the table below is c/o Digital Ally, Inc., 15612 College Blvd., Lenexa,
KS 66219.
Number of Shares of Common Stock Beneficially Owned (1) | % of Total Voting | |||||||||||
Shares | % | Power | ||||||||||
5% or Greater Stockholders: | ||||||||||||
None | — | — | — | |||||||||
Executive Officers and Directors: | ||||||||||||
Stanton E. Ross (2) | 1,620,900 | 3.1 | % | 3.1 | % | |||||||
Leroy C. Richie (3) | 265,468 | * | * | |||||||||
Daniel F. Hutchins (4) | 268,950 | * | * | |||||||||
Michael J. Caulfield (5) | 227,855 | * | * | |||||||||
Thomas J. Heckman (6) | 1,191,573 | 2.3 | % | 2.3 | % | |||||||
All executive officers and directors as a group (five individuals) | 3,574,746 | 6.9 | % | 6.9 | % | |||||||
*
Less than 1%
(1) | Based on 51,577,209 shares of Common Stock issued and outstanding as of April 14, 2021 and, with respect only to the ownership by all executive officers and directors as a group, an additional aggregate of 701,250 options vested or to vest within sixty (60) days held by officers and directors as of April 14, 2021. |
(2) | Mr. Ross’s total shares of Common Stock include: (i) 425,000 restricted shares that are subject to forfeiture to us and (ii) 15,000 shares of Common Stock to be received upon the exercise of vested options. Mr. Ross has pledged 120,000 shares of Common Stock to the lenders as collateral for personal loans. |
(3) | Mr. Richie’s total shares of Common Stock include 226,250 shares of Common Stock to be received upon the exercise of vested options and options that are expected to vest within sixty (60) days. |
(4) | Mr. Hutchins’ total shares of Common Stock include 235,250 shares of Common Stock to be received upon the exercise of vested options and options that are expected to vest within sixty (60) days. |
(5) | Mr. Caulfield’s total shares of Common Stock include 225,000 shares of Common Stock to be received upon the exercise of vested options and options that are expected to vest within sixty (60) days. |
(6) | Mr. Heckman’s total shares of Common Stock include (i) 225,000 restricted shares that are subject to forfeiture to us and (ii) 168,725 shares of Common Stock held in the Company’s 401(k) Plan (on December 31, 2020) as to which Mr. Heckman has voting power as trustee of the 401(k) Plan. Mr. Heckman has pledged 143,059 shares of Common Stock to financial institutions as collateral for personal loans. |
DELINQUENT
SECTION 16(a) REPORTS
Section
16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of our Common Stock,
to file with the Securities and Exchange Commission reports of ownership of, and transactions in, our securities and to provide us with
copies of those filings. To our knowledge, based solely on our review of the copies of such forms received by us, or written representations
from certain reporting persons, we believe that during the year ended December 31, 2020, and during 2021, all filing requirements applicable
to our officers, directors and greater than ten percent beneficial owners were complied with.
35 |
TRANSACTIONS
WITH RELATED PERSONS
Certain
Relationships and Related Person Transactions
We
engaged in no reportable transactions with related persons since the year ended December 31, 2019 that involved an amount that exceeds
the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal
years, other than the following:
On
October 1, 2020, the Company advanced $250,000 to American Rebel Holdings, Inc. (AREB) under a secured promissory note. The CEO, President
and Chairman of AREB is the brother of the Company’s CEO, President and Chairman. Such note bears interest at 8% and is secured
by all of the tangible and intangible assets of the Company that are not currently secured by other indebtedness. The Company also received
warrants to purchase 1,250,000 shares of AREB common stock at an exercise price of $0.10 per share with a five-year term
.
This
note had an original maturity date of January 2, 2021; however, additional provisions within the note provided for an extension of the
maturity date for fourteen months due to AREB’s failure to raise $300,000 in new debt or equity financing prior to the original
maturity date. Upon this extension, the AREB was obligated to make equal monthly payments of principal and interest over the extended
period of the note. The required monthly payments have not been made by AREB, and, therefore, this note is currently in default status.
On
October 21, 2020, the Company advanced $250,000 to American Rebel Holdings, Inc. (AREB) under a second secured promissory note. Such
note bears interest at 8% and is secured by inventory manufactured and revenue/accounts receivable derived from a specific purchase order.
The Company also received warrants to purchase 1,250,000 shares of AREB common stock at an exercise price of $0.10 per share with a five-year
term
.
This note has a maturity date of April 21, 2021, subject to full repayment upon AREB closing on debt or equity financings
of at least $600,000, and the receipt of revenue from the sale of inventory sold under the specific purchase order serving as collateral.
