UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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
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[ ] Soliciting Material Pursuant to ss. 240.14a-12
INFOCROSSING, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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INFOCROSSING, INC.
2 Christie Heights Street
Leonia, NJ 07605
(201) 840-4700
NOTICE of ANNUAL MEETING of STOCKHOLDERS
June 15, 2006
--------------------------
The Annual Meeting of Stockholders will be held at 9:00 A.M. on Thursday, June
15, 2006, at the offices of the Company at 2 Christie Heights Street, Leonia, NJ
07605, for the following purposes:
1. To elect two Directors of the Company for a three-year term;
2. To approve a proposal to increase the number of authorized shares of
common stock reserved for issuance under the Company's 2005 Stock Plan
to 2,000,000 from 1,000,000.
3. To transact such other business as may properly come before the Annual
Meeting.
Only stockholders of record at the close of business on April 28, 2006 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,
/s/ NICHOLAS J. LETIZIA
Nicholas J. Letizia
Secretary
May 11, 2006
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 15, 2006
--------------------------------
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 Thursday, June 15,
2006 (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 the
proxies are voted (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 FOR the election of the Directors nominated by the Board and FOR the
amendment of the Company's 2005 Stock Plan (the "2005 Plan").
Only stockholders of record at the close of business on April 28, 2006 (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 21,263,811 shares of
common stock, $0.01 par value, each entitled to one vote. The common stock is
the Company's only class of voting stock currently outstanding. A majority 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, internet,
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 11, 2006.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 28, 2006 by (a) 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"), (b) all current Directors of the Company, (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 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
- ------------------------------------------------------------------------- ------------------------- -----------------
The Named Executives:
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Zach Lonstein (1) 2,725,296 12.0%
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Robert B. Wallach (2) 782,075 3.6%
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Nicholas J. Letizia (3) 78,228 *
- ------------------------------------------------------------------------- ------ ------------------ -----------------
William J. McHale (4) 48,923 *
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Michael Luebke (5) 33,333 *
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Current Directors:
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Peter J. DaPuzzo 18 Pilot Rock Lane (6) 87,488 *
Riverside, CT 06878
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Jeremiah M. Healy 24 Crescent Road (7) 45,738 *
Riverside, CT 06878
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Kathleen A. Perone 40 Ocean Avenue (8) 70,988 *
Monmouth Beach, NJ 07750
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Howard Waltman 610 5th Avenue (9) 116,988 *
New York, NY 10017
- ------------------------------------------------------------------------- ------ ------------------ -----------------
All current Directors and executive officers as a group (13 persons) (10) 4,200,727 17.5%
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Continued on next page.
* Less than 1% of Class
Beneficial Ownership of the Company's Common Stock (Continued)
- ----------------------------------------------------------------------------------------------------------------------------
Number of Shares Percentage
Name and Address of Beneficial Owner Beneficially Owned of Class
- -------------------------------------------------------------------------- ------------------------- -----------------
Other 5% Owners:
- -------------------------------------------------------------------------- ------------------------- -----------------
Janus Capital Management LLC 151 Detroit Street (11) 2,315,235 10.9%
("Janus") Denver, CO 80206
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Jack Silver 920 Fifth Avenue - #3B (12) 2,140,264 10.1%
New York, NY 10021
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Federated Investors, Inc. Federated Investors Tower (13) 2,096,426 9.7%
("Federated") Pittsburgh, PA 15222
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Potomac Capital Management 825 Third Avenue - 33rd Floor (14) 1,644,327 7.7%
New York, NY 10022
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Epoch Investment Partners 640 Fifth Avenue - 18th Floor 1,420,480 6.7%
New York, NY 10019
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Manulife Financial Corporation 200 Bloor Street, East 1,313,007 6.2%
Toronto, Ontario, Canada M4W 1E5
- -------------------------------------------------------------------------- ------ ------------------ -----------------
DCM Partners, LLC 909 Third Avenue - 30th Floor 1,185,224 5.6%
New York, NY 10022
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Camden Entities 500 East Pratt Street - Ste. 1200
(defined below) Baltimore, MD 21202 (15) 1,112,501 5.1%
- -------------------------------------------------------------------------- ------ ------------------ -----------------
* Less than 1% of Class
(1) Includes 1,410,300 shares of common stock issuable upon exercise of
options held by Mr. Lonstein. Also includes 750,000 shares held by Mr.
Lonstein that are subject to options held by the purchasers
(including their successors and assigns) of certain preferred
stock and warrants since reacquired and cancelled (see "Certain
Relationships and Related Party Transactions" below).
(2) Includes 660,150 shares of common stock issuable upon exercise of
options held by Mr. Wallach.
(3) Includes 78,228 shares of common stock issuable upon exercise of
options held by Mr. Letizia.
(4) Includes 48,923 shares of common stock issuable upon exercise of
options held by Mr. McHale.
(5) Includes 33,333 shares of common stock issuable upon exercise of
options held by Mr. Luebke.
(6) Includes 87,488 shares of common stock issuable upon exercise of
non-qualified options held by Mr. DaPuzzo.
(7) Includes 45,738 shares of common stock issuable upon exercise of
non-qualified options held by Mr. Healy
(8) Includes 69,988 shares of common stock issuable upon exercise of
non-qualified options held by Ms. Perone.
(9) Includes 116,988 shares of common stock issuable upon exercise of
non-qualified options held by Mr. Waltman.
(10) Includes 2,762,806 shares of common stock issuable upon exercise of
options collectively held by the thirteen Directors and executive
officers of the Company.
(11) Excludes 521,660 shares of common stock issuable upon exercise of
warrants, issued in connection with a private placement of common
stock by the Company in October 2003, held by Janus in one or more
funds. Exercise of these warrants is limited to the extent necessary
to insure that, following such exercise (or other issuance), the total
number of shares of common stock then beneficially owned by Janus and
its affiliates does not exceed 9.999% of the total number of issued
and outstanding shares of common stock (including for such purpose the
shares of common stock issuable upon such exercise).
(12) Excludes 139,288 shares of common stock issuable upon exercise of
warrants, issued in connection with a private placement of common
stock by the Company in October 2003, held by Mr. Silver and certain
affiliates. Exercise of these warrants is limited to the extent
necessary to insure that, following such exercise (or other issuance),
the total number of shares of common stock then beneficially owned by
Mr. Silver and his affiliates does not exceed 9.999% of the total
number of issued and outstanding shares of common stock (including for
such purpose the shares of common stock issuable upon such exercise).
(13) Includes 445,293 shares of common stock issuable upon exercise of
warrants, issued in connection with a private placement of common
stock by the Company in October 2003, held by Federated in one or more
funds. Exercise of these warrants is limited to the extent necessary
to insure that, following such exercise (or other issuance), the total
number of shares of common stock then beneficially owned by Federated
and its affiliates does not exceed 9.999% of the total number of
issued and outstanding shares of common stock (including for such
purpose the shares of common stock issuable upon such exercise).
(14) Includes securities held by Potomac Capital Management and Pleiades
Investment Partners-R, L.P. Includes 75,700 shares of common stock
issuable upon exercise of warrants, issued in connection with a
private placement of common stock by the Company in October 2003.
Exercise of these warrants is limited to the extent necessary to
insure that, following such exercise (or other issuance), the total
number of shares of common stock then beneficially owned by Potomac
and its affiliates does not exceed 9.999% of the total number of
issued and outstanding shares of common stock (including for such
purpose the shares of common stock issuable upon such exercise).
(15) Includes 584,375 shares of common stock issuable upon exercise of
warrants received in connection with a Securities Purchase Agreement
(See "Certain Relationships and Related Party Transactions", below).
Includes securities held by 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"). Each fund has shared voting and dispositive power
over the total 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 of Directors currently consists of six Directors divided into three
classes.
The persons named in the table below are the Class A Directors nominated by the
Board of Directors 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. 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, but will be treated as shares present for the purpose of
determining whether a quorum is present.
Director
Name Positions with the Company Age Since
- ----------------------- -------------------------- ----- ----------
Peter J. DaPuzzo Director 65 2001
Howard L. Waltman Director 73 2004
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO
ELECT THE TWO NOMINEES LISTED ABOVE AS DIRECTORS OF THE COMPANY.
The name, principal occupation with the Company, and certain information
concerning each of the Directors and executive officers of the Company as of
April 28, 2006 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 62 1984 2008
of the Board of Directors
President, Chief Operating Officer &
Robert B. Wallach Vice Chairman of the Board of
Directors 67 2001 2008
Lee C. Fields Executive Vice President, Marketing 47 - -
and Business Development
Richard C. Giordanella President of Enterprise 57 - -
Application Services
Michael D. Jones President of Infrastructure 48 - -
Technology Outsourcing
Nicholas J. Letizia Senior Vice President, General 54 - -
Counsel, & Secretary
Michael Luebke President - Infocrossing Healthcare 54 - -
Services, Inc.
William J. McHale Chief Financial Officer, Senior Vice 51 - -
President - Finance, & Treasurer
Michael Wilczak Senior Vice President - 35 - -
Corporate Development
Peter J. DaPuzzo Director 65 2001 2006
Jeremiah M. Healy Director 63 2004 2008
Kathleen A. Perone Director 52 2000 2007
Howard L. Waltman Director 73 2004 2006
Zach Lonstein has been the Company's Chairman of the Board of Directors since he
organized the Company in 1984, Chief Executive Officer from 1984 through June
2000 and from November 2001 to the present, and President from 1984 to May 1996.
From 1981 to 1984, Mr. Lonstein was Vice President and General Manager of the
Commercial On-Line division of Informatics General Corporation ("Informatics"
subsequently renamed Sterling Federal Systems, Inc.), a computer software and
services company listed on the New York Stock Exchange. In 1970, Mr. Lonstein
was a founder and President of Transportation Computing Services Corp. ("TCS").
In 1981, TCS was sold to Informatics. The Company purchased the Commercial
On-Line division of Informatics in 1984.
Robert B. Wallach joined the Company in June 1995, and was appointed Vice
Chairman on April 2, 2004. Mr. Wallach has also served as President of the
Company from May 1996 until June 2000, from November 2001 until April 2, 2004
and from November 2004 to the present; Chief Operating Officer from April 2001
until April 2, 2004 and from November 2004 to the present; and a Director of the
Company from 1992 until May 2000 and from August 2001 to the present. From June
2000 through April 2001, he was President of the Company's Managed Services
Division. 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.
