<PAGE> 1
COGNITRONICS CORPORATION
3 CORPORATE DRIVE
DANBURY, CONNECTICUT 06810-4130
Notice of Annual Meeting of Stockholders
May 14, 1998
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Cognitronics
Corporation (the "Company") will be held at the offices of the Company, at 3
Corporate Drive, Danbury, Connecticut on May 14, 1998, 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 140,000.
3. To approve a proposal to amend the Company's Restricted Stock Plan to
increase the number of shares reserved for issuance thereunder by 40,000.
4. To approve the selection of Ernst & Young LLP as independent auditors for the
Company for the year ending December 31, 1998.
5. 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 1, 1998 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, 1998
YOUR VOTE IS IMPORTANT
You are urged to sign, date and promptly return your proxy in the enclosed
envelope.
<PAGE> 2
COGNITRONICS CORPORATION
April 10, 1998
Annual Meeting of Stockholders
May 14, 1998
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 principal office of the
Company at 3 Corporate Drive, Danbury, Connecticut 06810-4130 on May 14, 1998,
at 10:00 a.m. and any adjournment thereof (the "Annual Meeting").
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 1, 1998, there were outstanding and
entitled to vote 3,668,017 shares of Common Stock. Only holders of Common
Stock of record at the close of business on April 1, 1998 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, 1998 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%.
<PAGE> 3
Shares Percent of
Name of Beneficially Shares
Beneficial Owner Owned Outstanding
Edward S. Davis.............................. 5,626(c) (a)
Brian J. Kelley.............................. 253,151(b) 6.9%
Jack Meehan.................................. 0(c) 0%
William A. Merritt........................... 4,871(c) (a)
Timothy P. Murphy............................ 5,701(c) (a)
David H. Shepard............................. 749(d) (a)
Roy A. Strutt................................ 114,616(b)(e) 3.1%
Kenneth G. Brix.............................. 42,947(b) 1.2%
Michael N. Keefe............................. 54,945(b)(f) 1.5%
Garrett Sullivan............................. 60,354(b) 1.6%
All current directors and officers as a group, including
those listed above, consisting of 12 persons... 616,265(b)(c)(g) 16.8%
(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 -69,089, Roy A.
Strutt - 48,984, Kenneth G. Brix -26,666, Michael N. Keefe - 26,666, Garrett
Sullivan - 26,166 and all current directors and officers as a group -
212,237. 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 - 8,415 shares, Jack Meehan - 8,498 shares,
William A. Merritt - 4,737 shares, Timothy P. Murphy - 8,498 shares
and all current officers and directors as a group - 30,148 shares.
(d) With respect to 100 of the shares, voting and investment power is shared
with Mr. Shepard's spouse.
(e) Includes 4,000 shares held in the name of Mr. Strutt's spouse.
(f) With respect to 2,015 of the shares, voting and investment power is shared
with Mr. Keefe's spouse.
(g) With respect to 12,489 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
<PAGE> 3
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.
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, 66, is a partner with the New York law firm of 1981
Hughes Hubbard & Reed LLP. He is a director of Hillenbrand
Industries, Inc.
BRIAN J. KELLEY, 46, has been President and Chief Executive Officer 1994
of the Company since 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, 48, has been President and Chief Executive Officer of 1991
Aztec International, Inc., a subsidiary of U. S. Office Products,
since 1983.
WILLIAM A. MERRITT, 61, 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, 70, was Vice President, Investor Relations and 1985
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, 74, was Chairman of the Board of the Company from 1962
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 1992 to 1994.
ROY A. STRUTT, 41, has been Vice President, European Operations of 1995
the Company since 1994. Since 1992, he has been Managing Director of
Dacon Electronics Plc, which was acquired by the Company in 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.
<PAGE> 4
The foregoing nominees are all members of the Board of Directors and each was
elected at the 1997 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 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, 1997, 1996 and 1995 to
its five most highly compensated executive officers whose aggregate cash
compensation exceeded $100,000 for services rendered to the Company in 1997.
SUMMARY COMPENSATION TABLE
Annual Long-term
Compensation Compensation Awards
(a) (b) (c) (d) (e) (f) (g)
Restricted Options/ All Other
Salary Bonus Stock SARs Comp.
Name and Principal Year $ $ $(1) # $(2)
Position
Brian J. Kelley 1997 230,000 323,664 18,750 25,000 4,103
President and Chief 1996 205,769 62,330 22,283 3,963
Executive Officer 1995 200,000 85,000 127,500 2,838
Kenneth G. Brix 1997 205,507 63,000 7,500 12,500 2,568
Vice President, Sales 1996 120,112 14,750 9,032 2,347
1995 121,811 20,000 54,188 833
Michael N. Keefe 1997 110,000 130,966 7,500 12,500 2,721
Vice President, 1996 93,669 22,000 8,714 2,288
Engineering 1995 86,100 30,000 54,188 833
Garrett Sullivan 1997 110,000 130,966 7,500 12,500 3,001
Treasurer and Chief 1996 94,433 18,500 8,810 2,428
Financial Officer 1995 90,250 24,000 54,188 1,895
Roy A. Strutt 1997 128,000 30,126 7,500 12,500 12,744
Vice President, 1996 126,980 81,473 10,000 12,545
European Operation 1995 122,548 100,000 54,188 10,579
and DaconElectronics
Plc
<PAGE> 5
(1) The Compensation Committee awarded restricted shares of Common Stock under
the terms of the Restricted Stock Plan on June 30, 1995, as follows: Mr.
