UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2000
Commission file number: 0-20824
INFOCROSSING, INC.
------------------------------------
(Exact name of registrant as specified in its Charter)
DELAWARE 13-3252333
-------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 CHRISTIE HEIGHTS STREET LEONIA, NJ 07605
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 840-4700
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days: [X] Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
On February 28, 2001, the aggregate market value of the outstanding shares of
voting stock held by non-affiliates of the registrant was approximately
$23,167,000.
On February 28, 2001, 5,874,282 shares of the registrant's Common Stock, $0.01
par value, were outstanding.
This amendment is filed to add Part III to the previously-filed report.
-1-
PART III
As reported on a Form 8-K filed on September 29, 2000, the Company changed its
year-end from October 31 to December 31. Unless otherwise noted, all information
presented in Part III reflects the twelve-month period ended December 31 of the
year presented.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
The name, principal occupation with the Company, and certain information
concerning each of the Directors and executive officers of the Company as of
April 16, 2001 are set forth in the table below. Also set forth following the
table is certain additional information regarding each individual's business
experience.
POSITIONS WITH THE DIRECTOR TERM
NAME COMPANY AGE SINCE EXPIRES
- ------------------- ------------------------ ----- -------- --------
Zach Lonstein Chairman of the 57 1984 2002
Board of Directors
Charles F. Auster Chief Executive Officer
& President 49 2000 2001
Robert B. Wallach Chief Operating Officer 62 - -
Nicholas J. Letizia Senior Vice President,
General Counsel
& Secretary 49 - -
William B. Fischer Senior Vice President
& Chief Financial
Officer 50 - -
John C. Platt Vice President & 47 - -
Treasurer
Tyler T. Zachem Director 34 2000 2003
David C. Lee * Director 35 2000 2003
Frank L. Schiff Director 41 2000 2002
Samantha McCuen Director 32 2000 2002
Kathleen A. Perone Director 47 2000 2001
* Resigned April 23, 2001.
ZACH LONSTEIN has been the Company's Chairman of the Board since he organized
the Company in 1984, Chief Executive Officer from 1984 through June 2000, and
President from 1984 to May 1996. From 1981 to 1984, Mr. Lonstein was Vice
President and General Manager of the Commercial On-Line division of Informatics
General Corporation ("Informatics" subsequently renamed Sterling Federal
Systems, Inc.), a computer software and services company listed on the New York
Stock Exchange. In 1970, Mr. Lonstein was a founder and President of
Transportation Computing Services Corp. ("TCS"). In 1981, TCS was sold to
Informatics. The Company purchased the Commercial On-Line division of
Informatics in 1984.
-2-
CHARLES F. AUSTER joined the Company as its President and Chief Executive
Officer in June 2000. He also was elected as a Director of the Company by
the Board of Directors in June 2000. From February 1998 until June 2000,
Mr. Auster was Executive Vice President, Chief Operating Officer, and a
member of the board of directors of Ixnet, Ltd., ("Ixnet") an international
provider of network communications services. Previously, Mr. Auster was
President, Chief Executive Officer, and a member of the board of directors
of Voyager Networks, Inc., a New York based server hosting and data
networking company. Mr. Auster is currently the Chairman of the Board of
Trustees of the L'Enfant Trust, a tax exempt organization based in
Washington, D.C. He also is a member of the boards of directors of
Broadbeam, Inc., NextSet Software, Inc., and (through March 2001) NetCruise.com.
Mr. Auster is a member of the Bar in both the District of Columbia and the
Commonwealth of Virginia.
ROBERT B. WALLACH joined the Company in June 1995, was President from May 1996
until June 2000, and a Director of the Company from 1992 until May 2000. In June
2000, he became President of the Company's Managed Services Division. In April
2001, he was named Chief Operating Officer of the Company. Prior to June 1995,
he was sole proprietor of Horizons Associates, a consulting firm he founded in
1985. Mr. Wallach has more than 20 years of operating experience including
senior management positions with Boeing Computer Services, Informatics, and, the
Financial Information Services Group/Strategic Information division of Ziff
Communications.
NICHOLAS J. LETIZIA joined the Company as Chief Financial Officer and
Secretary in November 1998. On April 16, 2001, Mr. Letizia ceased being
the Company's Chief Financial Officer and was named to the new position of
Senior Vice President and General Counsel. Prior to joining Infocrossing, he
was Chief Financial Officer of InterEquity Capital Corporation, the general
partner of a Small Business Investment Company. Before joining InterEquity in
November 1997, he was Vice President of, and later a consultant to,
Helmstar Group, Inc. from 1987 until November 1997. His employment
experience also includes professional positions with Arthur Andersen & Co.
and Donaldson, Lufkin & Jenrette. Mr. Letizia is a Certified Public
Accountant and a member of the New Jersey Bar.
