SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Only (as permitted by Rule 14a-6(e) (2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Infocrossing, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement no.:
3) Filing Party:
4) Date Filed:
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 22, 2001
--------------------------
The Annual Meeting of Stockholders will be held at 9:00A.M. on Friday, June 22,
2001, at the offices of the Company at 2 Christie Heights Street, Leonia, NJ
07605, for the following purposes:
1. To elect three Directors of the Company for a three-year term;
2. To approve a proposal to amend the Company's Amended and Restated 1992
Stock Option and Stock Appreciation Rights Plan to limit the form of
cashless exercise and increase the total number of shares of common
stock for which options may be granted from 2,700,000 to 3,100,000; and
3. To transact such other business as may properly come before the Annual
Meeting.
Only stockholders of record at the close of business on May 17, 2001 will be
entitled to vote at the Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE
ANNUAL MEETING.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE YOUR PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU DO ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON,
YOUR PROXY WILL NOT BE USED.
By order of the Board of Directors,
Nicholas J. Letizia
Secretary
May 18, 2001
INFOCROSSING, INC.
2 CHRISTIE HEIGHTS STREET
LEONIA, NEW JERSEY 07605
(201) 840-4700
----------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 22, 2001
--------------------------------
GENERAL INFORMATION
The enclosed Proxy is solicited on behalf of the Board of Directors of
Infocrossing, Inc. (the "Company") for use at the Annual Meeting of Stockholders
of the Company (the "Meeting") to be held at 9:00A.M. on Friday, June 22, 2001
(the "Meeting Date"), at the offices of the Company at 2 Christie Heights
Street, Leonia, NJ 07605.
The authority granted by an executed Proxy may be revoked at any time before its
use by (a) filing a written revocation with the Secretary of the Company, (b)
submitting a new, duly-executed Proxy bearing a later date, or (c) voting in
person at the Meeting. Shares represented by valid Proxies will be voted at the
Meeting in accordance with the specifications in the Proxies.
If no specifications are made in otherwise properly executed Proxies, they will
be voted (1) FOR the election of the Directors nominated by the Board and (2)
FOR amending the Company's Amended and Restated 1992 Stock Option Plan and Stock
Appreciation Rights Plan (the "Plan") to limit the form of cashless exercise and
increase the total number of shares of common of stock for which options may be
granted from 2,700,000 to 3,100,000.
Only stockholders of record at the close of business on May 17, 2001 (the
"Record Date") will be entitled to vote at the Meeting, either in person or by
Proxy. On the Record Date, the Company had outstanding 5,870,282 shares of
common stock, $0.01 par value, each entitled to one vote. In addition, the
Company had outstanding 157,377 shares of Redeemable 8% Series A Cumulative
Convertible Participating Preferred Stock (the "Preferred Stock"). Each share of
Preferred Stock is entitled to 10.95 votes, which is the number of common shares
into which each share of the Preferred Stock is entitled to be converted on the
Record Date. The common stock and the Preferred Stock are the Company's only
classes of voting stock currently outstanding. A majority in interest of the
outstanding voting stock, represented at the Meeting either in person or by
Proxy, constitutes a quorum for the transaction of business.
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 this proxy reflects the twelve-month period ended December 31 of
the year presented.
The Company will bear the cost of the solicitation of Proxies including, upon
request, reimbursement of brokerage companies and other nominees for their
reasonable expenses in forwarding solicitation materials to beneficial owners of
common stock. In addition to the use of the mails, employees of the Company may
devote part of their time to the solicitation of Proxies by telephone,
telegraph, or in person, but no additional compensation will be paid to them.
The approximate date on which this Proxy Statement and accompanying Proxy are
first being sent or given to stockholders is May 23, 2001.
1
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 May 17, 2001 by (a) all current
Directors of the Company, (b) the Chief Executive Officer and the four executive
officers of the Company whose salary exceeded $100,000 in the most recent
calendar year (together, 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 Shares Percentage
Name and Address of Beneficial Owner Beneficially Owned of Class
- ------------------------------------- ----------------------- --------------
Zach Lonstein (1) 1,711,499 28.0%
- ------------------------------------- ------ ---------------- --------------
Charles F. Auster (2) 868,446 14.7%
- ------------------------------------- ------ ---------------- --------------
Robert B. Wallach (3) 483,932 7.6%
- ------------------------------------- ------ ---------------- --------------
Tyler T. Zachem
DB Capital Partners, Inc.
130 Liberty Street - 25th Floor
New York, NY 10006 (4) 2,502,583 29.7%
- ------------------------------------- ------ ---------------- --------------
Frank L. Schiff
DB Capital Partners, Inc.
130 Liberty Street - 25th Floor
New York, NY 10006 (4) 2,502,583 29.7%
- ------------------------------------- ------ ---------------- --------------
Richard A. Keller
Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, NY 10153 (5) 2,485,899 29.6%
- ------------------------------------- ------ ---------------- --------------
Samantha McCuen
Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, NY 10153 (5) 2,485,899 29.6%
- ------------------------------------- ------ ---------------- --------------
Kathleen A. Perone
22 Ocean Drive Avenue
Monmouth Beach, NJ 07750 (6) 28,750 *
- ------------------------------------- ------ ---------------- --------------
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.
2
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK (CONTINUED)
- --------------------------------------------------------------------------------
Number of Shares Percentage
Name and Address of Beneficial Owner Beneficially Owned of Class
- ------------------------------------- ----------------------- --------------
Michael B. Targoff
1330 Avenue of the Americas
New York, NY 10019 (8) 25,000 *
- ------------------------------------- ------ ---------------- --------------
All Directors and executive officers
as a group (14 persons) (9) 7,698,180 70.1%
- ------------------------------------- ------ ---------------- --------------
DB Capital Partners, Inc.
130 Liberty Street
New York, NY 10006 (4) 2,502,583 29.7%
- ------------------------------------- ------ ---------------- --------------
Sandler Capital Management
767 Fifth Avenue
New York, NY 10153 (5) 2,485,899 29.6%
- ------------------------------------- ------ ---------------- --------------
Sandler Capital Partners V, L.P.
767 Fifth Avenue
New York, NY 10153 (10) 1,615,500 21.5%
- ------------------------------------- ------ ---------------- --------------
Sandler Capital Partners V FTE, L.P.
767 Fifth Avenue
New York, NY 10153 (11) 661,850 10.1%
- ------------------------------------- ------ ---------------- --------------
Cahill, Warnock Strategic Partners
Fund, L.P.
One South Street - Suite 2150
Baltimore, MD 21202 (12) 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 197,707 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 Related Transactions" below).
(2) Includes 800,000 shares that vest at various times. See "Agreements
with Certain executive officers and Directors" below.
(3) Includes 434,507 shares of common stock issuable upon exercise of
vested options held by Mr. Wallach.
(4) Includes 861,620 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.
(Continued on next page.)
3
(4) (Continued) 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 855,876 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. Keller 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. Keller 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 28,750 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 25,000 shares of common stock issuable upon exercise of vested
options held by Mr. Targoff.
(9) Includes 1,717,496 common shares issuable upon conversion of 156,852
shares of Preferred Stock, including accrued dividends
thereon, and 2,523,486 common shares issuable upon
exercise of warrants over which four directors exercise
shared control. Also includes 829,331 shares of common
stock issuable upon exercise of options collectively held
by the directors and executive officers of the Company.
(10) Includes 556,204 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.
(11) Includes 227,870 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.
(12) Includes 8,121 common shares issuable upon exercise of warrants.
4
PROPOSAL I - ELECTION OF DIRECTORS
Pursuant to a Stockholders' Agreement, the Board of Directors has fixed the
number of Directors at ten. The Board is divided into three classes. On May 10,
2000, following the consummation of a private placement of $60 million of
securities approved by thestockholders at last year's Annual Meeting (see
"Certain Relationships and Related Party Transactions" below), Messrs Waltman,
Lynaugh, DaPuzzo, Platt, and Wallach resigned from the Board, and Ms. McCuen and
Messrs. Zachem, Lee, and Schiff were elected as Directors by the Board. Mr.
Ousley resigned from the Board in February 2001. Mr. Lonstein has the authority
under the Stockholders' Agreement to name a replacement for Mr. Ousley, but has
so far declined to do so. Mr. Schiff and Ms. McCuen were elected as Class A
Directors, whose terms expire in 2002. Messrs. Zachem and Lee were elected as
Class C Directors, whose terms expire in 2003. Mr. Auster was elected as a
Class B Director in June 2000. Ms. Perone was elected as a Class B Director in
September 2000. Mr. Lee resigned in April 2001. Mr. Keller was elected as a
Class C Director in April 2001. Mr. Targoff was elected as a Class B Director
in May 2001. One additional Class C Director remains to be named. At this
Meeting, Class B directors will be elected.
The persons named in the table below are the Class B directors nominated for
election at the Meeting, each to serve a three-year term or until their
respective successors are duly elected and qualified. Each has consented to
being named a nominee in this Proxy Statement and has agreed to serve as a
Director if elected at the Meeting. Unless otherwise indicated, the persons
named in the Proxy intend to vote their shares for the election of these
nominees. Pursuant to a Stockholders' Agreement, Messrs. Zachem, Keller, Schiff,
and Lonstein and Ms. McCuen have agreed that each party will vote his shares to
elect the slate of Directors nominated by the Board. If any nominee becomes
unable to serve prior to the Meeting, Proxies will be voted for such other
candidates as may be nominated by the Board of Directors.
Directors will be elected by a plurality of the votes properly cast at the
meeting. Abstentions and broker non-votes will not be treated as votes cast for
this purpose.
DIRECTOR
NAME POSITIONS WITH THE COMPANY AGE SINCE
- ------------------- ------------------------------ ------ --------------
Charles F. Auster President, CEO, and Director 49 2000
Kathleen A. Perone Director 47 2000
Michael B. Targoff Director 56 2001
5
The name, principal occupation with the Company, and certain information
concerning each of the Directors and executive officers of the Company are set
forth in the table below. Also set forth following the table is certain
additional information regarding each individual's business experience.
DIRECTOR TERM
NAME POSITIONS WITH THE COMPANY AGE SINCE EXPIRES
- ------------------------ -------------------------------------------- ------ ------------ -----------
Zach Lonstein Chairman of the Board of Directors 57 1984 2002
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 & Treasurer 47 - -
Richard A. Keller Director 36 2001 2003
Tyler T. Zachem Director 34 2000 2003
Samantha McCuen Director 32 2000 2002
Frank L. Schiff Director 41 2000 2002
Kathleen A. Perone Director 47 2000 2001
Michael B. Targoff Director 56 2001 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.
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.
6
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
in 1992, and a Director from 1996 until May 2000. Prior to 1984, Mr. Platt held
various positions with Informatics and TCS.
RICHARD A. KELLER was elected a Director of the Company by the Board of
Directors in April 2001. Mr. Keller has been Managing Director of Sandler
Capital Management since June 2000. From February 1996 until March 2000,
Mr. Keller was a partner of Chartwell Investments, a private equity investment
firm. Mr. Keller's prior professional experience includes positions as an
investment banker with Merrill Lynch & Co. and as an attorney with the firm of
Davis Polk & Wardwell.
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.
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.
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.
7
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.
MICHAEL B. TARGOFF was elected a Director of the Company by the Board of
Directors in May 2001. Mr. Targoff is the owner of Michael B. Targoff & Co., a
company he founded in January 1998 that seeks active or controlling investments
in telecommunications and related industry early stage companies. Also, he
is CEO and 49% shareholder of ProntoCast, LLC, a company formed to acquire,
launch and operate a Mexican telecommunications satellite. From January 1996
through January 1998 Mr. Targoff was president and chief operating officer of
Loral Space and Communications Ltd. Mr. Targoff had been senior vice
president of Loral Corporation prior to the combination of Loral's defense
electronics and systems integration businesses with Lockheed Martin in
1996. Mr. Targoff is a director and chairman of the audit committee for both
Globalstar Telecommunications Limited and Leap Wireless International, Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during the twelve months ended
December 31, 2000 and took four actions by unanimous written consent. The
Company has standing Executive, Audit, and Options and Compensation Committees
of the Board of Directors. The Company does not have a nominating committee.
During the twelve months ended December 31, 2000 (or for such shorter period
during which they served) all Directors attended at least 75% of the meetings of
the Board of Directors and the meetings of the committees on which they served
except Messrs. Ousley and Lee.
The Executive Committee was formed in July 2000 and may act with the authority
of the Board except that it may not (i) submit any matter to a vote of the
stockholders, (ii) fill any Board vacancies, (iii) set any compensation for
Board members, and (iv) amend or repeal the By-Laws or any Board resolution
which by its terms may not be so amended or repealed. The Executive Committee
consisted of Messrs. Lonstein, Auster, and Zachem, and, until April 23, 2001,
Mr. Lee. The Executive Committee met once in the twelve months ended December
31, 2000.
The Audit Committee consists of Directors who are not employees of the Company.
For the portion of the year from January through May 2000, the Audit Committee
members were Messrs. Lynaugh and Waltman. From July 2000 through the end of the
year, the Audit Committee consisted of Messrs Zachem, Lee, and Schiff and Ms.
McCuen. Ms. Perone was added to the Audit Committee in September 2000. The Audit
Committee met once in December 2000. Beginning in June 2001, the Audit Committee
will consist of Ms. Perone, Mr. Targoff , and an additional independent member
of the Board of Directors. The Board of Directors has undertaken to fill the
vacancy on the Board and the Audit Committee with such additional independent
Director by December 31, 2001. At such time, the members of the Audit Committee
will be deemed independent as defined in the listing standards of the National
Association of Securities Dealers.
8
In June 2000, the Board of Directors adopted a Charter pursuant to requirements
of the Securities and Exchange Commission. This Charter is attached herewith as
Appendix A. The Audit Committee may meet periodically with management and the
Company's independent certified public accountants to discuss their evaluation
of internal accounting controls, the quality of financial reporting, and related
matters. The independent auditors have free access to members of the Audit
Committee without the presence of management, if necessary, to discuss the
results of their audits. The Board of Directors, subject to the recommendation
of the Audit Committee, may approve the extent of non-audit services provided by
the independent auditors, giving due consideration to the impact of those
services on the auditors' independence. The report of the Audit Committee
appears on page 20.
Until May 2000, the Board had a separate Options Committee, consisting of two
Directors (Messrs. Lynaugh and Waltman) who were not employees of the Company,
which administered the Company's Amended and Restated 1992 Stock Option and
Stock Appreciation Rights Plan. 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. A report on
the compensation philosophy of the Committee and its executive compensation
activities during the twelve months ended December 31, 2000 appears on page 14.
9
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 Named Executives.
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation All Other
Awards Compensation ($)
--------------------------------------------- ---------------------------------
Name and Securities
Principal Position at Other Annual Restricted Underlying
December 2000 * Year Salary ($) Bonus ($) Compensation ($) Stock Awards (#) Options/SARS ($)
- ------------------------ --------- ------------ --------------- ---------------- ---------------- ---------------- -----------------
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 Officer 1999 275,459 - - - 150,000 -
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).
(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 Transactions" below).
10
(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 Chief Executive Officer and 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
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED TO EXERCISE AT ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEES IN PRICE STOCK PRICE APPRECIATION FOR
NAME GRANTED THE PERIOD ($/SHARE) EXPIRATION DATE OPTION TERM
- ----------------------- ------------- -------------- ------------ ----------------- ------------------------------
5% 10%
------------- -------------
Zach Lonstein 300 (1) - $ 6.53 Dec. 21, 2005 $315 $910
Robert Wallach 50 (1) - 5.94 Dec. 21, 2010 187 473
Joseph Germanotta 50,000 (2) 6% 12.00 Oct. 06, 2001 41,400 101,050
(1) Became exercisable on December 22, 2000
(2) Became exercisable as to 25,000 shares on December 1, 1999. One-half of
the remaining shares underlying the option would have become exercisable
on December 1, 2000 and the other half on December 1, 2001. In
connection with the termination of the employment agreement with Mr.
Germanotta, this entire option became exercisable as of October 6, 2000,
the date of his resignation. This option expires on October 6, 2001.
11
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table contains information concerning the stock options held by
the Chief Executive Officer and the Named Executives during the year ended
December 31, 2000. No stock appreciation rights have been granted by the
Company.
AGGREGATED OPTION EXERCISES DURING THE TWELVE MONTHS ENDED DECEMBER 31, 2000
AND YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------------------
Securities Received from Number of Securities
Exercise of Options during Underlying Unexercised Value of Unexercised
the Twelve Months ended Options at December 31, In-the-Money Options at
December 31, 2000 2000 (#) December 31, 2000 ($) (2)
------------------------------- ---------------------------- -----------------------------
Net Value
Number 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. When elected as a Director, Ms. Perone
and Mr. Targoff each received an option to purchase 25,000 shares of the
Company's common stock. 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.
EMPLOYMENT AGREEMENTS WITH THE NAMED EXECUTIVE OFFICERS,
TERMINATION OF AGREEMENTS
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
12
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.
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.
13
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.
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.
14
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.
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" for a description of the employment
agreements.
Options and Compensation Committee
David C. Lee
Samantha McCuen
Frank L. Schiff
Tyler T. Zachem
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.
15
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 the 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.
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
16
PROPOSAL II - APPROVAL OF THE AMENDMENTS TO THE COMPANY'S RESTATED AND AMENDED
1992 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN INCLUDING AN INCREASE
IN THE NUMBER OF SHARES AVAILABLE FOR GRANT
-----------------------------------------------------------------
On April 3, 2001, the Board of Directors adopted a resolution, subject to
stockholder approval, to amend the Revised and Restated 1992 Stock Option and
Stock Appreciation Rights Plan (the "Plan") to limit the form of cashless
exercise, and to increase the number of shares available for grant under the
Plan from 2,700,000 to 3,100,000. The proposed amendment would permit a holder
of a vested stock option to exercise by paying the exercise price with (a) cash;
(b) shares having a market value at least equal to the exercise price of the
option; (c) the proceeds of a loan from an independent broker-dealer whereby the
loan is secured by the option or the stock to be received upon exercise; or (d)
any combination of the foregoing. The amendment will eliminate a type of
cashless exercise whereby the option holder would forfeit unexercised vested
options and use the difference between the fair market value of the underlying
shares and the exercise price of the options forfeited as payment of the
exercise price.
The Board of Directors believes that stock options are valuable tools for the
recruitment, retention, and motivation of qualified employees, including
officers and other persons who can materially contribute to the Company's
success. As of the Record Date, approximately 332,400 shares remained available
and the Company has agreed to grant options for an additional 67,500 shares at
various times and subject to certain conditions. Further, the Company may wish
to make additional grants to existing employees, new employees gained through
normal growth or future business acquisitions (although the Company has no
definitive plans for any such acquisitions at this time), or for other purposes.
The Board of Directors believes that it is important to have additional shares
available under the Plan to provide adequate incentives to the Company's
workforce.
The material features of the Plan, including the proposed increase, are outlined
below.
The affirmative vote of the holders of a plurality of the shares of common stock
voting at the Meeting, in person or by proxy, is necessary for approval of the
amendments to the Plan and, unless this vote is received, the amendments to the
Plan, including the increase in the number of options available for grant, will
not become effective. Abstentions and broker non-votes will not be treated as
votes cast against Proposal II.
PURPOSE OF PLAN
The purpose of the Plan is to provide incentives to selected directors,
officers, employees, and consultants of the Company and its subsidiaries, by
providing them with the opportunity to realize stock appreciation, by
facilitating stock ownership, and by rewarding them for achieving a high level
of corporate performance. The Plan is also intended to facilitate recruiting and
retaining key personnel of outstanding ability.
ADMINISTRATION
The Plan is administered by the Options and Compensation Committee appointed by
the Company's Board of Directors. Except with respect to options granted to
non-employee Directors, the Options and Compensation Committee has the exclusive
17
power to grant options under the Plan and to determine when and to whom options
will be granted, and the form, amount and other terms and conditions of each
grant, subject to the provisions of the Plan. The Options and Compensation
Committee has the authority to interpret the Plan and any grant or agreement
made under the Plan.
ELIGIBILITY
The Plan provides for grants to all employees of the Company and its
subsidiaries of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, and for grants of non-qualified
options to employees, officers, directors and consultants of the Company and its
subsidiaries. Additionally, the Plan provides that each unaffiliated Director
shall automatically be granted a stock option covering 1,250 shares for each
meeting of the Board of Directors attended by that director.
TYPES OF GRANTS
The Company has discretion to determine whether an option grant shall be an
incentive stock option or a non-qualified option. Subject to certain
restrictions applicable to incentive stock options, options will be exercisable
by the recipients at those times as are determined by the Options and
Compensation Committee, but in no event may the term of an option be longer than
ten years after the date of grant (five years with respect to an incentive
option granted to an employee holding 10% or more of the Company's stock). Both
incentive and non-qualified stock options may be granted to recipients at such
exercise prices as the Options and Compensation Committee may determine, except
that the exercise price of an incentive stock option shall not be less than 100%
of the fair market value of the stock on the date of its grant (110% in the case
of a grant to a 10% or greater stockholder) and the exercise price of a
non-qualified option granted to a non-employee Director shall be the fair market
value of the stock on the date of grant.
Before the effect of Proposal II, the purchase price payable upon exercise of
options may be paid (1) in cash, (2) by delivering, subject to the approval of
the Options and Compensation Committee, stock already owned by the holder (where
the fair market value of the shares delivered on the date of exercise is equal
to the option price of the stock being purchased), (3) by forfeiting options
owned by the holder (where differences between the fair market value of the
shares and the exercise price of the forfeited options is equal to the option
price of the stock being purchased), or a combination of the foregoing. Proposal
II would eliminate payment as described in (3) and allow payment with the
proceeds of a loan from an independent broker-dealer whereby the loan is secured
by the option or the stock to be received upon exercise.
TRANSFERABILITY
During the lifetime of an employee to whom an option has been granted, only the
employee, or the employee's legal representative, may exercise an option. No
options may be sold, assigned, transferred, exchanged or otherwise encumbered
except to a successor in the event of an option holder's death.
STOCK APPRECIATION RIGHTS
Options may be accompanied by either general or limited stock appreciation
rights. Upon exercising a stock appreciation right, a related option shall no
longer be exercisable, and the option shall be considered to have been exercised
18
to that extent for purposes of determining the number of shares available for
the grant of further options. Upon exercise of a right, the holder receives the
difference between the fair market value per share on the date the right is
exercised and the purchase price per share at which the option is exercisable,
multiplied by the number of shares with respect to which the right is being
exercised. A limited right, however, may be exercised only during the period of
a tender or exchange offer for the Company's shares.
AMENDMENT OR TERMINATION
The Board of Directors may amend or discontinue the Plan but no amendment or
termination shall be made that would impair the rights of any holder of any
option granted before the amendment or termination.
FEDERAL TAX CONSIDERATIONS
The Company has been advised by its outside counsel that the grant, exercise,
and sale of options and stock under the Plan generally results in the following
tax events for United States citizens under current United States Federal income
tax laws.
Incentive Stock Options - A recipient will realize no taxable income, and the
Company will not be entitled to any related deduction, at the time an incentive
stock option is granted under the Plan. If certain statutory employment and
holding period conditions are satisfied before the recipient disposes of shares
acquired pursuant to the exercise of such an option, then no taxable income will
result upon the exercise of an incentive stock option and the Company will not
be entitled to any deduction in connection with that exercise. Upon disposition
of the shares after expiration of the statutory holding periods, any gain or
loss realized by a recipient will be a capital gain or loss. The Company will
not be entitled to a deduction with respect to a disposition of the shares by a
recipient after the expiration of the statutory holding periods.
Except in the event of death, if shares acquired by a recipient upon the
exercise of an incentive stock option are disposed of by the recipient before
the expiration of the statutory holding periods, the recipient will be
considered to have realized, as compensation taxable as ordinary income in the
year of disposition, an amount, not exceeding the gain realized on the
disposition, equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise of the option. The Company
will be entitled to a deduction at the same time and in the same amount, since
the recipient is deemed to have realized ordinary income. Any gain realized on
the disposition in excess of the amount treated as compensation or any loss
realized on the disposition will constitute capital gain or loss, respectively.
The foregoing discussion applies only for regular tax purposes. For alternative
minimum tax purposes, at the time of exercise of an incentive stock option, the
recipient would realize income includable in alternative minimum taxable income.
Non-Qualified Stock Options - A recipient will realize no taxable income, and
the Company will not be entitled to any related deduction, at the time a
non-qualified stock option is granted under the Plan. At the time of exercise of
a non-qualified stock option, the recipient would realize ordinary income, and
the Company would be entitled to a deduction, equal to the excess of the fair
market value of the stock on the date of exercise over the exercise price. Upon
disposition of the shares, any additional gain or loss realized by the recipient
will be taxed as a capital gain or loss.
19
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED 1992 STOCK OPTION
AND STOCK APPRECIATION RIGHTS PLAN, INCLUDING THE INCREASE IN THE
NUMBER OF OPTIONS THAT MAY BE GRANTED.
SECURITIES ACT REPORTING
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. Lynaugh and Waltman was not timely
filed.
INFORMATION CONCERNING INDEPENDENT AUDITORS
FEES BILLED BY INDEPENDENT AUDITORS
For the twelve months ended December 31, 2000, the Company's independent
auditors, Ernst & Young, LLP, billed the Company an aggregate of $320,000 for
services as follows:
Audit Fees - including quarterly reviews $138,515
All Other Fees - including tax services and audits of the
financial statements of the Company's benefit plans 181,485
------------
Total $320,000
------------
REPRESENTATION AT THE MEETING
A representative of Ernst & Young, LLP is expected to be present at the Meeting.
Such representative will have an opportunity to make a statement, if he or she
desires to do so, and will be available to respond to appropriate questions.
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 Committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
20
with accounting principles generally accepted in the United States, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee under auditing standards generally accepted in the United
States. In addition, the 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 Committee discussed with the Company's independent auditors the overall
scope and plans for their audits. The Committee meets 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. The Committee held one
meeting during the twelve months ended December 31, 2000.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the fiscal year ended October 31, 2000 and for the two months ended December 31,
2000 for filing with the Securities and Exchange Commission. The Committee and
the Board have also recommended the selection of the Company's independent
auditors.
Audit Committee
Kathleen A. Perone, Chairperson
David C. Lee
Samantha McCuen
Frank L. Schiff
Tyler T. Zachem
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
In order for a stockholder proposal to be considered for inclusion in the
Company's Proxy Materials for the 2002 Annual Meeting, it must be received by
the Company's Secretary at 2 Christie Heights Street, Leonia, NJ 07605, no later
than January 22, 2002.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
Meeting other than the matters described in this Proxy Statement. If other
business is properly presented for consideration at the Meeting, or any
adjournment thereof, the enclosed Proxy shall be deemed to confer discretionary
authority on the persons named therein to vote the shares represented by such
Proxy as to such other business.
The Board of Directors would appreciate the prompt return of the enclosed Proxy,
signed and dated.
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORTS ON FORM 10-K FOR THE FISCAL YEAR
ENDED OCTOBER 31, 2000 AND THE TWO-MONTH PERIOD ENDED DECEMBER 31, 2000 WILL BE
PROVIDED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT
2 CHRISTIE HEIGHTS STREET, LEONIA, NJ 07605.
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APPENDIX A
AUDIT COMMITTEE CHARTER OF
INFOCROSSING, INC.
The Board of Directors of Infocrossing, Inc. (the "Company") has
adopted this Charter to govern the operations of the Audit Committee (the
"Committee") of the Company's Board of Directors. The Committee shall review and
reassess the Charter at least annually. It shall report the findings of such
review and reassessment to the Company's Board of Directors at least annually.
At such time, the Board of Directors will determine if any modifications to this
Charter are required.