Kelley - 40,000 shares and Messrs. Strutt, Brix, Keefe and Sullivan - 17,000
shares each; and on April 3, 1997, as follows: Mr. Kelley - 4,000 shares and
Messrs. Strutt, Brix, Keefe and Sullivan - 1,600 shares each. The value of
the shares on the award date is reflected in the table above. The shares
vest 20% annually beginning on the second anniversary of the award, 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 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. Brix, Keefe,
Sullivan and Strutt - 5,100 shares each. No shares vested in 1996. Shares
vested in 1997, including shares which vested upon the achievement of
certain established targets for the year ended December 31, 1997, as
follows: Mr. Kelley - 28,000 shares, Messrs. Brix, Keefe and Sullivan -
11,800 shares each and Mr. Strutt - 10,200 shares. The number of shares and
value of the aggregate restricted stock holdings at December 31, 1997 are:
Mr. Kelley - 4,000 shares, $76,750; Messrs. Brix, Keefe and Sullivan - each
1,700 shares, $32,619 and Mr. Strutt - 3,300 shares, $63,319.
(2) These amounts represent (a) the Company's matching contributions up to 1.5%
of eligible compensation to the Company's 401(k) Retirement Plan, (b)
pension contributions and (c) term life insurance premiums paid by the
Company for the benefit of the officers' beneficiaries, in the following
amounts: Mr. Kelley - $2,375 in matching contributions and $1,728 in
insurance premiums, Mr. Brix - $1,450 in matching contributions and $1,118
in insurance premiums, Mr. Keefe - $1,789 in matching contributions and $932
in insurance premiums, Mr. Sullivan - $2,069 in matching contributions and
$932 in insurance premiums and Mr. Strutt - $12,744 in pension
contributions,. There are no cash values associated with the term life
insurance
Option Grants in 1997
<TABLE>
<CAPTION>
Potential Realized Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
(a) (b) (c) (d) (e) (f) (g) (h) (i)
% of Total Market
Options Price on
Options Granted to Exercise Date of Expira-
Granted Employees Price Grant tion
Name (#)(1) in 1997 ($/Sh) ($/Sh) Date 0%($) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian J. Kelley 25,000 27.9 4.69 4.69 4/3/02 0 32,377 71,544
Kenneth G. Brix 12,500 14.0 4.69 4.69 4/3/02 0 16,188 35,772
Michael N. Keefe 12,500 14.0 4.69 4.69 4/3/02 0 16,188 35,772
Garrett Sullivan 12,500 14.0 4.69 4.69 4/3/02 0 16,188 35,772
Roy A. Strutt 12,500 14.0 4.69 4.69 4/3/02 0 16,188 35,772
</TABLE>
<PAGE> 6
(1) These options were granted under the Company's 1990 Stock Option Plan at an
exercise price equal to the closing market price on the date of grant.
Normally, options are granted in connection with the review of annual
compensation; however, the Compensation Committee may grant options at other
dates at its discretion.
Aggregate Option Exercises in 1997 and 1997 Year-end Options Values
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value Year-end (#) Year-end ($)
on Realized on Exercisable/ Exercisable/
Name Exercise (#) Exercise ($) Unexercisable Unexercisable
Brian J. Kelley 98,733 1,595,374 75,756 1,239,405
23,334 345,427
Kenneth G. Brix 1,532 21,877 26,667 428,078
13,333 198,642
Michael N. Keefe 1,214 17,639 26,667 428,078
13,333 198,642
Garrett Sullivan 6,310 99,972 26,167 419,859
13,333 198,642
Roy A. Strutt 39,500 638,292
15,000 224,584
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, 1997, the accrued annual pension benefits payable upon the retirement
of the officers identified in the Summary Compensation Table were: Brian J.
Kelley - $0; Kenneth G. Brix - $0; Michael N. Keefe - $6,319; Garrett Sullivan
- $4,623; and Roy A. Strutt - $0.
Compensation of Directors
Directors who were not employees of the Company in 1997 were entitled to
paymentof (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 1997, and for
each meeting of a committee of the Board not held in conjunction with a Board
meeting, of which there was one in 1997. Directors may voluntarily defer the
receipt of such fees to a future year. Directors may elect to be paid in cash
or an in shares of Common Stock of the Company. If a director elected to be paid
<PAGE> 7
in shares, prior to August 27, 1997, he was entitled to an equivalent value in
shares; commencing August 27, 1997, he was entitled to 125% of the equivalent
value in shares. Directors are also entitled to reimbursement of reasonable
travel expenses.
Compensation Committee Interlock and Insider Participation
The Compensation Committee is composed of Messrs. Meehan, Merritt and Murphy,
all of whom are "disinterested" for purposes of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended.
Report of the 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.
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
<PAGE> 8
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 and 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
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, 1997.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
Cognitronics MG Industry S&P
Corporation Group 500
1992 $100 $100 $100
1993 25 129 110
1994 12 116 111
1995 39 146 153
1996 20 148 189
1997 110 190 251
Other Information Concerning the Board or Its Committees
The Company's Board of Directors has four Committees - Audit, Compensation,
Executive and Nominating. The Audit Committee, of which Messrs. Davis, Meehan,
Merritt and Murphy are members, meets with the independent auditors and reviews
and reports to the Board of Directors on the scope and results of audits. The
Compensation Committee, of which Messrs. Meehan, Merritt and Murphy are members,
is charged with reviewing officers' compensation and administers the Company's
1967 Employee Stock Purchase Plan, 1990 Stock Option Plan and Restricted Stock
Plan. The Executive Committee, of which Messrs. Davis, Kelley and Murphy are
members, is authorized to consider and take action on matters in the absence of
<PAGE> 9
a full Board of Directors meeting. The Nominating Committee is charged with
considering all nominations (including nominations by stockholders) to the Board
of Directors of the Company. During 1997, the Committees met as follows: Audit
- - twice, Compensation - four times and Nominating - once; the Executive
Committee did not meet in 1997.
During 1997, 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 Relationships and Related 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'sindemnification 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.
The Company carries Directors' and Officers' Liability Insurance covering
directors and officers for amounts up to $3 million.
The Company entered into an Employment Contract in January 1990 with David H.
Shepard, a director, under which Mr. Shepard was to continue as an officer until
September 1993 and provide consulting services thereafter until age 75. Mr.