Lee C. Fields, EVP for Marketing and Business Development, joined the Company
in August, 2005, and brings a comprehensive background in sales, marketing,
business development, consulting, training, and management. Since 2004, Mr.
Fields had been Managing Director of North American Sales & Business Development
for Mercer Management Consulting, a global leader in growth strategies and
operational excellence consulting. At Mercer, he was responsible for supporting
the firm in opening new client relationships, improving the go-to-market
approach and sales effectiveness of practices and directors, and building
overall broader business development capabilities with the firm. From 1997 until
2003, Mr. Fields was with AnswerThink, Inc., a provider of technology-based
business transformation solutions, at which he served in various sales, business
development, and consulting roles including Chief Sales Officer from 2000 until
2003. Before joining AnswerThink in 1997, Mr. Fields was Vice President for The
Learning Alliance, a business consulting, sales training, and sales force
automation company. A graduate of Rutgers University with a degree in economics,
Mr. Fields began his career at IBM, where he had held various sales marketing,
training, and management positions from 1980 until 1993.
Richard C. Giordanella joined the Company in December 2005, and in January 2006
he became President, Enterprise Application Services, as a result of the
acquisition of certain assets and the business of Soft Link Solutions, Inc.,
where he had been Chief Executive Officer for the past two years. Mr.
Giordanella has more than twenty years executive experience in software
services. He led two private companies, Ross Systems and Datalogix, through
successful initial public offerings, in 1995 and 1991, respectively. He was
Chief Executive Officer and Chairman of Datalogix from 1992 through 1996, when
he led the successful sale of Datalogix to Oracle. He was President and a
director of Ross systems from 1982 through 1992. Mr. Giordanella received an
engineering degree from Rutgers University, and he was an officer in the United
States Army Corps of Engineers.
Michael D. Jones was President and CEO of (i)Structure, LLC until the
acquisition of (i)Structure by the Company on November 30, 2004, when Mr. Jones
was appointed President of Infrastructure Technology Outsourcing. Mr. Jones
became President and CEO of (i)Structure in December 2001. Prior to assuming the
role as President and CEO (i)Structure, Mr. Jones served as Group Vice President
and CIO of Level(3) Communications, where he started in May 1998. Mr. Jones also
served as CIO at Corporate Express from May 1994 until May 1998. Mr. Jones
started his career by serving in many different technology roles at Accenture
from May of 1979 until May of 1991 when he resigned his position as Associate
Partner to take a position as Director of Billing Systems at Sprint.
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. From June 2002 through June 2003, he also held the position of
Treasurer. Prior to joining the Company, 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 (Inactive Status) and a member of the New Jersey
Bar.
Michael Luebke was named President of Infocrossing Healthcare Services, Inc.,
formerly the healthcare segment of Verizon Information Technologies, Inc.
("VITI"), when the Company purchased the business as of October 1, 2004. Mr.
Luebke formerly served as President of VITI through November 2003. Mr. Luebke
enjoyed a thirty-year career with Verizon and GTE, holding positions such as AVP
- - Information Technology, where he led the IT merger planning with Bell
Atlantic, retooled GTE's system development capabilities, and helped GTE earn a
CMM level 3 certification.
William J. McHale was named Senior Vice President, Finance of the Company in
September 2002, Treasurer in June 2003, and Chief Financial Officer on January
7, 2005. Prior to joining the Company, from 1990 through 2001, Mr. McHale was
Chief Financial Officer and Executive Vice President at Eden LLC, a regional
importer and distributor. He assisted with that company's sale of its brand and
licensing rights to Learning Curve International. Eden LLC filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code on June 15, 2001. Prior
to Eden, Mr. McHale held senior operations and finance positions with Amerada
Hess Corporation and several private companies. Mr. McHale, a Certified Public
Accountant, also spent six years with Arthur Andersen & Co.
Michael Wilczak joined the Company as Vice President of Corporate Development in
March 2001, and was promoted to Senior Vice President of Corporate Development
in 2002. Prior to joining the Company, Mr. Wilczak was Director of
e-Infrastructure Outsourcing for Cabletron Systems and its spin-off, Global
Network Technology Services. From October 1998 through October 1999, when he
joined Cabletron, Mr. Wilczak was Marketing Development Manager for Qwest
Communications, and from June 1993 until leaving to join Qwest, he held several
positions with AT&T, the last being Client Business Manager.
Peter J. DaPuzzo was reelected to the Board of Directors on November 27, 2001.
He had previously served on the Company's Board of Directors 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 was also a Senior Managing
Director of Cantor Fitzgerald LP. Mr. DaPuzzo joined Cantor Fitzgerald in 1993
and retired January 1, 2005. Mr. DaPuzzo is immediate past Chairman 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 a past Chairman of the Securities Industry Association -
Institutional Traders Committee. He is also a member of the Advisory Committee
to the Board of Directors of the Shelter for the Homeless in Stamford, CT, and a
member of the National Italian-American Business Council.
Howard L. Waltman was elected to the Board of Directors in April 2004. He had
previously served on the Company's Board of Directors from 1997 to May 2000. Mr.
Waltman is a director and, until 2000, was Chairman of Express Scripts, Inc.
("ESI"), a Company he formed in 1986 as a subsidiary of Sanus, of which he was
also a founder and former Chairman. Sanus was acquired by New York Life
Insurance Company in 1987. ESI, which provides mail order pharmacy services and
pharmacy claims processing services, was spun out of Sanus and taken public in
June 1992. Mr. Waltman also founded Bradford National Corp., which was sold to
McDonnell Douglas Corporation. Mr. Waltman is also a director of the Emergent
Group, Inc., (OTC - EMGP) a holding company whose subsidiaries provide surgical
equipment on a fee-for-service basis to hospitals and other health care
providers.
Jeremiah M. Healy was elected to the Board of Directors in November 2004. Mr.
Healy is an independent consultant and formerly was vice president and Chief
Financial Officer of Ge-Ray Fabrics, Inc. ("Ge-Ray"), a privately-held
merchandising and manufacturing company supplying circular knitted fabrics to
the fashion industry, from 1989 until April 2005. Before joining Ge-Ray, Mr.
Healy was Chief Financial Officer & Vice President of Peabody International
Corp., a NYSE listed company that merged with Pullman Corporation in 1986 and
was acquired by a private merger and acquisition group in 1989. Mr. Healy is a
Certified Public Accountant (CT). Ge-Ray and an affiliated company filed for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in April
2005.
Kathleen A. Perone was elected to the Board of Directors in September 2000. Ms.
Perone is President of XLNT Technologies, Inc., a management consulting firm she
founded in January 2006. Beginning in June 2002, she became President and Chief
Executive Officer of Focal Communications, Inc., headquartered in Chicago, IL, a
position she held until October 2004, when Focal was acquired by Corvis
Corporation. During her term, she guided Focal through a reorganization under
Chapter 11 of the U.S. Bankruptcy Code, emerging in July 2003. Beginning in
April 2000, Ms. Perone was Managing Director of Acappella Ventures LLC, a
Delaware limited liability corporation, which invested 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 as 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 was previously a member of the boards
of directors of Focal Communications Corp and Tellium, Inc.
Michael B. Targoff was elected to the Board of Directors in May 2001. On January
20, 2006, Michael B. Targoff resigned as a director of the Company and also from
all committees on which he was a member. Immediately prior to his resignation,
Mr. Targoff was a member of the Executive Committee and the Options and
Compensation Committee. Mr. Targoff had no disagreement with the Company on any
matter relating to the Company's operations, policies or practices, including
without limitation, with respect to any accounting matters. Mr. Targoff is the
founder of Michael B. Targoff & Co., a company that seeks active or controlling
investments in telecommunications and related industry early stage companies. In
November 2005, Mr. Targoff was named Non-Executive Vice Chairman of the Board of
Directors of Loral Space & Communications Inc. (Nasdaq: LORL).
MEMBERS OF THE BOARD OF DIRECTORS
The Board of Directors currently has six members: Ms. Perone and Messrs.
Lonstein, Wallach, DaPuzzo, Waltman, and Healy. The Board of Directors has
determined that the following members of the Board are independent Directors, as
such term is defined in Nasdaq Rule 4200(a)(15): Ms. Perone and Messrs. DaPuzzo,
Waltman, and Healy. The independent Directors meet from time to time in
executive session without the other members of the Board.
The Board of Directors held sixteen meetings during 2005 and took two actions by
unanimous written consent. During 2005 (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 Company encourages all Board Members to attend its Annual Meeting of
Stockholders. At the Annual Meeting held on June 13, 2005, all but Mr. Waltman
of the Directors was in attendance.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has standing committees as follows: Audit Committee; Options
and Compensation Committee; Executive Committee; and Nominating Committee.
The Board of Directors appoints the members and chairperson of each committee.
AUDIT COMMITTEE
During 2005, the Audit Committee consisted of Ms. Perone and Messrs. Healy
(chairman) and DaPuzzo. The Audit Committee held six meetings in 2005, and took
four actions by unanimous written consent. Each of the members of the Audit
Committee meets the requirements for being members as prescribed by the listing
standards of the Nasdaq Stock Market including the independence standards of the
Nasdaq Stock Market and applicable SEC rules. Mr. Healy is the Audit Committee's
financial expert, as that term is defined in Regulation S-K 401(h)(2).
The Audit Committee is governed by a written charter approved by the Board of
Directors. A copy of this charter, as amended, is included as Appendix A.
The Audit Committee has the ultimate authority and responsibility to appoint,
establish the compensation for, evaluate and, where appropriate, replace the
independent auditors of the Company's financial statements, and the independent
auditors report directly to the Audit Committee. The Company requires that all
services provided by the independent auditors be pre-approved by the Audit
Committee. The Audit Committee meets periodically with management and the
Company's independent auditors 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 report of the Audit Committee appears beginning on page 20.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2005, the Options and Compensation Committee consisted of Ms. Perone
(chairperson) and Messrs. Targoff and Waltman. Mr. DaPuzzo joined the Options
and Compensation Committee following Mr. Targoff's resignation from the Board of
Directors in January 2006. No compensation committee interlocks exist with
respect to the Option and Compensation Committee, nor do any present or past
officers of the Company serve on the Options and Compensation Committee. The
Options and Compensation Committee is governed by a written charter approved by
the Board of Directors.
