COMPUDYNE CORPORATION
120 Union Street
Willimantic, CT 06226
(860) 456-4187
May 15, 1996
Dear CompuDyne Shareholders:
The following pages contain the formal notice of the 1996 Annual Meeting
and the Proxy Statement. Please be sure to complete, date, sign and
return the enclosed proxy card promptly to ensure that your shares will be
voted.
Enclosed is CompuDyne's Form 10-K Annual Report as filed with the
Securities and Exchange Commission for the year ended December 31, 1995.
This report describes in detail the Corporation's operations and results
for the past year.
You are invited to attend CompuDyne's Annual Meeting to be held on
Wednesday, June 5, 1996 at 11:00 a.m. at CompuDyne's wholly owned
subsidiary, Quanta Systems Corporation, 213 Perry Parkway, Gaithersburg,
Maryland.
Sincerely,
Martin A. Roenigk
Chairman
........................................................................
COMPUDYNE CORPORATION
Notice of 1996 Annual Meeting of Shareholders
to be held on Wednesday, June 5, 1996
The 1996 Annual Meeting of Shareholders of CompuDyne Corporation (the
"Corporation") will be held on Wednesday, June 5, 1996, at 11:00 a.m.
(E.S.T.) at the Corporation's wholly-owned subsidiary, Quanta Systems
Corporation, 213 Perry Parkway, Gaithersburg, Maryland, for the following
purposes:
1. To elect two directors to serve until the 1998 Annual Meeting of
Shareholders and two directors to serve until the 1999 Annual Meeting of
Shareholders;
2. To consider and vote upon approval of the Corporation's 1996 Stock
Incentive Compensation Plan for Employees;
3. To consider and vote upon approval of the Corporation's 1996 Stock
Option Plan for Non-Employee Directors;
4. To consider and vote upon approval of a change in the Corporation's
state of incorporation from Pennsylvania to Nevada.
5. To ratify the appointment by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of the Corporation for the
fiscal year ending December 31, 1996; and
6. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 27, 1996
as the record date for the determination of shareholders entitled to
notice of, and to vote at, the meeting. The stock transfer books will not
be closed.
The accompanying proxy is solicited by the Board of Directors of CompuDyne
Corporation. Reference is made to the following proxy statement for
further information relating to the business to be transacted at the
meeting. The Board of Directors urges you to execute and return promptly
the enclosed proxy. You are, of course, cordially invited to attend the
meeting and to personally vote your shares.
By Order of the Board of Directors
Diane W. Burns
Secretary
May 15, 1996
.........................................................................
IMPORTANT
.........................................................................
To assure your representation at the meeting, please date and execute the
enclosed Proxy in accord with the instructions contained therein and
return immediately. A return envelope, which requires no postage if
mailed in the United States, is enclosed for that purpose.
.........................................................................
PRELIMINARY PROXY STATEMENT, DATED MAY 1, 1996, FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION
COMPUDYNE CORPORATION
120 Union Street
Willimantic, CT 06226
PROXY STATEMENT
1996 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to shareholders by the Board of
Directors of CompuDyne Corporation ("CompuDyne," the "Corporation" or the
"Company") in connection with the solicitation of proxies for use at the
1996 Annual Meeting of Shareholders of the Corporation to be held on
Wednesday, June 5, 1996, at 11:00 a.m. (E.D.T.) at the Corporation's
wholly-owned subsidiary, Quanta Systems Corporation, 213 Perry Parkway,
Gaithersburg, Maryland 20877. The approximate date on which this Proxy
Statement and the enclosed form of proxy are first to be sent to
shareholders is May 15, 1996.
SOLICITATION OF PROXIES
The expenses of the solicitation of the proxies for the meeting, including
the cost of preparing, assembling and mailing the notice and Proxy
Statement, proxy and return envelopes, the handling and tabulation of
proxies received, and charges of brokerage houses and other institutions,
nominees or fiduciaries in forwarding such documents to beneficial
owners, will be paid by the Corporation. In addition to the mailing of
the proxy material, such solicitation may be made in person or by
telephone by directors, officers or regular employees of the Corporation.
The enclosed proxy is revocable at any time before it is exercised. A
proxy may be revoked by filing with the Secretary of the Corporation a
revoking instrument or a duly executed proxy bearing a later date. The
powers of the proxy holders will be suspended if the person executing the
proxy attends the meeting in person and so requests.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has fixed March 27, 1996 as the record date (the
"Record Date") for determining shareholders entitled to notice of and to
vote at the meeting. On the Record Date, there were 1,807,832 shares of
Common Stock, par value $.75 per share ("Common Stock"), of the
Corporation outstanding and eligible to vote and 1,260,460 shares of
Convertible Preference Stock, Series D ("Series D Preference Stock")
outstanding and eligible to vote on a share for share basis on all
corporate issues other than the election of directors. For election of
directors, each share of Series D Preference Stock is entitled to 1/3.08
of a vote.
The attendance, in person or by proxy, by the holders of a majority of the
outstanding shares entitled to vote will constitute a quorum for the
purpose of conducting the meeting.
The holders of Common Stock and Series D Preference Stock of record at the
close of business on March 27, 1996 will be entitled to vote on all
matters presented at the meeting. Common Stock shareholders will be
entitled to one vote for each share of Common Stock held. Series D
Preference Stock shareholders will be entitled to 1/3.08 of a vote for
each share of Series D Preference Stock held for election of directors and
one vote for each share of Series D Preference Stock held on all other
matters. There will be no cumulative voting for the election of
directors. The affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon is required to elect directors
(Proposal No. 1), to consider and vote upon approval of the Corporation's
1996 Stock Incentive Compensation Plan for Employees (Proposal No. 2), to
consider and vote upon approval of the Corporation's 1996 Stock Option
Plan for Non-Employee Directors (Proposal No. 3), to ratify the
appointment by the Board of Directors of the independent auditors
(Proposal No. 5), and to act upon any other matter as may properly come
before the meeting or any adjournment thereof. The approval of a (i) a
majority of the shares of Common Stock and Series D Preference Stock,
voting together as a single class, (ii) a majority of the shares of Common
Stock voting together as a single class, and (iii) two-thirds of the
shares of Series D Preference Stock, voting together as a separate class,
represented and voting in person or by proxy is required to consider and
vote upon the change in the Corporation's state of incorporation from
Pennsylvania to Nevada (Proposal No. 4). Abstentions, and shares not
voted on a particular matter on proxies returned to the Corporation, will
be treated as not represented at the meeting as to such matter and,
therefore, will have no effect on the vote.
ELECTION OF DIRECTORS (Proposal No. 1)
Pursuant to the By-laws of the Corporation, the Board of Directors has, by
resolution, fixed the number of directorships at five. The directors are
divided into three classes, each class serving for a term of three years.
To the extent practical, one-third of the members of the Board of
Directors are elected by the shareholders annually. Mr. Millard H. Pryor,
Jr. was elected at the 1994 Annual Meeting of Shareholders. In August
1995 Mr. Norman Silberdick, whose term of office was to expire at the 1998
Annual Meeting of Shareholders, resigned as a director of the Corporation.
Mr. Martin A. Roenigk was appointed by the Board to fill his vacancy until
the 1998 Annual Meeting of Shareholders with shareholder approval at the
next annual meeting. Ms. Marjorie E. Morrissey, whose term of office was
to expire at the 1998 Annual Meeting of Shareholders, has tendered her
resignation effective as of the 1996 Annual Meeting of Shareholders. Mr.
Markowitz is a nominee to fill this vacancy until the 1998 Annual Meeting
of shareholders with shareholder approval at the 1996 Annual Meeting. Mr.
Philip M. Blackmon was appointed by the Board in January 1995 to fill the
vacancy created by the resignation of Antoine I. Dominic in December 1994,
whose term of office was to expire at the 1996 Annual Meeting of
Shareholders subject to approval by the shareholders at the next annual
meeting. Mr. Blackmon was elected to serve as a director at the 1995
Annual Meeting of Shareholders with a term of office to expire at the 1996
Annual Meeting of Shareholders. Mr. Blackmon is a nominee to serve as a
director until the 1999 Annual Meeting of shareholders with shareholder
approval at the 1996 Annual Meeting. Mr. David Clark was elected at the
1993 Annual Meeting of Shareholders and is a nominee to serve as a
director of the Corporation whose term of office will expire at the 1999
Annual Meeting of Shareholders. The Board recommends that shareholders
elect nominees Philip M. Blackmon and David Clark to serve as directors of
the Corporation for a term of three years until the 1999 Annual Meeting of
Shareholders and to elect nominees Martin A. Roenigk and Alan Markowitz to
serve as directors of the Corporation for a term expiring at the 1998
Annual Meeting of Shareholders and, in each case, until their successors
are elected and qualified.
Unless authority to vote is withheld, the enclosed proxy will be voted FOR
the election of Alan Markowitz, Martin A. Roenigk, David Clark and Philip
M. Blackmon, whom management believes are willing and available to serve
the Corporation in such capacities. There is no family relationship
between Mr. Markowitz, Mr. Roenigk, Mr. Clark or Mr. Blackmon and any
director or executive officer of the Corporation.
Information with respect to each person nominated for election as a
director and each other person who will continue as a director after the
meeting follows.
Age, Principal Occupation or Position, Year First
Directorships of Other Publicly Owned Corporations Elected
Director
NOMINEES FOR TERM OF OFFICE TO EXPIRE IN 1999:
David W. Clark, Jr., 56 (2)(3)(4) 1985
Mr. Clark is a Managing Director of Pryor & Clark Company, an investment
holding company. From October 1985 until his resignation in June 1993 he
served as Chairman of the Board of Directors of CompuDyne. From May 1989
until his resignation in June 1992, Mr. Clark served as President and
Chief Executive Officer of CompuDyne. Until June 1992, he was the
President, Chief Operating Officer and Treasurer of Corcap. He presently
serves as a Corcap Director. Prior to becoming President of CompuDyne,
Mr. Clark had been employed by Lydall, Inc. (manufacturing) for more than
five years, most recently as President. He also serves as a director of
Acme United Corporation (manufacturing) and Checkpoint Systems, Inc.
(manufacturing).
Philip M. Blackmon, 48 1995
Mr. Blackmon was appointed Executive Vice President and Director of
CompuDyne in January 1995. Mr. Blackmon has been employed by Quanta
Systems Corporation ("Quanta"), a subsidiary of CompuDyne, for over five
years, having served as its President since 1992 and its Vice President
since 1987.
NOMINEES FOR TERM OF OFFICE TO EXPIRE IN 1998:
Martin A. Roenigk, 53 (1) 1995
Mr. Roenigk was elected Chairman of the Board of Directors, President and
Chief Executive Officer of CompuDyne in August 1995. He has also served
as a Director of Corcap, Inc. ("Corcap") since August 1995. Since March
1991 he has served as President of MicroAssembly Systems, Inc., a
manufacturer of proprietary automated fastening systems. He served as
Vice President of Travelers Corporation (financial services) until
December 1993.
Alan Markowitz, 45 (1)
Mr. Markowitz is President of Paragon Financial Services since 1990.
Prior to that time he was Chairman and CEO of the Travelers Mortgage
Services since 1978. Mr. Markowitz serves as a director of Shadow
Broadcast Services (communications).
DIRECTOR WHOSE TERM OF OFFICE TO EXPIRE IN 1997:
Millard H. Pryor, Jr., 62(1)(2)(3)(4) 1985
Mr. Pryor is a Managing Director of Pryor & Clark Company, an investment
holding company. From October 1985 until his resignation in June 1993 he
served as Vice Chairman of the Board of Directors of CompuDyne. He also
served as Treasurer of CompuDyne from June 1991 until his resignation in
June 1992. From June 1988 until his resignation in June 1993 he served as
Chairman and, until his resignation in June 1992, Chief Executive Officer
of Corcap. He presently serves as a Corcap director. Until October 1991,
Mr. Pryor was the Chairman and, until July 1988, the Chief Executive
Officer of Lydall, Inc. for more than five years. He also serves as a
director of The Hartford Funds (financial services), The Wiremold Company
(manufacturing), Pacific Scientific Company (manufacturing) and Infodata
Systems Inc.(computer software).
........................
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation and Stock Option Committee of the Board of
Directors.
(4) Until June 3, 1993, Mr. Clark was Chairman and Mr. Pryor was Vice-
Chairman and Director, of CompuDyne, Inc., that filed a voluntary petition
in bankruptcy under Chapter 7 of the United States Bankruptcy Code on
December 31, 1991.
Since August 1995, Messrs. Markowitz, Pryor and Roenigk have served as the
Executive Committee of the Board of Directors which Committee, with
certain exceptions, has the powers exercisable by the Board of Directors
when it is not in session. Mr. Pryor and Mr. Clark have served as the
Audit Committee of the Board of Directors which Committee has the
responsibility to review the overall control systems of the Corporation,
to advise the Board of Directors with respect to the engagement of
independent auditors who are to audit the books and records of the
Corporation and to approve the scope of any audit to be conducted. Mr.
Pryor and Mr. Clark have also served as the Compensation and Stock Option
Committee of the Board of Directors which Committee has the authority to
determine the compensation of officers of the Corporation and to grant
restricted stock awards, stock options and stock bonus awards to the
employees of the Corporation. The Board of Directors does not have a
standing nominating committee.
During 1995, the Board of Directors held two regular meetings, two
telephonic meetings and acted by the unanimous written consent of its
members on four occasions. No meetings were held by the Executive
Committee, but such Committee acted by the unanimous written consent of
its members on four occasions, and the Audit Committee held no meetings.
Ninety percent of the directors of the Corporation attended all of the
meetings of the Board of Directors.
Directors who are not salaried employees or officers of the Corporation
are entitled to receive $500 for each Board of Directors meeting attended,
plus reimbursement of reasonable expenses for attending the meeting.
EXECUTIVE OFFICERS
The following table sets forth information with respect to each executive
officer ("named executive officer") of the Corporation who were serving as
such at December 31, 1995. Mr. Roenigk was elected Chairman of the Board
of Directors, Chief Executive Officer and President in August 1995. Mr.
Blackmon was elected Executive Vice President of the Corporation in
January 1995.
Name and Age Office Business Experience
..................... ....................... ...................
Martin A. Roenigk, 53 Chairman, President, See previous table.
Chief Executive Officer
Philip M. Blackmon, 48 Executive Vice President See previous table
& President of Quanta
Systems Corporation
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT
The following table sets forth the total annual compensation of the
Corporation's Chairman, President and Chief Executive Officer and its
executive officer whose salary and bonuses exceeded $100,000 in 1995:
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
<CAPTION> Securities All Other
Restricted Under- Compen-
Name and Salary Bonus Stock lying sation
Principal Position Year ($) ($)(1) Awards($)(2) Options(#)(3)
($)(4)
.................... .... ...... ...... ........... .......... ......
<S> <C> <C> <C> <C> <C> <C>
Martin A. Roenigk (5) 1995 19,054 25,000 0 200,000 0
Chairman, President
& CEO
Philip M. Blackmon(6) 1995 98,880 33,345 16,656 0
10,462
President - Quanta 1994 85,000 25,000 0 0 8,850
Systems 1993 84,656 20,000 0 0 0
Norman Silberdick(7) 1995 74,524 0 0 0 5,481
1994 100,000 0 0 0 8,700
1993 100,000 50,000 0 0 0
</TABLE>
(1) Bonuses of $25,000 and $25,000 were awarded to Messrs. Roenigk and
Blackmon, respectively, by the Compensation and Stock Option Committee of
the Board of Directors of CompuDyne in March 1996 for services rendered in
1995. Mr. Blackmon also received a bonus of $8,345 on December 14, 1995
in connection with a restricted stock award (see Note 2 below). A bonus
of $25,000 in the form of part cash and part Restricted Stock Award (see
Note 3 below) was awarded to Mr. Blackmon in December 1995 for services
rendered in 1994. Bonuses of $50,000 and $20,000 were awarded to Messrs.
Silberdick and Blackmon in February 1994 for services rendered in 1993. As
of March 31, 1996, 100% of the 1994 and 1993 bonuses had been paid. The
1995 bonus will be paid when funds become available and may also be paid
partly in common stock of the Corporation.
(2) On November 12, 1992, the CompuDyne Board of Directors authorized the
sale of 100,000 shares of CompuDyne Common Stock to Philip M. Blackmon at
a price of $.40 per share, the fair market value at such time. The Board
subsequently authorized the issuance of an additional 200,000 shares of
CompuDyne Common Stock to Mr. Silberdick at the same price and on the same
terms as those authorized on November 12, 1992. Under Stock Purchase
Agreements dated August 1, 1993, entered into pursuant to such
authorization, such executives may purchase 25% of such shares on each of
August 1, 1993, 1994, 1995 and 1996 at $.40 per share, provided certain
conditions are met, including continued employment by CompuDyne, by
paying cash for such shares or by giving CompuDyne a five-year non-
recourse promissory note, collateralized by the stock and bearing
interest at 2% per annum over the rate designated by the First National
Bank of Maryland as its prime commercial rate. The Stock Purchase
Agreements further provide that within 90 days of any Change of Control of
CompuDyne, as defined, the executives will be entitled to purchase all of
the shares of CompuDyne Common Stock not yet purchased under such
Agreements by delivering a written notice to CompuDyne. On August 1,
1993, August 1, 1994 and August 1, 1995, Mr. Blackmon purchased 25,000
shares of CompuDyne Common Stock, or an aggregate of 75,000 shares, in
exchange for promissory notes pursuant to his Stock Purchase Agreement.
At December 31, 1995, the value of the 75,000 shares issued to Mr.
Blackmon was $103,125, based upon the median of the high and low bids of
CompuDyne common stock as reported on the OTC Bulletin Board. At December
31, 1995, the value of the remaining shares that may be issued to Mr.
Blackmon under the Stock Purchase Agreement, 25,000, was $34,375. On
August 1, 1993 and August 1, 1994, Mr. Silberdick purchased 50,000 shares
of CompuDyne Common Stock, or an aggregate of 100,000 shares in exchange
for promissory notes pursuant to the Stock Purchase Agreements. On March
8, 1995, Mr. Silberdick paid $4,000 under his promissory note. On August
21, 1995, Mr. Silberdick, in connection with his resignation and the sale
to him of Quanta's division, Suntec, turned into the Company 60,000 shares
that he had purchased pursuant to his Stock Purchase Agreement in exchange
for the cancellation of his promissory note and relinquished his right to
purchase an additional 50,000 shares on August 1, 1995. See "Certain
Relationships and Related Transactions." On August 21, 1995, Mr. Blackmon
waived any rights he may have had under the Change of Control provisions
in the Stock Purchase Agreements due to the acquisition by CompuDyne of
MicroAssembly Systems, Inc. See "Certain Relationships and Related
Transactions." In addition, on December 14, 1995, Mr. Blackmon was
awarded a Restricted Stock Award in accordance with the terms and
conditions as set forth in a Restricted Stock Award Agreement under the
CompuDyne Corporation 1986 Incentive Compensation Plan Benefit Plan under
which Mr. Blackmon received 10,250 shares of CompuDyne Common Stock at a
fair market value on the date of grant of $1.625 per share, or an
aggregate fair market value of $16,656 on date of grant and aggregate fair
market value of $14,094 at December 31, 1995. The holders of any shares
issued under the Stock Purchase Agreements and Restricted Stock Award
Agreement are entitled to vote and to receive any dividends paid on the
CompuDyne Common Stock. The Board of Directors, however, do not intend to
declare any dividends in the foreseeable future.
(3) Mr. Roenigk was issued a Non-Qualified Stock Option to purchase up to
200,000 shares of the Corporation's Common Stock for $1.50 per share in
accordance with the terms and conditions as outlined in the Non-Qualified
Stock Option Agreement dated August 21, 1995. Such options are
immediately exercisable and shall expire on August 21, 2005.
(4) Includes matching contributions made by CompuDyne in CompuDyne's
401(k) retirement savings plan. CompuDyne matches dollar for dollar
contributions up to 2 percent of each employee's annual compensation. In
1995, 1994 and 1993, contributions of $1,491, $2,000 and $0, respectively,
were made for Mr. Silberdick and contributions of $2,662, $1,700 and $0,
respectively, were made for Mr. Blackmon. Additional benefits included
car allowances in 1995, 1994 and 1993 of $3,990, $6,700 and $0,
respectively, for Mr. Silberdick and $7,800, $7,150 and $0, respectively
for Mr. Blackmon.
(5) Mr. Roenigk was elected Chairman of the Board, President and Chief
Executive Officer of CompuDyne on August 21, 1995.
(6) Mr. Blackmon was elected Executive Vice President of CompuDyne in
January 1995.
7) Mr. Silberdick resigned as Chairman of the Board, President and Chief
Executive Officer of CompuDyne on August 21, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants (1)
Securities % of Total
Underlying Options Granted Exercise or
Option To Employees in Base Price Expiration
Name Granted (#) 1995 ($/Share) Date
.................. ........... ................ ........... ..........
Martin Roenigk (1) 200,000 88.9% $1.50 8/20/05
(1) On August 21, 1995 the Compensation and Stock Option Committee
awarded a Non-Qualified Stock Option for 200,000 shares of CompuDyne
Common Stock to Mr. Roenigk under the August 21, 1995 Non-Qualified Stock
Option Agreement at an exercise price of $1.50 (100% of the fair market
value of such shares at the date of grant). Such options are immediately
exercisable and shall expire on August 20, 2005.
FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
At December 31, 1995 (#) At December 31, 1995 ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
................. ......................... .........................
Martin A. Roenigk 200,000/0 $0/$0 (1)
(1) The difference between the exercise price of the options ($1.50 per
share) and the fair market value of CompuDyne Common Stock at December 31,
1995 ($1.37 per share) based upon the median of the high and low bids of
CompuDyne common stock as reported on the OTC Bulletin Board.
OWNERSHIP OF COMMON AND PREFERRED STOCK
As of March 27, 1996, there were 1,807,832 shares of CompuDyne Common
Stock and 1,260,460 shares of Convertible Preference Stock, Series D
("Series D Preference Stock") issued and outstanding.
The following table sets forth, as of March 27, 1996, the amount and
nature of the beneficial ownership of Common Stock and Series D Preference
Stock of CompuDyne by each person who is known by CompuDyne to hold of
record or beneficially 5% of any class of voting securities of CompuDyne
and by each director, each executive officer and by all directors and
executive officers as a group.
Amount and
Nature of Title Beneficial of Percentage of
Name Ownership Class Class Owned
Corcap, Inc.
120 Union Street
Willimantic, CT 06226 308,881 (1) Common Stock 17.1%
Corcap, Inc. Pooled Pension
Investment Trust
c/o Martin A. Roenigk, Trustee
MicroAssembly Systems, Inc.
120 Union Street
Willimantic, CT 06226 224,000 (2) Common Stock 12.4%
Lydall, Inc.
One Colonial Road
Manchester, CT 06040 120,000 Common Stock 6.6%
Martin A. Roenigk 945,345 (3) Series D Preference Stock 75%
1,345,345 (4) Common Stock 37.2%
Alan Markowitz 315,115 (3) Series D Preference Stock 25%
381,782 (4) Common Stock 10.6%
Philip Blackmon 85,250 Common Stock 2.4%
David W. Clark, Jr. 16,666 Common Stock *
Millard H. Pryor, Jr. 16,667 Common Stock *
All Directors and
Executive Officers
as a group (8 persons) 1,260,460 Series D Preference Stock 100%
2,020,710 Common Stock 55.9%
.......................