Shepard elected to retire on December 31, 1991. In 1997, $27,989 was paid to
Mr. Shepard under the contract. Mr. Shepard is entitled to receive $29,982 in
1998 and a similar amount, adjusted for inflation, each year thereafter for the
remainder of his lifetime under the contract. Additionally, Mr. Shepard
received $17,700 in 1997 under a former supplemental pension plan for officers,
which he is entitled to receive each year for the remainder of his lifetime.
During 1997 and in the current year, the Company retained the law firm of
Hughes Hubbard & Reed LLP. Edward S. Davis, a director, is a partner of that
firm.
<PAGE> 10
The Company has advanced to officers amounts required to be withheld for
income taxes related to stock awards under its Restricted Stock Plan and stock
bonuses. In connection therewith, during 1997 and at March 1, 1998, Brian J.
Kelley, President and a director, was indebted in the amount of $107,293 to the
Company, which indebtedness bears interest at the prime rate during the period
outstanding.
The Company has entered into Executive Severance Agreements (the "Agreements")
regarding change in control with Messrs. Kelley, Strutt, Brix, Keefe, Sullivan
and one other officer of the Company (individually, the "Executive";
collectively, the "Executives"). Under these Agreements, a "change in control"
occurs if (a) the stockholders of the Company approve (i) any merger or
consolidation of the Company (unless the voting stock of the Company outstanding
immediately prior thereto continues to represent more than 50% of the combined
voting power of the Company or the surviving entity thereafter or at least a
majority of the directors of the Company or the surviving entity after the
merger or consolidation were directors of the Company prior thereto), (ii) the
sale, lease, exchange or other transfer of all or substantially all of the
Company's assets to any other company or (iii) any plan or proposal for the
liquidation or dissolution of the Company, (b) persons who were directors of the
Company on November 1, 1995 (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board of Directors, provided, however,
that any person subsequently becoming a director whose election is approved by a
vote of at least a majority of the then Incumbent Directors will be considered
an Incumbent Director or (c) any person (other than the Company, its
subsidiaries or any employee benefit plan of the Company), together with all
affiliates and associates of such person, becomes the beneficial owner,
directly or indirectly, of 20% or more of the Company's Common Stock. The
Agreements provide that the Executive's compensation, responsibilities and
employee benefits will not be reduced following a change in control. The
Agreements also provide that if the Executive's employment with the Company is
terminated under certain circumstances the Executive will continue to receive
certain medical, insurance and other employee benefits for a period of two years
and will receive a lump sum payment equal to, but limited by the amount
deductible for income tax purposes under the Internal Revenue Code, 200% of the
sum of (A) the greater of (i) the Executives' annual salary as in effect
immediately prior to the termination or (ii) the Executive's salary as in effect
immediately prior to the change in control and (B) the greater of (i) the
Executive's annual bonus for the prior annual period, including performance
bonus, amounts vested under the Company's Restricted Stock Plan and amounts
under any other bonus program of the Company (the "Bonus Amounts") or (ii) the
average Bonus Amounts for the prior two years. These benefits will be provided
to the Executives, other than Mr. Kelley, in the event that the Executive's
employment is terminated within two years following a change in control (i) by
the Company involuntarily for any reason other than death, disability or cause
or (ii) voluntarily by the Executive under certain, limited circumstances, and
to Mr. Kelley if his employment is voluntarily or involuntarily terminated
(other than for death, disability or cause) within two years following a change
in control. Payments to the Executives under the Agreements are limited to such
amounts to permit all payments to the Executives to be made by the Company to be
deductible in accordance with Section 280G of the Internal Revenue Code. The
terms of these Agreements expire on October 16, 2000, unless a change in control
has occurred on or prior to such date, in which case the Agreements will
continue in effect for two years following the change in control.
<PAGE> 11
In the event of a change in control, the Company's 1990 Stock Option Plan
provides that all outstanding stock options will become fully exercisable. In
the event of a change in control followed by termination of employment, the
Company's Restricted Stock Plan provides that the restrictions on shares of the
Company's Common Stock previously awarded will terminate.
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, 1997 to March 1, 1998 or any such proposed transaction,
nor had any of their associates.
Section 16(a) Beneficial Ownership Reporting Compliance
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 1997 by its directors, officers and ten
percent holders, except that Mr. Mayer made a late filing of one report of
beneficial ownership with one transaction. The late report was filed
immediately following discovery of the failure to file. 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 600,000 shares of Common Stock were reserved for
issuance pursuant to stock options.
At a meeting held in March 1998, 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 140,000 to a total of
740,000 shares.
As of March 13, 1998, outstanding and unexercised options to purchase 347,218
shares were held by 53 persons, with exercise prices ranging from $2.38 to $7.63
per share and a weighted average exercise price of $3.43 per share. Taking into
account the increase of 140,000 shares reserved for the 1990 Plan approved by
the Board of Directors and to be submitted for stockholder approval at the
Annual Meeting, 145,500 shares will be available for future option grants.
During 1997, options to purchase an aggregate of 2,000 shares of Common Stock,
at an exercise price of $7.63 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 51,989 shares of Common Stock, at a weighted average
exercise price of $2.82 per share, were exercised under the 1990 Plan by this
group.
<PAGE> 12
On March 13, 1998, the closing price on the American Stock Exchange of the
Company's Common Stock was $16.44.
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 13, 1998:
Number of Shares
For Which Options
Name of Individual or Group Are Outstanding
Brian J. Kelley ............................................ 99,090
Roy A. Strutt .............................................. 54,500
Kenneth G. Brix ............................................ 40,000
Michael N. Keefe ........................................... 40,000
Garrett Sullivan ........................................... 39,500
David H. Shepard ........................................... 0
All executive officers as a group (7 persons) .............. 306,090
All employees as a group (excluding all
executive officers)(47 persons) ........................... 41,128
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 13, 1998 was 91.
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.
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
<PAGE> 13
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. In the event
of a change of control (as defined in the 1990 Plan) all outstanding options
will become fully exercisable.
