<PAGE> 1
COGNITRONICS CORPORATION
3 Corporate Drive
Danbury, Connecticut 06810-4130
Notice of Annual Meeting of Stockholders
May 9, 1996
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Cognitronics Corporation will be held at the offices of the
Company, at 3 Corporate Drive, Danbury, Connecticut on May 9,
1996, at 10:00 a.m., for the following purposes:
1. To elect seven directors to the Board of Directors.
2. To approve a proposal to amend the Company's 1990 Stock
Option Plan to increase the number of shares reserved
for issuance thereunder by 150,000.
3. To approve the selection of Ernst & Young LLP as
independent auditors for the Company for the year
ending December 31, 1996.
4. To conduct such other business as may properly come
before the meeting, including any adjournment thereof.
Only holders of Common Stock of the Company of record at the
close of business on April 2, 1996 will be entitled to vote at
the meeting or any adjournment thereof.
A proxy statement and proxy are enclosed.
Harold F. Mayer
Secretary
April 10, 1996
YOUR VOTE IS IMPORTANT
You are urged to sign, date and promptly return your proxy in the enclosed
envelope.
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COGNITRONICS CORPORATION
APRIL 10, 1996
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1996
PROXY STATEMENT
This proxy statement is furnished to the stockholders of Cognitronics
Corporation (the "Company") in connection with the solicitation of proxies for
the Annual Meeting of Stockholders to be held at the offices of the Company at
3 Corporate Drive, Danbury, Connecticut on May 9, 1996, at 10:00 a.m. and any
adjournment thereof (the "Annual Meeting"). The address of the Company's
principal office is 3 Corporate Drive, Danbury, Connecticut 06810-4130.
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company. Execution of the proxy will not affect a stockholder's right to attend
the Annual Meeting and vote in person, and stockholders giving proxies may
revoke them at any time before they are exercised by a written revocation or by
a duly exercised proxy bearing a later date delivered to the Secretary of the
Company. Proxies in the form enclosed, unless previously revoked, will be voted
at the Annual Meeting as set forth in the proxies or, if no choice is indicated,
in favor of each of the proposals outlined below. Should any matter other than
those indicated herein properly come before the Annual Meeting for a vote
(including any adjournment), the persons designated as proxies will vote thereon
in accordance with their best judgment. If any proposal has not received
sufficient votes for approval at the Annual Meeting, management will consider
one or more adjournments to permit additional voting on the proposal.
The owners of Common Stock have all voting rights with respect to matters
to come before the Annual Meeting. Each share of Common Stock is entitled to
one vote. At the close of business on April 2, 1996, there were outstanding
and entitled to vote 3,450,647 shares of Common Stock. Only holders of Common
Stock of record at the close of business on April 2, 1996 will be entitled to
vote at the Annual Meeting.
SECURITY OWNERSHIP
The following table sets forth information as to ownership of the Common
Stock of the Company as of March 1, 1996 with respect to (i) current directors
and nominees for directors of the Company; (ii) those executive officers listed
on the Summary Compensation Table; (iii) all current directors and officers as a
group; and (iv) beneficial owners of more than 5%.
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SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY SHARES
OF BENEFICIAL OWNER OWNED OUTSTANDING
- ------------------- ------------ -----------
Edward S. Davis 5,626(c) (a)
Brian J. Kelley 188,119(b) 5.5%
Jack Meehan 1,831(c) (a)
William A. Merritt 2,871(c) (a)
Timothy P. Murphy 5,701(c) (a)
David H. Shepard 42,314(d) 1.2%
Roy A. Strutt 96,865(b) 2.8%
Kenneth G. Brix 39,333(b) 1.1%
Michael N. Keefe 41,694(b)(e) 1.2%
Garrett Sullivan 45,952(b) 1.3%
All current directors and officers
as a group, including those listed
above, consisting of 12 persons 535,954(b)(c)(f) 15.6%
(a)The percentage of shares beneficially owned does not exceed
one percent.
(b)Of the shares of Common Stock shown above as beneficially
owned, the number of shares with respect to which the
following persons had a right to acquire beneficial ownership
within 60 days were: Brian J. Kelly - 103,419, Roy A. Strutt
- 21,333, Kenneth G. Brix - 13,333, Michael N. Keefe -
14,666, Garrett Sullivan - 17,957 and all current directors
and officers as a group - 191,400. Other than shares as to
which he had a right to acquire beneficial ownership, or as
noted below, each person held sole voting and sole investment
power with respect to the shares shown above.
(c)Does not include deferred compensation in the form of
deferred shares of Common Stock held on the books and records
of the Company in the following amounts: Edward S. Davis -
5,724 shares, Jack Meehan - 5,724 shares, William A. Merritt
- 1,963 shares, Timothy P. Murphy - 5,724 shares and all
current officers and directors as a group - 19,135 shares.
(d)With respect to 41,565 of the shares, voting and investment
power is shared with Mr. Shepard's spouse.
(e)With respect to 682 of the shares, voting and investment
power is shared with Mr. Keefe's spouse.
(f)With respect to 52,721 of the shares, voting and investment
power is shared with the spouses of the beneficial owners.
1. ELECTION OF DIRECTORS
At the Annual Meeting, seven directors are to be elected, to serve for the
ensuing year and until their respective successors are elected and qualified.
Proxies in the accompanying form will be voted for the election of the nominees
listed below unless instructions are given on the proxy to withhold authority to
vote for one or more of the nominees. In the event that one or more of such
persons becomes unavailable for election as a director, which is not
anticipated, the shares represented by the accompanying proxy will be voted for
one or more substitutes approved by management, or the size of the Board of
Directors will be reduced.