* less than one percent
(1) Corcap, Inc. ("Corcap") owns of record, as of March 27, 1996, 308,881
shares of Common Stock of the Corporation representing 17.1% of the issued
and outstanding shares of CompuDyne Common Stock. On August 21, 1995,
Corcap purchased 150,000 shares of CompuDyne Common Stock for $.40 per
share in accordance with the terms of a Warrant issued by CompuDyne to
Corcap on March 10, 1993 and amended as of April 1, 1993 and August 15,
1995, and issued a note for $60 thousand to CompuDyne secured by the
stock. Pursuant to a Stock Option Agreement dated March 25, 1996 between
Corcap and CompuDyne, Corcap has granted an option to CompuDyne to
purchase 16,666 shares of CompuDyne Common Stock at an exercise price of
$.01 per share. Such option is immediately exercisable and expires on
March 24, 2001.
(2) See "Certain Relationships and Related Transactions."
(3) Issued in exchange for all of Mr. Roenigk's and Mr. Markowitz's
shares of capital stock of MicroAssembly Systems, Inc., in accordance with
the terms and conditions as set forth under the August 21, 1995 Stock
Purchase Agreement among CompuDyne, MicroAssembly Systems, Inc., Martin
Roenigk and Alan Markowitz. The Series D Preference Stock is convertible
at any time on a share for share basis.
(4) Assumes full conversion of all shares of Series D Preference Stock
which is convertible at any time on a share for share basis. Mr. Roenigk
holds 945,345 shares of Series D Preference Stock and Mr. Markowitz holds
315,115 shares of Series D Preference Stock. Also assumes conversion of
Senior Convertible Promissory Notes, dated August 21, 1995, of CompuDyne
(the "Convertible Notes") which are convertible at any time at a
conversion rate of $1.50 per share into 266,667 shares of CompuDyne Common
Stock. Mr. Roenigk holds a Convertible Note in the principal amount of
$300 thousand and Mr. Markowitz holds a Convertible Note in the principal
amount of $100 thousand. See "Certain Relationships and Related
Transactions" for a description of the Convertible Notes. Also assumes
exercise of non-qualified stock options granted to Mr. Roenigk for 200,000
shares of CompuDyne Common Stock at an exercise price of $1.50 per share.
Such options are immediately exercisable and expire on August 21, 2005.
See "Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 21, 1995 CompuDyne entered into and consummated a Stock Purchase
Agreement by and among it, Martin A. Roenigk and Alan Markowitz (Messrs.
Roenigk and Markowitz are, collectively, the "Sellers") and MicroAssembly
Systems, Inc. ("MicroAssembly"), pursuant to which CompuDyne issued to
the Sellers 1,260,460 shares of its Convertible Preference Stock, Series
D ("Series D Preference Stock") in exchange for all of the Sellers' shares
of capital stock in MicroAssembly, which shares represent all of
MicroAssembly's issued and outstanding capital stock. The issuance by
CompuDyne of the Preference Stock, together with the issuance of certain
Convertible Notes, as defined below, and certain options to purchase
CompuDyne Common Stock, all as described below and in accordance with the
terms of the Stock Purchase Agreement, are referred to as the
"Transaction." As a result of the Transaction, MicroAssembly is a wholly
owned subsidiary of CompuDyne. Of the 1,260,460 shares of Series D
Preference Stock issued, 945,345 shares were issued to Mr. Roenigk and
315,115 shares were issued to Mr. Markowitz. The Series D Preference
Stock has rights to vote on a share for share basis with CompuDyne's
common stock on all corporate issues other than the election of directors;
it is also convertible to common stock on a share for share basis at any
time prior to redemption by CompuDyne. On March 29, 1996, the holders of
the preference stock waived their rights to mandatory redemption by the
Company. For the election of directors, each share of Series D Preference
Stock is entitled to 1/3.08 of a vote as compared with the Company's
common stock, which is entitled to one vote per share. Pursuant to the
terms of the Series D Preference Stock, each share of Series D Preference
Stock will be entitled to one vote per share with respect to the election
of directors, effective as of August 1, 1996, unless the Board of
Directors of the Company, in its sole and absolute discretion, approves a
resolution prior to such date prohibiting such change in voting rights, in
which case each share of Series D Preference Stock will continue to have
1/3.08 vote per share. In the event the Board of Directors of the Company
approves such a resolution, on May 1 of subsequent year (until each share
of Series D Preference Stock has one vote with respect to the election of
directors), each share of Series D Preference Stock will continue to have
1/3.08 vote for directors. Each share of Series D Preference Stock
carries an annual aggregate dividend equal to the lower of: (a) sixty
percent (60%) of MicroAssembly's after-tax net income in the previous
calendar year, on an unconsolidated basis with CompuDyne, divided by
1,260,460, or (b) eight percent (8%) of the Redemption Value of $1.50 per
share of the Series D Preference Stock, provided, however, that the
dividend rate for the first dividend payment date only is adjusted for the
period of 1995 that MicroAssembly was not a wholly owned subsidiary of
CompuDyne. Dividends may be paid on the Series D Preference Stock, at the
Company's option, in cash, CompuDyne Common Stock, or a combination
thereof, based upon the average closing price of CompuDyne's Common Stock
for the prior thirty (30) trading days. No dividends were earned on the
Series D Preference Stock for the fiscal year ended December 31, 1995.
Beginning on August 21 in the year 2000, the Company may, at its option,
redeem all or any part of the Series D Preference Stock for a price of
$1.80 per share, that being one hundred twenty percent (120%) of the
Redemption Value, plus accrued and unpaid dividends. The Series D
Preference Stock provides that beginning on August 31, 2006, and on that
date in each of the four succeeding years, the Company shall redeem
252,092 shares of Series D Preference Stock, or such lesser number as may
be issued and outstanding, for their $1.50 per share Redemption Value. On
March 29, 1996, Messrs. Roenigk and Markowitz, as the holders of the
Series D Preference Stock, waived their rights to mandatory redemption by
the Company.
As part of the Transaction, in return for $400 thousand paid to CompuDyne
at the closing, CompuDyne issued to Sellers Senior Convertible Promissory
Notes (the "Convertible Notes") in the aggregate principal amount of $400
thousand, which Convertible Notes are convertible, prior to redemption by
CompuDyne, into CompuDyne Common Stock at a conversion rate of $1.50 per
share of Common Stock, or 266,667 shares of Common Stock if the entire
principal amount of the Convertible Notes is converted. Of the $400
thousand principal amount of Notes issued, $300 thousand principal amount
of the Convertible Notes was issued to Mr. Roenigk, and $100 thousand
principal amount of the Convertible Notes was issued to Mr. Markowitz. As
described in a report filed by the Sellers with the Securities and
Exchange Commission and with the Company pursuant to Section 13(d) of the
Securities Exchange Act of 1934, the source of the Sellers' $400 thousand
investment in the Company was personal funds. The Convertible Notes
accrue interest at the rate of two percent above the variable annual rate
published in THE WALL STREET JOURNAL as the "Prime Rate." Interest on the
Convertible Notes are payable quarterly commencing on October 1, 1995.
The Convertible Notes are senior obligations of the Company. On October
1, 1995, January 1, 1996 and April 1, 1996, the Company accrued an
aggregate of $4,777, $15,867 and $26,707, respectively, to the holders of
the Convertible Notes.
As a further part of the Transaction, Norman Silberdick, the Company's
Chairman, President and Chief Executive Officer, resigned as such and as a
director of the Company. The Company's Board of Directors elected Mr.
Roenigk to fill Mr. Silberdick's seat on the Board of Directors, and to
become its Chairman, President and Chief Executive Officer. In
recognition of Mr. Roenigk's position as Chairman, President and CEO, the
Company issued to him options (the "Roenigk Options") to purchase up to
200,000 shares of the Company's Common Stock for $1.50 per share. The
Roenigk Options expire in ten (10) years. Mr. Silberdick, as part of a
related transaction described below, turned in to the Company 60,000
shares of the Company's Common Stock issued pursuant to a Stock Purchase
Agreement dated August 1, 1993 between the Company and Mr. Silberdick, and
he relinquished his rights to purchase an additional 50,000 shares
pursuant to such Agreement.
MicroAssembly, located in Willimantic, Connecticut, is a manufacturer of
a proprietary automated process called the "Stick-Screw System". The
Stick-Screw System provides for insertion of fasteners at a faster speed
than can be accomplished by competing systems or processes. MicroAssembly
operates out of owned facilities, utilizing automatic screw machines to
manufacture the Stick-Screws. MicroAssembly also assembles the
specially designed pneumatic drivers for inserting the screws. Sales are
primarily throughout the United States via a network of independent sales
representatives, with sales in Europe and South America.
In determining the consideration to be paid for the MicroAssembly stock,
certain officers and directors of CompuDyne, including Messrs.
Silberdick, Pryor and Clark, and Ms. Marjorie Morrissey, reviewed the
recent financial performance of MicroAssembly, visited its manufacturing
facilities, evaluated management and considered the strong balance sheet
of MicroAssembly. CompuDyne considered both the value of MicroAssembly
and the ability of MicroAssembly and its shareholders to bring
considerable additional financial strength to CompuDyne's operations.
As a result of the Transaction, on December 15, 1995, the corporate
offices of CompuDyne were moved to MicroAssembly, 120 Union Street,
Willimantic, Connecticut 06226.
Prior to the Transaction, but after the exercise by Corcap of a warrant to
acquire 150,000 shares of CompuDyne Common Stock, Corcap held 670,881
shares of CompuDyne's voting shares, or approximately 38.3% of
CompuDyne's 1,749,622 issued and outstanding shares of Common Stock.
After the transactions described above, Corcap's 670,881 shares
represented approximately 22.3% of the voting power of issued and
outstanding shares (including the Series D Preference Stock) on all issues
other than the election of directors, 31.1% of the voting power of issued
and outstanding shares for the election of directors, and approximately
18.9% of the voting shares on a fully diluted basis.
Prior to the Transaction, the Sellers held no voting shares of CompuDyne,
although Mr. Roenigk held 70,000 shares of Corcap Common Stock, which is
approximately 2.4% of Corcap's voting shares. At December 31, 1995, the
Sellers held 1,260,460 shares of CompuDyne's voting stock (including the
Series D Preference Stock), or approximately 41.1% of the voting power of
issued and outstanding shares for all issues other than the election of
directors and 18.5% of the voting power of issued and outstanding shares
for the election of directors. Assuming conversion by the Sellers of all
of the shares of Series D Preference Stock, the conversion of the full
principal amount of the Notes and the exercise by Mr. Roenigk of his
options to purchase 200,000 shares of the Company's Common Stock, the
Sellers would hold 1,727,127 shares of the Company's voting stock, or
approximately 47.8% of the Company's voting stock on a fully diluted
basis. In addition, in connection with the Transaction, Mr. Roenigk
became a director of Corcap and was issued options to purchase 450,000
additional shares of Corcap Common Stock which, if exercised, would,
together with Mr. Roenigk's prior holdings, result in his holding
approximately 15.4% of Corcap's Common Stock.
The Sellers have, in their filing with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities and Exchange Act of
1934, disclaimed any arrangements or understandings among themselves or
their associates with respect to the future election of the Company's
directors or other matters in connection with the operation and management
of the Company. Upon consummation of the transaction, in addition to Mr.
Roenigk, CompuDyne's executive officers are, respectively, Philip M.
Blackmon, Vice President and Elaine Chen, Chief Financial Officer and
Treasurer.
On August 21, 1995, Quanta Systems Corporation ("Quanta"), a wholly-owned
subsidiary of CompuDyne, transferred all of the assets and liabilities of
Quanta's Suntec division to Suntec Service Corporation, a newly-formed
corporation ("Suntec"), in return for (i) all of Suntec's issued and
outstanding common stock and (ii) Suntec's agreement to pay to Quanta a
royalty of 2% of Suntec's net sales and other revenues for thirty (30)
years from the date of the closing. Quanta then sold all of Suntec's
common stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director.
As a condition precedent to the sale of the Suntec shares to Mr.
Silberdick, he turned in to CompuDyne 60,000 shares of CompuDyne Common
Stock and relinquished purchase rights held by him to acquire an
additional 50,000 shares of CompuDyne Common Stock.
As consideration for the shares of Suntec, Mr. Silberdick executed a non-
recourse promissory note in the initial principal amount of $79 thousand
(the "Silberdick Note"), payment of which is secured by a pledge of all
Suntec shares held by Mr. Silberdick, which shares must at all times equal
or exceed 33% of all outstanding shares of Suntec capital stock. The
Silberdick Note bears interest at an annual rate equal to The WALL STREET
JOURNAL prime rate, plus 2%. Through August 31, 2000, the principal of
the Silberdick Note is payable annually in amounts equal to 25% of
Suntec's net, after-tax income for the year in question. Thereafter, the
unpaid principal balance, as of that date, shall be paid in five equal
annual installments.
The amount of consideration determined by Quanta to be appropriate for the
sale of the Suntec common stock to Mr. Silberdick resulted from a number
of factors. While a division of Quanta, Suntec's business had never
produced a profit. As a result, and in light of Quanta's retention of the
2% royalty on Suntec's net sales and other revenues for 30 years, Quanta
determined that the business should be valued at its net book value at the
Closing Date. The amount of the Silberdick Note was, at the Closing Date,
based upon Suntec's net book value at June 30, 1995 and was subject to
adjustment to its net book value based upon a closing date balance sheet
to be completed on or before September 20, 1995. A subsequent review of
the financial statements as of August 21, 1995 indicated that there was no
equity in the assets transferred to Suntec and Mr. Silberdick thereafter
purchased the shares of Suntec for $100.
As part of the transaction, Quanta loaned $50 thousand to Suntec payable
at the end of three years at prime plus 2% with interest due at the
anniversary date of the loan. The loan is a senior obligation of Suntec
with rights of security granted to Quanta.
As of March 27, 1996, Corcap owned 308,881 or 17.1% of the issued and
outstanding shares of CompuDyne Common Stock. See "Ownership of Common
and Preferred Stock." In addition, a majority of the CompuDyne Board of
Directors, Martin Roenigk, David Clark and Millard Pryor, are also members
of the Corcap Board of Directors and constitute a majority of the Corcap
Board.
CompuDyne charged management advisory service fees to Corcap for the years
ended December 31, 1995, December 31, 1994 and December 31, 1993 in the
amounts of $0, $36 thousand and $60 thousand, respectively. On December
15, 1995 Corcap and CompuDyne corporate offices were moved to and combined
with the existing MicroAssembly office at 120 Union Street, Willimantic,
CT. Corporate office overhead costs are allocated to CompuDyne. In
consideration for Corcap causing one of its subsidiaries to terminate a
lease with JM Clipper Polymers which benefitted CompuDyne, Corcap and
CompuDyne entered into an agreement whereby, for a period of four years
commencing in May 1994 and expiring in May 1998, CompuDyne provides to
Corcap, without charge, management services and use of office facilities
and absorbs the cost of certain legal services. As part of the settlement
with Lydall described below, Corcap agreed to limit this support to $1
thousand per month for 24 months.
On November 12, 1992, the CompuDyne Board authorized the issuance of
300,000 shares of CompuDyne Common Stock to key employees of CompuDyne and
Quanta at $.40 per share, the fair market value at such time. The Board
subsequently authorized the issuance of an additional 200,000 shares of
Common Stock to Norman Silberdick at the same price and on the same terms
as those authorized on November 12, 1992. Under the Stock Purchase
Agreements dated August 1, 1993, which were entered into pursuant to such
authorization, the employees may purchase an aggregate of 125,000 shares
of CompuDyne Common Stock on each of August 1, 1993, 1994, 1995 and 1996,
provided certain conditions are met, including continued employment by
CompuDyne, by paying cash for such shares or by giving CompuDyne a five-
year non-recourse promissory note, collateralized by the stock and
bearing interest at 2% per annum over the rate designated by the First
National Bank of Maryland as its prime commercial rate. The Stock
Purchase Agreements further provide that within 90 days of any Change of
Control of CompuDyne, as defined, the employees will be entitled to
purchase all of the shares of CompuDyne Common Stock not yet purchased
under such Agreements by delivering a written notice to CompuDyne. As of
December 31, 1995, an aggregate of 296,250 shares of CompuDyne Common
Stock had been issued to five members of senior management, (the
"Management Shares") pursuant to the Stock Purchase Agreements. Pursuant
to such Agreements, the Management Shares were issued in exchange for
promissory notes. Due to the resignation of two of the employees who were
parties to the Stock Purchase Agreements, 56,250 shares of CompuDyne
Common Stock remain to be issued under the Stock Purchase Agreements. See
Note 2 to the Summary Compensation Table under "Executive Compensation and
Other Transactions with Management."
On December 9, 1995 the Compensation and Stock Option Committee granted a
Restricted Stock Award of 58,210 shares of CompuDyne Common Stock to key
employees of Quanta as partial bonus for services rendered in 1994. The
value of the stock at the time of the award was $1.625 per share, for an
aggregate value of $95 thousand. The second part of the bonus was
distributed in cash, in an aggregate amount of $40 thousand. See
"Executive Compensation and Other Transactions With Management" for
description of the bonus paid to Mr. Blackmon.
In addition, on February 2, 1996 the Compensation and Stock Option
Committee granted options to purchase 16,290 shares of CompuDyne Common
Stock to key employees of CompuDyne's subsidiary, MicroAssembly, at a
price of $1.81 per shares (100% of the fair market value of such shares at
the date of grant) and in accordance with the terms and conditions of the
1986 Stock Incentive Compensation Plan.
During the year ended December 31, 1995, Corcap sold 40,500 shares of its
holdings of CompuDyne Common Stock pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "1933 Act"). On September 15,
1995, Corcap also transferred 224,000 shares of its holding of CompuDyne
Common Stock to the Trustee of the Corcap, Inc. Pooled Pension Investment
Trust (the "Pension Trust") in consideration of funding requirements for
the years 1992, 1993 and 1994. On February 15, 1996 Corcap sold an
additional 18,000 shares pursuant to Rule 144 under the 1933 Act.
On August 21, 1995 Corcap purchased 150,000 shares of CompuDyne Common
Stock for $.40 per share in accordance with the terms of a Warrant issued
by CompuDyne to Corcap on March 10, 1993 and amended as of April 1, 1993
and August 15, 1995.
On March 25, 1996, Corcap entered into a Settlement Agreement, dated as of
March 25, 1996 (the "Settlement Agreement"), with Lydall, Inc. ("Lydall")
pursuant to which Corcap transferred 120,000 shares (the "Transferred
Shares") of CompuDyne Common Stock to Lydall in settlement of certain
claims made by one another.
As part of the Settlement Agreement, Lydall required as a condition to
signing, that CompuDyne enter into a registration rights agreement with
Lydall obligating CompuDyne to register the Transferred Shares upon
demand of Lydall two years following the date of the Agreement or in a
"piggyback registration" at any time upon the proposed registration by
CompuDyne of its stock. In order to induce CompuDyne to enter into such
agreement, Corcap agreed to issue an option (the "Corcap Option") to
CompuDyne to purchase 16,666 shares of CompuDyne Common Stock at an
exercise price of $.01 per share exercisable immediately for a period of
five years under a Stock Option Agreement, dated as of March 25, 1996,
between Corcap and CompuDyne. In addition, Corcap agreed to limit
CompuDyne's support of its legal services to $1 thousand per month for 24
months as described below.
As a result of the sale by Corcap of 40,500 shares in 1995 and 18,000
shares in 1996 pursuant to Rule 144 under the 1933 Act, the transfer of
224,000 shares to the Pension Trust, the transfer of 120,000 shares to
Lydall, the granting of 16,666 options to CompuDyne and the exercise of
the warrant for 150,000 shares, Corcap's ownership of CompuDyne Common
Stock decreased from 561,381 shares, or 35.0% of the issued and
outstanding shares of CompuDyne Common Stock as of December 31, 1994, to
308,881 (including the 16,666 options) shares, or 17.1% of the issued and
outstanding shares as of March 27, 1996. After assuming (i) the
conversion of 1,260,460 shares of Series D Preference Stock to Messrs.
Roenigk and Markowitz, which shares are convertible by the holders into
1,260,460 shares of CompuDyne Common Stock, (ii) the conversion of $400
thousand principal amount of Convertible Notes to Messrs. Roenigk and
Markowitz, which promissory notes are convertible by the holders into
266,667 shares of CompuDyne common stock, (iii) the exercise of the
Roenigk Options to purchase 200,000 shares of CompuDyne Common Stock at an
exercise price of $1.50 per share, (iv) the purchase of up to an
additional 56,250 shares of CompuDyne Common Stock on August 1, 1996
pursuant to Stock Purchase Agreements, dated August 1, 1993, between
CompuDyne and certain members of CompuDyne management assuming certain
conditions are met, (v) the exercise of stock options for 25,000 and
16,290 shares of CompuDyne Common Stock issued to Elaine Chen and key
employees of MicroAssembly, respectively, and (vi) the exercise by
CompuDyne of its option to purchase 16,666 shares of CompuDyne Common
Stock from Corcap, Corcap's ownership would be decreased to 8.1% on a
fully diluted basis and Mr. Roenigk's and Mr. Markowitz' ownership would
be increased to 37.2% and 10.6%, respectively, on a fully diluted basis.
Due to the declining ownership interest Corcap has in CompuDyne Common
Stock and a diminished overlapping of directors and officers, the
financial statements of Corcap and CompuDyne are no longer consolidated.
Beginning with the year ended December 31, 1994 until the quarter ended
June 30, 1995, Corcap had included the accounts of CompuDyne in Corcap's
consolidated financial statements in light of the significant ownership
interest Corcap had in CompuDyne stock and interlocking directors and
officers.
APPROVAL OF 1996 STOCK INCENTIVE COMPENSATION PLAN FOR EMPLOYEES
(PROPOSAL NO. 2)
On February 2, 1996, the Board of Directors adopted, subject to
shareholder approval, the CompuDyne Corporation 1996 Stock Incentive
Compensation Plan for Employees (the "Stock Incentive Plan" or the
"Plan"). Under the Stock Incentive Plan, "Incentive Awards" consisting of
Incentive Stock Options ("ISOs"), as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"), non statutory
options ("NSOs"), stock appreciation rights and restricted stock awards,
or combinations thereof, may be granted to salaried officers or key
employees of the Corporation and its subsidiaries, to purchase not more
than an aggregate of 300,000 shares (subject to adjustment for stock
splits or similar capitalization changes) of the Corporation's Common
Stock. It is expected that 25 officers and employees will be eligible to
participate during the first year of the Stock Incentive Plan.
Summary of Stock Incentive Compensation Plan
............................................
The full text of the Stock Incentive Plan is set forth as Exhibit A to
this Proxy Statement. The following Summary of the Plan is qualified in
its entirety by reference to the text of the Plan.
The purposes of the Plan are to promote growth and profitability of the
Corporation by enabling it to attract and retain the best available
personnel for positions of substantial responsibility, and to provide key
employees with an opportunity for investment in the Corporation's Common
Stock and to give them an additional incentive to increase their efforts
on behalf of the Corporation and its subsidiaries.