The Board may discontinue the 1990 Plan at any time and may amend it from time
to time. No amendment or discontinuation of the 1990 Plan may adversely affect
<PAGE> 14
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 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 capital gain.
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 the
outstanding shares of Common Stock represented at the Annual Meeting 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 140,000.
3. APPROVAL OF AMENDMENT TO THE COMPANY'S RESTRICTED STOCK PLAN
General
In May 1995, the stockholders of the Company approved the adoption of the
Company's Restricted Stock Plan (the "Restricted Plan"). Under the Restricted
Plan, an aggregate of 150,000 shares of Common Stock were reserved pursuant to
awards to be made. The purpose of the Restricted Plan is: (a) to increase the
proprietary interest in the Company of those Key Employees whose
responsibilities and decisions directly affect the performance of the Company
and its subsidiaries; (b) to provide rewards for those Key Employees who make
contributions to the success of the Company and its subsidiaries; and (c) to
attract and retain persons of superior ability as Key Employees of the Company
and its subsidiaries. A "Key Employee" is an officer or other employee who, in
the judgment of the Committee administering the Restricted Plan, is responsible
for or contributes to the management, growth, technology, or profitability of
the business of the Company or any subsidiary or other affiliate of the Company
(a "Participating Company").
At a meeting held in March 1998, subject to stockholder approval being sought
at the Annual Meeting, the Board of Directors adopted an amendment to the
Restricted Plan to increase the number of shares of Common Stock reserved for
issuance upon awards to Key Employees under the Restricted Plan by 40,000 to a
total of 190,000.
Since the inception of the Restricted Plan to March 13, 1998, 151,000 shares
of Common Stock have been issued to 13 Key Employees with market values on the
date of the awards ranging from $3.19 to $4.69 per share and a weighted average
market value of $3.44, and 1,058 shares have been forfeited. Taking into
account the increase of 40,000 shares reserved for the Restricted Plan approved
by the Board of Directors and to be submitted for stockholder approval at the
Annual Meeting, 40,058 shares will be available for future stock awards.
On March 13, 1998, the closing price on the American Stock Exchange of the
Company's Common Stock was $16.44.
Summary of the Provisions of the Restricted Plan
The following summary of the Restricted Plan, including the proposed
<PAGE> 16
amendment, is qualified in its entirety by specific language of the Restricted
Plan, a copy which is attached to the Proxy Statement for stockholder review as
Exhibit B.
An aggregate of 190,000 shares of Common Stock may be awarded under the
Restricted Plan. Any share of Common Stock which for any reason does not vest
under the Restricted Plan will again become available for award under the
Restricted Plan.
The Restricted Plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company. The Committee will be
comprised of not less than two members of the Board who are "disinterested
persons" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 (the "Exchange Act"). The Committee is authorized to establish such rules
and regulations as it deems necessary or advisable for the proper administration
of the Restricted Plan and to take such other action in connection with or in
relation to the Restricted Plan as it deems necessary or advisable. Each
decision made or action taken pursuant to the Restricted Plan, including
interpretation of the Restricted Plan and the awards granted thereunder by the
Committee, will be final and conclusive for all purposes.
The Board may, at any time, amend or terminate the Restricted Plan. The
Restricted Plan may also be amended by the Committee if such amendments are
reported to the Board. Each amendment will be subject to stockholder approval
if required by Rule 16b-3 of the Exchange Act. No amendment or termination of
the Restricted Plan may affect an award theretofore granted under the Restricted
Plan without the written consent of the Key Employee affected.
No member or former member of the Committee or the Board will be liable for
any action or determination made in good faith with respect to the Restricted
Plan or any award granted under it.
Participation in the Restricted Plan will be limited to Key Employees of the
Participating Companies who have received written notification from the
Committee that they have been selected to participate in the Restricted Plan.
No employee will have any right to participate in the Restricted Plan. No Key
Employee having been granted an award will have any right to be granted an
additional award. Neither the Restricted Plan nor any action taken thereunder
may be construed as giving any Key Employee any right to be retained in the
employ of the Participating Companies. The Participating Companies reserve the
right to dismiss or discharge any employee, with or without cause.
The Chief Executive Officer ("CEO") of the Company may recommend Key Employees
to participate in the Restricted Plan, and may recommend the timing, amount and
restrictions, if any, and other terms and conditions of an award, subject to the
terms of the Restricted Plan. The Committee, in its sole discretion, has the
authority to grant awards under the Restricted Plan, which may be made in
accordance with the recommendations of the CEO or otherwise.
Each award will be evidenced by a written award agreement, in a form to be
adopted by the Committee. Each award agreement will be subject to and
incorporate the express terms and conditions, if any, required by the Restricted
Plan, and contain such corporate or personal performance goals, restrictions,
terms and conditions as the Committee may determine.
<PAGE> 17
Each certificate representing shares of Common Stock issued pursuant to an
award under the Restricted Plan will be registered in the name of the Key
Employee and held, together with a stock power endorsed in blank, by the
Company. Unless and until such shares of Common Stock fail to vest, the Key
Employee will be entitled to vote all such shares of Common Stock and receive
all dividends thereon, if any.
Certificates held by the Company representing shares of Common Stock which are
no longer subject to vesting under the Restricted Plan will be delivered by the
Company to the Key Employee in the form of a freely transferable certificate
promptly after becoming vested, provided the Key Employee has paid all required
taxes.
To the extent that a Key Employee remains continuously employed by a
Participating Company, unless otherwise provided in the Restricted Plan, Common
Stock received as an award will vest annually in 20% increments beginning on the
second anniversary date of the award, to be 100% vested on the sixth anniversary
date of the award.
The Committee may elect to waive or accelerate the vesting schedule, in whole
or in part, at any time at or after an award, based on performance criteria the
Committee may determine and require, in its sole discretion. Upon a Key
Employee's death, total disability or retirement on or after reaching the age of
62, shares of Common Stock will vest on a pro rata basis. Shares of Common
Stock which do not vest will be forfeited to the Company. If following a Change
in Control, a Key Employee's employment is terminated without cause or there is
a constructive termination without cause as defined in the Restricted Plan, all
shares of Common Stock subject to an award will become immediately vested.
