<PAGE> 1
COGNITRONICS CORPORATION
3 CORPORATE DRIVE
DANBURY, CONNECTICUT 06810-4130
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 2000
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 11, 2000, at 10:00 a.m., for the
following purposes:
1. To elect seven directors to the Board of Directors.
2. To approve the adoption of an amendment to the Company's Certificate of
Incorporation increasing the authorized shares of the Company's Common
Stock from 10,000,000 to 20,000,000.
3. To approve the Company's 1990 Stock Option Plan, as amended, including
an increase in the number of shares reserved for issuance thereunder by
250,000.
4. To approve the Company's Restricted Stock Plan, as amended, including an
increase in the number of shares reserved for issuance thereunder by
40,000.
5. To approve the Company's Directors' Stock Option Plan, as amended.
6. To approve the selection of Ernst & Young LLP as independent auditors
for the Company for the year ending December 31, 2000.
7. 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 March 31, 2000 will be entitled to vote at the meeting or any
adjournment thereof.
A proxy statement and proxy are enclosed.
Harold F. Mayer
Secretary
April 20, 2000
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE.
<PAGE> 2
COGNITRONICS CORPORATION
APRIL 20, 2000
ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 2000
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 11, 2000,
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 March 31, 2000, there were
outstanding and entitled to vote 5,862,379 shares of Common Stock. Only
holders of Common Stock of record at the close of business on March 31, 2000
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, 2000 with respect to (i) current directors
and nominees for directors of the Company; (ii) the executive officers listed on
the Summary Compensation Table; (iii) current directors and executive 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......................... 11,439(c) (a)
Brian J. Kelley......................... 485,190(b)(d) 8.3%
Jack Meehan............................. 3,000(c) (a)
William A. Merritt...................... 10,500(c) (a)
Timothy P. Murphy....................... 11,551(c) (a)
David H. Shepard........................ 3,200(e) (a)
Roy A. Strutt........................... 208,550(b)(f) 3.6%
Kenneth G. Brix......................... 107,834(b) 1.8%
Michael N. Keefe........................ 125,611(b)(g) 2.1%
Garrett Sullivan........................ 132,788(b)(h) 2.3%
All directors and officers as a group,
including those listed above, consisting
of 12 persons.......................... 1,255,575(b)(c)(i) 21.5%
(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 -
100,001, Roy A. Strutt - 43,750, Kenneth G. Brix - 45,500, Michael N.
Keefe - 45,500, Garrett Sullivan - 45,500 and all current directors and
officers as a group - 348,251. 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 equivalent shares of Common Stock recorded in the books
and records of the Company as deferred compensation, as follows: Edward
S. Davis - 14,799 shares, Jack Meehan - 15,099 shares, William A.
Merritt - 9,549 shares, Timothy P. Murphy - 15,191 shares and all current
officers and directors as a group - 54,638 shares.
(d) With respect to 15,091 of the shares, voting and investment power is
shared with Mr. Kelley's spouse.
(d) With respect to 150 of the shares, voting and investment power is
shared with Mr. Shepard's spouse.
(e) Includes 4,875 shares held in the name of Mr. Strutt's spouse.
(f) With respect to 2,955 of the shares, voting and investment power is
shared with Mr. Keefe's spouse.
(g) With respect to 32,257 of the shares, voting and investment power is
shared with Mr. Sullivan's spouse.
(h) With respect to 55,328 of the shares, voting and investment power is
shared with the spouses of the beneficial owners.
<PAGE> 4
1. ELECTION OF DIRECTORS
At the Annual Meeting, seven directors are to be elected, to serve for the
ensuing year and until their respective successors are elected and qualified.
Proxies in the accompanying form will be voted for the election of the nominees
listed below unless instructions are given on the proxy to withhold authority to
vote for one or more of the nominees. In the event that one or more of such
persons become 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, 68, is a partner with the New York law firm 1981
of Hughes Hubbard & Reed LLP. He is a director of Hillenbrand
Industries, Inc.
Brian J. Kelley, 48, has been President and Chief Executive 1994
Officer 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, 50, has been President and Chief Executive Officer of 1991
Aztec International, Inc., a subsidiary of Aztec Technology Partners,
Inc., since 1983.
William A. Merritt, 63, has been President of Integrated 1994
Communications Systems Corp. since 1992, Vice President and General
Counsel of Seaboard Properties, Inc. since 1992 and acting Chief
Financial Officer of McAllister Towing and Transportation Company
Inc. since 1997. 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.
Timothy P. Murphy, 72, 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, 76, was Chairman of the Board of 1962 the Company 1962
from 1987 to 1992 and also from 1978 to 1984. He was Senior Vice
President and Chief Scientific Officer of the Company in 1990 and
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.
<PAGE> 5
Roy A. Strutt, 43, 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.
The foregoing nominees are all members of the Board of Directors and each was
elected at the 1999 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
votes "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, 1999, 1998 and 1997 to
its five most highly compensated executive officers whose aggregate cash
compensation exceeded $100,000 for services rendered to the Company in 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
(a) (b) (c) (d) (e) (f) (g)
RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL SALARY BONUS STOCK SARS COMP.
