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:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e) (2)
[ ] 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 25, 2002
--------------------------
The Annual Meeting of Stockholders will be held at 9:00 A.M. on Tuesday, June
25, 2002, 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 ratify the approval of the issuance of warrants to purchase shares
of common stock of the Company;
3. To approve a proposal to adopt the Company's 2002 Stock Option and
Stock Appreciation Rights Plan; and
4. To transact such other business as may properly come before the Annual
Meeting.
Only stockholders of record at the close of business on May 9, 2002 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 28, 2002
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 25, 2002
--------------------------------
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 9:00 A.M. on Tuesday, June 25, 2002
(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, (2) FOR
the ratification of the issuance of warrants to purchase shares of common stock
of the Company, and (3) FOR adopting the 2002 Stock Option Plan and Stock
Appreciation Rights Plan (the "Proposed Plan"). If the Proposed Plan is adopted,
grants would no longer be made under the Company's Amended and Restated 1992
Stock Option and Stock Appreciation Rights Plan.
Only stockholders of record at the close of business on May 9, 2002 (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 5,342,426 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 14.16 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.
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 28, 2002.
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 9, 2002 by (a) all current
Directors of the Company, (b the Chief Executive Officer and the four most
highly compensated executive officers of the Company whose salary exceeded
$100,000 in the most recent year (the "Named Executives"), (c) all current
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 conversion of preferred stock
(including accrued dividends thereon) and 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 *
- ------------------------------------ ------- --------------- --------------
Robert O. Graham (5) - -
- ------------------------------------ ------- --------------- --------------
Tyler T. Zachem
DB Capital Partners, Inc.
31 West 52nd Street - 26th Floor
New York, NY 10019 (6) 3,002,294 33.6%
- ------------------------------------ ------- --------------- --------------
Timothy W. Billings
DB Capital Partners, Inc.
31 West 52nd Street - 26th Floor
New York, NY 10019 (6) - -
- ------------------------------------ ------- --------------- --------------
Richard A. Keller
Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, NY 10153 (7) 2,982,278 33.4%
- ------------------------------------ ------- --------------- --------------
Samantha McCuen
Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, NY 10153 (7) 2,982,278 33.4%
- ------------------------------------ ------- --------------- --------------
Kathleen A. Perone
22 Ocean Drive Avenue
Monmouth Beach, NJ 07750 (8) 35,000 *
- ------------------------------------ ------- --------------- --------------
Michael B. Targoff
1330 Avenue of the Americas
New York, NY 10019 (9) 31,250 *
- ------------------------------------ ------- --------------- --------------
Peter J. DaPuzzo
378 Taconic Road
Greenwich, CT 06831 (10) 44,750 *
- ------------------------------------ ------- --------------- --------------
All current Directors and executive
officers as a group (15 persons) (11) 7,665,658 63.7%
- ------------------------------------ ------- --------------- --------------
* Less than 1% of Class
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
- ------------------------------------ ----------------------- --------------
DB Capital Partners, Inc.
31 West 52nd Street - 26th Floor
New York, NY 10006 (6) 3,002,294 33.6%
- ------------------------------------ ------- --------------- --------------
Sandler Capital Management
767 Fifth Avenue
New York, NY 10153 (7) 2,982,278 33.4%
- ------------------------------------ ------- --------------- --------------
Sandler Capital Partners V, L.P.
767 Fifth Avenue
New York, NY 10153 (12) 1,938,079 24.6%
- ------------------------------------ ------- --------------- --------------
Sandler Capital Partners V FTE, L.P.
767 Fifth Avenue
New York, NY 10153 (13) 794,007 11.8%
- ------------------------------------ ------- --------------- --------------
Camden Partners
One South Street - Suite 2150
Baltimore, MD 21202 (14) 944,435 14.7%
- ------------------------------------ ------- --------------- --------------
Hilliard Farber Securities
45 Broadway
New York, NY 10006 423,900 7.1%
- ------------------------------------ ------- --------------- --------------
Charles F. Auster
41 Edgewood Road
Summit, NJ 07901 332,852 5.6%
- ------------------------------------ ------- --------------- --------------
(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) Mr. Graham ceased to be an employee of the Company on January 31,
2002.
3
(6) Includes 1,114,468 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. Mr. Billings is a Senior
Associate and Mr. Zachem is a Managing Director 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. Mr. Zachem has shared voting and
dispositive power over such Preferred Stock, warrants, and option
noted above, and Messrs. Zachem and Billings 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 1,107,038 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 35,000 shares of common stock issuable upon exercise of
non-qualified options held by Ms. Perone.
(9) Includes 31,250 shares of common stock issuable upon exercise of
vested options held by Mr. Targoff.
(10) Includes 38,750 shares of common stock issuable upon exercise of
vested options held by Mr. DaPuzzo.
(11) Includes 2,221,506 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 860,736 shares of common
stock issuable upon exercise of options collectively held by the
fifteen directors and executive officers of the Company.
(12) Includes 719,425 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.
4
(13) Includes 294,740 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.
(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.
PROPOSAL I - ELECTION OF DIRECTORS
The Board consists of nine Directors divided into three classes.
The persons named in the table below are the Class C 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, DB Capital Partners, Inc.;
Sandler Capital Management; Camden Partners; and the Management and
Non-Management Stockholders as therein defined have agreed that each party will
vote shares over which they have voting power (approximately 55.7% of the total)
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
- ------------------ ------------------------------- ------ --------------
Zach Lonstein Chairman of the Board and CEO 58 1984
Samantha McCuen Director 33 2000
Robert B. Wallach President, COO, and Director 63 2001
5
The name, principal occupation with the Company, and certain information
concerning each of the Directors and executive officers of the Company as of May
9, 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 & Chairman
of the Board of Directors 58 1984 2002
Robert B. Wallach President, Chief Operating
Officer & Director 63 2001 2002
Roger A. Barrios Senior Vice President of the Company
and President of a subsidiary 51 - -
William B. Fischer Senior Vice President & Chief
Financial Officer 51 - -
Thomas Laudati Senior Vice President,
Technical Services 44 - -
Garry Lazarewicz Senior Vice President, Research
& Development 53 - -
Nicholas J. Letizia Senior Vice President, General
Counsel & Secretary 50 - -
John C. Platt Vice President & Treasurer 48 - -
Timothy W. Billings Director 29 2002 2004
Peter J. DaPuzzo Director 61 2001 2003
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
Tyler T. Zachem Director 36 2000 2003
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 "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.
6
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
"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 "Certain Relationships and
Related Transactions"). Prior to joining AmQUEST, Mr. Barrios served in several
positions between 1980 and 1995 within American Software, Inc., the prior parent
of AmQUEST.
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, which 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.
THOMAS LAUDATI has been Senior Vice President, Technical Services, 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 Senior Vice President, Research & Development, 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.
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.
7
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.