Change of Control includes (i) specified mergers, sales of assets and plans of
liquidation, (ii) a majority of the Board ceasing to be incumbent directors as
defined in the Restricted Plan, and (iii) any person becoming the owner of more
than 20% of the Company's voting securities as defined in the Restricted Plan.
The terms of the Restricted Plan are binding upon the Company and its
successors and assigns.
The effective date of the Plan was January 1, 1995. The Board may at any time
terminate this Restricted Plan as of any date specified in a resolution adopted
by the Board. If not earlier terminated, the Restricted Plan will terminate on
December 31, 2000. No award may be granted after the Restricted Plan has
terminated. Termination of the Restricted Plan will not affect any award
previously granted.
Vote Required and Board of Directors' Recommendation
The Board of Directors believes that this amendment to the Restricted Plan is in
the best interests of the Company, as the availability of an adequate number of
shares for issuance pursuant to the Restricted Plan is important to attracting,
motivating and retaining qualified personnel essential to the continued success
of the Company. The affirmative vote of a majority of the outstanding shares
of Common Stock represented at the Annual Meeting 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.
<PAGE> 18
Management recommends a vote FOR the approval of this proposal to increase the
number of shares reserved for issuance under the Restricted Plan by 40,000.
4. 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, 1998, 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 of Common Stock 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.
5. 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 1999 Annual Meeting of Stockholders
Any stockholder proposal intended to be presented at the 1999 Annual Meeting
of Stockholders of the Company must be received at the offices of the Company, 3
Corporate Drive, Danbury, Connecticut 06810-4130, on or before 5:00 p.m. on
December 11, 1998 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 1999
Annual Meeting must be so received on or before 5:00 p.m. on January 14, 1999.
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, 1998
<PAGE> 19
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.
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 740,000 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.
5. Granting of Options
The "Date of Grant" of an option under the Plan shall be the date on
<PAGE> 20
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 of Options
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 a share of Common Stock 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 a 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.
(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
<PAGE> 21
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 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 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.
<PAGE> 22
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 amended by a Resolution of Stockholders and by the
Board on July 12, 1994 and further amended by a Resolution of Stockholders
and by the Board on May 9,1996 and by a Resolution of Stockholders on May 14,
1998.
11. New York State Law
The Terms of the Plan shall be governed by the laws of the State of New
York.
12. Change of Control
Notwithstanding the provisions of Section 6(b) hereof, in the event of a
Change in Control, as hereinafter defined, all options held by an optionee
shall become exercisable on the date of the Change in Control.
"Change in Control" means an event in which:
(a) the stockholders of the Company approve (i) any consolidation or merger
of the Company or any of its subsidiaries where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own, directly or
indirectly, shares representing in the aggregate more than 50% of all votes to
which all stockholders of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any) would
be entitled under ordinary circumstances to vote in an election of directors
or where the members of the Board, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger, constitute a
majority of the Board of Directors of the corporation issuing cash or
securities in the consolidation or merger (or of its ultimate parent
corporation, if any), (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any person
as a single plan) of all or substantially all of the assets of the Company or
(iii) any plan or proposal for the liquidation or dissolution of the Company;
(b) persons who, as of the effective date hereof, constitute the entire
Board (as of the date hereof the "Incumbent Directors") cease for any reason
to constitute at least a majority of the Board, provided, however, that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, is approved by a vote
of at least a majority of the then Incumbent Directors (other than an election
or nomination of a person whose assumption of office is the result of an
actual or threatened election contest relating to the election of directors of
the Company, as such terms are used in Rule 14a-11 under the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act")),
shall be considered an Incumbent Director; or
(c) any "person", as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company, any of its subsidiaries, any employee
benefit plan of the Company or any of its subsidiaries or any entity
organized, appointed or established by the Company for or pursuant to the
terms of such plan), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
becomes the "beneficial owner" or "beneficial owners" (as defined in Rules
<PAGE> 23
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities
of the Company representing in the aggregate 20% or more of either (i) the
then outstanding shares of Common Stock or (ii) the combined voting power of
all then outstanding securities of the Company having the right under ordinary
circumstances to vote in an election of directors to the Board ("Voting
Securities") (in either such case other than as a result of acquisitions of
such securities directly from the Company).
Notwithstanding the foregoing, a "Change in Control" will not have
occurred for purposes of clause (c) solely as the result of an acquisition of
securities by the Company which, by reducing the number of shares of Common
Stock or other Voting Securities outstanding, increases (i) the proportionate
number of shares of Common Stock beneficially owned by any person to 20% or
more of the shares of Common Stock then outstanding or (ii) the proportionate
voting power represented by the Voting Securities beneficially owned by any
person to 20% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in clause
(i) or (ii) of this sentence thereafter becomes the beneficial owner of any
additional shares of Common Stock or other Voting Securities (other than
pursuant to a stock split, stock dividend or similar transaction), then a
"Change in Control" will have occurred for purposes of clause (c).
<PAGE> 24
EXHIBIT B
COGNITRONICS CORPORATION
RESTRICTED STOCK PLAN
Section 1. Purpose.
The purpose of the Cognitronics Corporation Restricted Stock Plan is:
(a)to increase the proprietary interest in the Company of those Key Employees
whose responsibilities and decisions directly affect the performance of the
Company and its subsidiaries;
(b)to provide rewards for those Key Employees who make contributions to the
success of the Company and its subsidiaries; and
(c)to attract and retain persons of superior ability as Key Employees of the
Company and its subsidiaries.
Section 2. Definitions.
"Award" means an award of Restricted Stock granted to any Key Employee in
accordance with the provisions of the Plan.
"Award Agreement" means the written agreement evidencing each Award between
the Key Employee and the Company.
"Board" means the Board of Directors of the Company.