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INFORMATION CONCERNING NOMINEES
The following table sets forth with respect to each nominee: (1) his name
and age, all positions and offices with the Company currently held by him, and
his principal occupation over the last five years (including other directorships
and business experience) and (2) the period during which he has served as a
director of the Company.
NAME, AGE, POSITIONS,PRINCIPAL OCCUPATION, DIRECTOR
DIRECTORSHIPS AND BUSINESS EXPERIENCE SINCE
------------------------------------------ --------
Edward S. Davis, 64, is a partner with the New York law 1981
firm of Hughes Hubbard & Reed. He is a director of
Hillenbrand Industries, Inc.
Brian J. Kelley, 44, has been President and Chief 1994
Executive Officer of the Company since January 1994.
Prior to that he was Executive Vice President of
TIE/Communications, Inc. from 1991 to 1994, President of
CTG, Inc., a subsidiary of TIE/Canada, Inc., from 1990
to 1991 and President of TIE/National Accounts, Inc.
from 1986 to 1990.
Jack Meehan, 46, has been President and Chief Executive 1991
Officer of Aztec East Inc. since 1983.
William a. Merritt, 59, has been President of Integrated 1994
Communications Systems, Corp. since 1992 and is also
Vice President and General Counsel of Seaboard
Properties, Inc. He was President of Wiltel
Communications Systems, Inc. from 1990 to 1992, prior to
which he was Executive Vice President of
TIE/Communications, Inc. for more than five years. He
is a director of The Treasurers Fund, Inc.
Timothy P. Murphy, 68, was Vice President, Investor 1985
Relations and Financial Administration of GTE
Corporation from 1987 to 1992, Vice President, Financial
Administration from 1984 to 1986 and Vice President and
Controller from 1976 to 1984.
David H. Shepard, 72, was Chairman of the Board of the 1962
Company from 1987 to 1992 and also from 1978 to 1984. He
was Senior Vice President and Chief Scientific Officer
of the Company from 1990 through 1991. He was Chief
Executive Officer from 1984 to 1989. He was President
from 1984 through 1986 and also from 1962 to 1978. He
has been Chairman of Cognitronics Imaging Systems, Inc.
since 1994 and was President from December 1991 to 1994.
Roy A. Strutt, 39, has been Vice President, European 1995
Operations of the Company since July 1994. Since 1992,
he has been Managing Director of Dacon Electronics Plc,
which was acquired by the Company in November 1992. He
was Director of Sales and Operations at Dacon
Electronics Plc from 1990 to 1992, prior to which he was
Managing Director of Automatic Answering Ltd. for four
years.
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The foregoing nominees are all members of the Board of Directors and each
was elected at the 1995 Annual Meeting of Stockholders.
VOTING PROCEDURE
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company is necessary to constitute a quorum at the
Annual Meeting. To be elected, a nominee must receive the affirmative vote of
the holders of a plurality of the outstanding shares of Common Stock entitled to
vote and represented at the Annual Meeting. Shares represented at the meeting
by proxy which are not voted because the stockholder has elected to abstain or
has withheld authority will be counted in determining the presence of a quorum
but will not be counted as for the election of the director or directors.
Shares represented at the meeting by proxy for which the proxy card has been
left blank will be counted as for the election of each director.
EXECUTIVE COMPENSATION
The following tables and notes set forth the compensation paid or accrued
by the Company during the fiscal years ended December 31, 1995, 1994 and 1993
to its five most highly compensated executive officers whose aggregate cash
compensation exceeded $100,000 for services rendered to the Company in 1995.
SUMMARY COMPENSATION TABLE
Long-term
Annual Compensation
Compensation Awards
--------------- -----------------
(a) (b) (c) (d) (e) (f) (g)
Restrict- Options All Other
Salary Bonus ed Stock /SARs Comp.
Name and Principal Position Year $ $(1) $(2) # $(3)
- --------------------------- ---- ------- ------ -------- ------- --------
Brian J. Kelley 1995 200,000 85,000 127,5000 2,838
President and Chief 1994 188,462 48,750 243,419 1,804
Executive Officer 1993
Roy A. Strutt 1995 122,548 100,000 54,188 10,579
Vice President, European 1994 110,349 19,851 32,000 10,238
Operations and Managing 1993
Director, Dacon Electronics,
Plc
Kenneth G. Brix 1995 121,811 20,000 54,188 833
Vice President, Sales 1994 89,267 14,625 21,538 1,071
1993
Michael N. Keefe 1995 86,100 30,000 54,188 833
Vice President, Engineering 1994 74,100 14,625 21,333 1,441
1993 74,469 9,000 1,489
Garrett Sullivan 1995 90,250 25,000 54,188 1,895
Treasurer and Chief 1994 90,250 14,625 26,124 1,765
Financial Officer 1993 94,538 4,000 3,414
(1)In 1994, these amounts represent the fair market value of a
one-time stock bonus, except that the amount reported for Mr.
Strutt also includes a cash bonus of $5,226. The 1995 bonus
<PAGE>6
for Mr. Strutt is based on an incentive compensation plan of
Dacon Electronics Plc.
(2)On June 30, 1995, the Compensation Committee awarded
restricted shares of Common Stock under the terms of the
Restricted Stock Plan, as follows: Mr. Kelley - 40,000
shares and Messrs. Strutt, Brix, Keefe and Sullivan - 17,000
shares each. The value of the shares on the award date is
reflected in the table above. The shares vest 20% annually
beginning June 30, 1997, subject to accelerated vesting if
established performance-based targets are achieved in the
years ending December 31, 1995, 1996, 1997 and 1998, provided
the officer remains employed by the Company until the vesting
date (except that if the officer is terminated prior to the
vesting date by reason of a change in control, all restricted
shares become vested immediately). Dividends, if any, will
be paid on the restricted shares. Upon the achievement of
certain established targets for the year ended December 31,
1995, shares vested on that date, as follows: Mr. Kelley -
12,000 shares and Messrs. Strutt, Brix, Keefe and Sullivan -
5,100 shares each. The number of shares and value of the
aggregate restricted stock holdings at December 31, 1995 are:
Mr. Kelley - 28,000 shares, $189,000 and Messrs. Strutt,
Brix, Keefe and Sullivan - each 11,900 shares, $80,325.
(3)These amounts represent (a) the Company's matching
contributions up to 1% of eligible compensation to the
Company's 401(k) Retirement Plan and (b) term life insurance
premiums paid by the Company for the benefit of the officers'
beneficiaries, in the following amounts: Mr. Kelley - $1,350
in matching contributions and $1,488 in insurance premiums,
Mr. Strutt - $10,579 in pension contributions, Mr. Brix -
$833 in insurance premiums, Mr. Keefe - $195 in matching
contributions and $638 in insurance premiums and Mr. Sullivan
- $1,188 in matching contributions and $707 in insurance
premiums. There are no cash values associated with the term
life insurance.
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OPTIONS GRANTS IN 1995
None of the officers identified in the Summary Compensation Table were
granted options in 1995.
AGGREGATE OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
(a) (b) (c) (d) (e)
- ------------------- ------------ ------------ ------------- -------------
Number of Value of
Unexercised In-the-Money
Options at Options at
Year-end (#) Year-end ($)
Shares Value ------------- -------------
Name Acquired on Realized on Exercisable/ Exercisable/
Exercise (#) Exercise ($) Unexercisable Unexercisable
- ------------------- ------------ ------------ ------------- -------------
Brian J. Kelley 0 0 53,419 215,016
100,000 399,875
Roy A. Strutt 0 0 10,666 42,664
21,334 85,336
Kenneth G. Brix 1,538 4,476 8,204 33,447
13,334 53,336
Michael N. Keefe 0 0 7,999 32,543
13,334 53,336
Garrett Sullivan 4,500 12,454 9,790 39,826
16,334 65,336
PENSION PLANS
In 1977, the Company adopted a non-contributory, defined benefit
pension plan covering substantially all employees in the United States. The
Company's policy is to fund accrued pension costs, which include normal
costs and amortization of the unfunded actuarial liability over twenty years.
In 1994, the Company amended the pension plan to eliminate future
benefit accruals after June 30, 1994. Accordingly, new employees are not
eligible to participate in the plan and the accrued pension benefit of
earlier participants will remain at the level earned based on service
through June 30, 1994. At January 1, 1995, the accrued annual pension
benefits payable upon the retirement of the officers identified in the Summary
Compensation Table were: Brian J. Kelley - $0; Michael N. Keefe - $6,319;
Roy A. Strutt - $0; Garrett Sullivan - $4,623; and Kenneth G. Brix - $0.
In 1991, the Company adopted a Supplemental Pension Plan for Officers.
All officers of the Company may participate in the plan providing they have
been employed on a full-time basis by the Company as an officer for at least
ten years immediately preceding their retirement. All benefits payable under
the plan are unfunded obligations of the Company and are to be made, as
due, from the general funds of the Company. In 1994, the Company terminated
the plan effective June 30, 1996; accordingly, officers who retire after that
date will not be entitled to receive benefits under the plan. None of the
officers identified in the Summary Compensation Table are eligible to receive
benefits under the plan upon retirement.
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COMPENSATION OF DIRECTORS
Directors who were not employees of the Company were entitled to payment
of (a) an annual fee of $3,000 and (b) $1,000 (maximum $5,000 per year) for
each Board meeting attended, of which there were four during 1995, and for each
meeting of a committee of the Board not held in conjunction with a Board
meeting, of which there was one in 1995. Directors may voluntarily defer the
receipt of such fees to a future year. Fees may be paid in cash or an
equivalent value in shares of Common Stock of the Company. Directors are also
entitled to reimbursement of reasonable travel expenses.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Davis, Meehan, Merritt
and Murphy. Mr. Davis is a partner in the law firm of Hughes Hubbard & Reed,
which serves as counsel to the Company.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors of
the Company under the direction of the Board of Directors have prepared the
following report for inclusion in this Proxy Statement. The information
provided in the report is in response to requirements adopted by the Securities
and Exchange Commission for reporting compensation matters to the Company's
stockholders.
The Committee annually reviews the performance contributions of the
officers of the Company (including the Chief Executive Officer) and makes
adjustments to all forms of compensation to those officers. In this capacity
the Committee has oversight capacity, reviews the structure and cost
effectiveness and sets performance objectives for the Company's various
compensation programs. The Committee also administers all compensation plans
of the Company payable to employees in securities of the Company. The
Committee endorses the position that stock ownership by management is
beneficial in aligning management's and stockholders' interests in the
enhancement of stockholder value and has increasingly used these elements in
the Company's compensation packages for its executive officers.
COMPENSATION PHILOSOPHY
The Company's compensation programs are designed to serve the Company's
goals of long-term growth and to help achieve the Company's business objectives.
The Company seeks to integrate all pay programs with the Company's annual and
long-term business objectives and strategy and focus executive behavior on the
fulfillment of those objectives.
To that end the Company follows certain principles in its compensation of
executives:
_ The Company pays competitively.
The Company is committed to providing a pay program
that helps attract, motivate and retain the best people
in the industry. To ensure that pay remains
competitive, the Company compares its pay practices
with those of comparable companies.
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_ The Company pays for relative sustained performance.
Executive officers are rewarded based upon corporate
performance and individual performance. Corporate
performance is evaluated by reviewing the extent to
which strategic and business plan goals are met,
including such factors as operating profit, performance
relative to competitors and timely new product
introductions. Individual performance is evaluated by
reviewing organizational and management development
progress and the degree to which teamwork and Company
values are fostered.
_ The Company seeks fairness in the administration of pay.
The Company applies its compensation philosophy
Company-wide. The Company tries to achieve a balance of
the compensation paid to a particular individual and
the compensation paid to other executives inside the
Company, at its subsidiaries and at comparable companies.
To serve these objectives and maintain these principles the executive
compensation program of the Company is comprised of several elements, including
base salary, a cash or stock bonus, stock option, restricted stock and stock
purchase plans as well as certain welfare and retirement benefits.
By: COMPENSATION COMMITTEE
Edward S. Davis
Jack Meehan
William A. Merritt
Timothy P. Murphy
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock with the cumulative total return of the S&P 500 Index and the
Media General Communications Industry Group Index (the "MG Industry Group") for
the five years ended December 31, 1995.(1)
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
Year 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Cognitronics 100 130 372 92 46 145
MG Industry Group 100 124 143 185 166 211
S&P 500 100 130 140 155 157 216
(1)Assumes that the value of the investment in the Company's
Common Stock and each index was $100 on December 31, 1989 and
that all dividends were reinvested.
<PAGE> 10
OTHER INFORMATION CONCERNING THE BOARD OR ITS COMMITTEES
The Company has an Audit Committee and Compensation Committee, of each of
which Messrs. Davis, Meehan, Merritt and Murphy are members. The Audit
Committee meets with the independent auditors and reviews and reports to the
Board of Directors on the scope and results of audits. The Compensation
Committee is charged with reviewing officers' compensation and administers the
Company's 1967 Employee Stock Purchase Plan, 1990 Stock Option Plan and
Restricted Stock Plan. During 1995, the Audit Committee met twice and the
Compensation Committee met five times. The Company also has an Executive
Committee, of which Messrs. Davis, Kelley and Murphy are members and a
Nominating Committee, of which Messrs. Davis, Kelley, Meehan, Murphy and
Shepard are members. The Executive Committee did not meet during 1995 and the
Nominating Committee met once during 1995. The Nominating Committee is charged
with considering all nominations (including nominations by stockholders) to the
Board of Directors of the Company.
During 1995, the Board met four times, and each Director of the Company
attended 75% or more of the total number of meetings of the Board held during
the year and of the Committees of the Board on which he served.
CERTAIN TRANSACTIONS
Indemnity Agreements between the Company and individual officers and
directors have been executed to allow those officers and directors to benefit
from the 1986 amendments to New York's indemnification statute. In accordance
with the provisions of these Indemnity Agreements, the Company has agreed,
subject to limitations, to indemnify and pay the reasonable expenses of officers
and directors adjudicated liable in any civil, criminal or other action or
proceeding, including any derivative action, for the acts or decisions made by
them in good faith while performing services for the Company. Such
indemnification would be made by the Company only if authorized by a court, by
the Board of Directors or by the stockholders, as specified in the Indemnity
Agreements, and any expenses or other amounts paid by way of indemnification,
otherwise than by court order or action of the stockholders, would be reported
to stockholders as provided by law. No indemnification by the Company would be
made to or on behalf of any officer or director if a judgment or other final
adjudication adverse to such officer or director established that his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled. The Indemnity Agreements also obligate the Company to advance to
officers and directors funds to pay the reasonable expenses incurred from time
to time before any final determination of their rights to indemnification,
subject to repayment to the extent required by the indemnification terms.
The Company, following stockholder approval, amended its Certificate of
Incorporation in 1988 to limit the personal liability of directors to the
Company or its stockholders for certain breaches of duty as directors, as
permitted by New York law.
In October 1989, the Company purchased Directors' and Officers' Liability
Insurance covering directors and officers for amounts up to $3 million, which
was increased to $5 million in October 1990 and to $7.5 million in October 1992
and decreased to $3 million in December 1993.
The Company entered into an Employment Contract in January 1990 with David
H. Shepard under which Mr. Shepard was to continue as an officer until September
1993 and provide consulting services thereafter until age 75. Mr. Shepard
<PAGE> 11
elected to retire on December 31, 1991. In 1995, $23,754 was paid to Mr.
Shepard under the contract. Mr. Shepard is entitled to receive not less than
$25,515 per year for the remainder of his lifetime under the contract.
During 1995 and in the current year, the Company retained the law firm of
Hughes Hubbard & Reed. Edward S. Davis, a director, is a partner of that firm.
Except as described above, no director or officer had any material
interest in any material transaction of the Company or any of its subsidiaries
during the period from January 1, 1995 to March 1, 1996 or any such proposed
transaction, nor had any of their associates.
In accordance with Section 16(a) of the Securities Exchange Act of 1934,
the Company's directors, officers and any person holding more than ten percent
of the Company's Common Stock are required to file reports of ownership and any
changes in ownership with the Securities and Exchange Commission, the American
Stock Exchange and the Company. The Company believes that all of these filing
requirements were satisfied during 1995 by its directors, officers and ten
percent holders, except that the following officers and directors made late
filings of reports of beneficial ownership as follows: Edward S. Davis, Jack
Meehan and Timothy P. Murphy - each 1 report, 4 transactions and Emmanuel A.
Zizzo and David H. Shepard - each 1 report, 2 transactions. In making these
statements, the Company has relied on the written representations of its
directors and officers and copies of reports they have filed with the Securities
and Exchange Commission.
MANAGEMENT RECOMMENDS A VOTE FOR THE ELECTION OF THE SEVEN
NOMINEES TO THE BOARD OF DIRECTORS.
2. APPROVAL OF AMENDMENT TO THE COMPANY'S 1990 STOCK OPTION
PLAN
GENERAL
In July 1990, the stockholders of the Company approved the adoption of the
Company's 1990 Stock Option Plan (the "1990 Plan"). Under the 1990 Plan, as
amended, an aggregate of 450,000 shares of Common Stock were reserved for
issuance pursuant to stock options. The 1990 Plan is a successor plan to the
Company's 1980 Stock Option Plan (the "1980 Plan"), which expired by its terms
on April 24, 1990.
At a meeting held in March 1996, subject to stockholder approval being
sought at the Annual Meeting, the Board of Directors adopted an amendment to the
1990 Plan to increase the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1990 Plan by 150,000 to
a total of 600,000 shares.
As of March 20, 1996, outstanding and unexercised options to purchase
343,332 shares were held by 59 persons, with exercise prices ranging from $2.38
to $6.75 per share and a weighted average exercise price of $2.76 per share.
Taking into account the increase of 150,000 shares reserved for the 1990 Plan
approved by the Board of Directors and to be submitted for stockholder approval
at the Annual Meeting, 183,498 shares are available for future option grants.
During 1995, options to purchase an aggregate of 34,500 shares of Common
Stock, at a weighted average exercise price of $2.91 per share, were granted
under the 1990 Plan to all employees as a group (excluding all executive
officers), and options to purchase an aggregate of 11,656 shares of Common
<PAGE> 12
Stock, at a weighted average exercise price of $2.79 per share, were exercised
under the 1990 Plan by this group.
On March 20, 1996, the closing price on the American Stock Exchange of the
Company's Common Stock was $5.00.
The following table shows, as to (i) the persons identified in the Summary
Compensation Table; (ii) each nominee for election as a director who is, or has
been in the past, eligible to participate in the 1990 Plan; (iii) any person who
has received 5% or more of grants; (iv) all current executive officers as a
group; and (v) all employees as a group (excluding all executive officers), the
number of shares for which options are outstanding under the 1990 Plan as of
March 20, 1996:
NUMBER OF SHARES
NAME OF INDIVIDUAL OR GROUP FOR WHICH OPTIONS
--------------------------- ARE OUTSTANDING
-----------------
Brian J. Kelley 150,000
Roy A. Strutt 32,000
Kenneth G. Brix 20,000
Michael N. Keefe 20,000
Garrett Sullivan 24,500
David H. Shepard 0
All executive officers as a group (7 persons) 271,500
All employees as a group (excluding all
executive officers)(52 persons) 71,832
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the 1990 Plan, including the proposed amendment,
is qualified in its entirety by the specific language of the 1990 Plan, a copy
of which is attached to the Proxy Statement for stockholder review as Exhibit A.
The 1990 Plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company. The Committee has
authority, subject to the terms of the 1990 Plan, to determine the persons to
whom options may be granted, the number of shares to be covered by each option
and the time or times at which options will be granted, and to interpret the
1990 Plan and make all determinations necessary or advisable for its
administration. The Committee may consult with legal counsel, who may be
counsel to the Company, and will not incur any liability for any action taken
in good faith in reliance upon the advice of counsel.
Full-time employees, including officers, of the Company and its
subsidiaries are eligible to participate in the 1990 Plan. A member of the
Committee is not eligible, while a member, to receive an option under the 1990
Plan, but may exercise any options previously granted to him. The approximate
number of persons eligible to participate in the 1990 Plan on March 20, 1996
was 80.
The date of grant of an option under the 1990 Plan will be the date on
which the option is awarded by the Committee.
The option price per share of Common Stock is the closing price of Common
Stock recorded on the American Stock Exchange on the day the option is granted
or the last trading day prior thereto.
<PAGE> 13
Each option expires no later than the tenth anniversary of the date of its
grant and becomes exercisable in three substantially equal annual installments
commencing six months after the date of grant, except that the Committee may
include in any option, initially or by amendment at any time, an earlier date
or event upon which an option may be exercised if the Committee deems such
provision to be in the interests of the Company or necessary to realize the
reasonable expectation of the optionee, but in no event may an option be
exercisable sooner than six months from the date on which the option is granted.
After becoming exercisable, each installment remains exercisable until
expiration or termination of the option. An option may be exercised from time to
time, in whole or part, up to the total number of shares with respect to which
it is then exercisable. Payment of the purchase price will be made in such
manner as the Committee may provide in the option, which may include cash
(including cash equivalents) or payroll deductions, any other manner permitted
by law and determined by the Committee, or any combination of the foregoing.
If an optionee ceases, other than by reason of death or retirement, to be
employed by the Company or a subsidiary, all options granted to him and
exercisable on the date of his termination of employment terminate on the
earlier of such options' expiration or three months after the date his
employment ends or as otherwise determined by the Committee. Any installments
not exercisable on the date of such termination lapse and are thenceforth
unexercisable. Whether authorized leave of absence or absence in military or
governmental service may constitute employment for the purposes of the 1990 Plan
is to be conclusively determined by the Committee.
If an optionee retires, all options held by him on the date of his
retirement shall become exercisable on such date and shall terminate on the
earlier of the option's expiration or the first anniversary of the day of his
retirement.
If an optionee dies, his option may be exercised, to the extent of the
number of shares with respect to which he could have exercised it on the date of
his death, by his estate, personal representative or beneficiary who acquires
the option by will or by the laws of descent and distribution, at any time prior
to the earlier of the option's expiration or the first anniversary of the
optionee's death. On the earlier of such dates, the option terminates.
No option is assignable or transferable by the optionee except by will or
by laws of descent and distribution, and during the lifetime of the optionee the
option may be exercisable only by him. At the request of an optionee, shares
of Common Stock purchased on exercise of an option may be issued in or
transferred to the name of the optionee and another person jointly with the
right of survivorship.
The number and price of shares of Common Stock covered by each option, the
total number of shares that may be sold under the 1990 Plan, and the maximum
number of shares that may be sold, issued or transferred to an employee, will be
proportionately adjusted to reflect, as deemed equitable and appropriate by the
Committee, any stock dividend, stock split or share combination of the Common
Stock or recapitalization of the Company. To the extent deemed equitable and
appropriate by the Committee, subject to any required action by stockholders,
in any merger, consolidation, reorganization, liquidation or dissolution, any
option granted under the 1990 Plan pertains to the securities and other
property to which a holder of the number of shares of Common Stock covered by
the option would have been entitled to receive in connection with such event.
The Board may discontinue the 1990 Plan at any time and may amend it from
time to time. No amendment or discontinuance of the 1990 Plan may adversely
<PAGE> 14
affect any award previously granted without the optionee's written consent.
Amendments may be made without stockholder approval except as required to
satisfy Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor
rule) or other regulatory requirements.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE 1990 PLAN
The following summary is intended only as a general guide as to the
federal income tax consequences under current law with respect to participation
in the 1990 Plan and does not attempt to describe all possible federal or other
tax consequences of such participation. Furthermore, the tax consequences of
options are complex and subject to change, and a taxpayer's particular situation
may be such that some variation of the described rules is applicable.
Optionees should consult their own tax advisors prior to the exercise of
any option and prior to the disposition of any shares of Common Stock acquired
upon the exercise of an option.
Options granted under the 1990 Plan may be either incentive or non-
qualified stock options. Incentive stock options are those that are intended
to be treated as "incentive stock options" within the meaning of Section 422
of the Internal Revenue Code of 1986 (the "Code"). Under the Code, and under
Treasury Regulations specifying that an option does not have a readily
ascertainable fair market value unless it meets certain conditions not met here,
the grant of either an incentive stock option or a non-qualified option under
the Plan is not taxed at the time of grant.
When a non-qualified option is exercised, the excess of the fair market
value of the shares received over the option price (the "option spread") is
taxable as ordinary income to the option holder. Special rules may apply to the
exercise of options by officers and directors.
The holder of an incentive stock option generally will not be taxed when
the option is exercised prior to termination of employment or within specified
periods (generally three months) thereafter. However, the option spread will
constitute an item of tax preference which may cause an option holder to be
subject to the alternative minimum tax. Provided the Common Stock received upon
exercise of the incentive stock option is not disposed of within one year of
receipt of the shares upon exercise or two years of the date on which the option
is granted, the gain on the subsequent disposition will receive long-term
capital gains treatment. If the shares acquired upon the exercise of an
incentive stock option are disposed of before the end of such holding periods,
the option holder will recognize ordinary income in an amount equal to the
lesser of (1) the option spread on the date of exercise, or (2) the excess of
the amount received upon disposition of the shares over the option
price. Any excess of the amount received upon disposition of the shares over
the value of the shares on the exercise date will be
taxed as long-term or short-term capital gain, depending on whether the shares
were held for more than one year.
For a non-qualified option, the Company generally will be entitled to a
deduction at the same time and in the same amount that the option holder
recognizes ordinary income, to the extent that such income is considered
reasonable compensation under the Code. For an incentive stock option, the
Company generally will not be entitled to a deduction upon the exercise of the
option. However, if an incentive stock option holder does not satisfy the
employment or holding period requirements described above, the Company generally
would be entitled to a deduction in an amount equal to the amount of ordinary
income recognized by the option holder.
<PAGE> 15
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors believes that this amendment to the 1990 Plan is in
the best interests of the Company, as the availability of an adequate number of
shares for issuance pursuant to the 1990 Plan is important to attracting,
motivating and retaining qualified personnel essential to the continued success
of the Company. The affirmative vote of the holders of a majority of all
outstanding shares of Common Stock is required for approval of this proposal.
Shares represented at the meeting by proxy which are not voted because the
stockholder has elected to abstain will be counted in determining the presence
of a quorum but will not be counted as for the amendment. Shares represented at
the meeting by proxy for which the proxy cards have been left blank will be
counted as for the amendment.
MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF THIS PROPOSAL TO
INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE 1990
PLAN BY 150,000.
3. APPROVAL OF SELECTION OF INDEPENDENT AUDITORS
Ernst & Young LLP have been selected as independent auditors to audit the
Company's financial records for the year ending December 31, 1996, and
management recommends that the selection be approved by the stockholders.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to answer appropriate questions. Ernst & Young LLP
have audited the Company's financial statements since 1962, and management
considers Ernst & Young LLP to be well qualified. Should the holders of a
majority of the shares represented at the Annual Meeting in person or by proxy
not approve the selection of Ernst & Young LLP, the Company will interpret that
vote as an instruction to seek other auditors. Shares represented at the
meeting by proxy which are not voted because the stockholder has elected to
abstain will be counted in determining the presence of a quorum but will not be
counted as for the selection. Shares represented at the meeting by proxy for
which the proxy cards have been left blank will be counted as for the selection.
MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF THE SELECTION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY
4. OTHER MATTERS
Proxies will be voted on such other business as may properly come before
the Annual Meeting, although as of the date of this proxy statement the only
matters which management intends to present or knows that others will present
at the meeting or any adjournment thereof are the matters listed in the
accompanying notice of meeting. As to other business, if any, which may
properly come before the meeting, it is intended that proxies in the enclosed
form will be voted in respect thereof in accordance with the judgment of the
person or persons voting such proxies.
The entire cost of soliciting proxies will be borne by the Company. It is
intended to solicit proxies only by mail. To the extent necessary in order to
insure sufficient representation, officers and regular employees of the Company
may request the return of proxies in person, or by telegram or telephone.
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal intended to be presented at the 1997 Annual
Meeting of Stockholders of the Company must be received at the offices of the
<PAGE> 16
Company, 3 Corporate Drive, Danbury, Connecticut 06810-4130, on or before 5:00
p.m. on December 11, 1996 whether or not the proposal is to be included in the
Company's proxy materials relating to the meeting. Any stockholder proposal for
nomination of a person for election to the Board of Directors at the 1997 Annual
Meeting must be so received on or before 5:00 p.m. on January 9, 1997. Timely
receipt of a stockholder proposal satisfies only one of the various requirements
for inclusion of such a proposal in the Company's proxy materials.
By Order of the Board of Directors
Harold F. Mayer
Secretary
Dated: April 10, 1996
<PAGE> 17
EXHIBIT A
COGNITRONICS CORPORATION
1990 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE
This incentive stock option plan (the "Plan") is
intended to provide incentives to executives and other key
employees of Cognitronics Corporation (the "Company") and its
Subsidiaries by providing them with opportunities for stock
ownership under the Plan. "Subsidiary" means any corporation in
which the Company or another Subsidiary or both owns 50% or more
of the combined voting power of all classes of stock. This plan
is a successor plan to the Cognitronics Corporation 1980 Stock
Option Plan, as amended.
2. ADMINISTRATION
The Plan shall be administered by a committee of not
less than three directors of the Company (the "Committee")
selected by, and serving at the pleasure of, its Board of
Directors (the "Board"). A director may not serve on the
Committee unless he is "disinterested" for purposes of Rule 16b-3
under the Securities Exchange Act of 1934, (or any successor rule
thereto).
The Committee shall have authority, subject to the
terms of the Plan, to determine the persons eligible for options
and those to whom options shall be granted, the number of shares
to be covered by each option, the time or times at which options
shall be granted, and the terms and provisions of the instruments
by which options shall be evidenced, and to interpret the Plan
and make all determinations necessary or advisable for its
administration. The Committee may consult with legal counsel,
who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the
advice of counsel. The Board reserves to itself the right to
exercise any authority granted to the Committee hereunder.
3. ELIGIBILITY
Full-time employees, including officers, of the Company
or any Subsidiary or both, shall be eligible to participate in
the Plan. A member of the Committee shall not be eligible, while
a member, to receive an option under the Plan, but may exercise
any options previously granted to him.
4. STOCK
The stock as to which options may be granted shall be
the Company's common stock, par value $.20 per share ("Common
Stock"). When options are exercised the Company may either issue
unissued Common Stock or transfer issued Common Stock held in its
treasury. The total number of shares of Common Stock which may be
sold to employees under the Plan pursuant to options shall not
exceed 600,000 shares. If an option expires, or is otherwise
terminated prior to its exercise, the Common Stock covered by
such option immediately prior to such expiration or other
termination shall continue to be available under the Plan.
<PAGE> 18
5. GRANTING OF OPTIONS
The "Date of Grant" of an option under the Plan shall
be the date on which the option is awarded by the Committee. The
grant of any option to any employee shall neither entitle such
employee to, nor disqualify him from, participation in any other
grant of options.
6. TERMS AND CONDITIONS
Options shall be evidenced by instruments in form
approved by the Committee. Such instruments shall conform to the
following terms and conditions:
(a) Option price. The option price per share of
Common Stock shall be the Fair Market Value of the optioned
shares on the Date of Grant. "Fair Market Value" shall be
the closing price of the Common Stock recorded on the
American Stock Exchange on the Date of Grant or the last
trading day prior thereto.
(b) Term and exercise of options. Each option shall
expire no later than the tenth anniversary of its Date of
Grant and shall become exercisable in three substantially
equal annual installments commencing on the date six months
after the Date of Grant, provided, however, that the
Committee may include in any option instrument, initially or
by amendment at any time, a provision making any installment
or installments exercisable at such earlier date, or upon
the occurrence of such earlier event, as may be specified by
such provision, if the Committee deems such provision to be
in the interests of the Company or necessary to realize the
reasonable expectation of the optionee, but in no event
shall any option be exercisable sooner than six months from
the date on which such option is granted, except when the
retirement or death of the optionee occurs within such
six-month period. After becoming exercisable, each
installment shall remain exercisable until expiration or
termination of the option. An option may be exercised from
time to time, in whole or part, up to the total number of
shares with respect to which it is then exercisable. Payment
of the purchase price will be made in such manner as the
Committee may provide in the option, which may include cash
(including cash equivalents), payroll deductions, any other
manner permitted by law as determined by the Committee or
any combination of the foregoing.
(c) Termination of employment. If an optionee ceases,
other than by reason of death or retirement, to be employed
by the Company or Subsidiary, all options granted to him and
exercisable on the date of his termination of employment
shall terminate on the earlier of such options' expiration
or three months after the day his employment ends or as
otherwise determined by the Committee. Any installment not
exercisable on the date of such termination shall lapse and
be thenceforth unexercisable. Whether authorized leave of
absence or absence in military or governmental service may
constitute employment for the purposes of the Plan shall be
conclusively determined by the Committee.
<PAGE> 19
(d) Retirement of optionee. If an optionee retires,
all options held by him on the date of his retirement shall
become exercisable on the date of his retirement and shall
terminate on the earlier of such option's expiration or the
first anniversary of the day of his retirement.
(e) Death of optionee. If an optionee dies, his
option may be exercised, to the extent of the number of
shares with respect to which he could have exercised it on
the date of his death, by his estate, personal
representative or beneficiary who acquires the option by
will or by the laws of descent and distribution, at any time
prior to the earlier of such option's expiration or the
first anniversary of the optionee's death. On the earlier of
such dates, the option shall terminate.
(f) Assignability. No option shall be assignable or
transferable by the optionee except by will or by laws of
descent and distribution, and during the lifetime of the
optionee the option shall be exercisable only by him. At the
request of an optionee, shares of Common Stock purchased on
exercise of an option may be issued or transferred in the
name of the optionee and another person jointly with the
right of survivorship.
(g) Other provisions. Instruments evidencing options
may contain such other provisions, not inconsistent with the
Plan, as the Committee deems advisable, including a
requirement that an optionee represent to the Company in
writing, when an option is granted, or when he receives
shares on its exercise, that he is accepting such option, or
receiving such shares (unless they are then covered by a
Securities Act of 1933 registration statement), for his own
account for investment only. All certificates representing
shares issued under the Plan may bear a legend deemed
appropriate by the Committee to confirm an exemption from
the registration requirements of the Securities Act of 1933.
7. CAPITAL ADJUSTMENTS
The number and price of shares of Common Stock covered
by each option, the total number of shares that may be sold under
the Plan, and the maximum number of shares that may be sold,
issued or transferred to an employee, shall be proportionately
adjusted to reflect, as deemed equitable and appropriate by the
Committee, any stock dividend, stock split or share combination
of the Common Stock or recapitalization of the Company. To the
extent deemed equitable and appropriate by the Committee, subject
to any required action by stockholders, in any merger,
consolidation, reorganization, liquidation or dissolution, any
option granted under the Plan shall pertain to the securities and
other property to which a holder of the number of shares of
Common Stock covered by the option would have been entitled to
receive in connection with such event.
8. INCENTIVE STOCK OPTIONS
The aggregate Fair Market Value (determined as of the
time the option is granted) of the Common Stock with respect to
<PAGE> 20
which incentive stock options, as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, are exercisable for
the first time by an individual in any calendar year (under the
Plan or any other plan of the Company or any of its parent or
subsidiary corporations (as such terms are defined in Section
424(e) and (f), respectively, of the Internal Revenue Code)
pursuant to which such incentive stock options may be granted)
shall not exceed $100,000.
9. Term; Amendment of Plan
The Board may discontinue the Plan at any time and may
amend it from time to time. No amendment or discontinuation of
the Plan shall adversely affect any award previously granted
without the employee's written consent. Amendments may be made
without stockholder approval except as required to satisfy Rule
16b-3 under the Securities Exchange Act of 1934 (or any successor
rule) or other regulatory requirements.
10. Effective Date
The Plan is in accordance with a Resolution of
Stockholders duly approved at an Annual Meeting held on June 21,
1990 and became effective on June 21, 1990; it was further
amended by a Resolution of Stockholders and by the Board on July
12, 1994.
11. New York State Law
The Terms of the Plan shall be governed by the laws of
the State of New York.
<PAGE> 21
COGNITRONICS CORPORATION
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints B.J. Kelley, T.P. Murphy and
D.H. Shepard as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote
as designated on the reverse side all the shares of Common Stock
of Cognitronics Corporation held of record by the undersigned on
April 2, 1996 at the Annual Meeting of Stockholders to be held at
the offices of the Company at 3 Corporate Drive, Danbury,
Connecticut, on May 9, 1996 at 10:00 a.m., and any adjournment
thereof.
This Proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. IF NO DIRECTION
IS MADE, THIS PROXY WILL VOTED FOR PROPOSALS 1, 2 AND 3.
COGNITRONICS CORPORATION
P.O. BOX 11257
NEW YORK, NY 10203-0257
(Continued and to be signed on reverse side)
<PAGE> 22
1. ELECTION OF DIRECTORS
FOR all nominees listed below ___
WITHHOLD AUTHORITY to vote for all nominees listed below ___
EXCEPTIONS ___
Nominees: E.S. Davis, B.J. Kelley, J. Meehan, W.A. Merritt, T.P.
Murphy, D.H. Shepard and R.A. Strutt
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT
NOMINEE'S NAME ABOVE.)
2. TO APPROVE A PROPOSAL TO AMEND THE COMPANY'S 1990 STOCK
OPTION PLAN to increase the number of shares reserved for
issuance thereunder by 150,000.
FOR ___ AGAINST ___ ABSTAIN ___
3. TO APPROVE THE SELECTION OF ERNST & YOUNG LLP as independent
auditors of the company.
FOR ___ AGAINST ___ ABSTAIN ___
4. In their discretion, the Proxies are authorized to vote such
other business as may properly come before the meeting,
including any adjournment thereof.
Change of Address and or Comments Mark Here ___
Please sign exactly as name appears at left. When shares are held
by joint tenants, each should sign. When signing as attorney, or
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated: _________________________________, 1996
______________________________________________
Signature
______________________________________________
Signature if held jointly
Votes must be indicated (X) in Black or Blue ink.
Please mark, sign, date and return this Proxy promptly using the
enclosed envelope.