OPTIONS AND COMPENSATION COMMITTEE
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; and
reviewing compensation policies and practices 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 of
Directors may also delegate the authority to the Options and Compensation
Committee to negotiate contracts with certain employees. The Options and
Compensation Committee met four times during 2005, including two meetings in
joint session with the entire Board of Directors, and took five actions by
unanimous written consent. The Report on Executive Compensation issued by the
Options and Compensation Committee appears beginning on page 14.
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors may act with the authority of
the Board except that it may not (i) submit any matter to a vote of the
stockholders, (ii) fill any Board vacancies, (iii) set any compensation for
Board members, and (iv) amend or repeal the By-Laws or any Board resolution
which by its terms may not be so amended or repealed. The Executive Committee
consists of Messrs. Lonstein, Targoff, and Waltman. Mr. Targoff had served as
Chairman until his resignation from the Board of Directors in January 2006. Ms.
Perone joined the Executive Committee and Mr. Lonstein assumed the role of
Chairman following the resignation of Mr. Targoff. Mr. Lonstein is a management
Director and Ms. Perone and Messrs. Targoff and Waltman are non-employee
Directors. The Executive Committee did not meet during 2005.
NOMINATING COMMITTEE
The Nominating Committee of the Board of Directors was formed in June 2004, and
consists of the non-employee Directors Ms. Perone and Messrs. DaPuzzo (chairman)
and Waltman. The Nominating Committee is governed by a written charter approved
by the Board of Directors. A copy of this charter is included as Appendix B. The
Nominating Committee took one action by unanimous written consent during 2005.
The Company values the input of all Directors, whether non-employee or not, in
the nominating process. The entire Board of Directors participates in the
evaluation and recommendation of candidates for election as Directors, the size
and composition of the Board of Directors, and the implementation of the
Company's corporate governance policies. Director nominees must be approved by a
majority of the independent Directors (as independence is defined in the Nasdaq
rules) as well as a majority of the full Board of Directors. In evaluating
candidates to serve as Directors, the Nominating Committee and the Board of
Directors considers professional ethics and values, relevant managerial
experience, and commitment to enhancing shareholder value.
The Board of Directors regularly assesses the size of the Board, whether any
vacancies are anticipated, and the need for particular expertise. Candidates may
come to the attention of the Nominating Committee or the Board of Directors from
current Board members, shareholders, or other persons.
During the term of their respective employment agreements, the Company shall
nominate each of Messrs. Lonstein and Wallach to serve as a member of the Board
of Directors whenever his seat is subject to reelection; provided, however,
that either executive, in his sole discretion, may elect not to be a Director.
See "Employment Agreements" below.
The Nominating Committee will consider shareholder recommendations of candidates
when the recommendations are submitted in a proper manner. Any shareholder
recommendations should include the candidate's name and qualifications to serve
as a Director. Submissions should be addressed to the Nominating Committee, c/o
the Corporate Secretary, Infocrossing, Inc., 2 Christie Heights Street, Leonia,
NJ 07605. For potential nominees to be considered at the 2007 annual meeting of
stockholders, the Corporate Secretary must receive the information no later than
January 2, 2007. The notice must include the candidate's age, business address,
residence address, principal occupation or employment, the number of shares
beneficially owned by the candidate, and information that would be required to
solicit a proxy under federal securities laws. The notice must also include the
nominating shareholder's name, address, and the number of shares beneficially
owned, as well as the period such shares have been held by, the nominating
shareholder. The current nominees, Messrs. DaPuzzo and Waltman, have been
members of the Board of Directors since 2001 and 2004, respectively, and have
been unanimously approved by the Nominating Committee and the Board of Directors
to stand for reelection as Director.
COMMUNICATIONS FROM SECURITY HOLDERS
Shareholders may communicate with the Board of Directors, including the
non-employee Directors, by sending a letter to Infocrossing, Inc. - Board of
Directors, c/o Corporate Secretary, Infocrossing, Inc., 2 Christie Heights
Street, Leonia, NJ 07605. The Corporate Secretary has the authority to disregard
or take other appropriate action with respect to any inappropriate
communications. The Corporate Secretary will submit appropriate communications
to the Chairman of the Board of Directors or to the specific Director(s) to whom
the correspondence is directed.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Summary Compensation Table below includes, for each of the years ended
December 31, 2005, 2004, and 2003, 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 Restricted Securities
Name and Principal Annual Stock Underlying All Other
Position at Salary Compensation Awards Options/SARS Compensation
December 2005 Year ($)(a) Bonus ($) ($) (#) (#) ($)
- ------------------------- ------ ---------- ----------- ------------- ---------- -------------- -------------
Zach Lonstein 2005 455,815 309,500(b) - - 750,000 196,854 (c)
Chief Executive Officer 2004 420,500 - - - 500,000 -
& Chairman 2003 409,131 - - - 10,000 -
- ------------------------- ------ ---------- ----------- ------------- ---------- -------------- -------------
Robert Wallach 2005 455,815 309,500(b) - - 100 192,722 (c)
Vice Chairman, 2004 420,500 - - - 350,000 780,763 (d)
President & COO 2003 409,131 - - - 10,000 -
- ------------------------- ------ ---------- ----------- ------------- ---------- -------------- -------------
Nicholas J. Letizia 2005 218,193 50,000(b) - - - -
SVP, General Counsel 2004 196,796 - - - 65,000 93,910 (d)
& Secretary 2003 183,635 - - - 15,050 -
- ------------------------- ------ ---------- ----------- ------------- ---------- -------------- -------------
William J. McHale 2005 210,000 50,000(b) - - - -
SVP-Finance, CFO 2004 168,347 - - - 50,000 76,985 (d)
& Treasurer 2003 158,333 - - - 7,500 -
- ------------------------- ------ ---------- ----------- ------------- ---------- -------------- -------------
Michael Luebke 2005 250,000 - - - - -
President - Infocrossing 2004 67,308 - - - 50,000 -
Healthcare Services, 2003 - - - - - -
Inc.
- ------------------------- ------ ---------- ----------- ------------- ---------- -------------- -------------
(a) Messrs. Lonstein, Wallach, Letizia, and McHale each voluntarily
reduced their salaries by 5% for the fourth quarter of 2003.
(b) Bonuses earned in 2005 that have been paid in February 2006.
(c) Cost of an executive pension plan (See "Employment Agreements" below)
(d) Gain on the sale of shares received from options exercised.
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 maintains a 401(k) Savings Plan (the "Plan") 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, 2005, 2004, and 2003, the Company did not make any matching
contributions.
OPTION GRANT TABLE
The following table gives information concerning grants of options made to the
Named Executives during 2005:
OPTION GRANTS DURING THE LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- ----------------------------------------------------------------------------------- ----------------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees In Exercise Expiration
Granted (#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
- --------------------- ------------ ---------------- --------------- --------------- ------------ ---------------
Zach Lonstein 750,000 (a) 61.5% $25.000 5/11/08 $11,791,774 $29,882,671
Robert Wallach 100 (b) < 1% $8.210 12/14/15 $516 $1,308
(a) These options are non-qualified and became exercisable on the grant
date. See "Certain Relationships and Related Party Transactions"
below.
(b) These options became exercisable on the grant date.
The Company did not award any stock appreciation rights or reprice any stock
options during the twelve months ended December 31, 2005.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table contains information concerning the stock options held by
the Named Executives during the year ended December 31, 2005. No stock
appreciation rights have been granted by the Company.
Aggregated Option Exercises During The Twelve Months Ended
December 31, 2005 And Year-End Option Values
- ---------------------------------------------------------------------------------------------------------------------------
Securities Received from Number of Securities Value of Unexercised
Exercise of Options during Underlying Unexercised In-the-Money Options at
the Twelve Months ended Options at December 31, December 31, 2005
December 31, 2005 2005 (#) ($) (1)
------------------------------- --------------------------- -------------------------------
Name Number of Net Value Exercisable Un- Exercisable Un-
Shares Received ($) Exercisable Exercisable
- ---------------------- ----------- ---------------- ----------- ------------ ------------- --------------
Zach Lonstein - - 1,410,023 277 $17,318 $475
Robert Wallach - - 659,873 277 $82,808 $475
Nicholas J. Letizia - - 64,890 44,160 $2,422 -
William J. McHale - - 39,338 34,162 $9,920 -
Michael Luebke - - 33,333 16,667 - -
(1) The amounts shown represent the aggregate excess of the market
value of shares of common stock underlying in-the-money options
at December 31, 2005 over the exercise price of those options.
COMPENSATION OF DIRECTORS
For 2005, members of the Board of Directors who are not full-time employees of
the Company were granted non-qualified options to purchase 1,250 shares of the
Company's common stock for each meeting at which a majority of the Directors are
present in person. In addition, members of the committees each received an
annual grant of a non-qualified option to purchase between 1,250 and 2,500
shares of the Company's common stock, and the chairperson of each committee
received an additional grant equal to that given to that committee's members.
Employees of the Company who are also Directors do not receive compensation for
their service as Directors. During 2005, non-employee Directors received
non-qualified options to purchase an aggregate of 35,000 shares of common stock.
The options were granted pursuant to the Company's 2002 Stock Option and Stock
Appreciation Rights Plan at the fair market value on the date of the grant and
will expire ten years after the date of grant. On February 8, 2006, in
recognition of services in connection with fourteen telephonic meetings held
during 2005, the Board of Directors approved non-qualified options to purchase
7,500 shares for Ms. Perone and Messrs. DaPuzzo, Healy, and Waltman: the four
non-employee Directors on the Board of Directors as of the meeting date.
Upon their initial election to the Board of Directors, new members have been
granted a non-qualified option to purchase 25,000 shares of the Company's common
stock.
In February 2006, the Options and Compensation Committee, with the assistance of
an independent compensation consulting firm, developed a new compensation
program for the non-employee directors consisting of a quarterly retainer of
$15,000 in cash and non-qualified options with a Black-Scholes value of $7,500,
plus annual payments of between $2,500 and $5,000 in cash for service as a
member or chairperson of any standing committee of the Board of Directors.