The Plan will be administered by the Compensation and Stock Option
Committee (the "Committee"). No member of the Committee is eligible to
receive an Incentive Award while serving as a member. Subject to the
limitations of the Plan, the Committee, after receiving the
recommendations of the President, will have the authority to determine and
designate the employees to whom Incentive Awards should be granted, the
type of Incentive Award to be granted, and the number of shares subject
to each Incentive Award. Stock options give employees the right to
purchase a specified number of shares of Common Stock at a price equal to
at least 100 percent of fair market value at the time of grant of the
option. Other terms of options to be awarded under the Plan are set by
the Committee. Such terms will determine whether or not options are taxed
as Incentive Stock Options under Sections 422 of the Internal Revenue
Code. Stock appreciation rights may be granted by the Committee only in
connection with stock options. These rights enable an employee to choose
to receive an amount equal to the appreciation in value of the Common
Stock subject to the option without any payment to the Corporation. If
such an election is made, the number of shares subject to the related
stock option is reduced accordingly. An employee may elect to receive the
appreciation entirely in Common Stock or up to 50 percent in cash. A
restricted stock award is a grant of a right to an employee to receive, in
periodic installments, a specified number of shares of Common Stock,
including an amount equal to accrued dividends.
The Plan provides for adjustment in the number of shares of stock subject
thereto and the number of shares subject to option, stock appreciation
rights or restricted stock awards by reason of merger, stock splits or
similar events. The Plan may be modified or amended by the Board of
Directors at any time except for certain amendments specified in the Plan
which require shareholder approval. In the event that any transaction
occurs which results in a change in control of the Corporation, the
Committee, with the approval of the Board of Directors, may advance
exercise dates of options and transfer dates of restricted awards. The
securities offered under the Plan will be registered under the Securities
Act of 1933, as amended, with the Securities and Exchange Commission on a
Registration Statement on Form S-8.
On February 2, 1996 when the Plan was adopted subject to shareholder
approval, the Committee granted Incentive Stock Options covering 21,710
shares of Common Stock to key employees of CompuDyne's subsidiary,
MicroAssembly Systems, Inc., at an option exercise price of $1.81 per
share (100% of the fair market value per share on the date of grant) which
options will expire, unless exercised, on February 1, 2006. The options
described above are the only options which have been granted under the
Plan and no stock appreciation rights or restricted stock awards have been
granted. It is not possible to predict the number or identity of
employees who will receive Incentive Awards following its approval or,
except as set forth in the Plan, to describe the restrictions that may be
included in specific Incentive Awards. No Incentive Award may be granted
under the Plan subsequent to February 1, 2006.
Federal Income Tax Consequences
...............................
NSOs. Under current law, there will generally be no Federal income tax
consequences to either the employee or the Company on the grant of NSOs.
Upon exercise of NSOs, the difference between the fair market value of the
Company's Common Stock at the date of exercise and the exercise price is
taxed to the grantee at ordinary income rates, and is subject to
withholding tax by the Company. The exercise of NSOs will result in a tax
deduction to the Company, measured by such difference. However, grantees
who are subject to the six-month restrictions on resale of Common Stock
under Federal securities laws will, unless they elect otherwise,
generally not recognize ordinary income until such restriction lapse. The
fair market value of the Company's Common Stock at the date of exercise
becomes the tax basis in the hands of the grantee of shares acquired upon
such exercise.
ISOs. Under the Code, there are generally no Federal income tax
consequences to the employee or the Company upon the grant or exercise of
an ISO, except that the difference between the option price and the fair
market value of the Common Stock at the exercise of the option will be an
item of tax preference for purposes of the alternative minimum tax. If
the employee does not dispose of the stock within two years from the grant
date of the ISO, and holds the stock after exercise for at least one year,
the employee will be taxed at long-term capital gain rates upon the sale
of the stock , and the Company will not be entitled to a tax deduction in
connection with the exercise of the ISO. If the employee does not meet
these holding period requirements, the employee's gain upon disposing of
the stock will usually be taxed as ordinary income to the extent of the
excess of the fair market value of the shares on the date of exercise over
the option price. The balance of the amount received, if any, will be
short-term or long-term capital gain depending on how long the shares were
held by the employee. The Company will be allowed a tax deduction in the
amount of the grantee's ordinary income as a result of the disposition.
To the extent that the aggregate Fair Market Value of stock with respect
to which ISOs become exercisable for the first time by an individual
during a calendar year exceeds $100 thousand, such options will be treated
as NSOs for tax purposes.
Vote Required for Approval of the Stock Incentive Plan
......................................................
Holders of the Corporation's Common Stock and Series D Preference Stock,
voting together and not as separate classes, are entitled to vote on the
proposal. The affirmative vote of at least a majority of the votes that
all shareholders are entitled to cast at the meeting is required for
approval of the Stock Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2.
APPROVAL OF 1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (PROPOSAL
NO. 3)
The Board of Directors recommends that the shareholders approve the
CompuDyne Corporation 1996 Stock Option Plan for Non-Employee Directors
(the "Director Plan"). The Director Plan was adopted by the Board of
Directors on February 2, 1996, subject to approval by the shareholders of
the Company at the 1996 Annual Meeting on June 5, 1996. The Director Plan
will facilitate the acquisition of Company Common Stock by non-employee
directors and enhance the Company's ability to attract and retain
qualified, experienced directors. The Company believes that increased
share ownership of directors more closely aligns shareholder and director
interests by encouraging a greater focus on profitability of the Company
and its Common Stock. The text of the Director Plan appears in Exhibit B
to this Proxy Statement. The summary of its principal features which
follows is subject to the specific provisions contained in the full text.
Proxies solicited hereby will be voted FOR the adoption of the Director
Plan unless the shareholder specifies otherwise.
<PAGE>
Summary of the Plan
...................
Shares Subject to Options. The Director Plan provides for the issuance of
a maximum of 100,000 shares of the Company's Common Stock (subject to
adjustment for stock splits or similar capitalization changes). Shares
delivered pursuant to the Director Plan upon the exercise of options may
be either authorized but unissued shares of Company Common Stock or
previously issued shares reacquired by the Company. Shares subject to
options which expire or terminate before exercise become available for
issuance under the Director Plan.
Eligibility and Administration. Only non-employee directors of the
Company are eligible to receive options under the Director Plan. It is
expected that three directors will be eligible to participate during the
first year of the Director Plan. The Director Plan will be administered
by the Committee. No director may participate in any decision relating
exclusively to an option granted to that director.
Stock Option. The Director Plan provides that, on the date of each
meeting of the Board of Directors during the term of the Plan, each non-
employee director of the Company attending such meeting (in person or by
telephone) will automatically be granted a stock option to purchase 350
shares of CompuDyne Common Stock provided, however, that the maximum
number of options that may be granted in any one calendar year to any one
Non-Employee director pursuant to the Director Plan shall be options for
2,100 shares of CompuDyne Common Stock. No options will be granted for
action taken by the Board of Directors by unanimous written consent. No
options have yet been granted under the Director Plan. The number of
shares of Common Stock which current non-employee directors of the Company
would have been entitled to purchase pursuant to options to be granted to
them under the Director Plan if such Plan had been in effect in 1995 are
set forth below under the heading "New Plans Benefits Table." The
exercise price for each option will be the greater of the fair market
value of the Company's Common Stock on the date of grant or the par value
of the Common Stock, if any, on the date of exercise. The Company's
Common Stock currently has par value of $0.75 per share. Options will be
exercisable only to the extent of one-half of the number of shares of
Common Stock to which it relates two years after the grant date and will
be exercisable to the extent of the remaining one-half of such shares
three years after the grant date, provided that all options expire ten
years from the grant date. However, options become immediately
exercisable in full upon the director's withdrawal from the Board of
Directors due to death, disability or retirement as defined in the
Director Plan. Payment of the exercise price may be made in cash,
previously acquired shares of Common Stock equal in value to the exercise
price or a combination of cash and Common Stock. All unexercised options
terminate three months after the date of grantee leaves the Board of
Directors, provided that such awards may be exercised during certain
longer periods contained in the Director Plan following the grantee's
death, disability or retirement.
Duration. The term during which awards may be granted under the Director
Plan will expire February 1, 2006.
Transfer of Options. Options granted under the Director Plan are not
transferable except upon the death of the director or pursuant to a
qualified domestic relations order or Title I of the Employee Retirement
Income Security Act, and are exercisable during the director's lifetime
only by the director or his or her guardian or legal representative.
Amendment and Discontinuance. The Board of Directors may discontinue or
amend the Director Plan at any time. However, without shareholder
approval, the Board of Directors may not amend the Director Plan to
increase the number of shares of Common Stock as to which options may be
granted under the Director Plan, modify the requirements for
participation in the Director Plan, extend the term of the Director Plan
or the option periods provided therein, or decrease the option price or
otherwise materially increase the benefits under the Director Plan. The
Director Plan may not be amended more often than once every six months
except to comply with changes in tax laws.
Federal Income Tax Consequences and Accounting Treatment. Under current
law, there will generally not be Federal income tax consequences to
either the director or the Company on the grant of options under the
Director Plan. Upon exercise of such options, the difference between the
fair market value of the Company's Common Stock at the date of exercise
and the exercise price is taxed to the grantee at ordinary income rates,
and is subject to withholding tax by the Company. The exercise of such
options will result in a tax deduction to the Company, measured by such
difference. However, grantees who are subject to the six-month
restrictions on resale of common Stock under Federal securities laws will,
unless they elect otherwise, generally not recognize ordinary income
until such restrictions lapse. The fair market value of the Company's
Common Stock at the date of exercise becomes the tax basis in the hands
of the grantee of shares acquired upon such exercise.
Neither the grant nor the exercise of a stock option results in a charge
against earnings of the Company so long as the option price at the date of
grant is not less than the fair market value of the Company's Common Stock
on that date.
Vote required for Approval of the Stock Incentive Plan
......................................................
Holders of the Corporation's Common Stock and Series D Preference Stock,
voting together and not as separate classes, are entitled to vote on the
proposal. The affirmative vote of at least a majority of the votes that
all shareholders are entitled to cast at the meeting is required for
approval of the Director Plan.
The Board of Directors recommends a vote FOR Proposal No. 3.
NEW PLANS BENEFITS TABLE
The following table sets forth the number of options to be received by the
named individuals and groups of executive officers, directors and
employees that will accrue, assuming that all of the grantees continue in
their current employment or directorships through the minimum vesting and
award periods.
CompuDyne Corporation CompuDyne Corporation
1996 Stock Incentive Plan 1996 Stock Option Plan For
For Employees Non-Employee Directors
.........................................................................
Options for Options for
Name and No. of Shares Dollar No. of Shares Dollar
Position Common Stock Value(1) Common Stock (2) Value(3)
.........................................................................
Martin A. Roenigk
Chairman, President
& CEO 0 0 0 0
Philip M. Blackmon
Executive Vice
President 0 0 0 0
Norman Silberdick(4) 0 0 0 0
Current Executive
Officers as a Group 0 0 0 0
Current directors who
are not executive
officers, as a group 0 0 4,200 $39,375
Each person who received
or is to receive five
percent of such options
or rights 0 0 0 0
All employees, including
all current officers who
are not executive
officers, as a group 16,290 $29,485 0 0
(1) Based upon the option exercise price of $1.81 per share of CompuDyne
Common Stock (100% of the fair market value per share on the date of
grant).
(2) No options have yet been issued under the Director Plan. The number
of options listed is the number of options that non-employee directors
would have received in 1995 if the Director Plan had been in effect.
(3) Based upon the fair market value of $12,075, $8,925, $8,400 and
$9,975 of CompuDyne Common Stock on the grant dates, which would have been
the meeting dates of the CompuDyne Board of Directors in 1995.
(4)Mr. Silberdick resigned as Chairman of the Board, President and Chief
Executive Officer of CompuDyne On August 21, 1995.
APPROVAL OF REINCORPORATION AS A NEVADA CORPORATION (PROPOSAL NO. 4)
The Board of Directors of the Company has approved a proposal to change
the Company's state of incorporation from Pennsylvania to Nevada subject
to the approval of the shareholders (the "Reincorporation"). The
following discussion summarizes certain aspects of the proposed
Reincorporation of the Company in Nevada. If approved by the holders of
the Company's Common Stock and Series D Preference Stock, the proposed
Reincorporation would be effected by merging the Company into a wholly
owned subsidiary of the Company, CompuDyne Nevada, Inc. ("CompuDyne
Nevada), which was recently incorporated under the laws of Nevada for the
purpose of effecting the proposed merger (the "Merger"). CompuDyne Nevada
has not engaged in any business, and will not engage in any business,
prior to the Merger. The Merger will be accomplished pursuant to the
terms of an Agreement and Plan of Merger (the "Plan"), between the
Company and CompuDyne Nevada, substantially in the form attached hereto as
Exhibit C. The terms of the Reincorporation are more particularly
described in the Plan and all references to the Reincorporation are
qualified by and subject to the more complete information set forth
therein. CompuDyne Nevada will be the surviving corporation in the Merger
(the "Surviving Corporation") and will continue under the name "CompuDyne
Corporation."
The Reincorporation will effect a change in the legal domicile of the
Company and certain other legal changes, but will not result in any
material change in the name, business, assets or financial position of the
Company or in the persons who constitute the Board of Directors or
management. The principal executive office of the Company will remain the
same. The Reincorporation will, however, affect certain rights of the
shareholders. See "Certain Changes in the Rights of Shareholders." Upon
the effective date of the Merger (the "Effective Date") , (i) the legal
existence of the Company as a separate corporation will cease, (ii)
CompuDyne Nevada, as the surviving corporation, will succeed to the assets
and assume the liabilities of the Company, (iii) each of the Company's
employee benefit plans will be continued and assumed by CompuDyne Nevada,
(iv) each outstanding share of the Common Stock will automatically be
converted into one share of common stock, $0.75 par value per share, of
CompuDyne Nevada (the "Nevada Common Stock"), and (v) each outstanding
share of the Series D Preference Stock will automatically be converted
into one share of Convertible Preference Stock, Series D of CompuDyne
Nevada (the "Nevada Series D Preference Stock"). Each share of the
Pennsylvania Series D Preference Stock has equivalent designations,
powers, preferences, limitations and restrictions (the "Designations") as
each share of the Nevada Series D Preference Stock. Outstanding options
or rights to purchase the Common Stock will automatically be converted
into equivalent options or rights to purchase CompuDyne Nevada Common
Stock, including the options to be issued under the CompuDyne Corporation
1996 Stock Option Plan for Non-Employee Directors and the CompuDyne
Corporation 1996 Stock Incentive Compensation Plan for Employees being
presented to the shareholders for approval at the Annual Meeting. See
"Approval of 1996 Stock Incentive Compensation Plan (Proposal No.2)" and
"Approval of 1996 Stock Option Plan for Non-Employee Directors (Proposal
No. 3)". As a result of the Merger, CompuDyne Nevada will continue under
the name CompuDyne Corporation. A VOTE FOR THE PROPOSAL TO REINCORPORATE
AS A NEVADA CORPORATION WILL BE DEEMED TO BE A VOTE FOR EACH OF THE
CONSEQUENCES MENTIONED ABOVE.
Following the Effective Date, certificates representing shares of Common
Stock and Series D Preference Stock will be deemed to represent an equal
number of shares of Nevada Common Stock and Nevada Series D Preference
Stock, as the case may be. IT WILL NOT BE NECESSARY FOR THE HOLDERS OF
THE COMPANY'S CAPITAL STOCK TO SURRENDER THEIR CERTIFICATES FOR NEW
CERTIFICATES REPRESENTING NEVADA COMMON STOCK OR NEVADA SERIES D
PREFERENCE STOCK.
The Reincorporation will become effective upon the filing of the requisite
merger documents in Pennsylvania and Nevada, which filings are expected to
be made as soon as practicable following approval by the shareholders.
Pursuant to the terms of the Plan, the Merger may be abandoned by the
Board of Directors of the Company and CompuDyne Nevada any time prior to
the Effective Date (whether before or after shareholder approval). In
addition, the Board of Directors of the Company may amend the Plan at any
time prior to the Effective Date provided that any amendment made
subsequent to approval by the shareholders may not change: (1) the amount
or kind of shares, obligations, cash, property or rights to be received in
exchange for or on conversion of all or any of the shares of the
constituent corporations; (2) any term of the Articles of Incorporation of
the Surviving Corporation to be effected by the Merger; or (3) any of the
terms and conditions of the Plan if the change would adversely affect the
holders of any shares of the constituent corporations.
After the Effective Date, the Nevada Articles of Incorporation, the
present form of which are attached to this Proxy Statement as Exhibit D,
and the Nevada Bylaws will govern the Surviving Corporation. Certain
changes in the rights of the shareholders of the Company will result under
Nevada law, the Nevada Articles of Incorporation and the Nevada Bylaws.
See "Certain Changes in the Rights of Shareholders."
Principal Reasons for Reincorporation in Nevada
...............................................
The primary purpose of the Reincorporation is to induce Messrs. Roenigk
and Markowitz, as the holders of the Series D Preference Stock and
Convertible Notes, and Mr. Roenigk, as the holder of the Roenigk Options,
to convert such Stock and Notes and to exercise such Options, into shares
of Common Stock of the Company because it will strengthen the balance
sheet of the Company by increasing common stockholders' equity and
reducing balance sheet debt. A strengthened balance sheet will better
position the Company to borrow money from financial institutions, to
obtain performance bonding necessary in many non-military installation
contracts, and to identify, negotiate and finance possible acquisitions.
The Board of Directors of the Company also believes that it is in the best
interest of the Company and its shareholders to induce Messrs. Roenigk and
Markowitz in the future to purchase additional equity securities of the
Company in order to increase working capital or to fund possible
acquisitions. Messrs. Roenigk and Markowitz have indicated to the Board
their unwillingness to convert the Series D Preference Stock and
Convertible Notes, to exercise the Roenigk Options, or to purchase any
additional convertible securities or capital stock from the Company if
they would be subject to the "fair value" statutes of the Pennsylvania
Business Corporate Law (the "PBCL") as described below under "Certain
Changes in the Rights of Shareholders--Statutory Anti-Takeover
Provisions." While they are not obligated to do so, Messrs. Roengik and
Markowitz have indicated that they would be more inclined to convert the
Series D Preference Stock and the Convertible Notes, to exercise the
Roenigk Options, and to purchase additional convertible securities or
capital stock from the Company if there would be no adverse consequences
to them. As described below under "Certain Changes in the Rights of
Shareholders--Statutory Anti-Takeover Provisions," the Reincorporation of
the Company in Nevada will not result in adverse consequences to Messrs.
Roenigk and Markowitz in the event of conversion, exercise or purchase of
equity securities similarly to those that would result under the PBCL. In
addition, state franchise taxes are slightly lower in Nevada than in
Pennsylvania.
Certain Consequences of the Merger
..................................
The Merger will not result in any material change in the name, business,
management, assets, liabilities or financial position of the Company. The
Company will continue to maintain its executive offices in Willimantic,
Connecticut. The capitalization, consolidated financial condition and
results of operation of CompuDyne Nevada immediately after consummation
of the Merger will be substantially the same as those of the Company
immediately prior to the consummation of the Merger. The Reincorporation
will, however, affect certain rights of shareholders. See "Certain
Changes in the Rights of Shareholders."
Consummation of the Merger is subject to the approval of the shareholders
of the Company. See "Vote Required for Approval of the Reincorporation."
Holders of Pennsylvania Series D Preference Stock will, prior to the
Annual Meeting, execute consents approving the Merger, and will,
therefore, not be entitled to dissenters' rights under the PBCL with
regard to the Merger. Because the Common Stock is held of record by more
than 2,000 shareholders, shareholders of the Common Stock will not be
entitled to dissenters' rights under the PBCL with regard to the Merger.
Upon issuance, all the issued and outstanding shares of Nevada Common
Stock and Nevada Series D Preference Stock will be fully paid and
nonassessable. Rights of stockholders of the Surviving Corporation will
be governed by the Nevada General Corporation Law (the "NGCL"). See
"Certain Changes in the Rights of Shareholders."
The Charter and Bylaws of the Company
.....................................
The Nevada Articles of Incorporation and the Nevada Bylaws are
substantially the same as the Pennsylvania Articles of Incorporation and
the Pennsylvania Bylaws.
The Pennsylvania Articles of Incorporation authorize the issuance of
12,200,000 shares of capital stock, of which 200,000 shares are Preferred
Stock, with a par value of $100.00 per share, 2,000,000 shares are
Preference Stock, without par value, and 10,000,000 shares are Common
Stock, with a par value of $.75 per share. The Nevada Articles of
Incorporation authorize the issuance of 12,000,000 shares of capital
stock, of which 2,000,000 shares are Preference Stock, without par value,
and 10,000,000 shares are common stock, with a par value of $.75 per
share. The Nevada Articles of Incorporation do not have a class of
Preferred Stock, as do the Pennsylvania Articles of Incorporation,
because the Company will save approximately $9,000 in franchise taxes by
eliminating the class. In addition, the Board of Directors has no
intention of issuing any shares of the Preferred Stock and believes the
class of Preference Stock will give it the flexibility it needs for future
financing.
On December 13, 1978 and April 15, 1987, the Company designated two series
of preference stock, Preference Stock, Series A (the "Series A Preference
Stock") and Preference Stock, Series C (the "Series C Preference Stock"),
respectively. Since the Series A and Series C Preference Stock were
converted into shares of Common Stock in accordance with their terms on
November 12, 1992, such Series are no longer outstanding and such
designations are no longer relevant. Consequently, only the Series D
Preference Stock have been designated in the Nevada Articles of
Incorporation. Under the PBCL, a corporation's board of directors, unless
otherwise restricted by the corporation's articles of incorporation, may
amend the articles of incorporation, without a shareholder vote, to divide
authorized shares into classes and into series within any class, to
determine the designation and the number of shares of any class or series,
and to determine the voting rights, preferences, limitations and special
rights, if any, of shares of any class or series.
Neither the Pennsylvania Articles of Incorporation nor the Nevada
Articles of Incorporation allow for cumulative voting in the election of
directors or for preemptive rights.
Both the Pennsylvania Articles of Incorporation and Nevada Articles of
Incorporation require the affirmative vote of the holders of three-fifths
of all classes of stock entitled to vote in the election of directors,
considered as one class, for (i) the merger or consolidation of the
Company with or into, (ii) to authorize the sale, lease or exchange of
all, or substantially all, of the assets of the Company to, or (iii) to
authorize the sale, lease or exchange to the Company, in exchange for
voting securities of the Company, of any assets of, any other corporation,
person or other entity, if, in any case described in clauses (i), (ii) or
(iii) above, as of the record date of the determination of shareholders
entitled to notice thereof, such other corporation, person or entity is
the record or beneficial owner of 5% or more of the outstanding shares of
stock of the Company entitled to vote in the election of directors.
Under both the Pennsylvania Articles of Incorporation and Nevada Articles
of Incorporation, the directors are divided into three classes, each class
serving for a term of three years.
