VERAMARK TECHNOLOGIES, INC.
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2000
TO THE STOCKHOLDERS OF
VERAMARK TECHNOLOGIES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of
Veramark Technologies, Inc. (the "Corporation" or "the Company") will be held
at Oak Hill Country Club, Rochester, New York, on May 18, 2000, beginning at
10:00 AM, local time, for the following purposes:
(1) To elect five Directors, each to serve a term of one year;
(2) To increase by 2,000,000 shares the number of shares authorized for grant
under the Company's Long Term Incentive Plan;
(3) To approve the appointment of independent auditors for the year ending
December 31, 2000.
The Board of Directors has fixed the close of business on March 22, 2000
as the record date for the determination of Stockholders entitled to notice of
and vote at the meeting.
All Stockholders are invited to attend the meeting in person. HOWEVER,
IF YOU ARE UNABLE TO ATTEND THE MEETING, IT IS NEVERTHELESS IMPORTANT THAT YOUR
STOCK BE REPRESENTED. A Proxy is enclosed for that purpose. Please sign, date
and return promptly the enclosed Proxy in the accompanying envelope. No
postage is necessary if mailed in the United States.
Your attention is directed to the Proxy Statement submitted with this
notice.
Dated: March 28, 2000 By Order of the Board of Directors
Robert L. Boxer, Secretary
<PAGE>
VERAMARK TECHNOLOGIES, INC.
3750 MONROE AVENUE
PITTSFORD, NEW YORK 14534
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2000
This Proxy Statement is furnished in connection with solicitation of the
enclosed proxy by the Board of Directors of Veramark Technologies, Inc. (the
"Corporation") in connection with the Annual Meeting of Stockholders of the
Corporation to be held on May 18, 2000. The principal executive offices of the
Corporation are located at 3750 Monroe Avenue, Pittsford, New York 14534.
The close of business on March 22, 2000 has been fixed as the record date
for determination of the stockholders entitled to notice of, and to vote at,
the meeting. On that date there were outstanding and entitled to vote
8,063,548 shares of common stock, par value $.10 per share, of the Corporation
(the "Common Stock") each of which is entitled to one vote on each matter at
the meeting. The approximate date on which this Proxy Statement and the
enclosed proxy are being sent to stockholders is April 10, 2000.
The enclosed proxy, if properly completed, signed and returned prior to
the meeting, will be voted at the meeting in accordance with the choices
specified thereon and, if no choices are specified, will be voted "FOR" (i) the
election as Directors of the persons nominated by the Board of Directors, (ii)
the increase in the number of shares authorized for grant under the Company's
Long Term Incentive Plan, and (iii) for the appointment of Pricewaterhouse
Coopers LLP as independent auditors for 2000. A stockholder giving a proxy may
revoke it at any time before it has been voted at the meeting. The Corporation
will bear the cost of its solicitation of proxies for use at the Annual
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 17, 2000, with
respect to the persons believed by the Company, to be the beneficial owners of
more than 5% of its outstanding Common Stock, by certain executive officers and
by all Directors and Officers as a group. Further information is presented
under "Election of Directors." Beneficial ownership is used in this proxy
statement as defined in Rule 13d-3 under the Securities Exchange Act of 1934.
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES(1) PERCENT OF
CLASS (5)
<S> <C> <C>
Albert J. Montevecchio 840,011 (2) 10.4%
20 Fairfield Drive
Fairport, New York 14450
Executive Officers:
David G. Mazzella, President, CEO,Chairman 266,000 3.3%
Paul T. Babarik, VP Sales,Telemanagement 53,400 .7%
Robert L. Boxer, VP, General Counsel 75,092 .9%
James W. Karr, VP Sales, Billing & Customer Care 14,501 .2%
John P. King, VP Product Management 10,675 .1%
Ronald C. Lundy, Treasurer 13,783 .2%
Douglas F. Smith, VP Operations 14,533 .2%
All Directors and Officers as a Group 530,684 6.6%
(11 Individuals)
</TABLE>
(1) Includes shares which can be acquired within 60 days through the exercise
of stock options or warrants as follows: Mazzella - 250,000; Babarik -
36,250; Boxer - 60,000; Karr - 10,500; King - 8,000; Lundy - 12,500;
Smith - 11,500; and all directors and officers as a group - 462,616.
(2) Includes 178,111 shares owned by Montevecchio Associates, a Limited
Partnership of which Albert J. Montevecchio is a General Partner.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the meeting, five directors, comprising the entire membership of
the Board of Directors of the Company, are to be elected. Each elected
Director will serve until the next Annual Meeting following the completion of
their terms or until their successors are elected. John E. Mooney has chosen
not to seek re-election to the Board. The Board does not presently intend to
fill that Board position.
The shares represented by the enclosed Proxy will be voted for the
election as directors of the five nominees named below. All of such nominees
are members of the present Board. If any nominee becomes unavailable to stand
for re-election for any reason or if a vacancy on the Board shall occur before
the election (which events are not anticipated), the holders of the Proxy may
vote for such other person in accordance with their best judgment, but not more
than six persons may be voted to serve as directors.
The information appearing in the following table, with notes thereto,
has been furnished to the Company by the respective nominees. All figures for
securities owned are as of March 17, 2000.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Ownership
Common Stock Percentage
Principal Occupation Director of Common Stock
Name of Nominee Age For Past Five Years Since
<S> <C> <C> <C> <C> <C>
John E. Gould 55 For more than five years, a Partner 1997 28,183 (6) .2%
(1) (4) (5) in Gould & Wilkie, a general
practice law firm in New York City.
Mr. Gould is also Chairman of the
American Geographical Society and a
Director of Harvard Club of New York
City.
William J. Reilly 51 Executive Vice President of 1997 31,383 (6) .2%
(1) (2) (3) (5) Checkpoint Systems, Inc., (NYSE:CKP)
a manufacturer and distributor of
systems for electronic article
surveillance, electronic access
control, closed circuit television
and radio frequency identification
for more than five years.
David G. Mazzella 59 President and Chief Executive 1997 266,000 (7) 1.9%
(1) (4) Officer of the Company since June
1997. President and Chief Operating
Officer of the Company from February
1997 until June 1997. From June
1994, to February 1997, engaged in
management consulting. Chairman of
the Board of the Company since
December 1999. From January 1992 to
June 1994, President and CEO of
Scotgroup Enterprises, Inc., which
was engaged in the development and
sale of telecommunications software
equipment and the sale of paging and
cellular telephone services.
James R. Scielzo 57 Retired. From 1994 until 1999, 1999 10,000 (8) .1%
(2) (3) (5) Senior Vice President and Chief
Technology Officer for Young &
Rubicam, Inc. (NYSE:YNR), a global
corporate communications,
advertising and public relations
firm. Prior to that, was Senior
Vice President/Chief Technology
Officer at Wundermann Cato Johnson,
the direct response advertising
subsidiary of Young & Rubicam, and
the Director of Systems Development
for Young & Rubicam.
<PAGE>
Robert W. Stubbs 65 Since 1993, Principal of R. W. 1998 19,500 (9) .2%
(3) (5) Stubbs Investment Co., an investment
management company, and Director of
Corporate Affairs for the Equipment
Leasing Association, a trade
association of the equipment leasing
industry. Mr. Stubbs is also a
Director of BMC Credit Corporation,
a finance subsidiary of BMC
Software, Inc. (NYSE:BMC); a
Director of Aviation Facilities
Company, Inc., an operator of
airport land and cargo facilities;
and a Trustee of Manhattan College.
From 1986 until 1993, he was
President and Chief Executive
Officer of Bell Atlantic Capital
Corporation, a financial service
subsidiary of Bell Atlantic
Corporation, a Regional Bell
Operating Company.
</TABLE>
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Member of Nominating Committee.
(5) Member of Stock Option Committee.
(6) Includes 23,183 shares which may be acquired through the
exercise of warrants and options.
(7) Includes 250,000 shares which may be acquired through the
exercise of options.
(8) Includes 10,000 shares which may be acquired through the
exercise of options.
(9) Includes 17,500 shares which may be acquired through the
exercise of options.
During 1999, the full Board of Directors held four meetings. The Audit
Committee of the Board, which is responsible for evaluating audits performed by
the Company's independent auditors and for reviewing the Company's internal
accounting principles and controls, met once during the year. The Compensation
Committee of the Board, which reviews and sets compensation for the Company's
officers, met twice during 1999. The Executive Committee has authority to act
on behalf of the full Board of Directors during intervals between meetings of
the full Board. The Executive Committee did not meet in 1999. The Board has a
Nominating Committee which did not meet during 1999. The Nominating Committee
will consider recommendations submitted by Stockholders to the Company's
Secretary. The Stock Option Committee of the Board met five times during 1999
to review administration of the Company's stock option plan and to approve
grants of stock options to employees.
During 1999, William J. Reilly attended 80% and all other Directors
nominated for re-election attended 100% of Board meetings or meetings of
committees of which they were members.
Each outside Director receives each year an option to purchase 10,000 shares
of the Company's common stock at a price based upon the closing price of the
Company's common stock on the last trading day of the prior year. The option
price will be 100% of such closing price if an incentive stock option and 85%
of such closing price if a non-qualified option.
<PAGE>
APPROVAL OF AMENDMENT TO COMPANY'S 1998 LONG
TERM INCENTIVE PLAN
The Board of Directors believes that it would be in the best interest
of the Company and its stockholders to increase the number of shares of common
stock available for the grant of awards under the Company's 1998 Long Term
Incentive Plan and, subject to shareholder approval, has approved an increase
in the number of shares available under the Plan from 2,500,000 to 4,500,000.
The amendment will involve an increase of 2,000,000 shares of common stock that
may be delivered to participants under the Plan.
THE PURPOSE OF THE PLAN IS TO PROVIDE THE COMPANY WITH THE MEANS OF
ATTRACTING AND RETAINING EMPLOYEES OF OUTSTANDING ABILITY AND TO CLOSELY
ASSOCIATE THEIR INTERESTS WITH THOSE OF THE STOCKHOLDERS OF THE COMPANY. IN A
HIGHLY COMPETITIVE MARKET FOR SKILLED EMPLOYEES, STOCK OPTIONS ARE A CRITICAL
COMPONENT OF OVERALL COMPENSATION PLANS.
AS OF FEBRUARY 29, 2000, THERE WERE 2,040,215 SHARES SUBJECT TO
OUTSTANDING OPTIONS THAT HAVE BEEN GRANTED PURSUANT TO THE PLAN AND 113,578
SHARES WERE AVAILABLE FOR FUTURE GRANTS. MANAGEMENT BELIEVES THIS AMOUNT WILL
NOT BE SUFFICIENT TO MEET THE COMPANY'S REQUIREMENTS. WITHOUT AN INCREASE IN
THE NUMBER OF SHARES AVAILABLE FOR NEW OPTION GRANTS THE COMPANY MAY BE
HINDERED IN ITS ABILITY TO MEET ITS REQUIREMENTS TO RETAIN AND HIRE EMPLOYEES.
DESCRIPTION OF THE PLAN.
The following is a summary description of the Plan.
PURPOSE OF THE PLAN. The purpose of the Plan is to provide the
Corporation with a means of attracting and retaining employees (including
executive officers) and non-employee directors of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Corporation. The Plan is administered by a committee of the Board (the
"Committee") appointed by the Board. The Plan is designed to give the
Committee maximum flexibility in granting awards under the Plan consistent with
applicable laws and the terms of the Plan.
TYPES OF AWARDS AND ELIGIBILITY. The Plan authorizes the Committee to
make a variety of stock-based awards, as well as cash awards, to the
Corporation's employees and non-employee directors. Under the Plan, the
Committee may award incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock and incentive shares to employees and
non-employee directors of the Corporation and its related companies.
INCENTIVE STOCK OPTIONS. Incentive stock options are stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Non-qualified stock options are stock options
that do not satisfy the requirements of Section 422 of the Code. Options
granted under the Plan entitle the participant, upon exercise, to purchase a
specified number of shares of Common Stock from the Corporation at a specified
exercise price per share. The per share exercise price of an option is
determined by the Committee at the time the option is granted; except that the
exercise price for an incentive stock option may not be less than the fair
market value of a share of Common Stock as of the date of grant, determined in
the manner specified by the Plan. In the case of a participant who owns or is
treated as owning more than 10% of the total combined voting power of all
classes of stock of the Corporation (a "10% Stockholder"), the per share
exercise price of an option may not be less than 110% of the fair market value
of a share of Common Stock on the date of the grant.
STOCK APPRECIATION RIGHTS. Stock appreciation rights under the Plan
may be granted in connection with the grant of a stock option or by amendment
of an outstanding stock option (in either case, a "related right") or
independently of any option. The exercise of a stock appreciation right under
the Plan entitles the participant to receive either cash or Common Stock, or a
combination thereof, with a value equal to the excess of the fair market value
per share of Common Stock on the date of exercise of the right over either (1)
<PAGE>
the fair market value per share of Common Stock on the date of grant of the
right if it is not a related right or (2) the exercise price as provided in the
related option if the right is a related right.
RESTRICTED STOCK. Restricted stock awards under the Plan would
consist of shares of Common Stock that are nontransferable, subject to
forfeiture and subject to such other terms, for such periods, as may be
determined by the Committee. Such terms may provide, in the discretion of the
Committee, for the vesting of restricted stock awards to be contingent upon the
achievement of one or more performance goals. Performance goals may be based on
cash generation targets, profit, revenue and market share targets,
profitability targets as measured by return ratios, and stockholder returns, or
any other objective goals established by the Committee, and may be absolute in
their terms or measured against or in relationship to other publicly-traded
companies ("Performance Goals"). Performance Goals may be particular to the
participant or the department, branch, subsidiary or other division in which
the participant works, or may be based upon the performance of the Corporation
generally, and may cover such period as may be specified by the Committee.
INCENTIVE SHARES. Incentive share awards under the Plan consist of
shares of Common Stock that may be issued subject to achievement of Performance
Goals or other goals and on such other terms as the Committee establishes.
Unlike restricted stock, shares of Common Stock are not issued immediately
pursuant to incentive share awards, but instead are issued upon the achievement
or satisfaction of Performance Goals or other goals and terms.
ADMINISTRATION. Subject to the provisions of the Plan, the Committee
has plenary authority and discretion to determine the terms of all awards under
the Plan, including the exercise price of options, the time or times at which
awards are made, the number of shares of Common Stock covered by awards, any
provisions relating to transferability, any provisions relating to vesting, any
circumstances in which options would terminate, the period during which options
and stock appreciation rights may be exercised, the period during which options
and restricted stock are subject to restrictions, and the manner of exercising
options. These terms need not be identical for all awards. In determining the
terms of awards under the Plan, the Committee may take into account the nature
of the services rendered by the award recipients, their present and potential
contributions to the success of the Corporation and its related companies, and
such other factors as the Committee may deem relevant. Subject to the
provisions of the Plan, the Committee also has authority to interpret the Plan,
prescribe, amend and rescind rules and regulations relating to it, and make all
other determinations deemed necessary or advisable for the administration of
the Plan.
SHARES SUBJECT TO GRANT AND ADJUSTMENT. The Plan presently provides
that the maximum number shares of Common Stock that may be delivered to
participants and their beneficiaries under the Plan shall be equal to the sum
of: (i) 2,000,000 shares of Common Stock and (ii) up to 500,000 shares of
Common Stock reacquired in the open market or in a private transaction. If the
proposed amendment is approved, the number of authorized but unissued shares of
the Company available for grant would be increased to 4,000,000. The number of
shares subject to the Plan (and the number of shares and terms of any award or
maximum number of shares with respect to which an individual may receive
awards) may be adjusted by the Committee in the event of any change in the
outstanding Common Stock by reason of any stock dividend, split-up,
recapitalization, reclassification, combination or exchange of shares, merger,
consolidation or liquidation or similar event. On March 21, 2000, the closing
sale price of the Corporation's Common Stock on the Nasdaq National Market was
$7.42.
EXERCISE PERIOD AND TRANSFERABILITY. Options and stock appreciation
rights granted under the Plan may be exercised during such periods as may be
established by the Committee, except that incentive stock options may be
exercised for a period of no more than ten years from the date of grant (five
years in the case of incentive stock options granted to a 10% Stockholder).
Except with respect to incentive stock option awards, which are not
transferable other than by will or the laws of descent and distribution, the
Committee will have authority and discretion to determine the terms of any
provisions relating to transferability with respect to all other awards.
<PAGE>
PAYMENT OF EXERCISE PRICE. Under the Plan, the Committee may provide
that the exercise price of an option may be paid by any combination of (1)
cash, (2) check, (3) delivery to the Corporation of shares of Common Stock
having a fair market value on the date of surrender equal to the exercise
price, (4) delivery to the Corporation of a properly executed exercise notice
and irrevocable instructions to a registered securities broker to promptly
deliver to the Corporation cash equal to the exercise price, and (5) a
"cashless exercise" arrangement whereby an optionee, without payment of the
exercise price, receives upon exercise, shares of Common Stock having an
aggregate fair market value as of the date of surrender equal to the number of
shares subject to the option being surrendered multiplied by an amount equal to
the excess of the fair market value of a share of Common Stock on the exercise
date over the per share exercise price of the option.
DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. Neither
adoption of the Plan nor the grant of awards to a participant under the Plan
will affect the Corporation's right to grant to such participant awards that
are not subject to the Plan, to issue to such participant shares of Common
Stock as a bonus or otherwise, or to adopt other plans or arrangements under
which shares of Common Stock may be issued to individuals eligible under the
Plan.
The Board of Directors may at any time discontinue granting awards
under the Plan. The Board of Directors may at any time or times alter or amend
the Plan or any outstanding award for any purpose which may at the time be
permitted by law, or may at any time terminate the Plan as to any further
grants of awards, provided that (except to the extent expressly required or
permitted by the Plan) no such amendment will, without the approval of (a) the
Company's stockholders, to the extent stockholder approval of the amendment is
required by applicable law or regulations or the requirements of the principal
exchange or interdealer quotation system on which the Common Stock is listed or
quoted, (i) increase the maximum number of shares available under the Plan,
(ii) change the group of persons eligible to receive awards under the Plan,
(iii) extend the time within which awards may be granted, or (iv) amend the
provisions of the Plan relating to amendment and termination of the Plan, and
(b) each affected participant if the amendment, alteration or termination would
adversely affect the participant's rights or obligations under any award made
prior to the date of the amendment, alteration or termination. The termination
of the Plan would not affect the validity of any award outstanding on the date
of termination.
SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
INCENTIVE STOCK OPTIONS. Generally, an optionee will not recognize
income on the grant or exercise of an incentive stock option. If an optionee
does not exercise an incentive stock option within certain specified periods
after termination of employment, however, the optionee will recognize ordinary
income on the exercise of an incentive stock option in the same manner as on
the exercise of a non-qualified stock option, as described below. The exercise
of an incentive stock option may result in a tax to the optionee under the
alternative minimum tax even if the exercise would not otherwise be taxable.
The general rule is that gain or loss from the sale or exchange of
shares acquired on the exercise of an incentive stock option will be treated as
capital gain or loss. If certain holding period requirements are not
satisfied, however, the optionee will recognize ordinary income at the time of
the disposition. Gain recognized on the disposition in excess of the ordinary
income resulting therefrom will be capital gain, and any loss recognized will
be capital loss. If an optionee recognizes ordinary income on exercise of an
incentive stock option or as a result of a disposition of the shares acquired
on exercise, the Corporation will be entitled to a deduction in the same
amount.
NON-QUALIFIED STOCK OPTIONS. An optionee will not recognize income on
the grant of a non-qualified stock option, but will recognize ordinary income
on the exercise of a non-qualified stock option. The amount of income
recognized on the exercise of a non-qualified stock option will be equal to the
excess of the fair market value of the shares at the time of exercise over the
aggregate exercise price paid for the shares, regardless of whether the
exercise price is paid in cash, in stock, or in part with a note. The
Corporation will be entitled to a deduction in the amount of ordinary income so
recognized.
<PAGE>
STOCK APPRECIATION RIGHTS. A grantee will not recognize income on the
grant of a stock appreciation right, but will recognize ordinary income on the
exercise of a stock appreciation right. The amount of income recognized on the
exercise of a stock appreciation right will be equal to the amount of cash and
the fair market value of any shares received on the date of exercise plus the
amount of any cash or stock withheld to satisfy withholding taxes. The
Corporation will be entitled to a deduction in the amount of ordinary income so
recognized. Gain or loss from the sale or exchange of shares acquired pursuant
to the exercise of a stock appreciation right will be treated as capital gain
or capital loss.
RESTRICTED STOCK. A grantee of restricted stock is not required to
include the value of such shares in ordinary income until the shares are no
longer subject to a substantial risk of forfeiture, unless the grantee elects
to be taxed on receipt of the shares. In either case, the amount of such income
will be equal to the fair market value of the shares at the time the income is
recognized. The Corporation will be entitled to a deduction in the amount of
ordinary income so recognized.
INCENTIVE SHARES. A grantee of incentive shares will recognize
ordinary income on the date the incentive shares are issued in an amount equal
to the fair market value of the shares on such date. The Corporation will be
entitled to a deduction in the amount of ordinary income so recognized. Gain or
loss from the sale or exchange of shares acquired on the issuance of incentive
shares will be treated as capital gain or capital loss.
PARACHUTE PAYMENTS. Where payments to an employee that are contingent
on a change in control of the Corporation exceed limits specified in the Code,
the employee generally is liable for a 20% excise tax on, and the Corporation
generally is not entitled to any deduction for, a specified portion of such
payments. The Plan provides for the acceleration of vesting of option upon a
change in control and such accelerated vesting would be relevant in determining
whether the excise tax and deduction disallowance rules would be triggered.
PERFORMANCE BASED COMPENSATION. Subject to certain exceptions,
Section 162(m) of the Code disallows federal income tax deductions for
compensation paid by a publicly held corporation to certain executives to the
extent the amount paid to an executive exceeds $1 million for the taxable year.
The Plan has been designed to allow the Committee to make awards under the Plan
that qualify under an exception to the deduction limit of Section 162(m) for
"performance-based compensation."
GENERAL. The rules governing the tax treatment of options, stock
appreciation rights, restricted stock and incentive shares, and the receipt of
shares in connection with such grants or awards, are highly technical, so that
the above description of tax consequences is necessarily general in nature and
does not purport to be complete. Moreover, statutory provisions are subject to
change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
law may not be the same as under the federal income tax laws.
ACCOUNTING TREATMENT.
