-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CNPJMJImL3Una8FLksyEwDzc9++kk8rzsbrb2H1WNhjYuqJbECIJimKAPB8r0Z9q W+YB11gQzh8X0Ms/+Wl5gA== 0000893816-02-000011.txt : 20020430 0000893816-02-000011.hdr.sgml : 20020430 ACCESSION NUMBER: 0000893816-02-000011 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOCROSSING INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20824 FILM NUMBER: 02627667 BUSINESS ADDRESS: STREET 1: 2 CHRISTIE HEIGHTS STREET CITY: LEONIA STATE: NJ ZIP: 07605 BUSINESS PHONE: 2018404700 MAIL ADDRESS: STREET 1: 2 CHRISTIE HEIGHTS STREET CITY: LEONIA STATE: NJ ZIP: 07605 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC DATE OF NAME CHANGE: 19930328 10-K/A 1 ka123101.txt 10K AMENDMENT FOR 12/31/01 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 year ended: DECEMBER 31, 2001 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 March 15, 2002, the aggregate market value of the outstanding shares of voting stock held by non-affiliates of the registrant was approximately $21,762,000. On March 15, 2002, 5,342,426 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. Page 1 PART III 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 1, 2002 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 Chief Executive Officer 58 1984 2002 & Chairman of the Board of Directors Robert B. Wallach President, Chief Operating 63 2001 2002 Officer & Director Roger A. Barrios Senior Vice President of 51 - - the Company and President of a subsidiary Nicholas J. Letizia Senior Vice President, 50 - - General Counsel & Secretary William B. Fischer Senior Vice President 51 - - & Chief Financial Officer Thomas Laudati Senior Vice President 44 - - Garry Lazarewicz Senior Vice President 53 - - John C. Platt Vice President & Treasurer 48 - - Tyler T. Zachem Director 36 2000 2003 Frank L. Schiff * Director 42 2000 2002 Richard A. Keller Director 37 2001 2003 Samantha McCuen Director 33 2000 2002 Kathleen A. Perone Director 48 2000 2004 Michael B. Targoff Director 57 2001 2004 Peter J. DaPuzzo Director 61 2001 2003 * Resigned April 9, 2002. Page 2 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. In November 2001, he reassumed the role of CEO upon the resignation of Charles Auster (See Item 13, "Certain Relationships and Related Party Transactions"). 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. 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 August 2001, he was reelected to the Board of Directors. In November 2001, he reassumed the role of President upon the resignation of Charles Auster (See Item 13, "Certain Relationships and Related Party Transactions"). From June 2000 through April 2001, he was 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. ROGER A. BARRIOS has served as President of AmQUEST, Inc. ("AmQUEST") since its inception in 1995 and continues in this position subsequent to the acquisition of AmQUEST by the Company in February 2002 (See Item 13, "Certain Relationships and Related Transactions"). Prior to joining AmQUEST, Mr. Barrios served in several positions between 1098 and 1995 within American Software, Inc., the prior parent of AmQUEST. NICHOLAS J. LETIZIA joined the Company as Chief Financial Officer and Secretary in November 1998. In April 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 in April 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. Page 3 THOMAS LAUDATI has been a Senior Vice President of the Company since 1997 and a Vice President of the Company since 1995, when the Company purchased MCC Corp. Mr. Laudati joined MCC Corp in 1988 as a senior analyst, and was promoted to Vice President of Technical Services in April 1991. Prior to joining MCC Corp., Mr. Laudati held positions in the programming departments of Horizons Bancorp and Colonial Life Insurance Company. GARRY LAZAREWICZ has been a Senior Vice President of the Company since August 1, 1999, and Vice President since June 1995, when the Company purchased MCC Corp. Mr. Lazarewicz, who oversees all corporate research and development, joined MCC Corp. in 1979, and was promoted to Vice President in 1985. From 1971 through 1979, he was employed at Global Terminal and Computer Services, where his last position was Director of MIS. 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. TYLER T. ZACHEM was elected to 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 private equity firm. FRANK L. SCHIFF was elected to 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. RICHARD A. KELLER was elected to 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. SAMANTHA MCCUEN was elected to 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 to 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 August 2001 to February 2002, she was Chairman and Chief Executive Officer of Lightrade, Inc., a private corporation that filed in March 2001 for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code. 