Non-employee Directors who chair a Committee will also receive annual grants of
non-qualified options to purchase between 1,500 shares and 2,500 shares of
common stock. The non-qualified options for non-employee Directors are granted
pursuant to the Company's 2005 Stock Plan at the fair market value on the date
of the grant and expire in ten years.
EMPLOYMENT AGREEMENTS
Effective January 1, 2005, the Company entered into employment agreements with
Mr. Lonstein, the Company's Chairman and Chief Executive Officer; and Mr.
Wallach, the Company's Vice Chairman, President and Chief Operating Officer,
replacing prior agreements originally signed as of November 1, 1999. The
employment agreements each provide for, among other items: an initial annual
base salary of $455,815; increases at the greater of the Cost of Living Index or
as determined by the Compensation Committee of the Board of Directors; bonuses
at the discretion of, and related to the satisfaction of goals to be determined
by, the Board of Directors or the Compensation Committee; Company-paid medical,
life and other group benefits; and the use of a current model auto and
membership in a health club of the executive's choosing. Effective as of January
1, 2006, the annual base salary of each of Messrs. Lonstein and Wallach was
increased to $474,047.
During the term of their respective employment agreements, the Company shall
nominate each of Messrs. Lonstein and Wallach to serve as a member of the Board
of Directors whenever his seat is subject to reelection; provided, however,
that either executive, in his sole discretion, may elect not to be a Director.
If either executive elects not to serve on the Board of Directors, such election
shall have no effect on his employment agreement except with respect to his
title of Chairman or Vice Chairman, as the case may be.
Mr. Lonstein's employment agreement provides for full-time employment for five
years, three years part-time employment at 75% of the base salary then in
effect, and two years of reduced part-time employment at 50% of the base salary
then in effect. Mr. Wallach's employment agreement provides for full-time
employment for two years, three years part-time employment at 75% of the base
salary then in effect, and two years of reduced part-time employment at 50% of
the base salary then in effect. During part-time periods, if they elect to
remain on the Board of Directors, they will remain as Chairman and
Vice Chairman.
The employment agreements provide for lifetime pension benefits of $180,000
annually for Mr. Lonstein and $120,000 annually for Mr. Wallach, which will be
paid beginning with the commencement of each executive's reduced part-time
employment period. The Company will also continue to provide medical, life and
disability benefits for life to the executives and their spouses. The Company
will pay for a $2 million life insurance policy for Mr. Lonstein, and a $500,000
policy for Mr. Wallach. Each executive shall designate their beneficiaries.
The pension benefits payable to each of Mr. Lonstein and Mr. Wallach are not
payable pursuant to a funded qualified pension plan. The Company did not make
any contributions for 2005, and does not expect to contribute to this plan in
2006. The amount accrued for this benefit in 2005 was $368,706. The Company
expects to have no payment obligation for the years 2006 through 2009, and
expects to pay $1,080,000 for the years 2010 through 2014.
The Company may elect to defer compensation with respect to each of Messrs.
Lonstein and Wallach in excess of amounts deductible for Federal income tax
purposes (currently $1,000,000), to the earlier of (1) a tax year where the
compensation will be deductible, (b) the first anniversary of the termination of
employment of the executive, or (c) the date on which the executive must pay
Federal income tax on the amount.
In the event that there is a Change in Control, as defined in their employment
agreements, Mr. Lonstein and Mr. Wallach each shall be entitled to terminate
his employment for any reason within ninety days of the Change in Control. If
either elects to terminate his employment he shall receive, in addition to all
compensation and benefits accrued through the date of termination: a lump sum
amount equal to the salary which would otherwise be paid through the end of the
term of the employment agreement and the bonus for the year of termination
(calculated as if he had remained an employee through the end of that year). In
addition, (a) the terminating executive's retirement date will be accelerated to
the earlier of the retirement date specified in his employment agreement, the
date that is six months following the termination date, or the date of an event
described in Section 409A(a)(2)(A)(v) of the Internal Revenue Code, and he will
receive the retirement benefit called for in his agreement without adjustment on
account of accelerated commencement; (b) any unvested stock options or shares of
restricted stock he holds shall become immediately vested and exercisable and
all options shall continue to be exercisable for the remainder of their original
term; (c) the Company will pay the premiums on a life insurance policy for the
remainder of his life and will provide other insurance benefits to the executive
and his wife; and (d) the requirement to nominate them to serve on the Board of
Directors shall cease.
Mr. Lonstein's employment agreement provides that no stock option awards will be
granted through December 31, 2006, except at the sole discretion of the Board of
Directors, or a duly authorized committee of the Board of Directors. The Mr.
Wallach's agreement provides that no stock option awards will be granted through
December 31, 2006.
On January 21, 2005, Mr. Lonstein was awarded a fully vested, nonqualified
option to acquire 750,000 shares of the Company's common stock at $25.00 per
share. (See "Certain Relationships and Related Party Transactions" below).
Effective October 1, 2004, Infocrossing Healthcare Services, Inc ("IHS"), a
wholly-owned subsidiary of the Company, entered into an employee agreement with
Michael Luebke, who, during his term, shall serve as the President of IHS and
report directly to the Board of Directors.
Mr. Luebke's employment agreement provides for an annual base salary of
$250,000, reviewed no less than annually. His salary level achieved at any point
shall be referred to as the "base salary." Also provided is the eligibility to
earn a performance bonus with a target amount of $100,000, but payable in
accordance with performance goals set forth by and at the discretion of the
Compensation Committee of the Board of Directors of the Company. This bonus is
to be paid no later than ninety (90) days following the end of the fiscal year.
Mr. Luebke was granted an option to acquire 50,000 shares of common stock of the
Company, par value $.01 per share in 2004. The options will vest in equal
amounts on October 1, 2004, 2005, and 2006. The options were granted pursuant to
the terms and conditions of the Company's 2002 Stock Option and Stock
Appreciation Rights Plan.
In the event that Mr. Luebke is terminated by the Company or resigns with good
reason, as that term is defined in the employment agreement, he will be entitled
under certain circumstances to severance equal to one year's base salary, paid
monthly, unless during that twelve month period, he becomes employed or retained
as a consultant by another company, in which event, he will receive 50% of the
severance until the end of the twelve month period.
Mr. Luebke's employment agreement also provides that the Company will pay the
difference between his former employer's retirement health plan and the
Company's health plan up to an amount equal to the Company's health plan.
Additionally, the Company is required to purchase a disability insurance policy
on his behalf and for his benefit under which he shall be eligible to receive
annual payments in an amount equal to no less than 60% of the annual base salary
in effect at the time he is determined to have become disabled.
REPORT ON EXECUTIVE COMPENSATION
The Options and Compensation Committee of the Board of Directors administers the
compensation of the executive officers of the Company. The following report is
submitted by the Committee regarding compensation for the Company's executive
officers during 2005.
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 Company's overall compensation philosophy is to
reinforce strategic objectives through the use of incentive compensation
programs; align executive compensation structures with shareholder objectives to
ensure a mutuality of interest in strategic decisions; and encourage significant
ownership of stock in the Company to strengthen the mutuality of interest
between executive officers and shareholders.
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 Committee
strives to maintain base compensation for the Company's executive officers at
levels which the Committee believes are competitive with the compensation of
comparable executive officers in similarly situated companies while relying on
stock options and bonuses to provide significant performance incentives. The
Committee periodically examines market compensation levels and trends for
comparable positions in the Company's industry as well as for such positions in
public companies having similar sales and market capitalization. The Committee
has engaged consultants on occasion to assist the Committee in assessing
relevant compensation trends and practices.
Historically, the Company has compensated executive officers with bonuses. No
bonuses were awarded to executive officers for 2003 and 2004, but based on
operating performance and substantial growth, bonuses were awarded to executive
officers for 2005.
With respect to determining bonuses, the Committee considers relevant
compensation trends and practices, as noted above; the Company's performance
during the relevant period; the executive officer's contribution to such
performance; the Company's financial and liquidity position; the terms of any
applicable employment agreements; and in the case of executive officers other
than the Chief Executive Officer, the recommendation of the Chief Executive
Officer. The executive officers, as well as other key employees, may receive
discretionary bonuses based on a subjective evaluation of the performance of the
Company and their contributions to the Company. As described below, certain
employment agreements provide for bonuses to be earned upon the achievement of
criteria established by the Committee.
The base compensation of Messrs. Lonstein, Wallach, and Luebke were established
under the terms of the applicable employment agreements. Employment agreements
with Messrs. Lonstein and Wallach provide that the Committee may adjust any
bonus if the Committee in good faith deems it necessary in view of the Company's
overall financial condition. In the case of Mr. Luebke, the overall financial
condition of a subsidiary of the Company is the applicable standard. Messrs.
Letizia and McHale do not have employment agreements. The agreements with
Messrs. Lonstein and Wallach each provide for a target bonus equal to 100% of
base salary. In addition, in the case of Messrs. Lonstein and Wallach, the
Company may defer any bonus payment of that portion, if any, of the bonus which
is not deductible by the Company because of Internal Revenue Code of 1986, as
amended (the "Code").
In awarding bonuses, the Committee considered overall corporate performance and
performance of the specific areas of the Company under such officer's direct
control. This balance supports the accomplishment of overall objectives and
rewards individual contributions by the Company's executive officers. The
Committee believes annual bonus level targets are consistent with market
practices for positions with comparable decision-making responsibilities.
Mr. Lonstein was awarded a bonus of $309,500 for 2005 of which $50,000 had to be
used to repay a portion of the loan due from Mr. Lonstein (see "Certain
Relationships and Related Party Transactions" for a description of this loan).
In determining the amount of the bonus, the quantitative factors considered by
the Committee included that revenues reached a record $148,006,000 for 2005
compared with $104,949,000 for 2004; earnings before interest, taxes,
depreciation and amortization (EBITDA) was $22,085,000, the highest in the
Company's history; cash from operations for 2005 was $21,944,000 compared with
$6,316,000 for 2004; and free cash flow for 2005 was 6,682,000 compared with
free cash flow of $4,493,000 for 2004. A reconciliation of EBITDA to net income
and a reconciliation of free cash flow to cash from operations as well as
descriptions of the reason for using these measures are explained below.