TIMOTHY W. BILLINGS was elected to the Board of Directors in April 2002. Since
April 2000, Mr. Billings has been a Senior Associate at DB Capital Partners,
Inc. Prior to April 2000, Mr. Billings held various investment banking
positions at UBS Warburg from April 1996 to April 2000 and Chase Manhattan Bank
from July 1995 to March 1996.
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.
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 Level(3) 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.
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%
stockholder 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.
8
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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during 2001 and took five actions by
unanimous written consent. The Company has standing Audit and Options and
Compensation Committees of the Board of Directors. The Company does not have a
nominating committee. During 2001 (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.
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 Mr. Zachem, Ms. McCuen, and two former Directors, Messrs David Lee
and Frank Schiff, who resigned April 2001 and April 2002, respectively. From May
8, 2001 the Audit Committee consisted of Ms. Perone (Chairperson) and Mr.
Targoff, and beginning in November 2001, also included Mr. DaPuzzo. The Audit
Committee met six times in 2001. Each of the members of the Audit Committee meet
the requirements for being members as prescribed by the listing standards of the
National Association of Securities Dealers.
In June 2000, the Board of Directors adopted a Charter pursuant to requirements
of the Securities and Exchange Commission. The Charter was amended in August
2001. A copy of the 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
26.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to August 2001, the Options and Compensation Committee members were Ms.
McCuen and Messrs. Zachem, Schiff, and Lee. Effective August 2001, the Options
and Compensation Committee consisted of Messrs. Zachem and Lonstein, Ms. McCuen,
and Ms. Perone. Messrs. Lee and Schiff were former non-employee directors who
were also Managing Directors of affiliates of organizations that have an
investment in the Company. Ms. McCuen and Mr. Zachem 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.
9
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.
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 2001. A report on the compensation
philosophy of the Committee and its executive compensation activities during
2001 appears on pages 13 and 14.
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 Named Executives.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
Awards
------------------------------------ ---------------------------
Other Securities
Name and Principal Annual Restricted Underlying All Other
Position at Salary Bonus ($) Compensation Stock Options/SARS Compensation
December 2001 * Year ($) ($) Awards (#) (#) ($)
- -------------------- --------- --------- ------------ ------------- ------------ -------------- -------------
Zach Lonstein 2001 $397,031 $225,000(a) - - - -
Chief Executive 2000 386,979 175,000(b) - - 300 -
Officer & 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) - - - -
President & Chief 2000 394,792 50,000(b) - - 50 -
Operating Officer 1999 275,459 35,000(c) - - 150,000 -
- -------------------- --------- --------- ------------ ------------- ------------ -------------- -------------
Robert O. Graham 2001 190,156 - - - - -
Chief Technology 2000 164,667 90,000(b) - - 40,000 -
Officer ** 1999 144,000 - - - 6,050 -
- -------------------- --------- --------- ------------ ------------- ------------ -------------- -------------
Nicholas J. Letizia 2001 176,667 15,000(a) - - - -
Sr. VP & General 2000 170,000 35,000(b) - - - -
Counsel 1999 126,708 25,000(c) - - 20,000 -
- -------------------- --------- --------- ------------ ------------- ------------ -------------- -------------
Thomas Laudati 2001 157,500 55,000(a) - - - -
Sr. VP 2000 150,000 35,000(b) - - - -
1999 136,250 - - - - -
- -------------------- --------- --------- ------------ ------------- ------------ -------------- -------------
* Or date of resignation. Mr. Auster resigned in November 2001.
** Mr. Graham ceased to be an employee of the Company on January 31, 2002.
(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.
10
(d) Includes $31,075 relating to a Company-provided vehicle (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
$1,935,000 (See "Certain Relationships and Related Party
Transactions" below).
(g) See "Certain Relationships and Related Party Transactions" below.
(h) Amortization of a Restricted Stock Award (See "Certain
Relationships and Related Party Transactions" below).
The Named Executives may participate in certain group life, health, and other
non-cash benefit plans, which are generally available to all Company employees.
The Company also maintained 401(k) Savings Plans covering all eligible employees
who have attained the age of 21 years and worked at least 1,000 hours in a
one-year period. The Company may make matching contributions at the discretion
of the Board of Directors. For the twelve-month periods ended December 31, 2001,
2000, and 1999, the Company did not make any matching contributions.
The Company did not grant stock options to the Named Executives during the year
ended December 31, 2001. The Company did not award any stock appreciation rights
or reprice any stock options during the twelve months ended December 31, 2001.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table contains information concerning the stock options held by
the Named Executives during the year ended December 31, 2001. No stock
appreciation rights have been granted by the Company.
AGGREGATED OPTION EXERCISES DURING THE TWELVE MONTHS ENDED
DECEMBER 31, 2001 AND YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------
Securities Received Number of Securities Value of Unexercised
from Exercise of Underlying Unexercised In-the-Money Options at
Options during the Options at December 31, December 31, 2001
Twelve Months ended 2001 (#) ($) (2)
December 31, 2001
------------------------- -------------------------- --------------------------
Net Value
Number Received Un- Un-
Name of Shares ($)(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 -
Robert O. Graham - - 35,385 19,665 - -
Nicholas J. Letizia - - 12,800 15,200 - -
Thomas Laudati - - 23,600 3,500 34,458 $1,160
11
(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 to the Company.
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. Effective March 7, 2002, members of the
Audit Committee will each receive an annual grant of a non-qualified option to
purchase 2,500 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.
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 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 and purchase a health club membership. 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 and purchase a health club membership.
12
In connection with the acquisition of AmQUEST, Inc. described in "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.
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.
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.
13
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 Graham do not have
employment agreements with the Company that provide compensation arrangements.
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 itsmembers, 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
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 and $1,677,083 for the year 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.
14
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.
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 is subject to finalizing
certain post closing adjustments.
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. A description of the Debentures and associated warrants appears
under Proposal II "Ratification of the Approval of the Issuance of Warrants",
below.
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.
15
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.
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
16
PROPOSAL II - RATIFICATION OF THE APPROVAL OF THE ISSUANCE OF WARRANTS
TO PURCHASE SHARES OF COMMON STOCK OF THE COMPANY
INTRODUCTION:
For the reasons set forth below, the Board of Directors believes that
it is advisable and in the best interests of Infocrossing, Inc. (the "Company")
and its stockholders to ratify the issuance of shares of common stock, par value
$.01 of the Company (the "Common Stock"), issued to Cahill, Warnock Strategic
Partners Fund, L.P., a Delaware limited partnership; Strategic Associates, L.P.,
a Delaware limited partnership; Camden Partners Strategic Fund II-A, L.P., a
Delaware limited partnership; and Camden Partners Strategic Fund II-B, L.P., a
Delaware limited partnership (collectively known as "Camden").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL II.
STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS SECTION OF THIS PROXY
STATEMENT BEFORE VOTING ON THIS PROPOSAL II.
BACKGROUND:
On February 5, 2002, the Company entered into a Stock Purchase
Agreement (the "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 to ASI an amount in cash equal to
$20,283,072, subject to certain adjustments.
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.