The Nevada Articles of Incorporation include a provision that no director
or officer of the Company shall be personally liable to the Company or its
shareholders for damages for breach of their fiduciary duty as a director
or officer, provided that the provision does not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law and (ii)
authorizing unlawful distributions as described under "Certain Changes in
the Rights of Shareholders--Distributions." The Pennsylvania Articles of
Incorporation do not contain such a provision. The Pennsylvania Bylaws,
however, provide for indemnification of directors and officers. See
"Certain Changes in the Rights of Shareholders--Officer and Director
Liability" for a description of the Pennsylvania indemnification
provisions.
The Pennsylvania Bylaws provide for at least five days notice being given
to shareholders prior to a special meeting of shareholders. The Nevada
Bylaws provide that such notice must be given not less than ten nor more
than 60 days prior to the meeting, as required under the NGCL.
The Pennsylvania Bylaws provide that the attendance of any shareholder,
either in person or by proxy, at any meeting of shareholders constitutes a
waiver of notice of such meeting, except where such shareholder attends a
meeting for the express purpose of objecting to the meeting because it was
not lawfully called. The Nevada Bylaws do not provide such a provision
because the NGCL does not permit it.
The Pennsylvania Bylaws provide that no unrevoked proxy shall be valid
after 11 months from the date of its execution, unless a longer time is
expressly provided therein, but in no event shall a proxy, unless coupled
with an interest, be voted on after three years from the date of its
execution. The Nevada Bylaws provide that no unrevoked proxy is valid
after six months and in no event shall a proxy be voted on after seven
years from the date of its execution.
The Pennsylvania Bylaws do not have a maximum number of directors that can
serve on the Board of Directors. The Nevada Bylaws provide for a maximum
of eleven.
The Pennsylvania Bylaws permit the Board of Directors to declare vacant
the office of a director if he is declared of unsound mind by an order of
court or convicted of a felony or for any other proper cause. The Nevada
Bylaws does not have such a provision because the NGCL does not permit it.
The Pennsylvania Bylaws permit the directors to fill a vacancy on the
Board of Directors which vacancy was created by an increase in the number
of directors. The Nevada Bylaws permit only the shareholders to fill such
a vacancy, which is consistent with both the Pennsylvania and Nevada
Articles of Incorporation.
The Pennsylvania Bylaws and the Nevada Bylaws differ in certain other
respects. See the discussion of the Articles of Incorporation above and
"Certain Changes in the Rights of Shareholders--Officer and Director
Liability."
Certain Changes in the Rights of Shareholders
.............................................
Upon consummation of the Reincorporation, the shareholders of the Company
will become stockholders of CompuDyne Nevada. DIFFERENCES BETWEEN THE
CORPORATION LAWS OF PENNSYLVANIA AND NEVADA WILL RESULT IN SEVERAL CHANGES
IN THE RIGHTS OF SHAREHOLDERS OF THE COMPANY. Although it is not
practicable to summarize all of such changes herein, the significant
changes are summarized below.
Shareholder Meetings. Under the PBCL, written notice of every meeting of
the shareholders must be given at least five days prior to the day named
for the meeting; however, in certain instances such as a meeting called
for the purpose of acting on a proposed merger, consolidation, charter
amendment or liquidation of the corporation, the PBCL requires that
written notice be given at least 10 days prior to the day named for such
meeting. Under the NGCL, written notice of a stockholder meeting must be
given not less than 10 nor more than 60 days before the meeting. Both the
PBCL and the NGCL provide procedures whereby such notice requirements may
be waived.
The Board of Directors of a Nevada corporation may fix a day not more than
60 days before the holding of a stockholder meeting for determination of
those stockholders entitled to receive notice of, and to vote at, such
meeting. Under the PBCL, the record date for determination of those
shareholders entitled to receive notice of, and to vote at, a shareholder
meeting may not be more than 90 days prior to the date of the meeting.
Failure to Timely Hold Annual Meeting. Under the PBCL, if the annual
meeting of shareholders is not called and held within six months after the
designated time for such meeting, any shareholder may call such meeting at
any time thereafter. The NGCL requires that, unless directors are elected
by written consent, directors be elected at the annual meeting of
stockholders and, if any Nevada corporation fails to elect directors
within 18 months after the last election of directors, any one or more
stockholders holding in the aggregate at least 15% of the corporation's
voting power may petition a district court to order the election of
directors for the corporation.
Distributions. A Pennsylvania corporation, unless otherwise restricted
by its bylaws, may authorize and make distributions, unless after giving
effect thereto, the corporation would be unable to pay its debts as they
become due in the usual course of business or the total assets of the
corporation would be less than the sum of its total liabilities plus
(unless otherwise provided in the articles of incorporation) the amount
that would be needed, if the corporation were to be dissolved at the time
the distribution is measured, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to
those receiving the distribution. The Pennsylvania Bylaws do not restrict
the ability of the Company to pay distributions beyond that provided in
the PBCL, nor do the Pennsylvania Articles of Incorporation contain any
provision with respect to payment of dividends. Generally, a director who
votes for or assents to an illegal distribution is liable to the
corporation, jointly and severally with all other directors so voting or
assenting, for the value of the distribution in excess of the amount that
could have legally been paid. The NGCL contains restrictions on the
authorization of distributions substantially similar to those described
above. The directors of a Nevada corporation are prohibited from making
distributions to stockholders except in the manner provided by the NGCL.
In case of any willful or grossly negligent violation by the provisions of
the NGCL governing distributions, the directors under whose
administration the violation occurred (except for those directors who
dissented) are, for a period of three years, jointly and severally liable
to the corporation for the full amount of the distribution made or for any
loss sustained by the corporation by reason of such illegal distribution,
whichever amount is less. See "Certain Changes in the Rights of
Shareholders--Officer and Director Liability."
Statutory Anti-Takeover Provisions. The PBCL provides that most
publicly-held corporations ("registered corporations") may not engage in
a business combination (e.g., a merger, sale of assets or similar
transaction) with an entity which owns, directly or through affiliates,
20% or more of the voting power of the corporation (an "interested
shareholder") for a period of five years after that entity acquires
"interested shareholder" status, unless the transaction is approved: (1)
by the registered corporation's board of directors prior to the time that
the acquiring entity becomes an interested shareholder, (2) by all
shareholders of the corporation, or (3) by a majority of "disinterested"
shareholders of the corporation if the interested shareholder owns at
least 80% of the voting power of the corporation and certain price terms
and other conditions of the business combination are met. In addition,
subchapter G of the PGCL restricts the exercise of voting rights by a
person or group acquiring 20% or more of the shares of a registered
corporation that are entitled to be cast in an election of directors of
the corporation (or increasing ownership from 20% or more to 33-1/3% or
more, or from 33-1/3% or more to 50% or more) in a transaction other than
a merger, consolidation or plan of share exchange until the exercise of
voting rights is approved by a disinterested shareholder vote. Finally,
Subchapter E of the PGCL provides, generally, if a person or group
acquires shares representing 20% or more of the shares of a registered
corporation that are entitled to be cast in an election of directors of
the corporation (excluding shares which have not yet been accorded voting
rights under Subchapter G), the remaining shareholders of that
corporation may demand and receive "fair value" for their shares from the
person or group acquiring control share status. These statutes,
separately and in combination, tend to prevent, or at a minimum
discourage, unwanted or unsolicited tender offers or other purchases of
outstanding shares of a Pennsylvania corporation, and to give the
corporation's board of directors and shareholders a significant measure
of control over the timing, terms and consummation of any business
combination or change in control of the corporation.
The Series D Preference Stock sold to Martin Roenigk, President and a
director of the Company, and Alan Markowitz, a nominee for director of the
Company, in the MicroAssembly Transaction (see "Certain Relationships and
Related Transactions") provides for one vote per share of Series D
Preference Stock on all matters but only 1/3.08 vote per share for the
election of directors. As a result, the holders of the Series D
Preference Stock can cast only 19% of the votes in an election of
directors, thus avoiding the notice and appraisal provisions of the PBCL
described above. The Series D Preference Stock, however, provides that
each share of Series D Preference Stock "shall have one vote with respect
to the election of directors, effective as of August 1, 1996, unless the
Board of Directors of the [Company], in its sole and absolute discretion,
approves a resolution prior to such date prohibiting such change in voting
rights, in which case each share of Series D Preference Stock will
continue to have 1/3.08 vote per share. In the event the Board approves
such a resolution, on May 1 of each subsequent year (until each share of
Series D Preference Stock has one vote with respect to the election of
directors), each share of Series D Preference Stock shall have one vote,
effective as of such date, unless the Board of Directors approves a
resolution prior to such date prohibiting such change in voting rights."
Under the PBCL, if the Board does not approve such a resolution and the
holders of the Series D Preference Stock receive full voting rights in the
election of directors or otherwise exceed the 20% threshold (through the
acquisition of more shares, the conversion of the Series D Preference
Stock to Common Stock, the conversion of the Convertible Notes to Common
Stock, the exercise of the Roenigk Options, or otherwise, see "Certain
Relationships and Related Transactions"), the remaining shareholders of
the Company may demand and receive "fair value" for their shares from
Messrs. Roenigk and Markowitz, the holders of the Series D Preference
Stock. If, however, the Board of Directors adopts such a resolution
prohibiting full voting rights, the Series D Preference Stock will
continue to have fractional voting rights in the election of directors.
The Board of Directors of the Company believes it is in the best interests
of the Company and its shareholders to induce Messrs. Roenigk and
Markowitz to convert the Series D Preference Stock and Convertible Notes
held by them, as well as to induce Mr. Roenigk to exercise the Roenigk
Options, into shares of Common Stock of the Company because it will
strengthen the balance sheet of the Company by increasing common
stockholders' equity and reducing balance sheet debt. A strengthened
balance sheet will better position the Company to borrow money from
financial institutions, to obtain performance bonding necessary in many
non-military installation contracts, and to identify, negotiate and
finance possible acquisitions. The Board of Directors of the Company also
believes that it is in the best interest of the Company and its
shareholders to induce Messrs. Roenigk and Markowitz to purchase
additional equity securities of the Company to increase working capital or
to fund possible acquisitions. Messrs. Roenigk and Markowitz have
indicated to the Board their unwillingness to convert the Series D
Preference Stock and Convertible Notes, to exercise the Roenigk Options,
or to purchase any additional convertible securities or capital stock from
the Company if they would be subject to the "fair value" statutes of the
PBCL as described above. While they are not obligated to do so, Messrs.
Roenigk and Markowitz have indicated that they would be more inclined to
convert the Series D Preference Stock and the Convertible Notes, to
exercise the Roenigk Options, and to purchase additional convertible
securities or capital stock from the Company if there would be no adverse
consequences to them. As described below, the Reincorporation of the
Company in Nevada will not result in adverse consequences to Messrs.
Roenigk and Markowitz in the event of conversion, exercise or purchase of
equity securities similar to those that would result under the PBCL.
The NGCL contains provisions restricting the ability of a corporation to
engage in business "combinations" with an "interested stockholder".
Under the NGCL, the term "combination" includes (i) a merger or
consolidation with the interested stockholder, or with any other
corporation which after the merger or consolidation would be an affiliate
or an associate of the interested stockholder, as those terms are defined
in the NGCL, (ii) a sale, lease, exchange, mortgage, pledge or other
disposition, in one transaction or a series of transactions, to an
interested stockholder or an affiliate or an associate of the interested
stockholder of assets with values in excess of the amounts provided for in
the NGCL, (iii) the issuance or transfer by the corporation or any
subsidiary, in one transaction or a series of transactions, of any shares
of the corporation or any subsidiary that have an aggregate market value
equal to five percent (5%) or more of the aggregate market value of all
outstanding shares of the corporation except under the exercise of
warrants or rights to purchase shares offered or a dividend or
distribution paid or made, prorata to all shareholders; (iv) the adoption
of any plan or proposal for the liquidation or dissolution of the
corporation proposed by, or under any agreement, arrangement or
understanding, whether or not in writing, with the interested stockholder
or any affiliate or associate of the interested stockholder; (v) any
reclassification of securities, recapitalization, merger or consolidation
of the corporation with any subsidiary of the corporation or other
transaction which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class or series
of voting shares or securities convertible into voting shares of the
corporation or any subsidiary which is directly or indirectly owned by the
interested stockholder or any affiliate or associate, except as a result
of immaterial changes because of adjustments of fractional shares and (vi)
any receipt of the interested stockholder or any affiliate or associate of
the benefit, directly or indirectly, except proportionally as a
stockholder of a resident domestic corporation of any loan, advance
guaranty, pledge or any tax credit or advantage provided by or through the
corporation. The NGCL defines an "interested stockholder" generally as a
stockholder who beneficially owns ten percent (10%) or more of the voting
power of the corporation. Under the NGCL, business combinations with
interested stockholders are not permitted for a period of three years
following the date on which such stockholder became an interested
stockholder, except under circumstances; for example, when the purchase
of shares which resulted in the person becoming an interested shareholder
or the combination is approved by the corporation's board of directors
before the share acquisition date or when the corporation's original
Articles of Incorporation contain a provision expressly electing not to be
governed by the provisions of the NGCL relating to combinations with
interested stockholder. The term "share acquisition date" is defined as
the date on which a person first becomes an interested shareholder of the
corporation.
The NGCL also restricts combinations with interested stockholders after
the expiration of three years after his date of acquiring shares. Such
combinations are authorized only if certain requirements under the NGCL
are met. Those requirements include approval of the board of directors
prior to the acquisition date or the affirmative vote of holders of stock
representing a majority of the voting power not owned by the interested
stockholder. In addition, a combination may be authorized under the NGCL
if disinterested stockholders receive for their stock the minimum amounts
provided thereunder.
The Nevada Articles of Incorporation do not contain a provision expressly
electing not to be governed by the provisions of the NGCL relating to
combinations with interested stockholders. Prior to the Merger, however,
the Board of Directors of CompuDyne Nevada will take all necessary action
(i) to permit Messrs. Roenigk and Markowitz, as the holders of the Series
D Preference Stock, to convert their Series D Preference Stock to be
issued by CompuDyne Nevada pursuant to the Reincorporation (the "Nevada
Series D Preference Stock") to CompuDyne Nevada Common Stock, (ii) to
permit Messrs. Roenigk and Markowitz to convert their Convertible Notes to
CompuDyne Nevada Common Stock, (iii) to permit Mr. Roenigk, as the holder
of the Roenigk Options, to exercise such Options for shares of CompuDyne
Nevada Common Stock, (iv) to permit the increase in voting rights on
August 1, 1996 from 1/3.08 vote per share in the election of directors to
one vote per share in the election of directors pursuant to the terms of
the Series D Preference Stock, and (v) to permit the issuance of
additional convertible securities and capital stock to Messrs. Roenigk
and Markowitz. As a result, the conversion of the Nevada Series D
Preference Stock and Convertible Notes, the exercise of the Roenigk
Options and the increase in voting rights of the Nevada Series D
Preference Stock and the issuance of additional convertible securities
and capital stock to Messrs. Roenigk and Markowitz will not result in
adverse consequences to Messrs. Roenigk and Markowitz under the anti-
takeover provisions of the NGCL or give rise to dissenters' rights.
If the Company is reincorporated in Nevada, the holders of the Common
Stock will not be entitled to receive "fair value" for their shares from
Messrs. Roenigk and Markowitz, as the holders of the Series D Preference
Stock, upon the acquisition by Messrs. Roenigk and Markowitz of 20% or
more of the shares that are entitled to be cast in an election of
directors of the Company that they would otherwise be entitled to receive
as a Pennsylvania corporation under the PBCL. As of April 30, 1996,
Messrs. Roenigk and Markowitz held 1,260,460 shares of the Company's
voting stock (consisting of the Series D Preference Stock), or
approximately 41.1% of the voting power of issued and outstanding shares
for all issues other than the election of directors and 19% of the voting
power of issued and outstanding shares for the election of directors. If
Messrs. Roenigk and Markowitz convert the Series D Preference Stock into
Common Stock or if no resolution is approved by the Company's Board of
Directors prior to August 1, 1996 prohibiting full voting rights in the
election of directors, Messrs. Roenigk and Markowitz will have 41.1% of
the voting power of issued and outstanding shares on all issues, including
the election of directors. Messrs. Roenigk and Markowitz, in addition to
the Series D Preference Stock, hold Convertible Notes convertible into
266,667 shares of Common Stock and Mr. Roenigk holds options to purchase
200,000 shares of the Company's Common Stock. See "Certain Relationships
and Related Transactions." Assuming full voting rights in the election of
directors for the Series D Preference Stock, conversion by Messrs. Roenigk
and Markowitz of the Series D Preference Stock and Convertible Notes and
exercise by Mr. Roenigk of the Roenigk Options, Messrs. Roenigk and
Markowitz would hold 1,727,127 shares of the Company's voting stock, or
approximately 48.9% of the Company's voting stock. Furthermore, on a
fully diluted basis, Messrs. Roenigk and Markowitz would hold 37.2% and
10.6%, respectively, of the Company's voting stock. See "Certain
Relationships and Related Transactions".
Short Form Mergers. Pennsylvania and Nevada law each provide for approval
of most mergers or other business combinations by majority vote of the
shareholders entitled to vote thereon. Under the PBCL, a plan of merger
does not require the approval of a corporation's shareholders when
immediately before adoption of the plan of merger another corporation that
is a party to the merger owns 80% or more of the outstanding shares of
each class of the corporation that is being merged into the corporation
with ownership. Under the NGCL, a corporation that owns at least 90% of
the outstanding shares of each class of stock of another corporation can
merge the other corporation into itself without stockholder approval.
Dissenters' Rights. The NGCL provides dissenters' rights only upon
consummation of certain mergers and share exchanges, or as otherwise
provided in the articles of incorporation or bylaws of the corporation.
Neither the Nevada Articles of Incorporation nor the Nevada Bylaws contain
such a provision regarding "permissive dissenters" rights. In addition,
the NGCL further restricts dissenters' rights by providing that, as a
general matter, there is no right to dissent for any class of series of
stock that is either listed on a national securities exchange, designated
as a national marker system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. (a "NASD Designated
Security"), or held by at least 2,000 stockholders of record.
The PBCL provides substantially similar restrictions on dissenters'
rights, except that the types of corporate transactions under which a
shareholder may be entitled to dissenters' rights is expanded. For
example, under the PBCL, certain dissenters' rights are afforded to
shareholders upon sales of all or substantially all of a corporation's
assets, while under the NGCL, dissenters' rights would not be available in
any circumstance upon a sale of all or substantially all of the
corporation's assets. In addition, the PBCL does not specifically except
from the dissenters' rights provisions NASD Designated Securities. The
PBCL allows for a corporation to grant permissive dissenters' rights, but
neither the Pennsylvania Articles of Incorporation nor the Pennsylvania
Bylaws contain a provision allowing for such permissive rights.
See "Certain Changes in the Rights of Shareholders-Statutory Anti-
Takeover Provisions" for a description of certain "fair price" provisions
of the PBCL that would not be available to the Company's shareholders if
the Company is reincorporated in Nevada.
Officer and Director Liability. Under the NGCL, a corporation's articles
of incorporation may contain a provision eliminating or limiting the
personal liability of directors and officers to the corporation or its
stockholders for damages for breach of fiduciary duty as a director or
officer, but such provision may not eliminate or limit the liability of a
director or officer for acts or omissions that involve intentional
misconduct, fraud or a knowing violation of law, or for payment of an
unlawful distribution. See "Certain Changes in the Rights of
Shareholders--Distributions." The Nevada Articles of Incorporation limit
personal liability of directors and officers to the fullest extent
permissible under the NGCL.
The PBCL provides that, unless restricted in its bylaws, a corporation has
the power to indemnify persons from fines, judgments and other costs and
expenses incurred as a result of actions brought or threatened against
such persons by reason of their service to the corporation, provided that
the person claiming the right to indemnification (a) acted in good faith
in a manner he reasonably believed was in or not opposed to the
corporation's interest, and (b) in the case of a criminal proceeding, had
no reasonable cause to believe his conduct was unlawful, and (c) in the
case of an action brought by or on behalf of the corporation which results
in an adjudication of liability against such person, a court of proper
jurisdiction determines that such person is fairly and equitably entitled
to indemnity, and then only to the extent so determined by the court.
Indemnification is mandatory if the person seeking indemnification has
been successful on the merits or otherwise in defending any such action.
The foregoing indemnification rights are not exclusive, and the PBCL
empowers a Pennsylvania corporation to create additional indemnification
rights by bylaw, agreement, vote of shareholders, vote of disinterested
directors, or otherwise, except that indemnification may not be provided
where the act or failure to act which gives rise to the claim for
indemnification is determined by a court to have constituted willful
misconduct or recklessness. The Company's bylaws generally authorize
indemnification of an officer or director (or former officer or director)
of the company in any action (including actions by or on behalf of the
company) upon a determination that he acted in good faith in what he
reasonably believed was in or not opposed to the corporation's interest.
Such determination can be made by the Board of Directors, by majority vote
of disinterested directors, by the shareholders, or by independent legal
counsel.
With respect to indemnification of officers and directors, the provisions
of the NGCL and PBCL are substantially similar.
See "The Charter and Bylaws of the Company" for a description of the
indemnification provisions in the Pennsylvania Articles of Incorporation
and Bylaws and the Nevada Articles of Incorporation and Bylaws.
Removal of Directors. Generally, under the PBCL, a director may be
removed from office without cause by vote of the shareholders entitled to
elect the director being removed. In addition, unless otherwise provided
in a bylaw adopted by the shareholders, the board of directors may declare
vacant the office of a director who has been judicially declared of
unsound mind or who has been convicted of an offense punishable by
imprisonment for a term of more than one year or any other proper cause
that the bylaws specify.
A director of a Nevada corporation generally may be removed from office by
the vote of stockholders representing not less than two-thirds of the
voting power entitled to vote. No provision is made in the NGCL for
removal of directors by the board of directors of the corporation.
See "The Charter and Bylaws of the Company" for a description of
provisions in the Pennsylvania Articles of Incorporation and Bylaws and
the Nevada Articles of Incorporation and Bylaws regarding the removal of
directors.
Vacancies on the Board of Directors. Both the NGCL and the PBCL generally
provide that all vacancies, including those caused by an increase in the
number of directors, may be filled by a majority of the remaining
directors, though less than a quorum.
Actions by Consent. Unless otherwise restricted by the articles of
incorporation or bylaws, any action required or permitted to be taken at a
meeting of the board of directors of a Nevada corporation may be taken
without a meeting if a written consent thereto is signed by all the
members of the board. The PBCL provision is substantially similar.
Neither the Nevada Articles of Incorporation, the Nevada Bylaws, the
Pennsylvania Articles of Incorporation nor the Pennsylvania Bylaws
contain a provision restricting action of directors by written consent.
Under the NGCL, unless otherwise provided in the articles of incorporation
or bylaws, any action required or permitted to be taken at a meeting of
the stockholders may be taken without a meeting if a written consent
thereto is signed by stockholders holding at least a majority of the
voting power, except that if a different proportion of voting power is
required for such an action at a meeting, then that proportion of written
consents is required. Neither the Nevada Articles of Incorporation nor
the Nevada Bylaws contain a provision that provides for a different
result. Before the shareholders of a Pennsylvania corporation can act by
written consent, the PBCL generally requires a written consent signed by
all shareholders entitled to vote on the matter. However, the bylaws of a
corporation may provide for shareholders to act by written consent in
substantially the same manner as the NGCL. The Pennsylvania Bylaws do not
contain such a provision.
Classification of Directors. Both the NGCL and the PBCL allow for
classification of the board of directors of a corporation. The PBCL
provides that a corporation may not have more than four classes of
directors. The NGCL provides that at least one-fourth in number of the
Board of Directors be elected annually. Both the Pennsylvania Articles of
Incorporation and the Nevada Articles of Incorporation classify the Board
of Directors into three classes, each class serving for a term of three
years.
Proxies. Both the NGCL and the PBCL provide that proxies are revocable at
will, unless such proxy is coupled with an interest. Under the PBCL, an
unrevoked proxy is valid for three years unless a longer time is expressly
provided for in the proxy.
Under the NGCL, an unrevoked proxy is valid for six months, unless the
proxy specifically provides for a length of time for which it is to
continue in force (but in no case may the proxy specify a time longer than
seven years).
Cumulative Voting. Under the NGCL, cumulative voting for the election of
directors is denied unless provided for in the articles of incorporation.
The Nevada Articles of Incorporation do not grant cumulative voting
rights. Under the PBCL, cumulative voting for the election of directors
is granted unless denied by the articles of incorporation. The
Pennsylvania Articles of Incorporation expressly deny cumulative voting
rights.
Certain Federal Income Tax Consequences
.......................................
The following discussion is based upon information provided by the
Company, the Internal Revenue Code of 1986 as amended (the "Code"),
existing and proposed regulations thereunder, reports of congressional
committees, judicial decisions and current administrative rulings and
practices. Any of these authorities could be repealed, overruled or
modified at any time after the date hereof. Any such change could be
retroactive and, accordingly, could modify the tax consequences discussed
herein. No ruling from the Internal Revenue Service with respect to the
matters discussed herein has been requested and there is no assurance that
the Internal Revenue Service would agree with the conclusions set forth
herein.
This discussion is for general information only and does not address the
federal income tax consequences that may be relevant to particular
shareholders in light of their personal circumstances or to certain types
of shareholders (such as dealers in securities, insurance companies,
foreign individuals and entities, financial institutions and tax-exempt
entities) who may be subject to special treatment under the federal income
tax laws. This discussion also does not address any tax consequences
under state, local or foreign laws.
Neither the Company nor any of its shareholders will recognize gain or
loss for federal income tax purposes as a result of the Reincorporation.
Each shareholder's adjusted tax basis in Nevada Common Stock and Series D
Preference Stock received in the Reincorporation will be equal to that
shareholder's adjusted tax basis in the Common Stock exchanged therefor.
Each shareholder's holding period with respect to Nevada Common Stock
received in the Reincorporation will include the period during which the
Common Stock and Series D Preference Stock for which it was exchanged was
held, provided that such Common Stock was held as a capital asset.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE REINCORPORATION, INCLUDING THE
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
Accounting Treatment
....................
For financial reporting purposes, the Reincorporation will be treated as a
reorganization of affiliated entities, with all assets and liabilities of
the Company recorded on the books of CompuDyne Nevada at their historical
cost basis.
Vote Required for Approval of the Reincorporation
.................................................
Assuming the presence of a quorum, the proposal to approve the
Reincorporation requires the approval by the holders of (i) a majority of
the shares of Common Stock and Series D Preference Stock, voting together
as a single class, (ii) a majority of the shares of Common Stock voting
together as a single class, and (iii) two-thirds of the shares of Series D
Preference Stock, voting together as a separate class, represented and
voting in person or by proxy at the Annual Meeting. Holders of
Pennsylvania Series D Preference Stock will, prior to the Annual Meeting,
execute consents approving the Merger. Proxies will be voted for or
against such proposal in accordance with the specifications marked
thereon, and if no specification is made, will be voted in favor of such
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE REINCORPORATION.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's directors and executive officers, and persons who own
more than 10% of the Corporation's Common Stock, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Corporation on Forms 3, 4 and 5.
Officers, directors and 10% shareholders are required by SEC regulations
to furnish the Corporation with copies of all Forms 3, 4, and 5 they file.
Based solely on a review of the copies of such reports furnished to the
Corporation and written representations that no other reports were
required, during the fiscal year ended December 31, 1995, the Corporation
believes all Section 16(a) filing requirements applicable to its
officers, directors and 10% beneficial owners were complied with.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal No. 5)
On January 2, 1996, the Board of Directors approved the appointment of
Deloitte & Touche LLP as independent auditors for the Corporation for the
year ending December 31, 1996 subject to ratification of such appointment
by the shareholders. Deloitte & Touche replaced Coopers & Lybrand who has
acted as the independent auditors of the Company since June, 1988.
Coopers & Lybrand was dismissed on recommendation of the Audit Committee
and approved by the Board of Directors on February 2, 1996 because the
estimate given by Deloitte & Touche LLP for their annual fees and expenses
was considerably lower than that given by Coopers & Lybrand. Coopers &
Lybrands' reports for the fiscal years ended December 31, 1993 and 1994
did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope or accounting
principles. Prior to such dismissal, there had been no disagreements
between the Corporation and Coopers & Lybrand on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the
satisfaction of Coopers & Lybrand, would have caused it to make reference
to the subject matter of the disagreement in connection with its report.
Unless otherwise indicated, properly executed proxies will be voted in
favor of ratifying the appointment of Deloitte & Touche, independent
certified public accountants, to audit the books and accounts of the
Corporation for year ending December 31, 1996. Representatives of
Deloitte & Touche will be present at the Annual Meeting. They will be
given an opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR Proposal No. 4.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before
the meeting, and does not know of any other matter which anyone else
proposes to present for action at the meeting. However, if any other
matters properly come before such meeting, or any adjournment thereof, the
persons named in the accompanying form of proxy or their duly constituted
substitutes acting at the meeting will be deemed authorized to vote or
otherwise act thereon in accordance with their judgment on such matters.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholder proposals for the 1997 Annual Meeting of Shareholders must be
received at the principal executive offices of the Corporation, 120 Union
Street, Willimantic, CT 06226, no later than January 15, 1997 for
inclusion in the 1996 Proxy Statement and form of proxy.
Shareholders are requested by the Board of Directors to execute and
deliver the enclosed proxy.
DOCUMENTS INCORPORATED BY REFERENCE
The information contained under Items 7, 9, and 14(a) of CompuDyne's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and
CompuDyne's Annual Report to Shareholders for the fiscal year ended
December 31, 1995 is hereby incorporated by reference herein.
.........................................................................
January 4, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by compuDyne corporation (the Company)
(copy attached), which we understand will be filed with the Commission,
pursuant to Item 4 of Form 8-K, as part of the Company's Form 8-K report
for the month of January 1996. We agree with the statements concerning
our Firm in such Form 8-K.
Very truly yours,
/s/Coopers & Lybrand L.L.P.
.........................................................................
EXHIBIT A
COMPUDYNE CORPORATION
1996 STOCK INCENTIVE COMPENSATION PLAN
FOR EMPLOYEES
1. Purpose
The purpose of the Plan is to further the growth and prosperity of
CompuDyne Corporation and its subsidiaries through payment of incentive
compensation in the form of Common Stock to officers and key employees and
by encouraging investment in the Company's Common Stock by officers and
other key employees who are in a position to contribute materially to the
Company's prosperity.
2. Definitions
Unless the context clearly indicates otherwise, the following terms when
used in this Plan, shall have the meanings set forth in this Section 2.
"Appreciation" means in connection with an Option or Stock Appreciation
Right the amount by which the Fair Market Value of Common Stock subject to
such Option on the day prior to exercise thereof exceeds the option price
for such Common Stock determined as set forth in Section 7(b) hereof.
"Award Period" means for each Restricted Stock Award, the period beginning
with the date on which such Award is granted and ending on a date
specified by the Committee at the time of the granting of such Award. In
no event shall the Award Period be greater than ten (10) years.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Committee" means the Compensation and Stock Option Committee of the Board
of Directors.
"Common Stock" means the common stock of the Company with a par value of
$.75 per share.
"Company" means CompuDyne Corporation.
"Fair Market Value" means the closing sale price per share quoted on the
NASDAQ OTC Bulletin Board (or on whatever national exchange the shares of
the Company are traded) on the day before the award date or on the day
before the exercise date, as appropriate. If no trade was quoted on the
NASDAQ OTC Bulletin Board or if no trade occurred on the Exchange on the
day before the award date or on the day before the exercise date, the mean
between the closing bid and ask price will be substituted for the last
sale price on that day.
"Incentive Award" means an Option, a Stock Appreciation Right, a
Restricted Stock Award or a combination of them.
"Incentive Stock Option" means an Option which meets the requirements of
Section 422A of the Internal Revenue Code.
"Option" means a regular stock option or Incentive Stock Option granted
under this Plan to purchase shares of Common Stock.
"Plan" means the CompuDyne Corporation 1996 Stock Incentive Compensation
Plan for Employees as amended from time to time.
"Restricted Stock Award" means the right to receive a specified number of
shares of Common Stock in annual installments over a designated Award
Period.
"Stock Appreciation Right" means a right granted by the Committee in
connection with or as an amendment to an Option which entitles the holder
of the Option to receive the appreciation in value of the stock subject to
such Option without payment to the Company.
"Subsidiary" or "Subsidiaries" means a corporation or other form of
business entity more than 50% of the voting interest of which is owned or
controlled, directly or indirectly, by the Company.
3. Shares of Common Stock Subject to the Plan
a. Subject to the provisions of paragraph (c) of this Section 3 and
Section 9, the total number of shares of Common Stock which may be issued
or transferred under this Plan upon exercise of stock options, Stock
Appreciation Rights and when an employee becomes entitled to receive
shares of stock under the terms of a Restricted Stock Award shall not
exceed 300,000 shares.
b. Shares to be transferred to employees will be made available, at the
discretion of the Board of Directors, either from authorized but unissued
shares of Common Stock or from shares of Common Stock held by the Company
as treasury shares, including shares purchased in the open market.
c. If any share of Common Stock transferrable under an Incentive Award is
not transferred and ceases to be issuable or transferable because of the
lapse, in whole or in part, of such Incentive Award, or, by reason of the
provisions of paragraph (b) of Section 6, and paragraphs (d) and (e)
Section 7, or as a result of an employee's election to exercise a Stock
Appreciation Right as set forth in paragraph (f) of Section 8, or for any
other reason, the shares not so issued or transferred shall no longer be
charged against the limitation provided for in paragraph (a) of this
Section 3 and may again be used for Incentive Awards.
4. Administration of the Plan
The Plan shall be administered by the Compensation and Stock Option
Committee which shall consist of three members who are not eligible to
receive Incentive Awards and who have not been eligible, at any time
within one year prior to appointment to the Committee, for selection as a
person to whom stock may be allocated or to whom Option or Restricted
Stock awards may be granted pursuant to the Plan or any other plan of the
Company (exclusive of the 1996 Option Plan for Non-Employee Directors) or
any of its affiliates entitling the participants therein to acquire stock
of the Company or any of its affiliates. The Committee shall have
authority, in its discretion and after receiving the recommendations of
the President of the Company, to determine the employees to whom, and the
time or times at which Incentive Awards will be granted and the number of
shares to be subject to each Incentive Award, and in the case of Options
whether or not such Options shall be accompanied by the grant of Stock
Appreciation Rights. In making such determinations, the nature of the
services rendered by the respective employees, their present and
potential contributions to the Company's success and such other factors
deemed to be relevant will be taken into account. Subject to the express
provisions of the Plan, the Committee shall also have authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective
Incentive Award Agreements (which need not be identical) including the
determination of whether Options granted will be designated as Incentive
Stock Options and to make all other determinations necessary or advisable
for the administration of the Plan. The Committee will hold its meetings
at such time and place as it may determine. A majority of its members
will constitute a quorum, and all determinations of the Committee shall be
made by a majority of its members.
5. Participation
a. Incentive Awards may be granted only to salaried officers or key
employees of the Company and its Subsidiaries.
b. From time to time the President of the Company will determine and
recommend to the Committee employees of the Company and of its
Subsidiaries who should be granted Incentive Awards, the type of Incentive
Award to be granted, and the number of shares subject to each Incentive
Award. The Committee shall approve or disapprove such recommendations.
c. Incentive Awards may be granted in the following forms:
i. a Restricted Stock Award, in accordance with Section 6;
ii. an Option, in accordance with Section 7, which may be designated
as an Incentive Stock Option as that term is defined in Section 422A of
the Internal Revenue Code.
iii. An Option, accompanied by a Stock Appreciation Right in accordance
with Section 8; or
iv. a combination of the foregoing.
6. Restricted Stock Awards
An Incentive Award in the form of a Restricted Stock Award shall be
subject to the following provisions:
a. The Restricted Stock Agreement shall specify (i) a number of shares
of Common Stock to be transferred to the recipient over the Award Period,
and (ii) the times at which portions of those shares shall be transferred
to the recipient. Shares may not be transferred before one year after the
date of the Award, or later than ten years from such date, excepting,
however, that the Committee may waive any part of the one-year period.
b. The Restricted Stock Award shall terminate if the holder, with or
without cause, shall cease to be an employee of the Company or any of its
Subsidiaries and any installments of shares of Common Stock which have not
yet become transferable to such holder shall be forfeited upon cessation
of employment; provided, however, in the event that an employee's
employment shall terminate as a result of death or disability the
foregoing provisions of this paragraph (b) shall not apply and all shares
of stock subject to Restricted Stock Awards shall immediately become
vested.
c. At the time an installment of shares of Common Stock is transferred to
the holder of a Restricted Stock Award, an additional payment shall be
made to such holder, either in cash or shares of Common Stock as the
Committee shall determine in its sole discretion, in an amount equal to
the cash dividends which may have been payable to the holder of the
Restricted Stock Award in respect to the shares transferred to the holder
at the time the Restricted Stock Award was granted.
d. Each Restricted Stock Award shall be evidenced by a written
instrument containing terms and conditions determined by the Committee,
consistent with the terms of the Plan.
7. Options
An Incentive Award in the form of an Option shall be subject to the
following provisions:
a. The Option shall specify (i) the number of shares of Common Stock
which may be purchased by the recipient over the term of the Option, (ii)
the times at which portions of such shares may be purchased by the
employee, (iii) whether the Option is accompanied by a Stock Appreciation
Right and, if so, the terms and conditions of such Stock Appreciation
Right as set forth in Section 8 and (iv) whether the Option is an
Incentive Stock Option. No Option shall be deemed to be an Incentive
Stock Option unless the Committee has so designated such Option and the
Option states that it is an Incentive Stock Option.
b. The purchase price of each share of Common Stock under each Option
will be at least 100% of the Fair Market Value of a share of the Common
Stock at the time of grant.
c. The Option must provide that it is not transferable and may be
exercised solely by the person to whom granted, except as provided in
paragraph (e) of this Section 7 in the event of such person's death.
d. Unless otherwise determined by the Committee, each Option will be
subject to the condition that it may be exercised only if the optionee
remains in the employ of the Company and/or a Subsidiary for at least one
year after the date of the granting of the Option. An Option may be
exercised at the times and in the amounts determined by the Committee. In
no event, however, shall an Option or a Stock Appreciation Right relating
to such Option be exercisable after ten years from the granting of the
Option.
e. The Option (and any related Stock Appreciation Right) shall terminate
if and when the optionee shall cease to be an employee of the Company and
its Subsidiaries, except as follows:
i. If an optionee dies while employed by the Company or a Subsidiary, or
within thirty (30) days after his/her retirement or the termination of
his/her employment where such termination was not for cause, the option
theretofore granted to him/her or any related Stock Appreciation Right may
be exercised (for not more than the number of shares for which the
optionee might have exercised his/her Option or Stock Appreciation Right
at the time of termination of employment) by the beneficiary designated
pursuant to paragraph (g) of Section 10 except in the case of an Incentive
Stock Option, or in the absence of such designation or if no such
beneficiary survives the optionee or if the Option is an Incentive Stock
Option, by such person or persons as shall have acquired the optionee's
rights under the Option by will or by the laws of descent and
distribution, but only within six (6) months from the date of death, and
in no event after ten years from the granting of the Option.
ii. If an optionee retires or if his/her employment with the Company or
a Subsidiary is terminated for any reason (other than by death) subsequent
to one year from the date of grant of any Option, such Option or any
related Stock Appreciation Right may be exercised (for not more than the
number of shares for which the optionee might have exercised his/her
Option on the date of his/her retirement or the date on which his/her
employment was terminated) only within thirty (30) days from the date of
such retirement or termination of employment, but in no event after ten
years from the granting of the Option; provided, however, that if an
optionee is dismissed for cause, of which the Committee shall be the sole
judge, his/her Option and any related Stock Appreciation Right shall
expire on the date and time of dismissal. The Committee may determine
that, for the purpose of the Plan, an employee who is on a leave of
absence will be considered as still in the employ of the Company, provided
that an Option shall be exercisable during a leave of absence only as to
the number of shares which were exercisable at the commencement of such
leave of absence.
f. A person electing to exercise an Option will give written notice to
the Company of such election and of the number of shares he/she has
elected to purchase and the date on which he/she wishes to exercise the
Option. Any person exercising an Option shall tender the full purchase
price of the shares he/she has elected to purchase on the date specified
by him/her for completion of such purchase.
g. A person electing to exercise a Stock Appreciation Right in lieu of
exercising all or part of an Option will give written notice to the
Company of such election, the number of shares subject to the Option which
will be taken in the form of Stock Appreciation Rights and whether the
payment of the Appreciation will be entirely in Common Stock or partially
in Common Stock and partially in cash as provided in Section 8 hereof.
h. The Committee shall have the power to add a Stock Appreciation Right
to any outstanding Option. Such addition shall be made by amending the
outstanding Option to include a Stock Appreciation Right (with the written
approval of the holder thereof). Any such amendment shall not be
considered the grant of a new Option but shall be deemed to be a
continuation of the Option with respect to which such Stock Appreciation
Right is granted.
i. The Option agreements or Option grants authorized by the Plan may
contain such other provisions, consistent with the terms of the Plan, as
the Committee shall consider advisable.
j. Incentive Stock Options may not be issued to any person who at the
time of grant owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or any of its
subsidiaries.
8. Stock Appreciation Rights
A Stock Appreciation Right may be granted to a key employee in connection
with (and only in connection with) any Option granted pursuant to this
Plan subject to the following provisions:
a. Each Stock Appreciation Right shall relate to a specific Option
granted under the Plan and shall be granted to the employee either
concurrently with the grant of the Option or at such later time as
determined by the Committee.
b. The Stock Appreciation Right shall entitle the holder of an Option to
surrender the unexercised Option (or a portion thereof) within the period
specified for the exercise of such Option and receive in exchange a
payment in cash and/or Common Stock of the Company having an aggregate
value equal to the amount by which the Fair Market Value of the Common
Stock subject to the Option (or portion thereof which is exercised)
exceeds the Option price for such Common Stock (referred to as the
Appreciation); provided that the holder of the Option shall be entitled to
receive no more than 50% of the Appreciation in cash.
c. Each Stock Appreciation Right granted hereunder shall be subject to
the same terms and conditions as the related Option. It shall be
exercisable only to the extent such Option is exercisable and shall
terminate or lapse and cease to be exercisable when the related Option
terminates or lapses.
d. The holder of the Option shall have the sole discretion to elect in
each case whether any payment of a Stock Appreciation Right shall be
entirely in the form of Common Stock of the Company or partially in Common
Stock of the Company and partially in cash provided, however, the holder
cannot elect to receive more than 50% of the Appreciation in the form of
cash. The number of shares of Common Stock to be received by a holder
upon exercise of a Stock Appreciation Right will be determined by dividing
the portion of the Appreciation in respect of which he/she has elected to
receive Common Stock by the Fair Market Value of the Common Stock on the
day preceding the date of exercise of the Stock Appreciation Right. Any
remaining Appreciation (not to exceed 50% of the total) will be paid in
cash.
e. Payments to be made, in whole or in part, in cash upon exercise of
Stock Appreciation Rights by any officer of the Company shall be made in
accordance with the provisions relating to the exercise of Stock
Appreciation Rights of Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect at the time of
such exercise, or any law, rule, regulation or other provision that may
replace such Rule.
f. Upon the exercise of a Stock Appreciation Right, the total number of
shares subject to the related Option shall automatically be reduced by the
number of shares of Common Stock with respect to which the Stock
appreciation Right is exercised. Any shares transferred upon exercise of
a Stock Appreciation Right shall be charged against the maximum limitation
upon the grant of shares of Common Stock set forth in Section 3 of the
Plan. Any shares not transferred which are no longer subject to Option
due to surrender of the Option or a portion thereof upon exercise of the
Stock Appreciation Right shall not be charged against such maximum
limitation and shall again be available for grant pursuant to Incentive
Awards.
9. Adjustment Provisions
........................
Except as otherwise provided herein, the following provisions shall
apply to all Common Stock authorized for issuance and optioned, granted or
awarded under the Plan:
a. Stock Dividends, Splits, etc. In the event of a stock dividend,
stock split, or other subdivision or combination of the Common Stock, the
number of shares of Common Stock authorized under the Plan will be
adjusted proportionately. Similarly, in any such event there will be
proportionate adjustment in the number of shares of Common Stock subject
to unexercised Options (but without adjustment to the aggregate option
price) and in the number of shares of Common Stock then subject to
Restricted Stock Awards.
b. Merger, Exchange or Reorganization. In the event that the
outstanding shares of Common Stock are changed or converted into,
exchanged or exchangeable for, a different number or kind of shares or
other securities of the Company or of another corporation, by reason of a
reorganization, merger, consolidation, reclassification or combination,
appropriate adjustment shall be made by the Committee in the number of
shares and kind of Common Stock for which Incentive Awards and Stock
Payments may be or may have been awarded under the Plan, to the end that
the proportionate interests of participants shall be maintained as before
the occurrence of such event. However, that in the event of any
contemplated transaction which the Committee determines to be a change in
control of the Company, the Committee, with the approval of a majority of
the members of the Board of Directors who are not then participants, may
modify any and all outstanding Incentive Awards and Stock Payments so as
to accelerate, as a consequence of or in connection with such transaction,
the vesting of any employee's right to exercise any Incentive Awards or
the unqualified ownership of Common Stock subject to Incentive Awards.
c. Adjustments under this Section 9 shall be made by the Board of
Directors, whose determination as to what adjustments shall be made, and
the extent thereof, shall be final, binding and conclusive. No fractional
shares of Common Stock shall be issued under the Plan on account of any
such adjustments.