WILLIAM B. FISCHER was named Chief Financial Officer of the Company on April 16,
2001. From July 1999 until joining the Company, Mr. Fischer was Chief Financial
Officer of Index Stock Imagery Inc., a privately held stock photography agency
licensing digital imagery largely over the Internet. Previously, from November
1997, Mr. Fischer was Vice President and Controller of ICON CMT, an Internet
solutions provider, which, subsequent to its initial public offering, was
acquired by Qwest Communications International, Inc. and operated as Qwest
Internet Solutions. Before such time, Mr. Fischer served as Chief Financial
Officer of Electronic Retailing Systems International Inc., a publicly traded
manufacturer of computerized pricing and merchandising systems used in the
supermarket industry, which he joined in April 1994. His previous employers
include Price Waterhouse (now PricewaterhouseCoopers) where he was Senior
Manager, and GTE Corporation (now Verizon Communications) where he served as
Director of Financial Accounting Policies. Mr. Fischer is a Certified Public
Accountant.
JOHN C. PLATT has been an employee of the Company since it was founded in 1984,
and has been a Vice President of the Company since 1986, its Treasurer beginning
-3-
in 1992, and a Director from 1996 until May 2000. Prior to 1984, Mr. Platt held
various positions with Informatics and TCS.
TYLER T. ZACHEM was elected a Director of the Company by the Board of
Directors in May 2000. Since June 1999, Mr. Zachem has been Managing
Director of DB Capital Partners, Inc. From July 1993 through June 1999,
Mr. Zachem was a partner in the firm of McCown, DeLeeuw & Company, a
venture capital firm.
FRANK L. SCHIFF was elected a Director of the Company by the Board of
Directors in May 2000. Since September 1999, Mr. Schiff has been Managing
Director of DB Capital Partners, Inc. In September 1999, Mr. Schiff
resigned as a partner of the law firm of White & Case, LLP. He had joined
White & Case in 1984.
DAVID C. LEE was elected a Director of the Company by the Board of Directors
in May 2000. From January 1999 until April 2001, Mr. Lee was Managing
Director of Sandler Capital Management. Prior to January 1999, Mr. Lee was
an investment banker for thirteen years, most recently as Managing Director
at Lazard Freres & Co. LLC. Mr. Lee also serves as a member of the boards
of Young Broadcasting, Inc., Telscape International, Inc., and Jobline
International AB. On April 23, 2001, Mr. Lee resigned as a Director.
SAMANTHA MCCUEN was elected a Director of the Company by the Board of
Directors in May 2000. Ms. McCuen joined Sandler Capital Management in
January 1996, and has been Managing Director since January 2000. Prior to
January 1996, Ms. McCuen held both equity research and investment banking
positions at Morgan Stanley Dean Witter, an investment banking firm. Ms.
McCuen is also a member of the board of Register.com.
KATHLEEN A. PERONE was elected a Director of the Company by the Board of
Directors in September 2000. Beginning in April 2000, Ms. Perone has been
Managing Director of Acappella Ventures LLC, a Delaware limited liability
corporation, which invests in early stage telecommunications and technology
enterprises. From January 1998 through March 2000, Ms. Perone was employed by
Denver-based Level3 Communications, LLC, most recently in the position of
President - North American Operations. Prior to 1998, Ms. Perone held various
positions with MFS Communications (now WorldCom), including President - Global
Services Division and President - Telecom East. Ms. Perone is also a member of
the board of directors of Focal Communications Corp.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and Directors of the Company, and persons who beneficially own more
than ten percent of the Company's Common Stock, to file reports of ownership of
Company securities and changes of ownership with the Securities and Exchange
Commission. Copies of those reports must also be furnished to the Company.
Based solely on a review of the copies of reports furnished to the Company or
representations of the Company's Directors and executive officers that no
additional reports were required, the Company believes that during the twelve
months ended December 31, 2000 the executive officers, Directors, and other
persons beneficially owning more than ten percent of the Company's Common Stock
complied with all applicable Section 16(a) filing requirements on a timely basis
except that a Form 4 for each of Messrs. Germanotta, Lynaugh and Waltman was not
timely filed.
-4-
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Summary Compensation Table below includes, for each of the twelve-month
periods ended December 31, 2000, 1999, and 1998, individual compensation for
services to the Company and its subsidiaries as paid to the Chief Executive
Officer and the four executive officers whose salary exceeded $100,000 in the
most recent twelve-month period (together, the "Named Executives").
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------
Long Term Compensation
------------------------
Awards
------------------------
Name and Annual Compensation Securities
Principal ----------------------------------------- Restricted Underlying
Position at Other Annual Stock Options/SARS All Other
December 2000 * Year Salary ($) Bonus ($) Compensation ($) Awards (#) Compensation ($)
- -------------------------------------------------------------------------------------------------------------
Zach Lonstein 2000 $386,979 $175,000(a) $ 23,081(c) - 300 -
Chairman 1999 242,788 72,519(b) 39,637(c) - 175,200 $ 5,000(d)
1998 299,250 75,000 33,860(c) - 25,000 30,000(d)
- -------------------------------------------------------------------------------------------------------------
Charles Auster 2000 203,125 75,000(a) - 800,000(e) - 1,677,083(f)
CEO/President 1999 - - - - - -
1998 - - - - - -
- -------------------------------------------------------------------------------------------------------------
Robert Wallach 2000 394,792 50,000(a) - - 50 -
Chief Operating 1999 275,459 - - - 150,000 -
Officer 1998 225,338 100,000 - - 150,000 -
- -------------------------------------------------------------------------------------------------------------
Warren Ousley 2000 201,420 - 300,000(g) - - -
Subsidiary 1999 268,560 - - - 50 -
President * 1998 - - - - - -
- -------------------------------------------------------------------------------------------------------------
Joseph Germanotta 2000 196,626 - 78,863(g) - 50,000 -
Subsidiary 1999 - - - - 200,000(h) 100,845(i)
President * 1998 - - - - - -
- -------------------------------------------------------------------------------------------------------------
* Or date of resignation. Mr. Ousley resigned as an officer in September
2000. Mr. Germanotta resigned in October 2000.
(a) Bonus earned in 2000, paid in January 2001.
(b) Bonus earned in the Company's then fiscal year ended October 31, 1999 and
paid in February 2000.
(c) Includes $8,818, $31,075, and $24,910 in 2000, 1999, and 1998,
respectively, relating to a Company-provided vehicle and related expenses
incurred for both business and personal use, and $14,263, $8,562, and
$8,050 in 2000, 1999, and 1998, respectively, paid for a health club
membership (See "Employment Agreements with Named Executive Officers"
below).
-5-
(d) Fee relating to Mr. Lonstein's guarantee of the Company's obligations
in connection with the purchase of MCC Corporation. (See "Certain
Relationships and Related Party Transactions" below).
(e) See "Employment Agreements with Named Executive Officers" below.
(f) Amortization of the market value of the Restricted Stock Award (See
"Employment Agreements with Named Executive Officers" below).
(g) Severance determined and paid subsequent to December 31, 2000.
(h) 125,000 options were forfeited as a result of Mr. Germanotta's
resignation (See "Employment Agreements with Named Executive Officers"
below).
(i) For services rendered as a consultant to the Company prior to becoming
an employee.
The Named Executives may participate in certain group life, health, and other
non-cash benefit plans, which are generally available to all Company employees.
The Company also maintained 401(k) Savings Plans covering all eligible employees
who have attained the age of 21 years and worked at least 1,000 hours in a
one-year period. The Company may make matching contributions at the discretion
of the Board of Directors. For the twelve-month periods ended December 31, 2000,
1999, and 1998, the Company did not make any matching contributions.
The following table sets forth, for the Named Executives, all grants of stock
options made during the year ended December 31, 2000. Named Executives not
listed did not receive grants of stock options during the period. The Company
did not award any stock appreciation rights or reprice any stock options during
the twelve months ended December 31, 2000.
OPTION GRANTS IN THE TWELVE MONTHS ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------------------
% OF POTENTIAL
TOTAL REALIZABLE
OPTIONS VALUE AT
NUMBER OF GRANTED ASSUMED ANNUAL
SECURITEIES TO RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE
OPTIONS IN THE PRICE EXPIRATION APPRECIATION
NAME GRANTED PERIOD ($/SHARE) DATE FOR OPTION TERM
- ------------------- ----------- ---------- --------- --------------- -------------------
5% 10%
-------- --------
Zach Lonstein 300 (1) - $ 6.53 Dec. 21, 2005 $315 $910
Robert Wallach 50 (1) - 5.94 Dec. 21, 2010 187 473
Joseph Germanotta 50,000 (2) 6% 12.00 Oct 06, 2001 41,400 101,050
(1) Became exercisable on December 22, 2000.