On February 1, 2002, in anticipation of the consummation of the AmQUEST
Acquisition, the Company entered into a Securities Purchase Agreement (the
"SPA") with Camden whereby the Company issued Senior Subordinated Debentures
(the "Debentures") and warrants (the "Initial Warrants") to purchase, initially,
2,000,000 shares of the Common Stock (subject to adjustments as discussed below)
in exchange for an investment of $10,000,000 from Camden (the "Camden
Investment").
The Debentures have been 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 date of their issuance (the "Issuance Date" or the
"Camden Closing Date"), with an option to extend the term of the Debentures for
one additional year beyond the Initial Maturity Date to February 1, 2006 in the
Company's sole discretion. Pursuant to the terms of the Debentures, 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, 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.
17
The Initial Warrants have been 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 Initial
Warrants expire five (5) years from the Issuance Date. Up to 1.5 million of the
Initial Warrants may be canceled 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,
1.5 million 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 Issuance 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 Issuance 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
Initial 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").
(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 Issuance
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.
If the Company chooses to make interest payments using additional
Debentures the Company will be required to issue up to 639,420 additional
warrants (the "Additional Warrants" and together with the Initial Warrants, the
"Warrants") pursuant to the terms of the Debentures. The Additional Warrants
issued by the Company will be exercisable for that number of shares of Common
Stock equal to one share for each ten dollars ($10.00) paid in the form of
additional Debentures, provided, however, that the Additional Warrants shall not
be issued (i) until the two year anniversary of the Issuance Date, or (ii) at
all, if all of the indebtedness outstanding under the Debentures has been repaid
in full before the two year anniversary of the Issuance Date. Additional
Warrants, when issued, will not be subject to cancellation.
FACTORS AFFECTING CURRENT STOCKHOLDERS:
While the Board of Directors unanimously recommends approval of the
issuance of the Warrants to purchase the Common Stock and is of the opinion that
the issuance would be fair to, and in the best interests of, the Company and its
stockholders, the Company's stockholders should consider the following possible
factors as well as other information contained in the Proxy Statement in
evaluating this Proposal II.
18
- Dilution and Effect on Market Price. The Camden Investment
substantially increased the number of shares of Common Stock
that the Company may issue. If all of the Warrants are fully
exercised, and assuming no adjustments to the exercise price,
and no other issuances of, or exercises, conversions or
exchanges of securities into, Common Stock, the number of
shares of outstanding Common Stock could increase in an amount
up to 49.4% (or 29.3%, assuming the exercise, conversion, or
exchange of all "in the money" securities as of the Camden
Closing Date) and significantly dilute the ownership interests
and proportionate voting power of the existing holders of
Common Stock. Adjustments to the exercise price of the
Warrants could further dilute the ownership interests and
voting power of existing stockholders. The issuance of Common
Stock upon the exercise of the Warrants could have a
depressive effect on the market price of, and reduce trading
activity in, the Common Stock by increasing the amount of
shares of Common Stock outstanding which could have the effect
of placing downward pressure on the price of the Common Stock.
- Camden Will be a Significant Stockholder. Camden will,
assuming the exercise, upon exercise of the Warrants, become a
significant holder of the Company's Common Stock and as such,
will have significant voting power with respect to its shares.
As a result, Camden may be able to affect the outcome of all
matters brought before the stockholders, including a vote for
the election of directors, the approval of mergers and other
business combination transactions.
NASDAQ STOCKHOLDER APPROVAL REQUIREMENT:
The Common Stock is listed on The Nasdaq National Market. The NASD
rules governing Nasdaq require stockholder approval of any issuance of
securities that will result in the issuance of shares representing 20% or more
of the issuer's outstanding shares of common stock or voting power prior to the
issuance of such securities, at a price per share below the greater of book
value or market value of the issuer's common stock. Specifically, NASD Rule
4350(i)(1)(D) requires that the issuer of stock in a non-public offering secure
stockholder approval prior to an issuance where (i) the securities issued are
common stock or securities convertible into common stock, (ii) the price per
share of the securities in the offering is less than the greater of book value
or market value of the issuer's common stock, and (iii) the proposed issuance
would result in the issuance of 20% or more of the common stock or voting power
of the issuer before the issuance.
Assuming immediate exercise of all of the Warrants beneficially owned
or held by Camden, the total number of shares of Common Stock that the Company
could issue upon the exercise of the Warrants could be up to 2,639,420 shares of
Common Stock. As of the Camden Closing Date, there were 5,342,426 shares of
Common Stock issued and outstanding. Therefore, the total number of shares of
Common Stock to be issued upon exercise of the Warrants could constitute up to
approximately 49.4% of the Company's issued and outstanding Common Stock, well
in excess of the 20% threshold.
19
It is important to note that a vote in favor of Proposal II does not
necessarily mean that the Company will issue 2,639,420 shares of its Common
Stock. Rather the number 2,639,420 represents an outer limit on the amount of
shares of Common Stock that could potentially be issued if none of the Initial
Warrants are canceled pursuant to the terms of the Debentures and all interest
payments made pursuant to the Debentures are paid in the form of additional
Debentures resulting in the issuance of Additional Warrants.
Under the rule described above, the Company would not be in compliance
with the listing requirements of the Nasdaq National Market upon the exercise of
the Warrants in excess of 19.999% of the then issued and outstanding Common
Stock, unless stockholder ratification is obtained. Therefore, the Company's
stockholders must vote in favor of this Proposal II in order for Camden to be
able to exercise the Warrants without restriction based on the number of shares
of Common Stock outstanding as of Camden Closing Date.
TERMS OF THE CAMDEN INVESTMENT:
Pursuant to the terms of the Warrant Agreement, unless ratified by the
stockholders, no Warrants may be exercised if such exercise results in the
issuance by the Company of more than 19.999% of the number of shares of Common
Stock outstanding on the trading day immediately preceding the Camden Closing
Date.
Pursuant to the terms of the Debentures, if the Company fails to obtain
stockholder approval for the issuance of shares of Common Stock representing
more than 19.999% of the outstanding shares of Common Stock at the annual
meeting of the stockholders (the "Annual Meeting"), the Company will be 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 (the "Penalty Interest") until such stockholder approval is
obtained.
In addition, pursuant to the Company's Second Amended and Restated
Stockholders' Agreement dated as of February 1, 2002, by and among the
stockholders party thereto (the "Stockholders' Agreement"), each of DB Capital
Investors, L.P.; Sandler Capital Partners V, L.P.; Sandler Capital Partners V
FTE, L.P.; Sandler Technology Partners, L.P.; Sandler Co-Investment Partners,
L.P.; and Zach Lonstein, stockholders representing 49.3% of the outstanding
voting power of the Company's Common Stock (the "Supporting Stockholders"), have
agreed to vote to approve the issuance of Common Stock in accordance with this
Proposal II.
The terms of the Camden Investment contemplate obtaining stockholder
approval and provide mechanisms for (i) restricting the exercise of the Warrants
until such approval is obtained; (ii) the payment of Penalty Interest if such
approval is not obtained; and (iii) an agreement among the Supporting
Stockholders to vote in favor of such issuance.