POSITION YEAR $ $ $(1) # $(2)
Brian J. Kelley 1999 264,904 270,000 67,500 75,000 3,952
President and Chief 1998 241,923 213,389 85,000 45,000 4,228
Executive Officer 1997 230,000 323,664 18,750 37,500 4,103
Kenneth G. Brix 1999 240,366 50,000 20,250 16,500 3,453
Vice President, Sales 1998 183,004 43,863 35,000 16,279 3,645
1997 205,507 63,000 7,500 18,750 2,568
Roy A. Strutt 1999 149,529 29,975 12,824
Vice President, 1998 143,593 53,951 35,000 15,000 13,206
European Operations 1997 128,000 30,126 7,500 18,750 12,744
and Managing Director,
Dacon Electronics Plc
Michael N. Keefe 1999 125,962 106,000 20,250 16,500 3,358
Vice President, 1998 115,962 75,872 35,000 16,059 3,494
Engineering 1997 110,000 130,966 7,500 18,750 2,721
Garrett Sullivan 1999 125,962 96,000 20,250 16,500 3,106
Treasurer and Chief 1998 115,962 75,872 35,000 16,059 3,146
Financial Officer 1997 110,000 130,966 7,500 18,750 3,001
<PAGE> 6
(1) The Compensation Committee awarded restricted shares of Common Stock under
the terms of the Restricted Stock Plan on April 3, 1997, as follows: Mr.
Kelley - 6,000 shares and Messrs. Strutt, Brix, Keefe and Sullivan - 2,400
shares each, on September 2, 1998, as follows: Mr. Kelley - 12,750 shares
and Messrs. Brix, Keefe, Strutt and Sullivan - 5,250 shares each and on
June 16,1999, as follows: Mr. Kelley - 7,500 shares and Messrs. Brix, Keefe
and Sullivan - 2,250 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, 1997 through 2003 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. 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 - 42,000 shares, Messrs. Brix,
Keefe and Sullivan - 17,700 shares each and Mr. Strutt - 15,300 shares.
Shares vested in 1998 as follows: Mr. Kelley - 6,000 shares and Messrs.
Brix, Keefe, Strutt and Sullivan - 2,550 shares each. Shares vested in
1999 as follows: Mr. Kelley - 4,050 shares and Messrs. Brix, Keefe and
Sullivan - 1,500 shares each and Mr. Strutt - 1,980 shares. The number of
shares and value of the aggregate restricted stock holdings at December 31,
1999 are: Mr. Kelley - 14,500 shares, $244,688; Messrs. Brix, Keefe and
Sullivan - each 1,800 shares, $101,250 and Mr. Strutt - 6,120 shares,
$103,275.
(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 - $2,400 in matching contributions and $1,552 in life
insurance premiums, Mr. Brix - $2,400 in matching contributions and $1,552
in life insurance premiums, Mr. Keefe - $2,400 in matching contributions
and $958 in life insurance premiums, Mr. Sullivan - $2,148 in matching
contributions and $958 in life insurance premiums and Mr. Strutt - $12,824
in pension contributions. There are no cash values associated with the term
life insurance.
<PAGE> 7
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------- ----------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
% of Total Market
Options Price on
Options Granted to Exercise Date of
Granted Employees Price Grant Expiration
Name (#) in 1999 ($/Sh) ($/Sh) Date 0%($) 5%($) 10%($)
- -------------- ------- ---------- ------ -------- ----------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Brian J. Kelley 75,000(1) 52.6 9.00 6/16/04 0 186,490 412,094
Kenneth G. Brix 16,500(1) 11.6 9.00 6/16/04 0 41,028 90,661
Michael N. Keefe 16,500(1) 11.6 9.00 6/16/04 0 41,028 90,661
Garrett Sullivan 16,500(1) 11.6 9.00 6/16/04 0 41,028 90,661
</TABLE>
(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 1999 AND 1999 YEAR-END OPTION VALUES
(A) (B) (C) (D) (E)
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE YEAR-END (#) YEAR-END ($)
ACQUIRED ON REALIZED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
Brian J. Kelley . . 103,633 997,519 60,001 982,689
105,000 699,900
Kenneth G. Brix . . 31,279 294,303 35,000 471,363
26,500 231,989
Michael N. Keefe . . 31,059 293,483 35,000 471,363
26,500 231,989
Garrett Sullivan . . 30,309 287,720 35,000 471,363
26,500 231,989
Roy A. Strutt . . 48,000 462,024 38,750 484,544
10,000 102,050
<PAGE> 8
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, 1999, 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 1999 were entitled to
payment of (a) an annual fee of $3,000 and (b) $1,000 (maximum $5,000 per year)
for each Board meeting attended, of which there were four during 1999, and for
each meeting of a committee of the Board not held in conjunction with a Board
meeting, of which there were two in 1999. Directors may voluntarily defer the
receipt of such fees to a future year. Directors may elect to be paid in cash or
in shares of Common Stock of the Company. If a director elected to be paid in
shares, he was entitled to 125% of the equivalent value in shares. Directors
are also entitled to reimbursement of reasonable travel expenses.