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 boards of directors of Focal Communications Corp and Lexent, Inc. Page 4 MICHAEL B. TARGOFF was elected to 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 a 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. PETER J. DAPUZZO was reelected to the Board of Directors on November 27, 2001. He had previously served on the Company's Board from July 1999 through May 2000. Prior to 2002, Mr. DaPuzzo was the Co-President and CEO of Cantor Fitzgerald and Company, the equity institutional sales and trading division of Cantor Fitzgerald LP. Mr. DaPuzzo is also a Senior Managing Director of Cantor Fitzgerald LP. Mr. DaPuzzo joined Cantor Fitzgerald in 1993. Mr. DaPuzzo is President of the National Organization of Investment Professionals, a professional group of institutional and broker dealer senior managers, a member the Presidential Advisory Committee to the President of Security Traders Association of New York, and a member and the immediate past Chairman of the Securities Industry Association - Institutional Traders Committee. 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, 2001 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. Page 5 ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS The Summary Compensation Table below includes, for each of the years ended December 31, 2001, 2000, and 1999, individual compensation for services to the Company and its subsidiaries as paid to the Chief Executive Officer and the four executive officers of the Company whose salary exceeded $100,000 in the most recent twelve-month period (together, the "Named Executives").
SUMMARY COMPENSATION TABLE - ------------------------------------------------------------------------------------------------------------------------------------ Name and Principal All Other Position at Compensation ($) December 2001 * Year Annual Compensation Long Term Compensation Annual - --------------------------- ------ --------------------------------------------- --------------------------------- ----------------- Other Annual Awards Salary ($) Bonus ($) Compensation ($) - --------------------------- ------ ------------ --------------- ---------------- --------------------------------- ----------------- Securities Restricted Underlying Stock Awards Options/SARS (#) (#) - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- ----------------- Zach Lonstein 2001 $397,031 $225,000(a) $27,917(d) - - - Chief Executive Officer & 2000 386,979 175,000(b) 23,081(d) - 300 - Chairman 1999 242,788 72,519(c) 39,637(d) - 175,200 $5,000(e) - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- ----------------- Charles Auster * 2001 284,135 - - - - 12,207,917(f) CEO/President 2000 203,125 75,000(b) - 800,000(g) - 1,677,083(h) 1999 - - - - - - - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- ----------------- Robert Wallach 2001 397,031 225,000(a) 18,391(i) - - - President & Chief 2000 394,792 50,000(b) 10,185(i) - 50 - Operating Officer 1999 275,459 35,000(c) - - 150,000 - - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- ----------------- Nicholas J. Letizia 2001 176,667 15,000(a) 6,000(j) - - - Sr. VP & General Counsel 2000 170,000 35,000(b) 6,000(j) - - - 1999 126,708 25,000(c) 6,000(j) - 20,000 - - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- ----------------- Thomas Laudati 2001 157,500 55,000(a) 7,200(j) - - - Sr. VP 2000 150,000 35,000(b) 7,200(j) - - - 1999 136,250 - 7,200(j) - - - - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- ----------------- Garry Lazarewicz 2001 129,167 7,500(a) 4,800(j) - - - Sr. VP 2000 123,333 10,000(b) 4,800(j) - - - 1999 116,875 12,500(c) 4,800(j) - - - - --------------------------- ------ ------------ --------------- ---------------- ---------------- ---------------- -----------------
* Or date of resignation. Mr. Auster resigned in November 2001. Page 6 (a) Bonus earned in 2001, paid in January 2002. (b) Bonus earned in 2000, paid in January 2001. (c) Bonus earned in the Company's then fiscal year ended October 31, 1999 and paid in February 2000. (d) Includes $19,750, $8,818, and $31,075 in 2001, 2000, and 1999 respectively, relating to a Company-provided vehicle and related expenses incurred for both business and personal use, and $8,166, $14,263, and $8,562 in 2001, 2000, and 1999, respectively, paid for a health club membership (See "Employment Agreements with Named Executive Officers" below). (e) 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). (f) Includes $9,822,917 of amortization of a Restricted Stock Award and the purchase of 535,594 common shares held by Mr. Auster for consideration of $2,385,000, consisting of $450,000 in cash plus the repayment of the balance due on his loan from the Company of $1,935,000 (See "Certain Relationships and Related Party Transactions" below). (g) See "Certain Relationships and Related Party Transactions" below. (h) Amortization of a the Restricted Stock Award (See "Certain Relationships and Related Party Transactions" below). (i) Includes $18,391 and $9,305 in 2001 and 2000, respectively, relating to a Company-provided vehicle and related expenses incurred for both business and personal use, and $1,305 and $880 in 2001 and 2000, respectively, paid for a health club membership (See "Employment Agreements with Named Executive Officers" below). (j) Vehicle allowance. The Named Executives may participate in certain group life, health, and other non-cash benefit plans, which are generally available to all Company employees. The Company also maintained 401(k) Savings Plans covering all eligible employees who have attained the age of 21 years and worked at least 1,000 hours in a one-year period. The Company may make matching contributions at the discretion of the Board of Directors. For the twelve-month periods ended December 31, 2001, 2000, and 1999, the Company did not make any matching contributions. The Company did not grant stock options to the Named Executives during the year ended December 31, 2001. The Company did not award any stock appreciation rights or reprice any stock options during the twelve months ended December 31, 2001. AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES The following table contains information concerning the stock options held by the Named Executives during the year ended December 31, 2001. No stock appreciation rights have been granted by the Company. Page 7
AGGREGATED OPTION EXERCISES DURING THE TWELVE MONTHS ENDED DECEMBER 31, 2001 AND YEAR-END OPTION VALUES - ------------------------------------------------------------------------------------------------------------------------------------ Securities Received from Exercise Number of Securities Underlying Value of Unexercised of Options during the Twelve Unexercised Options at December In-the-Money Options at Months ended December 31, 2001 31, 2001 (#) December 31, 2001 ($) (2) --------------------------------- -------------------------------- --------------------------------- Number Net Value Un- Un- Name of Shares Received ($)(1) Exercisable Exercisable Exercisable Exercisable - ------------------------- ------------ ------------------ --------------- --------------- -------------- --------------- Zach Lonstein 4,979 $ 29,094 (3) 210,500 15,000 $ 57,475 $ - Robert Wallach - - 447,050 30,000 400,917 - Nicholas J. Letizia - - 12,800 15,200 - - Thomas Laudati - - 23,600 3,500 34,458 1,160 Garry Lazarewicz - - 6,200 6,000 4,910 -
(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, 2001 over the exercise price of those options. (3) This option for 25,000 shares was exercised through the surrender of 20,021 shares. The market price on the date of exercise approximated the exercise amount of the option. The difference was paid in cash. Page 8 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. Upon their election to the Board of Directors, Ms. Perone and Messrs. Targoff and DaPuzzo each were granted a non-qualified option to purchase 25,000 shares of the Company's common stock. EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS 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. In connection with the acquisition of AmQUEST, Inc. described in Item 13 "Certain Relationships and Related Party Transactions" below, on February 5, 2002, AmQUEST and Mr. Barrios entered into an employment agreement with a one year term with automatic three-month extensions. This agreement provides for an annual salary of $210,000, a vehicle allowance of $500 per month, an annual bonus of up to 30% of his salary to be determined by the Board of Directors of AmQUEST, and a one-time bonus of up to $32,000 based on certain operations as determined by the Chief Executive Officer of AmQUEST. The agreement also provides for a grant of a non-qualified option to purchase 70,000 shares of the Company's common stock at an exercise price equal to the market value of the stock on February 5, 2002, in accordance with the Plan. Page 9 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to August 2001, the Options and Compensation Committee members were Ms. McCuen and Messrs. Zachem, Schiff, and Mr. Lee, a former Director who resigned in April 2001. Effective August 2001, the Options and Compensation Committee consisted of Messrs. Zachem and Lonstein, Ms. McCuen, and Ms. Perone. Ms. McCuen and Messrs. Zachem, Schiff, and (until the date of his resignation) Mr. 