REASONS FOR THE CAMDEN INVESTMENT:
Proceeds from the Camden Investment were used to finance the AmQUEST
Acquisition as well as for general corporate purposes.
20
The Board of Directors and management of the Company reviewed and
considered numerous financing alternatives prior to entering into the Camden
Investment. The Board of Directors unanimously approved the Camden Investment
and related matters. In so doing, the Board of Directors considered a number of
factors including:
- the Company's ability to continue operations had the Camden
Investment not been consummated;
- after the intense search for capital, the unavailability of
other alternatives to the Camden Investment due to the
unfavorable environment of the capital markets at the time the
Company needed financing; and
- the substantial increase in the Company's available capital
supplied by the proceeds from the Camden Investment and the
prospect that, as a result of the AmQUEST Acquisition, the
Company will be able to more effectively expand its operations
and ensure the long term success of the Company.
PRINCIPAL EFFECTS OF APPROVAL OR NON-APPROVAL:
In the event that the stockholders approve this Proposal II, the
Company may issue up to 2,000,000 shares of Common Stock upon the exercise of
the Initial Warrants and up to 639,420 shares of Common Stock assuming that all
interest payments made pursuant to the Debentures are paid in the form of
additional Debentures resulting in the issuance of Additional Warrants.
In the event that the stockholders do not approve this Proposal II,
holders of the Warrants would be entitled to collect the Penalty Interest until
stockholder approval is obtained, which could substantially reduce the amount of
the Company's cash resources and could have a material adverse effect on the
Company's ability to continue operations at their current level and could
severely and adversely affect its ability to raise additional capital.
In the opinion of the Board of Directors of the Company, a failure of
the stockholders to approve this Proposal II will have a serious detrimental
effect on the Company's operations and future financing activities, which are
critical to the long term success of the Company.
VOTE REQUIRED FOR APPROVAL OR PROPOSAL:
In order to approve this Proposal II, the Company must secure the
affirmative vote of at least a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
For the reasons set forth above, the Board of Directors believes that
it is advisable and in the best interests of the Company and its stockholders to
approve the issuance of shares of Common Stock representing more than 19.999% of
the outstanding shares of Common Stock upon the exercise of the Warrants.
THEREFORE THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL II.
21
PROPOSAL III - APPROVAL OF THE ADOPTION OF THE COMPANY'S
2002 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
On March 7, 2002, the Board of Directors adopted a resolution, subject to
stockholder approval, to establish the Company's 2002 Stock Option and Stock
Appreciation Rights Plan (the "Proposed Plan"). If the Proposed Plan is adopted,
no grants will be made under the Amended and Restated 1992 Stock Option and
Stock Appreciation Rights Plan (the "Current Plan"). The principal reason for
adopting the Proposed Plan is due to the Federal income tax requirement that
Incentive Stock Options, as described below, must be granted within ten years
from the earlier of the date of adoption of the plan or approval of the plan by
the stockholders. The Current Plan was adopted in September 1992.
If the Proposed Plan is adopted, the resolution of the Board of Directors
stipulates that no further grants will be made pursuant to the Current Plan. The
grants previously made under the Current Plan will not be effected. Both plans
provide a maximum exercise period of ten years. Qualified options granted to a
10% or greater stockholder shall have a maximum term of five years under Federal
tax rules. As a matter of practice, except with respect to a 10% or greater
stockholder, the typical exercise period for options granted under the existing
plan was ten years from the date of grant.
If the Proposed Plan is not adopted, the options available for grant under the
Current Plan will be Non-Qualified Stock Options, as described below.
The maximum number of shares authorized as available for grant under the Current
Plan is 3,100,000. As of the Record Date, 1,095,152 shares remain available for
grant under the Current Plan and the Company has agreed to grant options for an
additional 80,100 shares at various times and subject to certain conditions. The
Board's resolution provides that 1,000,000 shares will be authorized as
available for grant under the Proposed Plan.
The Board of Directors believes that it is important to have an option plan
providing for the issuance of Incentive Stock Options, as described below, to
provide adequate incentives to the Company's workforce and remain competitive
with option programs available at similar companies.
The material features of the Proposed Plan and the Current Plan are
substantially are the same.
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
adoption of the Proposed Plan and, unless this vote is received, the Proposed
Plan will not become effective. Abstentions and broker non-votes will not be
treated as votes cast against Proposal III.
PURPOSE OF PROPOSED PLAN
The purpose of the Proposed 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 Proposed Plan is also intended to facilitate
recruiting and retaining key personnel of outstanding ability.
22
ADMINISTRATION
The Board of Directors may appoint a separate committee or direct the
compensation committee to assist the Board in administering the Proposed Plan.
Any committee that will assist in administering the Proposed Plan shall consist
of not less than three members of the Board, no less than two of whom shall be
Non-Employee Directors; provided, that any grants made by such committee shall
be approved solely by a majority of the Non-Employee Directors. The Board of
Directors may take any action that may be taken by any committee assisting with
the administration of the Proposed Plan. Except with respect to options granted
to Non-Employee Directors for attending certain meetings of the Board of
Directors, as described below, any committee assisting the Board of Directors in
administering the Proposed Plan has the power to grant options under the
Proposed 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 Proposed Plan. Any such committee will have the authority to
interpret the Proposed Plan and any grant or agreement made thereunder.
ELIGIBILITY
The Proposed 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 Proposed 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. A "meeting"
for purposes of the preceding sentence shall include only those meetings of the
Board of Directors when at least a majority of the Directors are present at a
single location.
TYPES OF GRANTS
The Company has discretion to determine whether an option grant shall be an
Incentive Stock Option or a Non-Qualified Stock 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 Stock
Option granted to an employee holding 10% or more of the Company's stock). Both
Incentive Stock Options 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.
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) 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, or (4) a combination of the foregoing.
23
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
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 Proposed 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 Proposed 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 Proposed Plan. 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. 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
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.
24
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 Proposed 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ADOPTION
OF THE 2002 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN.
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, 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.
INFORMATION CONCERNING INDEPENDENT AUDITORS
FEES BILLED BY INDEPENDENT AUDITORS
For the year ended December 31, 2001, the Company's independent auditors, Ernst
& Young, LLP, billed the Company an aggregate of $420,595 for services as
follows:
Audit Fees - including quarterly reviews $237,600
All Other Fees - including tax services and audits of the
financial statements of the Company's benefit plans 182,995
-----------------
Total $420,595
-----------------
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.
25
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
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 six
meetings during the year ended December 31, 2001, and two meetings so far in
2002.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board approved) that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
Audit Committee
Kathleen A. Perone, Chairperson
Peter J. DaPuzzo
Michael B. Targoff
26
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 2003 Annual Meeting, it must be received by
the Company's Secretary at 2 Christie Heights Street, Leonia, NJ 07605, no later
than December 31, 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
DECEMBER 31, 2001 WILL BE PROVIDED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY AT 2 CHRISTIE HEIGHTS STREET, LEONIA, NJ 07605.