"Cause" means (i) the Key Employee is convicted of a felony involving moral
turpitude; or (ii) the Key Employee is guilty of willful gross neglect or
willful gross misconduct in carrying out his duties, resulting, in either
case, in material economic harm to the Company, unless the Key Employee
believed in good faith that such act or nonact was in the best interests of
the Company.
"Change in Control" means an event in which:
(a)the stockholders of the Company approve (i) any consolidation or
merger of the Company or any of its subsidiaries where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own, directly or
indirectly, shares representing in the aggregate more than 50% of all votes to
which all stockholders of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any) would
be entitled under ordinary circumstances to vote in an election of directors
or where the members of the Board, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger, constitute a
majority of the Board of Directors of the corporation issuing cash or
securities in the consolidation or merger (or of its ultimate parent
corporation, if any), (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any person
as a single plan) of all or substantially all of the assets of the Company or
(iii) any plan or proposal for the liquidation or dissolution of the Company;
(b)persons who, as of the effective date hereof, constitute the entire
<PAGE> 25
Board (as of the date hereof the "Incumbent Directors") cease for any reason
to constitute at least a majority of the Board, provided, however, that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, is approved by a vote
of at least a majority of the then Incumbent Directors (other than an election
or nomination of a person whose assumption of office is the result of an
actual or threatened election contest relating to the election of directors of
the Company, as such terms are used in Rule 14a-11 under the Exchange Act),
shall be considered an Incumbent Director; or
(c)any "person", as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company, any of its subsidiaries, any employee
benefit plan of the Company or any of its subsidiaries or any entity
organized, appointed or established by the Company for or pursuant to the
terms of such plan), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
becomes the "beneficial owner" or "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities
of the Company representing in the aggregate 20% or more of either (i) the
then outstanding shares of Stock or (ii) the combined voting power of all then
outstanding securities of the Company having the right under ordinary
circumstances to vote in an election of directors to the Board ("Voting
Securities") (in either such case other than as a result of acquisitions of
such securities directly from the Company).
Notwithstanding the foregoing, a "Change in Control" will not have occurred
for purposes of clause (c) solely as the result of an acquisition of
securities by the Company which, by reducing the number of shares of Stock or
other Voting Securities outstanding, increases (i) the proportionate number of
shares of Stock beneficially owned by any person to 20% or more of the shares
of Stock then outstanding or (ii) the proportionate voting power represented
by the Voting Securities beneficially owned by any person to 20% or more of
the combined voting power of all then outstanding Voting Securities; provided,
however, that if any person referred to in clause (i) or (ii) of this sentence
thereafter becomes the beneficial owner of any additional shares of Stock or
other Voting Securities (other than pursuant to a stock split, stock dividend
or similar transaction), then a "Change in Control" will have occurred for
purposes of clause (c).
"Committee" means the Committee appointed by the Board to administer the Plan
pursuant to Section 4(a) hereof.
"Company" means Cognitronics Corporation and its successors and assigns.
"Constructive Termination Without Cause" means a termination of a Key
Employee's employment at his initiative following the occurrence, without the
Key Employee's prior written consent, of one or more of the following events
(except in consequence of a prior termination):
(i) a reduction in the Key Employee's base salary or the termination
or material reduction of any employee benefit or perquisite enjoyed by him
(other than as part of an across-the-board reduction applicable to all
executive officers of the Company);
(ii) a material diminution in the Key Employee's duties or the assignment
to the Key Employee of duties which are materially inconsistent with his
duties or which materially impair the Key Employee's ability to function in
his position with the Company.
(iii) the failure to continue the Key Employee's participation in any
<PAGE> 26
incentive compensation plan unless a plan providing a substantially similar
opportunity is substituted; or
(iv) the relocation of the Key Employee's office location as assigned to
him by the Company to a location more than 50 miles from his prior office
location.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Key Employee" means an officer or other key employee of any Participating Compa
ny who, in the judgment of the Committee, is responsible for or contributes to
the management, growth, technology or profitability of the business of any
Participating Company.
"Participating Company" means the Company or any subsidiary or other affiliate
of the Company.
"Plan" means the Cognitronics Corporation Restricted Stock Plan.
"Restricted Stock" means Stock delivered under the Plan subject to the
requirements of Section 7 hereof and such other restrictions as the Committee
deems appropriate or desirable.
"Stock"means the common stock ($.20 par value) of the Company.
"Total Disability" means the complete and permanent inability of a Key
Employee to perform substantially all of his or her duties under the terms of
his or her employment with any Participating Company, as determined by the
Committee upon the basis of such evidence, including independent medical
reports or data, as the Committee deems appropriate or necessary.
Section 3. Effective Date.
The effective date of the Plan shall be January 1, 1995, subject to
approval of the Plan by a majority of the Company's stockholders.
Notwithstanding anything in the Plan to the contrary, if the Plan shall have
been approved by the Board prior to such stockholder approval, Key Employees
may be selected and Award criteria may be determined and Awards may be made as
provided herein subject to subsequent stockholder approval.
Section 4. Plan Administration.
(a) Committee. The Plan shall be administered by a Committee appointed by
the Board and serving at the Board's pleasure. The Committee shall be
comprised of not less than two (2) members of the Board. Members of the
Committee shall be members of the Board who are "disinterested persons" within
the meaning of Rule 16b-3 under the Exchange Act or a successor rule or
regulation.
(b) Powers. The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary or
advisable for the proper administration of the Plan and to take such other
action in connection with or in relation to the Plan as it deems necessary or
advisable. Each decision made or action taken pursuant to the Plan, including
interpretation of the Plan and the Awards granted hereunder by the Committee,
shall be final and conclusive for all purposes and upon all persons, including
without limitation, the Participating Companies, the Committee, the Board, Key
<PAGE> 27
Employees and their respective successors in interest.
(c) Indemnification. No member or former member of the Committee or the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Award granted under it. Each member or former
member of the Committee or the Board shall be indemnified and held harmless by
the Company against all costs and expenses (including counsel fees) and
liability (including any sum paid in settlement of a claim with the approval
of the Board) arising out of any act or omission to act in connection with the
Plan unless arising out of such member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members or former members may have as directors or under the by-laws of the
Company.