Qualitative factors included the acquisition of (i)Structure, LLC and the
success achieved during 2005 in connection with the consolidation of
acquisitions completed in 2004. As a result of the foregoing, the Committee
believes that the Company's service capabilities, position in the selective
outsourcing market, and prospects for growth have been enhanced significantly.
Periodically, the Committee awards executive officers and certain other
employees stock options under the Company's stock option plan in effect at the
time of award. In determining the number of shares underlying options to be
granted to each executive officer, the 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. Total shares underlying the options granted
during 2005 to the Named Executive Officers were 750,100 of which 100 were
awarded to Mr. Wallach (as part of the Committee's practice of rewarding
employees who celebrated certain anniversaries of employment with the Company)
and the balance were awarded to Mr. Lonstein.
In January 2005, the Committee awarded an option to Mr. Lonstein to purchase
750,000 shares $25.00 per share. The average of the high and low prices for one
share of the Company's common stock on the date of the grant was $16.995. The
award was made pursuant to the Company's 2002 Stock Option and Stock
Appreciation Rights Plan, as amended. The purpose of the grant was to mitigate
the financial impact on Mr. Lonstein for having provided options at $25.00 per
share on 750,000 shares of the Company's common stock owned by him to those
purchasers (including their successors and assigns) under a certain Securities
Purchase Agreement dated as of April 7, 2000 between the Company and such
purchasers.
Generally, the Company will pay compensation to executive officers qualifying
for a tax deduction pursuant to Section 162(m) of the Code. In certain
instances, however, stock options awarded to executive officers may be Incentive
Stock Options as defined in Section 422 of the Code and will not give rise to a
tax deduction if the recipient adheres to the requirements of Section 422.
Pursuant to the terms of the employment agreement with Mr. Lonstein, the Company
has a deferred compensation arrangement to provide for lifetime pension benefits
of $180,000 annually. For 2005, the Company recognized deferred compensation
expense of $196,854 in connection with this arrangement. The Company will
recognize a tax deduction in connection with this arrangement as and when the
benefits are paid.
Based on the individual experience of its members, the Options and Compensation
Committee believes the compensation for each Named Executive Officer for 2005
was reasonable based on 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 between the Company and each of Messrs. Lonstein, Wallach, and
Luebke.
Options and Compensation Committee
Kathleen A. Perone (Chairperson)
Peter J. DaPuzzo
Howard L. Waltman
EBITDA
EBITDA represents net income before interest, taxes, depreciation and
amortization. The Committee considers such information an important supplemental
measure of the Company's performance and believes this metric is frequently used
by securities analysts, investors and other interested parties in the evaluation
of companies with comparable market capitalization, many of which present EBITDA
when reporting their results. The Committee recognizes that (1) the Company's
credit agreement uses EBITDA (with additional adjustments) to measure compliance
with covenants such as interest coverage and debt incurrence; (2) EBITDA is also
used by prospective and current lessors as well as potential lenders to evaluate
potential transactions with the Company; and (3) EBITDA is also used by us to
evaluate and price potential acquisition candidates.
EBITDA has limitations as an analytical tool and should not consider it in
isolation or as a substitute for analysis of the Company's results as reported
under GAAP. Some of these limitations are: (a) EBITDA does not reflect changes
in, or cash requirements for, the Company's working capital needs; (b) EBITDA
does not reflect the significant interest expense, or the cash requirements
necessary to service interest or principal payments, on the Company's debts; and
(c) although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized may have to be replaced in the future, and
EBITDA does not reflect any cash requirements for such capital expenditures.
Because of these limitations, EBITDA should not be considered as a principal
indicator of the Company's performance. The Company compensates for these
limitations by relying primarily on the Company's GAAP results and using EBITDA
only on a supplemental basis.
The reconciliation of EBITDA with net income for the years ended December 31,
2005 and 2004, respectively, is as follows (in thousands):
Twelve Months Ended December 31,
-------------------------------------------
2005 2004
-------------------- -------------------
Net income (loss) $ 2,573 $ 19,963
Add (deduct):
Income tax provision (benefit) 2,152 (12,539)
Net interest expense 6,214 5,457
Depreciation and amortization 11,146 8,679
----------------- ----------------
EBITDA $ 22,085 $ 21,560
================= ================
Free Cash Flow
Free Cash Flow ("FCF") is defined as cash flow from operations less cash
disbursed for capital expenditures. The Company considers FCF because it
considers such information an important supplemental measure of performance and
believes it is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies with comparable market
capitalization as the Company, many of which present FCF when reporting their
results.
FCF has limitations as an analytical tool and should not be considered in
isolation or as a substitute for analysis of the Company's results as reported
under GAAP. These limitations include that FCF excludes other significant cash
flows, such as principal payments on debt. Because of these limitations, FCF
should not be considered as a principal indicator of the Company's performance.
The Company compensates for these limitations by relying primarily on the
Company's GAAP results and using FCF only on a supplemental basis.
The reconciliation of cash flows provided by operations with free cash flow for
the years ended December 31, 2005 and 2004, respectively, is as follows (in
thousands):
Twelve Months Ended December 31,
----------------------------------
2005 2004
---------------- --------------
Cash flow provided by operations $ 21,944 $ 6,316
Less:
Purchases of property and equipment
including software costs deferred (5,262) (1,823)
---------------- --------------
Free Cash Flow $ 16,682 $ 4,493
================ ==============
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On October 21, 2003, the Company sold 9,739,111 shares of common stock and five
year warrants to purchase 3,408,689 shares of common stock for a net aggregate
amount of approximately $69,942,000. The warrants have an exercise price of
$7.86 per share and expire in October 2008. The private stock offering was made
only to accredited investors in a transaction exempt from the registration
requirements of the Securities Act of 1933. The net proceeds of the private
stock offering were principally used to fund the redemption of preferred stock
and warrants outstanding, the repayment of Debentures discussed below, and to
pay related fees and expenses. The remainder of the proceeds was used for
working capital purposes. On February 12, 2004, a Registration Statement on Form
S-3, filed by the Company naming the private stock offering investors as selling
shareholders, was declared effective. The Company will not receive any proceeds
from any sales of stock under this registration statement. Of the named
beneficial stockholders, Janus, Jack Silver, Federated, and Potomac Capital
Management hold an aggregate of 1,181,941 of the 1,877,595 warrants remaining
unexercised from this transaction. Exercise of these warrants is limited to the
extent necessary to insure that, following such exercise (or other issuance),
the total number of shares of common stock then beneficially owned by any holder
and its affiliates does not exceed 9.999% of the total number of issued and
outstanding shares of common stock (including for such purpose the shares of
common stock issuable upon such exercise).
On January 21, 2005, Mr. Lonstein was awarded a fully vested, nonqualified
option to acquire 750,000 shares of the Company's common stock at $25.00 per
share. The average of the high and low prices for one share of the Company's
common stock on the date of the grant was $16.995. The award was made pursuant
to the 2002 Plan. The purpose of the grant was to mitigate the financial impact
on Mr. Lonstein for having provided options at $25.00 per share on 750,000
shares of the Company's common stock owned by him to the purchasers (including
their successors and assigns) of the preferred stock and warrants. As noted in
the previous paragraph, the preferred stock and warrants were repurchased and
cancelled, but the options on Mr. Lonstein's shares remain in force.
On February 1, 2002, the Company issued $10,000,000 of Senior Subordinated
Debentures (the "Debentures") and warrants to purchase, initially, 2,000,000
shares of the common stock of the Company (the "Camden Warrants") (subject to
adjustments as discussed below) to various funds controlled by the Camden
Entities. The exercise price of the Camden Warrants is $5.86 per share and they
expire on January 31, 2007. Camden Warrants could be cancelled, in part, upon
the prepayment of the Debentures. On October 21, 2003, the Company repaid the
all the Debentures and interest accrued through that date, and also cancelled
937,500 of the Camden Warrants. On April 27, 2006, two of the Camden Entities
exercised their warrants for 478,126 shares.
In July 2004, the Company completed a private offering of $72 million aggregate
principal amount of 4.0% Convertible Senior Notes due July 15, 2024 (the
"Notes"). Approximately $40 million of the net proceeds from this offering were
used to repay outstanding term loans. The remaining balance was used to fund
acquisitions and for general corporate purposes. Net proceeds to the Company
after discount and fees were approximately $69 million. Interest on the Notes is
payable semi-annually in arrears beginning on January 15, 2005.
At the initial conversion price of $15.36, the $72,000,000 of Notes were
convertible into 4,687,500 common shares. The Notes and the shares of common
stock into which they may be converted may be resold pursuant to a registration
statement on Form S-3 that became effective in August 2004. After the effective
date of the registration statement and prior to the end of the 18th month
thereafter, if the market price of the Company's common stock were to be less
than 68.23% ($10.48) of the conversion price then in effect for at least 20
trading days during any 30 consecutive trading day period, the conversion price
would immediately be reduced by 17.38% (to $12.69 initially, subject to
adjustment as noted above for stock dividends, splits, etc.) (the "Reset
Adjustment"); provided that (i) the Reset Adjustment shall only be applicable to
Notes that have been sold or otherwise distributed pursuant to the registration
statement referred to above or pursuant to Rule 144(k) under the Securities Act
(and such adjustment shall apply to all such Notes, regardless of whether they
are so sold or distributed before or after adjustment), and (ii) there shall be
no more than one Reset Adjustment during the term of the Notes. On August 5,
2005, the Reset Adjustment was triggered. As a result of the Reset Adjustment,
the number of common shares into which the Notes are convertible is 5,673,759,
an increase of 986,259 shares.
The initial purchaser of the Notes described above, Lehman Brothers, Inc.
("Lehman"), received a discount of $2,520,000, representing 3.5% of the
$72,000,000 principal amount of the securities. An affiliate of the initial
purchaser, LBI Group, Inc. ("LBI"), who had participated in the October 2003
stock offering described above and was the beneficial owner of 2.5% of the
Company's common stock prior to the offering, acquired Notes as part of the
offering. Following the completion of the offering, LBI beneficially owned 5.8%
and Lehman beneficially owned 4.7% of the Company's outstanding common stock.
Both LBI and Lehman share the same common parent. In September 2004, Lehman sold
$4,000,000 in Notes to an investor. At April 17, 2006, assuming the conversion
of their Notes into shares, LBI and Lehman each beneficially owned 3.7% of the
Company's outstanding common stock. The Notes were not convertible as of April
17, 2006 since certain conditions precedent to conversion had not been
satisfied. 5% beneficial stockholders Lehman and Highbridge International, LLC
hold an aggregate of $37,000,000 of the Notes, convertible into 2,915,681 common
shares.
As of December 31, 2005, Mr. Lonstein was indebted to the Company in the amount
of $100,896. This indebtedness is payable on demand and bears interest at the
prime rate of interest plus 1% per annum.
As of December 31, 2005, Mr. Wallach was indebted to the Company in the amount
of $110,028. This indebtedness is payable on demand and bears interest at the
prime rate.
In February 2006, the amounts due from each of Mr. Lonstein and Mr. Wallach were
reduced by $50,000 by applying a portion of their respective bonuses against the
balance due to the Company.
CODE OF ETHICS
The Company has adopted a code of ethics that applies to the Company's principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. A copy of the code of
ethics was filed as Exhibit 14 to the Company's Annual Report on Form 10-K for
December 31, 2004. The Company has posted the code of ethics on its website at
www.infocrossing.com/ir_co_e.cfm. In addition, a copy of the code of ethics may
be obtained by writing to Infocrossing, Inc., attention: Corporate Secretary, 2
Christie Heights Street, Leonia, NJ 07605.
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 common stock and each index on December
31, 2000.
[GRAPHIC REPLACED WITH CHART BELOW]
STOCKHOLDER RETURN
AS OF DECEMBER 31,
--------------------------------------------------
2000 2001 2002 2003 2004 2005
Company Common Stock $100 $99 $103 $198 $276 $141
NASDAQ Domestic Index 100 79 55 82 89 91
NASDAQ Computer and
Data Processing
Services Index 100 81 56 73 80 83
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and Directors of the Company, and persons who beneficially own more
than ten percent of the Company's Common Stock, to file reports of ownership of
Company securities and changes of ownership with the Securities and Exchange
Commission. Copies of those reports must also be furnished to the Company.
Based solely on a review of the copies of reports furnished to the Company, the
Company believes that during the twelve months ended December 31, 2005, 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. Based
solely on a review of the copies of reports furnished to the Company and the
results of its review to date, the Company currently believes that the following
reports on Form 4 by Executive Officers and Directors were not timely filed
during the twelve months ended December 31, 2005: for Ms. Perone and Messrs.
DaPuzzo, Targoff, and Waltman, two reports each.
INFORMATION CONCERNING INDEPENDENT AUDITORS
Fees of Ernst & Young, LLP, the Company's Independent Auditors
For the Years ended December 31,
--------------------------------------
2005 2004
----------------- -----------------
Audit fees $ 1,342,000 $ 1,191,000
Audit-related fees - for accounting
consultation in 2005 and due
diligence relating to acquisitions
in 2004 25,000 81,000
Tax fees - for corporate return
preparation and tax audit support 234,000 87,000
-------------- -------------
$ 1,601,000 $ 1,359,000
============== =============
The Audit Committee has adopted a policy that requires advance approval of all
audit, audit-related, tax services, and other services performed by the
independent auditor. Unless the specific service has been previously approved
with respect to that year, the Audit Committee must approve the permitted
service before the independent auditor is engaged to perform it.
Representation at the Meeting
A representative of Ernst & Young, LLP is expected to be present at the Meeting.
Such representative will have an opportunity to make a statement, if he or she
desires to do so, and will be available to respond to appropriate questions.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. The Company's management has the primary
responsibility for the financial statements, for maintaining effective internal
control over financial reporting, and for assessing the effectiveness of
internal control over financial reporting. In fulfilling its oversight
responsibilities, the Audit Committee reviewed and discussed the audited
consolidated financial statements and the related schedule in the Annual Report
with the Company's 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 Audit Committee reviewed with the independent registered public accounting
firm, which is responsible for expressing an opinion on the conformity of those
audited consolidated financial statements and related schedule with U.S.
generally accepted accounting principles, its 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 Audit Committee by Statement on
Auditing Standards No. 61 (as amended), other standards of the Public Company
Accounting Oversight Board (United States), rules of the Securities and Exchange
Commission, and other applicable regulations. In addition, the Audit Committee
has discussed with the independent registered public accounting firm the firm's
independence from Company management and the Company, including the matters in
the letter from the firm required by Independence Standards Board Standard No.
1.
In assessing the independence of the independent registered public accounting
firm, the Audit Committee considered the compatibility of non-audit services
with the independent registered public accounting firm's independence. The Audit
Committee requires that all services of the independent registered public
accounting firm be pre-approved by the Audit Committee. The Audit Committee
considered whether the provision of non-audit services to the Company and the
audit and non-audit fees paid to the independent registered public accounting
firm are compatible with maintaining independence. On the basis of its review,
the Audit Committee determined that the independent registered public accounting
firm has the requisite independence.
The Audit Committee also reviewed management's report on its assessment of the
effectiveness of the Company's internal control over financial reporting and the
independent registered public accounting firm's report on management's
assessment and the effectiveness of the Company's internal control over
financial reporting.
The Audit Committee discussed with the Company's independent registered public
accounting firm the overall scope and plans for their respective audits. The
Audit Committee meets with the independent registered public accounting firm,
with and without management present, to discuss the results of their
examinations; their evaluations of the Company's internal control, including
internal control over financial reporting, and the overall quality of the
Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee concluded that the audited consolidated financial statements and
related schedule and management's assessment of the effectiveness of the
Company's internal control over financial reporting be included in the Annual
Report on Form 10-K for the year ended December 31, 2005 filed by the Company
with the Securities and Exchange Commission.
The Audit Committee has a charter which is updated periodically. The current
charter is attached as Appendix A to this Proxy Statement. The Audit Committee
held six meetings during the year ended December 31, 2005 and took four actions
by written consent. It is comprised solely of independent directors as defined
by the Nasdaq Stock Market's listing standards and Rule 10A-3 of the Securities
Exchange Act of 1934.
Audit Committee
Jeremiah M. Healy, Chairman
Kathleen A. Perone,
Peter J. DaPuzzo
PROPOSAL II - APPROVAL OF THE PROPOSAL TO AMEND THE
COMPANY'S 2005 STOCK PLAN
Effective as of April 27, 2006, subject to stockholder approval, the Board of
Directors of the Company amended the Infocrossing, Inc. 2005 Stock Plan (the
"2005 Plan"). If the amendment to the 2005 Plan is adopted, the number of shares
reserved for issuance under the 2005 Plan will increase from 1,000,000 to
2,000,000.
2005 Plan Administration; Eligibility. The 2005 Plan is administered by a
committee (the "Committee") consisting of at least three Directors provided,
however, that the composition of such committee shall comply with applicable
rules of the Securities and Exchange Commission, as may be amended from time to
time, and applicable listing requirements, as may be amended from time to time.
The Committee has full power to select from among the persons eligible for
awards, the individuals to whom awards will be granted, to make any combination
of awards to participants and to determine the specific terms of each award,
subject to the provisions of the 2005 Plan. Persons eligible to participate in
the 2005 Plan generally will be those officers, employees and Directors of the
Company and consultants to the Company who are responsible for or contribute to
the management, growth or profitability of the Company, as selected from time to
time by the Committee.
Stock Options Granted to Employees. The 2005 Plan permits the granting of both
incentive stock options ("Incentive Options") and non-qualified stock options
("Non-Qualified Options") to Company employees. The exercise price of each
option shall be determined by the Committee but shall not be less than 100% of
the fair market value for the shares on the date of grant.
The term of each option shall be fixed by the Committee and may not exceed 10
years from the date of grant. The Committee shall determine at what time or
times each option may be exercised and, subject to the provisions of the 2005
Plan, the period of time, if any, after death, disability or termination of
employment during which options may be exercised. Options may also be made
exercisable in installments.
Upon exercise of options, the option exercise price must be paid in full either
(i) in cash (ii) with the approval of the Committee (which may be withheld in
its sole discretion) by the surrender of shares of the Company's common stock
then owned by the grantee, (iii) from 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 (iv) in 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 an
Incentive Option and each grantee; 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.
To qualify as Incentive Options, options must meet additional federal tax
requirements, as may be amended from time to time, including limits on the value
of shares subject to Incentive Options which first become exercisable in any one
year, and a shorter term and higher minimum exercise price in the case of
certain large stockholders.
Stock Options Granted to Non-Employee Directors and Consultants. The 2005 Plan
permits the granting of Non-Qualified Options to non-employee officers and
Directors of the Company and to consultants to the Company. The exercise price
of such Non-Qualified Options shall be determined by the Committee and shall not
be less than 100% of the fair market value of the Common Stock on the date of
grant.
The term of each option shall be fixed by the Committee and may not exceed 10
years from the date of grant. The Committee shall determine at what time or
times each option may be exercised and, subject to the provisions of the 2005
Plan, the period of time, if any, after death, disability or termination of
employment during which options may be exercised. Options may also be made
exercisable in installments.
Upon exercise of options, the option exercise price must be paid in full either
(i) in cash (ii) with the approval of the Committee (which may be withheld in
its sole discretion), by the surrender of shares of the Company's common stock
then owned by the grantee, (iii) from 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 (iv) by 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 an
Incentive Option and each grantee; 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.
Stock Appreciation Rights. At the discretion of the Committee, options granted
under the 2005 Plan to officers, employees, Directors or consultants may include
stock appreciation rights. The exercise price of each stock appreciation right
shall be determined by the Committee but shall not be less than 100% of the fair
market value for the underlying shares on the date of grant. Such stock
appreciation rights are only exercisable with their related stock options. Upon
exercise of a stock appreciation right a grantee shall be entitled to receive in
stock the difference between the current fair market value of common stock and
the original exercise price of the underlying stock option. Stock appreciation
rights not exercised with the exercise of the underlying option, will
automatically terminate.