27
APPENDIX A
AUDIT COMMITTEE CHARTER OF
INFOCROSSING, INC.
AS AMENDED AND RESTATED AS OF AUGUST 8, 2001
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 Director's 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.
A-1
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.
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.
A-2
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.
A-3
APPENDIX B
2002 STOCK OPTION
AND STOCK APPRECIATION RIGHTS PLAN OF
INFOCROSSING, INC.
1. PURPOSE. The Purpose of this 2002 Stock Option and Stock Appreciation Rights
Plan ("PLAN") of Infocrossing, Inc., a Delaware corporation, is to encourage
certain officers, employees, directors and consultants of the Company (as
hereinafter defined) to acquire and hold stock in the Company as an added
incentive to remain with the Company and to increase their efforts in promoting
the interests of the Company and to enable the Company to attract and retain
persons of competence.
The term "SUBSIDIARY," as used herein, shall mean any corporation (other than
Infocrossing, Inc.) in an unbroken chain of corporations beginning with and
including Infocrossing, Inc., if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. The term "COMPANY," as used herein shall include
Infocrossing, Inc. and any present or future subsidiary thereof.
2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Awards under the Plan shall be
granted in the form of stock options ("OPTION" OR "OPTIONS"), which may either
qualify for treatment as Incentive Stock Options ("ISOS") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, (THE "IRC") or not
so qualify ("NON-QUALIFYING STOCK OPTIONS" OR "NQSOS"). Either type of Option
may be accompanied by general or limited stock appreciation rights.
The term "SHARES," as used herein, shall mean shares of the common stock, $.01
par value, of the Company. The term "GENERAL RIGHT" shall mean a stock
appreciation right as defined in Section 9. The term "LIMITED RIGHT" shall mean
a stock appreciation right as defined in section 10. The term "RIGHT" shall mean
any General Right or Limited Right.
The aggregate number of Shares which may be issued and sold under the Plan shall
not, except as such number may be adjusted pursuant to Section 8 hereof, exceed
1,000,000 Shares, which may be either authorized and unissued Shares or issued
Shares reacquired by the Company. The total number of Shares subject to Options
authorized under the Plan shall be subject to increase or decrease in order to
give effect to the adjustment provisions of Section 8 hereof and to give effect
to any amendment adopted as provided in Section 12 hereof. Notwithstanding the
above limitation, any shares subject to an Option under the Plan which
terminates, is canceled or expires for any reason without being either exercised
in full or surrendered in full in connection with the exercise of a Right, may
again be subjected to an Option under the Plan, unless the Plan shall have been
terminated. Existing Options may be canceled and new options granted at a lower
price in the event of decline in the market value of the Shares.
3. ELIGIBILITY. ISO awards shall be granted only to officers (including those
who are also directors) and other employees who, at the time of the grant of the
award (a) are employees of the Company and (b) shall be selected by the
Committee (as hereinafter defined). NQSO awards shall be granted only to
officers, employees, directors and consultants of the Company who, at the time
of grant of the award (a) serve in one or more of such capacities with the
Company and (b) shall be selected by the Committee. A person to whom an award is
granted hereunder is hereafter sometimes referred to as an "OPTIONEE."
B-1
Optionees are eligible to receive more than one Option grant during the life of
the Plan and such Option may be in addition to or in substitution for, an Option
or Options previously granted under the Plan, under another stock option plan of
the Company or under a plan of another corporation assumed by the Company.
Related Rights may also be granted to such Optionee, pursuant to Section 9 and
10 hereof, concurrently with or subsequent to any grant of Options. No Options
or Rights shall be granted under the Plan after the tenth anniversary date of
the adoption of the Plan by the Company's Board of Directors.
Each Option and/or Right granted pursuant to the Plan shall be evidenced by a
written Option and/or Right Agreement between the Company and the Optionee which
shall contain such provisions, terms and conditions including the period of
their exercise, whether in installments or otherwise, which need not be the same
for all Options or Rights, as the Committee shall determine to be appropriate
and within the contemplation of the Plan.
As used in the Plan, the term "EMPLOYMENT" shall mean employment by the Company,
and the term "EMPLOYEE" shall be deemed to include any salaried officer and any
salaried person who is also a director; provided, that a director who is not a
salaried employee shall not be entitled to receive or hold an ISO under the
Plan. Whether military, government or public service shall constitute
termination of employment for purposes of this Plan or any option granted
thereunder shall be determined in each case by the Committee.
Notwithstanding anything to the contrary continued herein, each Non-Employee
Director (as defined below) shall automatically receive an Option to purchase
1,250 Shares for each meeting of the Board of Directors of the Company (the
"Board") attended by that Non-Employee Director. A "meeting" for purposes of the
preceding sentence shall include only those meetings of the Board when at least
a majority of the directors are present at a single location. As used in the
Plan, the term "Non-Employee Director" shall mean a director of the Company who
(i) is not currently an officer or employee of the Company or any subsidiary,
does not receive compensation in excess of $60,000 for services rendered to the
Company other than as a director, and (iii) is not engaged in a business
relationship with the Company that must be disclosed under federal securities
laws.
4. ADMINISTRATION OF THE PLAN.. The Board may appoint a separate committee or
direct the Options and Compensation Committee to assist the Board in
administering the Plan. Any committee that will assist in administering the Plan
shall consist of not less than three members of the Board, no less than two of
whom shall be Non-Employee Directors; provided, that any grants made by such
committee shall be approved solely by a majority of the Non-Employee Directors.
For purposes of the Plan, any committee assisting the Board with the
administration of the Plan shall be referred to as the Committee.
Notwithstanding anything to the contrary herein, the Board may take any action
that may be taken by the Committee.
Subject to the express provisions of the Plan, the committee shall have the
authority, exercisable in its discretion, to administer the Plan and to exercise
all the powers and authorities either specifically granted to it under the Plan
or necessary or advisable in the administration of the Plan including, without
limiting the generality of the foregoing, to grant Options, to determine the
purchase price of the Shares covered by each Option, the persons to who, and the
time or times at which, Options shall be granted and the number of Shares to be
covered by each Option; to determine which Options shall be accompanied by
Rights; to interpret the Plan; to determine, in the case of employees, whether
Options shall be ISO's or NQSO's to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
Option and/or Rights Agreement (which need not be identical) entered into in
connection with awards under the Plan; and to make all other determinations
deemed necessary or advisable for the administration of the Plan.
B-2
Vacancies in the Committee shall be filled by the Board. The Committee may act
by a majority of its members either at a meeting, by written consent, or
conference telephone meeting. No member of the Board or of the Committee shall
be liable for any action taken or determination made in good faith with respect
to the Plan or any Option or Right. The Board may at any time remove one of more
members of the Committee and substitute others, and a majority of disinterested
members of the Board shall at all times have the right to exercise any and all
rights and powers of the Committee.