(d) Independent Advisors. The Committee may employ such independent
professional advisors, including without limitation independent legal counsel
and counsel regularly employed by the Company, consultants and agents as the
Committee may deem appropriate for the administration of the Plan and may rely
upon any opinion received from any such counsel or consultant and any
computations received from any such consultant or agent. All expenses
incurred by the Committee in interpreting and administering the Plan,
including without limitation meeting fees and expenses and professional fees,
shall be paid by the Company.
Section 5. Participation.
Participation in the Plan shall be limited to Key Employees of the
Participating Companies who have received written notification from the
Committee, or from a person designated by the Committee, that they have been
selected to participate in the Plan. No employee shall at any time have any
right to be selected to participate in the Plan. No Key Employee having been
granted an Award shall have any right to be granted an additional Award in the
future. Neither the Plan nor any action taken thereunder shall be construed
as giving any Key Employee any right to be retained in the employ of the
Participating Companies. The right and power of the Participating Companies
to dismiss or discharge any Key Employee, with or without cause, is
specifically reserved.
Section 6. Award Grants and Agreements.
(a) Grants. The Chief Executive Officer ("CEO") of the Company may
recommend Key Employees to participate in the Plan, and may recommend the
timing, amount and restrictions, if any, and other terms and conditions of an
Award, subject to the terms of the Plan. The Committee, in its sole
discretion, has the authority to grant Awards under the Plan, which may be
made in accordance with the recommendations of the CEO or otherwise.
(b) Agreements. Each Award shall be evidenced by a written Award
Agreement, in a form adopted by the Committee. Each Award Agreement shall be
subject to and incorporate the express terms and conditions, if any, required
by the Plan, and contain such restrictions, terms and conditions as the
Committee may determine.
Section 7. Restricted Stock.
(a) Shares Subject to the Plan. An aggregate of 190,000 shares of Stock
may be awarded under the Plan as Restricted Stock. Any share of Restricted
Stock that is subject to an Award but that for any reason does not vest shall
<PAGE> 28
again become available for an Award under the Plan.
(b) Adjustments. In the event of any change in the Stock subject to the
Plan (through merger, consolidation, reorganization, recapitalization, stock
dividend, split-up, spin-off, combination of shares, exchange of shares,
issuance of rights to subscribe or other change in capital structure), the
Committee shall make appropriate adjustments in the amount of Stock available
for Awards under the Plan or subject to outstanding Awards, or the terms,
conditions or restrictions of such Awards as the Committee deems equitable to
prevent the dilution or enlargement of the benefits intended pursuant to the
Plan.
(c) Custody of Shares.
(i) Each certificate representing shares of Restricted Stock issued
pursuant to an Award shall be registered in the name of the Key Employee and
held, together with a stock power endorsed in blank, by the Company. Unless
and until such shares of Restricted Stock fail to vest and are forfeited as
provided herein, the Key Employee shall be entitled to vote all such shares of
Restricted Stock and receive all cash dividends, if any, with respect
thereto. All other distributions with respect to such Restricted Stock,
including, but not limited to, Stock received as a result of a stock dividend,
stock split, combination of shares or otherwise, shall be retained by the
Company in escrow. Each certificate of Restricted Stock issued pursuant to an
Award shall bear the following (or similar) legend:
"The transferability of this certificate and of the shares of Common Stock
represented hereby are subject to the terms and conditions (including vesting)
contained in the Cognitronics Corporation Restricted Stock Plan and an Award
Agreement entered into between the registered owner and Cognitronics
Corporation. A copy of such Plan and Award Agreement is on file in the office
of the Secretary of Cognitronics Corporation."
In lieu of the foregoing, the Company may issue stop transfer
instructions to its transfer agent or take such other steps as are necessary
to preclude the transfer of Restricted Stock.
(ii) Certificates representing shares of Restricted Stock which have
become vested pursuant to Section 7 hereof and which have been held by the
Company pursuant to Section 7(c) hereof shall be delivered by the Company to
the Key Employee (or the Key Employee's legal representative) in the form of a
freely transferable certificate, without legend (provided that the Key
Employee is not an "affiliate" of the Company within the meaning of Rule 405
adopted pursuant to the Securities Act of 1933, as amended) promptly after
becoming vested, provided, however, that the Company need not deliver such
certificates to a Key Employee until the Key Employee has paid or caused to be
paid all taxes required to be withheld pursuant to Section 8 hereof.
(d) Restriction Period.
(i) Vesting Schedule. Except as provided in Section 7(d)(ii),
7(d)(iii) or 7(d)(iv) hereof, to the extent that a Key Employee remains
continuously employed by a Participating Company, Restricted Stock received as
an award shall become vested and shall not be subject to forfeiture in
accordance with the following schedule:
<PAGE> 29
Period of EmploymentPortion of Award Vested
Prior to the second anniversary date of the Award 0%
On or after the second anniversary date, but prior to the third
anniversary date of the Award 20%
On or after the third anniversary date, but prior to the fourth
anniversary date of the Award 40%
On or after the fourth anniversary date, but prior to the fifth
anniversary date of the Award 60%
On or after the fifth anniversary date, but prior to the sixth
anniversary date of the Award 80%
On or after the sixth anniversary date of the Award100%
(ii) Waiver of Vesting Schedule. Notwithstanding the provisions of
Section 7(d)(i) hereof, with respect to any Key Employee or group of Key
Employees, the Committee may elect to waive or accelerate the vesting schedule
set forth in Section 7(d)(i) hereof, in whole or in part, at any time at or
after the time an Award is granted, based on such corporate, personal or other
performance criteria as the Committee may determine and require, in its sole
discretion.
