SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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COGNITRONICS CORPORATION
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COGNITRONICS CORPORATION
3 CORPORATE DRIVE
DANBURY, CONNECTICUT 06810-4130
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 2005
-------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Cognitronics
Corporation (the "Company") will be held at the offices of the Company, at 3
Corporate Drive, Danbury, Connecticut on May 12, 2005, at 10:00 a.m., for the
following purposes:
1. To elect five directors to the Board of Directors.
2. To approve the selection of Carlin, Charron & Rosen, LLP, an
independent registered public accounting firm, as independent
auditors for the Company for the year ending December 31, 2005.
3. To conduct such other business as may properly come before the
meeting, including any adjournment thereof.
Only holders of Common Stock of the Company of record at the close of business
on April 7, 2005 will be entitled to vote at the meeting or any adjournment
thereof.
A proxy statement and proxy are enclosed.
By order of the Board of Directors,
Harold F. Mayer
SECRETARY
April 21, 2005
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE.
COGNITRONICS CORPORATION
APRIL 21, 2005
---------------------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 2005
---------------------------------
PROXY STATEMENT
This proxy statement is furnished to the stockholders of Cognitronics
Corporation (the "Company") in connection with the solicitation of proxies for
the Annual Meeting of Stockholders to be held at the principal office of the
Company at 3 Corporate Drive, Danbury, Connecticut 06810-4130 on May 12, 2005 at
10:00 a.m. and any adjournment thereof (the "Annual Meeting").
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of the Company. Execution of the proxy will not affect a stockholder's
right to attend the Annual Meeting and vote in person, and stockholders giving
proxies may revoke them at any time before they are exercised by a written
revocation or by a duly exercised proxy bearing a later date delivered to the
Secretary of the Company. Proxies in the form enclosed, unless previously
revoked, will be voted at the Annual Meeting as set forth in the proxies or, if
no choice is indicated, in favor of each of the proposals outlined below. Should
any matter other than those indicated herein properly come before the Annual
Meeting for a vote (including any adjournment), the persons designated as
proxies will vote thereon in accordance with their best judgment. If any
proposal has not received sufficient votes for approval at the Annual Meeting,
management will consider one or more adjournments to permit additional voting on
the proposal.
The owners of Common Stock have all voting rights with respect to
matters to come before the Annual Meeting. Each share of Common Stock entitles
its holder to one vote. At the close of business on the record date, April 7,
2004, there were outstanding and entitled to vote 5,740,903 shares of Common
Stock. Only holders of Common Stock of record at the close of business on April
7, 2005 are entitled to notice of and to vote at the Annual Meeting. This proxy
statement, the accompanying notice of meeting and the Company's Annual Report to
Stockholders are first being mailed on or about April 21, 2005.
SECURITY OWNERSHIP
The following table sets forth information as to ownership of the Common
Stock of the Company as of March 1, 2005 with respect to (i) current directors
and nominees for directors of the Company; (ii) the executive officers listed on
the Summary Compensation Table; (iii) current directors and executive officers
as a group; and (iv) beneficial owners of more than 5%.
SHARES PERCENT OF
NAME OF BENEFICIALLY SHARES
BENEFICIAL OWNER(K) OWNED OUTSTANDING
------------------- ----- -----------
John T. Connors , Director ....................... 19,500(b)(c) (a)
Brian J. Kelley, President, CEO and Director ..... 761,125(b)(d)(e) 13.3%
Jack Meehan, Director ............................ 20,500(b)(c) (a)
William A. Merritt, Director...................... 30,200(b)(c) (a)
William J. Stuart, Director ..................... 26,895(b)(c)(f) (a)
Kenneth G. Brix, Vice President................... 189,901(b) 3.3%
Michael N. Keefe, Vice President.................. 211,278(b)(h) 3.7%
Roy A. Strutt, Vice President..................... 269,309(b)(g) 4.7%
Garrett Sullivan, Treasurer and CFO............... 218,455(b)(i) 3.8%
All directors and officers, as a group including
those listed above, consisting of 11 persons......1,958,825(b)(c)(j) 34.2 %
---------------------------------------
(a) The percentage of shares beneficially owned does not exceed one percent.
(b) Of the shares of Common Stock shown above as beneficially owned, the
number of shares with respect to which the following persons had a right
to acquire beneficial ownership within 60 days were: John T. Connors -
19,500, Brian J. Kelly - 242,500, Jack Meehan - 20,500, William A.
Merritt - 20,500, William J. Stuart - 17,750, Roy A. Strutt - 86,667,
Kenneth G. Brix -86,667 , Michael N. Keefe - 86,667, Garrett Sullivan -
86,667 and all current directors and officers as a group -- 757,918.
Other than shares as to which he had a right to acquire beneficial
ownership or as noted below, each person held sole voting and sole
investment power with respect to the shares shown above.
(c) Does not include equivalent shares of Common Stock recorded in the books
and records of the Company as deferred compensation, as follows: John T.
Connors - 25,522 shares, Jack Meehan - 42,649 shares and William A.
Merritt - 36,404 shares and all current officers and directors as a
group - 104,843 shares.
(d) With respect to 110,133 of the shares, voting and investment power is
shared with Mr. Kelley's spouse.
(e) Includes 4,500 shares held in Mr. Kelley's name as custodian for his
three children.
(f) With respect to 8,145 of the shares, voting and investment power is
shared with Mr. Stuart's spouse.
(g) Includes 4,875 shares held in the name of Mr. Strutt's spouse.
(h) With respect to 2,955 of the shares, voting and investment power is
shared with Mr. Keefe's spouse.
(i) With respect to 32,257 of the shares, voting and investment power is
shared with Mr. Sullivan's spouse.
(j) With respect to 158,365 of the shares, voting and investment power is
shared with the spouses of the beneficial owners.
(k) The business address of each of the named beneficial owners is c/o
Cognitronics Corporation, 3 Corporate Drive, Danbury, CT 06810-4130,
except for Mr. Strutt whose business address is c/o Dacon Electronics
Plc, 1 Enterprise Way, Hemel Hempstead, Hertfordshire, HP2 7Y3, United
Kingdom.
2
1. ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected, to serve for
the ensuing year and until their respective successors are elected and
qualified. Proxies in the accompanying form will be voted for the election of
the nominees listed below unless instructions are given on the proxy to withhold
authority to vote for one or more of the nominees. In the event that one or more
of such persons become unavailable for election as a director, which is not
anticipated, the shares represented by the accompanying proxy will be voted for
one or more substitutes approved by management, or the size of the Board will be
reduced.
INFORMATION CONCERNING NOMINEES
The following table sets forth with respect to each nominee: (1) his
name and age, all positions and offices with the Company currently held by him,
and his principal occupation over the last five years (including other
directorships and business experience) and (2) the period during which he has
served as a director of the Company.
NAME, AGE, POSITIONS, PRINCIPAL OCCUPATION, DIRECTOR
DIRECTORSHIPS AND BUSINESS EXPERIENCE SINCE
------------------------------------- -----
J. T. Connors, 56, joined the law firm of Pillsbury Winthrop Shaw 2000
Pittman LLP, formerly known as Shaw Pittman LLP, in 2003
as counsel in its New York office. Prior to that he was a
business and financial consultant from November 2001 to
March 2003, President and Chief Operating Officer of
Fortis Capital Holdings Inc (a financial services
company), and its predecessor, Mees Pierson Holdings
Holdings Inc. from 1993 to 1997.
Brian J. Kelley, 53, has been President and Chief Executive 1994
Officer of the Company since 1994. Prior to that he held
senior management positions with TIE/Communications, Inc.
from 1986 to 1994.
Jack Meehan, 56, has been President and Chief Executive Officer 1991
of Novus, LLC (a telephone systems equipment company)
since November 2001. Prior to that he had been President
and Chief Executive Officer of Aztec International, Inc.
(a similar business), a subsidiary of Aztec Technology
Partners, Inc., since 1983.
William A. Merritt, 68, has been President of Integrated 1994
Communications Systems Corp. since 1992, Vice President
and General Counsel of Seaboard Properties, Inc. and a
Managing Member of the Seaboard Group of companies since
1992 and acting Chief Financial Officer of McAllister
Towing and Transportation Company, Inc. since 1997.
William J. Stuart, 53, has been a general partner with Still 2001
River Funds since September 2001. Prior to that he had
been Vice President of the Broadband Infrastructure &
Access Group of ADC Telecommunications, Inc. since
October 2000, Vice President and Chief Financial Officer
of Broadband Access Systems, Inc. from October 1999 to
September 2000, Vice President and Chief Financial
Officer of NetCore Systems, Inc. from May 1999 to October
1999 and Vice President and Chief Financial Officer of
Telco Systems, Inc. from January 1997 to January 1999.