5. OPTION PRICE. The purchase price of the Shares covered by each Option shall
be established by the Committee, but in no event shall be less than 50% of the
Fair Market Value of the Shares on the date the Option is granted.
Notwithstanding the foregoing, the purchase price of the Shares covered by each
Option granted to a Non-Employee Director shall be the Fair Market Value of the
Shares on the date the Option is granted. The term "FAIR MARKET VALUE" shall
mean (i) if the Shares are listed on a national securities exchange or the
NASDAQ system, the mean between the highest and lowest sales prices for the
Shares on such date, or, if no such prices are reported for such day, then on
the next preceding day on which there were reported prices or (ii) if the Shares
are not listed on a national securities exchange or the NASDAQ system, the mean
between the bid and asked prices for the shares on such date, or if no such
prices are reported for such day, then on the next preceding day on which there
were reported prices. In the case of an ISO, in no event shall the purchase
price of the Shares covered by the ISO be less than 100% of the Fair Market
Value of the Shares on the date the ISO is granted. In the case of an ISO
granted to an employee who owns, directly or through attribution, more than 10
percent of the total voting power of all classes of stock of the Company (an
"INSIDER ISO"), the purchase price of the Shares shall in no event be less than
110% of the Fair Market Value of the Shares on the date the ISO is granted. The
Option price may be subject to adjustment in accordance with the provisions of
Section 8 hereof. The date on which the Committee adopts a resolution expressly
granting an Option shall be considered the date on which Option is granted. The
price so determined shall also be applicable in connection with the exercise of
any related Right.
6. PERIOD OF OPTION AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE.
(a) Options shall be exercisable over the Option period as, and at the
times the Committee determines. The Option period shall be determined by the
Committee, but shall not exceed ten years from the date of the grant of such
option (except as provided in (e) below). In the case of an Insider ISO, the
Option period shall not exceed five years from the date of the grant of such
Option.
(b) Except as provided in (d) and (e) below, however, an ISO may not be
exercised unless the Optionee is then in the employ of the Company and shall
have been continuously so employed since the date of the grant of the Option.
Absence on leave approved by the Committee shall not be considered a termination
of employment for any purpose of the Plan. The Committee may, if it or counsel
for the Company shall deem it necessary or desirable for any reason, require as
a condition of exercise, that the Optionee (or the purchaser acting under (c) or
(e) below) represent in writing to the Company at the time of the exercise of
such Option that it is the Optionee's then intention to acquire the Shares as to
which the Option is then being exercised for investment and not with a view to
the distribution thereof.
(c) Options granted under the Plan to an Optionee shall not be
transferable otherwise than by will or by the laws of descent and distribution,
and such Option shall be exercisable, during the Optionee's lifetime, only by
him or his legal guardian or legal representative. A transfer of an Option by
will or by the laws of descent and distribution shall not be effective unless
the Committee shall have been furnished with such evidence as it may deem
necessary to establish the validity of the transfer.
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(d) Unless earlier terminated in accordance with their terms, all
Options of any Optionee shall terminate ninety days after any of the following:
(i) voluntary termination of employment by the Optionee, with or
without Company consent, or
(ii) termination of the Optionee's employment by the Company other
than for cause, or
(iii) termination of the Optionee's employment because of disability,
retirement, or because the employing subsidiary has ceased to be
a subsidiary of the Company and the Optionee did not, prior
thereto or contemporaneously therewith, become an employee of the
Company or of another subsidiary, or
(iv) termination of the Optionee's service as a director or consultant
of the Company (other than for cause), unless the Optionee
remains thereafter an employee of the Company; provided, that if
the employment of an Optionee (or service as a director or
consultant) shall be terminated for cause (which shall be
determined by the Committee), all of such Optionee's Options
shall terminate as of the date of such termination for cause.
(e) If an Optionee dies while in the employ of the Company or in the
service of the Company as a director or consultant, or within ninety days after
the date on which the Optionee ceased to be an employee, director or consultant
of the Company (other than by reason of termination for cause), the Option
theretofore granted to the Optionee shall be exercisable by the Optionee's
estate, or by a person who acquired the right to exercise such option by bequest
or inheritance or by reason of the death of the Optionee, but only within a
period of twelve calendar months next succeeding such death and then only if and
to the extent that the Optionee was entitled to exercise such Option at the date
of death, except that the number of shares may be adjusted in accordance with
the provisions of Section 8 hereof.
(f) An ISO, granted under the Plan, in order to remain qualified as
such, shall be subject to all other limitations on exercise imposed by the IRC
to qualify for treatment as an ISO.
7. PAYMENT OF OPTIONS PRICE AND CANCELLATION OF OPTIONS. An Option granted under
the Plan shall be exercised by giving written notice of such exercise to the
Secretary of the Company. The Option price for the Shares with respect to which
any Option is exercised shall be paid in full at the time of exercise.
The Option price shall be paid in (a) cash, (b) with the approval of the
Committee (which may be withheld in its sole discretion), Shares having a fair
market value, as determined by the Committee, at least equal to the Option
price, (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; and with the approval of the Committee (which
may be withheld in its sole discretion) may be affected wholly or in part by
monies borrowed from the Company pursuant to repayment terms and conditions as
shall be determined from time to time by the Committee, in its discretion,
separately with respect to each exercise of Options and each Optionee; PROVIDED,
that each such method and time for payment and each such borrowing and terms and
conditions of repayment shall then be permitted by and be in compliance with
applicable law. An Option may not be exercised for a fraction of a Share. No
holder of any Option or legal representative, legatee or distributee of such
holder, as the case may be, will be, or will be deemed to be, a holder of any
Shares covered by an Option unless and until certificates for the Shares are
issued to the Optionee or representative, legatee or distributee under the Plan.
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8. EFFECT OF CHANGES IN SHARES If there is any change in the Shares of the
Company through the declaration of stock dividends, or through recapitalization
resulting in stock splits, or combinations or exchanges of Shares, or otherwise,
the number of Shares available for Options or Rights and the number of Shares
thereof covered by outstanding Options or Rights, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares by the
Board; provided, that any fractional Shares resulting from such adjustment shall
be eliminated, by rounding to the nearest, whole number.
In the event of the proposed dissolution or liquidation of the Company, or in
the event of an offer as defined in Section 10, or a proposed sale of
substantially all of the assets of the Company, or in the event of any merger or
consolidation of the Company with or into another corporation, or in the event
of any corporate separation or dissolution including, but not limited to,
split-up, split-off or spin off, the Committee may provide that the holder of
each Option then exercisable shall have the right to exercise such Option, at
its then aggregate exercise price, solely for the kind and amount of shares of
stock and other securities, property, cash or any combination thereof receivable
upon such dissolution, liquidation, sale, consolidation or merger, or similar
corporate event, by a holder of the number of Shares for which such Option might
have been exercised immediately prior to such dissolution, liquidation, sale,
consolidation or merger; or the Committee may provide, in the alternative, that
each Option and Right granted under the Plan shall terminate as of a date to be
fixed by the Board; provided, that no less than thirty days written notice of
the date so fixed shall be given to each holder of Options and Rights, and each
holder of Options and Rights shall have the right, during the period of thirty
days preceding such termination, to exercise the Options and Rights as to all or
any part of the Shares covered thereby, including Shares as to which such
Options and Rights would not otherwise be exercisable.