(iii) Death, Disability and Retirement. Notwithstanding the provisions of
Section 7(d)(i) hereof, upon a Key Employee's death, Total Disability or
retirement on or after reaching the age of 62, shares of Restricted Stock
shall vest on a pro rata basis, comparing the number of years from the date of
the Award to the date of death, Total Disability or retirement to six years.
Shares of Restricted Stock which do not so vest shall be forfeited to the
Company.
(iv) Termination of Employment Following a Change in Control.
Notwithstanding the provisions of Section 7(d)(i) hereof, if following a
Change in Control, a Key Employee's employment is terminated without Cause or
there is a Constructive Termination Without Cause, all shares of Restricted
Stock subject to an Award shall become immediately vested.
(e)Restrictions.
Until shares of Restricted Stock have vested in accordance with Section 7(d)
hereof, an Award shall be subject to the following restrictions:
(i) Nontransferability. Except as otherwise required by law,
Restricted Stock which has not vested may not be sold, assigned, exchanged,
transferred, pledged, hypothecated or otherwise disposed of, except to the
Company as provided herein.
(ii) Other Restrictions. The Committee may impose such other restrictions
on any Award as it may deem advisable, including without limitation,
stop-transfer orders and other restrictions set forth in the terms of the
Award Agreement or as the Committee may deem advisable under the rules and
regulations, and other requirements of the Securities and Exchange Commission,
and any applicable federal or state securities or other laws.
Section 8. Miscellaneous.
(a) Awards Not Considered Compensation. No Award made under the Plan
shall be deemed salary or compensation for the purpose of computing benefits
under any employee benefit plan or other arrangement of any Participating
Company for the benefit of its employees unless the Company shall determine
otherwise.
<PAGE> 30
(b) Absences. Absence on leave approved by a duly constituted officer of
the Company shall not be considered interruption or termination of employment
for any purposes of the Plan; provided, however, that no Award may be granted
to an employee while he or she is absent on leave.
(c) Delivery to Persons Other Than Key Employee. If the Committee finds
that shares of Restricted Stock are to be delivered under the Plan to a Key
Employee who is unable to care for his or her affairs because of illness or
accident, then any payment due him or her (unless a prior claim therefor has
been made by a duly appointed legal representative) may, if the Committee so
directs, be paid to his or her spouse, a child, a relative, an institution
maintaining or having custody of such person, or any other person deemed by
the Committee to be a proper recipient on behalf of such person otherwise
entitled to delivery. Any such delivery shall be a complete discharge of the
liability of the Company therefor.
(d) Plan Copies. Copies of the Plan and all amendments, administrative
rules and procedures and interpretations shall be made available to all Key
Employees at all reasonable times at the Company's headquarters.
(e) Withholding Taxes. The Company may withhold any taxes in connection
with the Plan that the Company determines it is required to withhold under the
laws and regulations of any governmental authority, whether federal, state or
local and whether domestic or foreign, including, without limitation, taxes in
connection with the delivery of shares of Restricted Stock or the vesting of
Restricted Stock. A Key Employee may elect to satisfy such withholding
requirements either by (i) delivery to the Company of a certified check prior
to the delivery of shares of Restricted Stock which are vested pursuant to
Section 7 hereof, (ii) instructing the Company to retain a sufficient number
of shares of Stock to cover the withholding requirements, or (iii) instructing
the Company to satisfy the withholding requirements from the Key Employee's
salary.
(f) Governing Law. The Plan and all rights hereunder shall be governed by
and construed in accordance with the law as of the State of New York, without
giving effect to its rules on conflicts of law.
(g) Key Employee Communications. All elections, designations, requests,
notices, instructions and other communications from a Key Employee or other
person to the Committee required or permitted under the Plan shall be in such
form as is prescribed from time to time by the Committee and shall be mailed
by first class or delivered to such location as shall be specified by the
Committee.
(h) Binding on Successors. The terms of the Plan shall be binding upon
the Company and its successors and assigns.
(i) Captions. Captions preceding the sections and clauses hereof are
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provisions hereof.
(j) Severability. Whenever possible, each provision of the Plan shall be
interpreted in such manner as to be effective and valid under applicable law.
If any provision of the Plan or the application thereof to any person or
circumstances is prohibited by or invalid under applicable law, such provision
shall be ineffective to the minimal extent of such prohibition or invalidity
without invalidating the reminder of such provision or the remaining
<PAGE> 31
provisions of the Plan or the application of such provision to other persons
or circumstances.
(k) Duration, Amendment, and Termination. The Board may at any time
amend or terminate this Plan as of any date specified in a resolution adopted
by the Board. The Plan may also be amended by the Committee, provided that
all such amendments are reported to the Board. Each amendment shall be
subject to stockholder approval if required by Rule 16b-3 under the Exchange
Act or a successor rule or regulation. No amendment of the Plan may affect an
Award theretofore granted under the Plan without the written consent of the
Key Employee affected. If not earlier terminated, the Plan shall terminate on
December 31, 2000. No Award may be granted after this Plan has terminated.
After the Plan has terminated, the functions of the Committee shall be limited
to supervising the administration of Awards previously granted. Termination
of the Plan shall not affect any Award previously granted.
<PAGE> 32
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 1, 1998 at the Annual Meeting of Stockholders to be held at
the offices of the Company at 3 Corporate Drive, Danbury,
Connecticut, on May 14, 1998 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, 3 and 4.
COGNITRONICS CORPORATION
P.O. BOX 11257
NEW YORK, NY 10203-0257
(Continued and to be signed on reverse side)
<PAGE> 33
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 140,000.
FOR ___ AGAINST ___ ABSTAIN ___
3. TO APPROVE A PROPOSAL TO AMEND THE COMPANY'S RESTRICTED STOCK PLAN to
increase the number of shares reserved for issuance thereunder by 40,000.
FOR ___ AGAINST ___ ABSTAIN ___
4. TO APPROVE THE SELECTION OF ERNST & YOUNG LLP as independent
auditors of the company.
FOR ___ AGAINST ___ ABSTAIN ___
5. 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: _________________________________, 1998
______________________________________________
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.