(2) Became exercisable as to 25,000 shares on December 1, 1999. One-half of the
remaining shares underlying the option would have become exercisable on
December 1, 2000 and the other half on December 1, 2001. In connection with
the termination of the employment agreement with Mr. Germanotta, this entire
option became exercisable as of October 6, 2000, the date of his
resignation. This option expires on October 6, 2001.
-6-
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table contains information concerning the stock options held by
the Named Executives during the year ended December 31, 2000. No stock
appreciation rights have been granted by the Company.
AGGREGATED OPTION EXERCISES DURING THE TWELVE MONTHS ENDED DECEMBER 31, 2000
AND YEAR-END OPTION VALUES
- ---------------------------------------------------------------------------------------------
Securities
Received from
Exercise of
Options during the Number of
Twelve Months Securities Underlying Value of Unexercised
ended December 31, Unexercised Options at In-the-Money Options at
2000 December 31, 2000 December 31, 2000 ($)(2)
--------------------- ------------------------ ------------------------
Net
Number Value
of Received Un- Un-
Name Shares ($)(1) Exercisable Exercisable Exercisable Exercisable
- --------------- ------ ------------- ----------- ----------- ----------- -----------
Zach Lonstein 20,392 $ 494,500 (3) 178,538 71,662 $ 70,349 $ 10,314
Robert Wallach 50,000 1,956,250 375,338 101,662 459,094 -
Joseph Germanotta - - 125,000 - - -
Warren Ousley 50 543 - - - -
(1) The amount shown represents the aggregate excess of the market value of the
shares of common stock as of the date of the exercise over the exercise
price paid.
(2) The amounts shown represent the aggregate excess of the market value of
in-the-money shares of common stock underlying options at December 31, 2000
over the exercise price of those options.
(3) This option for 25,000 shares was paid by the surrender of 4,608 shares,
the market price of which on the date of exercise approximated the exercise
amount of the option. The difference was paid in cash.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not full-time employees of the Company
are granted non-qualified options to purchase 1,250 shares of the Company's
common stock for each meeting attended. Employees of the Company who are also
Directors, and Directors who are also affiliates of the funds that have invested
in the Company, do not receive compensation for their service as Directors.
-7-
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
On June 15, 2000, the Company and Mr. Auster entered into an employment
agreement for a term of two years, with automatic two-year renewals. Pursuant to
this agreement, Mr. Auster serves as Chief Executive Officer and President at an
annual salary of $375,000. Annual increases and bonuses (up to $187,500 per
year) may be provided at the discretion of the Company's Board of Directors. The
employment agreement also provides for an award of 800,000 restricted shares of
common stock. Such award vests at various times during the period ending June
15, 2004. The value of these restricted shares ($11,500,000 on the grant date of
June 15, 2000) is being amortized ratably over the four year vesting schedule.
At the same time, Mr. Auster also purchased 68,446 shares of common stock from
the Company at $14.61 per share. In connection with the restricted stock award,
the Company agreed to lend Mr. Auster a sum of money equal to 50 percent of any
such tax payable as a result of such an election under Section 83(b) of the
Internal Revenue Code of 1986 with respect to the restricted shares, and any
such loan shall bear interest at the rate specified by Section 1274 of the
Internal Revenue Code of 1986 and, subject to certain conditions, shall be
payable at the time and to the extent that Mr. Auster sells or otherwise
transfers or obtains liquidity with respect to the restricted shares. The
Company loaned Mr. Auster $1,877,832 through April 2000 pursuant to the
foregoing provision of the agreement. The agreement also provides that the
Company shall nominate Mr. Auster to serve on the Company's Board of Directors.
Effective as of November 1, 1999, Mr. Lonstein and the Company entered into an
employment agreement with a three-year term with automatic one-year extensions.
This agreement provides for an annual salary of $375,000 with increases in the
second and third years of at least 5% per annum. The Options and Compensation
Committee of the Board of Directors may provide for a greater annual increase
and will set the parameters for the bonus calculation. The agreement also
provides for a grant of a nonqualified option to purchase 150,000 shares of the
Company's common stock at an exercise price equal to the market value of the
stock on November 1, 1999, in accordance with the Plan. In addition, the
agreement requires that the Company provide Mr. Lonstein a current model
automobile, pay for all repairs, maintenance, and related expenses, and also
purchase a health club membership for Mr. Lonstein and pay related expenses. The
agreement also provides that the Company shall nominate Mr. Lonstein to serve as
the Chairman of the Company's Board of Directors.
Effective as of November 1, 1999, Mr. Wallach and the Company entered into an
employment agreement with a three-year term with automatic one-year extensions.
This agreement provides for an annual salary of $375,000 with increases in the
second and third years of at least 5% per annum. The Options and Compensation
Committee of the Board of Directors may provide for a greater annual increase
and will set the parameters for the bonus calculation. The agreement also
provides for a grant of a non-qualified option to purchase 150,000 shares of the
Company's common stock at an exercise price equal to the market value of the
stock on November 10, 1999, in accordance with the Plan. In addition, the
agreement requires that the Company provide Mr. Wallach a current model
automobile; pay for all repairs, maintenance and related expenses; and purchase
a health club membership for Mr. Wallach and pay related expenses.
-8-
On December 18, 1998, a subsidiary of the Company purchased certain assets and
the business of Enterprise Technology Group, Incorporated ("Enterprise") for
$4,000,000 in cash and 300,000 shares of the Company's common stock. Certain
additional consideration in the form of cash and common stock may have been
payable, at various times, based upon the future performance of the acquired
business over the period ending December 31, 2001. On February 22, 2000, the
Company issued an additional 36,472 shares of its common stock to Enterprise in
accordance with this provision. Mr. Ousley is a majority stockholder of
Enterprise and receives a proportionate share of any consideration paid.
The purchase agreement also provided that Mr. Ousley should be appointed to the
Company's Board of Directors, subject to the approval thereof, and further that
he should be a nominee for Director, provided he is an employee of the Company
or any of its subsidiaries, for each of the three years following the closing of
the purchase. Messrs. Lonstein and Wallach agreed to vote their shares for his
election.
In an amendment to the purchase agreement concluded in February 2001, Enterprise
agreed to accept a warrant to purchase 65,000 shares of the Company's common
stock in full satisfaction of any remaining potential contingent consideration.
This warrant vests with respect to 21,667 shares on September 16, 2001, and the
remaining 43,333 shares vest monthly in equal amounts over the succeeding
twenty-four months.
Mr. Ousley was employed as the President of ETG, Inc., a subsidiary of the
Company, pursuant to an employment agreement. This agreement, which had a
scheduled expiration date of November 30, 2001, provided for an annual salary of
$268,000 with increases and annual bonuses to be determined by the Board of
Directors. The non-competition provisions of the agreement extended for one year
after the termination of the agreement. In June 2000, Mr. Ousley also assumed
the responsibilities of President of the Global Hosting and Engineering Division
of the Company. Effective as of September 2000, Mr. Ousley resigned as an
officer of the Company and ETG, Inc., and he resigned as a Director on February
1, 2001. In settlement of his employment agreement, the Company agreed to pay
Mr. Ousley a total of $300,000 in varying amounts and at various times over the
period ending September 2001.
Mr. Germanotta was employed subject to an employment agreement dated November
15, 1999, expiring on November 30, 2001. This agreement provided for an annual
salary of $225,000 with increases and annual bonuses to be determined by the
Board of Directors. The agreement also called for options to purchase 50,000
shares of the Company's common stock, and, pursuant to an amendment in May 2000,
an additional option to purchase 200,000 shares of the Company's common stock.
In June 2000, Mr. Germanotta became President of the Company's Internet Data
Center Division. Mr. Germanotta resigned in October 2000. In December 2000, Mr.
Germanotta and the Company entered into an agreement in settlement of Mr.
Germanotta's employment agreement whereby the Company agreed to pay
approximately $79,000 at various times through March 2001. The Company also
agreed to accelerate the vesting of an option to purchase 25,000 shares of
common stock that would have otherwise been forfeited. The remaining option for
125,000 shares was forfeited.
-9-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In July 2000, the Options Committee was merged with the Compensation
Committee. The Compensation Committee of the Board of Directors consisted
of Messrs. Lonstein, Wallach, Lynaugh, and Waltman until May 2000.
(Messrs. Lonstein and Wallach are executive officers of the Company.
Messrs. Waltman and Lynaugh were non-employee Directors.) Beginning in
July 2000, the Options and Compensation Committee members were Ms. McCuen
and Messrs. Zachem, Schiff, and Lee. Ms. McCuen and Messrs. Zachem,
Schiff, and Lee are non-employee directors who are also Managing Directors
of affiliates of organizations that have an investment in the Company (See
"Certain Relationships and Related Party Transactions" below). The Board
may also delegate the authority to the Options and Compensation Committee
to negotiate contracts with certain employees. The Options and
Compensation Committee met once during twelve months ended December 31,
2000 and took two actions by written consent.
OPTIONS AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Options and Compensation Committee of the Board of Directors of the Company
is composed of four non-employee directors. It is responsible for, among other
matters, establishing policies applicable to the compensation of the Company's
executive officers and reporting on such policies to the Board of Directors and
stockholders; determining the salaries, incentive compensation and other
remuneration of executive officers of the Company who are directors; and
reviewing salaries, compensation and remuneration for all other officers of the
Company. The Committee regularly reviews the effectiveness of the Company's
executive compensation practices and revises them as appropriate. This is a
report on the compensation philosophy of the Committee and its executive
compensation activities during the twelve months ended December 31, 2000.
REPORT ON EXECUTIVE COMPENSATION
The Options and Compensation Committee of the Board of Directors administers the
compensation of the executive officers of the Company. During the twelve months
ended December 31, 2000, the Options and Compensation Committee was composed of
four directors who were not employed by the Company. The Options and
Compensation Committee's recommendations are subject to approval by the full
Board. The following report is submitted by the Options and Compensation
Committee regarding compensation paid during the twelve months ended December
31, 2000.
The Company's compensation policies are designed to attract, motivate, and
retain superior talent to enable the Company to achieve its business objectives
and to align the financial interest of the executive officers with the
stockholders of the Company.
The compensation of executive officers consists of base compensation,
participation in benefit plans generally available to employees, and in some
instances, bonuses and/or options. In setting compensation, the Options and
Compensation Committee strives to maintain base compensation for the Company's
executive officers at levels which the Committee, based on its experience,
believes are competitive with the compensation of comparable executive officers
in similarly situated companies while relying upon stock options and the bonus
plan to provide significant performance incentives.
-10-
Executive officers are eligible to participate in a bonus plan. Awards under the
bonus plan are determined by the Options and Compensation Committee. The Options
and Compensation Committee relies significantly upon the recommendation of the
Chief Executive Officer with respect to the bonus to be awarded to the other
executive officers. The executive officers, as well as other key employees, may
receive discretionary bonuses based upon a subjective evaluation of the
performance of the Company and their contributions to the Company. Each of the
executive officers and certain key employees are eligible to receive awards
under the Amended and Restated 1992 Stock Option and Stock Appreciation Rights
Plan. The Plan will be used to align a portion of the officers' compensation
with the stockholders' interest and the long term success of the Company. In
determining the number of options to be granted to each executive officer, the
Options and Compensation Committee reviews the recommendations provided by the
Chief Executive Officer with respect to the executive officers other than the
Chief Executive Officer and makes a subjective determination regarding those
recommendations.
The Compensation paid by the Company to its Named Executive Officers for the
twelve months ended December 31, 2000 was based upon employment agreements
negotiated with each of the Named Executive Officers. The Options and
Compensation Committee has not conducted any surveys of compensation packages of
executive officers in comparable companies, but believes, based on the
individual experience of its members, that the compensation package for each
Named Executive Officer for the twelve-month period ended December 31, 2000 was
reasonable based upon each executive officer's experience, level of
responsibility, and the contributions made and expected to be made by each to
the Company. See "Employment Agreements with Named Executive Officers" for a
description of the employment agreements.
Options and Compensation Committee
David C. Lee
Samantha McCuen
Frank L. Schiff
Tyler T. Zachem
STOCK PERFORMANCE GRAPH
The accompanying graph compares cumulative total stockholder return on the
Company's common stock with the NASDAQ Domestic Stock Index and the NASDAQ
Computer and Data Processing Services Index (SIC Code 737). The graph assumes
that $100 was invested in the Company's stock and each index on December 31,
1995.
[GRAPH APPEARS HERE]
STOCKHOLDER RETURN
AS OF DECEMBER 31,
1995 1996 1997 1998 1999 2000
Company Common Stock $100 $ 82 $235 $225 $594 $144
NASDAQ Domestic Index 100 123 151 212 395 238
NASDAQ Computer and
Data Processing
Services Index 100 123 152 270 594 275
-11-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 16, 2001 by (a) all current
Directors of the Company, (b) the Named Executives, (c) all directors and
executive officers as a group, and (d) any other person known by the Company to
be the beneficial owner of more than 5% of its common stock. Beneficial
ownership includes shares that the beneficial owner has the right to acquire
within sixty days of the above date from the exercise of options, warrants, or
similar obligations. If no address is shown, the address of the beneficial owner
is in care of the Company.
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
- -------------------------------------------------------------------
Number of Percentage
Name and Address of Beneficial Owner Shares of
Beneficially Class
Owned
- --------------------------------------- -------------- ----------
Zach Lonstein (1) 1,707,332 28.0%
- --------------------------------------- -------------- ----------
Charles F. Auster (2) 868,446 14.7%
- --------------------------------------- -------------- ----------
Robert B. Wallach (3) 479,765 7.6%
- --------------------------------------- -------------- ----------
Tyler T. Zachem
DB Capital Partners, Inc.
130 Liberty Street - 25th Floor
New York, NY 10006 (4) 2,496,877 29.7%
- --------------------------------------- -------------- ----------
Frank L. Schiff
DB Capital Partners, Inc.
130 Liberty Street - 25th Floor
New York, NY 10006 (4) 2,496,877 29.7%
- --------------------------------------- -------------- ----------
David C. Lee
Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, NY 10153 (5) 2,480,231 29.5%
- --------------------------------------- -------------- ----------
Samantha McCuen
Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, NY 10153 (5) 2,480,231 29.5%
- --------------------------------------- -------------- ----------
Kathleen A. Perone
22 Ocean Drive Avenue
Monmouth Beach, NJ 07750 (6) 27,500 *
- --------------------------------------- -------------- ----------
Warren Ousley
18 Wetherill Drive
Freehold, NJ 07728 196,204 *
- --------------------------------------- -------------- ----------
Joseph Germanotta
135 West 70th Street - 1A
New York, NY 10023 (7) 125,000 *
- --------------------------------------- -------------- ----------
Continued on next page.
-12-
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
(CONTINUED)
- -------------------------------------------------------------------
Number of Percentage
Name and Address of Beneficial Shares of
Owner Beneficially Class
Owned
- --------------------------------------- -------------- ----------
All Directors and executive officers (8) 7,658,222 70.0%
as a group (12 persons)
- --------------------------------------- -------------- ----------
DB Capital Partners, Inc.
130 Liberty Street
New York, NY 10006 (4) 2,496,877 29.7%
- --------------------------------------- -------------- ----------
Sandler Capital Management
767 Fifth Avenue
New York, NY 10153 (5) 2,480,231 29.5%
- --------------------------------------- -------------- ----------
Sandler Capital Partners V, L.P.
767 Fifth Avenue
New York, NY 10153 (9) 1,611,816 21.4%
- --------------------------------------- -------------- ----------
Sandler Capital Partners V FTE,
L.P.
767 Fifth Avenue
New York, NY 10153 (10) 660,341 10.0%
- --------------------------------------- -------------- ----------
Cahill, Warnock Strategic
Partners Fund, L.P.
One South Street - Suite 2150
Baltimore, MD 21202 (11) 412,981 7.0%
- --------------------------------------- -------------- ----------
Kern Capital Management, LLC
114 West 47th Street - Suite
1926
New York, NY 10036 363,900 6.2%
- --------------------------------------- -------------- ----------
* Less than 1% of Class
(1) Includes 193,540 shares of common stock issuable upon exercise of
vested options held by Mr. Lonstein. Also includes 750,000 shares
that are subject to options held by DB Capital Investors, L.P.,
Sandler Capital Management, and other parties to a private
placement of securities (see "Certain Relationships and Party
Related Transactions" below).
(2) Includes 800,000 shares that vest at various times. See "Employment
Agreements with Named Executive Officers" below.
(3) Includes 430,340 shares of common stock issuable upon exercise of
vested options held by Mr. Wallach.
-13-
(4) Includes 844,725 common shares issuable upon conversion of 78,688.5
shares of Preferred Stock, including accrued dividends
thereon, 1,265,963 common shares issuable upon exercise
of warrants, and 375,000 common shares which may be
purchased from Mr. Lonstein subject to an option.
Messrs. Zachem and Schiff are Managing Directors of DB
Capital Partners, Inc., which is the General Partner of
DB Capital Partners, L.P., which in turn is the General
Partner of DB Capital Investors, L.P., the owner of the
shares of the Preferred Stock, warrants, and option.
Messrs. Zachem and Schiff have shared voting and
dispositive power over such Preferred Stock, warrants,
and option noted above, and have disclaimed beneficial
ownership for all of the shares beneficially owned by DB
Capital Investors, L.P., except as to the extent of their
pecuniary interest therein. DB Capital Investors, L.P.
owns 50% of the outstanding shares of Preferred Stock.
(5) Includes 839,094 common shares issuable upon conversion of 78,164 shares of
Preferred Stock, including accrued dividends thereon, 1,257,523
common shares issuable upon exercise of warrants, and 372,500
common shares which may be purchased from Mr. Lonstein subject to
options. Ms. McCuen and Mr. Lee are Managing Directors of Sandler
Capital Management, which is the general partner of Sandler
Investment Partners, L.P., which in turn is the general partner of
four funds that collectively own the Preferred Stock, warrants, and
options noted above. Ms. McCuen and Mr. Lee have shared voting and
dispositive power over such Preferred Stock, warrants, and options.
The four funds collectively own 49.7% of the outstanding shares of
Preferred Stock.
(6) Includes 27,500 shares of common stock issuable upon exercise of
non-qualified options held by Ms. Perone.
(7) Includes 125,000 shares of common stock issuable upon exercise of
vested options held by Mr. Germanotta.
(8) Includes 1,568,524 common shares issuable upon conversion of
156,852 shares of Preferred Stock and 2,523,486 common shares
issuable upon exercise of warrants over which four directors
exercise shared control. Also includes 794,747 shares of common
stock issuable upon exercise of options collectively held by the
twelve directors and executive officers of the Company.
(9) Includes 545,298 common shares issuable upon conversion of 50,796
shares of the Preferred Stock, including accrued dividends thereon,
1,265,963 common shares issuable upon exercise of warrants, and
242,075 common shares which may be purchased from Mr. Lonstein
subject to an option.
(10) Includes 223,402 common shares issuable upon conversion of 20,810
shares of Preferred Stock, including accrued dividends thereon,
1,257,523 common shares issuable upon exercise of warrants, and
99,175 common shares which may be purchased from Mr. Lonstein
subject to an option.
(11) Includes 8,121 common shares issuable upon exercise of warrants.
-14-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On April 7, 2000, the Company entered into a Securities Purchase Agreement
providing for a group of investors to purchase $60 million of the Company's
securities in a private placement. The transaction was approved by the Company's
stockholders at the Annual Meeting of Stockholders held on May 8, 2000.
The private placement transaction closed on May 10, 2000. The Company issued
157,377 shares of Preferred Stock and warrants to purchase 2,531,926 shares of
the Company's common stock at an exercise price of $0.01 per share. The Company
received $58,430,596 after payment of issuance costs and related legal fees.
The Company primarily will use the net proceeds from this transaction to pursue
its business plan of expanding its managed services activities through its own
Internet Data Centers and Managed Service Centers as well as at customer
locations. The Company also repaid debt having an aggregate principal balance of
$5 million from these proceeds.
As of March 31, 2001, Mr. Lonstein was indebted to the Company in the amount of
$71,930. This indebtedness is payable on demand and bears interest at the prime
rate of interest plus 1% per annum.
As of March 31, 2001, Mr. Wallach was indebted to the Company in the amount of
$78,121. This indebtedness is payable on demand and bears interest at the prime
rate of interest.
As compensation for providing a personal guarantee of certain acquisition
indebtedness in connection with the acquisition of MCC Corporation by the
Company in 1995, Mr. Lonstein was granted an annual fee of 3% of the $1,000,000
original value of that guarantee for the period during which the guarantee
remains in effect. That fee was paid in the form of a monthly reduction in his
indebtedness to the Company. On February 1, 1999, the Company made the final
payment on that indebtedness, and Mr. Lonstein's guarantee terminated as of that
date.
As of March 31, 2001, Mr. Auster was indebted to the Company in the amount of
$1,309,984. In April 2001, the Company advanced $586,832 to Mr. Auster. The
advances were made, pursuant to his employment agreement, in the amount of 50%
of Mr. Auster's tax liability relating to a restricted stock award (See
"Employment Agreements with Named Executive Officers" above). This
indebtedness bears interest at the rate specified by Section 1274 of the
Internal Revenue Code of 1986 and, subject to certain conditions, shall be
repayable at the time and to the extent that Mr. Auster sells or otherwise
transfers or obtains liquidity with respect to the restricted shares.
-15-
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INFOCROSSING, INC.
April 30, 2001 /s/
---------------------------------------------
Charles F. Auster - Chief Executive
Officer & President
April 30, 2001 /s/
---------------------------------------------
Nicholas J. Letizia - Senior Vice
President, General
Counsel & Secretary