ORGANIZATION OF THE AUDIT COMMITTEE
The Committee shall be appointed by the Board of Directors 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 if
they have no relationship that may interfere with the exercise of their
independence from management and the Company. All Committee members shall be
financially literate, and at least one member shall have accounting or related
financial management expertise. The Company's Board of Directors shall appoint
one of the members as Chairperson of the Committee.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors
in fulfilling their oversight responsibility to the stockholders, potential
stockholders, the investment community, and others relating to the Company's
financial statements and financial reporting process; the systems of internal
accounting and financial controls; the annual independent audit of the Company's
financial statements; and the legal compliance and ethic programs as established
by management and the Board. In so doing, it is the responsibility of the
Committee to maintain free and open communication between the Committee,
independent auditors, and management of the Company. In discharging its
oversight role, the Committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities, and personnel
of the Company and the power to retain outside counsel, or other experts for
this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The Committee, in discharging its
responsibilities, believes its policies and procedures should remain flexible,
in order to best react to changing conditions and circumstances. The Committee
should take the appropriate actions to set overall corporate policies for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate.
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o The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of the
Company's stockholders. The Committee shall have the ultimate authority
and responsibility to evaluate and, where appropriate, recommend the
replacement of the independent auditors by the Board of Directors. The
Committee shall discuss with the auditors their independence from
management and the Company and the matters included in the written
disclosures required by the Independence Standards Board. The Committee
shall discuss any disclosed relationships between the outside auditor and
the Company and the impact of such relationships on the outside auditor's
independence. The Committee shall recommend to the Board the appropriate
action to oversee the independence of the outside auditor.
o Annually, the Committee shall review and recommend to the Board the
selection of the Company's independent auditors, subject to approval by the
Board of Directors.
o The Committee shall discuss with the independent auditors the overall scope
and plans for their audit including the adequacy of staffing and
compensation. Also, the Committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the Company's
accounting and financial controls, including systems to monitor and manage
business risk as well as legal and ethical compliance programs. Further,
the Committee shall meet separately with the independent auditors, with and
without management present, to discuss the results of their examination.
o The Committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the Committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards. The Chairperson of the Committee may represent the entire
Committee for the purpose of this review.
o The Committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to stockholders if distributed prior to the
filing of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the Committee shall discuss the results of the annual audit and any
other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
o The Committee shall prepare the report required by the Securities and
Exchange Commission to be included in the proxy statement used in
connection with the annual meeting of the Company's stockholders.
o In order to fulfill its obligations hereunder, the Committee shall meet as
often as it deems necessary. Such meetings may be conducted in person or
via telephonic conferencing equipment. The Committee shall maintain written
minutes of all meetings and provide copies of such minutes to the Company's
Board of Directors.
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APPENDIX B
FORM OF PROXY
[FRONT OF CARD]
INFOCROSSING, INC.
PROXY FOR THE ANNUAL MEETING ON JUNE 22, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Zach Lonstein and Charles F. Auster proxies,
each with the power to appoint his substitute and with authority in each to act
in the absence of the other, to represent and to vote all shares of stock of
Infocrossing, Inc. (the "Company"), which the undersigned is entitled to vote at
the Annual Meeting of Stockholders of the Company to be held at the offices of
the Company, 2 Christie Heights Street, Leonia, New Jersey, on Friday, June 22,
2001 at 9:00AM local time, and at any adjournments thereof, (the "Meeting") as
indicated on the proposals described in the Proxy Statement and all other
matters properly coming before the Meeting.
DATED: , 2001
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Signature:
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Signature:
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Please sign exactly as your name or names appear to the
left. For joint accounts, both owners must sign. When
signing as executor, administrator, attorney, trustee or
guardian, etc., please give your full title.
[REVERSE OF CARD]
A VOTE FOR ALL ITEMS IS RECOMMENDED BY THE BOARD OF DIRECTORS
1. ELECTION OF DIRECTORS: |_| FOR all nominees listed below (except as
marked to the contrary)
|_| WITHHOLD AUTHORITY to vote for ALL nominees
Charles F. Auster, Kathleen A. Perone, Michael B. Targoff
INSTRUCTION: To withhold authority to vote for an individual nominee, write that
nominee's name in the following space:
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2. PROPOSAL TO AMEND THE COMPANY'S RESTATED AND AMENDED 1992 STOCK OPTION AND
STOCK APPRECIATION RIGHTS PLAN TO LIMIT THE FORM OF CASHLESS EXERCISE AND TO
INCREASE THE NUMBER OF SHARES FOR WHICH OPTIONS MAY BE GRANTED TO 3,100,000.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE. IF NO
CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
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IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
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