Restricted Stock and Unrestricted Stock. The Committee may also award shares of
Common Stock subject to such conditions and restrictions as the Committee may
determine ("Restricted Stock"). The purchase price, if any, of shares of
Restricted Stock shall be determined by the Committee.
Recipients of Restricted Stock must enter into a Restricted Stock award
agreement with the Company, in such form as the Committee determines, setting
forth the restrictions to which the shares are subject and the date on which the
restrictions will lapse and the shares become vested. The Committee may at any
time waive such restrictions or accelerate such dates. If a participant who
holds shares of Restricted Stock terminates the relationship with the Company
for any reason (including death) prior to the vesting of such Restricted Stock,
the Company shall have the right to require the forfeiture of such Restricted
Stock in exchange for the amount, if any, which the participant paid for them.
Prior to the vesting of Restricted Stock, the participant will have all rights
of a stockholder with respect to the shares, including voting and dividend
rights, subject only to the conditions and restrictions set forth in the 2005
Plan or in the Restricted Stock award agreement.
The Committee may also grant shares (at no cost or for a purchase price
determined by the Committee) which are free from any restrictions under the 2005
Plan ("Unrestricted Stock"). Unrestricted Stock may be issued in recognition of
past services or other valid consideration.
Adjustments for Stock Dividends, Mergers, Etc. The Committee shall make
appropriate adjustments in connection with outstanding awards to reflect stock
dividends, stock splits and similar events. In the event of a merger,
liquidation or similar event, the Committee in its discretion may provide for
substitution or adjustments.
Tax Consequences. The Company believes that the federal income tax consequences
of the options are as follows. There are no tax consequences to the grantee or
the Company at the time of grant of an option or stock appreciation right. An
optionee who exercises a non-qualified option will recognize compensation
taxable as ordinary income (subject to withholding) in an amount equal to the
difference between the option price and the fair market value of the shares on
the date of exercise and the Company will be entitled to a deduction from income
in the same amount. The optionee's basis in such shares will be increased by the
amount taxable as compensation, and his capital gain or loss when he disposes of
the shares will be calculated using such increased basis.
If all applicable requirements of the federal tax law or regulations, as may be
amended from time to time, with respect to Incentive Options are met, no income
to the optionee will be recognized and no deduction will be allowable to the
Company at the time of the grant or exercise of an Incentive Option. The excess
of the fair market value of the shares at the time of exercise of an Incentive
Option over the amount paid is an item of tax preference which may be subject to
the alternative minimum tax. In general, if an incentive stock option is
exercised three months or more after termination of employment, the optionee
will recognize ordinary income in an amount equal to the difference between the
option price and the fair market value of the shares on the date of exercise and
the Company will be entitled to a deduction in the same amount. If the shares
acquired subject to the option are sold within one year of the date of exercise
or two years from the date of grant, the optionee will recognize ordinary income
in an amount equal to the difference between the option price and the lesser of
the fair market value of the shares on the date of exercise or the sale price
and the Company will be entitled to a deduction from income in the same amount.
Any excess of the sale price over the market value on the date of exercise will
be taxed as a capital gain.
Stock appreciation rights will be treated as ordinary income, subject to
withholding, to a grantee at the time of exercise in an amount equal to the
difference between the option price and the fair market value of the shares on
the date of exercise. The Company will be entitled to a deduction of an
equivalent amount.
Shares of the Company which are not subject to restrictions and possibility of
forfeiture and which are awarded to an employee under the Incentive Stock Plan
will be treated as ordinary income, subject to withholding, to a grantee at the
time of the transfer of the shares and the value of such awards will be
deductible by the Company at the same time in the same amount. Shares granted
subject to restrictions and possibility of forfeiture will not be subject to tax
nor will such grant result in a tax deduction for the Company at the time of
award. However, when such shares become free of restrictions and possibility of
forfeiture, the fair market value of such shares at that time (i) will be
treated as ordinary income to the employee and (ii) will be deductible by the
Company.
The tax treatment upon disposition of shares acquired under the 2005 Plan will
depend upon how long the shares have been held and on whether or not the shares
were acquired by exercising an Incentive Option. There are no tax consequences
to the Company upon a participant's disposition of shares acquired under the
2005 Plan, except that the Company may take a deduction equal to the amount the
participant must recognize as ordinary income in the case of the disposition of
shares acquired under Incentive Options before the applicable holding period has
been satisfied.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 2005 Plan. Moreover, no such amendment, unless approved by the
stockholders of the Company, as may be required under (i) applicable rules of
the Securities and Exchange Commission, as may be amended from time to time, or
(ii) if the Stock is listed on a national securities exchange or the Nasdaq
system, with applicable listing requirements, as may be amended from time to
time, or (iii) with respect to Incentive Stock Options, as required under
applicable federal tax law or regulations, as may be amended from time to time,
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE AMENDMENT TO THE 2005 STOCK PLAN.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table presents information, as of December 31, 2005, regarding
securities authorized for issuance under the Company's 1992 Stock Option and
Stock Appreciation Rights Plan, the 2002 Stock Option and Stock Appreciation
Rights Plan, and the 2005 Stock Plan.
------------------------- -------------------------- --------------------------
Number of Securities to Weighted Average Number of Securities
be Issued Upon Exercise Exercise Price of Remaining Available for
of Outstanding Options Outstanding Options Future Issuance
------------------------- -------------------------- --------------------------
Three qualified Stock Option Plans
- previously approved by
stockholders (1) 3,685,642 $14.37 643,000 (2)(3)
(1) Includes the Company's 1992 Stock Option and Stock Appreciation Rights Plan
(the "1992 Plan"), the 2002 Stock Option and Stock Appreciation Rights Plan (the
"2002 Plan"), and the 2005 Plan. The 1992 Plan was approved by the stockholders
of the Company in September 1992. The 2002 Plan was approved by the stockholders
of the Company in June 2002. The 2005 Plan was approved by the stockholders of
the Company on June 13, 2005. No further grants may be made under the 1992 Plan
or the 2002 Plan.
(2) The above table does not reflect the 1,000,000 additional shares that will
be issuable if the amendment of the 2005 Stock Plan is approved by the
stockholders pursuant to Proposal II above.
(3) Of the options available for future grant, 125,000 are reserved pursuant to
an executive's employment agreement and 11,750 are reserved for promised
issuances, subject to approval of the Options and Compensation Committee of the
Board of Directors.
At December 31, 2005, we had reserved 3,055,095 common shares for issuance upon
exercise of the following warrants: (i) 1,062,500 shares exercisable at $5.86
per share expiring January 31, 2007; (ii) 65,000 shares exercisable at $18.00
per share expiring September 16, 2010; (iii) 50,000 shares exercisable at $15.00
per share expiring January 13, 2009; and (iv) 1,877,595 shares exercisable at
$7.86 per share expiring October 20, 2008.
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 2006 Annual Meeting, it must be received by
the Company's Secretary at 2 Christie Heights Street, Leonia, NJ 07605, no later
than January 11, 2007.
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 REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2005 WILL BE PROVIDED WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY
AT 2 CHRISTIE HEIGHTS STREET, LEONIA, NJ 07605.
APPENDIX A
AUDIT COMMITTEE CHARTER OF
INFOCROSSING, INC.
The Board of Directors of Infocrossing, Inc. (the "Company") has
adopted this Charter to govern the operations of the Audit Committee (the
"Committee") of the Company's Board of Directors. The Committee shall review and
reassess the Charter at least annually. It shall report the findings of such
review and reassessment to the Company's Board of Directors at least annually.
At such time, the Board of 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 is 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 and otherwise meet the independence requirements
of applicable SEC and Nasdaq rules. 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 ethics 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 registered public accountants, and management of the Company. In
discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and the power to retain outside
counsel, or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the Committee is to oversee the Company's
accounting and financial reporting processes and audits of the Company's
financial statements 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 registered public accountants 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 be directly responsible for the appointment,
compensation, retention, and oversight of the work of the independent
registered public accountants (including resolution of disagreements
between management and the auditor regarding financial reporting and
internal control-related matters) for the purpose of preparing or
issuing an audit report or performing other audit, review, or attest
services for the Company, and the independent registered public
accountants must report directly to the Committee
o At least annually, the Committee shall obtain and review a report by
the independent registered public accountants describing: (i) the
independent registered public accountants' internal quality control
procedures; (ii) any material issues raised by the most recent
internal quality control review, or peer review, of the independent
registered public accountants, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
independent registered public accountants, and any steps taken to
deal with any such issues; and (iii) all relationships between the
independent registered public accountants and the Company (to assess
the auditors' independence, consistent with Independence Standards
Board Standard 1, as amended).
o After reviewing the foregoing report and the independent registered
public accountants' work throughout the year, the Committee shall
evaluate the auditors' qualifications, performance and independence.