In September 1998, the Board unanimously approved the Directors' Stock
Option Plan (the "Directors' Plan") covering directors and officers who are not
employees of the Company; the stockholders approved the adoption of the
Directors' Plan and the awards thereunder at the Annual Meeting of Stockholders
on May 13, 1999. The terms of the Directors' Plan provided for the automatic
award of options to purchase 3,000 shares of Common Stock on September 17, 1998
and an annual award of 1,500 shares to each person who is a participant on
August 1 of each subsequent year thereafter. The option exercise price is 100%
of the fair market value per share of Common Stock on the date of the award, as
defined in the Directors' Plan. Generally, the options become exercisable one
year after the date of award and expire five years after the date of award.
During 1999, Messrs. Davis, Meehan, Merritt, Murphy, and Shepard were awarded
options to purchase 1,500 shares of Common Stock each at an exercise price of
$11.17 per share. None of the aforementioned persons exercised options in 1999.
The number of unexercised options and the value of unexercised in-the-money
options held at December 31, 1999 by each of the aforementioned persons
were as follows: exercisable - 3,000 shares, $50,625; unexercisable - 1,500
shares, $25,313.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Meehan, Merritt and
Murphy, all of whom are "non-employee directors" 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 has prepared the
following report for inclusion in this Proxy Statement.
<PAGE> 9
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 compensation 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 compensation 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
organizational and management development progress and the degree
to which teamwork and Company values are fostered.
The Company seeks fairness in the administration of compensation.
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
<PAGE> 10
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 Telecommunications Processing Systems and Products Industry Group (the
"MG Peer Group") for the five years ended December 31, 1999.(1)
____________________
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
Cognitronics $100 $318 $165 $903 $429 $1,191
MG Peer Group $100 $122 $134 $201 $359 $680
S&P 500 $100 $138 $169 $226 $290 $350
On March 31, 2000, the closing price of the Company's Common Stock on the
American Stock Exchange was 11 5/8; accordingly, a $100 on December 31, 1994
would have resulted in a cumulative total return of $821 on March 31, 2000.
- ---------------------
1 Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on December 31, 1994 and that all dividends were
reinvested.
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 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 1999, the
Committees met as follows: Audit and Compensation - twice and Nominating - once;
the Executive Committee did not meet in 1999.
The Company's Board of Directors has reviewed the qualifications of each
of the members of the Audit Committee and has determined that all of them are
independent (as independence is defined in Section 121A of the American Stock
Exchanges listing standards). In addition, the Audit Committee has received the
written disclosures and letter from its independent auditors required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees", and has discussed with the independent auditors the
independent auditors independence.
During 1999, 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.
<PAGE> 11
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 New York's indemnification statute. In accordance with the provisions of
these Indemnity Agreements, the Company has agreed, subject to limitations, to
indemnify and pay the reasonable expenses of officers and directors adjudicated
liable in any civil, criminal or other action or proceeding, including any
derivative action, for the acts or decisions made by them in good faith while
performing services for the Company. Such indemnification would be made by the
Company only if authorized by a court, by the Board of Directors or by the
stockholders, as specified in the Indemnity Agreements, and any expenses or
other amounts paid by way of indemnification, otherwise than by court order or
action of the stockholders, would be reported to stockholders as provided by
law. No indemnification by the Company would be made to or on behalf of any
officer or director if a judgment or other final adjudication adverse to such
officer or director established that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. The Indemnity
Agreements also obligate the Company to advance to officers and directors funds
to pay the reasonable expenses incurred from time to time before any final
determination of their rights to indemnification, subject to repayment to the
extent required by the indemnification terms.
The Company's Certificate of Incorporation limits 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 carried Directors' and Officers' Liability Insurance covering
directors and officers for amounts up to $4 million in 1999.
The Company has an Employment Contract with David H. Shepard, a director,
under which $30,516 was paid to Mr. Shepard in 1999. Mr. Shepard is entitled
to receive $32,604 in 2000 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 1999 under a former supplemental
pension plan for officers, which he is entitled to receive each year for the
remainder of his lifetime.
During 1999 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.
The Company has advanced to officers amounts required to be paid for
income taxes related to stock awards under its 1990 Stock Option and Restricted
Stock Plans and stock bonuses. In connection therewith, during 1999 and at
March 1, 2000, Brian J. Kelley, President and a director, and Mr. Strutt, a Vice
President and director, were indebted to the Company in amounts of $107,000
and $127,000, respectively, 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
<PAGE> 12
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, 2005, 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.