To date, AREB has not made any repayment under this note, and, therefore, the note is currently in default status.
On
March 1, 2021, the Company advanced an additional $117,600 to AREB. The Company is currently negotiating a resolution to the defaults
of the existing notes with AREB and the repayment of the advance made on March 1, 2021. Such resolution may include the full and immediate
repayment of all indebtedness and related accrued interest, however, the parties have not agreed to any terms. Should the parties not
agree to a resolution of the current defaults, the Company may find it necessary to file suit to enforce its rights under the existing
notes and advance and collect the outstanding principal and interest. The Company expects to either reach a resolution and finalize the
documents underlying the resolution agreement or to file suit to enforce its rights to collect all amounts it is due in order to resolve
the current note defaults within thirty (30) days of the date of filing of the Preliminary Proxy Statement.
During
February and April 2020, the Company borrowed a total of $319,000 from the Company’s Chairman, CEO & President under an unsecured
promissory note bearing interest at 6% through its May 28, 2020 maturity date. The proceeds from the note were used for general corporate
purposes. The principal balance and related accrued interest were paid in full during the year ended December 31, 2020. Total interest
accrued and paid on this note was $5,236.
The
Board of Directors is not aware of any other matters to be presented for action at the Annual Meeting. However, if any other matter is
properly presented at the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they represent
as the Board of Directors may recommend.
ADVANCE
NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND NOMINATIONS
In
order for a stockholder to nominate directors at an annual meeting or to propose business to be brought before an annual meeting, the
stockholder must give timely, written notice to the Secretary of the Company and such notice must be received at the principal executive
offices of the Company not less than (i) one-hundred-and-twenty (120) days before the anniversary date of the Company’s release
of the proxy statement to stockholders in connection with its previous year’s annual meeting of stockholders, or (ii) a reasonable
time before the Company begins to print and send its proxy materials, in the event that the date of the 2022 annual meeting of stockholders
is changed by more than thirty (30) days from the anniversary date of the Annual Meeting.
36 |
Such
stockholder’s notice shall include, with respect to each matter that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual
meeting, and with respect to each person whom the stockholder proposes to nominate for election as a director, all information relating
to such person, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a
director, that is required under the Exchange Act.
In
addition, the stockholder must include in such notice the name and address, as they appear on the Company’s records, of the stockholder
proposing such business or nominating such persons, and the name and address of the beneficial owner, if any, on whose behalf the proposal
or nomination is made, the class and number of shares of capital stock of the Company that are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose behalf the proposal or nomination is made, and any material interest
or relationship that such stockholder of record and/or the beneficial owner, if any, on whose behalf the proposal or nomination is made
may respectively have in such business or with such nominee. At the request of the Board of Directors, any person nominated for election
as a director shall furnish to the Secretary of the Company the information required to be set forth in a stockholder’s notice
of nomination which pertains to the nominee.
This
Proxy Statement is accompanied by a copy of our 2020 Annual Report on Form 10-K.
BY ORDER OF THE BOARD OF DIRECTORS | |
April __, 2021 | Chairman of the Board, Chief Executive |
Lenexa, Kansas | Officer and President |
37 |
Amendment
to Digital Ally, Inc.
2020
Stock Option and Restricted Stock Plan
Pursuant
to Section 12 of the Digital Ally, Inc. 2020 Stock Option and Restricted Stock Plan (the “Plan”), the Board of Directors
(the “Board”) of Digital Ally, Inc. (the “Corporation”) hereby amends the Plan, subject to the approval of the
Corporation’s stockholders. This Amendment to the Digital Ally, Inc. 2020 Stock Option and Restricted Stock Plan (the “Amendment”)
is effective as of the date of stockholder approval as provided in Section 12 hereof.
1.
Purpose of the Amendment
.
The
Corporation wishes to amend the Plan to increase the aggregate number of Shares that may be granted under the Plan.
2.
Amendment
.
Section
4 of the Plan is hereby amended and restated in its entirety to read as follows:
STOCK
SUBJECT TO THE PLAN.
(a)
Stock Reserve.
Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the shares of Common
Stock that may be issued pursuant to Awards shall not exceed in the aggregate two-million- five-hundred-fifty-thousand (2,500,000) shares
of Common Stock.
This
Amendment amends only the provision of the Plan as noted above, and those provisions not expressly amended herein shall be considered
in full force and effect. Notwithstanding the foregoing, this Amendment shall supersede the provisions of the Plan to the extent those
provisions are inconsistent with the provisions and intent of this Amendment.
3.
Approval of Stockholders
.
This
Amendment was adopted by the Board on March 15, 2021 and is subject to approval by the affirmative vote of a majority of the shares represented
and voting at a duly held meeting at which a quorum is present or by an action by written consent no later than March 15, 2022.
4.
Execution
.
To
record the adoption of this Amendment by the Board on March 15, 2021, the Corporation has caused an authorized officer to affix the Corporate
name hereto.
38 |
Additional
Common Stock Authorization
39 |
40 |
Blank
Check Authorization
41 |
42 |
Additional
Pages to Certificate of Amendment of Digital Ally, Inc.
Article
IX(a) (continued below.)
The
holders of the Common Stock shall have one (1) vote per share on each matter submitted to a vote of stockholders. Each share of Common
Stock shall be entitled to the same dividend and liquidation rights. The capital stock of this Corporation, after the amount of the subscription
price has been paid, shall never be assessable, or assessed to pay debts of this Corporation.
(b)
Blank Check Preferred Stock. The Board of Directors is authorized, subject to the limitations prescribed in this Article IX, to provide
for the issuance of the shares of blank check preferred stock in series, and by filing a certificate pursuant to the applicable law of
the State of Nevada, to establish from time to time the number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The authority
of the Board of Directors with respect to each series of Preferred Stock will include, but not be limited to, the rights to determine
the following:
(i) | The number of shares constituting that series of Preferred Stock and the distinctive designation of that series, which may be a distinguishing number, letter or title; | |
(ii) | The dividend rate on the shares of that series of Preferred Stock, whether dividends will be cumulative, and if so, from which date(s), and the relative rights of priority, if any, of payment of dividends on shares of that series; | |
(iii) | Whether that series of Preferred Stock will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; | |
(iv) | Whether that series of Preferred Stock will have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; | |
(v) | Whether or not the shares of that series of Preferred Stock will be redeemable and, if so, the terms and conditions of such redemption, including the date or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; | |
(vi) | Whether that series of Preferred Stock will have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; | |
(vii) | The rights of the shares of that series of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and | |
(viii) | Any other relative rights, preferences, and limitations of that series of Preferred Stock. |
Each
series of serial Preferred Stock, in preference to the Common Stock, will be entitled to dividends from funds or other assets legally
available therefore, at such rates, payable at such times and cumulative to the extent as may be fixed by the Board of Directors of the
Corporation pursuant to the authority herein conferred upon it. In the event of dissolution or liquidation of the Corporation, voluntary
or involuntary, the holders of serial Preferred Stock, in preference to the Common Stock, will be entitled to receive such amount or
amounts as may be fixed by the Board of Directors of the Corporation pursuant to the authority herein conferred upon it. Preferred Stock
of any series redeemed, converted, exchanged, purchased or otherwise acquired by the Corporation shall be canceled by the Corporation
and returned to the status of authorized but unissued Preferred Stock. All shares of any series of serial Preferred Stock, as between
themselves, shall rank equally and be identical; and all series of serial Preferred Stock, as between themselves, shall rank equally
and be identical, except as set forth in resolutions of the Board of Directors authorizing the issuance of the series.”
43 |
form
of
Certificate
of Amendment including
Additional
Common Stock Authorization and
Blank
Check Authorization
44 |
45 |
Additional
Pages to Certificate of Amendment of Digital Ally, Inc.
Article
IX(a) (continued below.)
The
holders of the Common Stock shall have one (1) vote per share on each matter submitted to a vote of stockholders. Each share of Common
Stock shall be entitled to the same dividend and liquidation rights. The capital stock of this Corporation, after the amount of the subscription
price has been paid, shall never be assessable, or assessed to pay debts of this Corporation.
(b)
Blank Check Preferred Stock. The Board of Directors is authorized, subject to the limitations prescribed in this Article IX, to provide
for the issuance of the shares of blank check preferred stock in series, and by filing a certificate pursuant to the applicable law of
the State of Nevada, to establish from time to time the number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The authority
of the Board of Directors with respect to each series of Preferred Stock will include, but not be limited to, the rights to determine
the following:
(i) | The number of shares constituting that series of Preferred Stock and the distinctive designation of that series, which may be a distinguishing number, letter or title; | |
(ii) | The dividend rate on the shares of that series of Preferred Stock, whether dividends will be cumulative, and if so, from which date(s), and the relative rights of priority, if any, of payment of dividends on shares of that series; | |
(iii) | Whether that series of Preferred Stock will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; | |
(iv) | Whether that series of Preferred Stock will have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; | |
(v) | Whether or not the shares of that series of Preferred Stock will be redeemable and, if so, the terms and conditions of such redemption, including the date or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; | |
(vi) | Whether that series of Preferred Stock will have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; | |
(vii) | The rights of the shares of that series of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and | |
(viii) | Any other relative rights, preferences, and limitations of that series of Preferred Stock. |
Each
series of serial Preferred Stock, in preference to the Common Stock, will be entitled to dividends from funds or other assets legally
available therefore, at such rates, payable at such times and cumulative to the extent as may be fixed by the Board of Directors of the
Corporation pursuant to the authority herein conferred upon it. In the event of dissolution or liquidation of the Corporation, voluntary
or involuntary, the holders of serial Preferred Stock, in preference to the Common Stock, will be entitled to receive such amount or
amounts as may be fixed by the Board of Directors of the Corporation pursuant to the authority herein conferred upon it. Preferred Stock
of any series redeemed, converted, exchanged, purchased or otherwise acquired by the Corporation shall be canceled by the Corporation
and returned to the status of authorized but unissued Preferred Stock. All shares of any series of serial Preferred Stock, as between
themselves, shall rank equally and be identical; and all series of serial Preferred Stock, as between themselves, shall rank equally
and be identical, except as set forth in resolutions of the Board of Directors authorizing the issuance of the series.”
46 |
Admission
Ticket
Bring
this ticket with you for admission to the 2021 Annual Meeting
Digital
Ally, Inc.
2021
Annual Meeting of Stockholders
June
22, 2021 at 11:15 a.m. EDT
15612
College Boulevard
Lenexa,
Kansas 66219
Your
vote is important
FOLD
AND DETACH HERE AND READ THE REVERSE SIDE
DIGITAL
ALLY, INC.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE 2021 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON TUESDAY, JUNE 22, 2021
The
undersigned hereby appoints
Thomas J. Heckman
as the true and lawful attorney, agent and proxy of the undersigned, with full power
of substitution, to represent and to vote all shares of common stock of
Digital Ally, Inc.
held of record by the undersigned on
April 23, 2021, at the 2021 Annual Meeting of Stockholders to be held at the corporate facility located at 15612 College Boulevard, Lenexa,
Kansas 66219, on Tuesday, June 22, 2021 at 11:15 a.m., EDT, and at any adjournments thereof.
Any
and all proxies heretofore given are hereby revoked.
When
properly executed, this proxy will be voted as designated by the undersigned.
In
his discretion, the proxy is authorized to vote upon such other business that may properly come before the Annual Meeting.
(Continued
and to be dated and signed on reverse side)
2021
ANNUAL MEETING OF STOCKHOLDERS OF DIGITAL ALLY, INC.
Tuesday,
June 22, 2021
Please
date, sign and mail your proxy card in the envelope provided as soon as possible.
Please
mark your vote in blue or black ink as shown here. Please detach along perforated line and mail in the envelope provided.
The
Board of Directors recommends that you vote as follows: “FOR” the election of the four nominees to the Board of Directors;
“FOR” Proposals 2, 3, 4 and 5.
Proposal 1 : Election of Directors of the Company | |
NOMINEES: | |
[ ] FOR ALL NOMINEES | |
[ ] Stanton E. Ross | [ ] Daniel F. Hutchins |
[ ] Leroy C. Richie | [ ] Michael J. Caulfield |
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES | [ ] FOR ALL EXCEPT |
(See instructions below) | ________________ |
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: [ ] | |
To
change the address on your account, please check the box at right and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be submitted via this method. [ ]
Proposal
2.
FOR the approval of the amendment to the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan to increase the number
of shares of common stock reserved for issuance under such Plan by 1,000,000 shares to 2,500,000 shares.:
FOR | AGAINST | ABSTAIN | ||||
[ ] | [ ] | [ ] |
Proposal
3.
FOR the approval of an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital
stock that we may issue from 100,000,000 shares to 200,000,000 shares, of which all 200,000,000 shares shall be classified as common
stock.
FOR | AGAINST | ABSTAIN | ||||
[ ] | [ ] | [ ] |
Proposal
4.
FOR the approval of an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock
by an additional 10,000,000 shares and classify such shares as blank check preferred stock:
FOR | AGAINST | ABSTAIN | ||||
[ ] | [ ] | [ ] |
Proposal
5.
FOR ratification of the appointment of RBSM LLP as our independent registered public accounting firm:
FOR | AGAINST | ABSTAIN | ||||
[ ] | [ ] | [ ] |
In
his discretion, the proxy is authorized to vote upon such other business that may properly come before the 2021 Annual Meeting.
Signature of Stockholder | Date | Signature of Stockholder | Date |
NOTE: | Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing as attorney, as 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. |
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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