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). Mr. Lonstein is an executive officer of the Company. Ms. Perone is a non-employee director. OPTIONS AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Options and Compensation Committee of the Board of Directors of the Company 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, 2001. 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 2001, the Options and Compensation Committee was composed of four directors, three of whom 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 2001. 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. 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. Page 10 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. Grants of options must be approved by a majority of the non-employee members of the Options and Compensation Committee. The Compensation paid by the Company to Messrs. Lonstein, Wallach and Auster for 2001 was based upon employment agreements negotiated with each of these Executive Officers. Messrs. Letizia, Laudati and Lazarewicz do not have employment agreements with the Company. 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 2001 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 Zach Lonstein Samantha McCuen Kathleen A. Perone Tyler T. Zachem Page 11 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, 1996. [GRAPH APPEARS HERE] STOCKHOLDER RETURN AS OF DECEMBER 31, 1996 1997 1998 1999 2000 2001 Company Common Stock $100 $286 $311 $721 $175 $174 NASDAQ Domestic Index 100 123 173 321 193 153 NASDAQ Computer and Data Processing Services Index 100 123 219 482 222 179 Page 12 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 1, 2002 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 Shares Percentage Name and Address of Beneficial Owner Beneficially Owned of Class - -------------------------------------------------------------------- ----------------------- --------------- Zach Lonstein (1) 1,707,925 27.8% - -------------------------------------------------------------------- ------- --------------- --------------- Robert B. Wallach (2) 526,475 8.2% - -------------------------------------------------------------------- ------- --------------- --------------- Nicholas J. Letizia (3) 12,800 * - -------------------------------------------------------------------- ------- --------------- --------------- Thomas Laudati (4) 23,600 * - -------------------------------------------------------------------- ------- --------------- --------------- Garry Lazarewicz (5) 6,200 * - -------------------------------------------------------------------- ------- --------------- --------------- Tyler T. Zachem DB Capital Partners, Inc. 130 Liberty Street - 25th Floor New York, NY 10006 (6) 2,980,441 33.4% - -------------------------------------------------------------------- ------- --------------- --------------- Frank L. Schiff DB Capital Partners, Inc. 130 Liberty Street - 25th Floor New York, NY 10006 (6) 2,980,441 33.4% - -------------------------------------------------------------------- ------- --------------- --------------- Richard A. Keller Sandler Capital Management 767 Fifth Avenue - 45th Floor New York, NY 10153 (7) 2,960,571 33.3% - -------------------------------------------------------------------- ------- --------------- --------------- Samantha McCuen Sandler Capital Management 767 Fifth Avenue - 45th Floor New York, NY 10153 (7) 2,960,571 33.3% - -------------------------------------------------------------------- ------- --------------- --------------- Kathleen A. Perone 22 Ocean Drive Avenue Monmouth Beach, NJ 07750 (8) 27,500 * - -------------------------------------------------------------------- ------- --------------- --------------- Michael B. Targoff 1330 Avenue of the Americas New York, NY 10019 (9) 28,750 * - -------------------------------------------------------------------- ------- --------------- --------------- Peter J. DaPuzzo 378 Taconic Road Greenwich, CT 06831 (10) 42,250 * - -------------------------------------------------------------------- ------- --------------- --------------- All Directors and executive officers as a group (15 persons) (11) 7,612,722 63.5% - -------------------------------------------------------------------- ------- --------------- ---------------