In the event of a change in control, the Company's 1990 Stock Option and
Directors' Option Plans provide 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, 1999 to March 1, 2000 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 "Exchange Act"), the Company's directors, officers and any person holding
more than ten percent of the Company's Common Stock are required to file reports
<PAGE> 13
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 1999 by its
directors, officers and ten percent holders, except as follows: Messrs. Mayer,
Shepard and Strutt - 1 report, 1 transaction; Messrs. Kelley and Sullivan - 1
report, 4 transactions; Messrs. Brix, Keefe and Zizzo - 1 report, 5 transaction;
Messrs. Davis and Meehan - 1 report, 6 transaction; and Messrs. Merritt and
Murphy - 1 report, 7 transactions. Except for Mr. Strutt, each made a late
filing of one report of beneficial ownership on Form 5 and Mr. Strutt made a
late filing of beneficial ownership on Form 4. Each of the late reports on
Forms 4 and 5 have been filed. In making these statements, the Company has
relied on 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 OF THE COMPANY'S CERTIFICATE OF INCORPORATION
AUTHORIZING ADDITIONAL COMMON STOCK
The Board of Directors has proposed the adoption of an amendment to the
Company's Certificate of Incorporation that would increase the number of
authorized shares of Common Stock from 10,000,000 shares to 20,000,000 shares.
As of March 31, 2000, there were 5,862,379 shares of Common Stock issued
and outstanding. In addition, 731,936 shares of Common Stock were reserved for
issuance under the Company's Stock Option, Employee Stock Purchase, Directors'
Stock Option and Restricted Stock Plans. Therefore only 3,405,685 shares of
Common Stock remain authorized and available for other purposes.
Management believes that it is desirable and in the best interest of the
Company to increase the number of authorized shares of Common Stock which may
be issued in the future. Authorized but unissued shares would be available for
issuance by action of the Board of Directors without stockholder approval
(except when required by law or by the rules of the American Stock Exchange)
for such proper corporate purposes as the board may determine, including stock
splits, stock dividends, convertible securities, acquisitions, private
placements, public offerings and stock option and other employee benefit plans.
Currently there is only one contemplated use for additional shares of
Common Stock. If the amendments to the Company's 1990 Stock Option and
Restricted Stock Plans, described below, are approved, 290,000 additional shares
of Common Stock would be reserved for issuance under those plans.
The additional shares for which authorization is sought will be identical
to the shares of Common Stock now authorized and outstanding. This amendment
will not affect the terms or rights of holders of the Common Stock. The holders
of Common Stock have no preemptive rights.
Approval of the amendment to the Certificate of Incorporation requires the
affirmative vote of a majority of all outstanding shares of Common Stock.
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 votes "for" the amendment.
MANAGEMENT RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT AUTHORIZING
ADDITIONAL SHARES OF THE COMPANY'S COMMON STOCK.
<PAGE> 14
3. APPROVAL OF THE COMPANY'S 1990 STOCK OPTION PLAN, AS AMENDED
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 1,327,500 shares of Common Stock (adjusted for stock
splits) were reserved for issuance pursuant to stock options.
In April 2000, subject to stockholder approval at the Annual Meeting, the
Board of Directors adopted an amendment to the 1990 Plan, which includes an
increase in the number of shares of Common Stock reserved for issuance upon the
exercise of options granted under the 1990 Plan by 250,000 to a total of
1,577,500 shares and changes in the terms and exercise of option grants.
As of March 31, 2000 outstanding and unexercised options to purchase
502,651 shares were held by 54 persons, with exercise prices ranging from $2.42
to $9.00 per share and a weighted average exercise price of $5.77 per share.
Taking into account the increase of 250,000 shares reserved for the 1990 Plan
approved by the Board of Directors and to be submitted for stockholder approval
at the Annual Meeting, 374,220 shares will be available for future option
grants.
During 1999, options to purchase an aggregate of 1,500 shares of Common
Stock, at an exercise price of $9.00 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 100,098 shares of Common Stock, at a weighted
average exercise price of $1.92 per share, were exercised under the 1990 Plan
by this group.
On March 31, 2000, the closing price on the American Stock Exchange of
the Company's Common Stock was $11.63.
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 31, 2000:
NUMBER OF SHARES
FOR WHICH OPTIONS
NAME OF INDIVIDUAL OR GROUP ARE OUTSTANDING
--------------------------- -----------------
Brian J. Kelley..................................... 165,000
Roy A. Strutt....................................... 48,750
Kenneth G. Brix..................................... 61,500
Michael N. Keefe.................................... 61,500
Garrett Sullivan.................................... 61,500
David H. Shepard.................................... 0
All executive officers as a group (7 persons) ...... 459,750
All employees as a group (excluding all
executive officers)(48 persons) .................... 42,901
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the 1990 Plan, including the proposed
<PAGE> 15
amendment, is qualified in its entirety by the specific language of the 1990
Plan, a copy of which is attached to this 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 "Board"). The
Committee will be comprised of not less than three members of the Board who are
"non-employee directors" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"). 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. The Board has the right to exercise any authority granted
to the Committee under the 1990 Plan.