Under current accounting principles, as applied by the Corporation,
neither the grant nor the exercise of an incentive stock option or a non-
qualified stock option under the Plan with an exercise price not less than the
fair market value of Common Stock at the date of grant requires any charge
against earnings, but the Corporation discloses in footnotes to its financial
statements the effect on its results of operations if expense for stock
compensation awards had been recognized based on FASB-specified guidelines.
Stock appreciation rights require a charge against the earnings of the
Corporation each accounting period the value of such rights increases. The
charge related to stock appreciation rights will vary depending upon, among
other factors, the amount of stock appreciation rights granted, stock price
changes above the grant price, and the length of time that stock appreciation
rights have been outstanding. Such charge is based, generally speaking, on the
difference between the exercise price specified in the related right, or the
market value of Common Stock on the date of grant, and the current market price
<PAGE>
of the Common Stock. In the event of a decline in the market price of Common
Stock subsequent to a charge against earnings related to the estimated costs of
stock appreciation rights, a reversal of prior charges is made (but not to
exceed aggregate prior charges).
Restricted stock and incentive shares will require a charge to
earnings representing the value of the benefit conferred, which, in the case of
restricted stock, may be spread over the restrictive period. Such charge is
based on the market value of the shares transferred at the time of issuance.
Approval of the proposed increase in the number of shares of Common
Stock available for grants under the Plan requires the affirmative vote of a
majority of the votes present in person or by proxy at the Annual Meeting.
The Board of Directors unanimously recommends a vote "FOR" the increase in the
number of shares under the Plan.
<PAGE>
EXECUTIVE COMPENSATION
The following tables relate to the compensation paid or accrued to the
five highest paid executive officers of the Company whose cash compensation
exceeded $100,000 during 1999 (the `Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> Long Term
Compensation Awards
Name and Principal Other Annual
Position Year Salary ($) Bonus ($) Compensation ($)(1) Options
<S> <C> <C> <C> <C> <C>
David G. Mazzella 1999 275,000 175,000 21,361 0
President, CEO, 90,000 (2)
Chairman of the Board 1998 249,615 87,699 20,457 0
1997 168,077 0 11,235 500,000
Robert L. Boxer 1999 129,712 69,000 13,540 25,000
Vice President, 1998 114,904 15,000 12,930 15,000
Secretary, 1997 108,923 0 12,174 130,000
General Counsel
John P. King 1999 124,904 60,000 12,641 20,000
Vice President, Product 1998 103,741 12,070 5,106 20,000
Development
Paul T. Babarik 1999 114,808 69,000 14,833 25,000
Vice President, Sales 1998 104,942 15,000 13,418 10,000
telemanagement Products 1997 100,462 0 12,653 80,000
Douglas F. Smith 1999 109,750 42,000 13,432 5,000
Vice President, 1998 99,904 10,000 2,112 13,000
Operations
</TABLE>
(1) Includes (i) Personal Use of Company Car, (ii) Life Insurance
Premiums, (iii) Company Contribution to 401(K) Plan, and (iv)
Medical Expense Reimbursement.
(2) $90,000 paid in July 1999 for fiscal year 1998.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with David G. Mazzella to serve
as President, Chief Executive Officer and a Director of the Company until
September 30, 2003. The agreement provides for a minimum gross salary of
$275,000 per year. Pursuant to that agreement in the event of a change in
control of the Company, or in the event Mr. Mazzella's management
responsibilities are materially diminished, the agreement may be terminated at
Mr. Mazzella's option and he will be entitled to separation pay in a lump sum
equal to three (3) times his aggregate annual compensation (including salary,
bonus and benefits) and in addition all of his options to purchase company
stock of the Company will immediately vest at 50% of the original option price
and be exercisable for the option's original term. For this purpose a change
in control of the Company may occur through a sale, merger, consolidation, sale
of substantially all assets, the acquisition of more than 20% of the securities
of the Company directly or indirectly by any person or entity, or a change
within two years of a majority of the Board of Directors.
<PAGE>
Retirement Benefits
The Named Executives listed below are participants in a defined benefit
retirement plan of the Company. The amount of the retirement benefit, payable
from age 65, will vary depending upon length of service, retirement age and
average salary. For Mr. Mazzella the benefit will equal 45% to 60% of the
average of his three highest years of compensation depending upon his age at
retirement. Mr. Mazzella's retirement benefit is payable for fifteen years.
For the other Named Executives the annual benefit will be between 20% and 50%
of average salary for the last three full fiscal years of employment by the
Company and is payable until death.
Assuming continued employment by the Company until age 65 with average
salary increases of 3% per year the projected retirement benefit at age 65 for
each executive officer is shown below:
<TABLE>
<CAPTION>
Name AGE YEARS OF SERVICE TO DATE ANNUAL BENEFIT AT AGE 65
<S> <C> <C> <C>
Paul T. Babarik 57 13 $ 59,488
Robert L. Boxer 46 17 132,267
David G. Mazzella 59 3 185,763
</TABLE>
<PAGE>
STOCK OPTIONS
The Company has a stock option plan under which employees may be
granted Incentive Stock Options and Non-Qualified Stock Options to purchase the
Company's Common Stock. All full-time employees of the Company and its
subsidiaries are eligible to receive Stock Options. The Stock Option Committee
of the Board of Directors administers the Plan and makes all determinations
with respect to eligibility, option price, term and exercisability, except that
the option price on Incentive Stock Options may not be less than 100% of fair
market value on the date of grant and the term of any option may not exceed ten
years.
The following tables set forth information regarding stock option
transactions involving the Named Executives.
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
Name Number of Unexercised Options Value of Unexercised In-the-Money
Shares Acquired Value at FY-End Options at FY-End (1)
on Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
David G. Mazzella 0 0 250,000 250,000 2,321,000 2,321,000
Paul T. Babarik 8,000 48,500 41,250 76,250 330,537 499,137
Robert L. Boxer 0 0 70,000 105,000 529,900 761,100
John P. King 0 0 8,000 52,000 54,250 367,560
Douglas F. Smith 5,000 42,500 11,500 33,500 88,925 249,915
</TABLE>
(1) Based on year-end price of $12.25 per share.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The potential realizable value portion of the following table
illustrates the gain that might be realized upon the exercise of the options
immediately prior to the expiration of their term, assuming the specified
compounded rates of appreciation of the Company's Common Stock over the term of
the option. Actual gains, if any, on the stock option exercises are dependent
on the future performance of the Common Stock, overall market conditions, as
well as the option holders' continued employment through the vesting period.
The amounts reflected in this table may not necessarily be achieved.
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE OF
OPTIONS GRANTED OPTIONS GRANTED EXERCISE EXPIRATION ASSUMED ANNUAL RATES OF STOCK PRICE
NAME (1) TO EMPLOYEES IN PRICE DATE APPRECIATION FOR OPTION TERM
FISCAL YEAR 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Paul T. Babarik 25,000 (1) 4.7% $6.37 1/11/09 $147,000 $339,250 $634,000
Robert L. Boxer 25,000 (1) 4.7% $6.37 1/11/09 $147,000 $339,250 $634,000
John P. King 20,000 (1) 3.7% $6.37 1/11/09 $117,600 $271,400 $507,200
Douglas F. Smith 5,000 (1) 0.9% $6.37 1/11/09 $ 29,400 $ 67,850 $126,800
</TABLE>
(1) Exercisable after January 11, 2004.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board sets compensation levels for the
CEO and all other officers of the Company, establishes compensation and
incentive plans for officers and approves payments under such incentive plans.
The Compensation Committee is composed of three independent, non-employee
directors who have no interlocking relationships as defined by the SEC.
The Committee's compensation policies are designed to attract and retain
highly skilled executives, reward outstanding individual performance, encourage
cooperative team efforts and provide an incentive to enhance long term
shareholder value. The Company's executive officer compensation program
consists of base salary, annual contingent bonus compensation, long term stock
options and retirement benefits tied to age and years of service.
In establishing salaries for the Company's CEO and other officers,
consideration is given to salary ranges for comparable positions in similar
size companies. Data for such comparisons is obtained from nationwide surveys
conducted by independent compensation consulting firms and from proxy
statements. As a result of basing compensation in part on overall company
performance, in any particular year the Company's executives may be paid more
or less than the average executive compensation levels of comparably sized
companies.
In setting salaries within competitive ranges, the Committee considers
performance related factors including the Company's overall results during the
past year and its performance relative to a budgeted plan or stated objectives.
Consideration also is given to an individual's contribution to the Company and
the accomplishments of departments for which that officer has management
responsibility. Potential for future contributions to the Company is also
taken into account for all officers.
The Company has a bonus compensation plan for officers and middle
management, other than the CEO. Under this Plan the Compensation Committee
each year establishes a schedule for calculating aggregate incentive
compensation based upon the Company's performance against targets for net
income before tax. The total plan award is allocated to the managers by the CEO
and the Compensation Committee through a combination of objective formulas
based upon salaries and subjective performance related considerations. The net
income performance standards set by the Board were met by the Company during
1999 and bonuses were paid to officers and managers in accordance with the Plan
formula.
The Stock Option Committee is responsible for selecting the recipients of
stock options, the timing of grants, and the option exercise price within the
terms of the Company's Stock Option Plan. The Stock Option Committee considers
the recommendations of the CEO and Compensation Committee with respect to
officers in this regard. Stock options are viewed as a long-term incentive for
officers and a means to more closely align the interests of officers with those
of stockholders.
William J. Reilly,
Chairman of Compensation Committee
John E. Mooney
James R. Scielzo
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 22, 1997, Albert J. Montevecchio, the Company's founder, Chief
Executive Officer, Chairman of the Board, and owner of 10.4% of the Company's
common stock, retired as an officer of the Company. Pursuant to an Employment
Agreement between the Company and Mr. Montevecchio, which was entered into in
1991, Mr. Montevecchio's term of employment was to continue until December,
2001, after which he would be entitled to receive until December, 2016 a
pension benefit equal to 90% of the average of his three highest years'
compensation plus benefits. In 1996, Mr. Montevecchio's compensation was
$220,000. The Company instead agreed to pay Mr. Montevecchio $225,000 per year
plus benefits until July, 2001, and $129,000 per year plus benefits thereafter
until July, 2014. Mr. Montevecchio also agreed to refrain from competing
directly or indirectly with the Company, to not disclose Company confidential
information or trade secrets, to vote with the majority of stockholders (other
than officers and directors) with respect to certain significant events
submitted for stockholder approval, to not acquire shares of the Company in a
private transaction or to solicit proxies from Company shareholders, and to not
privately sell any shares of the Company's common stock without first offering
to sell such shares to the Company.
COMMON STOCK PERFORMANCE
The following graph shows a five-year comparison of cumulative total
returns for owners of the Company's common stock compared to an Index for
NASDAQ stocks and the NASDAQ Telecommunications Index based upon year-end
closing prices including a closing price on December 31, 1999 of $12.25 per
share for the Company's common stock.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
Dec 94 Dec 95 Dec 96 Dec 97 Dec 98 Dec 99
<S> <C> <C> <C> <C> <C> <C>
VERAMARK 100 96 93 79 69 146
NASDAQ STOCK MARKET (US) 100 141 174 213 300 542
NASDAQ TELECOMMUNICATIONS 100 131 134 196 322 561
</TABLE>
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon reports filed by the Company with the Securities and
Exchange Commission and copies of filed reports received by the Company, the
Company believes all reports of ownership and changes in ownership of the
Common Stock of the Company required to be filed with the Securities and
Exchange Commission during 1999 were filed in compliance with Section 16(a) of
the Securities Act of 1934.
Stockholder Proposals
Under SEC rules, any stockholder wishing to present a proposal at the
Company's 2000 Annual Meeting must submit the proposal to the Company's
Secretary no later than December 4, 2000 in order for the proposal to be
included in the proxy and proxy statement for the meeting.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 3)
On the recommendation of the Audit Committee, the Board of Directors
has appointed Pricewaterhouse Coopers LLP as independent auditors for the
fiscal year ending December 31, 2000. If approved by stockholders, this will
be the first year Pricewaterhouse Coopers LLP will act as the independent
auditors for the company. For fiscal years ending December 31, 1996, through
December 31, 1999, Arthur Andersen LLP were the independent auditors for the
Company. Representatives of both Arthur Andersen and Pricewaterhouse Coopers
LLP are expected to be present at the Annual Meeting. They will be available
to respond to appropriate questions and will have an opportunity to make a
statement if they so desire.
Arthur Andersen was dismissed by the Board of Directors at a meeting
held on March 28, 2000, at the recommendation of the Audit Committee. The
audit relationship between the company and Arthur Andersen continued through an
orderly completion of all matters related to the year which ended December 31,
1999, including the filing of the 10-K report on March 16, 2000, upon which
such relationship terminated. During the two most recent fiscal years and
interim periods, there were no disagreements with Arthur Andersen on any matter
of accounting principles or practices, financial statement disclosure, audit
scope or procedure or on any reportable events. Arthur Andersen reports on the
financial statements for the two years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
Although the appointment of independent auditors is not required to be
submitted to a vote by Stockholders, the Board believes as a matter of policy
that it is appropriate to do so. If the Stockholders should not approve the
appointment of Pricewaterhouse Coopers LLP, the Audit Committee and Board of
Directors will consider other certified public accountants for appointment.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does
not intend to present, and has not been informed that any other person intends
to present, any matter for action at the meeting other than those described
above. If any other matters properly come before the meeting, it is intended
that the persons named in the enclosed Proxy will vote the shares represented
by signed proxies in accordance with their best judgment.
By Order of the Board of Directors
Robert L. Boxer
Secretary
Pittsford, New York
March 28, 2000
<PAGE>