10. General Provisions
......................
a. With respect to any shares of Common Stock issued or transferred
under the provisions of this Plan, such shares may be issued or
transferred subject to such conditions, in addition to those specifically
provided in the Plan, as the Board of Directors or Committee may direct.
b. Nothing in the Plan or in any instrument executed pursuant thereto
will confer upon any employee any right to continue in the employ of the
Company or a Subsidiary or will affect the right of the Company or of a
Subsidiary to terminate the employment of any employee with or without
cause.
c. No shares of Common Stock will be issued or transferred pursuant to
an Incentive Award unless and until all legal requirements applicable to
the issuance or transfer of such shares have, in the opinion of counsel to
the Company, been complied with. In connection with any such issuance or
transfer, the person acquiring the shares will, if requested by the
Company, give written assurances satisfactory to counsel to the Company
that the shares are being acquired for investment and not with a view to
resale or distribution thereof and assurances in respect of such other
matters as the Company or a Subsidiary may consider desirable to assure
compliance with all applicable legal requirements.
d. No employee (individually or as a member of a group), and no
beneficiary or other person claiming under or through him/her, will have
any right, title or interest in any shares of Common Stock allocated or
reserved for the purposes of the Plan or subject to any Incentive Award
except as to such shares of Common Stock, if any, as shall have been
issued or transferred to him/her and except as otherwise provided in
Section 11(a).
e. In the case of any employee of a Subsidiary, the Committee may direct
the Company to issue or transfer the shares covered by the Incentive Award
to the Subsidiary for such lawful consideration as the Committee may
specify upon the condition that the Subsidiary will transfer the shares to
the employee in accordance with the terms of the Incentive Award.
Notwithstanding any other provision in this Plan, an Incentive Award may
be issued by and in the name of the Subsidiary and shall be considered
granted on the date it is approved by the Committee, on the date it is
delivered by the Subsidiary, or on such other date between such dates, as
the Committee shall specify.
f. The Company or a Subsidiary may make such provisions as it may
consider appropriate for the withholding of any taxes which the Company or
Subsidiary determines it is required to withhold in connection with any
Incentive Award.
g. No Incentive Award and no rights under the Plan, contingent or
otherwise, shall be assignable, transferable or subject to any
encumbrance, pledge or charge of any nature; provided that, under such
rules and regulations as the Committee may establish pursuant to the terms
of the Plan, a beneficiary may be designated in respect to an Incentive
Award in the event of the death of the holder of such Incentive Award and
provided, also, that if such beneficiary shall be the executor or
administrator of the estate of the holder of such Incentive Award, any
rights in respect of such Incentive Award may be transferred to the person
or persons or entity (including a trust) entitled thereto under the will
of the holder of such Incentive Award or, in case of intestacy, under the
laws relating to intestacy.
h. Nothing in the Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or fringe benefits
to employees generally, or to any class or group of employees, which the
Company or any Subsidiary now has or may hereafter lawfully put into
effect, including, without limitation, any retirement, pension,
insurance, stock purchase, incentive compensation or bonus plan.
i. The place of administration of the Plan will conclusively be deemed
to be within the State of Connecticut and the validity, construction,
interpretation and administration of the Plan and any rules and
regulations or determinations or decisions made thereunder, will be
governed by, and determined exclusively and solely in accordance with, the
laws of the State of Connecticut. Without limiting the generality of the
foregoing, the period within which any action arising under or in
connection with the Plan, or any payment or Award made or purportedly made
under or in connection therewith, must be commenced and will be governed
by the laws of the State of Connecticut, irrespective of the place where
the act or omission complained of took place and of the residence of any
party to such action and irrespective of the place where the action may be
brought.
11. Amendment, Suspension and Termination of Plan
..................................................
a. The Board of Directors may at any time terminate, suspend or amend
the Plan, provided, however, that no such amendment will, without approval
of the shareholders of the Company, except as provided in Section 9
hereof, (i) increase the aggregate number of shares which may be issued in
connection with Incentive Awards; (ii) change the minimum Option exercise
price; (iii) increase the maximum period during which Options may be
exercised, or Restricted Stock Awards transferred; (iv) extend the
effective period of this Plan; or (v) materially modify the requirements
as to eligibility for participation in the Plan. No such amendment will
permit the granting of Incentive Awards to members of the Committee who
are not employees.
b. The Committee may, with the consent of the person by whom a
Restricted Stock Award or an Option is held, modify or change the terms of
any Option or Restricted Stock Award in a manner which does not conflict
with the provisions of the Plan.
12. Effective Date and Duration of Plan
........................................
The effective date of the Plan is February 2, 1996 (subject to approval by
the shareholders of the Company on or before February 2, 1997), the date
on which the Plan was adopted by the Board of Directors. Any amendment to
this Plan will become effective upon approval by the Board of Directors,
unless shareholder approval is deemed necessary in which case such
amendment shall become effective upon approval by the shareholders.
Unless previously terminated by the Board of Directors, this Plan shall
terminate at the close of business on February 1, 2006 and no Restricted
Stock Award, Option, or Stock Appreciation Right may be granted under it
thereafter, but such termination shall not affect any Incentive Award
theretofore granted.
.........................................................................
EXHIBIT B
COMPUDYNE CORPORATION
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose
...........
The purpose of the CompuDyne Corporation 1996 Stock Option Plan for Non-
Employee Directors (the "Plan") is to promote the interest of CompuDyne
Corporation (the "Company") and its shareholders by encouraging Non-
Employee Directors of the Company to have a direct and personal stake in
the performance of the Company's Common Stock.
2. Definitions
...............
Unless the context clearly indicates otherwise, the following terms have
the meanings set forth below. Whenever applicable, the masculine pronoun
shall include the feminine pronoun and the singular shall include the
plural.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Business Day" shall mean any day except Saturday, Sunday or a legal
holiday in the State of Connecticut.
"Code" means the Internal Revenue Code of 1986, as amended, now in effect
or as amended from time to time and any successor provisions thereto.
"Committee" means the Compensation and Stock Option Committee of the Board
of Directors of two or more members appointed by the Board of Directors
and selected from those directors who are not employees of the
Corporation, its parent or any Subsidiary, as defined in Section 424(e)
and (f) of the Code. The Board may at any time and from time to time
remove any member of the Committee, with or without cause, appoint
additional members to the Committee and fill vacancies, however caused, in
the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by
a majority of its members. Any decision or determination of the Committee
reduced to writing and signed by all of the members of the Committee shall
be fully as effective as if it had been made at a meeting duly called and
held.
"Common Stock" means the common stock, par value $0.75 per share, of the
Company.
"Company" means CompuDyne Corporation.
"Disability", as applied to a Grantee, shall have the meaning set forth in
Section 22(e)(3)of the Code.
"Fair Market Value" of a share of Common Stock on any particular date
means the closing sale price per share as quoted on the NASDAQ OTC
Bulletin Board or if no trade occurred on that date, the mean between the
closing bid and ask price will be substituted for the last sale price on
that day.
"Grant Date", as used with respect to a particular Option, means the date
on which such Option is granted pursuant to the Plan.
"Grantee" means the Non-Employee Director to whom an Option is granted
pursuant to the Plan.
"Immediate family members" of a Grantee means the Grantee's children,
grandchildren and spouse.
"Option" means an option granted pursuant to the Plan to purchase shares
of Common Stock which shall be a non-qualified stock option not intended
to qualify as incentive stock options under Section 422 of the Code.
"Non-Employee Director" shall mean a member of the Board of Directors who
is not an employee of the Company or any Subsidiary.
"Plan" means the CompuDyne Corporation 1996 Stock Option Plan for Non-
Employee Directors as set forth herein and as amended from time to time.
"Retirement", as applied to a Non-Employee Director, shall mean when a
Grantee ceases to serve as a member of the Board following attaining
[sixty-five (65)] years of age.
"Subsidiary" shall mean a "subsidiary corporation" of the Company as
defined in Section 425(f) of the Code.
"The 1934 Act" means the Securities Exchange Act of 1934, as amended, now
in effect or as amended from time to time and any successor provisions
thereto.
3. Administration
..................
(a) General. The Plan shall be administered by the Committee, which
shall have full power and authority, subject to the provisions of the
Plan, to supervise administration of the Plan and interpret the provisions
of the Plan and any Options granted hereunder. Any decision by the
Committee shall be final and binding on all parties. No member of the
Committee shall be liable for any determination, decision or action made
in good faith with respect to the Plan or any Options under the Plan. The
Committee may delegate any of such responsibilities to one or more agents
and may retain advisors to advise it. No Grantee shall participate in the
decision of any question relating exclusively to an Option granted to that
Grantee.
(b) Rules and Interpretation. The Committee shall be vested with full
authority to make such rules and regulations as it deems necessary to
administer the Plan and to interpret and administer the provisions of the
Plan in a uniform manner. Any determination, decision or action of the
Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive and
binding on all parties. The Committee's administrative functions shall be
ministerial in nature in view of the Plan's explicit provisions, including
those related to eligibility for, timing, price and amount of Option
grants.
4. Eligibility
...............
The persons eligible to receive Options under the Plan are the Non-
Employee Directors of the Company.
5. Effective Date of the Plan and Term of Option Period
........................................................
The Plan shall become effective upon its adoption by the Board of
Directors, provided that no Option granted pursuant to the Plan shall be
exercised or will vest prior to the approval of the Plan by the Company's
shareholders within twelve (12) months of its adoption by the Board. The
term during which awards may be granted under the Plan shall expire on the
tenth anniversary of the adoption of the Plan by the Board of Directors.
Subject to the provisions of Article 12 hereof, the period during which an
Option granted under the Plan may be exercised shall expire on the tenth
anniversary of the Grant Date of the Option.
6. Shares Subject to the Plan
..............................
The shares of Common Stock that may be delivered upon the exercise of
Options under the Plan shall be shares of the Company's authorized Common
Stock and may be unissued shares or reacquired shares, as the Board of
Directors may from time to time determine. Subject to adjustment as
provided in Article 13 hereof, the aggregate number of shares to be
delivered under the Plan shall not exceed [one-hundred thousand
(100,000)] shares. If any shares are subject to an Option which for any
reason expires or terminates during the term of the Plan prior to the
issuance of such shares, the shares subject to but not delivered under
such Option shall be available for issuance under the Plan.
7. Options
...........
(a) Grant of Options. On the date of each meeting of the Board of
Directors (or,if such date is not a Business Day, the first preceding
Business Day) during the term of the Plan, each Non-Employee Director of
the Company [attending such meeting] shall automatically be granted a
stock option to purchase 350 shares of Common Stock upon the terms and
conditions specified in the Plan.
(b) Terms of Options. Each Option granted under the Plan shall have the
following terms and conditions:
(i) Price. The exercise price per share of each Option shall equal the
greater of the Fair Market Value of a share of Common Stock on the Grant
Date or the par value per share of the Common Stock, if any, on the date
of exercise of such option;
(ii) Term. The term of each Option shall be for a period of ten (10)
years from the Grant Date unless terminated earlier in accordance with the
Plan;
(iii) Time of Exercise. Unless an Option is terminated or the time of
its exercisability is accelerated in accordance with the Plan, each Option
shall be exercisable only to the extent of one-half of the number of
shares of the Common Stock to which it relates on or after the first
anniversary of its Grant Date and shall be exercisable to the extent of
the remaining one-half of such shares only on or after the second
anniversary of the Grant Date, so that the Options shall be exercisable in
full only on or after the second anniversary of the Grant Date.
(iv) Acceleration of Exercisability. Notwithstanding the schedule
provided in subparagraph (iii) hereof, an Option shall become fully
exercisable upon the occurrence of the Grantee's death or withdrawal from
the Board of Directors by reason of such Non-Employee Director's
Disability or Retirement; and
(v) Option Agreement. Each Option shall be evidenced by an Option
Agreement substantially in the form attached to this Plan as Appendix A.
8. Exercise of Options
.......................
(a) Each Option granted shall be exercisable in whole or in part at any
time, or from time to time, during the Option term as specified in the
Plan, provided that the election to exercise an Option shall be made in
accordance with applicable Federal laws and regulations. Each Option may
be exercised by delivery of a written notice to the Company stating the
number of shares to be exercised and accompanied by the payment of the
Option exercise price therefor in accordance with this Article. The
Grantee shall furnish the Company, prior to the delivery of any shares
upon the exercise of an Option, with such other documents and
representations as the Company may require, to assure compliance with
applicable laws and regulations.
(b) No Option may at any time be exercised with respect to a fractional
share. In the event that shares are issued pursuant to the exercise of an
Option, no fractional shares shall be issued and cash equal to the Fair
Market Value of such fractional share on the date of the delivery of the
exercise notice shall be given in lieu of such fractional shares.
(c) No shares shall be delivered pursuant to the exercise of any Option,
in whole or in part, until qualified for delivery under such securities
laws and regulations as the Board of Directors may deem to be applicable
thereto and until payment in full of the Option price is received by the
Company in cash, by check or in shares of Common Stock as provided in
Article 9 hereof. Neither the holder of an Option nor such holder's legal
representative, legatee, or distributee shall be or be deemed to be a
holder of any shares subject to such option unless and until a certificate
or certificates therefor is issued in his or her name or a person
designated by him or her.
9. Stock as Form of Exercise Payment
.....................................
A Grantee who owns shares of Common Stock may elect to use the previously
acquired shares, valued at the Fair Market Value on the last Business Day
preceding the date of delivery of such shares, to pay all or part of the
exercise price of an Option, provided, however, that such form of payment
shall not be permitted unless at least one hundred shares of such
previously acquired shares are required and delivered for such purpose and
the shares delivered have been held by the Grantee for at least six
months.
10. Withholding Taxes for Awards
.................................
Each Grantee exercising an Option as a condition to such exercise shall
pay to the Company the amount, if any, required to be withheld from
distributions resulting from such exercise under applicable Federal and
State income tax laws ("Withholding Taxes"). Such Withholding Taxes shall
be payable as of the date income from the award is includable in the
Grantee's gross income for Federal income tax purposes (the "Tax Date").
The Grantee may satisfy this requirement by remitting to the Company in
cash or by check the amount of such Withholding Taxes or a number of
previously owned shares of Common Stock having an aggregate Fair Market
Value as of the last Business Day preceding the Tax Date equal to the
amount of such Withholding Taxes.
11. Transfer of Awards
.......................
Options granted under the Plan may not be transferred except by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order, as defined in the Code, and, during the Grantee's
lifetime, may be exercised only by said Grantee or by said Grantee's
guardian or legal representative, provided, however, that if Rule 16b-3
under the 1934 Act is amended to permit restricted or unrestricted
transfers of derivative securities granted under plans intended to
qualify for the exemption provided by such rule, then if permitted in
accordance with such transferability restrictions imposed by Rule 16b-3,
if any, as so amended, the Options heretofore and hereafter granted under
the Plan shall be transferrable without payment of consideration, to
immediate family members of the Grantee or to trusts or partnerships for
such immediate family members.
12. Death, Disability, Retirement and Termination of Director Status
.....................................................................
(a) An Option which has not theretofore expired shall terminate at the
time of the death of the Grantee or if the Grantee ceases to be a member
of the Board, and no shares may thereafter be delivered pursuant to such
Option, except that, subject to the condition that no Option may be
exercised in whole or in part after the tenth anniversary of its Grant
Date:
(i) Upon the termination of Board membership of any such Grantee due
to Disability or Retirement, the Grantee may, within a period of three
years after the date of such termination, purchase some or all of the
shares covered by the Grantee's Options which were exercisable
immediately prior to such termination; and
(ii) Upon the termination of Board membership of any such Grantee due
to any reason other than the Grantee's death, Disability or Retirement,
the Grantee may, within three months after the date of such termination,
purchase some or all of the shares covered by the Grantee's Options which
were exercisable immediately prior to such termination, provided that,
notwithstanding the foregoing, the Options of a Grantee shall
automatically terminate as of the date his or her directorship is
terminated, if terminated on account of any act of (a) fraud or
intentional misrepresentation, or (b) embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any Subsidiary;
and
(iii) Upon the death of any such Grantee while serving on the Board or
of any such disabled or retired Grantee within the above-referenced
period, the person or persons to whom the rights under the Option are
transferred by will or the laws of descent and distribution may, within
twelve months after the date of the Grantee's death, exercise some or all
of the Grantee's Options which were exercisable on the date of death by
the Grantee.
13. Change of Ownership
........................
In the event of (a) a dissolution or liquidation of the Company, (b) a
merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization in which more than
fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to each Non-Employee Director, at the
time of adoption of the plan for liquidation, dissolution, merger,
consolidation or reorganization, either (i) a reasonable time thereafter
within which to exercise the Option, prior to the effectiveness of such
liquidation, dissolution, merger, consolidation or reorganization, at the
end of which time the Option shall terminate, or (ii) the right to
exercise the Option (or a substitute Option) as to an equivalent number of
shares of stock of the corporation succeeding the Company or acquiring its
business by reason of such liquidation, dissolution, merger,
consolidation or reorganization.
14. Adjustment Upon Changes in Capitalization
(a) Changes in Capitalization. If the number of shares of Common Stock
of the Company as a whole are increased, decreased or changed into, or
exchanged for, a different number or kind of shares or securities of the
Company, whether through merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure
or the like, an appropriate and proportionate adjustment shall be made in
the number and kind of shares subject to this Plan, and in the number,
kind, and per share exercise price of shares of Common Stock subject to
unexercised Options or portions thereof granted prior to any such change.
Any such adjustment in an outstanding Option, however, shall be made
without a change in the total price applicable to the unexercised portion
of the Option but with a corresponding adjustment in the price for each
shares covered by the Option.
(b) Acquisition. Upon a reorganization, merger or consolidation in which
the Company is not the surviving corporation, or upon the sale of all or
substantially all of the property of the Company to another corporation,
provision shall be made in connection with such transaction for the
assumption of the Plan and the Options theretofore granted by the
successor corporation. Provision may, alternatively, be made for the
substitution for such Options of new options of the successor corporation
or a parent or subsidiary thereof. In any such case, appropriate
adjustment as to the number and kind of shares and per share exercise
prices shall be made. No fractional shares of stock shall be issued under
the Plan on account of any adjustment specified above.
(c) Dissolution or Liquidation. Upon the dissolution or liquidation of
the Company, this Plan and the Options issued thereunder shall terminate.
15. Legal Restrictions
.......................
The Company will not obligated to issue shares of Common Stock or make any
payment if counsel to the Company determines that such issuance or payment
would violate any law or regulation of any governmental authority or any
agreement between the Company and any national securities exchange on
which the Common Stock is listed. In connection with any stock issuance
or transfer, the person acquiring the shares shall, if requested by the
Company, give assurances satisfactory to counsel to the Company regarding
such matters as the Company may deem desirable to assure compliance with
all legal requirements. The Company shall in no event be obliged to take
any action in order to cause the exercise of any award under the Plan.
16. No Rights as Shareholders
..............................
No Grantee, and no beneficiary or other person claiming through a Grantee,
shall have any interest in any shares of Common Stock allocated for the
purposes of the Plan or subject to any award until such shares of Common
Stock shall have been transferred to the Grantee or such person.
Furthermore, the existence of awards under the Plan shall not affect: the
right or power of the company or its stockholders to make adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure; the dissolution or liquidation of the Company, or the
sale or transfer of any part of its assets or business; or any other
corporate act, whether of a similar character or otherwise.
17. Board Membership
.....................
Nothing in the Plan or in any Option shall confer upon any Grantee any
right to continue as a director of the Company or interfere in any way
with the right of the Company's shareholders to remove a director at any
time.
18. Choice of Law
..................
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations or decisions made thereunder, and the
rights of any and all persons having or claiming to have any interest
therein or thereunder, shall be determined exclusively in accordance with
the laws of the State of Connecticut.
19. Amendment and Discontinuance
.................................
Subject to the limitation that the provisions of the Plan shall not be
amended more than once every six months other than to comport with changes
in the Code or regulations thereunder, the Board of Directors may alter,
suspend, or discontinue the Plan, but may not, without the approval of a
majority of the holders of the Common Stock, make any alteration or
amendment thereof which operates (a) to increase the total number of
shares which may be granted annually under the Plan, (b) to extend the
term of the Plan or the option periods provided in the Plan, (c) to
decrease the option price provided in the Plan, or otherwise materially
increase the benefits accruing to Grantees through awards under the Plan,
or (d) to modify the eligibility requirements for participation in the
Plan.
Adopted by the Board of Directors at its meeting of February 2, 1996,
subject to approval of the Company shareholders.
Attest:
________________________
Secretary
.........................................................................
APPENDIX A
STOCK OPTION AGREEMENT
UNDER THE
COMPUDYNE CORPORATION 1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
Pursuant to Article 7 of the CompuDyne Corporation 1996 Stock Option Plan
for Non-Employee Directors (the "Plan"), CompuDyne Corporation (the
"Company"), this ..... day of ......., 199.. (the "Grant Date"), hereby
grants to ....................., ("Director") a non-qualified stock
option to purchase an aggregate of ............. shares of the Common
Stock of the Company at $..... per share, on the terms and conditions
hereinafter set forth and set forth in the Plan. This option will expire
at the Company's close of business on ............, 19..., unless sooner
terminated in accordance with the terms of the Plan.
1. The Company hereby grants to Director a non-qualified stock option
(the "Option") to purchase on or before the expiration date indicated
above, at the purchase price stated above, the number of shares of the
Company's Common Stock set forth above. No option granted under the Plan
shall be exercised or will vest unless and until the Plan is approved by
the Company's shareholders.
2. The term of this Option shall commence on the date of this Agreement
and shall terminate, unless sooner terminated by the terms of the Plan, at
the close of business on the day preceding the tenth anniversary of the
date of this Agreement as set forth above, if the Company is open for
business on such day, or the close of the Company's business on the next
preceding day that the Company is open for business. Unless the Option is
terminated or the time of its exercisability is accelerated in accordance
with the Plan, the Option shall be exercisable only to the extent of one-
half of the number of shares of the Common Stock to which it relates on or
after the first anniversary of it Grant Date set forth above and shall be
exercisable to the extent of the remaining one-half of such shares only on
or after the second anniversary of the Grant Date, so that the Option
shall be exercisable in full only on or after the second anniversary of
the Grant Date. This Option shall become immediately exercisable under
the circumstances described in Section 7(b)(iv) of the Plan.
3. This Option may be exercised, in whole or in part, by written
notification delivered in person or by mail to the Secretary of the
Company at its offices at 120 Union Street, Willimantic, Connecticut.
Such notification shall specify the number of shares with respect to which
the Option is being exercised and shall be accompanied by payment for such
shares. The Secretary of the Company will provide Director with a form of
exercise notice upon request. The Option may not be exercised with
respect to a fractional share. Payment is to be made by check payable to
the order of the Company or by one of the alternative methods of payment
described in the Plan. No shares shall be sold or delivered hereunder
until full payment for such shares has been made and all checks delivered
in payment therefor have been collected. Director shall not have any
rights of a shareholder with respect to any Common Stock received upon
exercise of the Option until certificates for such Common Stock have been
actually issued to Director in accordance with the terms hereof.
4. The Company shall not be required to issue or deliver any certificate
or certificates for shares of its Common Stock purchased upon the exercise
of any part of this Option prior to (i) the admission of such shares to
listing on any stock exchange on which the stock may then be listed, (ii)
the completion of any registration or other qualification of such shares
under any applicable law, rule or regulation, (iii) the obtaining of any
consent or approval or other clearance from any governmental agency which
the Company determines to be necessary or advisable, and (iv) the payment
to the Company, upon its demand, of any amount requested by the Company
for the purpose of satisfying its liability, if any, to withhold federal,
state or local income or earnings tax or any other applicable tax or
assessment (plus interest or penalties thereon, if any, caused by a delay
in making such payment) incurred by reason of the exercise of the Option
or the transfer of such shares thereupon. The Option shall be exercised
and shares of the Company's Common Stock issued only upon compliance with
the Securities Act of 1933, as amended (the "Act"), and any other
applicable securities laws, and Director agrees to comply with any
requirements imposed by the Committee. Because Director is an "affiliate"
of the Company (as that term is defined in Rule 144 promulgated under the
Act, and which generally includes directors), by accepting this
Agreement, you agree that you will dispose of the stock acquired upon
exercise of the Option only in compliance with Rule 144 or in such other
manner as will not violate the Act and the rules and regulations
promulgated thereunder, and any other applicable securities law.