The preceding paragraph shall not apply to a merger or consolidation in which
the Company is the surviving corporation and Shares are not converted into or
exchanged for stock, securities of any other corporation, cash or any other
thing of value. Notwithstanding the preceding sentence, in case of any
consolidation or merger of any corporation into the Company in which the Company
is the continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
Shares (other than a change in par value, or from par value to no par value, or
as a result of a subdivision or commination, but including any change in the
Shares into two or more classes or series of shares), the Committee may provide
that the holder of each Option and Right then exercisable shall have the right
to exercise such Option or Right solely for the kind and amount of shares of
Stock and other securities (including those of any new direct or indirect parent
of the Corporation), property, cash or any combination thereof receivable upon
such reclassification, change, consolidation or merger by a holder of the number
of shares for which such Option or Right might have been exercised.
9. STOCK APPRECIATION RIGHTS - GENERAL RIGHTS.
(a) The Committee shall have authority to grant a General Right to the
holder of any Option granted under this Plan (the "RELATED OPTION") with respect
to all or some of the Shares covered by such Related Option. A General Right may
be granted either at the time of grant of the Related Option or at any time
thereafter during its term. Each General Right shall be exercisable only if, and
to the extent that, the Related Option is exercisable. Notwithstanding the
provisions of the preceding sentence, no General Right may be exercised until
the expiration of six months from the date of grant of the General Right unless
prior to the expiration of such six-month period the holder of the General Right
ceases to be an employee of the Company because of such holder's death or
physical or mental incapacity. Upon the exercise of a General Right, the Related
Option shall cease to be exercisable to the extent of the Shares with respect to
which such General Right is exercised, but shall be considered to have been
exercised to that extent for purposes of determining the number of Shares
available for the grant of further Options pursuant to this Plan. Upon the
exercise or termination of a Related Option, the General Right with respect to
such Related Options shall terminate to the extent of the Shares with respect to
which the Related Option was exercised or terminated.
B-5
(b) The term "SPREAD" as used in this Section 9 shall mean with respect
to the exercise of any General Right and amount equal to the product computed by
multiplying (i) the excess of (A) the Fair Market Value per Share on the date
such General Right is exercised over (B) the purchase price per Share at which
the Related Option is exercisable by (ii) the number of Shares with respect to
which such General Right is being exercised.
(c) Upon the exercise of a General Right, the holder thereof, except as
provided in Paragraph (d) of this Section 9, shall be entitled at the holder's
election to receive either:
(i) a number of Shares equal to the quotient computed by dividing the
Spread by the Fair Market Value per Share on the date of exercise
of the General Right; provided, that in lieu of fractional of
Shares the Company shall pay cash equal to the same fraction of
the Fair Market Value per Share on the date of exercise of the
General Right, or
(ii) an amount in cash equal to the Spread, or
(iii) a combination of cash in the amount specified in such holder's
notice of exercise, and a number of Shares calculated as provided
in Clause (i) of this Paragraph (c), after reducing the Spread by
such cash amount, plus cash in lieu of any fractional Share as
above provided.
(d) Notwithstanding the provisions of Paragraph (c) of this Section 9,
the Committee shall have sole discretion to consent to or disapprove the
election of a holder of a General Right to receive cash in whole or in part
("CASH ELECTION"), upon the exercise of a General Right. Such consent or
disapproval may be given at any time after the election to which it relates. If
the Committee shall disapprove a Cash Election, the exercise of the General
Right with respect to which the Cash Election was made shall be of no effect but
without prejudice to the right of the holder to exercise the General Right in
the future in accordance with its terms.
(e) Notwithstanding the provisions of Paragraph (c) of this Section 9,
a Cash Election may be made only during the period beginning on the third
business day following the date of release for publication of the quarterly and
annual summary statements of sales and the earnings of the Company and ending on
the 12th business day following such date.
(f) A General Right may be granted to an Optionee irrespective of
whether such Optionee is being granted or has been granted a Limited Right.
(g) A General Right shall not be transferable except by will or by the
law of descent and distribution. During the life of a holder of a General Right,
the General Right shall be exercisable only by such holder or the holder's
guardian or legal representative.
(h) A person exercising a General Right shall not be treated as having
become the owner of any Shares issued on such exercise until the Secretary of
the Company shall have given written notification to the Transfer Agent of such
exercise.
(i) Each General Right shall be granted on such terms and conditions
not inconsistent with this Plan as the Committee may determine and shall be
evidenced by a right agreement, setting forth such terms and conditions,
executed by the Company and the holder of the General Right (the "RIGHT
AGREEMENT").
B-6
(j) To exercise a General Right, the holder shall (i) give written
notice thereof to the Company in form satisfactory to the Committee addressed to
the Secretary of the Company specifying (A) the number of Shares with respect to
which the General Right is being exercised, and (B) the amount the holder elects
to receive in cash and the amount the holder elects to receive in Shares with
respect to the exercise of the General Right, and (ii) if requested by the
Committee, deliver the Right Agreement relating to the General Right being
exercised and the Option Agreement for the Option to which such General Right
relates to the Secretary of the Company who shall endorse thereon a notation of
such exercise and return the Right Agreement and Option Agreement to the
Optionee. The date of exercise of a General Right which is validly exercised
shall be deemed to be the date on which the Secretary of the Company shall have
received the instruments referred to in the first sentence of this Paragraph
(j).
(k) The Company intends that Section 9 shall comply with the
requirements of Rule 16b-3 (the "RULE") under the Securities Exchange Act of
1934 during the term of this Plan. Should any provisions of this Section 9 not
be necessary to comply with the requirements of the Rule or should any
additional provisions be necessary for Section 9 to comply with the requirements
of the Rule, the Board or Committee may amend this Plan to add to or modify the
provisions of this Plan accordingly.
10. STOCK APPRECIATION RIGHTS - LIMITED RIGHTS.
(a) The Committee shall have authority to grant a Limited Right to the
holder of any Option granted under this Plan (the "RELATED OPTION") with respect
to all or some of the Shares covered by such Related Option. A Limited Right may
be granted either at the time of grant of the Related Option or at any time
thereafter during its term. A Limited Right may be granted to an Optionee
irrespective of whether such Optionee is being granted or has been granted a
General Right. A Limited Right may be exercised only during the period beginning
on the first day following the date of expiration of any Offer (as that term is
defined in Paragraph (b) of this Section 10) for Shares and ending on the
thirtieth day following such date. Each Limited Right shall be exercisable only
if, and to the extent that, the Related Option is exercisable. Notwithstanding
the provisions of the two immediately preceding sentences, no Limited Right may
be exercised until the expiration of six months from the date of grant of the
Limited Right. Upon the exercise of a Limited Right, the Related Option shall
cease to be exercisable to the extent of the Shares with respect to which such
Limited Right is exercised, but shall be considered to have been exercised to
that extent for purposes of determining the number of Shares available for the
grant of further Options pursuant to this Plan. Upon the exercise or termination
of a Related Option, the Limited Right with respect to such Related Option shall
terminate to the extent of the Shares with respect to which the Related Option
was exercised or terminated.
