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:
[ ]
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Preliminary
Proxy Statement
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[ ]
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to Rule 14a-12
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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.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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[ ]
Fee paid previously with preliminary materials.
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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.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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Filing
Party:
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Date
Filed:
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Digital
Ally, Inc.
15612
College Boulevard
Lenexa,
Kansas 66219
July
27, 2020
To
our Stockholders:
I
am pleased to invite you to attend the annual meeting of stockholders (the “Annual Meeting”) of Digital Ally, Inc.
(“Digital” or the “Company”) to be held on Wednesday, September 9, 2020 at 10:00 a.m., CDT, 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.
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 July 24, 2020, 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
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
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
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Page
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Notice
of Annual Meeting of Stockholders
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1
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Proxy
Statement for 2020 Annual Meeting of Stockholders
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2
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Information
Concerning Solicitation and Voting
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2
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Stockholder
List
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6
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Our
Voting Recommendations
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7
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Voting
Results
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7
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Deadline
for Receipt of Stockholder Proposals for 2020 Annual Meeting of Stockholders
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7
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Other
Matters
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7
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Proposal
One: Election of Directors
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7
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Nominees
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7
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Vote
Required and Board Recommendation
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9
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Board
of Directors and Committee Meetings
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9
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Committees
of the Board of Directors
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10
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Compensation
Committee Interlocks and Insider Participation
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12
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Board
of Directors’ Role in the Oversight of Risk Management
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12
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Board
Leadership Structure
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13
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Stockholder
Communication with the Board of Directors
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13
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Policy
for Director Recommendations and Nominations
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13
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Code
of Ethics and Conduct
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14
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Director
Compensation
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14
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Proposal
Two: To Approve the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan
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17
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Vote
Required and Recommendation
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20
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Summary
of the 2020 Stock Option and Restricted Stock Plan
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17
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Federal
Tax Aspects
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19
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Proposal
Three: 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 50,000,000 to 100,000,000, of Which all 100,000,000 Shares Shall be Classified as Common Stock
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21
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Increase
in Authorized Shares of Common Stock
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21
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Potential
Anti-Takeover effect of the Proposed Articles Amendment
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22
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Vote
Required and Recommendation
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22
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Proposal
Four: 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 10,000,000 and Classify such Shares Blank Check Preferred Stock
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23
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Authorization
of Blank Check Preferred Stock
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24
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Effectiveness
of Articles Amendment
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Potential
Anti-Takeover effect of the Proposed Articles Amendment
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24
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Vote
Required and Recommendation
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24
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Proposal
Five: To Ratify the Appointment of RBSM LLP as Our Independent Registered Public Accounting Firm
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Audit
and Related Fees
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Vote
Required and Board Recommendation
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Report
of the Audit Committee
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Executive
Compensation and Related Information
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Summary
Compensation Table
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Grant
of Plan-Based Awards
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29
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Employment Contracts, Termination of Employment and Change-in-Control Arrangements
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Retention Agreements
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Outstanding
Equity Awards at Fiscal Year-End
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31
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Option
Exercises and Stock Vested
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31
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Stock
Option and Restricted Stock Grants
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Information
regarding Plans and Other Arrangements Not Subject to Security Holder Actions
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Stock
Option Plans
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Equity
Compensation Plan Information
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Security
Ownership of Certain Beneficial Owners and Management
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36
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Section
16(a) Beneficial Ownership Reporting Compliance
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37
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Transactions
with Related Persons
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37
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Other
Matters
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37
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Advance
Notice Provisions for Stockholder Proposals and Nominations
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38
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Annual
Report
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38
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Appendix
A – The Digital Ally, Inc. 2020 Stock Option and Restricted Stock Plan
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39
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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 Wednesday, September 9, 2020
The
2020 Annual Meeting of the Stockholders (the “Annual Meeting”) of Digital Ally, Inc., a Nevada corporation (“Digital,”
the “Company,” “we,” “ours” and “us”), will be held at the corporate facility
located at 15612 College Boulevard, Lenexa, Kansas, 66219 on Wednesday, September 9, 2020 at 10:00 a.m., CDT, for the following
purposes:
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1.
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To
elect four directors;
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2.
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To
approve the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan;
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3.
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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 50,000,000 to 100,000,000, of which all 100,000,000 shares shall be classified as common stock, par value
$0.001 per share;
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4.
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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 10,000,000 and classify such shares as blank check preferred stock par value
$0.001 per share;
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5.
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To
ratify the appointment of RBSM LLP as our independent registered public accounting firm; and
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6.
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To
act upon such other business as may properly come before the meeting or any adjournment thereof.
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The
foregoing items of business are more fully described in the Proxy Statement accompanying this notice. Only stockholders of record
at the close of business on July 24, 2020 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, our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the U.S. Securities and Exchange
Commission (the “SEC”) on April 6, 2020, and our Annual Report on Form 10-K/A for the year ended December 31,
2019, filed with the SEC on April 29, 2020, (collectively, our “2019 Annual Report on Form 10-K”), are being made
available to shareholders on or about July 27, 2020. On or about July 27, 2020, we mailed a printed copy of our proxy materials
to our shareholders who had requested them and mailed 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 shareholders. 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 our 2019 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”).
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By
order of the Board of Directors
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Stanton
E. Ross
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Chairman
of the Board, President and Chief Executive Officer
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July
27, 2020
Lenexa,
Kansas
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.
PROXY
STATEMENT
FOR
THE 2020 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”) for use at the Annual Meeting
of Stockholders (the “Annual Meeting”) to be held Wednesday, September 9, 2020 at 10:00 a.m., CDT, 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 July 27, 2020, we mailed a printed copy of our proxy materials to our shareholders who had requested them and mailed
the Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to all of our other shareholders.
Who
is Entitled to Vote?
Our
Board of Directors has fixed the close of business on July 24, 2020 as the record date (the “Record Date”) for a determination
of stockholders entitled to notice of, and to vote at, the meeting. On the Record Date, 26,645,118
shares of our common stock, par value $0.001
per share (the “Common Stock”), were issued of which 63,518 are held in treasury all of which is voting stock,
and are held of record by 158 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 have provided 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
have been 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 shareholder 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 shareholders 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.
Record
Holder
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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.
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2.
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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.
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3.
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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.
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4.
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Vote
in person. Attend and vote at the Annual Meeting.
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Beneficial
Owner (Holding Shares in Street Name)
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1.
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Vote
by Internet. You may vote through the Internet by going to www.proxyvote.com and following the instructions.
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2.
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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.
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3.
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Vote
in person. Obtain a valid legal proxy from the organization that holds your shares and attend and vote at the Annual Meeting.
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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.
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 the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan;” 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 10,000,000 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 50,000,000 to 100,000,000 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:
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Proposal
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Vote
Required
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Broker
Discretionary Vote
Allowed
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1.
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Election
of Directors
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The votes cast for a nominee’s
election must exceed the votes casts against such nominee’s election.
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No
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2.
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Approve
the 2020 Stock Option and Restricted Stock Plan
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The affirmative vote of the holders
of a majority of the votes cast.
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No
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3.
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Amendment
to Increase
Authorized
Common Stock
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The affirmative vote of the holders
of a majority of the outstanding shares on the Record Date.
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Yes
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4.
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Blank
Check Preferred Amendment
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The affirmative vote of the holders
of a majority of the outstanding shares on the Record Date.
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No
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5.
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Ratify
Appointment of RBSM LLP
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The affirmative vote of the holders
of a majority of the votes cast.
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Yes
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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 shareholders through a “notice
only” model using the Internet. This allows us to reduce costs by delivering to shareholders 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 2019 Annual Report on Form 10-K, as well as how to submit your proxy through the Internet. On or about
July 27, 2020, we mailed a printed copy of our proxy materials to our shareholders who had requested them and mailed the E-Proxy
Notice to all of our other shareholders.
This
Proxy Statement, the form of proxy and voting instructions are being made available to shareholders on or about July 27, 2020,
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 shareholders of record and www.proxyvote.com for beneficial owners. If you are a shareholder 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.
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 Corp., 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 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.
Stockholder
List
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 August 25, 2020, which is at least ten business days prior to the date of the Annual
Meeting and the stockholder list will be available at the Annual Meeting.
Our
Voting Recommendations
Our
Board of Directors recommends that you vote:
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FOR
the four nominees to the Board of Directors;
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●
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FOR
the approval of the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan;
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FOR
an amendment to our Articles of Incorporation to increase the number of authorized shares
of our capital stock that we may issue from 50,000,000 to 100,000,000, of which all 100,000,000 shares shall be classified
as Common Stock;
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●
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FOR
an amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that we
may issue by 10,000,000 and classify such shares as blank check preferred stock;
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FOR
ratification of the appointment of RBSM LLP as our independent registered public accounting firm; and
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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.
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Voting
Results
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 within four 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 for our 2021 annual meeting of stockholders must submit such proposal to us
by April 9, 2021, which is the 120th calendar day prior to the one-year anniversary date on which this Proxy Statement
was first mailed to stockholders in connection with the Annual Meeting, or, if our 2021 annual meeting of stockholders is changed
by more than 30 days from the anniversary date of the Annual Meeting, then a reasonable time before the Company begins to print
and mail its proxy materials in connection with our 2021 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
Matters
Other
than the proposals listed above, our Board of Directors does not intend to present any other matters to be voted on at the 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.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 9, 2020:
Copies
of our Notice of Annual Meeting, Proxy Statement and 2019 Annual Report are available online at www.digitalallyinc.com.
PROPOSAL
ONE
ELECTION
OF DIRECTORS
Nominees
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
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|
Principal
Occupation
|
|
Age
|
|
Director
Since
|
Stanton
E. Ross
|
|
Chairman,
President and Chief Executive Officer
|
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58
|
|
2005
|
Leroy
C. Richie (1)(2)(3)
|
|
Lead
Outside Director, Chairman of the Nominating and Governance Committee and Compensation Committee and attorney
|
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78
|
|
2005
|
Daniel
F. Hutchins (1)
|
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Certified
Public Accountant; Chairman of Audit Committee
|
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64
|
|
2007
|
Michael
J. Caulfield (1)(2)(3)
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Investment
banking-retired
|
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64
|
|
2016
|
|
(1)
|
Member
of Audit Committee
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|
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(2)
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Member
of Compensation Committee
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|
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(3)
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Member
of Nominating and Governance Committee and Compensation 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 2016. 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 boards 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. He holds no other public directorships and has not
held any others during the previous five years, except for OGE Energy Corp. (2007-2014). 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.
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 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 six meetings and acted a number of times by unanimous consent resolutions during the fiscal year ended
December 31, 2019. 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, 2019. 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 2019 Annual Meeting of stockholders.
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 our directors, other than
our Chairman and Chief Executive Officer, have met in executive sessions without management present on a regular basis in 2019
and year-to-date 2020.
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, 2019 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 five meetings during the year-ended
December 31, 2019. 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.
Compensation
Committee
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.
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, 2019. 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;
|
●
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reviews
the composition and size of the Board and its committees to ensure proper expertise and diversity among its members;
|
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●
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evaluates
the performance and contributions of directors eligible for re-election;
|
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●
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determines
the desired qualifications for individual directors and desired skills and characteristics for the Board;
|
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identifies
persons who can provide needed skills and characteristics;
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●
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screens
possible candidates for Board membership;
|
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●
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reviews
any potential conflicts of interests between such candidates and the Company’s interests; and
|
|
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●
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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, 2019. 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.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee is made up of two independent, non-employee directors, Messrs. Richie and Caulfield. No interlocking relationship
exists between the members of our Compensation Committee and the board of directors or compensation committee of any other company.
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.
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.
Board
Leadership Structure
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 evaluation potential nominees.
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 of stockholders. 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,
the stockholder must give timely written notice to our Secretary and such notice must be received at our principal executive offices
not less than 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, including such person’s written
consent to being named in the proxy statement as a nominee, serving as a director, that is required under the Securities Exchange
Act of 1934, as amended, and cooperating with a background investigation. In addition, the stockholder must include in such notice
his 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 (10th) 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.
Code
of Ethics and Conduct
Our
Board of Directors has adopted a Code of Ethics and Conduct that is applicable to all our employees, officers and directors.
Our Code of Ethics and Conduct is intended to ensure that our employees 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.
Director
Compensation
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 2019, including on the Audit, Nominating and Governance and Compensation Committees.
In
July 2018, we granted to Messrs. Richie, Caulfield and Hutchins each options exercisable to acquire 50,000 shares of Common Stock
at an exercise price of $2.20 per share for their service on the Board of Directors until the next annual meeting of stockholders
with vesting to occur on a periodic basis through May 5, 2019 provided each person remained a director at such dates.
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 $3.01 per share for their service on the Board of Directors until the next annual meeting of stockholders
with vesting to occur ratably through May 1, 2020 provided each person has remained a director at such dates.
Director
compensation for the year ended December 31, 2019 was as follows:
Director
Compensation
Name
|
|
Fees
earned or paid in cash ($)
|
|
|
Stock
awards
($) (2)
|
|
|
Option
awards
($) (2)
|
|
|
Total
($)
|
|
Stanton E. Ross, Chairman of the Board
of Directors (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Leroy C. Richie
|
|
$
|
75,000
|
|
|
$
|
—
|
|
|
$
|
145,406
|
|
|
$
|
220,406
|
|
Daniel F. Hutchins
|
|
$
|
65,000
|
|
|
$
|
—
|
|
|
$
|
145,406
|
|
|
$
|
210,406
|
|
Michael J. Caulfield
|
|
$
|
60,000
|
|
|
$
|
—
|
|
|
$
|
145,406
|
|
|
$
|
205,406
|
|
(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 April
6, 2020, 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
|
|
|
Average
per Share
Exercise
Price
|
|
Stanton E. Ross (1)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Leroy C. Richie (2)
|
|
|
—
|
|
|
|
60,000
|
|
|
$
|
3.01
|
|
Daniel F. Hutchins (2)
|
|
|
—
|
|
|
|
60,000
|
|
|
$
|
3.01
|
|
Michael J. Caulfield (2)
|
|
|
—
|
|
|
|
60,000
|
|
|
$
|
3.01
|
|
(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 May 21, 2019 with vesting to occur ratably through May 1, 2020.
|
Outstanding
Stock Options Held by Directors.
The
following table presents information concerning the outstanding equity awards for the Directors as of December 31, 2019:
Outstanding
Equity Awards at Fiscal Year-End
Name
|
|
Number
of securities underlying unexercised options (#) exercisable
|
|
|
Number
of securities underlying unexercised options (#) unexercisable
|
|
|
Equity
incentive plan awards: Number of securities underlying unexercised unearned
options
(#)
|
|
|
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
|
|
|
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
|
|
|
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
|
|
|
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
|
PROPOSAL
TWO
TO
APPROVE THE 2020 DIGITAL ALLY, INC. STOCK OPTION AND RESTRICTED STOCK PLAN AND TO RESERVE 1,500,000 SHARES FOR ISSUANCE UNDER
THE PLAN.
The
Company is seeking stockholder approval for the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”) including
the reservation of 1,500,000 shares issuable under the 2020 Plan. The 2020 Plan was adopted by the Board of Directors on June
30, 2020, subject to stockholder approval at the Annual Meeting. Accordingly, no grants of options have been made under the 2020
Plan to date. If our stockholders approve the 2020 Plan, 1,500,000 shares will be available for future grants.
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.
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 or
more years for officers and employees, and one year for directors. Stock options generally can be exercised within seven to ten
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. There are relatively few shares available for grant under the existing stock option plans of the Company. The last
stock option plan of the Company was approved in 2018 and it has been amended once since its original approval. 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 it is approved
at the annual meeting.