5. This Option is not transferrable by Director otherwise than by will or
by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code, and is exercisable,
during Director's life, only by Director or by Director's guardian or
legal representative, unless and to the extent transferability becomes
permitted under the terms of the Plan. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof shall be null and void. This Option
does not confer upon Director any right with respect to continuation of
Director's service as a director of the Company or any of its
subsidiaries, and will not interfere in any way with the right of the
Company's shareholders or the shareholders of any of its Subsidiaries to
terminate Director's service as a director.
6. Upon the termination of Director's service as a member of the Board of
Directors, the Director may exercise this Option, provided that it has
vested, to the full extent of the number of the shares of Common Stock
remaining under such Option, regardless of whether such Option was
previously exercisable, in accordance with the conditions of Article 12 of
the Plan.
7. This Option shall be irrevocable during the Option period an its
validity and construction shall be governed by the laws of the State of
Connecticut. The terms and conditions herein set forth are subject in all
respect to the terms and conditions of the Plan, which shall be
controlling. You agree to execute such other agreements, documents or
assignments as may be necessary or desirable to effect the purposes of
this Agreement.
8. The grant of this Option shall be binding and effective only if this
Agreement is executed by or on behalf of the Company and by you and a
signed copy is returned to the Company.
9. All capitalized terms used in this Agreement which are not defined
herein shall have the meaning given to them in the Plan unless the context
clearly requires otherwise.
COMPUDYNE CORPORATION
By.......................
Its
...................................
I hereby acknowledge receipt of the Stock Option (the "Option") granted on
the date shown above, which has been issued to me under the terms and
conditions of CompuDyne Corporation 1996 Stock Option Plan for Non-
Employee Directors. I agree to conform to all of the terms and conditions
of the Option and the Plan.
Date:................ Your Signature..................
.........................................................................
EXHIBIT C
AGREEMENT AND PLAN OF MERGER
THIS PLAN OF MERGER (the "Agreement"), dated as of April ..., 1996, is
made and entered into by and between CompuDyne Corporation, a Pennsylvania
Corporation (the "Company"), and CompuDyne Corporation, a Nevada
corporation ("CompuDyne Nevada").
WITNESSETH:
WHEREAS, the Company is a Pennsylvania corporation; and
WHEREAS, CompuDyne Nevada is a Nevada corporation and a wholly owned
subsidiary of the Company; and
WHEREAS, the respective Boards of Directors of the Company and CompuDyne
Nevada have determined that it is desirable to merge (the "Merger") the
Company with and into CompuDyne Nevada, with CompuDyne Nevada as the
surviving corporation under the name "CompuDyne Corporation"; and
WHEREAS, the Company, as sole shareholder of CompuDyne Nevada, has
executed a written consent approving the Merger.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I
MERGER
On the effective date of the Merger (hereinafter referred to as the
"Effective Date") as provided herein, the Company shall be merged with and
into CompuDyne Nevada, the separate existence of the Company shall cease
and CompuDyne Nevada (hereinafter sometimes referred to as the "Surviving
Corporation") shall continue to exist under the name "CompuDyne
Corporation," by virtue of, and shall be governed by, the laws of the
State of Nevada. The address of the registered office of the Surviving
Corporation in the State of Nevada will be 318 North Carson Street, Suite
214, Carson City, Navada 89701. The name of the Surviving Corporation
shall be CompuDyne Corporation.
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
From and after the Effective Date, the Articles of Incorporation (the
"Nevada Articles of Incorporation") of CompuDyne Nevada (as in effect at
the Effective Date) shall be the Articles of Incorporation of the
Surviving Corporation unless and until amended in accordance with
applicable law.
ARTICLE III
BYLAWS OF THE SURVIVING CORPORATION
From and after the Effective Date, the Bylaws (the "Nevada Bylaws") of
CompuDyne Nevada (as in effect at the Effective Date) shall be the Bylaws
of the Surviving Corporation unless and until amended in accordance with
applicable law.
ARTICLE IV
EFFECT OF MERGER ON STOCK OF CONSTITUENT CORPORATIONS
4.01. On the Effective Date, each outstanding share of common stock of
the Company, $.75 par value per share (the "Common Stock"), shall be
converted into and exchanged for one share of common stock, $.75 par value
per share (the "Nevada Common Stock"), of CompuDyne Nevada; each
outstanding share of Series D Preference Stock of the Company, no par
value per share ( the "Pennsylvania Series D Preference Stock"), shall be
converted into and exchanged for one share of a series of preference stock
of CompuDyne Nevada, no par value per share (the "Nevada Series D
Preference Stock"), with designations, preferences, powers, rights,
qualifications, limitations and restrictions equivalent to the
Pennsylvania Series D Preference Stock; and each outstanding share of
Nevada Common Stock held by the Company immediately before the effective
time of the Merger shall be retired and canceled and assume the status of
authorized but unissued shares of Nevada Common Stock.
4.02. All outstanding options, warrants and other rights to acquire the
Common Stock outstanding on the Effective Date will automatically be
converted into equivalent options, warrants and other rights to purchase
the same number of shares of Nevada Common Stock. In addition, each of
the Company's employee benefit plans shall be continued and assumed by
CompuDyne Nevada.
4.03. After the Effective Date, certificates representing shares of the
Common Stock and the Pennsylvania Series D Preference Stock will represent
shares of Nevada Common Stock and Nevada Series D Preference Stock, as the
case may be, and upon surrender of the same to the transfer agent for the
Company, the holder thereof shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of shares
of Nevada Common Stock or Nevada Preferred Stock, as the case may be, into
which such shares shall have been converted pursuant to Article 4.01 of
this Agreement. The stock transfer books of the Company will be closed
upon effectiveness of the Merger and all subsequent transfers of record of
certificates previously representing shares of capital stock will be made
in the stock transfer books of CompuDyne Nevada.
ARTICLE V
CORPORATE EXISTENCE, POWERS AND LIABILITIES OF SURVIVING CORPORATION
5.01. On the Effective Date, the Merger shall have the effects set forth
in Chapter 19, Subchapter C of the Pennsylvania Business Corporation Law
(the "PBCL") and Sections 92A.250 and 92A.260 of the Nevada General
Corporation Law (the "NGCL"). All corporate acts, plans, policies,
agreements, arrangements, approvals and authorizations of the Company,
its shareholders, Board of Directors and committees thereof, officers and
agents that were valid and effective immediately prior to the Effective
Date, shall be taken for all purposes as the acts, plans, policies,
agreements, approvals and authorizations of the Surviving Corporation and
shall be as effective and binding thereon as the same were with respect to
the Company. The employees and agents of the Company shall become the
employees and agents of the Surviving Corporation and continue to be
entitled to the same rights and benefits that they enjoyed as employees
and agents of the Company.
The requirements of any plans or agreements of the Company involving the
issuance or purchase by the Company of certain shares of its capital stock
shall be satisfied by the issuance or purchase of one share of the
Surviving Corporation for every one share of the Common Stock.
5.02. The Company agrees that it will execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments and will take
or cause to be taken such further action as the Surviving Corporation may
deem necessary in order to vest in and confirm to the Surviving
Corporation title to and possession of all the property, rights,
privileges, immunities, powers, purposes and franchises, and all and
every other interest of the Company and otherwise to carry out the intent
and purposes of this Agreement.
ARTICLE VI
OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
6.01. The directors of the Company at the Effective Date shall be the
directors of the Surviving Corporation until their successors shall have
been duly elected and qualified or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Nevada
Articles of Incorporation, the Nevada Bylaws and applicable law. From and
after the Effective Date, the officers of the Company shall be the
officers of the Surviving Corporation until their successors shall have
been duly appointed and qualified or until their earlier death,
resignation or removal in accordance with the Nevada Articles of
Incorporation, the Nevada Bylaws and applicable law. As of the Effective
Date, the committees of the Board of Directors of the Surviving
Corporation shall be the same as and shall be composed of the same persons
who are serving on the committees of the Board of Directors of the Company
as they existed immediately before such date.
6.02. If, upon the Effective Date, a vacancy shall exist in the Board of
Directors of the Surviving Corporation, such vacancy shall be filled in
the manner provided by the Nevada Bylaws.
ARTICLE VII
APPROVAL BY SHAREHOLDERS, EFFECTIVE DATE, CONDUCT OF BUSINESS PRIOR TO
EFFECTIVE DATE
7.01 As soon as practicable after approval of this Agreement by the
shareholders of the Company, the Company and CompuDyne Nevada will execute
Articles of Merger or other applicable certificates or documentation
effecting this Agreement and shall cause the same to be filed with the
Secretaries of State of Pennsylvania and Nevada, respectively, in
accordance with the PBCL and the NGCL, as appropriate. The Effective Date
shall be the date on which the Merger becomes effective under the PBCL or
the date on which the Merger becomes effective under the NGCL, whichever
occurs later.
7.02. The Boards of Directors of the Company and CompuDyne Nevada may
amend this Agreement at any time prior to the Effective Date, provided
that an amendment made subsequent to the approval of the Merger by the
shareholders of the Company may not change: (1) the amount or kind of
shares, obligations, cash, property or rights to be received in exchange
for or on conversion of all or any of the shares of the constituent
corporations; (2) any term of the Nevada Articles of Incorporation to be
effected by the Merger; and (3) any of the terms and conditions of this
Agreement if the change would adversely affect the holders of any shares
of the constituent corporations.
ARTICLE VIII
TERMINATION OF MERGER
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date, whether before or after shareholder approval
of this Agreement, by the consent of the Boards of Directors of the
Company and CompuDyne Nevada. In the event of such termination and
abandonment, this Agreement shall become null and void and have no effect,
without any liability on the part of any party to this Agreement or to
their shareholders, directors or officers.
ARTICLE IX
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original, and all such counterparts
shall together constitute one and the same instrument.
IN WITNESS WHERE OF, the parties hereto have caused this Agreement to be
duly and validly executed, as of the date first above written.
COMPUDYNE CORPORATION COMPUDYNE CORPORATION
a Pennsylvania corporation a Nevada corporation
........................... .......................
By: Martin Roenigk By: Martin Roenigk
President President
ATTEST: ATTEST:
........................... .......................
Diane Burns Diane Burns
Secretary Secretary
.........................................................................
EXHIBIT D
ARTICLES OF INCORPORATION
OF
COMPUDYNE CORPORATION
The undersigned, for the purpose of forming a corporation under the Nevada
General Corporation Law (Chapter 28 of the Nevada Revised Statutes), does
hereby certify as follows:
Article 1st. The name of the Corporation is CompuDyne Corporation.
Article 2nd. The registered office in the State of Nevada of this
corporation shall be located at 318 North Carson Street, Suite 214, Carson
City, Nevada 89701. The initial resident agent of the corporation is
State Agent & Transfer Syndicate, Inc., whose address is 318 North Carson
Street, Suite 214, Carson City, Nevada 98701.
Article 3rd. The purpose or purposes of the Corporation are to have
unlimited power to engage in and do any lawful act concerning any or all
lawful business for which corporations may be incorporated under the
Nevada General Corporation Law.
Article 4th. The term of its existence is perpetual.
Article 5th. The aggregate of shares of Capital Stock which the
Corporation shall be authorized to issue is 12,000,000 shares. 2,000,000
shares shall be of Preference Stock, without par value, and 10,000,000
shares shall be Common Stock having a par value of $.75 per share.
Except as provided below, each share of Capital Stock, whether Common or
Preference, shall be in all respects equal to every other share of Capital
Stock.
Holders of the Common Stock and Preference Stock shall vote as separate
classes in connection with a merger, liquidation or sale of substantially
all of the assets of the Corporation and such other action as would
adversely affect the holders of Common Stock or the holders of Preference
Stock as classes.
Except with respect to the Series D Preference Stock, the designations,
rights (relative, participating, optional or otherwise), powers,
preferences, priviledges and voting powers and restrictions,
qualifications and limitations for which are hereafter set forth in this
Article Fifth, the Board of Directors, by resolution, may authorize the
issuance of other series of Preference Stock from time to time each in one
or more series, and fix and determine the designations, rights (relative,
participating, optional or otherwise), powers, preferences, privileges
and voting powers and restrictions, qualifications and limitations of the
shares of each series thereof, subject however to the limitations set
forth in Nevada General Corporation Law.
Of the 2,000,000 shares of Preference Stock authorized above, there shall
be a series established with the powers, designation, rights (relative,
participating, optional or otherwise), powers, preferences, privileges
and voting powers and restrictions, qualifications and limitations, as
follows:
l. Designation.
................
(a) The designation of the series of preference stock created by this
resolution shall be Convertible Preference Stock, Series D (hereinafter
called "Series D Preference Stock"), and the number of shares constituting
the Series D Preference Stock upon original issuance is 1,260,460.
(b) Any shares of the Series D Preference Stock which at any time have
been redeemed, purchased or otherwise acquired by the Corporation shall,
after such redemption, purchase or other acquisition, have the status of
authorized but unissued shares of preference stock, without designation
as to series until such shares are once more designated as part of a
particular series by the Board of Directors of the Corporation.
2. Payment of Dividends.
.........................
(a) The holders of record of shares of the Series D Preference Stock
shall be entitled to receive, as and when declared by the Board of
Directors of the Corporation out of funds legally available therefor, cash
dividends thereon at the Applicable Rate (as defined below) per annum, and
no more, payable on the respective dates set forth below. The Series D
Preference Stock shall not participate in any other dividends.
(b) Dividends on the Series D Preference Stock shall accrue at the
Applicable Rate in effect on the most recent Dividend Payment Date and
shall be cumulative from the date of original issuance of the Series D
Preference Stock (the "Original Issuance Date").
(c) Accrued dividends shall be payable annually on the fifteenth day
following the delivery of audited financial statements (the "Audited
Financials") to the Board of Directors of the Corporation by the
Corporation's independent auditors (the "Independent Auditors") for the
prior year, but in no event later than April 15 of each year ("Dividend
Payment Date"), commencing on the Dividend Payment Date in 1996; provided,
however, that if any Dividend Payment Date would otherwise be a day that
is not a Business Day (as defined below), the Dividend Payment Date shall
be postponed to the next day that is a Business Day. The period beginning
on the Original Issuance Date and ending on the first Dividend Payment
Date and each successive period beginning on the first day after each
Dividend Payment Date and ending on the next succeeding Dividend Payment
Date is herein called a "Dividend Period." As used herein, "Business Day"
means any day, other than a Saturday or Sunday or a day on which
commercial banks in Hartford, Connecticut are required or authorized by
law, regulatory order or executive order to be closed.
(d) The rate of dividends per annum payable on the Series D Preference
Stock for each Dividend Period (the "Applicable Rate") per share shall be
equal to the lower of: (a) sixty percent (60%) of the after tax net
income of MicroAssembly Systems, Inc. ("MicroAssembly"), a wholly-owned
subsidiary of the Corporation, in the previous calendar year, on an
unconsolidated basis with the Corporation, based on the Audited
Financials, divided by the number of shares of Series D Preference Stock
originally issued as set forth in Section 1(a) hereof; or (b) eight
percent (8%) of the Redemption Value (as hereinafter defined) of a share
of Series D Preference Stock. Notwithstanding the foregoing, on the first
Dividend Payment Date only, the applicable rate shall be equal to the
lower of (a) sixty percent (60%) of the after-tax net income of
MicroAssembly, on an unconsolidated basis with the Corporation, for the
period in 1995 during which the Corporation owned one hundred percent
(100%) of MicroAssembly's outstanding stock (the "Period of Ownership"),
based on the Audited Financials, divided by the number of shares of
Series D Preference Stock originally issued as set forth in Section 1(a)
hereof; or (b) the product obtained by multiplying (i) eight percent (8%)
of the Redemption Value of a share of Series D Preference Stock by (ii) a
fraction the numerator of which is the number of days from the Original
Issuance Date to and including December 31, 1995 and the denominator of
which is 365.
(e) Dividends may be paid in cash or in shares of common stock, par
value $0.75 per share (the "Common Stock"), of the Corporation, or a
combination thereof, solely at the option of the Corporation. If the
dividends, or a portion thereof, are paid in Common Stock, the value of
the Common Stock shall be based upon the average closing bid price for the
Common Stock for the prior thirty (30) trading days as quoted on a
national securities exchange or, if not so quoted, on the NASDAQ, or, if
not so quoted, on the OTC Bulletin Board, an inter-dealer quotation medium
maintained by the National Association of Securities Dealers, Inc., or if
not so quoted, by the average closing bid prices quoted by three dealers
regularly making a market or maintaining bid and asked prices on the
Common Stock (or such fewer number of dealers which may be making a market
or maintaining bid and asked prices).
The Corporation shall calculate the Applicable Rate, the dividends
payable on the Series D Preference Stock and, if the dividends, or a
portion thereof, are paid in shares of Common Stock, the value of the
Common Stock. Any and all disputes between the Corporation and any holder
of the Series D Preference Stock with regard to such calculations shall be
resolved by the Independent Auditors, which resolution shall be final and
binding on the Corporation and such holders. The fees and expenses of the
Independent Auditors in resolving such calculations shall be paid by the
Corporation.
3. Priority as to Dividends.
............................
(a) No dividends may be declared or paid on the Common Stock of the
Corporation unless and until all accrued dividends on the Series D
Preference Stock have been declared and paid. If there are one or more
series or classes of preference stock outstanding of a priority equal to
the Series D Preference Stock, and if there are any accrued and unpaid
dividends with respect to any such series or class, any dividends in an
amount less than the full cumulative dividends accrued and payable, to be
declared and paid with respect to the preference stock shall be
distributed among the different series or classes of preference stock in
the same proportion that the dividends accrued and payable with respect to
such series or classes bears to the aggregate accrued and payable
dividends for all series or classes of preference stock of the
Corporation.
(b) If dividends in full on all outstanding shares of the Series D
Preference Stock for all prior Dividend Periods and the current Dividend
Period have not been paid or been declared and set apart for payment, (i)
the Corporation may not call for redemption any shares of the Series D
Preference Stock unless all shares of the Series D Preference Stock
outstanding are called by the Corporation and (ii) the Corporation may not
call for redemption any shares of any class of stock ranking on a parity
with or junior to the Series D Preference Stock.
4. Redemption.
(a) Commencing five years after the Original Issuance Date, the shares
of Series D Preference Stock may be redeemed, as a whole at any time, or
in part from time to time, at the election of the Corporation ("Optional
Redemption") by resolution of its Board of Directors, out of funds legally
available therefor, at a redemption price of one hundred and twenty
percent (120%) of the Redemption Value per share of the Series D
Preference Stock plus accrued and unpaid dividends, including a partial
dividend to the date of redemption; provided, however, that no Optional
Redemption may be declared or paid by the Corporation unless and until all
accrued dividends of the Series D Preference Stock have been declared and
paid. The redemption value of the Series D Preference Stock shall be
$1.50 per share (the "Redemption Value").
(b) On August 31 in each of the years 2006, 2007, 2008, 2009 and 2010
the Corporation shall redeem ("Mandatory Redemption") 252,092 shares of
Series D Preference Stock or such lesser number as may be issued and
outstanding, at a redemption price per share equal to the Redemption
Value. The shares of Series D Preference Stock to be so redeemed will be
selected by lot.
(c) Notice of any redemption, specifying the date fixed for said
redemption and the place where the amount to be paid upon redemption is
payable (the "Notice of Redemption"), shall be mailed, postage prepaid at
least ninety (90) days but not more than one hundred and twenty (120)
days, in the case of Optional Redemption, and at least thirty (30) days
but not more than sixty (60) days, in the case of Mandatory Redemption,
prior to said redemption date to each holder of record of the Series D
Preference Stock to be so redeemed at his address as the same shall appear
on the books of the Corporation. The Notice of Redemption shall include
(i) the redemption date; (ii) the number of shares of the Series D
Preference Stock to be redeemed and, if fewer than all shares held by such
holder are to be redeemed, the number of shares to be redeemed from such
holder; (iii) the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the
redemption price; and (v) a statement that dividends on the shares to be
redeemed will cease to accrue on such redemption date.
If such Notice of Redemption shall have been so mailed, and none of the
holders of shares of Series D Preference Stock shall have elected to
convert such shares into Common Stock within the time periods set forth in
Section 7(c) hereof, and if on or before the redemption date specified in
such notice all funds necessary for such redemption shall have been
irrevocably deposited in trust, for the account of the holders of the
shares of Series D Preference Stock to be redeemed (and so as to be and
continue to be available therefor), with a bank or trust company named in
such notice doing business in the State of Connecticut and having a
combined capital and surplus of at least $100,000,000, thereupon and
without awaiting the redemption date, notwithstanding that any
certificate for shares of the Series D Preference Stock so called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby so called for redemption shall be deemed to be no
longer outstanding and all obligations to redeem and retire each share
shall be deemed satisfied, the right to receive dividends thereon shall
cease to accrue, and all rights with respect to such shares of Series D
Preference Stock so called for redemption shall forthwith upon such
deposit in trust cease and terminate, except only the right of the holders
thereof to receive out of the funds so set aside in trust, the amount
payable on redemption thereof, but without interest.
In case the holders of shares of the Series D Preference Stock which shall
have been called for redemption shall not within four years (or any longer
period if required by law) after the redemption date claim any amount so
deposited in trust for the redemption of such shares, such bank or trust
company shall, upon demand and if permitted by applicable law, pay over to
the Corporation any such unclaimed amount so deposited with it, and shall
thereupon be relieved of all responsibility in respect thereof, and
thereafter the holders of such shares shall, subject to applicable escheat
laws, look only to the Corporation for payment of the redemption price
thereof but without interest.
(d) Upon surrender of the certificates for shares of Series D
Preference Stock for redemption, in accordance with the Notice of
Redemption, such shares shall be redeemed by the Corporation at the
applicable redemption price. In case fewer than all the shares
represented by any such certificate are to be redeemed, a new certificate
shall be issued representing the unredeemed shares, without cost to the
holder of the shares.
5. Liquidation Rights.
.......................
(a) In the event of the voluntary liquidation, dissolution or winding
up of the Corporation, the holders of shares of Series D Preference Stock
then outstanding shall be entitled to receive, before any distribution or
payment shall be made in respect of the Common Stock or any other stock of
the Corporation ranking junior to the Series D Preference Stock as to
distribution of assets on liquidation, dissolution or winding up, an
amount per share equal to the Redemption Value set forth in Section 4(a)
above plus all accrued but unpaid dividends, provided that the holders of
the Series D Preference Stock then outstanding shall be entitled to no
further participation in any distribution or payment in connection with
any such liquidation, dissolution or winding up.