The foregoing nominees are all members of the Board, having been elected at the
2004 Annual Meeting of Stockholders, and each has consented to being named in
this proxy statement as a nominee and to serve if elected.
3
VOTING PROCEDURE
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company is necessary to constitute a quorum at the
Annual Meeting. To be elected, a nominee must receive the affirmative vote of
the holders of a plurality of the outstanding shares of Common Stock represented
at the Annual Meeting. Shares represented at the meeting by proxy which are not
voted because the stockholder has elected to abstain or has withheld authority
will be counted in determining the presence of a quorum but will not be counted
as for the election of the director or directors. Shares represented at the
meeting by a duly signed and dated proxy for which the proxy card has been
otherwise left blank will be counted as votes "for" the election of each
director.
EXECUTIVE COMPENSATION
The following tables and notes set forth the compensation paid or
accrued by the Company during the fiscal years ended December 31, 2004, 2003 and
2002 to its five most highly compensated executive officers whose aggregate cash
compensation exceeded $100,000 for services rendered to the Company in 2004.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------- ----------------------
(a) (b) (c) (e) (f) (g) (h)
OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
SALARY COMPENSATION STOCK SARS COMP.
NAME AND PRINCIPAL POSITION YEAR $ $(1) $(2) # $(3)
--------------------------- ---- ------ ------------ ---------- -------- ----------
Brian J. Kelley 2004 270,000 8,353
President and Chief 2003 282,116 73,011 60,000 9,349
Executive Officer 2002 300,000 248,000 77,500 60,000 10,627
Kenneth G. Brix 2004 148,500 990
Vice President, Sales 2003 155,163 26,400 25,000 2,332
2002 165,000 93,000 31,000 25,000 3,620
Roy A. Strutt 2004 214,185 1 4,656
Vice President, European Operations 2003 197,184 26,400 25,000 13,110
and Managing Director, Dacon 2002 166,432 46,500 31,000 25,000 12,035
Electronics Plc
Michael N. Keefe 2004 126,000 840
Vice President, Engineering 2003 131,654 26,400 25,000 1,979
2002 140,000 93,000 31,000 25,000 2,100
Garrett Sullivan 2004 126,000 840
Treasurer and Chief 2003 131,654 26,400 25,000 1,979
Financial Officer 2002 140,000 93,000 31,000 25,000 2,940
(1) These amounts represent the fair market value on the date awarded of
rights to shares of Common Stock on January 2, 2006 if the named
executive remains employed by the Company on that date, subject to
earlier vesting in the event of certain circumstances.
4
(2) The Compensation Committee awarded restricted shares of Common Stock
under the terms of the Restricted Stock on October 23, 2002, as follows:
Mr. Kelley -50,000 shares and Messrs. Brix, Strutt, Keefe and Sullivan -
20,000 shares each; and on October 24, 2003, as follows: Mr. Kelley
-60,000 shares and Messrs. Brix, Strutt, Keefe and Sullivan - 25,000
shares each . The value of the shares on the award date is reflected in
the table above. The shares vest 20% annually beginning on the second
anniversary of the award, subject to accelerated vesting if established
performance-based targets are achieved in the years ending December 31,
1999 through 2003 provided the officer remains employed by the Company
until the vesting date (except that if the officer is terminated prior
to the vesting date by reason of a change in control, all restricted
shares become vested immediately). Dividends will be paid on the
restricted shares. Shares vested in 2002 as follows: Mr. Kelley - 5,050
shares, Messrs. Brix, Keefe and Sullivan - 2,000 shares each and Mr.
Strutt - 2,030 shares. Shares vested in 2003 as follows: Mr. Kelley -
11,550 shares, Messrs. Brix, Keefe and Sullivan - 4,000 shares each and
Mr. Strutt - 2,030 shares. Shares vested in 2004 as follows: Mr. Kelley
- 19,000 shares, Messrs. Brix, Keefe and Sullivan - 6,950 shares each
and Mr. Strutt - 4,500 shares. The number of shares and value of the
aggregate restricted stock holdings at December 31, 2004 are: Mr. Kelley
- 94,187 shares, $385,225; Messrs. Brix, Keefe and Sullivan - each
35,000 shares, $143,150 and Mr. Strutt - 29,000 shares, $118,610.
(3) These amounts represent (a) pension contributions, (b) term life
insurance premiums paid by the Company for the benefit of the officers'
beneficiaries and (c) personal use of automobile in the following
amounts: Mr. Kelley -- $1,200 in insurance premiums and personal use of
automobile - $7,153, Mr. Brix --$990 in insurance premiums, Messrs.
Keefe and Sullivan --$840 in insurance premiums and Mr. Strutt - $13,110
in pension contributions. There are no cash values associated with the
term life insurance.
OPTION GRANTS IN 2004
There were no options granted to any of the named executives in 2004.
AGGREGATE OPTION EXERCISES IN 2004 AND 2004 YEAR-END OPTION VALUES
(A) (B) (C) (D) (E)
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
YEAR-END(#) YEAR-END ($)
SHARES ACQUIRED VALUE ------------- -------------
NAME ON REALIZED ON EXERCISABLE/ EXERCISABLE/
---- EXERCISE (#) EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
------------ ------------ ------------- -------------
Brian J. Kelley NONE 202,500 $139,400
60,000 $126,400
Kenneth G. Brix NONE 70,000 $58,083
25,000 $52,667
Roy A. Strutt NONE 70,000 $58,083
25,000 $52,667
Michael N. Keefe NONE 70,000 $58,083
25,000 $52,667
Garrett Sullivan NONE 70,000 $58,083
25,000 $52,667
5
PENSION PLANS
In 1977, the Company adopted a non-contributory, defined benefit pension
plan covering substantially all employees in the United States. The Company's
funding policy is to contribute amounts to the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as the Company may determine
to be appropriate from time to time.
In 1994, the Company amended the pension plan to eliminate future
benefit accruals after June 30, 1994. Accordingly, new employees are not
eligible to participate in the plan and the accrued pension benefit of earlier
participants will remain at the level earned based on service through June 30,
1994. At January 1, 2004, the accrued annual pension benefits payable upon the
retirement of the officers identified in the Summary Compensation Table were:
Brian J. Kelley - $0; Kenneth G. Brix - $0; Michael N. Keefe - $6,319; Garrett
Sullivan - $4,623; and Roy A. Strutt - $0.
COMPENSATION OF DIRECTORS
Directors who were not employees of the Company in 2004 were entitled to
payment of (a) an annual fee of $8,000, (b) $1,000 for each Board meeting
attended, of which there were four during 2004, and for each meeting of a
committee of the Board not held in conjunction with a Board meeting, of which
there were none in 2004 and (c) $1,000 for each substantive part of a business
day that a director is requested to assist management in the future development
of the Company's business, of which there was one such occasion in 2004.
Directors may voluntarily defer the receipt of such fees to a future year.
Directors may elect to be paid in cash or in shares of Common Stock of the
Company. If a director elected to be paid in shares, he was entitled to 125% of
the equivalent value in shares. Directors are also entitled to reimbursement of
reasonable travel expenses.
In september 1998, the Board unanimously approved the Directors' Stock
Option Plan covering directors and officers who are not employees of the
Company; the stockholders approved the adoption of the Directors' Stock Option
Plan (the "Directors' Plan") and the awards thereunder at the Annual Meeting of
Stockholders on May 13, 1999. The Board of Directors amended the Directors' Plan
in 2000, 2001 and 2003, which amendments were approved by stockholders on May
11, 2000, May 17, 2001 and May 8, 2003, respectively. The terms of the
Directors' Plan provide for an automatic award to each person who is a
participant of options to purchase (1) 3,000 shares of Common Stock on August 1,
2000, 2001 and 2002, (2) 6,000 shares of Common Stock in each subsequent year
thereafter, (3) sixty days following the initial election of a director by the
Board of Directors a pro rata portion of shares of the annual award and (4)
5,500 shares of Common Stock on November 9, 2002. The option exercise price is
100% of the fair market value per share of Common Stock on the date of the
award, as defined in the Directors' Plan. Generally, the options become
exercisable one year after the date of award and expire ten years after the date
of award. During 2004, Messrs. Connors, Meehan, Merritt and Stuart were awarded
options to purchase 6,000 shares of Common Stock each on August 1 at an exercise
price of $3.50 Per share. None of the aforementioned persons exercised options
in 2004. The number of unexercised options and the value of unexercised
in-the-money options held at December 31, 2004 by Messrs. Meehan and Merritt
were as follows: exercisable - 20,500 shares, $31,295; unexercisable - 6,000
shares, $3,540 each, by Mr. Connors: Exercisable - 19,500 shares, $31,295;
unexercisable - 6,000 shares, $3,540 and by Mr. Stuart: exercisable - 17,750
shares, $31,295; unexercisable - 6,000, $3,540.