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 31, 2000
was 90. No employee may be granted option with respect to more than 100,000
shares of Common Stock in any calendar year.
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. The Committee determines the vesting schedule and other terms and
conditions of each grant. The Committee may accelerate the vesting of any
option. 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.
<PAGE> 16
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 exercised 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 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, merger, consolidation, extraordinary dividend, spin-off,
split-off or other change in capital structure of the Company. Any such change
shall preserve the aggregate value of outstanding options. 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 any award previously granted without the optionee's written consent.
Amendments may be made without stockholder approval except as required to
satisfy applicable law or stock exchange requirements.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE 1990 PLAN
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.
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 and 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
<PAGE> 17
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.
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 THIS PROPOSAL TO APPROVE THE 1990 PLAN, AS
AMENDED.
4. APPROVAL OF THE COMPANY'S RESTRICTED STOCK PLAN, AS AMENDED
GENERAL
In May 1995, the stockholders of the Company approved the adoption of the
Company's Restricted Stock Plan (the "Restricted Plan") and, in May 1998, an
amendment thereto. Under the Restricted Plan, an aggregate of 285,000 shares of
Common Stock (adjusted for a stock split) 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").
In April 2000, subject to stockholder approval at the Annual Meeting, the
Board of Directors adopted an amendment to the Restricted Plan, which includes
an increase in the number of shares of Common Stock reserved for issuance upon
awards to Key Employees by 40,000 to a total of 325,000 shares and a change in
the accelerated vesting of awards.
Since the inception of the Restricted Plan to March 31, 2000, 286,500
<PAGE> 18
shares of Common Stock have been issued to 15 Key Employees with market values
on the date of the awards ranging from $2.13 to $9.00 per share and a weighted
average market value of $3.38 per share, and 1,587 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, 40,087 shares will be available for future stock
awards.
On March 31, 2000, the closing price on the American Stock Exchange of
the Company's Common Stock was $11.63.
SUMMARY OF THE PROVISIONS OF THE RESTRICTED PLAN
The following summary of the Restricted Plan, including the proposed
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.
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 "non-employee
directors" within the meaning of Rule 16b-3 under 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. Amendments may be made without stockholder approval
except as required by applicable law or stock exchange requirements. 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. The Restricted Plan also provides for adjustment of the
number of shares available under the Restricted Plan and subject to outstanding
awards in the event of specified changes in the Company's capital structure.
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 been selected by the Committee to
participate in the Restricted Plan.
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> 19
To the extent that a Key Employee remains continuously employed by a
Participating Company, 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. However, 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 over six years from the
date of grant 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. 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 that Key Employee's awards 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.
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 taxes required to be withheld.
The terms of the Restricted Plan are binding upon the Company and its
successors and assigns.
The Board may at any time terminate the Restricted Plan as of any date
specified in a resolution adopted by the Board. 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.
MANAGEMENT RECOMMENDS A VOTE FOR THIS PROPOSAL TO APPROVE THE RESTRICTED PLAN,
AS AMENDED.
<PAGE> 20
5. APPROVAL OF THE COMPANY'S DIRECTORS' STOCK OPTION PLAN, AS
AMENDED
GENERAL
In May 1999, the stockholders of the Company approved the adoption of the
Company's Directors' Stock Option Plan ("the Directors' Plan") and 52,500 shares
of the Company's Common Stock (adjusted for stock splits) were reserved for
issuance upon the exercise of options awarded thereunder.
The purpose of the Directors' Plan is to increase the ownership interest
in the Company of non-employee directors and officers whose services are
considered essential to the Company's continued progress, to align such
interests with those of the stockholders of the Company and to provide a further
incentive to serve as a director or officer of the Company.
In March 2000, subject to stockholder approval at the Annual Meeting, the
Board of Directors adopted an amendment to the Directors' Plan, which includes
an increase in the number of shares to be included in the option to be awarded
to each participant on August 1 of each year from 1,500 to 3,000 and changes in
the terms and exercise of options.
At March 31, 2000, outstanding and unexercised options to purchase 27,000
shares of the Company's Common Stock were held by 6 participants with exercise
prices ranging from $5.50 to $11.17 per share, and there were 25,500 shares
available for future option grants at March 31, 2000.
On March 31, 2000, the closing price of the Company's Common Stock on the
American Stock Exchange was $11.63.
The following table shows, as to (i) each nominee for election as a
director who is eligible to participate in the Directors' Plan; (ii) the persons
identified in the Summary Compensation Table; (iii) any person who has received
5% or more of grants ; and (iv) all current participants as a group, the
number of shares for which options are outstanding under the Directors' Plan
as of March 31, 2000:
NUMBER OF SHARES FOR
NAME OF INDIVIDUAL OR GROUP WHICH OPTIONS ARE OUTSTANDING
Edward S. Davis ........................... 4,500
Jack Meehan................................ 4,500
Harold F. Mayer............................ 4,500
William A. Merritt ........................ 4,500
Timothy P. Murphy ......................... 4,500
David H. Shepard .......................... 4,500
All current participants as a group
(6 persons) ............................... 27,000
SUMMARY OF THE PROVISIONS OF THE DIRECTORS' PLAN
The following summary of the Directors' Plan is qualified in its entirety
by reference to the full text of the Plan which is attached to this proxy
statement as Exhibit C.
The Directors' Plan shall be administered by the Board of Directors.
The Directors' Plan covers outside directors and officers which means a
director or officer of the Company who is neither an employee of the Company nor
of any subsidiary of the Company ("Participant").
<PAGE> 21
The Directors' Plan provides for an automatic award of an option to
purchase 3,000 shares of Common Stock to each person who was a Participant on
September 17, 1998, the Effective Date of the Plan, and an annual award of an
option to purchase 3,000 shares of Common Stock to each person who is a
Participant on August 1 of each subsequent year.
The option exercise price is 100% of the Fair Market Value per share of
Common Stock on the Date of Award, as defined in the Plan.
Each option shall expire no later than the fifth anniversary of its Date of
Award and shall become exercisable on the date one year after the Date of Award.
The Board may waive any exercise conditions or accelerate the exercisability of
the option at any time. After becoming exercisable, each option shall remain
exercisable until its expiration or termination. 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 Board may provide in the option, which may include
cash (including cash equivalents) or any other manner permitted by law as
determined by the Board or any combination of the foregoing.
If a Participant ceases, other than by reason of death or retirement, to
be a director or officer of the Company, all options awarded to him and
exercisable on the date he ceases to be a director or officer shall terminate on
the earlier of such options' expiration or three months after the date he ceases
to be a director or officer or as otherwise determined by the Board. Any option
not exercisable on the date of such termination shall lapse and be thenceforth
unexercisable.
If a Participant 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.
If a Participant dies, all options held by him on the date of his death
shall become exercisable on the date of his death, may be exercised by his
estate, personal representative or beneficiary who acquires the options by will
or by the laws of descent and distribution and shall terminate on the earlier
of such option's expiration or the first anniversary of the date of his death.
To the extent an outstanding option expires or terminates unexercised or
is canceled or forfeited, the shares subject to the expired, unexercised,
canceled or forfeited portion of such option are available again for awards of
options under the Directors' Plan.
Upon the occurrence of a change in control, as defined, all outstanding
options become fully exercisable in accordance with the terms and conditions of
the Directors' Plan.
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 exercised 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 Directors' Plan, and the
maximum number of shares that may be sold, issued or transferred to a
Participant, will be proportionately adjusted to reflect, as deemed equitable
<PAGE> 22
and appropriate by the Board, 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 Board, subject to any required
action by stockholders, in any merger, consolidation, reorganization,
liquidation or dissolution, any option granted under the Directors' Plan
pertains to the securities and other property to which a holder of the number of
shares of Common Stock covered by the option would have been entitled to receive
in connection with such event.
The Board may discontinue the Directors' Plan at any time and may amend it
from time to time. No amendment or discontinuation of the Directors' Plan may
adversely affect any option previously awarded without the optionee's written
consent. Amendments may be made without stockholder approval except as required
to satisfy applicable law or stock exchange requirements.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTORS' PLAN
The Company believes that under present law, the following are the federal
tax consequences generally arising with respect to option awards under the
Directors' Plan. The award of an option will create no tax consequences for an
optionee or the Company. Upon exercising an option, the optionee must recognize
ordinary income equal to the difference between the exercise price and the
fair market value of the shares on the date of exercise. The Company will be
entitled to a deduction for the same amount. The tax treatment by an optionee
on a disposition of shares acquired through the exercise of an option depends on
how long the shares have been held. Any gain or loss on a later disposition of
shares acquired through the exercise of an option will constitute capital gain
or loss to the optionee equivalent to the difference between the share proceeds
and the aforementioned fair market value. The applicable holding period to
determine whether such gain is long- or short-term is measured from the date of
the option exercise. There will be no tax consequences to the Company in
connection with a disposition of shares acquired under an option.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors believes that adoption and approval of the
Directors' Plan is in the best interests of the Company, as it is important to
attracting, motivating and retaining qualified non-employee directors and
officers 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 proposal. Shares represented at
the meeting by proxy for which the proxy cards have been left blank will be
counted as for the proposal.
MANAGEMENT RECOMMENDS A VOTE FOR THIS PROPOSAL TO APPROVE THE DIRECTORS' PLAN,
AS AMENDED.
6. 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, 2000, 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
<PAGE> 23
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.
7. 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 2001 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal intended to be presented at the 2001 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 22, 2000 wether 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 2001 Annual
Meeting must be so received on or before 5:00 p.m. on January 14, 2001. 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 Mayer
Secretary
Dated: April 20, 2000
<PAGE> 24
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 a "non-employee
director" 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. No employee shall be granted options with respect to more than
100,000 shares of Common Stock in any calender year, subject to adjustment
pursuant to Section 7.
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 1,577,500 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
<PAGE> 25
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 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. Options
shall become exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee. The
Committee may waive such exercise provisions or accelerate the
exercisability of the option at any time. After becoming exercisable,
each installment (option?) 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
<PAGE> 26
estate, personal representative or beneficiary who acquires the option
by will or by the laws of descent and distribution, at any time prior
to the earlier of such option's expiration or the first anniversary of
the optionee's death. On the earlier of such dates, the option shall
terminate.
(f) Assignability. No option shall be assignable or transferable by
the optionee except by will or by laws of descent and distribution,
and during the lifetime of the optionee the option shall be
exercisable only by him. At the request of an optionee, shares of
Common Stock purchased on exercise of an option may be issued or
transferred in the name of the optionee and another person jointly
with the right of survivorship.
(g) Other provisions. Instruments evidencing options may contain
such other provisions, not inconsistent with the Plan, as the
Committee deems advisable, including a requirement that an optionee
represent to the Company in writing, when an option is granted, or
when he receives shares on its exercise, that he is accepting such
option, or receiving such shares (unless they are then covered by
a Securities Act of 1933 registration statement), for his own account
for investment only. All certificates representing shares issued
under the Plan may bear a legend deemed appropriate by the
Committee to confirm an exemption from the registration requirements
of the Securities Act of 1933.
7. CAPITAL ADJUSTMENTS
The number and price of shares of Common Stock covered by each
option, the total number of shares that may be sold under the Plan, and
the maximum number of shares that may be sold, issued or transferred
to an employee, shall be proportionately adjusted to reflect, as deemed
equitable and appropriate by the Committee, any stock dividend, stock
split or share combination of the Common Stock or recapitalization,
merger, consolidation, extraordinary dividend, spin-off, split-off or other
change in the capital structure of the Company. Any such adjustment shall
preserve the aggregate value of outstanding options.
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. 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.
<PAGE> 27
"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 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
<PAGE> 28
(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).
10. 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 applicable law or stock exchange requirements.
11. 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 Resolutions of Stockholders on May
14, 1998, May 13, 1999 and May 11, 2000.
12. NEW YORK STATE LAW
The Terms of the Plan shall be governed by the laws of the State of
New York.
<PAGE> 29
EXHIBIT B
COGNITRONICS CORPORATION
RESTRICTED STOCK PLAN, AS AMENDED
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;
<PAGE> 30
(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 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
<PAGE> 31
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 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 Company 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
"non-employee directors" within the meaning of Rule 16b-3 under the
<PAGE> 32
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
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.
<PAGE> 33
(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 325,000 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 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
<PAGE> 34
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:
PORTION OF
PERIOD OF EMPLOYMENT 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 Award 100%
(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.
(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 held by that Key Employee shall become immediately
vested.
<PAGE> 35
(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.
(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
<PAGE> 36
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 remainder of such provision or the remaining provisions of the
Plan or the application of such provision to other persons or
circumstances.
(k) DURATION, AMENDMENT, AND TERMINATION. The Plan shall
continue in effect until terminated by the Board 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. Amendments may be made without stockholder approval except as
required to satisfy applicable law or stock exchange requirements. No
amendment of the Plan may affect an Award theretofore granted under
the Plan without the written consent of the Key Employee affected. 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> 37
EXHIBIT C
COGNITRONICS CORPORATION
DIRECTORS' STOCK OPTION PLAN, AS AMENDED
1. PURPOSE
The Director' Stock Option Plan (the "Plan") is intended to provide
incentives to non-employee directors and officers of Cognitronics
Corporation (the "Company") by more closely aligning their compensation
with stockholder value.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors.
The Board shall have authority, subject to the terms of the Plan, to
interpret the Plan and make all determinations necessary or advisable
for its administration. The Board 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.
3. ELIGIBILITY
All outside directors and officers (individually "Participants",
collectively "Participants") shall be eligible to participate in the
Plan. An outside director or officer means a director or officer who is
neither an employee of the Company nor of any subsidiary of the Company.
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 Participants under the Plan pursuant to
options shall not exceed 35,000 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. AWARDING OF OPTIONS
Options shall be awarded to Participants as follows:
(a) Upon the Effective Date, an option to purchase 3,000 shares of
Common Stock.
(b) On each August 1 subsequent to the Effective Date, an option to
purchase 3,000 shares of Common Stock.
The "Date of Award" of an option shall be the date on which the option is
awarded under the Plan. The award of any option to any Participant shall
neither entitle such Participant to, nor disqualify him from, participation
in any other plan which provides for the issuance of Common Stock.
6. TERMS AND CONDITIONS OF OPTIONS
<PAGE> 38
Options shall be evidenced by instruments in form approved by the
Board. 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 Award.. "Fair Market Value" shall be the closing price of
the Common Stock recorded on the American Stock Exchange on the
Date of Award or, if the Common Stock is not traded on such date, on
the last trading day prior thereto.