(b) In the event of any involuntary liquidation, dissolution or winding
up of the Corporation, the holders of shares of Series D Preference Stock
then outstanding shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, but before any
distribution or payment shall be made in respect of the Common Stock or
any other stock of the Corporation ranking junior to the Series D
Preference stock as to distribution of assets on liquidation, dissolution
or winding up, an amount equal to the Redemption Value set forth in
Section 4(a) above, but the holders of the Series D Preference Stock shall
be entitled to no further participation in any distribution or payment in
connection with any such liquidation, dissolution or winding up.
(c) If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation available for
distribution among the holders of all outstanding shares of Series D
Preference Stock and of any other stock of the Corporation ranking on a
parity with the Series D Preference Stock as to assets on liquidation,
shall be insufficient to permit the payment in full to such holders of the
amounts to which they are entitled, then such available assets shall be
distributed among the holders of Series D Preference Stock and of any
other stock of the Corporation ranking upon a parity with the Series D
Preference Stock as to distribution of assets on liquidation ratably in
proportion to the full preferential amounts to which they would otherwise
respectively be entitled.
(d) Neither the consolidation or merger of the Corporation with or into
any other corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of
this Section.
6. Voting Rights.
(a) Except as otherwise required by law, in connection with all matters
to be voted upon by the Corporation's shareholders, all holders of Capital
Stock shall vote together as a single class. With respect to the election
of directors, each share of Common Stock issued and outstanding shall have
one vote and, subject to the provisions of this Section 6(a), each share
of Series D Preference Stock issued and outstanding shall have 1/3.08 of a
vote or such lesser or greater fraction to enable the holders thereof to
cast 19% of the total number of votes that all shareholders would be
entitled to cast in an election of directors of the Corporation including
votes that such holders would be entitled to cast as record holders of any
other shares of the Corporation, provided that in no event shall a share
of Series D Preference Stock have more than one vote per share.
Notwithstanding the foregoing, each share of Series D Preference Stock
issued and outstanding shall have one vote with respect to the election of
directors, effective as of August 1, 1996, unless the Board of Directors
of the Corporation, in its sole and absolute discretion, approves a
resolution prior to such date prohibiting such change in voting rights, in
which case each share of Series D Preference Stock issued and outstanding
will continue to have 1/3.08 vote per share with respect to the election
of directors, or such lesser or greater fraction as provided above. In
the event the Board approves such a resolution, on May 1 of each
subsequent year (until each share of Series D Preference Stock has one
vote with respect to the election of directors), each share of Series D
Preference Stock shall have one vote, effective as of such date, unless
the Board of Directors of the Corporation approves a resolution prior to
such date prohibiting such change in voting rights.
With respect to all other matters to be voted upon by the Corporation's
shareholders, each share of Common Stock issued and outstanding shall have
one vote and each share of Series D Preference Stock issued and
outstanding shall have one vote in addition to those rights herein
specifically accorded to Series D Preference Stock herein and in the
Articles of Incorporation of the Corporation.
(b) (i) If at the time of any meeting of shareholders called for the
election of directors, any one or more annual dividends (whether or not
consecutive) payable on the Series D Preference Stock shall be in arrears,
or if a mandatory redemption payment on any outstanding Series D
Preference Stock has been omitted, the holders of the outstanding Series D
Preference Stock, voting as a single class, shall thereafter have the
right to elect a majority of the directors. Such voting rights shall
remain vested until such time as all dividends in arrears on the Series D
Preference Stock or the mandatory redemption payment, the omission of
which gave rise to such voting rights, have been paid or declared and a
sum sufficient therefor set apart for payment, at which time the right
shall terminate (subject to revesting) and upon any termination of the
aforesaid voting right, subject to the requirements of the Corporation's
Articles of Incorporation, as amended, all directors elected by the
holders of the Series D Preference Stock, voting separately as a class,
are to resign.
(ii) A director elected by the holders of the Series D Preference Stock
pursuant to Section 6(b)(i) above (a "Preference Director") may be removed
only for cause, and only by the affirmative vote of the holders of record
of seventy-five percent (75%) of the Series D Preference Stock.
(c) So long as any shares of the Series D Preference Stock remain
outstanding, the Corporation may not, without the affirmative vote or
consent of the holders of at least two-thirds of the then outstanding
shares of Series D Preference Stock, (i) authorize stock ranking prior to
the Series D Preference Stock as to dividends or as to distribution of
assets; or (ii) increase the authorized number of shares of any class of
stock ranking prior to the Series D Preference Stock as to dividends or as
to distribution of assets; or (iii) amend, repeal or change any of the
provisions of the Articles of Incorporation, as amended, respecting any
stock of the Corporation or to authorize any reclassification of the
Series D Preference Stock so as to adversely affect the preferences,
special rights or powers of the Series D Preference Stock, either directly
or indirectly or through a merger or consolidation with any corporation.
So long as any shares of the Series D Preference Stock are outstanding,
the Corporation may not, without the affirmative vote or consent of the
holders of at least a majority of the then outstanding shares of
Preference Stock, voting separately as a class, increase the number of
authorized shares of Preference Stock or create, or increase the
authorized number of shares of, any other series or class of capital stock
of the Corporation ranking on a parity with the Preference Stock as to
dividends or distribution of assets.
7. Conversion.
................
(a) Series D Preference Stock shall be convertible at the option of the
record holder thereof at any time after the Original Issuance Date into
fully paid and nonassessable shares of Common Stock of the Corporation
(rounded to the nearest, or if there shall be no nearest, then to the next
lower whole share of Common Stock) at the rate of one share of Common
Stock for each Series D Preference share. The minimum number of Series D
Preference shares eligible for conversion at any one time by any one
holder shall be one thousand (1,000) shares. Upon conversion of any
shares of Series D Preference Stock, subject to Section 2 above, the
holder thereof shall be entitled to the amount of any dividends accrued
and unpaid with respect to such shares through the Dividend Payment Date
next preceding the Conversion Date (as defined in Section 7(c) hereof);
such dividends shall be payable on the Conversion Date. With respect to
the period from such Dividend Payment Date through the Conversion Date,
the holder of the shares of Series D Preference Stock to be converted
shall be entitled to the amount of any dividends accrued and unpaid with
respect to such shares on the Dividend Payment Date next succeeding the
Conversion Date prorated to the Date of Conversion; such dividends shall
be payable on the Dividend Payment Date next succeeding the Conversion
Date.
(b) The conversion rate shall be subject to the following adjustments:
(i) In case the Corporation shall declare and pay a dividend in
shares of Common Stock, the conversion rate in effect immediately prior to
the time fixed for the determination of stockholders entitled to such
dividend shall be proportionately increased (adjusted to the nearest or,
if there shall be no nearest, then to the next lower, one-hundredth of a
share of Common Stock), such adjustment to become effective immediately
after the time fixed for such determination.
(ii) In case the Corporation shall subdivide the outstanding shares
of Common Stock into a greater number of shares of Common Stock or combine
the outstanding shares of Common Stock into a smaller number of shares of
Common Stock, the conversion rate in effect immediately prior to such
subdivision or combination, as the case may be, shall be proportionately
increased or decreased (adjusted to the nearest, or if there shall be no
nearest, then to the next lower, one-hundredth of a share of Common
Stock), as the case may require, such increase or decrease to become
effective when such subdivision or combination becomes effective.
(iii) In case of any reclassification or change of outstanding shares
of Common Stock, or in case of any consolidation or merger of the
Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of all or substantially all of the
property of the Corporation, the holder of such Series D Preference Stock
then outstanding shall have the right thereafter, so long as his
conversion right hereunder shall exist, to convert such shares into the
kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock of
the Corporation into which such Series D Preference Stock might have been
converted immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance, and shall have no other
conversion rights under this provision; and, effective provisions, if
required, shall be made in the Articles or Certificate of Incorporation of
the resulting, surviving or successor corporation or otherwise, so that
the provisions set forth herein for the protection of the conversion
rights of the holders of the Series D Preference shares shall hereafter be
applicable, as nearly as reasonably may be, to any such other shares of
stock and other securities and property deliverable upon conversion of the
Series D Preference shares remaining outstanding or other convertible
preference shares received by the holders in place thereof; and any such
resulting, surviving or successor corporation shall expressly assume the
obligations to deliver, upon the exercise of the conversion privilege,
such shares, securities, or property as the holders of the Series D
Preference Stock remaining outstanding, or other convertible preference
shares received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provision for the
protection of the conversion rights as above provided. In case securities
or property other than shares of Common Stock shall be issuable or
deliverable upon conversion as aforesaid, then all references in this
section shall be deemed to apply so far as appropriate and as nearly as
may be, to such other securities or property. The subdivision or
combination of shares of Common stock at anytime outstanding into a
greater or lesser number of shares of Common Stock (whether with or
without par value) shall not be deemed to be a reclassification of the
Common Stock of the Corporation for the purposes of this subsection (iii).
(c) In order to convert Series D Preference shares into shares of
Common Stock, the holder thereof shall give at least thirty (30) days' but
not more than ninety (90) days' written notice to the Corporation at the
office of the Corporation (or such other place as may be designated by the
Corporation) that the holder elects to convert the same and shall state in
writing therein the name or names in which he wishes the certificate or
certificates for shares of Common Stock to be issued and shall surrender
the certificate or certificates for the Series D Preference shares, duly
endorsed to the Corporation in blank, at said office of the Corporation.
The Corporation shall, as soon as practicable thereafter, deliver at said
office to such holder of Series D Preference Stock, or to his nominee or
nominees, a certificate or certificates for the number of full shares of
Common Stock to which he shall be entitled. Series D Preference Stock
shall be deemed to have been converted as of the date of the surrender of
such stock for conversion as provided in this Section 7(c) (the
"Conversion Date"), and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be deemed for
all purposes to be the record holder or holders of such Series D
Preference shares on such date.
A number of authorized shares of Common Stock sufficient to provide for
the conversion of the Series D Preference Stock outstanding upon the basis
of this Section 7 shall at all times be reserved for such conversion.
8. Preemptive Rights.
......................
(a) Upon the offering or sale by the Corporation for cash of its shares
of Common Stock or any security convertible into shares of Common Stock,
including warrants, rights to subscribe and options to acquire shares of
Common Stock (collectively, "Convertible Securities"; such shares and
Convertible Securities are collectively referred to in this Section 8 as
the "Securities"), each holder of Series D Preference Stock shall have the
preemptive right, subject to the provisions of this Section 8, to receive
or purchase up to that amount of Securities which would maintain his
percentage ownership interest in the Common Stock, assuming conversion of
the Series D Preference Stock, after the issuance of the Securities on a
fully diluted basis as existed prior to the issuance of the Securities.
As used in this Section 8, the term "fully diluted basis" shall mean the
calculation of percentage ownership based upon all outstanding shares of
Common Stock plus the assumed issuance of Common Stock then issuable upon
conversion of the Series D Preference Stock and any other security,
including the Convertible Securities, convertible into shares of Common
Stock, including warrants, rights to subscribe and options to acquire
shares of Common Stock. Notwithstanding the foregoing, the holders of
Series D Preference Stock shall not have preemptive rights with respect to
shares or Convertible Securities (a) that are offered, sold or issued to
directors or employees of the Corporation or any of its wholly-owned
subsidiaries, (b) that were issued or authorized prior to the Original
Issuance Date, (c) that were issued on the conversion of Convertible
Securities and such Convertible Securities were offered or issued to the
holders of Series D Preference Stock in satisfaction of this Section 8, or
(d) that are issued in connection with a merger or consolidation or a
proceeding under the Federal Bankruptcy Act, as amended, or pursuant to an
order of a court of competent jurisdiction unless such order otherwise
provides.
(b) Notice. Prior to any issuance by the Corporation of any
Securities, the Corporation shall notify each holder of Series D
Preference Stock, in writing, of his intention to issue such Securities,
setting forth the terms under which he proposes to make such issuance.
Within thirty (30) days after receipt of such notice, each holder of
Series D Preference Stock shall notify the Corporation as to the amount of
Securities so offered that such holder desires to purchase. The holders
of Series D Preference Stock shall receive or purchase and the Corporation
shall issue and/or sell the Securities at the same time, and upon the same
terms and conditions, as the Securities are issued or sold. The
Corporation shall take all such action as may reasonably be required by
any regulatory authority in connection with the exercise by a holder of
Series D Preference Stock of the right to receive or purchase Securities
as set forth in this Section 8.
9. Exclusion of Other Rights.
..............................
Except as may otherwise be required by law, the shares of Series D
Preference Stock shall not have any preferences, or relative,
participating, optional or other special rights, other than those
specifically set forth in this Article 5th and elsewhere in these Articles
of Incorporation, as amended, of the Corporation. The shares of Series D
Preference Stock shall have no preemptive or subscription rights except as
provided herein.
Article 6th. Holders of the voting Capital Stock, Common and
Preference, of the Corporation shall not be entitled to cumulative voting
in the election of directors.
Article 7th. The affirmative vote or consent of the holders of three-
fifths of all classes of stock of the Corporation entitled to vote in
election of directors, considered for the purposes of this Article 7th as
one class, shall be required:
(i) for the adoption of any agreement for the merger or consolidation
of the Corporation with or into,
(ii) to authorize any sale, lease or exchange of all, or substantialy
all, of the assets of the Corporation to, or
(iii) to authorize any sale, lease or exchange to the Corporation or
any subsidiary thereof, in exchange for voting securities of the
Corporation, of any assets of,
any other corproation, person or other entity, if, in any such case, as of
the record date of the determination of shareholders entitled to notice
thereof and to vote thereon or to consent thereto, such other corporation,
person or entity is the record or beneficial owner, directly or
indirectly, of 5% or more of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors considered for the
purpose of this Article 7th as one class. Such affirmative vote or
consent shall be in addition to the vote or consent of the holders of the
stock of the Corporation otherwise required by law or any agreement
between the Corporation and any national securities exchange.
For the purposes of this Article 7th, (i) any corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of stock
of the Corporation which it, or its "affiliate" or "associate" (as those
terms are defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934 as in effect on January 1, 1981), has
the right to acquire pursuant to any agreement, or upon the exercise of
any conversion right, warrant or option, and (ii) the outstanding shares
of stock of the Corporation shall includes shares deemed owned through the
application of clause (i) above, but shall not include any other shares
which may be issuable pursuant to any agreement, exercise of any
conversion right, warrant or option.
No amendment to the Articles of Incorporation of the Corporation shall
amend, alter, change or repeal any of the provisions of this Article 7th,
unless the amendment effecting such amendment, alteration, change or
repeal shall receive the affirmative vote or consent of the holders of
three-fifths of all classes of stock of the Corporation entitled to vote
in elections of directors, considered for the purpose of this Article 7th
as one class.
Article 8th. The members of the governing board of the Corporation
shall be styled "Directors". The number of directors of the Corporation
shall be not less than three (3) nor more than eleven (11) the exact
number of directorships to be fixed from time to time by resolution
adopted by a majority of the entire Board of Directors. As used in this
Article 8th, "entire Board" means the total number of directorships then
fixed. In the event that the Board is increased by such a resolution, the
vacancy or vacancies so resulting shall be filled by a vote of the
Corporation's shareholders. No decrease in the Board shall shorten the
term of any incumbent director.
The Board of Directors shall be divided into three classes as nearly equal
in number as may be, with the term of office of one class expiring each
year. The directors comprising the First Board of Directors, as indicated
in Article 9th of these Articles of Incorporation, be assigned to the
class indicated to the right of their name. The directors in Class 1
shall serve until the first annual meeting following incorporation of the
Corporation; the directors in Class 2 shall serve until the second annual
meeting following incorporation of the Corporation; and the directors in
Class 3 shall serve until the third annual meeting following
incorporation. When the number of directors is changed, any newly created
directorships shall be so apportioned among the classes to make all
classes as nearly equal in number as possible. When the number of
Directors is increased by the Board of Directors and any newly created
directorships are filled by the shareholders other than by action at an
Annual Meeting, such newly elected directors shall hold office only until
the next Annual Meeting, and there shall be no classification of the
additional directorships until that time.
Subject to the foregoing, at each Annual Meeting of Shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding Annual
Meeting.
No amendment to the Articles of Incorporation of the Corporation shall
amend, alter, change or repeal any of the provisions of this Article 8th,
unless the amendment effecting such amendment, alteration, change or
repeal shall receive the affirmative vote or consent of the holders of
three-fifths of all classes of stock of the Corporation entitled to vote
in elections of directors, considered for the purposes of this Article 8th
as one class.
Article 9th. The names and addresses of the first Board of Directors are
as follows:
Name Address Class
...................... .................... ........
Martin Roenigk 120 Union Street, Class 2
Willimantic, CT 06226
Alan Markowitz 555 City Line Avenue Class 2
S-1000
Bala Cynwyd, PA 19004
Philip M. Blackmon 213 Perry Parkway Class 3
Gaithersburg, MD 20877
Millard H. Pryor, Jr. 695 Bloomfield Avenue Class 1
Bloomfield, CT 06002
David W. Clark, Jr. 695 Bloomfield Avenue Class 3
Bloomfield, CT 06002
Article 10th. No director or officer of the Corporation shall be
personally liable to the Corporation or its shareholders for damages for
breach of their fiduciary duty as a Director or officer; provided,
however, that this Article 10th shall not eliminate or limit the liability
of a Director or officer for (i) acts or ommissions which involve
intentional misconduct, fraud or a knowing violation of law; and (ii)
authorizing the unlawful payment of distributions in violation of Nevada
Revised Statutes 78.300.
Article 11th. The name and residence or business address of the
incorporator are as follows:
Name Address
Martin Roenigk 120 Union Street, Willimantic, CT 06226
IN WITNESS WHEREOF, I have hereunto set my hand this .... day of April,
1996.
........................
Martin Roenigk
STATE OF CONNECTICUT )
ss.
COUNTY OF WINDHAM )
On the....... day of April, 1996, personally appeared before me, a Notary
Public, ....................., who acknowledged that he executed the
instrument.
.......................
Notary Public
My Commission Expires ........
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
of CompuDyne Corporation:
We have audited the accompanying consolidated balance sheet of CompuDyne
Corporation and subsidiaries, as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the year then ended. Our audit also included the financial statement
schedule listed in the accompanying index. These financial statements and
schedule as of and for the year ended December 31, 1995 are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit. The consolidated financial statements and schedule as of December
31, 1994 and for the two years in the period then ended, before the
adjustments described in Note 1 to the consolidated financial statements,
were audited by other auditors whose report, dated March 29, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements
and schedule. An audit also includes assessing the accounting principles
used and significant estimates made by the management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CompuDyne Corporation and
subsidiaries at December 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule as of and for the year ended December 31, 1995, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
We also audited the adjustments described in Note 1 that were applied to
restate the 1994 and 1993 financial statements and schedule for the
discontinued operations. In our opinion, such adjustments are appropriate
and have been properly applied.
/s/Delloitte & Touche LLP
Washington D.C.
March 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of CompuDyne Corporation
We have audited the consolidated financial statements of CompuDyne
Corporation and Subsidiaries ("the Company") as of December 31, 1994 and
for the years ended December 31, 1994 and 1993 prior to the restatement for
the divestiture of the Suntec division, as listed in Item 14(a) of this
Form 10-K. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement are
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to the above present
fairly, in all material respects, the consolidated financial position of
CompuDyne Corporation and Subsidiaries as of December 31, 1994 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1994 and 1993, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 29, 1995
REVOCABLE PROXY
COMPUDYNE CORPORATION
This Proxy Is Solicited on Behalf of the Board of Directors
The undersigned holder of Common Stock of COMPUDYNE CORPORATION hereby
appoints Philip M. Blackmon and Millard H. Pryor, Jr., and each of them,
proxies to represent the undersigned with full power of substitution, as
attorneys and proxies for the undersigned to appear and vote all of the
shares of Common Stock of CompuDyne Corporation (the "Company") standing
on the books of the Company in the name of the undersigned at the 1996
Annual Meeting of Shareholders of CompuDyne Corporation, to be held at
the Corporation's wholly owned subsidiary, Quanta Systems Corporation,
213 Perry Parkway, Gaithersburg, Maryland on the 5th day of June, 1996 at
11:00 a.m. (E.D.T.), and at any adjournments of said Annual Meeting. A
majority of such said attorneys and proxies as shall be present and
voting (or if only one shall be present and voting, then that one) in
person or by substitute or substitutes at said meeting or any adjournment
thereof, shall have and may exercise all of the powers of such said
attorneys and proxies hereunder. The undersigned hereby acknowledges
receipt of the Notice of Annual Meeting and the Proxy Statement dated May
15, 1996 and instructs its attorneys and proxies to vote as set forth on
this Proxy. The undersigned shareholder may revoke this proxy at any
time before it is voted by delivering to the Secretary of the Company
either a written revocation of the proxy or a duly executed proxy bearing
a later date, or by appearing at the Annual Meeting and voting in person:
1. Election of two directors to serve until the 1998 Annual Meeting of
Shareholders.
.... FOR the nominees listed below
(Except as marked to the contrary)
.... WITHHOLD AUTHORITY
to vote for the nominees listed below
Martin A. Roenigk Alan Markowitz
Election of two directors to serve until the 1999 Annual Meeting
of Shareholders.
.... FOR the nominees listed below
(except as marked to the contrary)
.... WITHHOLD AUTHORITY
to vote for the nominees listed below
David W. Clark, Jr. Philip M. Blackmon
(INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below.)
.............................................................
2. Proposal to vote upon approval of the Corporation's 1996 Stock
Incentive Compensation Plan for Employees.
.... FOR .... AGAINST ....ABSTAIN
3. Proposal to vote upon approval of the Corporation's 1996 Stock Option
Plan for Non-Employee Directors.
....FOR ....AGAINST ....ABSTAIN
4. Proposal to vote upon approval of a change in the Corporation's state
of incorporation from Pennsylvania to Nevada.
....FOR ....AGAINST ....ABSTAIN
5. Proposal to ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending December
31, 1996.
....FOR ....AGAINST ....ABSTAIN
6. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting and any
adjournment thereof.
The undersigned shareholder may revoke this proxy at any time before it
is voted by delivering to the Secretary of the Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or
by appearing at the Annual Meeting or any adjournment thereof and voting
in person.
The shares represented by this Proxy will be voted as specified. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED IN FAVOR OF EACH OF THE
SPECIFIED NOMINEES IN PROPOSAL NO. 1 THROUGH PROPOSAL NO. 6, AND IN THE
DISCRETION OF THE PROXIES AS TO OTHER MATTERS. HOWEVER, THIS PROXY CARD
MUST BE PROPERLY COMPLETED, SIGNED, DATED AND RETURNED TO THE COMPANY IN
ORDER TO HAVE YOUR SHARES VOTED. IF YOU DO NOT RETURN THIS CARD, YOUR
SHARES WILL NOT BE REPRESENTED.
Please be sure to sign and date this Proxy in the box below Date.......
.........Stockholder sign above.....Co-Holder (if any) sign above......
Detach above card, sign, date and mail in postage paid envelope provided
COMPUDYNE CORPORATION
Please sign exactly as your name(s) appear(s) on this Proxy. When
signing as attorney, executor, administrator, trustee, guardian,
custodian, or the like, give title as such. If the signer is a
corporation, sign in the corporate name by a duly authorized officer.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