6
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Meehan, Merritt and
Stuart, each of whom are "non-employee directors" for purposes of Rule 16b-3
under the Securities Exchange Act of 1934, as amended. Mr. Connors is counsel
with the law firm of Pillsbury Winthrop Shaw Pittman LLP, which the Company
retained during 2005.
The Company has advanced to officers amounts principally for income
taxes related to stock awards under its 1990 Stock Option and Restricted Stock
Plans and stock bonuses. In connection therewith, the largest aggregate amount
the executive officers were indebted to the Company since January 1, 2003, which
is also the aggregate amount at March 1, 2004 are as follows: Mr. Kelley,
President and a director - $467,340; Mr. Brix, a Vice President - $159,027; Mr.
Strutt, a Vice President - $599,894; Mr. Keefe, a Vice President -$77,794; and
Mr. Sullivan, Treasurer - $380,101. The above indebtedness, which is partially
unsecured and is payable on demand, bears interest at varying rates
approximating market rates. There were no such advances subsequent to July 28,
2002.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of the Company under the
direction of the Board has prepared the following report for inclusion in this
Proxy Statement.
The Compensation Committee annually reviews the performance
contributions of the officers of the Company (including the Chief Executive
Officer) and makes adjustments to all forms of compensation to those officers.
In this capacity the Compensation Committee has oversight capacity, reviews the
structure and cost effectiveness and sets performance objectives for the
Company's various compensation programs. The Compensation Committee also
administers all compensation plans of the Company payable to employees in
securities of the Company. The Compensation Committee endorses the position that
stock ownership by management is beneficial in aligning management's and
stockholders' interests in the enhancement of stockholder value and has
increasingly used these elements in the Company's compensation packages for its
executive officers.
COMPENSATION PHILOSOPHY
The Company's compensation programs are designed to serve the Company's
goals of long-term growth and to help achieve the Company's business objectives.
The Company seeks to integrate all compensation programs with the Company's
annual and long-term business objectives and strategy and focus executive
behavior on the fulfillment of those objectives.
To that end the Company follows certain principles in its compensation
of executives:
o The Company pays competitively.
The Company is committed to providing a compensation program
that helps attract, motivate and retain the best people in the
industry. To ensure that pay remains competitive, the Company
compares its pay practices with those of comparable companies.
7
o The Company pays for relative sustained performance.
Executive officers are rewarded based upon corporate performance
and individual performance. Corporate performance is evaluated
by reviewing the extent to which strategic and business plan
goals are met, including such factors as operating profit,
performance relative to competitors and timely new product
introductions. Individual performance is evaluated by reviewing
organizational and management development progress and the
degree to which teamwork and Company values are fostered.
o The Company seeks fairness in the administration of
compensation.
The Company applies its compensation philosophy Company-wide.
The Company tries to achieve a balance of the compensation paid
to a particular individual and the compensation paid to other
executives inside the Company and its subsidiaries and at
comparable companies.
To serve these objectives and maintain these principles the executive
compensation program of the Company is comprised of several elements, including
base salary, a cash or stock bonus, stock option, restricted stock and stock
purchase plans as well as certain welfare and retirement benefits.
2004 EXECUTIVE COMPENSATION
Based on the Company's performance over the past three years, generally,
no increases in cash compensation have been awarded to executives in 2004;
rather, in mid-2003, salaries of all the executives, including Mr. Kelley, and
substantially all other employees were reduced 10%. However, in mid-2004, one
executive received a salary increase to recognize his assumption of additional
responsibilities. No cash or stock bonuses, stock options or stock grants were
awarded in 2004.
2004 CEO COMPENSATION
The Chief Executive Officer's compensation is based on the same policies
and criteria as the other executive officers and Mr. Kelley did not receive an
increase in cash compensation in 2004. In mid- 2003, Mr. Kelley's base salary
was reduced 10% to $270,000 per annum. No cash or stock bonuses, stock options
or stock grants were awarded to Mr. Kelley in 2004.
By: COMPENSATION COMMITTEE
John T. Connors William A. Merritt
Jack Meehan William J. Stuart
8
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth securities authorized for issuance under
all equity compensation plans of the Company at December 31, 2004.
EQUITY COMPENSATION PLAN INFORMATION
(C)
NUMBER OF SECURITIES
(A) REMAINING AVAILABLE FOR FUTURE
NUMBER OF SECURITIES TO BE (B) ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
------------- ------------------- ------------------- ------------------------
Equity compensation plans 1,102,802 $4.03 263,076(1)
approved by security
holders
Equity compensation plans 570,574(2) ____ 66,066(3)
not approved by security
holders
Total 1,673,376 $4.03 329,082
(1) Consists of (a) 52,478 shares available for grant of rights under the
1967 Employee Stock Purchase Plan and (b) 210,598 shares available for
grant of stock options.
(2) Consists of shares available for issuance, as follows:
(a) Rights granted n 2002 to executives to receive 395,000 shares of
Common Stock on January 2, 2006. Such rights are subject to
immediate vesting in the event of a change in control of the
Company and pro-rata vesting in the event of death or
involuntary termination for reasons other than cause. The total
value of the rights at the date of grant was $612,000 based on
the fair market value of the Common Stock ($1.55 per share) on
the date of grant; $151,000 was charged to expense in 2004
related to this grant.
(b) Rights of directors to receive 105,574 shares of Common Stock.
Directors may elect to receive their fees in shares of Common
Stock and defer receipt of such shares to a future date. If a
director elects to be paid in shares, he is entitled to 125% of
the equivalent value of the fees in shares.
(c) Rights granted in 2001 to executives to receive 71,000 shares of
Common Stock, the receipt of which has been voluntarily deferred
by the executives to a future year. The total value of the
rights was $338,000 based on the average fair market value of
the Common Stock as the shares vested during 2001 ($4.76 per
share), which amount was charged to expense in 2001.
(3) Consists of shares available for issuance for directors' fees.
9
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return of the S&P 500 Index and
the Hemscott (formerly Media General) Telecommunications Processing Systems and
Products Industry Group (the "Peer Group") for the five years ended December 31,
2004.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
[GRAPH]
----------------- ---------- ---------- ---------- --------- --------- ---------
1999 2000 2001 2002 2003 2004
----------------- ---------- ---------- ---------- --------- --------- ---------
Cognitronics $100 $53 $28 $15 $20 $24
----------------- ---------- ---------- ---------- --------- --------- ---------
Peer Group $100 $48 $15 $4 $9 $9
----------------- ---------- ---------- ---------- --------- --------- ---------
S&P 500 $100 $91 $80 $62 $80 $89
----------------- ---------- ---------- ---------- --------- --------- ---------
--------------------------------
1 Assumes that the value of the investment in the Company's Common Stock
and each index was $100 on December 31, 199 and that all dividends were
reinvested.
10
ADDITIONAL INFORMATION
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of the financial
statements with accounting principles generally accepted in the United States,
the audited financial and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards. The Audit
Committee has received the written disclosures and letter from the independent
auditors required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees." The Audit Committee has discussed with the
independent auditors the matters required to be discussed by SAS 61
"Codification of Statements on Auditing Standards" as may be modified or
supplemented. In addition, the Audit Committee has discussed with the
independent auditors the auditors' independence from management and the Company,
including the matters in the written disclosures required by the Independence
Standards Board, and considered the compatibility of non-audit services with the
auditors' independence.
The Audit Committee discussed with the Company's independent auditors
the overall scope and plans for the respective audits. The Audit Committee met
with the independent auditors, with and without management present, to discuss
the results of their examinations, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board (and the Board has approved) that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended December 31, 2004 for filing with the Securities and Exchange Commission.
The Audit Committee and the Board have also recommended, subject to stockholder
approval, the selection of the Company's independent auditors for the year
ending December 31, 2005.
By: AUDIT COMMITTEE
Jack Meehan William J. Stuart, Chairman
William A. Merritt
QUALIFICATIONS OF AUDIT COMMITTEE MEMBERS
The Company's Board has reviewed the qualifications of each of the
members of the Audit Committee and has determined that all of them are
independent (as independence is defined in Section 121A of the American Stock
Exchange's listing standards). The Board also determined that William J. Stuart
qualifies as an "audit committee financial expert" as defined by the SEC pusuant
to the Sarbanes-Oxley Act of 2002.
11
AUDIT COMMITTEE CHARTER
In May 2000, the Board adopted an Audit Committee Charter. In May and
September 2001, the Audit Committee reassessed the charter, which the Board
approved. The Committee made no changes to its charter in 2002 or 2003. In 2004,
the Committee reassessed and restated its charter, which the Board approved, to
reflect changes in the American Stock Exchange listing standards, Rule 10A-3 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Sarbanes-Oxley Act, a copy of which is attached to this Proxy Statement for
stockholder review as Exhibit A. The charter sets forth the organization of the
Audit Committee, a statement of policy and the Audit Committee's
responsibilities and processes. The Audit Committee shall review and reassess
the charter at least annually and request the approval of the Board of any
changes thereto.
CHANGE IN INDEPENDENT AUDITORS
At a meeting held on November 4, 2003, the Company's Board, based on the
recommendation of its audit committee, approved the engagement of Carlin,
Charron & Rosen, LLP, an independent registered public accounting firm, as its
independent auditors for the year ending December 31, 2003 to replace the firm
of Ernst & Young LLP, who were dismissed as auditors of the Company effective
November 5, 2003.
The report of Ernst & Young LLP on the Company's financial statements
for the years ended December 31, and 2002 did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
In connection with the audit of the Company's financial statements for
each of the years ended December 31, 2001 and 2002, and in the subsequent
interim period through November 5, 2003, there were no disagreements with Ernst
& Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Ernst & Young LLP would have caused Ernst & Young LLP to
make reference to the matter in their report.
During the Company's two most recent fiscal years through the date of
their appointment, the Company did not consult with Carlin, Charron & Rosen, LLP
with respect to any of the matters or reportable events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
A copy of Ernst & Young LLP's letter, dated November 5, 2003, stating
that it has found no basis for disagreement with these statements is an exhibit
to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 19, 2003.
INDEPENDENT AUDITORS' FEES
The Company's Audit Committee has policies and procedures that require
the pre-approval by the Audit Committee of all fees paid to, and services
provided by, the Company's independent auditing firms. Pursuant to the
Sarbanes-Oxley Act of 2002, the fees and services provided as noted in the table
below were authorized and approved by the Audit Committee in compliance with the
pre-approval policies and procedures described herein.
12
The aggregate fees billed or expected to be billed by the Company's
principal independent auditors for its 2004 services are as follows:
2004 2003
---- ----
Audit Fees - Review of the Company's quarterly $99,000 $88,000(a)
financial statements, audit of the annual financial
statements and related consulting.
Audit-Related Fees None None
Tax Fees None None
Other fees None None
(a) This amount consists of $18,000 for services performed by Ernst & Young LLP
through November 4, 2003 and $70,000 for services performed by Carlin, Charron &
Rosen LLP thereafter.
OTHER INFORMATION CONCERNING THE BOARD OR ITS COMMITTEES
The Company's Board has four Committees - Audit, Compensation, Executive
and Nominating. The Audit Committee, of which Messrs. Meehan, Merritt and Stuart
are members, meets with the independent auditors and reviews and reports to the
Board of Directors on the scope and results of audits. The Compensation
Committee, of which Messrs. Connors, Meehan, Merritt and Stuart are members, is
charged with reviewing officers' compensation and administers the Company's 1967
Employee Stock Purchase Plan, 1990 Stock Option Plan and Restricted Stock Plan.
The Executive Committee, of which Messrs. Connors, Kelley and Meehan are
members, is authorized to consider and take action on matters in the absence of
a full Board of meeting. The Nominating Committee, of which Messrs. Connors,
Meehan, Merritt and Stuart are members, is charged with reviewing the
performance of directors and considering all nominations (including nominations
by stockholders) to the Board of Directors of the Company. During 2004, the
Committees met as follows: Audit - four times; Nominating Committee - once; the
Compensation and Executive Committees did not meet in 2004.
During 2004, the Board met four times, during each of which the
non-management Directors met in executive session without non-independent
directors and management. Each Director of the Company attended 75% or more of
the total number of meetings of the Board held during the year and of the
Committees of the Board on which he served. It is the Company's policy that it
is the responsibility of individual directors to make themselves available to
attend scheduled and special Board meetings and annual meetings of the Company's
stockholders. All of the Company's directors as of the date of the 2004 annual
meeting of the Company's stockholders were in attendance for the 2004 annual
stockholder meeting.
NOMINATING COMMITTEE
In September 2004, the Board adopted a Nominating Committee Charter, a
copy of which is attached to this Proxy Statement for stockholder review as
Exhibit B, which reflects changes in the American Stock Exchange listing
standards, Rule 14A-1D1 of the Securities Exchange Act of 1934,
13
as amended (the "Exchange Act"), and the Sarbanes-Oxley Act. The charter sets
forth the organization of the Nominating Committee, a statement of policy and
the Nominating Committee's responsibilities and processes. The Nominating
Committee shall review and reassess the charter at least annually and request
the approval of the Board of any changes thereto.
All members of the Nominating Committee qualify as independent under the
American Stock Exchange Listing Standards.
The Nominating Committee will consider stockholder recommendations of
candidates to serve as Directors when the recommendations are properly
submitted. The principal qualification for a director is the ability to act in
the best interests of the Company and its stockholders. The Nominating Committee
evaluates director candidates recommended by stockholders in the same manner as
it evaluates director candidates recommended by the Company's directors,
management or employees. Any stockholder recommendations which are submitted
must include the candidate's name and qualifications for Board membership and
must be addressed to Corporate Secretary, Cognitronics Corporation, 3 Corporate
Drive, Danbury, Connecticut 06810-4130. For potential nominees to be considered
for election at the 2006 Annual Meeting of Stockholders, the Corporate Secretary
must receive this information by January 12, 2006. The notice must set forth the
candidate's name, age, business address, residence address, principal occupation
or employment, the number of shares of Common Stock beneficially owned by the
candidate and information that would be required to solicit a proxy under the
federal securities law. In addition, the notice must include the submitting
stockholder's name, address, the number of shares of Common Stock beneficially
owned as of the date the recommendation is made and the period of time that the
shares have been held.
Stockholders may communicate with the Board, including non-management
directors, by sending an e-mail to BOD@COGNITRONICS.COM or a letter to the
Cognitronics Board of Directors, c/o Corporate Secretary at the address set
forth in the above paragraph. All correspondence will be reviewed by the
Corporate Secretary and forwarded directly to the addressee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indemnity Agreements between the Company and individual officers and
directors have been executed to allow those officers and directors to benefit
from New York's indemnification statute. In accordance with the provisions of
these Indemnity Agreements, the Company has agreed, subject to limitations, to
indemnify and pay the reasonable expenses of officers and directors adjudicated
liable in any civil, criminal or other action or proceeding, including any
derivative action, for the acts or decisions made by them in good faith while
performing services for the Company. Such indemnification would be made by the
Company as specified in the Indemnity Agreements and any expenses or other
amounts paid by way of indemnification, otherwise than by court order or action
of the stockholders, would be reported to stockholders as provided by law. No
indemnification by the Company would be made to or on behalf of any officer or
director if a judgment or other final adjudication adverse to such officer or
director established that his acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled. The Indemnity
Agreements also obligate the Company to advance to officers and directors funds
to pay the reasonable expenses incurred from time to time before any final
determination of their rights to indemnification, subject to repayment to the
extent required by the indemnification terms.
14
The Company's Certificate of Incorporation limits the personal liability
of directors to the Company or its stockholders for certain breaches of duty as
directors, as permitted by New York law.
The Company carried Directors' and Officers' Liability Insurance
covering directors and officers for amounts up to $5 million in 2004.
During 2004, the Company retained Pillsbury Winthrop Shaw Pittman LLP.
John T. Connors, a director, was counsel of that firm in 2004.
The Company has entered into Executive Severance Agreements (the
"Agreements") regarding change in control with Messrs. Kelley, Brix, Strutt,
Keefe, Sullivan and one other officer of the Company (individually, the
"Executive"; collectively, the "Executives"). Under these Agreements, a "change
in control" occurs if (a) the stockholders of the Company approve (i) any merger
or consolidation of the Company (unless the voting stock of the Company
outstanding immediately prior thereto continues to represent more than 50% of
the combined voting power of the Company or the surviving entity thereafter or
at least a majority of the directors of the Company or the surviving entity
after the merger or consolidation were directors of the Company prior thereto),
(ii) the sale, lease, exchange or other transfer of all or substantially all of
the Company's assets to any other company or (iii) any plan or proposal for the
liquidation or dissolution of the Company, (b) persons who were directors of the
Company on November 1, 1995 (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board of Directors, provided, however,
that any person subsequently becoming a director whose election is approved by a
vote of at least a majority of the then Incumbent Directors will be considered
an Incumbent Director or (c) any person (other than the Company, its
subsidiaries or any employee benefit plan of the Company), together with all
affiliates and associates of such person, becomes the beneficial owner, directly
or indirectly, of 20% or more of the Company's Common Stock. The Agreements
provide that the Executive's compensation, responsibilities and employee
benefits will not be reduced following a change in control. The Agreements also
provide that if the Executive's employment with the Company is terminated under
certain circumstances the Executive will continue to receive certain medical,
insurance and other employee benefits for a period of two years and will receive
a lump sum payment equal to, but limited by the amount deductible for income tax
purposes under the Internal Revenue Code, 200% of the sum of (A) the greater of
(i) the Executive's annual salary as in effect immediately prior to the
termination or (ii) the Executive's salary as in effect immediately prior to the
change in control and (B) the greater of (i) the Executive's annual bonus for
the prior annual period, including performance bonus, amounts vested under the
Company's Restricted Stock Plan and amounts under any other bonus program of the
Company (the "Bonus Amounts") or (ii) the average Bonus Amounts for the prior
two years. These benefits will be provided to the Executives, other than Mr.
Kelley, in the event that the Executive's employment is terminated within two
years following a change in control (i) by the Company for any reason other than
death, disability or cause or (ii) by the Executive under certain, limited
circumstances, and to Mr. Kelley if his employment is voluntarily or
involuntarily terminated (other than for death, disability or cause) within two
years following a change in control. Payments to the Executives under the
Agreements are limited to such amounts to permit all payments to the Executives
to be made by the Company to be deductible in accordance with Section 280G of
the Internal Revenue Code. The terms of these Agreements expire on October 16,
2005, unless a change in control has occurred on or prior to such date, in which
case the Agreements will continue in effect for two years following the change
in control.
In the event of a change in control, the Company's 1990 Stock Option and
Directors' Option Plans provide that all outstanding stock options will become
fully exercisable. In the event of a change
15
in control followed by termination of employment, the Company's Restricted Stock
Plan provides that the restrictions on shares of the Company's Common Stock
previously awarded will terminate.
Except as described above, no director or officer had any material
interest in any material transaction of the Company or any of its subsidiaries
during the period from January 1, 2003 to March 1, 2004 or any such proposed
transaction, nor had any of their associates.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct that applies to all
of its directors, officers and employees, including its chief executive officer
and chief financial officer. The Board reassessed and restated the Code of
Business Conduct and Ethics in 2004, a copy of which is attached to this Proxy
Statement for stockholder review as Exhibit C.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In accordance with Section 16(a) of the Exchange Act, the Company's
directors, officers and any person holding more than ten percent of the
Company's Common Stock are required to file reports of ownership and any changes
in ownership with the Securities and Exchange Commission, the American Stock
Exchange and the Company. The Company believes that all of these filing
requirements were timely satisfied during 2004 by its directors, officers and
ten percent holders, except each of the following made late filings: Messrs.
Connors, Meehan and Merritt - 6 reports, 7 transactions, Mr. Stuart - 1 report,
2 transactions and Mr. Mayer - 1 report, 1 transaction. Each of the late
transactions were subsequently filed. In making these statements, the Company
has relied on the written representations of its directors and officers and
copies of reports they have filed with the Securities and Exchange Commission.
MANAGEMENT RECOMMENDS A VOTE FOR THE ELECTION OF THE FIVE NOMINEES TO THE BOARD
OF DIRECTORS.
4. APPROVAL OF SELECTION OF INDEPENDENT AUDITORS
Carlin, Charron & Rosen LLP, an independent registered public accounting
firm, have been selected as independent auditors to audit the Company's
financial records for the year ending December 31, 2005, and management
recommends that the selection be approved by the stockholders. Representatives
of Carlin, Charron & Rosen LLP are expected to be present at the Annual Meeting
with the opportunity to make a statement if they desire to do so and are
expected to be available to answer appropriate questions. Upon the
recommendation of the Audit Committee, Carlin, Charron & Rosen LLP were
appointed by the Board on November 4, 2003 to audit the Company's financial
statements for the year 2003, and the Audit Committee considers Carlin, Charron
& Rosen LLP to be well qualified. Should the holders of a majority of the shares
of Common Stock represented at the Annual Meeting in person or by proxy not
approve the selection of Carlin, Charron & Rosen LLP, the Company will interpret
that vote as an instruction to seek other auditors. Shares represented at the
meeting by proxy which are not voted because the stockholder has elected to
abstain will be counted in determining the presence of a quorum but will not be
counted as for the selection. Shares represented at the meeting by proxy for
which the proxy cards have been left blank will be counted as for the selection.
MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF THE SELECTION OF CARLIN,
CHARRON & ROSEN LLP AS INDEPENDENT AUDITORS OF THE COMPANY.
16
5. OTHER MATTERS
Proxies will be voted on such other business as may properly come before
the Annual Meeting, although as of the date of this proxy statement the only
matters which management intends to present or knows that others will present at
the meeting or any adjournment thereof are the matters listed inthe accompanying
notice of meeting. As to other business, if any, which may properly come before
the meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the judgment of the person or persons voting
such proxies.
The entire cost of soliciting proxies will be borne by the Company. It
is intended to solicit proxies only by mail. To the extent necessary in order to
insure sufficient representation, officers and regular employees of the Company
may request the return of proxies in person, or by telegram or telephone.
STOCKHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal intended to be presented at the 2006 Annual
Meeting of Stockholders of the Company must be received at the offices of the
Company, 3 Corporate Drive, Danbury, Connecticut 06810-4130, on or before 5:00
p.m. on December 22, 2005 whether or not the proposal is to be included in the
Company's proxy materials relating to the meeting. Timely receipt of a
stockholder proposal satisfies only one of the various requirements for
inclusion of such a proposal in the Company's proxy materials.
By Order of the Board of Directors,
Harold F. Mayer
SECRETARY
Dated: April 21, 2005
17
EXHIBIT A
COGNITRONICS CORPORATION (THE "COMPANY")
AUDIT COMMITTEE CHARTER
PURPOSE
The primary function of the Audit Committee of the Board of Directors (the
"Committee") is oversight. The Committee shall assist the Board of Directors
(the "Board") in fulfilling its responsibilities with regard to management's
conduct of the Company's financial reporting process, the financial reports and
other financial information provided by the Company to the Securities and
Exchange Commission and the public, the Company's system of internal accounting
and financial controls, and the annual independent audit of the Company's
financial statements.
COMPOSITION
The Committee shall be appointed by the Board and shall comprise at least three
independent directors, and shall appoint one member as chairperson. Members of
the Committee shall be considered independent as long as they satisfy all of the
independence requirements for Board members as set forth in the American Stock
Exchange listing standards and Rule 10A-3 of the Securities Exchange Act of 1934
(as amended). All Committee members shall be financially literate, or shall
become financially literate within a reasonable period of time after appointment
to the Committee, and at least one member shall be an "audit committee financial
expert," as defined by SEC rules. Committee members shall not serve on more than
three public company audit committees simultaneously.
The Committee shall meet at least quarterly and periodically meet separately
with management and the independent auditor. The Committee shall report
regularly to the Board with respect to its activities.
FUNCTIONS
The Committee shall:
1. recommend to the Board the retention or replacement of the
independent public accountants as auditors of the financial statements
of the Company, review the procedures used to choose auditors of the
financial statements, records and accounts of the Company's subsidiaries
and pre-approve all audit, audit-related, tax and other services prior
to the independent auditor being engaged to perform the permitted
service, it being understood that the independent auditors are
ultimately selected by, and accountable to, the Board and the Committee;
2. ensure receipt of an annual formal written statement from the
independent auditors delineating all relationships between the
independent auditors and the Company and discuss with the independent
auditors any such relationships that may impact the objectivity and
independence of the independent auditors; and take or recommend to the
full Board appropriate action to oversee the independence of the
independent auditors;
3. review the planning and the results of the audits by the Company's
independent auditors of the Company's consolidated financial statements,
the cost of such audits including fees paid to the independent auditors,
any significant deficiency in the design or the operations of internal
accounting controls identified by the independent auditors and the
resulting recommendations, and the arrangement for and the scope of the
independent auditors' audits of the Company's consolidated financial
statements. The Committee shall report the foregoing to the Board with
such recommendations as it may deem appropriate;
4. meet with the independent auditors and management in separate
executive sessions to discuss any matters that the Committee or these
groups believe should be discussed privately with the Committee;
5. review and discuss with management the Company's annual audited
financial statements and recommend to the Board the inclusion of the
Company's audited financial statements in its Annual Report on Form
10-K.
6. prior to the filing of each Form 10-Q and the Form 10-K, be available
to discuss with the independent auditors the matters required to be
brought to the Committee's attention by Statement on Auditing Standards
No. 61 and other matters that should be communicated to the Committee
under the professional standards of the American Institute of Certified
Public Accountants. The Committee may delegate this function to the
Committee chairperson who must report any such matters to the full
Committee at its next scheduled meeting;
7. review and discuss with management in advance all earnings news
releases, as well as financial information and earnings guidance to
analysts and rating agencies.
8. discuss with management and the independent auditors the adequacy and
effectiveness of internal control over financial reporting, including
any significant deficiencies or material weaknesses identified by
management in connection with its required quarterly certification under
Section 302 of the Sarbanes-Oxley Act. In addition, the Committee shall
discuss with management and the independent auditors any significant
changes in internal control over financial reporting that are disclosed,
or considered for disclosure, in the Company's periodic filings with the
SEC;
9. prepare a report to shareholders to be included in the Company's
proxy statements followed by the names of the Committee members as
required by the Securities and Exchange Commission;
10. review the implementation of the Company's Code of Conduct and
Ethics and management's system to monitor compliance with the Code;
11. obtain advice and assistance from outside legal, accounting or other
advisors, as required, to assist in the execution of the Committee's
responsibilities, and as necessary, conduct or authorize independent
reviews;
12. maintain procedures for the (a) receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and (b) confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters;
13. review and reassess the adequacy of this Charter on an annual basis;
and
14. perform such other duties as the Board shall from time to time
assign to the Committee.
LIMITATIONS
While the Committee has the functions set forth in the Charter, it is not the
duty of the Committee to plan or conduct audits or to determine that the
Company's financial statements are complete and accurate or are in accordance
with generally accepted accounting principles. The Company's management is
principally responsible for Company accounting policies, the preparation of the
financial statements and ensuring that the financial statements are prepared in
accordance with generally accepted accounting principles. The Company's
independent accountants are responsible for auditing and attesting to the
Company's financial statements and evaluating the Company's system of internal
controls. The responsibility to plan and conduct audits is that of the Company's
independent accountants. Consequently, in performing its oversight function, the
Committee is neither intended nor equipped to guarantee with certainty to the
full Board and stockholders the accuracy and quality of the Company's financial
statements and accounting practices. Nor is it the duty of the Committee to
assure the Company's compliance with laws and regulations. The primary
responsibility for these matters also rests with the Company's management. Each
member of the Committee shall be entitled to rely on the integrity of the people
and organizations from whom the Committee receives information. The Committee
can do no more than rely upon information it receives, questions and assesses in
fulfilling its oversight functions.
A-2
EXHIBIT B
COGNITRONICS CORPORATION (THE "COMPANY")
NOMINATING COMMITTEE CHARTER
PURPOSE
The primary function of the Nominating Committee of the Board of Directors (the
"Committee") is to consider candidates to serve as Directors of the Company and
recommend qualified candidates to the Board of Directors (the "Board") for
election by the Company's stockholders.
COMPOSITION
The Committee shall be appointed by the Board and shall comprise at least three
directors, each of whom are independent of management and the Company. Members
of the Committee shall be considered independent as long as they satisfy all of
the independence requirements for Board members as set forth in Section 121A of
the American Stock Exchange listing standards.
SELECTION PROCESS
The Nominating Committee will consider recommendations of candidates to serve as
Directors which have been submitted by non-management directors, chief executive
officer, other executive officers or stockholders.
The Committee evaluates director candidates recommended by stockholders in the
same manner as it evaluates director candidates recommended by the Company's
non-management directors and executive officers.
Stockholder recommendations must be submitted in a timely manner addressed to
Corporate Secretary, Cognitronics Corporation, 3 Corporate Drive, Danbury,
Connecticut 06810-4130. For potential nominees to be considered for nomination,
the notice must be received by the Corporate Secretary not later than one
hundred twenty (120) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders. The notice must set forth the
candidate's name, age, business address, residence address, principal occupation
or employment, the number of shares of Common Stock beneficially owned by the
candidate and information that would be required to solicit a proxy under the
federal securities law. In addition, the notice must include the submitting
stockholder's name, address, the number of shares of Common Stock beneficially
owned as of the date the recommendation is made and the period of time that the
shares have been held.
QUALIFICATIONS OF CANDIDATES
The principal qualification for a director is the ability to act in the best
interests of the Company and its stockholders. Other factors include the
candidate's business experience and expertise and specific requirements to
ensure diversity of experience and qualifications of the Board composition.
MEETINGS
The Committee shall meet:
1. annually to consider candidates to be nominated to stand for
election at the Annual Meeting of Stockholders, and
2. at such other times to consider candidates to be elected to the
Board by the directors in the event a vacancy between Annual
Meetings due to the death, resignation, retirement or removal of
a director or if the size of the Board be increased.
EXHIBIT C
COGNITRONICS CORPORATION
CODE OF BUSINESS CONDUCT AND ETHICS
This Code of Business Conduct and Ethics (the "Code") sets forth legal and
ethical standards of conduct for directors, officers and employees of
Cognitronics Corporation and its subsidiaries (the "Company"). This Code is
intended to deter wrongdoing and to promote the conduct of all Company business
in accordance with high standards of integrity and in compliance with all
applicable laws and regulations.
If you have any questions regarding this Code or its application to you in any
situation, you should contact your supervisor or the Company's Corporate Office
(Brian J. Kelley, Harold F. Mayer and Garrett Sullivan).
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
The Company requires that all employees, officers and directors comply with all
laws, rules and regulations applicable to the Company wherever it does business.
You are expected to use good judgment and common sense in seeking to comply with
all applicable laws, rules and regulations and to ask for advice when you are
uncertain about them.
If you become aware of the violation of any law, rule or regulation by the
Company, whether by its officers, employees, directors, or any third party doing
business on behalf of the Company, it is your responsibility to promptly report
the matter to your supervisor or the Company's Corporate Office. While it is the
Company's desire to address matters internally, nothing in this Code should
discourage you from reporting any illegal activity, including any violation of
the securities laws, antitrust laws, environmental laws or any other federal,
state or foreign law, rule or regulation, to the appropriate regulatory
authority. Employees, officers and directors shall not discharge, demote,
suspend, threaten, harass or in any other manner discriminate or retaliate
against an employee because he or she reports any such violation. This Code
should not be construed to prohibit you from testifying, participating or
otherwise assisting in any state or federal administrative, judicial or
legislative proceeding or investigation.
CONFLICTS OF INTEREST
Employees, officers and directors must act in the best interests of the Company.
You must refrain from engaging in any activity or having a personal interest
that presents a "conflict of interest." A conflict of interest occurs when your
personal interest interferes, or appears to interfere, with the interests of the
Company. A conflict of interest can arise whenever you, as an officer, director
or employee, take action or have an interest that prevents you from performing
your Company duties and responsibilities honestly, objectively and effectively.
EMPLOYEES AND OFFICERS. Employees and officers must not:
o perform services as a consultant, employee, officer, director,
advisor or in any other capacity, or permit any close relative
to perform services as an officer or director, for (a) a
significant customer or significant supplier, other than at the
request of the Company, or (b) a direct competitor of the
Company;
o have, or permit any close relative to have, a financial interest
in a significant supplier or significant customer of the
Company, other than an investment representing less than one
percent of the outstanding shares of a publicly-held company or
a privately-held company;
o have, or permit any close relative to have, a financial interest
in a direct competitor of the Company, other than an investment
representing less than one percent of the outstanding shares of
a publicly-held company;
o supervise, review or influence the job evaluation or
compensation of a member of his or her immediate family; or
o engage in any other activity or have any other interest that the
Board of Directors determines to constitute a conflict of
interest.
DIRECTORS. Directors must not:
o perform services as a consultant, employee, officer, director,
advisor or in any other capacity, or permit any close relative
to perform services as an officer or director, for a direct
competitor of the Company;
o have, or permit any close relative to have, a financial interest
in a direct competitor of the Company, other than an investment
representing less than one percent of the outstanding shares of
a publicly-held company;
o use his or her position with the Company to influence any
decision of the Company relating to a contract or transaction
with a supplier or customer of the Company if the director or a
close relative of the director:
o performs services as a consultant, employee, officer,
director, advisor or in any other capacity for such
supplier or customer; E has a financial interest in such
supplier or customer, other than an investment
representing less than one percent of the outstanding
shares of a publicly-held company;
o supervise, review or influence the job evaluation or
compensation of a member of his or her immediate family;
or
o engage in any other activity or have any other interest
that the Board of Directors determines to constitute a
conflict of interest.
A "close relative" means a spouse, dependent child or any other person living in
the same home with the employee, officer or director. "Immediate family" means a
close relative such as a parent, sibling, child, mother- or father-in-law, son-
or daughter-in-law or brother- or sister-in-law. A "significant customer" is a
customer that has made during the Company's last full fiscal year, or proposes
to make during the Company's current fiscal year, payments to the Company for
property or services in excess of one (1) percent of (a) the Company's
consolidated gross revenues for its last full fiscal year or (b) the customer's
consolidated gross revenues for its last full fiscal year. A "significant
supplier" is a supplier to which the Company has made during the Company's last
full fiscal year, or proposes to make during the Company's current fiscal year,
payments for property or services in excess of one (1%) percent of (I) the
Company's consolidated gross revenues for its last full fiscal year or (ii) the
customer's consolidated gross revenues for its last full fiscal year.
It is your responsibility to disclose any transaction or relationship that
reasonably could be expected to give rise to a conflict of interest to the
Corporate Office or, if you are an officer or director, to the Board of
Directors, who shall be responsible for determining whether such transaction or
relationship constitutes a conflict of interest.
INSIDER TRADING
Employees, officers and directors who have material non-public information
("inside information") about the Company or other companies, including our
suppliers and customers, as a result of their relationship with the Company are
prohibited by law and Company policy from trading in securities of the Company
or such other companies, as well as from communicating such inside information
to others who might trade on the basis of that information. To help ensure that
you do not engage in prohibited insider trading and avoid even the appearance of
an improper transaction, the Company has adopted an Insider Trading Policy,
which is available on the Company's intranet site and upon request from the
Company's Compliance Committee.
If you are uncertain about the constraints on your purchase or sale of any
Company securities or the securities of any other company that you are familiar
with by virtue of your relationship with the Company, you should consult with
the Compliance Officer before making any such purchase or sale.
CONFIDENTIALITY
Employees, officers and directors must maintain the confidentiality of
confidential information entrusted to them by the Company or other companies,
including our suppliers and customers, except when disclosure is authorized by a
supervisor or is legally mandated. Unauthorized disclosure of any confidential
information is prohibited. Additionally, employees should take appropriate
precautions to ensure that confidential or sensitive business information,
whether
C-2
it is proprietary to the Company or another company, is not communicated within
the Company except to employees who have a need to know such information to
perform their responsibilities for the Company. Employees are also reminded of
their continuing obligations under the Inventions and Nondiclosure Agreement
signed at their time of employment or subsequently.
THIRD PARTY INQUIRIES
Third parties may ask you for information concerning the Company. Employees,
officers and directors (other than the Company's authorized spokespersons) must
not discuss internal Company matters with, or disseminate internal Company
information to, anyone outside the Company, except as required in the
performance of their duties and after an appropriate confidentiality or
nondisclosure agreement is in place. This prohibition applies particularly to
inquiries concerning the Company from the news media, market professionals (such
as securities analysts, institutional investors, investment advisers, brokers
and dealers) and security holders. All responses to inquiries on behalf of the
Company must be made only by the Company's authorized spokespersons. If you
receive any inquiries of this nature, you must decline to comment and refer the
inquirer to the Company's President, Secretary or Treasurer.
You also must abide by any lawful obligations that you have to your former
employer(s). These obligations may include restrictions on the use and
disclosure of confidential information, restrictions on the solicitation of
former colleagues to work at the Company and non-competition obligations.
HONEST AND ETHICAL CONDUCT AND FAIR DEALING
Employees, officers and directors must endeavor to deal honestly, ethically and
fairly with the Company's suppliers, customers, competitors and employees.
Statements regarding the Company's products and services must not be untrue,
misleading, deceptive or fraudulent. You must not take unfair advantage of
anyone through manipulation, concealment, abuse of privileged information,
misrepresentation of material facts or any other unfair practice.
PROTECTION AND PROPER USE OF CORPORATE ASSETS
Employees, officers and directors must seek to protect the Company's assets.
Theft, carelessness and waste have a direct impact on the Company's financial
performance. Employees, officers and directors must use the Company's assets and
services solely for legitimate business purposes and to advance the legitimate
interests of the Company and not for any personal benefit or the personal
benefit of anyone else.
GIFTS AND GRATUITIES
The use of Company funds or assets for gifts, gratuities or other favors to
employees or government officials is prohibited, except to the extent such gifts
are in compliance with applicable law, nominal in amount and not given in
consideration or expectation of any action by the recipient.
Employees, officers and directors must not accept, or permit any member of his
or her immediate family to accept, any gifts, gratuities or other favors from
any customer, supplier or other person doing or seeking to do business with the
Company, other than items of nominal value. Any gifts that are not of nominal
value should be returned immediately and reported to your supervisor. If
immediate return is not practical, they should be given to the Company for
charitable disposition or such other disposition as the Company believes
appropriate in its sole discretion.
Common sense and moderation should prevail in business entertainment engaged in
on behalf of the Company. Employees, officers and directors should provide, or
accept, business entertainment to or from anyone doing business with the Company
only if the entertainment is infrequent, modest and intended to serve legitimate
business goals.
Bribes and kickbacks are criminal acts, strictly prohibited by law. You must not
offer, give, solicit or receive any form of bribe or kickback anywhere in the
world.
C-3
ACCURACY OF BOOKS AND RECORDS AND PUBLIC REPORTS
Employees, officers and directors must honestly and accurately report all
business transactions. You are responsible for the accuracy of your records and
reports. Accurate information is essential to the Company's ability to meet
legal and regulatory obligations.
All Company books, records and accounts shall be maintained in accordance with
all applicable regulations and standards and accurately reflect the true nature
of the transactions they record. The financial statements of the Company shall
conform to generally accepted accounting principles and the Company's accounting
policies. No undisclosed or unrecorded account or fund shall be established for
any purpose. No false or misleading entries shall be made in the Company's books
or records for any reason, and no disbursement of corporate funds or other
corporate property shall be made without adequate supporting documentation.
It is the policy of the Company to provide full, fair, accurate, timely and
understandable disclosure in reports and documents filed with, or submitted to,
the Securities and Exchange Commission and in other public communications.
CONCERNS REGARDING ACCOUNTING OR AUDITING MATTERS
Employees with concerns regarding accounting, internal accounting controls or
auditing matters may confidentially, and anonymously if they wish, submit such
concerns or complaints in writing directly to William J. Stuart, Chairman of the
Audit Committee of the Board of Directors, at 3 Corporate Drive, Danbury, CT
06810-4130, e-mail (BILL.STUART@STILLRIVERFUND.COM) or fax (781-290-0606) or by
telephone (781-290-5364). Further, the Company has contracted with a third party
to establish an anonymous reporting system. You may contact a 24-hour call
center from the United States or Canada by dialing their toll-free telephone
hotline (1-877-778-5463) and from outside the United States or Canada by calling
them collect (0800-89-0011-877-778-5463), or you may submit a written message at
www.reportit.net. These telephone numbers and the website address will also be
posted prominently on the Company's intranet site. All submissions, unless
determined by the Chairman of the Audit Committee that any such submission does
not raise an accounting, internal accounting controls or auditing matter, will
be forwarded tothe the Audit Committee. In any event, a record of all concerns
received will be provided to the Audit Committee on a quarterly basis. Any such
concerns may also be communicated, confidentially and, if you desire,
anonymously, directly to any member of the Audit Committee of the Board of
Directors.
The Audit Committee will evaluate the merits of any concerns or complaints
received by it and authorize such follow-up actions, if any, as it deems
necessary or appropriate to address the substance of the concern or complaint.
The Company will not discipline, discriminate against or retaliate against any
employee who reports a complaint or concern.
WAIVERS OF THIS CODE OF BUSINESS CONDUCT AND ETHICS
While some of the policies contained in this Code must be strictly adhered to
and no exceptions can be allowed, in other cases exceptions may be possible. Any
employee or officer who believes that an exception to any of these policies is
appropriate in his or her case should first contact his or her immediate
supervisor. If the supervisor agrees that an exception is appropriate, the
approval of the President, Secretary or Treasurer must be obtained. The
Corporate Office, based upon information to be provided by the President,
Secretary or Treasurer, shall be responsible for maintaining a complete record
of all requests for exceptions to any of these policies and the disposition of
such requests.
Any officer or director who seeks an exception to any of these policies should
contact the Company's President, who shall provide notice thereof to the Board
of Directors. Any waiver of this Code for officers or directors or any change to
this Code that applies to officers or directors may be made only by the Board of
Directors and will be disclosed as required by law or American Stock Exchange
Rules regulation.
REPORTING AND COMPLIANCE PROCEDURES
Every employee, officer and director has the responsibility to ask questions,
seek guidance, report suspected violations and express concerns regarding
compliance with this Code. Any employee, officer or director who knows or
believes that any other employee or representative of the Company has engaged or
is engaging in Company-related conduct
C-4
that violates applicable law or this Code should report such information to his
or her supervisor or to the Corporate Office, as described below. You may report
such conduct openly or anonymously without fear of retaliation. The Company will
not discipline, discriminate against or retaliate against any employee who
reports such conduct or who cooperates in any investigation or inquiry regarding
such conduct. Any supervisor who receives a report of a violation of this Code
must immediately inform the Corporate Office.
You may report violations of this Code, on a confidential or anonymous basis, by
contacting the Corporate Office by mail, fax or e-mail at 3 Corporate Drive,
Danbury, CT 06810-4130, USA, 203-830-3496, or corpoffice@cognitronics.com.. In
addition, the Company has contracted with an independent third party to
establish an anonymous reporting system. You may contact the 24-hour call center
from the United States or Canada by dialing their toll-free telephone hotline
(1-877-778-5463) and from outside the United States or Canada by calling them
collect (0800-89-0011-877-778-5463), or you may submit a written message at
www.reportit.com. These telephone numbers and the website address will also be
posted prominently on the Company's intranet site. While we prefer that you
identify yourself when reporting violations so that we may follow up with you,
as necessary, for additional information, you may leave messages anonymously if
you wish.
If the members of the Corporate Office receive information regarding an alleged
violation of this Code, together they shall (i) evaluate such information, (ii)
determine whether it is necessary to conduct an informal inquiry or a formal
investigation and, if so, initiate such inquiry or investigation, (iii) agree
upon a recommendation as to disposition of the matter, and (iv) report the
results of any such inquiry or investigation to the Board of Directors or a
committee thereof.
Information received regarding an alleged violation of the Code by any officer
of the Company will be provided directly to the Board of Directors or a
committee thereof.
Employees, officers and directors are expected to cooperate fully with any
inquiry or investigation by the Company regarding an alleged violation of this
Code. Failure to cooperate with any such inquiry or investigation may result in
disciplinary action, up to and including discharge.
The Corporate Office together with the Audit Committee shall determine whether
violations of this Code have occurred and, if so, shall determine the
disciplinary measures to be taken against any employee who has violated this
Code. In the event that the alleged violation involves an officer or a director,
the President and the Board of Directors, respectively, shall determine whether
a violation of this Code has occurred and, if so, shall determine the
disciplinary measures to be taken against such officer or director.
Failure to comply with the standards outlined in this Code will result in
disciplinary action including reprimands, warnings, probation or suspension
without pay, demotions, reductions in salary, discharge and restitution. Certain
violations of this Code may require the Company to refer the matter to the
appropriate governmental or regulatory authorities for investigation or
prosecution. Moreover, any supervisor who directs or approves of any conduct in
violation of this Code, or who has knowledge of such conduct and does not
immediately report it, also will be subject to disciplinary action, up to and
including discharge.
DISSEMINATION AND AMENDMENT
This Code shall be distributed to each new employee, officer and director of the
Company upon commencement of his or her employment or other relationship with
the Company and shall also be distributed annually to each employee, officer and
director of the Company, and each employee, officer and director shall certify
at inception annually that he or she has received, read and understood this Code
and has complied with its terms.
The Company reserves the right to amend, alter or terminate this Code at any
time for any reason. The most current version of this Code can be found on the
Company's intranet site.
This document is not an employment contract between the Company and any of its
employees, officers or directors and does not alter the Company's at-will
employment policy.
C-5
DIRECTIONS TO
COGNITRONICS CORPORATION
3 CORPORATE DRIVE
DANBURY, CT
TEL: (203) 830-3400
FROM MANHATTAN AND WESTCHESTER COUNTY:
Take Saw Mill River Parkway North to I-684 North and follow I-684 North
to I-84 East (Connecticut). Take I-84 East for 12 miles to Exit 8
(Bethel/Newtown Road). Turn right at light at end of exit ramp onto
Newtown Road, go to 2nd traffic light and turn right onto Eagle Road
(Holiday Inn on corner). Proceed 3/10ths mile and turn right onto
Corporate Drive. Cognitronics is second building on your right; parking
lot is on your left in front of building.
FROM LONG ISLAND:
Take Bronx-Whitestone Bridge to Hutchinson River Parkway to I-684 North
(a left exit) and follow I-684 North to I-84 East (Connecticut). Take
I-84 East for 12 miles to Exit 8 (Bethel/Newtown Road). Turn right at
light at end of exit ramp onto Newtown Road, go to 2nd traffic light and
turn right onto Eagle Road (Holiday Inn on corner). Proceed 3/10ths mile
and turn right onto Corporate Drive. Cognitronics is second building on
your right; parking lot is on your left in front of building.
FROM LOWER FAIRFIELD COUNTY:
Take I-95 to Exit 15 (Rte. 7 North) or Merritt Parkway to Exit 39B and
follow Rte 7 North to I-84 East. Take I-84 East to Exit 8
(Bethel/Newtown Road). Turn right at light at end of exit ramp onto
Newtown Road, go to 2nd traffic light and turn right onto Eagle Road
(Holiday Inn on corner). Proceed 3/10ths mile and turn right onto
Corporate Drive. Cognitronics is second building on your right; parking
lot is on your left in front of building.
FROM HARTFORD AND EASTERN CONNECTICUT:
Take I-84 West to Exit 8 (Bethel/Newtown Road). At end of exit ramp, go
straight for 2/10ths mile and bear left onto Newtown Road. Go to 3rd
traffic light and turn right onto Eagle Road (Holiday Inn on corner).
Proceed 3/10ths mile and turn right onto Corporate Drive. Cognitronics
is second building on your right; parking lot is on your left in front
of building.
[X] PLEASE MARK VOTES PROXY WITHHOLD FOR ALL
AS IN THIS EXAMPLE COGNITRONICS CORPORATION FOR AUTHORITY EXCEPT
[ ] [ ] [ ]
PROXY SOLICITED ON BEHALF OF 1. ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
NOMINEES: J. T. CONNORS, B. J. KELLEY, J. MEEHAN,
The undersigned hereby appoints B. J. Kelley and W. A. MERRITT AND W. J. STUART
J. Meehan as Proxies, each with the power to INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
appoint his substitute, and hereby authorizes them MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE
to represent and to vote as designated hereon all PROVIDED BELOW.
shares of Common Stock of Cognitronics Corporation
held of record by the undersigned on April 7, 2005 FOR AGAINST ABSTAIN
at the Annual Meeting of Stockholders to be held 2. TO APPROVE THE SELECTION OF CARLIN, [ ] [ ] [ ]
at the offices of the Company at 3 Corporate CHARRON & ROSEN, LLP as independent
Drive, Danbury, Conneticut, on May 12, 2005 at auditors of the Company.
10:00 a.m., and any adjournments thereof.
3. In their discretion, the Proxies are authorized to vote such other
This proxy when properly executed will be executed business as may properly come before the meeting, including any
in the manner directed herein by the undersigned adjournment thereof.
stockholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2. Please sign exactly as name appears at left. When shares are held by
joint tenants, each should sign. When signing as attorney, or executor,
administrator, trustee or guardian, please sign full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
------------------------
Please be sure to sign and date Date
this Proxy in the box below.
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--Stockholder sign above------Co-holder(if any) sign above--
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^ DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED. ^
COGNITRONICS CORPORATION
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
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IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE
ENVELOPE PROVIDED.
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