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BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK (CONTINUED) - ------------------------------------------------------------------------------------------------------- Number of Shares Percentage Name and Address of Beneficial Owner Beneficially Owned of Class - ---------------------------------------------------------- ----------------------- -------------- DB Capital Partners, Inc. 130 Liberty Street New York, NY 10006 (6) 2,980,441 33.4% - ---------------------------------------------------------- ------- --------------- -------------- Sandler Capital Management 767 Fifth Avenue New York, NY 10153 (7) 2,960,571 33.3% - ---------------------------------------------------------- ------- --------------- -------------- Sandler Capital Partners V, L.P. 767 Fifth Avenue New York, NY 10153 (12) 1,681,898 22.1% - ---------------------------------------------------------- ------- --------------- -------------- Sandler Capital Partners V FTE, L.P. 767 Fifth Avenue New York, NY 10153 (13) 689,053 10.4% - ---------------------------------------------------------- ------- --------------- -------------- Camden Partners One South Street - Suite 2150 Baltimore, MD 21202 (14) 944,435 14.7% - ---------------------------------------------------------- ------- --------------- -------------- Hilliard Farber Securities 45 Broadway New York, NY 10006 434,800 7.3% - ---------------------------------------------------------- ------- --------------- -------------- Charles F. Auster 41 Edgewood Road Summit, NJ 07901 332,852 5.6% - ---------------------------------------------------------- ------- --------------- --------------
* Less than 1% of Class (1) Includes 195,500 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 Party Transactions" below). (2) Includes 477,050 shares of common stock issuable upon exercise of vested options held by Mr. Wallach. (3) Includes 12,800 shares of common stock issuable upon exercise of vested options held by Mr. Letizia. (4) Includes 23,600 shares of common stock issuable upon exercise of vested options held by Mr. Laudati. (5) Includes 6,200 shares of common stock issuable upon exercise of vested options held by Mr. Lazarewicz. Page 14 (6) Includes 1,092,615 common shares issuable upon conversion of 78,688.5 shares of Preferred Stock, including accrued dividends thereon, 1,512,826 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. (7) Includes 1,085,331 common shares issuable upon conversion of 78,164 shares of Preferred Stock, including accrued dividends thereon, 1,502,740 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 five 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 five funds collectively own 49.7% of the outstanding shares of Preferred Stock. (8) Includes 32,500 shares of common stock issuable upon exercise of non- qualified options held by Ms. Perone. (9) Includes 28,750 shares of common stock issuable upon exercise of vested options held by Mr. Targoff. (10) Includes 36,250 shares of common stock issuable upon exercise of vested options held by Mr. DaPuzzo. (11) Includes 2,177,846 common shares issuable upon conversion of 156,852 shares of Preferred Stock and 3,015,566 common shares issuable upon exercise of warrants over which four directors exercise shared control. Also includes 851,360 shares of common stock issuable upon exercise of options collectively held by the fifteen directors and executive officers of the Company. (12) Includes 705,319 common shares issuable upon conversion of 50,796 shares of the Preferred Stock, including accrued dividends thereon, 976,579 common shares issuable upon exercise of warrants, and 242,075 common shares which may be purchased from Mr. Lonstein subject to an option. (13) Includes 288,961 common shares issuable upon conversion of 20,810 shares of Preferred Stock, including accrued dividends thereon, 400,092 common shares issuable upon exercise of warrants, and 99,175 common shares which may be purchased from Mr. Lonstein subject to an option. Page 15 (14) Includes 8,571 common shares issuable upon exercise of warrants received in connection with a prior loan to the Company, and 500,000 vested warrants received in connection with a Securities Purchase Agreement (See "Certain Relationships and Related Party Transactions", below). Includes the accounts of Camden Partners Strategic Fund II-A, L.P. Camden Partners Strategic Fund II-B, L.P., the Cahill, Warnock Strategic Partners Fund, L.P. and Strategic Associates, L.P., (the "Camden Entities"). Along with Cahill, Warnock Strategic Partners, L.P., each fund has shared voting and dispositive power over the total number of shares owned by the Camden Entities. Each of the Camden Entities disclaims beneficial ownership over any shares not held of record by it. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In June 2000, the Company hired Mr. Charles Auster as Chief Executive Officer (the "Executive"). The employment agreement with the Executive provided for a seat on the Company's Board of Directors; an award of 800,000 restricted shares of common stock and an agreement that the Company would loan the Executive an amount equal to 50 percent of the related Federal income tax liability on such grant. In June 2000, the Executive also purchased 68,446 shares of common stock from the Company at $14.61 per share. The value of the 800,000 restricted shares ($11,500,000 on the grant date of June 15, 2000) was being amortized ratably over the four-year vesting schedule. The Executive's obligation to the Company was repayable from, among other things, the proceeds arising from the disposition of any of the 800,000 shares. As of November 14, 2001, the Executive had borrowed, including accrued interest, a total of $1,935,000. Effective as of November 14, 2001, the Executive resigned his positions as CEO and Director, and entered into a settlement agreement with the Company to terminate the employment contract. The Company accelerated the vesting of the stock award and purchased 535,594 of the 868,446 common shares held by the Executive for consideration of $2,385,000, consisting of $450,000 in cash plus the repayment of the balance due on his loan from the Company of $1,935,000. These shares are held in the Company's treasury. Accelerating the vesting of the stock award resulted in a nonrecurring, non-cash charge of approximately $7,427,000 for the remaining unamortized balance of the original grant. Total amortization of the restricted stock award was $9,822,917 for the year ended December 31, 2001; $1,197,917 for the fiscal year ended October 31, 2000, and $479,166 for the two-month period ended December 31, 2000. In May 2000, the Company issued 157,377 shares of redeemable 8% Series A Cumulative Convertible Participating Preferred Stock (the "Series A Preferred Stock") and warrants to purchase 2,531,926 shares of the Company's common stock. The Company received $58,430,596 after payment of issuance costs and related legal fees. The holders of 156,852 of the Series A Preferred Stock are entitled to name four of the Company's Directors. On April 1, 2002, these individuals are Messrs. Zachem, Schiff, Keller, and Ms. McCuen. As of March 31, 2002, Mr. Lonstein was indebted to the Company in the amount of $80,119. This indebtedness is payable on demand and bears interest at the prime rate of interest plus 1% per annum. Page 16 As of March 31, 2002, Mr. Wallach was indebted to the Company in the amount of $99,668. 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. On February 5, 2002, the Company entered into a Stock Purchase Agreement with American Software, Inc., a Georgia corporation ("ASI") whereby the Company purchased all of the outstanding capital stock of AmQUEST, Inc., a Georgia corporation ("AmQUEST"), from its former parent company ASI (the "AmQUEST Acquisition"). As consideration for the purchase of AmQUEST's shares, the Company paid ASI $20,284,000 in cash, which amount will be adjusted upon final determination of the working capital of AmQUEST as of January 31, 2002. The Company financed the AmQUEST Acquisition through (i) the application of the proceeds of the financing described below and (ii) cash held by the Company. AmQUEST, a managed services provider that delivers technology infrastructure management services to enterprise clients, will continue to operate its business as a wholly-owned subsidiary of the Company. On February 1, 2002, in anticipation of the consummation of the AmQUEST Acquisition described above, the Company entered into a Securities Purchase Agreement (the "SPA") with Cahill, Warnock Strategic Partners Fund, L.P.: Strategic Associates, L.P.: Camden Partners Strategic Fund II-A, L.P., and Camden Partners Strategic Fund II-B, L.P. (collectively known as "Camden") whereby the Company issued Senior Subordinated Debentures (the "Debentures") and warrants (the "Initial Warrant") to purchase, initially, 2,000,000 shares of the common stock of the Company (subject to adjustments as discussed below) in exchange for an investment of $10,000,000 from Camden. Pursuant to the SPA, the proceeds of the sale of the Debentures to Camden were used to partially fund the acquisition. The Debentures were issued in an aggregate principal amount of $10,000,000 with a maturity of three (3) years (the "Initial Maturity Date") from February 1, 2002 (the "Closing Date"), the date of their issuance (the "Issuance Date"), with the right to extend the term of the Debentures for one additional year beyond the Initial Maturity Date to February 1, 2006 at the Company's sole option. Pursuant to the terms of the Debenture, the Company is required to make semi-annual interest payments of (i) 12% per annum commencing on the Issuance Date and ending on February 1, 2004, (ii) 13% per annum for the period commencing on February 1, 2004 and ending on February 1, 2005, and (iii) if the Company elects to extend the maturity date pursuant to the terms of the Debentures, 14% per annum. The Company has the option to pay interest in the form of (a) cash; (b) additional Debentures, or (c) a combination of cash and additional Debentures. If the Company chooses to make interest payments using additional Debentures, the Company may be required to issue additional warrants (the "Additional Warrants") pursuant to the terms of the Debentures. Page 17 The Initial Warrants were issued pursuant to a Warrant Agreement dated as of February 1, 2002 by and between the Company and Camden (the "Warrant Agreement") and are subject to certain customary anti-dilution adjustments. The exercise price of the Initial Warrants is $5.86. The Warrants expire five (5) years from the Closing Date. In addition, up to 1,500,000 of the Initial Warrants may be cancelled upon the prepayment of the Debentures. Cancellation of the Initial Warrants may take place in the following manner: (i) Upon prepayment of the Debentures in full during the first year, 1,500,000 Initial Warrants will be immediately canceled; (ii) Upon prepayment of the Debentures in full after the first anniversary and before the third anniversary of the Closing Date, Initial Warrants will be canceled according to the following formula: 62,500 shares multiplied by the number of full months between the prepayment and the third anniversary of the Closing Date; (iii) Notwithstanding the foregoing, the Company will be entitled, at any time, to make one (and only one) partial prepayment of the Debentures in the amount of at least 50% of the total outstanding indebtedness (the "Partial Prepayment"). In the event of a Partial Prepayment, the number of Initial Warrants to be canceled shall be equal to the product of (x) the number of Warrants to be canceled pursuant to subsections (i) and (ii) above assuming full repayment of the Debentures, and (y) a fraction, the numerator of which shall be the aggregate principal amount of Debentures actually prepaid and the denominator of which shall be equal to the aggregate principal amount of Debentures outstanding on the date of such Partial Prepayment (the "Prepayment Fraction"); and (iv) In the event of full repayment of the Debentures that is both (A) after a Partial Prepayment; and (B) before the third anniversary of the Closing Date, the number of Initial Warrants to be canceled shall be equal to the product of (x) the number of Initial Warrants to be canceled pursuant to subsections (i) and (ii) above assuming full repayment of the Debentures, and (y) 1 minus the Prepayment Fraction. Additional Warrants, when issued, will not be subject to cancellation. The fair market value of the warrants will be recorded as deferred financing costs and amortized over three years. Pursuant to the rules of the Nasdaq National Market, the issuance of shares of Common Stock representing more than 19.999% of the outstanding Common Stock upon the exercise of any warrants requires the approval of the stockholders of the Company. The Company has agreed to seek this approval at its next annual meeting of stockholders and will not issue more than this number of shares upon the exercise of the Warrants until such approval has been granted. If the Company does not obtain the required stockholder approval before the earlier to occur of (i) the occurrence of an event of default under the terms of the Debentures or (ii) the date of the Company's next annual meeting of its stockholders, the Company is required to pay to the holders of the Debentures a cash payment equal to seventeen percent (17%) of the outstanding initial principal amount of the debentures per year from such date until the required stockholder approval is obtained. As of February 1, 2002, pursuant to the Company's Second Amended and Restated Stockholders Agreement, stockholders having 46.5% of the outstanding voting power of the Company's stock have agreed to vote to approve such issuance. Page 18 Pursuant to the terms of a Stockholders' Agreement, for so long as any indebtedness under the Camden Debentures remains outstanding, the Camden Entities shall have the right to designate an observer to attend and participate, but not vote, at meetings of the Board of Directors and receive materials provided to the Directors. Page 19 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, 2002 --------------------------------------------- William B. Fischer - Senior Vice President & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----