Summary
of the 2020 Stock Option and Restricted Stock Plan
Our
Board of Directors adopted the 2020 Plan on June 30, 2020. At the Annual Meeting, we are asking stockholders to approve the 2020
Plan and the reservation of 1,500,000 shares issuable under the 2020 Plan. The 2020 Plan authorizes us to issue 1,500,000 shares
of Common Stock upon exercise of options and grant of restricted stock awards. No options 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 June 30, 2020, approximately 78 employees, two executive
officers, and three 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.
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. If our stockholders approve the 2020 Plan, a total of
1,500,000 shares of our Common Stock will be reserved for issuance under the 2020 Plan.
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.
The
following table presents information concerning the 2020 Plan:
Federal
Tax Aspects
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.
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 a majority of the votes cast will be required to approve the 2020 Plan.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 2020 DIGITAL ALLY, INC. STOCK OPTION
AND RESTRICTED STOCK PLAN.
PROPOSAL
THREE
APPROVAL
OF AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR CAPITAL STOCK THAT WE MAY ISSUE
FROM 50,000,000 TO 100,000,000 SHARES, OF WHICH ALL 100,000,000 SHARES SHALL BE CLASSIFIED AS COMMON STOCK.
Proposal
3 seeks your approval of an amendment to our Articles of Incorporation, which we refer to as the “Articles Amendment,”
to increase the number of authorized shares of capital stock that we may issue from 50,000,000 to 100,000,000, of which all 100,000,000
shares shall be classified as Common Stock. The proposed Articles Amendment is set forth below:
“Article
IX of the Articles of Incorporation of the Company is amended and restated in its entirety to read as follows:
Authorized
Shares. The aggregate number of shares of capital stock that the Corporation will have the authority to issue is one-hundred
million (100,000,000) shares, of which all one-hundred million (100,000,000) shares will be designated common stock, par value
of $0.001 each share (the “Common Stock”). 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.
Increase
in Authorized Shares of Common Stock
We
believe that an increase in the number of our authorized capital stock is prudent to assure that a sufficient number of shares
of our capital 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 100,000,000 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 capital 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 73,354,882 shares of Common
Stock authorized but unissued and available for issuance. As of the Record Date, we have 26,645,118 shares of Common Stock
issued of which 63,518 shares are held in treasury, 583,313 shares issuable upon exercise of options granted under
the Plans, and 3,393,364 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 Articles Amendment will have rights
identical to the currently outstanding Common Stock. Adoption of the Articles Amendment and issuance of the additional 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 Articles Amendment
The
Articles Amendment will become effective once it is approved at the Annual Meeting and filed with the Secretary of State of Nevada.
Upon filing the Articles Amendment with the Secretary of State of Nevada, our authorized shares of Common Stock will increase
from 50,000,000 to 100,000,000.
Potential
Anti-Takeover effect of the Proposed Articles Amendment
The
Articles Amendment 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.
Our
Board of Directors did not propose this Articles Amendment 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 a majority of the issued and outstanding Common Stock on the Record Date will be required to approve the Articles
Amendment.
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 50,000,000 TO 100,000,000 SHARES, OF WHICH
ALL 100,000,000 SHARES SHALL BE CLASSIFIED AS COMMON STOCK.
PROPOSAL
FOUR
APPROVAL
OF AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR CAPITAL STOCK THAT WE MAY ISSUE
BY 10,000,000 AND CLASSIFY SUCH SHARES AS BLANK CHECK PREFERRED STOCK.
Proposal
4 seeks your approval of an amendment to our Articles of Incorporation, which we refer to as the “Articles Amendment,”
to increase the number of authorized shares of capital stock by 10,000,000 and classify such shares as blank check preferred stock.
The Articles Amendment has the effect of creating a new class of stock: blank check preferred. The proposed Articles Amendment
is set forth below:
“Article
IX of the Articles of Incorporation of the Company is amended to include the following:
(a)
Authorized Shares. The aggregate number of shares of capital stock that the Corporation will have the authority
to issue includes, in addition to the Common Stock, ten million (10,000,000) shares of blank check preferred stock, with a par
value of $0.001 per share (the “Preferred Stock”).
(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.”
Authorization
of Blank Check Preferred Stock
The
Articles Amendment 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 Articles Amendment, 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.
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 adoption of the Articles Amendment previously described in Proposal 3 and the
increase in preferred stock described in Proposal 4, we will have approximately 73,354,882 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 26,645,118 shares of Common Stock issued of which 63,518 shares are held in treasury,
583,313 shares issuable upon exercise of options granted under the Plans, 3,393,364 shares issuable upon exercise of
outstanding warrants to purchase Common Stock and no preferred stock authorized or issued.
Effectiveness
of the Articles Amendment
The
amendment to our Articles of Incorporation described above, if approved by our stockholders, will become effective upon the filing
of the Articles Amendment with the Secretary of State of Nevada.
Potential
Anti-Takeover effect of the Proposed Articles Amendment
The
Articles Amendment relating to the increase in the number of authorized shares of our capital stock and adoption of a 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 additional authorized and unissued shares of preferred stock could make any attempt to gain control of
us 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 stock could
be issued by the Board to dilute the percentage of 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. 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 Articles Amendment 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 a majority of the issued and outstanding Common Stock on the Record Date will be required to approve the Articles
Amendment.
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 10,000,000 AND CLASSIFY SUCH SHARES AS BLANK
CHECK PREFERRED STOCK.
PROPOSAL
FIVE
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, 2020 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 2020 and beyond. Representatives
of RBSM LLP are expected to attend the Annual Meeting, where they will be available to respond to questions and, if they desire,
to make a statement.
On
June 19, 2019, the Audit Committee of the Board of Directors of the Company approved the engagement of RBSM as the Company’s
independent registered public accounting firm for the Company’s fiscal year ended December 31, 2019, and dismissed RSM US
LLP (“RSM”) as the Company’s independent registered public accounting firm.
RSM’s
audit reports on the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2018 did
not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles, except that RSM’s audit reports for the year ended December 31, 2018 contained an emphasis of a matter
regarding the Company’s ability to continue as a going concern.
During
the fiscal year ended December 31, 2018, and the subsequent interim periods through June 19, 2019, there were (i) no disagreements
(as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and RSM on any matter
of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved
to RSM’s satisfaction, would have caused RSM to make reference thereto in its reports on the financial statements for such
years, and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
During
the fiscal year ended December 31, 2018, and the subsequent interim periods through April 18, 2019, neither the Company nor anyone
acting on its behalf has consulted with RBSM regarding (i) the application of accounting principles to a specific transaction,
either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements
or the effectiveness of internal control over financial reporting, and neither a written report or oral advice was provided to
the Company that RBSM concluded was an important factor considered by the Company in reaching a decision as to any accounting,
auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv)
of Regulation S-K, or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
Audit
and Related Fees
The
following table is a summary of the fees billed to us by RBSM LLP for the fiscal year ended December 31, 2019 and RSM US LLP for
the fiscal year ended December 31, 2018:
Fee
Category
|
|
Fiscal
2019
fees
|
|
|
Fiscal
2018
fees
|
|
Audit fees
|
|
$
|
106,400
|
|
|
$
|
222,730
|
|
Audit-related fees
|
|
|
—
|
|
|
|
44,625
|
|
Tax fees
|
|
|
—
|
|
|
|
—
|
|
All other fees
|
|
|
—
|
|
|
|
11,343
|
|
Total
fees
|
|
$
|
106,400
|
|
|
$
|
278,698
|
|
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. In fiscal 2019,
such fees were related primarily to server hardware and telephone system maintenance and upgrades. In fiscal 2018, such fees were
also related primarily to server hardware and telephone system upgrades.
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.
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, 2020.
Notwithstanding
anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, 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.
REPORT
OF THE AUDIT COMMITTEE
Below
is the report of the Audit Committee with respect to our audited consolidated financial statements for the fiscal year ended December
31, 2019, which includes our consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements
of operations, stockholders’ equity and cash flows for each of the fiscal years ended December 31, 2019 and December 31,
2018 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, 2019, 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, 2019. 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, 2019 be included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 for filing with the SEC.
|
Respectfully
submitted by:
|
|
|
|
|
THE
AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS
OF DIGITAL ALLY, INC.
|
|
|
|
|
|
Daniel
F. Hutchins, Chairman
|
|
|
Leroy
C. Richie
|
|
|
Michael
J. Caulfield
|
EXECUTIVE
COMPENSATION
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, 2019 and 2018:
Summary
Compensation Table
Name
and principal position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
awards ($) (1)(3)(4)(5)(6)
|
|
|
Option
awards ($) (1)
|
|
|
All
other compensation ($) (2)
|
|
|
Total
($)
|
|
Stanton E. Ross
|
|
|
2019
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
$
|
727,500
|
|
|
$
|
—
|
|
|
$
|
18,089
|
|
|
$
|
1,245,589
|
|
Chairman, CEO and President
|
|
|
2018
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
$
|
560,000
|
|
|
$
|
—
|
|
|
$
|
26,390
|
|
|
$
|
1,086,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Heckman
|
|
|
2019
|
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
|
$
|
436,500
|
|
|
$
|
—
|
|
|
$
|
7,845
|
|
|
$
|
904,345
|
|
Vice President, Chief Financial Officer,
Treasurer and Secretary
|
|
|
2018
|
|
|
$
|
230,000
|
|
|
$
|
23,000
|
|
|
$
|
347,500
|
|
|
$
|
—
|
|
|
$
|
20,460
|
|
|
$
|
620,960
|
|
(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 April
6, 2020, for 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 2018 to Mr. Ross: (i) 50,000 shares at $2.70 per share that vest
ratably over the one-year period ending April 15, 2019; and (ii) 200,000 shares at $2.125 per share that vest ratably over
the one-year period ending July 5, 2019.
|
|
|
(4)
|
Stock
awards include the following restricted stock granted during 2018 to Mr. Heckman: (i) 50,000 shares at $2.70 per share that
vest ratably over the one-year period ending April 15, 2019; and (ii) 100,000 shares at $2.125 per share that vest ratably
over the one-year period ending July 5, 2019.
|
|
|
(5)
|
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 ending January 2, 2021.
|
|
|
(6)
|
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 ending January 2, 2021.
|
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
|
|
|
2019
|
|
|
$
|
2,558
|
|
|
$
|
13,910
|
|
|
$
|
1,100
|
|
|
$
|
521
|
|
|
$
|
—
|
|
|
$
|
18,089
|
|
Chairman, CEO and President
|
|
|
2018
|
|
|
$
|
8,694
|
|
|
$
|
16,075
|
|
|
$
|
1,100
|
|
|
$
|
521
|
|
|
$
|
—
|
|
|
$
|
26,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Heckman
|
|
|
2019
|
|
|
$
|
2,477
|
|
|
$
|
4,347
|
|
|
$
|
500
|
|
|
$
|
521
|
|
|
$
|
—
|
|
|
$
|
7,845
|
|
Vice President, Chief Financial Officer,
Treasurer and Secretary
|
|
|
2018
|
|
|
$
|
9,000
|
|
|
$
|
10,220
|
|
|
$
|
719
|
|
|
$
|
521
|
|
|
$
|
—
|
|
|
$
|
20,460
|
|
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 2019, the Compensation Committee of the Board of Directors (the “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 represents no increase or decrease from the previous year.
For
fiscal year 2018, 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 represents
an increase 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 performance and will include both objective and subjective criteria specific to each
executive’s role and responsibility with us.
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 2019 based on their performance. Refer to the “Grants
of Plan-Based Awards” table below for restricted stock awards made in 2019. The Committee also determined that Messrs. Ross
and Heckman would be eligible in 2020 for awards of restricted stock or stock options. On January 3, 2020, the Compensation Committee
approved the award of 250,000 restricted shares to Mr. Ross and 150,000 restricted shares to Mr. Heckman, both of which vest 50%
on January 2, 2021 and 50% on January 2, 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 2019 and 2018, as set forth in the
foregoing table. Refer to the “Summary Compensation Table” above for the bonuses paid to Messrs. Ross and Heckman
in 2019 and 2018. In fiscal 2019, Messrs. Ross and Heckman were eligible for, and received, bonuses of up to $250,000 and $230,000,
respectively. The Compensation Committee reviews each executive officer’s performance on a quarterly basis and determines
what, if any, portion of the bonus he has earned and will be paid as of such point.
Other.
In July 2008, we amended and restated our 401(k) Plan. The amended 401(k) Plan requires us to provide a 100% matching contribution
for employees who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for employees’
elective deferrals between 4% and 5%. We have made matching contributions for executives who elected to contribute to the 401(k)
Plan during 2010. Each participant is 100% vested at all times in employee and employer matching contributions. As of December
31, 2019, a total of 194,065 shares of our Common Stock were held in the 401(k) Plan. Mr. Heckman, as trustee of the 401(k) Plan,
holds the voting power as to the shares of our Common Stock held in the 401(k) Plan. We have no profit sharing plan in place for
our employees. However, we may consider adding such a plan to provide yet another level of compensation to our compensation plan.
The
following table presents information concerning the grants of plan-based awards to the Named Executive Officers during the year
ended December 31, 2019:
Grants
of Plan-Based Awards
Name
|
|
Grant
date
|
|
Date
approved by Compensation Committee
|
|
All
other stock awards: Number of shares of stock or units:
(#)
(1)
|
|
|
Exercise
or base price of option awards ($/Share)
|
|
|
Grant
date fair value of stock awards ($) (2)
|
|
Stanton
E. Ross Chairman, CEO and President
|
|
January
3, 2019
|
|
January
3, 2019
|
|
|
250,000
|
(1)
|
|
$
|
2.91
|
|
|
$
|
727,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Heckman Vice President, CFO, Treasurer and Secretary
|
|
January
3, 2019
|
|
January
3, 2019
|
|
|
150,000
|
(1)
|
|
$
|
2.91
|
|
|
$
|
436,500
|
|
(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 2, 2020 and 50% on January 2, 2021) contingent upon whether the individual is still employed by us
at that point.
|
|
|
(2)
|
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 April 6,
2020, for 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, 2020 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
|
|
|
Severance
payment due based on termination after Change of
Control
occurs
|
|
|
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.
“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, 2019:
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
|
|
|
375,000
|
|
|
$
|
382,500
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
18,750
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
13.20
|
|
|
January 10, 2021
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Heckman CFO, Treasurer and
Secretary
|
|
|
12,500
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
13.20
|
|
|
January 11, 2021
|
|
|
225,000
|
|
|
$
|
229,500
|
|
|
|
—
|
|
|
$
|
—
|
|
(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 $1.02 on December 31, 2019.
|
The
following table presents information concerning the stock options exercised and the vesting of restricted stock awards during
2019 for the Named Executive Officers for the year ending December 31, 2019:
|
Option
Exercises and Restricted Stock Vested
|
|
|
|
Option
Awards
|
|
|
|
Stock
Awards
|
|
|
|
Number
of Shares acquired realized on exercise (#)
|
|
|
|
Value
realized on exercise ($)
|
|
|
|
Number
of Shares acquired on vesting (#)
|
|
|
Value
on vesting ($)
|
Stanton E. Ross
Chairman,
CEO and President
|
|
|
—
|
|
|
$
|
—
|
|
|
|
395,000
|
|
|
$
|
882,050
|
(1)
|
Thomas J. Heckman
CFO, Treasurer
and Secretary
|
|
|
—
|
|
|
$
|
—
|
|
|
|
245,000
|
|
|
$
|
597,550
|
(1)
|
(1)
|
Based
on the closing market price of our Common Stock of $2.75 on January 22, 2019, the date of vesting for 125,000 shares of Common
Stock for Mr. Ross and 75,000 shares of Common Stock for Mr. Heckman, $4.38 on April 15, 2019, the date of vesting for 50,000
shares of Common Stock for both Mr. Ross and Mr. Heckman, $1.47 on July 4, 2019, the date of vesting for 200,000 shares of
Common Stock for Mr. Ross and 100,000 shares of Common Stock for Mr. Heckman, and $1.265 on October 30, 2019, the date of
vesting for 20,000 shares of Common Stock for both Mr. Ross and Mr. Heckman.
|
The
number of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans (defined
below) is in the discretion of the administrator and therefore cannot be determined in advance. The Board of Directors’
policy in 2019 was to grant officers an award of 250,000 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 60,000 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, 2019 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
|
|
|
Number
of
Options
Granted
|
|
|
Average
per
Share
Exercise
Price
|
|
Stanton E. Ross, Chairman
of the Board of Directors, CEO & President
|
|
|
250,000
|
|
|
|
—
|
|
|
$
|
—
|
|
Leroy C. Richie, Director
|
|
|
—
|
|
|
|
60,000
|
|
|
$
|
3.01
|
|
Daniel F. Hutchins, Director
|
|
|
—
|
|
|
|
60,000
|
|
|
$
|
3.01
|
|
Michael J. Caulfield, Director
|
|
|
—
|
|
|
|
60,000
|
|
|
$
|
3.01
|
|
Thomas J. Heckman, Vice President, CFO,
Treasurer & Secretary
|
|
|
150,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All executive officers, as a group
|
|
|
400,000
|
|
|
|
—
|
|
|
$
|
—
|
|
All directors who are not executive
officers, as a group
|
|
|
—
|
|
|
|
180,000
|
|
|
$
|
3.01
|
|
All employees who are not executive
officers, as a group
|
|
|
121,040
|
|
|
|
—
|
|
|
$
|
—
|
|
INFORMATION
REGARDING PLANS AND OTHER ARRANGEMENTS NOT SUBJECT TO SECURITY HOLDER ACTION
Stock
Option Plans
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, 2019 total 8,063.
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 24,662 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, 2019 total 42,812.
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 88,401 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, 2019 total 6,250.
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 8,249 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, 2019 total 32,250.
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, 2018, there were
no 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, 2019 total 9,750.
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, 2018, there were no 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, 2019 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, 2019, 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, 2019 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, 2019, 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, 2019 total 340,000.
The
2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan and 2018 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 4,175,000 shares of Common Stock issued or to be issued upon exercise of the stock options underlying the
various stock option plans.
The
following table sets forth certain information regarding the stock option plans adopted by the Company as of December 31, 2019:
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
|
|
|
582,875
|
|
|
$
|
3.63
|
|
|
|
629,186
|
|
Equity compensation
plans not approved by stockholders
|
|
|
6,250
|
|
|
|
13.71
|
|
|
|
—
|
|
Total all plans
|
|
|
589,125
|
|
|
$
|
3.74
|
|
|
|
629,186
|
|
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 629,186 shares remained available for awards under the various
Plans as of December 31, 2019.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of July 24, 2020, 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 July 24, 2020. 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 July 24, 2020 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Glita
25 Notchpark
Road
Little Falls, NJ 07424
|
|
|
1,410,475
|
|
|
|
5.2
|
%
|
|
|
5.2
|
%
|
Executive Officers
and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanton E. Ross (2)
|
|
|
1,339,650
|
|
|
|
4.9
|
%
|
|
|
4.9
|
%
|
Leroy C. Richie (3)
|
|
|
191,718
|
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
Daniel F. Hutchins (4)
|
|
|
195,200
|
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
Michael J. Caulfield (5)
|
|
|
152,855
|
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
Thomas J. Heckman
(6)
|
|
|
1,052,913
|
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a group (five individuals)
|
|
|
2,932,336
|
|
|
|
10.8
|
%
|
|
|
10.8
|
%
|
(1)
|
Based
on 26,581,600 shares of Common Stock issued and outstanding as of July 24, 2020 and, with respect only to the
ownership by all executive officers and directors as a group, an additional aggregate of 510,000 options vested or to vest
within sixty (60) days held by officers and directors as of July 24, 2020.
|
(2)
|
Mr.
Ross’s total shares include: (i) 375,000 restricted shares that are subject to forfeiture to us and (ii) vested options
exercisable to purchase 33,750 shares of Common Stock. Mr. Ross has pledged 200,525 shares of Common Stock and options exercisable
to purchase 33,750 shares of Common Stock to the lenders as collateral for personal loans.
|
|
|
(3)
|
Mr.
Richie’s total shares include vested options exercisable to purchase 152,500 shares of Common Stock.
|
|
|
(4)
|
Mr.
Hutchins’ total shares include vested options exercisable to purchase 161,250 shares of Common Stock.
|
|
|
(5)
|
Mr.
Caulfield’s total shares include vested options exercisable to purchase 150,000 shares of Common Stock.
|
|
|
(6)
|
Mr.
Heckman’s total shares include (i) 225,000 restricted shares that are subject to
forfeiture to us, (ii) vested options exercisable to purchase 12,500 shares of Common
Stock and (iii) 176,429 shares of Common Stock held in the Company’s 401(k) Plan
(on December 31, 2019) 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 Securities Act of 1934, as amended, 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, 2019, and during 2020, all filing requirements applicable to our officers, directors and greater than ten percent
beneficial owners were complied with.
TRANSACTIONS
WITH RELATED PERSONS
Certain
Relationships and Related Person Transactions
We
engaged in no reportable transactions with related persons since the years ended December 31, 2019 and 2018 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:
We
entered into an agreement that required us to make monthly payments that will be applied to future commissions and/or consulting
fees to be earned by the provider. The agreement is with a limited liability company (“LLC”) that is minority owned
by a relative of our chief financial officer. Under the agreement, dated January 15, 2016 and as amended on February 13, 2017,
the LLC provides consulting services for developing a new distribution channel outside of law enforcement for our body-worn camera
and related cloud storage products to customers in the United States. We advanced amounts to the LLC as advance against commissions
ranging from $5,000 to $6,000 per month plus necessary and reasonable expenses for the period through June 30, 2017, which can
be automatically extended based on the LLC achieving minimum sales quotas. The agreement was renewed in January 2017 for a period
of three years, subject to yearly minimum sales thresholds that would allow us to terminate the contract if such minimums are
not met. As of the date of this filing, we had advanced a total of $274,731 pursuant to this agreement and established an allowance
reserve of $224,731 for a net advance of $50,000. The minimum sales threshold has not been met and we have discontinued all advances,
although the contract has not been formally terminated. However, the exclusivity provisions of the agreement have been terminated.
OTHER
MATTERS
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) 120 days before the date of its 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 2021 annual meeting of stockholders is changed by more than thirty
(30) days from the anniversary date of the Annual Meeting.
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 Securities Exchange Act of 1934, as amended.
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.
ANNUAL
REPORT
Our
proxy materials include our 2019 Annual Report on Form 10-K and are being made available to shareholders on or about July 27,
2020. On or about July 27, 2020, we mailed a printed copy of our proxy materials to our shareholders who had requested them and
mailed an E-Proxy Notice, which contains instructions on how to access and review these materials, to all of our other shareholders.
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
July
27, 2020
|
Chairman
of the Board, Chief Executive
|
Lenexa,
Kansas
|
Officer
and President
|
Appendix
A
Digital
Ally, Inc.
2020
Stock Option and Restricted Stock Plan
1.
Purposes.
(a)
Background. This 2020 Stock Option and Restricted Stock Plan was adopted on June 30, 2020 by the Board of Directors,
subject to the approval of the Company’s stockholders. Options granted under the Plan prior to the stockholders’ approval
will be effective upon approval of the stockholders as of their respective dates of grant.
(b)
Eligible Award Recipients. The persons eligible to receive Awards are the Employees and Directors of the Company and
its Affiliates.
(c)
Available Awards. The purpose of the Plan is to provide a means by which eligible recipients may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of the following: (i) Incentive Stock Options, (ii)
Nonqualified Stock Options, (iii) rights to acquire restricted stock, and (iv) stock appreciation rights.
(d)
General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to
receive Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2.
Definitions.
(a)
“Affiliate” means any entity that controls, is controlled by, or is under common control with the Company.
(b)
“Award” means any right granted under the Plan, including an Option, a right to acquire restricted Common
Stock, and a stock appreciation right.
(c)
“Award Agreement” means a written agreement between the Company and a holder of an Award (other than an
Option) evidencing the terms and conditions of an individual Award grant.
(d)
“Board” means the board of directors of the Company.
(e)
“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
(f)
“Committee” means a pre-existing or newly formed committee of members of the Board appointed by the Board
in accordance with subsection 3(c).
(g)
“Common Stock” means the shares of the Company’s common stock par value $0.001 and other rights with
respect to such shares.
(h)
“Company” means Digital Ally, Inc., a Nevada corporation.
(i)
“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether
as an Employee or Director is not interrupted or terminated. Unless otherwise provided in an Award Agreement or Option Agreement,
as applicable, the Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in
the capacity in which the Participant renders service to the Company or an Affiliate as an Employee or Director or a change in
the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s
service to the Company or an Affiliate as an Employee or Director. The Board, in its sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave of absence, including sick leave, military leave or any other
personal leave.
(j)
“Covered Employee” means the Company’s chief executive officer and the four (4) other highest compensated
officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(k)
“Director” means a member of the Board of the Company.
(l)
“Disability” means the Participant’s inability, due to illness, accident, injury, physical or mental
incapacity or other disability, to carry out effectively the duties and obligations to the Company and its Affiliates performed
by such person immediately prior to such disability for a period of at least six (6) months, as determined in the good faith judgment
of the Board.
(m)
“Dollars” or “$” means United States dollars.
(n)
“Employee” means any person employed by the Company or an Affiliate. Service as a Director or payment of
a director’s fee by the Company or an Affiliate alone shall not be sufficient to constitute “employment” by
the Company or an Affiliate.
(o)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(p)
“Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange, or traded on the Nasdaq Global Market, the Nasdaq Capital
Market or the Nasdaq OTC Bulletin Board, the Fair Market Value of the Common Stock shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in Common Stock if such stock is traded on more than one such exchange or market) on the last market trading
day prior to the day of determination, as reported by such exchange or market or such other source as the Board reasonably deems
reliable.
(ii)
In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.
(q)
“Incentive Stock Option” means an option designated as an incentive stock option in an Option Agreement
and that is granted in accordance with the requirements of, and that conforms to the applicable provisions of, Section 422 of
the Code.
(r)
“Independent Director” means (i) a Director who satisfies the definition of Independent Director or similar
definition under the applicable stock exchange or Nasdaq rules and regulations upon which the Common Stock is traded from time
to time and (ii) a Director who either (A) is not a current employee of the Company or an “affiliated corporation”
(within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company
or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving
direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other
than as a Director or (B) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.
(s)
“Nonqualified Stock Option” means an option that is not designated in an Option Agreement as an Incentive
Stock Option or was not granted in accordance with the requirements of, and does not conform to the applicable provisions of,
Section 422 of the Code.
(t)
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(u)
“Option” means an Incentive Stock Option or a Nonqualified Stock Option granted pursuant to the Plan.
(v)
“Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms
and conditions of an individual Option grant.
(w)
“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such
other person who holds an outstanding Option.
(x)
“Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other
person who holds an outstanding Award.
(y)
“Plan” means this Digital Ally, Inc. 2015 Stock Option and Restricted Stock Plan.
(z)
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in
effect from time to time.
(aa)
“Securities Act” means the Securities Act of 1933, as amended.
(bb)
“Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the
Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or
any parent corporation or any subsidiary corporation, both as defined in Section 424 of the Code.
3.
Administration.
(a)
Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to
a Committee, as provided in subsection 3(c). The Board may, at any time and for any reason in its sole discretion, rescind some
or all of such delegation.
(b)
Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions
of the Plan:
(i)
To determine from time to time which of the persons eligible under the Plan shall be granted Awards; when and how each Award
shall be granted; what type or combination of types of Award shall be granted; the provisions of each Award granted (which need
not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to an Award;
and the number of shares of Common Stock with respect to which an Award shall be granted to each such person.
(ii)
To construe and interpret the Plan, Awards granted under it, Option Agreements and Award Agreements, and to establish, amend
and revoke rules and regulations for their administration. The Board, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan or in any Option Agreement or Award Agreement, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iii)
To amend the Plan, an Award, an Award Agreement or an Option Agreement as provided in Section 12, provided that, the
Board shall not amend the Fair Market Value of an Award or extend the term of an Option or Award without obtaining the approval
of the stockholders if required by the rules of any stock exchange upon which the Common Stock is listed.
(iv)
To reprice any Options granted under the Plan by lowering the exercise price of an Option after it is granted, canceling an
Option at a time when its exercise price exceeds the Fair Market Value of the stock underlying the Option, in exchange for another
Option or Award, as well as any other action that is treated as a repricing under generally accepted accounting principles.
(v)
Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the Plan.
(c)
Delegation to Committee.
(i)
General. The Board may delegate administration of the Plan and its powers and duties thereunder to a Committee or Committees,
and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. Upon such
delegation, the Committee shall have the powers theretofore possessed by the Board, including the power to delegate to a subcommittee
any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter
be deemed to include the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions
of the Plan, as may be adopted from time to time by the Board. In its absolute discretion, the Board may at any time and from
time to time exercise any and all rights and duties of the Committee under this Plan, except respecting matters under Rule 16b-3
of the Exchange Act or Section 162(m) of the Code, or any rules or regulations issued thereunder, which are required to be determined
in the sole discretion of the Committee.
(ii)
Committee Composition. A Committee shall consist solely of two (2) or more Independent Directors. Within the scope
of its authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Independent
Directors the authority to grant Awards to eligible persons who are either (a) not then Covered Employees and are not expected
to be Covered Employees at the time of recognition of income resulting from such Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code, and/or (2) delegate to a committee of one or more members of the
Board who are not Independent Directors or to the Company’s Chief Executive Officer the authority to grant Awards to eligible
persons who are not then subject to Section 16 of the Exchange Act.
(d)
Effect of Board’s Decision; No Liability. All determinations, interpretations and constructions made by the Board
in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. No member
of the Board or the Committee or any person to whom duties hereunder have been delegated shall be liable for any action, interpretation
or determination made in good faith, and such persons shall be entitled to full indemnification and reimbursement consistent with
applicable law and in the manner provided in the Company’s Articles of Incorporation and Bylaws, as the same may be amended
from time to time, or as otherwise provided in any agreement between any such member and the Company.
4.
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 one million five hundred thousand (1,500,000)
shares of Common Stock.
(b)
Reversion of Stock to the Stock Reserve. If any Award shall for any reason expire or otherwise terminate, in whole
or in part, without having been exercised in full, the shares of Common Stock not acquired under such Award shall revert to and
again become available for issuance under the Plan.
(c)
Source of Stock. The Common Stock subject to the Plan may be unissued stock or reacquired stock, bought on the market
or otherwise.
5.
Eligibility.
(a)
Eligibility for Specific Awards. Incentive Stock Options may be granted only to Employees. Awards other than Incentive
Stock Options may be granted to Employees and Directors.
(b)
Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from the date of grant.
6.
Option Provisions.
Each
Option Agreement shall be subject to the terms and conditions of this Plan. Each Option and Option Agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated
Incentive Stock Options or Nonqualified Stock Options at the time of grant, and, if certificates are issued, a separate certificate
or certificates will be issued for the shares of Common Stock purchased on exercise of each type of Option. The provisions of
separate Options need not be identical.
(a)
Provisions Applicable to All Options.
(i)
Consideration. The purchase price of the shares of Common Stock acquired pursuant to an Option shall be paid as follows:
(a) in cash or by certified or official bank check, payable to the order of the Company, in the amount (the “Purchase Price”)
equal to the exercise price of the Option multiplied by the number of shares plus payment of all taxes applicable upon such exercise;
(b) with shares owned by the Optionholder having a Fair Market Value at the time the Option is exercised equal to the Purchase
Price plus payment in cash of all taxes applicable upon such exercise, with the prior approval of the Board; (c) by surrendering
to the Company the right to acquire a number of shares having an aggregate value such that the amount by which the Fair Market
Value of such shares exceeds the aggregate exercise price is equal to the Purchase Price plus payment in cash of all taxes applicable
upon such exercise, with the prior approval of the Board; (d) any combination of the foregoing; or (e) a manner acceptable to
the Board.
(ii)
Vesting Generally. An Option may (A) vest, and therefore become exercisable, in periodic installments that may, but
need not, be equal, or (B) be fully vested at the time of grant. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate.
The vesting provisions, if any, of individual Options may vary. The provisions of this subsection 6(a)(ii) are subject to any
Option Agreement provisions governing the minimum number of Common Stock as to which an Option may be exercised.
(iii)
Termination of Continuous Service. Unless otherwise provided in the Option Agreement, in the event an Optionholder’s
Continuous Service terminates (other than upon the Optionholder’s death, Disability, retirement or as a result of a Change
of Control), all Options held by the Optionholder shall immediately terminate; provided, however, that an Option
Agreement may provide that if an Optionholder’s Continuous Service is terminated for reasons other than for cause, all vested
Options held by such person shall continue to be exercisable until the earlier of the expiration date of such Option or ninety
(90) days after the date of such termination. All such vested Options not exercised within the period described in the preceding
sentence shall terminate.
(iv)
Disability or Death of Optionholder. Unless otherwise provided in the Option Agreement, in the event of an Optionholder’s
Disability or death, all unvested Options shall immediately terminate, and all vested Options held by such person shall continue
to be exercisable for twelve months after the date of such Disability or death. All such vested Options not exercised within such
twelve-month period shall terminate.
(v)
Retirement. Unless otherwise provided in the Option Agreement, in the event of the Optionholder’s retirement,
all unvested Options shall automatically vest on the date of such retirement and all Options shall be exercisable for the earlier
of twelve (12) months after such retirement date or the expiration date of such Options. All such Options not exercised within
the period described in the preceding sentence shall terminate.
(b)
Provisions Applicable to Incentive Stock Options.
(i)
Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Incentive Stock Option shall
be exercisable after the expiration of ten (10) years from the date it was granted. Further, no grant of an Incentive Stock Option
shall be made under this Plan more than ten (10) years after the date the Plan is approved by the stockholders of the Company.
(ii)
Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders,
the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of
the Common Stock subject to the Option on the date the Option is granted.
(iii)
Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.
(iv)
Incentive Stock Option $100,000 Limitation. Notwithstanding any other provision of the Plan or an Option Agreement,
the aggregate Fair Market Value of the Common Stock with respect to which Incentive Stock Options are exercisable for the first
time by an Optionholder in any calendar year, under the Plan or any other option plan of the Company or its Affiliates, shall
not exceed One Hundred Thousand Dollars ($100,000). For this purpose, the Fair Market Value of the Common Stock shall be determined
as of the time an Option is granted. The Options or portions thereof which exceed such limit (according to the order in which
they were granted) shall be treated as Nonqualified Stock Options.
(c)
Provisions Applicable to Nonqualified Stock Options.
(i)
Exercise Price of a Nonqualified Stock Option. The exercise price of each Nonqualified Stock Option shall be not less
than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted.
(ii)
Transferability of a Nonqualified Stock Option. A Nonqualified Stock Option shall be transferable, if at all, to the
extent provided in the Option Agreement. If the Option Agreement does not provide for transferability, then the Nonqualified Stock
Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder.
7.
Provisions of Awards Other than Options.
(a)
Restricted Stock Awards. Each restricted stock Award agreement shall be in such form and shall contain such restrictions,
terms and conditions, if any, as the Board shall deem appropriate and shall be subject to the terms and conditions of this Plan.
The terms and conditions of restricted stock Award Agreements may change from time to time, and the terms and conditions of separate
restricted stock Award Agreements need not be identical, but each restricted stock Award Agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i)
Consideration. A restricted stock Award may be awarded in consideration for past services actually rendered, or for
future services to be rendered, to the Company or an Affiliate for its benefit.
(ii)
Vesting. Common Stock awarded under the restricted stock Award Agreement may (A) be subject to a vesting schedule to
be determined by the Board or (B) be fully vested at the time of grant.
(iii)
Termination of Participant’s Continuous Service. Unless otherwise provided in the restricted stock Award Agreement,
in the event a Participant’s Continuous Service terminates prior to a vesting date set forth in the restricted stock Award
Agreement, any unvested restricted stock Award shall be forfeited and automatically transferred to and reacquired by the Company
at no cost to the Company, and neither the Participant nor his or her heirs, executors, administrators or successors shall have
any right or interest in the restricted stock Award. Notwithstanding the foregoing, unless otherwise provided in the restricted
stock Award agreement, in the event a Participant’s Continuous Service terminates as a result of (A) being terminated by
the Company for reasons other than for cause, (B) death, (C) Disability, (D) retirement, or (E) a Change of Control (subject to
the provisions of Section 11(c) hereof), then any unvested restricted stock Award shall vest immediately upon such date.
(iv)
Transferability. Rights to acquire Common Stock under the restricted stock Award Agreement shall be transferable by
the Participant only upon such terms and conditions as are set forth in the restricted stock Award Agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the restricted stock Award Agreement remain subject to the
terms of the restricted stock Award Agreement.
(b)
Grant of Stock Appreciation Rights. Stock appreciation rights to receive in shares of Common Stock the excess of the
Fair Market Value of Common Stock on the date the rights are surrendered over the Fair Market Value of Common Stock on the date
of grant may be granted to any Employee or Director selected by the Board. A stock appreciation right may be granted (i) in connection
and simultaneously with the grant of another Award, (ii) with respect to a previously granted Award, or (iii) independent of another
Award. A stock appreciation right shall be subject to such terms and conditions not inconsistent with this Plan as the Board shall
impose and shall be evidenced by a written stock appreciation right agreement, which shall be executed by the Participant and
an authorized officer of the Company. The Board, in its discretion, may determine whether a stock appreciation right is to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the Code and stock appreciation right agreements evidencing
stock appreciation rights intended to so qualify shall contain such terms and conditions as may be necessary to meet the applicable
provisions of Section 162(m) of the Code. The Board may, in its discretion and on such terms as it deems appropriate, require
as a condition of the grant of a stock appreciation right that the Participant surrender for cancellation some or all of the Awards
previously granted to such person under this Plan or otherwise. A stock appreciation right, the grant of which is conditioned
upon such surrender, may have an exercise price lower (or higher) than the exercise price of the surrendered Award, may contain
such other terms as the Board deems appropriate, and shall be exercisable in accordance with its terms, without regard to the
number of shares, price, exercise period or any other term or condition of such surrendered Award.
8.
Availability of Stock.
Subject
to the restrictions set forth in Section 4(a), during the terms of the Awards, the Company shall keep available at all times the
number of shares of Common Stock required to satisfy such Awards.
9.
Use of Proceeds from Stock.
Proceeds
from the sale of Common Stock pursuant to Awards shall constitute general funds of the Company.
10.
Miscellaneous.
(a)
Exercise of Awards. Awards shall be exercisable at such times, or upon the occurrence of such event or events as the
Board shall determine at or subsequent to grant. Awards may be exercised in whole or in part. Common Stock purchased upon the
exercise of an Award shall be paid for in full at the time of such purchase.
(b)
Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which an Award
may first be exercised or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding
the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.
(c)
Stockholder Rights.
(i)
Options. Unless otherwise provided in and upon the terms and conditions in the Option Agreement, no Participant shall
be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Common Stock subject to an Option
unless and until such Participant has satisfied all requirements for exercise of, and has exercised, the Option pursuant to its
terms.
(ii)
Restricted Stock. Unless otherwise provided in and upon the terms and conditions in the restricted stock Award Agreement,
a Participant shall have the right to receive all dividends and other distributions paid or made respecting such restricted stock,
provided, however, no unvested restricted stock shall have any voting rights of a stockholder respecting such unvested restricted
stock unless and until such unvested restricted stock become vested.
(d)
No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Award granted pursuant thereto
shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the
time the Award was granted, or any other capacity, or shall affect the right of the Company or an Affiliate to terminate with
or without notice and with or without cause (i) the employment of an Employee or an Affiliate or (ii) the service of a Director
of the Company or an Affiliate.
(e)
Withholding Obligations. If the Company has or will have a legal obligation to withhold the taxes related to the grant,
vesting or exercise of the Award, such Award may not be granted, vested or exercised in whole or in part, unless such tax obligation
is first satisfied in a manner satisfactory to the Company. To the extent provided by the terms of an Award Agreement or Option
Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition
of Common Stock under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation
paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment in Dollars; (ii) authorizing
the Company to withhold Common Stock from the Common Stock otherwise issuable to the Participant as a result of the exercise or
acquisition of Common Stock under the Award, provided, however, that no shares of Common Stock are withheld with a value exceeding
the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered Common Stock.
(f)
Listing and Qualification of Stock. This Plan and the grant and exercise of Awards hereunder, and the obligation of
the Company to sell and deliver Common Stock under such Awards, shall be subject to all applicable United States federal and state
laws, rules and regulations, and any other laws applicable to the Company, and to such approvals by any government or regulatory
agency as may be required. The Company, in its discretion, may postpone the issuance or delivery of Common Stock upon any exercise
of an Award until completion of any stock exchange listing, or the receipt of any required approval from any stock exchange or
other qualification of such Common Stock under any United States federal or state law rule or regulation as the Company may consider
appropriate, and may require any individual to whom an Award is granted, such individual’s beneficiary or legal representative,
as applicable, to make such representations and furnish such information as the Board may consider necessary, desirable or advisable
in connection with the issuance or delivery of the Common Stock in compliance with applicable laws, rules and regulations.
(g)
Non-Uniform Determinations. The Board’s determinations under this Plan (including, without limitation, determinations
of the persons to receive Awards, the form, term, provisions, amount and timing of the grant of such Awards and of the agreements
evidencing the same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive,
Awards under this Plan, whether or not such persons are similarly situated.
11.
Adjustments Upon Changes in Stock.
(a)
Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Award,
without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of stock, exchange of stock,
change in corporate structure or other transaction), the Plan will be appropriately adjusted in the class(es) and maximum number
of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person
pursuant to subsection 5(c), and the outstanding Awards will be appropriately adjusted in the class(es) and number of securities
and price per stock of Common Stock subject to such outstanding Awards. The Board shall make such adjustments, and its determination
shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a
transaction “without receipt of consideration” by the Company.)
(b)
Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Awards
shall terminate immediately prior to such event.
(c)
Asset Sale, Merger, Consolidation or Reverse Merger. In the event of a Change of Control (as defined below), any unvested
Awards shall vest immediately prior to the closing of the Change of Control, and the Board shall have the power and discretion
to provide for the Participant’s election alternatives regarding the terms and conditions for the exercise of, or modification
of, any outstanding Awards granted hereunder, provided, however, such alternatives shall not affect the then current exercise
provisions without such Participant’s consent. The Board may provide that Awards granted hereunder must be exercised in
connection with the closing of such transaction, and that if not so exercised such Awards will expire. Any such determinations
by the Board may be made generally with respect to all Participants or may be made on a case-by-case basis with respect to particular
Participants. For the purpose of this Plan, a “Change of Control” shall have occurred in the event one or more persons
acting individually or as a group (i) acquires sufficient additional stock to constitute more than fifty percent (50%) of (A)
the total Fair Market Value of all Common Stock issued and outstanding or (B) the total voting power of all shares of capital
stock authorized to vote for the election of directors; (ii) acquires, in a twelve (12) month period, thirty-five percent (35%)
or more of the voting power of all shares of capital stock authorized to vote for the election of directors, or alternatively
a majority of the members of the board is replaced during any twelve (12) month period by directors whose appointment was not
endorsed by a majority of the members of the board; or (iii) acquires, during a twelve (12) month period, more than forty percent
(40%) of the total gross fair market value of all of the Company’s assets. Notwithstanding the foregoing, the provisions
of this Section 11(c) shall not apply to (i) any transaction involving any stockholder that individually or as a group owns more
than fifty percent (50%) of the outstanding Common Stock on the date this Plan is approved by the Company’s stockholders,
until such time as such stockholder first owns less than forty percent (40%) of the total outstanding Common Stock, or (ii) any
transaction undertaken for the purpose of reincorporating the Company under the laws of another jurisdiction, if such transaction
does not materially affect the beneficial ownership of the Company’s capital stock.
12.
Amendment of the Plan and Awards.
(a)
Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in
Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders
of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any applicable Nasdaq or securities exchange listing requirements.
(b)
Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder
approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the
Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility
of compensation paid to certain executive officers.
(c)
Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions
of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d)
No Impairment of Rights. Rights under any Award granted before amendment of the Plan shall not be impaired by any amendment
of the Plan unless the Participant consents in writing.
(e)
Amendment of Awards. Subject to Section 3(b)(iii), the Board at any time, and from time to time, may amend the terms
of any one or more Awards; provided, however, that the rights under any Award shall not be impaired by any such amendment unless
the applicable Participant consents in writing.
13.
Termination or Suspension of the Plan.
(a)
Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate
on the day before the tenth (10th) anniversary of the date the Plan is adopted by the stockholders of the Company. No Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b)
No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Award
granted while the Plan is in effect except with the written consent of the Participant.
(c)
Savings Clause. This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one
or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law or
regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible
by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit
this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan.
14.
Effective Date of Plan.
The
Plan shall become effective as determined by the Board, but no Award shall be exercised (or, in the case of a restricted stock
Award, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan is adopted by the Board.
15.
Choice of Law.
The
law of the state of Nevada shall govern all questions concerning the construction, validity and interpretation of this Plan, without
regard to such state’s conflict of laws rules.
(The
Plan was adopted by the Board of Directors on June 30, 2020).
Admission
Ticket
Bring
this ticket with you for admission to the 2020 Annual Meeting
Digital
Ally, Inc.
2020
Annual Meeting of Stockholders
September
9, 2020 at 10:00 a.m. CDT
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 2020 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON WEDNESDAY, SEPTEMBER 9, 2020
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 July 24, 2020, at the 2020 Annual Meeting of Stockholders to be held at the corporate facility located at 15612
College Boulevard, Lenexa, Kansas 66219, on Wednesday, September 9, 2020 at 10:00 a.m., CDT, 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)
2020
ANNUAL MEETING OF STOCKHOLDERS OF DIGITAL ALLY, INC.
Wednesday,
September 9, 2020
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.
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Proposal
1: Election of Directors of the Company
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NOMINEES:
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[ ]
FOR ALL NOMINEES
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[ ]
Stanton E. Ross
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[ ]
Daniel F. Hutchins
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[ ]
Leroy C. Richie
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[ ]
Michael J. Caulfield
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[ ]
WITHHOLD AUTHORITY FOR ALL NOMINEES
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[ ]
FOR ALL EXCEPT
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(See
instructions below)
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________________
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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: [ ]
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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. [ ]
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Proposal
2. FOR the approval of the 2020 Digital Ally, Inc. Stock Option and Restricted Stock Plan:
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FOR
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AGAINST
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ABSTAIN
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[ ]
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[ ]
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[ ]
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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 50,000,000 to 100,000,000, of which all 100,000,000 shares shall be classified as common
stock.
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FOR
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AGAINST
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ABSTAIN
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[ ]
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[ ]
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[ ]
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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 10,000,000 and classify such shares as blank check preferred stock:
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FOR
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AGAINST
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ABSTAIN
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[ ]
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[ ]
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[ ]
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Proposal
5. FOR ratification of the appointment of RBSM LLP as our independent registered public accounting firm:
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FOR
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AGAINST
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ABSTAIN
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[ ]
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[ ]
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[ ]
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In
his discretion, the proxy is authorized to vote upon such other business that may properly come before the 2020 Annual Meeting.
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Signature
of Stockholder
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Date
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Signature
of Stockholder
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Date
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NOTE:
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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.
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