Such evaluation should include the review and evaluation of the lead
audit partner and take into account the opinions of management and the
Company's personnel responsible for the internal audit function, if
any.
o The Committee shall determine that the independent registered public
accountants have a process in place to address the rotation of the
lead audit partner and other audit partners serving the account as
required under applicable SEC rules.
o The Committee shall have a clear understanding with management and the
independent registered public accountants that the independent
registered public accountants are ultimately accountable to the
Committee and the Board, as representatives of the Company's
stockholders.
o The Committee shall have the ultimate authority and responsibility to
appoint, establish the compensation for, evaluate and, where
appropriate, replace the independent registered public accountants,
and the independent registered public accountants shall report
directly to the Committee.
o The Committee shall review and approve the independent registered
public accountants' compensation and proposed terms of their
engagement.
o The Committee shall pre-approve all audit and permitted non-audit
services provided to the Company by the independent registered public
accountants. The Committee may delegate to one or more of its members,
to the extent permitted by applicable SEC and Nasdaq rules, the
authority to grant pre-approvals required hereunder. The decisions of
any member to whom authority is delegated to grant pre-approvals shall
be presented to the full Committee at its next scheduled meeting.
o The Committee shall discuss with the independent registered public
accountants the overall scope and plans for their audit, including the
adequacy of staffing and budget or compensation.
o The Committee shall review with the independent registered public
accountants any audit problems or difficulties encountered during the
course of the audit work, including any restrictions on the scope of
the independent registered public accountants' activities or access to
requested information, and management's response. The Committee shall
review any accounting adjustments that were noted or proposed by the
auditors but were "passed" (as immaterial or otherwise); any
communications between the audit team and the audit firm's national
office respecting auditing or accounting issues or internal
control-related issues presented by the engagement; and any
"management" or "internal control" letter issued, or proposed to be
issued, by the independent registered public accountants to the
Company that is in addition to their audit report on the effectiveness
of internal control over financial reporting.
o The Committee shall review the quarterly financial statements,
including Management's Discussion and Analysis of Financial Condition
and Results of Operations, with management and the independent
registered public accountants 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 registered public
accountants under the standards of the Public Company Accounting
Oversight Board (PCAOB) (United States).
o The Committee shall review with management and the independent
registered public accountants the annual audited financial statements,
including Management's Discussion and Analysis of Financial Condition
and Results of Operations, 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). 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
registered public accountants under the standards of the PCAOB (United
States).
o The Committee's review of the financial statements shall include: (i)
major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles, and major issues as
to the adequacy of the Company's internal control over financial
reporting and any specific remedial actions adopted in light of
significant deficiencies or material weaknesses; (ii) discussions with
management and the independent registered public accountants regarding
significant financial reporting issues and judgments made in
connection with the preparation of the financial statements and the
reasonableness of those judgments, including analyses of the effects
of alternative GAAP methods of the financial statements; (iii)
consideration of the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the financial statements;
(iv) consideration of the judgment of both management and the
independent registered public accountants about the quality, not just
the acceptability of accounting principles, and (v) the clarity of the
disclosures in the financial statements.
o The Committee shall receive and review a report from the independent
registered public accountants, prior to the filing of the Company's
Annual Report on Form 10-K (or the annual report to shareholders if
distributed prior to the filing of Form 10-K), on all critical
accounting policies and practices of the Company; all material
alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, including the ramifications of the use of such alternative
treatments and disclosures and the treatment preferred by the
independent registered public accountants; and other material written
communications between the independent registered public accountants
and management.
o The Committee shall review and approve all related party transactions
required to be disclosed pursuant to SEC Regulation S-K, Item 404, and
discuss with management the business rationale for the transactions
and whether appropriate disclosures have been made.
o The Committee shall review management's report on its assessment of
the effectiveness of internal control over financial reporting as of
the end of each fiscal year and the independent registered public
accountants' report on (1) management's assessment and (2) the
effectiveness of internal control over financial reporting.
o The Committee shall discuss with management, the internal auditors, if
any, and the independent registered public accountants management's
process for assessing the effectiveness of internal control over
financial reporting under Section 404 of the Sarbanes-Oxley Act,
including any significant deficiencies or material weaknesses
identified.
o The Committee shall discuss with the independent registered public
accountants the characterization of deficiencies in internal control
over financial reporting and any differences between management's
assessment of the deficiencies and the assessment of such deficiencies
made by the independent registered public accountants. The Committee
shall also discuss with management its remediation plan to address
internal control deficiencies. The Committee shall determine that the
disclosures describing any identified material weaknesses and
management's remediation plans are clear and complete.
o The Committee shall discuss with management its process for performing
its required quarterly certifications under Section 302 of the
Sarbanes-Oxley Act.
o The Committee shall discuss with management, the internal auditors, if
any, and the independent registered public accountants any (1) changes
in internal control over financial reporting that have materially
affected or are reasonably likely to materially affect the Company's
internal control over financial reporting that are required to be
disclosed and (2) any other changes in internal control over financial
reporting that were considered for disclosure in the Company's
periodic filings with the SEC.
o The Committee shall review with senior management the Company's
overall antifraud programs and controls.
o The Committee shall review the Company's compliance and ethics
programs, including consideration of legal and regulatory
requirements, and shall review with management its periodic evaluation
of the effectiveness of such programs. The Committee shall review the
Company's code of conduct and programs that management has established
to monitor compliance with such code. The Committee shall receive any
corporate attorneys' reports of evidence of a material violation of
securities laws or breaches of fiduciary duty by the Company.
o The Committee shall establish procedures for the receipt, retention,
and treatment of complaints received by the Company regarding
accounting, internal accounting controls, or auditing matters, and the
confidential anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
o The Committee shall set clear hiring policies for employees or former
employees of the independent registered public accountants that meet
the SEC rules and Nasdaq listing standards.
o The Committee shall determine the appropriate funding needed by the
Committee for payment of (1) compensation to the independent
registered public accountants engaged for the purpose of preparing or
issuing audit reports or performing other audit, review, or attest
services for the Company; (2) compensation to any advisers employed by
the Committee; and (3) ordinary administrative expenses of the
Committee that are necessary or appropriate in carrying out its
duties.
o The Committee shall review and reassess the charter at least annually
and obtain the approval of the Board of Directors.
o The Committee shall prepare the audit 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.
APPENDIX B
INFOCROSSING, INC.
CHARTER OF THE NOMINATING COMMITTEE
1. Mission Statement
The Nominating Committee, (the "Committee") shall advise the full Board of
Directors with respect to Board organization and identify nominees to stand
for election as directors.
2. Membership and Qualification
The Committee shall consist of three or more individuals each of whom is an
"independent director" as defined in applicable Nasdaq listing standards.
The Committee members shall be elected annually by the Board for terms of
one year, or until their successors shall be duly elected and qualified. A
Committee Chairperson shall be elected by the full Board.
In addition to satisfying the requirements necessary to be independent
directors, each member of the Committee also shall satisfy all requirements
necessary from time to time to be a "Non-Employee Director" under SEC Rule
16b-3.
3. Meetings and Other Actions
The Committee will meet as may be necessary to carry out its
responsibilities. Meetings may be called by the Chairperson of the
Committee or the Chairman of the Board of the Company. All meetings of and
other actions by the Committee shall be held and taken pursuant to the
Bylaws of the Company.
Reports of meetings of actions taken at meetings or by consent by the
Committee since the most recent Board meeting (except to the extent covered
in an interim report circulated to the Board) shall be made by the
Committee to the Board at its next regularly scheduled meeting following
the Committee meeting or action.
4. Goals, Responsibilities and Authority
In carrying out its mission, the Committee shall have the following goals,
responsibilities, and authority:
Board of Directors
a. Evaluate periodically the desirability of and recommend to the Board
any changes in the size and composition of the Board.
b. Select nominees for directors, except as may be required by contract,
in accordance with the general and specific criteria set forth below
or determined as provided below:
o General Criteria. The number of independent directors should be
at least equal to the number that would satisfy applicable Nasdaq
rules. Such independent directors should have appropriate skills,
experience, and other characteristics to provide qualified
persons to fill all Board committee positions required to be
filled by independent directors. Certain executive officers
generally should serve as directors. Each director should:
- Be of high character and integrity and have an inquiring
mind, vision, a willingness to ask hard questions, and the
ability to work well with others;
- Be free of any conflict of interest that would violate any
applicable law or regulation or interfere with the proper
performance of the responsibilities of a director;
- Be willing and able to devote sufficient time to the affairs
of the Company and be diligent in fulfilling the
responsibilities of a director and Board committee member;
and
- Have the capacity and desire to represent the balanced, best
interests of the shareholders as a whole and not primarily a
special interest group or constituency.
o Specific Criteria. In addition to the foregoing general criteria,
the Nominating Committee shall develop, reevaluate at least
annually, and modify as appropriate a set of specific criteria
outlining the skills, experiences (whether in business or in
other areas such as public service, academia or scientific
communities), particular areas of expertise, specific
backgrounds, and other characteristics that should be represented
on the Board to enhance the effectiveness of the Board and Board
committees.
- These specific criteria should take into account any
particular needs of the Company as determined by the Board.
c. Evaluate each new director candidate and each incumbent director
before recommending that the Board nominate or re-nominate such
individual for election or reelection (or that the Board elect such
individual on an interim basis) as a director based on the extent to
which such individual meets the general criteria above and will
contribute significantly to satisfying the overall mix of specific
criteria identified above and remedying any deficiencies therein.
o Each annual decision to re-nominate incumbent directors should be
based on a careful consideration of each such individual's
contributions, including the value of his or her experience as a
director of the Company, the availability of new director
candidates who may offer unique contributions, and the Company's
changing needs.
d. Seek potential director candidates who will strengthen the Board and
remedy any perceived deficiencies in the specific criteria identified
above. This should include establishing procedures for soliciting and
reviewing potential nominees from directors and shareholders and for
advising those who suggest nominees of the outcome of such review.
e. Submit to the Board the candidates for director to be recommended by
the Board for election at each annual meeting of shareholders or at
other times due to Board expansion, resignations, retirements, or
otherwise.
5. Additional Resources
The Committee shall have the right to use reasonable amounts of time of the
Company's internal and independent accountants, internal and outside
lawyers, and other internal staff and also shall have the right to hire
independent compensation experts, lawyers, and other consultants to assist
and advise the Committee in connection with its responsibilities.
FORM OF PROXY
FRONT
PROXY
INFOCROSSING, INC.
PROXY FOR THE ANNUAL MEETING ON JUNE 15, 2006
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 Thursday, June
15, 2006 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.
(Continued, and to be marked, dated and signed, on the other side)
FORM OF PROXY
REVERSE
PROXY
THIS PROXY WILL BE VOTED, AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" THE PROPOSALS.
A VOTE FOR THE ELECTION OF THE NOMINEES LISTED BELOW IS RECOMMENDED BY THE BOARD
OF DIRECTORS
I. ELECTION OF DIRECTORS II. PROPOSAL to increase the
number of authorized shares of
FOR the election of Peter J. DaPuzzo common stock reserved for issuance
and Howard L. Waltman [ ] under the Company's 2005 Stock
Plan to 2,000,000 from 1,000,000.
WITHHOLD authority to vote for
all Nominees [ ] FOR PROPOSAL II [ ]
To withhold authority to vote AGAINST PROPOSAL II [ ]
for any individual Nominee,
write that Nominee's name ABSTAIN FROM PROPOSAL II [ ]
name in the space below.
III. In their descretion, the
- --------------------------------------- Proxies are authorized to vote
upon such other business as may
properly come before the Meeting.
Signature Signature Date
----------------------- ------------------------- ----------
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.