(b) Term and exercise of options. Each option shall expire no
later than the fifth anniversary of its Date of Grant and shall
become exercisable on the date one year after the Date of Grant. The
Board may waive any exercise conditions or accelerate the
exercisability of the option at any time. After becoming exercisable,
each option shall remain exercisable until its expiration or
termination. 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 Board may provide in the option, which may include
cash (including cash equivalents) or any other manner permitted by
law as determined by the Committee or any combination of the
foregoing.
(c) Termination of Participant. If a Participant ceases, other than by
reason of death or retirement, to be a director or officer of the
Company, all options awarded to him and exercisable on the date of he
ceases to be a director or officer shall terminate on the earlier of
such options' expiration or three months after the day he ceases to
be a director or officer or as otherwise determined by the Committee.
Any option not exercisable on the date of such termination shall lapse and
be thenceforth unexercisable.
(d) Retirement of Participant. If a Participant 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 Participant. If a Participant dies, his options may be
exercised, to the extent of the number of shares with respect to which he
could have exercised on the date of his death, by his estate,
personal representative or beneficiary who acquires the option by will
or by the laws of descent and distribution, at any time prior to the
earlier of such option's expiration or the first anniversary of the
Participant's death. On the earlier of such dates, the option shall
terminate.
(f) Assignability. No option shall be assignable or transferable by
the Participant except by will or by laws of descent and distribution,
and during the lifetime of the Participant the option shall be
exercisable only by him. At the request of a Participant, shares of
Common Stock purchased on exercise of an option may be issued or
transferred in the name of the Participant 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 Board
<PAGE> 39
deems advisable, including a requirement that a Participant represent
to the Company in writing, when an option is awarded, 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
In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock split,
spin-off, distribution of assets or other change in corporate structure
affecting the Common Stock such that an adjustment is determined by the
Board to be appropriate, the Board shall, in such a manner as it may deem
equitable in its sole discretion, substitute or adjust any or all of (i)
the aggregate number and kind of shares reserved for issuance under the
Plan, (ii) the number and kind of shares as to which awards may be granted
to any individual in any fiscal year, (iii) the number and kind of shares
subject to outstanding awards, and (iv) the exercise price of outstanding
stock options; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award.
In addition, upon the dissolution or liquidation of the Company or upon any
reorganization, merger, or consolidation as a result of which the Company
is not the surviving corporation (or survives as a wholly-owned subsidiary
of another corporation), or upon a sale of substantially all the assets of
the Company, the Board may take such action as it in its discretion deems
appropriate to (i) accelerate the time when stock options may be exercised,
(ii) cash out such stock options at or immediately prior to the date of
such event, or (iii) provide for the assumption of outstanding stock
options by surviving, successor or transferee corporations.
The Board's determination as to which adjustments shall be made and the
extent thereof shall be final, binding and conclusive.
8. 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 a
Participant 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
<PAGE> 40
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 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).
9. TERM; AMENDMENT OF PLAN
The Board or the Committee 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 outstanding award without the Participant's
written consent. Amendments may be made without stockholder approval
except as required to satisfy applicable law or stock exchange
requirements.
<PAGE> 41
10. EFFECTIVE DATE
The Plan is in accordance with a Resolution of the Board duly adopted and
approved by unanimous written consent on September 17, 1998 (the "Effective
Date") and a Resolution of Stockholders on May 13, 1999 and amended by a
Resolution of Stockholders on May 11, 2000.
11. NEW YORK STATE LAW
The Terms of the Plan shall be governed by the laws of the State of New
York.
<PAGE>42
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
March 31, 2000 at the Annual Meeting of Stockholders to be held at
the offices of the Company at 3 Corporate Drive, Danbury,
Connecticut, on May 11, 2000 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, 4, 5 and 6.
COGNITRONICS CORPORATION
P.O. BOX 11257
NEW YORK, NY 10203-0257
(Continued and to be signed on reverse side)
<PAGE> 43
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 THE ADOPTION OF AN AMENDMENT TO THE COMPANY' CERTIFICATE OF
INCORPORATION increasing the authorized shares of the Company's Common
Stock from 10,000,000 to 20,000,000.
FOR ___ AGAINST ___ ABSTAIN ___
3. TO APPROVE THE COMPANY'S 1990 STOCK OPTION PLAN as amended, including an
increase in the number of shares reserved for issuance thereunder by
250,000.
FOR ___ AGAINST ___ ABSTAIN ___
4. TO APPROVE THE COMPANY'S RESTRICTED STOCK PLAN, as amended, including an
increase in the number of shares reserved for issuance thereunder by 40,000.
FOR ___ AGAINST ___ ABSTAIN ___
5. TO APPROVE THE COMPANY'S DIRECTORS' STOCK OPTION PLAN, as amended.
FOR ___ AGAINST ___ ABSTAIN ___
6. TO APPROVE THE SELECTION OF ERNST & YOUNG LLP as independent
auditors of the company.
FOR ___ AGAINST ___ ABSTAIN ___
7. 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: _________________________________, 2000
______________________________________________
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.