(b) The term "OFFER" as used in this Section 10 shall mean any tender
offer or exchange offer for Shares, other than one made by the Company; provided
that the corporation, person or other entity making the Offer acquires Shares
pursuant to such Offer.
(c) The term "OFFER PRICE PER SHARE" as used in this Section 10 shall
mean with respect to the exercise of any Limited Right, the highest price per
Share paid in any Offer which Offer is in effect at any time during the period
beginning on the sixtieth day prior to the date on which such Limited Right is
exercised and ending on the date on which such Limited Right is exercised. Any
securities or property which are part or all of the consideration paid for
Shares in the Offer shall be valued in determining the Offer Price per Share at
the higher of (i) the valuation placed on such securities or property by the
corporation, person or other entity making such Offer or (ii) the valuation
placed on such securities or property by the Committee.
B-7
(d) The term "SPREAD" as used in this Section 10 shall mean with
respect to the exercise of any Limited Right an amount equal to the product
computed by multiplying (i) the excess of (A) the Offer Price per Share over (B)
the purchase price per Share at which the Related Option is exercisable by (ii)
the number of Shares with respect to which such Limited Right is being
exercised.
(e) Upon the exercise of a Limited Right, the holder thereof shall
receive an amount in cash equal to the Spread.
(f) Notwithstanding any other provision of this Plan, no General Right
may be exercised at a time when any Limited Rights held by the holder of such
General Right may be exercised.
(g) Paragraphs (g) through (k) of Section 9 with respect to transfer
and exercise of a General Right and compliance of the Plan with the requirements
of the Rule shall apply to Limited Rights with the same effect as if set forth
in this Section 10.
11. SUBSTITUTE AWARDS. If an employee of a corporation, other than the Company,
holds a stock option or stock appreciation right granted by such employee's
employer-corporation (meaning thereby the corporation which actually employs the
employee and any corporation which directly or indirectly controls the
employee's actual employer), and the employee becomes an eligible employee of
the company by reason of a corporate merger, consolidation, acquisition of stock
or property, reorganization or liquidation involving the Company and the
employee's employer-corporation ("REORGANIZATION"), then the Committee may
select such employee as an Optionee and direct the granting to the employee of
an award of Options and/or Rights in substitution for the stock options and/or
stock appreciation rights held by the employee. The Committee shall determine
the terms and conditions of the substitute awards which may vary from the terms
and conditions required by the Plan. At the time of any substitute award, the
Committee shall determine the number of shares to be taken into account and the
exercise price per Share consistent with the provisions of the Plan.
12. AMENDMENT AND DISCONTINUANCE OF THE PLAN. The Board may at any time amend,
modify, suspend or terminate the Plan, but except in accordance with the
provisions of Section 8 hereof, no change shall be made which will have a
material adverse effect upon any Option or Right previously granted unless the
consent of the Optionee is obtained; provided, that, except in the case of
adjustments made pursuant to Section 8 hereof, the Board may not, without
further approval of the stockholders, (a) increase the maximum number of Shares
for which Options and/or Rights may be granted under the Plan, or (b) change the
class of persons eligible to receive Options and/or Rights.
13. APPROVAL BY STOCKHOLDERS. The Plan shall become effective upon approval by
the stockholders of Infocrossing, Inc., a Delaware corporation.
14. USE OF PROCEEDS. The proceeds from the sale of Shares pursuant to Options
granted under the Plan shall constitute general funds of the Company and many be
used for its corporate purposes as the Board may determine.
15. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES If the Committee shall so
require, as a condition of exercise, each Optionee shall agree that:
B-8
(i) no later than the date of exercise of any Option and/or
Right granted hereunder, the Optionee will pay to the Company or make
arrangements satisfactory to the Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld with respect to
the Shares subject to Options and/or Rights; and
(ii) the Company shall, to the extent permitted or required by
law, have the right to deduct from any payment of any kind, otherwise due to the
Optionee, federal, state or local taxes of any kind required by law to be
withheld with respect to the Shares subject to Options and/or Rights.
16. RESTRICTED SHARES. In its discretion the Committee may issue Shares subject
to certain restrictions upon exercise of Options pursuant to Section 7 or upon
exercise of a General Right and election to receive Shares pursuant to Section 9
of the Plan. The term "RESTRICTED SHARES" shall mean the Shares that are made
subject to restrictions on the transferability thereof until the recipient has
remained in the employ of the Company or a Subsidiary for a specified period of
time.
(a) All restricted Shares shall be subject to (i) such restrictions on
the transferability and encumbrance thereof until the recipient has remained in
the employ of the Company for the period of time specified by the Committee with
respect thereto, (ii) such provisions relating to the forfeiture of and right of
the Company to reacquire the Shares if the recipient's employment terminates
within such period of time, (iii) such provisions relating to the lapse of such
restrictions, and (iv) such other terms and conditions, as may be determined by
the Committee and are set forth in the Option Agreement. All stock certificates
for such Shares shall bear a legend that the Shares represented thereby are
subject to such restrictions, provisions, terms and conditions. If the Committee
so determines, the stock certificates representing Restricted Shares shall be
deposited by the recipient with a third party designated by the Committee until
the restrictions thereon have lapsed.
(b) The existence of restrictions on Restricted Shares shall not affect
the rights of the recipient as a stockholder of the Company including the right
to receive dividends on and to vote such Restricted Shares except that any
Shares issued as a stock dividend on or in a stock spilt-up of the Restricted
Shares or any other securities issued in exchange for the Restricted Shares
shall be subject to the same restrictions, provisions, terms and conditions that
are applicable to the Restricted Shares.
B-9
FORM OF PROXY
[FRONT]
INFOCROSSING, INC.
PROXY FOR THE ANNUAL MEETING ON JUNE 25, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Zach Lonstein and Robert B. Wallach 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 Tuesday, June 25,
2002 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: ________________________________________, 2002
Signature: --------------------------------------------
Signature: --------------------------------------------
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.
[BACK]
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)
Zach Lonstein, Samantha McCuen, Robert B. Wallach
|_| WITHHOLD AUTHORITY to vote for ALL nominees
INSTRUCTION: To withhold authority to vote for an individual nominee, write that
nominee's name in the following space:
- --------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPROVAL OF THE ISSUANCE OF WARRANTS TO PURCHASE
SHARES OF THE COMPANY'S COMMON STOCK.
|_| FOR |_| AGAINST |_| ABSTAIN
3. PROPOSAL TO ADOPT THE COMPANY'S 2002 STOCK OPTION AND STOCK APPRECIATION
RIGHTS PLAN.
|_| 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, 2 AND 3.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE