UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A/A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] 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)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------
(5) Total fee paid:
-------------------------------------------------
[ ] Fee paid previously with preliminary materials:
-------------------------------------------------
[ ] Check box if any part of the fee is offset by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offering fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
(1) Amount previously paid:
-------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------
(3) Filing Party:
-------------------------------------------------
(4) Date Filed:
-------------------------------------------------
EXPLANATORY NOTE:
Infocrossing, Inc. (the "Company") is filing these additional solicitation
materials with the Securities and Exchange Commission (the "SEC") in order to
correct items contained in the beneficial ownership table that was included in
the Company's Proxy Statement filed on April 30, 2007 for the 2007 Annual
Meeting of Stockholders. No other changes have been made.
INFOCROSSING, INC.
2 Christie Heights Street
Leonia, NJ 07605
(201) 840-4700
NOTICE of ANNUAL MEETING of STOCKHOLDERS
June 21, 2007
--------------------------
The Annual Meeting of Stockholders will be held at 9:00 A.M. on Thursday, June
21, 2007, at the offices of Infocrossing, Inc. (the "Company") at 2 Christie
Heights Street, Leonia, NJ 07605, for the following purposes:
1. To elect one Director to the Board of 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 2,500,000 from 2,000,000.
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 27, 2007 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, 2007
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 21, 2007
--------------------------------
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 21,
2007 (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 by (a) filing a written revocation with the Secretary of the
Company, (b) submitting a new, duly-executed Proxy bearing a later date, or (b)
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 27, 2007 (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 22,053,473 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, 2007.
- 1 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 27, 2007 by (a) the Chief
Executive Officer, the Chief Financial Officer, and the three most highly
compensated executive officers of the Company, other than the Chief Executive
and Financial Officers, 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, Chief Executive Officer (1) 2,729,296 11.7%
- ------------------------------------------------------------------------- ------ ------------------ -----------------
William J. McHale, Chief Financial Officer (2) 66,834 *
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Robert B. Wallach (3) 781,275 3.4%
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Lee C. Fields (4) 141,670 *
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Nicholas J. Letizia (5) 102,384 *
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Current Directors:
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Peter J. DaPuzzo 18 Pilot Rock Lane (6) 71,772 *
Riverside, CT 06878
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Jeremiah M. Healy 24 Crescent Road (7) 54,522 *
Riverside, CT 06878
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Kathleen A. Perone 40 Ocean Avenue (8) 80,272 *
Monmouth Beach, NJ 07750
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Howard L. Waltman 610 5th Avenue (9) 123,272 *
New York, NY 10017
- ------------------------------------------------------------------------- ------ ------------------ -----------------
All current Directors and executive officers as a group (12 persons) (10) 4,263,522 17.2%
- ------------------------------------------------------------------------- ------ ------------------ -----------------
Continued on next page.
- 2 -
Beneficial Ownership of the Company's Common Stock (Continued)
- ----------------------------------------------------------------------------------------------------------------------------
Number of Shares Percentage
Name and Address of Beneficial Owner Beneficially Owned of Class
- -------------------------------------------------------------------------- ------------------------- -----------------
Other 5% Owners:
- -------------------------------------------------------------------------- ------------------------- -----------------
Epoch Investment Partners 640 Fifth Avenue - 18th Floor 2,189,452 9.9%
New York, NY 10019
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Jack Silver 920 Fifth Avenue - #3B (11) 2,140,264 9.7%
New York, NY 10021
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Janus Capital Management LLC 151 Detroit Street (12) 1,883,135 8.3%
("Janus") Denver, CO 80206
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Federated Investors, Inc. Federated Investors Tower (13) 1,796,533 8.0%
("Federated") Pittsburgh, PA 15222
- -------------------------------------------------------------------------- ------ ------------------ -----------------
RLR Capital Partners, LP 152 West 57th Street - 21st Floor 1,643,602 7.5%
New York, NY 10019
- -------------------------------------------------------------------------- ------ ------------------ -----------------
DCM Partners, LLC 909 Third Avenue - 30th Floor 1,530,083 6.9%
New York, NY 10022
- -------------------------------------------------------------------------- ------ ------------------ -----------------
Potomac Capital Management 825 Third Avenue - 33rd Floor (14) 1,419,139 6.4%
New York, NY 10022
- -------------------------------------------------------------------------- ------ ------------------ -----------------
* 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 66,834 shares of common stock issuable upon exercise of
options held by Mr. McHale.
(3) Includes 660,150 shares of common stock issuable upon exercise of
options held by Mr. Wallach.
(4) Includes 141,670 shares of common stock issuable upon exercise of
options held by Mr. Fields.
(5) Includes 102,384 shares of common stock issuable upon exercise of
options held by Mr. Letizia.
(6) Includes 70,522 shares of common stock issuable upon exercise of
non-qualified options held by Mr. DaPuzzo.
(7) Includes 54,522 shares of common stock issuable upon exercise of
non-qualified options held by Mr. Healy
(8) Includes 79,272 shares of common stock issuable upon exercise of
non-qualified options held by Ms. Perone.
(9) Includes 123,272 shares of common stock issuable upon exercise of
non-qualified options held by Mr. Waltman.
(10) Includes 2,821,901 shares of common stock issuable upon exercise of
qualified and non-qualified options collectively held by the twelve
Directors and executive officers of the Company.
(11) 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 ensure 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).
(12) Includes 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 ensure 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).
- 3 -
(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 ensure 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 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, held by Potomac and an
affiliate. Exercise of these warrants is limited to the extent
necessary to ensure that, following such exercise (or other issuance),
the total number of shares of common stock then beneficially owned by
Potomac and its affiliate 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).
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors currently consists of six Directors divided into three
classes.
The person named in the table below is the Class B Director nominated by the
Board of Directors for election at the Meeting, to serve a three-year term or
until her successor is duly elected and qualified. Ms. Perone has consented to
being named a nominee in this Proxy Statement and has agreed to serve as a
Director if elected at the Meeting. If Ms. Perone becomes unable to serve prior
to the Meeting, Proxies will be voted for such other candidate as may be
nominated by the Board of Directors.
The Director 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
- ------------------- -------------------------- --------- ------------
Kathleen A. Perone Director 53 2000
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO
ELECT THE NOMINEE LISTED ABOVE AS A DIRECTOR OF THE COMPANY.
- 4 -
The name, principal occupation with the Company, and certain information
concerning each of the Directors and executive officers of the Company as of
April 27, 2007 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 63 1984 2008
of the Board of Directors
Robert B. Wallach President, Chief Operating Officer &
Vice Chairman of the Board of
Directors 68 2001 2008
Lee C. Fields Executive Vice President, Marketing 48 - -
and Business Development
Michael D. Jones President IT Outsourcing 49 - -
Nicholas J. Letizia Senior Vice President, General 55 - -
Counsel, & Secretary
Arthur Miller President - Infocrossing Healthcare 52 - -
Services, Inc.
William J. McHale Chief Financial Officer, Senior Vice 52 - -
President - Finance, & Treasurer
Michael Wilczak Senior Vice President - 36 - -
Corporate Development
Peter J. DaPuzzo Director 66 2001 2009
Jeremiah M. Healy Director 64 2004 2008
Kathleen A. Perone Director 53 2000 2007
Howard L. Waltman Director 74 2004 2009
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.
- 5 -
Lee C. Fields joined the Company in August, 2005 as President - IT Outsourcing,
and became Executive Vice President - Marketing and Business Development upon
the acquisition of (i)Structure, LLC. He brings a comprehensive background in
sales, marketing, business development, consulting, training, and management.
From 2004 until joining Infocrossing, 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.
Michael Jones joined the Company as President - IT Outsourcing with the
acquisition of (i)Structure, LLC by the Company on November 30, 2004. Prior the
acquisition, Mr. Jones was President and CEO of (i)Structure. Mr. Jones became
President and CEO of (i)Structure in December 2001. Prior to assuming the role
as President and CEO of (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.
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.
Arthur Miller was named President of Infocrossing Healthcare Services, Inc.
("IHS") in August 2006, and was previously a vice president of this subsidiary
beginning in November 2004. Prior to joining IHS, from July 2003 through
November 2004 Mr. Miller was a Manager with Bearing Point, Inc., responsible for
managing all aspects of Federal contracts with a focus on Department of Health
and Human Services and the Department of Defense. From July 2002 through July
2003, Mr. Miller was a Senior Staff Consultant and Strategic Account Executive
for Verizon Information Technologies, Inc., a portion of which became IHS upon
its acquisition by the Company on October 1, 2004. In September 2002, Mr. Miller
retired from 22 years of service in the United States Navy, where he had most
recently served as Director, Business Plans and TRICARE Operations at the Naval
Bureau of Medicine and Surgery in Washington, DC. As a Program Manager for
TRICARE 3.0 he was involved in the development of the managed care contracts
which are in use today.
- 6 -
Michael Wilczak joined the Company as Vice President of Corporate Development in
March 2001, and was promoted to Senior Vice President - 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, a
member of the National Italian-American Business Council, and a member of the
Greenwich Roundtable. Mr. DaPuzzo is a member of the board of directors of LGL
Group, Inc. (AMEX - LGL), a manufacturer of frequency control electronics
equipment primarily for the telecommunications and aerospace industries.
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 President and Chief Executive Officer of LGL Group, Inc. ("LGL"). He
began his career with LGL as Chief Financial Officer in September 2006. Prior to
joining LGL, Mr. Healy was an independent consultant. He 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.
- 7 -
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 Ms. Perone and Messrs. DaPuzzo, Waltman, and Healy are
independent Directors for service both on the Board and committees of the Board,
as such term is defined in Nasdaq Rule 4200(a)(15). The independent Directors
meet from time to time in executive session without the other members of the
Board.
The Board of Directors held seven meetings during 2006 and took two actions by
unanimous written consent. During 2006 (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 15, 2006, all of the Directors
were 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 2006, the Audit Committee consisted of Mr. Healy (Chairman), Ms. Perone
and Mr. DaPuzzo. The Audit Committee held eight meetings in 2006, including two
meetings in joint session with the entire Board of Directors, and took one
action 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 407(d)(5).
The Audit Committee is governed by a written charter approved by the Board of
Directors. A copy of this charter is available on the Company's website at
www.infocrossing.com under investor relations, or a copy may be obtained by
written request to Secretary, Infocrossing, Inc; 2 Christie Heights Street;
Leonia, NJ 07605.
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 below.
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.
- 8 -
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, 2006 filed by the Company
with the Securities and Exchange Commission.
The Audit Committee has a charter which is updated periodically. The current
charter is available on the Company's website at www.infocrossing.com under
investor relations. The Audit Committee held eight meetings during the year
ended December 31, 2006 and took one action by written consent. The Audit
Committee is comprised solely of independent directors as defined by the Nasdaq
Global Select Market's listing standards and Rule 10A-3 of the Securities
Exchange Act of 1934.
Audit Committee
Jeremiah M. Healy, Chairman
Peter J. DaPuzzo
Kathleen A. Perone
- 9 -
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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.
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 directors, as well as
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. At January 1, 2006, 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.
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. See "Compensation Discussion and
Analysis" appearing below beginning on page 12 for a discussion of the
Committee's philosophies and policies. The Options and Compensation Committee
met six times during 2006, including two meetings in joint session with the
entire Board of Directors, and took four actions by unanimous written consent.
The Options and Compensation Committee is governed by a written charter approved
by the Board of Directors. This charter is available on the Company's website at
www.infocrossing.com under investor relations, or a copy may be obtained by
written request to Secretary, Infocrossing, Inc; 2 Christie Heights Street;
Leonia, NJ 07605. The Committee is authorized to retain such consultants as it
determines appropriate to assist it in its determinations as to the form or
amount of executive or director compensation. The Report issued by the Options
and Compensation Committee appears below.
COMPENSATION COMMITTEE REPORT
The Options and Compensation Committee has reviewed and discussed with
management the Compensation Discussion and Analysis appearing below beginning on
page 12, and based upon such review and discussion has recommended to the Board
of Directors that the Compensation Discussion and Analysis be included herein
and incorporated by reference into the Company's Annual Report on Form 10-K for
December 31, 2006.
Options and Compensation Committee
Kathleen A. Perone, (Chairperson)
Peter J. DaPuzzo
Howard L. Waltman
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. At January 1, 2006, the
Executive Committee consisted 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 2006.
- 10 -
NOMINATING COMMITTEE
The Nominating Committee of the Board of Directors was formed in June 2004, and
consists of Mr. DaPuzzo (chairman), Ms. Perone and Mr. Waltman, all of which are
non-employee Directors. The Nominating Committee is governed by a written
charter approved by the Board of Directors. A copy of this charter is posted on
the Company's website at www.infocrossing.com under investor relations, or a
copy may be obtained by written request to Secretary, Infocrossing, Inc; 2
Christie Heights Street; Leonia, NJ 07605. The Nominating Committee took one
action by unanimous written consent during 2006.
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 stockholder 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, stockholder, 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's policy is to consider stockholder recommendations of
candidates when the recommendations are submitted in a proper manner. Any
stockholder 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 Secretary, Infocrossing, Inc., 2 Christie Heights
Street, Leonia, NJ 07605. For potential nominees to be considered at the 2008
annual meeting of stockholders, the Secretary must receive the information no
later than January 11, 2008. 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 stockholder's name, address, and the number of
shares beneficially owned, as well as the period such shares have been held by,
the nominating stockholder. The current nominee, Ms. Perone, has been a member
of the Board of Directors since 2000, and has been unanimously approved by the
Nominating Committee and the Board of Directors to stand for reelection as
Director.
COMMUNICATIONS FROM SECURITY HOLDERS
Stockholders may communicate with the Board of Directors, including the
non-employee Directors, by sending a letter to Infocrossing, Inc. - Board of
Directors, c/o Secretary, Infocrossing, Inc., 2 Christie Heights Street, Leonia,
NJ 07605. The Secretary has the authority to disregard or take other appropriate
action with respect to any inappropriate communications. The 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.
- 11 -
COMPENSATION DISCUSSION AND ANALYSIS
The Options and Compensation Committee of the Board of Directors administers the
compensation of the executive officers of the Company. The Committee is
comprised of three directors who are independent under the rules of the NASDAQ
Global Select Market.
See "Employment Agreements" for a description of the employment agreements
between the Company and each of Messrs. Lonstein, Wallach, and Fields.
Compensation Philosophy and Policies
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. These policies also are designed to motivate the
executive officers to achieve superior performance and reward those who, in the
judgment of the Committee, do so. 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. Incentive programs are designed to
enhance shareholder value by using stock options to ensure that the executive
officers are committed to the long-term success of the Company. The Committee
strives to achieve fair and competitive compensation for the Company's
executives with both short-term and long-term compensation programs. The
short-term programs include both fixed and variable components.
In making decisions regarding executive compensation, the Committee reviews
market data, including data supplied by compensation consultants, for market
compensation levels and trends for similar positions in public companies having
similar sales and market capitalization as the Company and companies with which
the Company competes for talent. Although the Committee did not use a
compensation consultant during 2006 for executive compensation, the Committee
periodically has retained executive compensation consultants to assist the
Committee in determining appropriate market levels of executive compensation.
The Committee does not benchmark or set compensation based upon this data, but
instead uses it as a general guide in assessing whether the Company's
compensation practices remain competitive and thereby promote retention. The
Committee also considers the Company's financial performance versus the
Company's budget for such period and how the Company's financial performance
compares with prior years. Quantitative metrics, including both GAAP and
non-GAAP measures, are assessed by the Committee in determining executive
compensation. Such metrics have included increases in revenues, earnings before
interest, taxes, depreciation and amortization (EBITDA), cash from operations,
and free cash flow. In addition, the Committee reviews qualitative factors, such
as acquisitions and the consolidation of acquired companies. The Committee
reviews the relative contribution and individual performance of each executive
officer with respect to such quantitative metrics and qualitative factors. With
respect to the compensation of executives other than the Chief Executive Officer
and Chief Operating Officer, the Committee also relies significantly upon
recommendations of the Chief Executive Officer and the Chief Operating Officer.
The quantitative metrics and qualitative factors evaluated by the Committee
change over time in the Committee's discretion to reflect changing business and
economic conditions.
- 12 -
Compensation Components
The compensation of executive officers consists of base compensation,
participation in benefit plans generally available to employees, and as the
Committee determines appropriate, cash bonuses and stock options. An integral
component of this compensation philosophy is that it emphasizes
performance-based incentive compensation by providing the opportunity for
executives to receive cash bonuses and stock option awards. To that end, total
executive compensation reflects the Company's performance and is structured to
ensure that, due to the nature of the Company's business, there is an
appropriately balanced focused on our long-term versus short-term performance,
and also a balance between our financial performance, individual performance of
our executive officers and the creation of shareholder value.
The Company does not structure it's compensation programs so as to satisfy the
conditions for compensation to be deductible under Section 162(m) of the
Internal Revenue Code of 1986, as amended, (the "Code"), in order to allow the
Committee flexibility in the design and administration of the compensation
programs. Under Section 162(m) of the Internal Revenue Code of 1986, as amended,
(the "Code") compensation other than performance-based compensation is not
deductible to the extent that the amount received by executive officers whose
compensation disclosed in this proxy statement exceed $1 million in the
applicable year. Stock options awarded to executive officers often are designed
to qualify as Incentive Stock Options (as defined in Section 422 of the Code),
for which the Company would not be entitled to a deduction if the option holder
were to satisfy the requirements of Section 422. The Company's net operating
loss carryforwards have mitigated the tax implications to the Company of these
programs.
Base Compensation
The Committee strives to maintain base compensation for the Company's executive
officers at levels which the Committee, based on its experience and with the
advice of external compensation consultants, believes are competitive with the
compensation of comparable executive officers in similarly situated companies.
The base compensation of Messrs. Lonstein, Wallach, and Fields were established
under the terms of the applicable employment agreements. The Committee utilized
compensation consultants to assist in the determination of the initial base
salaries payable under each of the foregoing employment contracts. Messrs.
Letizia and McHale do not have employment agreements.
The Committee reviews the base salary of each executive officer annually.
Initial base salaries and any adjustments are based on market conditions,
corporate and individual performance and qualitative factors including
leadership and managerial abilities.
The employment contracts with Messrs. Lonstein and Wallach were effective as of
January 1, 2005. During 2005, each of them was paid a base salary of $455,815.
Each employment contract provides for annual raises as determined by the
Committee, but in no event, shall any raise be less than the percentage change
in Cost of Living Index (All Urban Consumers, NY All Items, 1982-1984 =100). For
2006, Messrs. Lonstein and Wallach each received a raise of 4% per annum as
determined by the Committee. The applicable Cost of Living Index was 3.86%.
The employment contract with Mr. Fields was effective on August 8, 2005. The
initial base salary was $300,000 per annum. The Committee must review Mr.
Fields' base salary at least annually and such amount may be adjusted upwards
(but not downwards) by the Committee. Mr. Fields' base salary was not adjusted
during 2006. With respect to determining initial base salaries and adjustments
thereto for persons other than the Chief Executive Officer and the Chief
Operating Officer, the Committee has relied significantly on the recommendation
of the Chief Executive Officer and the Chief Operating Officer. With respect to
2006, Messrs. Letizia and McHale each received a salary increase of $25,000,
with Mr. Letizia's being effective as of November 1, 2005, the anniversary of
his employment, and Mr. McHale's being effective as of January 1, 2006.
- 13 -
Annual Cash Bonus Compensation
Historically, the Company has compensated executive officers with cash bonuses
when the Committee has determined it to be appropriate and consistent with the
Company's compensation philosophy and objectives as discussed above. No cash
bonuses were awarded to executive officers for 2003 and 2004, but based on
operating performance and substantial growth, cash bonuses were awarded to the
Named Executives for 2005 and such amounts were paid in 2006. No cash bonuses
were awarded for 2006.
Employment agreements with Messrs. Lonstein, Wallach, and Fields provide for a
target cash bonus equal to 100% of base salary based upon achievement of
performance criteria established by the Committee. In the case of Messrs.
Lonstein and Wallach, in the absence of performance goals, the Committee may
award cash bonuses based on achievement versus the Company's budget for the
applicable year. Mr. Fields' employment agreement also provides for an
additional target cash bonus of 50% of base salary if superior performance
criteria are satisfied. With respects to Messrs. Lonstein and Wallach, the
Committee may adjust any cash bonus if the Committee in good faith deems it
necessary in view of the Company's overall financial condition. Under the
agreements, the Committee may, but does not have to, require deferral of any
cash bonus payment or portion thereof, if any, of the tentative cash bonus which
is not deductible by the Company because of Code Section 162(m). In the case of
Mr. Fields, the Committee may adjust the actual cash bonus to be paid in the
good faith discretion of the Committee.
With respect to determining bonuses, the Committee has relied significantly on
the recommendation of the Chief Executive Officer and Chief Operating Officer
with respect to any bonuses to be awarded to the other executive officers. 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 individual contributions to the Company. As stated above, the Committee
did not award cash bonuses to any of the Named Executives.
Long-Term Incentive Compensation
Periodically, the Committee makes awards to executive officers, officers, key
employees, directors, independent contractors, and agents whose performance will
contribute to the long-term success of the Company pursuant to the Company's
2005 Stock Plan and predecessor stock option plans. With respect to its
executive officers, the purpose of the plan is to strengthen the ability of the
Company to attract and retain such persons; increase the identity of such
officers with those of the Company's stockholders; provide incentive
compensation competitive with those of similar companies; and build loyalty to
the Company through recognition and the opportunity for stock ownership.
Awards are determined by the Committee based upon maintaining competitive
compensation programs for similar positions in companies reviewed by the
Committee. The level of grant for each Named Executive is reviewed periodically
by the Committee and set based on competitive conditions. The Committee
generally considers prior awards to an individual when considering additional
awards to such person.
During 2006, Mr. McHale was the only Named Executive who received an award
pursuant to the 2005 Stock Plan. The award consisted of an option to acquire
17,500 shares of the Company's common stock at an exercise price of $13.025 per
share. In April 2007, Messrs. Letizia and McHale each were granted options to
acquire 35,000 shares of the Company's common stock at an exercise price of
$15.275 per share. All of the stock options have a term of ten years and vest as
follows: one-third on the first anniversary date of grant and ratably over the
succeeding twenty-four months. The Committee may make additional awards to the
Named Executives during 2007 in the sole discretion of the Committee. As a
matter of practice, options granted by the Committee have exercise prices set at
or above fair market value on the date of grant.
- 14 -
Other Executive Compensation Programs
Retirement
Pursuant to the terms of the employment agreements with Messrs. Lonstein and
Wallach, the Company has a deferred compensation arrangement to provide for
lifetime pension benefits of $180,000 annually for Mr. Lonstein and $120,000
annually for Mr. Wallach. Normal retirement benefits begin on January 1, 2012 in
the case of Mr. Lonstein and January 1, 2010 in the case of Mr. Wallach.
Benefits may be accelerated, without actuarial adjustment, in the event the
applicable agreement terminates for any reason other than for "cause," if
terminated by the Company, or without "good reason," if terminated by the
executive. "Cause" and "good reason" are defined in the employment agreements
and are discussed below in this proxy statement. These arrangements are unfunded
and unsecured obligations of the Company, subject to the general claims of
creditors. For 2006, the Company recognized deferred compensation expense of
$430,292 in connection with these arrangements.
Severance and Change in Control Benefits
The employment agreements with Messrs. Lonstein, Wallach, and Fields provide for
severance benefits in the event of certain employment terminations. These
benefits are available in order to be competitive with the companies with which
the Company competes for executive talent. In addition, the agreement with
Messrs. Lonstein and Wallach provide for the acceleration of compensation upon a
change in control of the Company. A change in control oftentimes is disruptive
to an enterprise and to its executives. Such executives frequently are essential
drivers of the change in control event. To assure the continuing performance of
such executives in the face of a possible termination of employment in the event
of a change in control, the Committee approved the acceleration of compensation
in the employment agreements with Messrs. Lonstein and Wallach and also approved
the right of Mr. Fields to terminate his employment without good reason within
ninety days of a change in control. In 2007, the Committee retained James F.
Reda & Associates, LLC to develop a compensation program in the event of a
change in control. The Committee believed that as a result of the growth of the
Company in recent years, a program should be implemented to assure retention of
certain officers and employees and allay concerns that they might have over a
potential change in control. In March 2007, the Committee and the Company's
Board of Directors approved a plan establishing a transaction bonus pool of up
to five million dollars ($5,000,000) in the event there is a change in control
of the Company. The recipients of awards under this arrangement may include the
Company's Named Executives as well as other officers and employees of the
Company. Any awards under this plan shall be made in the sole discretion of the
members the Committee. Severance benefits and change of control benefits
pursuant to the employment agreements with Messrs. Lonstein, Wallach, and Fields
as well as a description of the transaction bonus pool are described below under
Potential Payments upon Termination of Employment or Change in Control on page
20.
Perquisites
The Company also provides certain perquisites that the Committee believes are
reasonable and competitive with companies with which the Company competes for
executive talent. The Company believes that the cost of these benefits is not
significant relative to the convenience and compensatory benefit that they
provide to the executives.
Stock Ownership Guidelines
The Committee has not established any stock ownership guidelines for its
executive officers, officers, and employees in light of the significant
ownership stakes of Messrs. Lonstein and Wallach.
- 15 -
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below includes, for each of the years ended
December 31, 2006, 2005, and 2004, individual compensation for services to the
Company and its subsidiaries as paid to the Named Executives.
SUMMARY COMPENSATION TABLE
Change in
Pension
Value and
Non-qualified
Deferred
Option Compensation All Other Total
Principal Salary Bonus Awards Earnings Compensation Compensation
Name Position(s) ($) ($)(a) ($)(b) ($)(c) ($)(d) ($)
- ------------- ----------------- ------ --------- ----------- ---------- ------------- ------------- -------------
Zach Chairman & 2006 $474,047 - - $205,347 $42,370 $721,764
Lonstein Chief Executive 2005 455,815 $309,500 $1,666,900 196,740 25,942 2,654,897
Officer 2004 420,500 - 1,679,400 - 25,168 2,125,068
- ------------- ----------------- ------ --------- ----------- ---------- ------------- ------------- -------------
William J. SVP-Finance, 2006 235,000 - 92,942 - 1,282 329,224
McHale CFO, & Treasurer 2005 210,000 50,000 83,453 - - 343,453
2004 168,347 - 32,311 - - 200,658
- ------------- ----------------- ------ --------- ----------- ---------- ------------- ------------- -------------
Robert B. Vice Chairman, 2006 474,047 - - 200,527 19,048 693,623
Wallach President, & COO 2005 455,815 309,500 9,699 192,612 18,124 985,750
2004 420,500 - 1,178,400 - 17,349 1,616,249
- ------------- ----------------- ------ --------- ----------- ---------- ------------- ------------- -------------
Lee C. EVP for Marketing 2006 300,000 - 165,200 - 1,653 466,853
Fields (e) and Business 2005 119,423 125,000 247,800 - - 492,223
Development 2004 - - - - - -
- ------------- ----------------- ------ --------- ----------- ---------- ------------- ------------- -------------
Nicholas J. SVP, General 2006 245,642 - 104,909 - 1,332 351,883
Letizia Counsel, & 2005 218,193 50,000 108,590 - - 376,783
Secretary 2004 196,796 - 53,004 - - 249,800
- ------------- ----------------- ------ --------- ----------- ---------- ------------- ------------- -------------
(a) Bonuses earned in 2005 were paid in February 2006, with the exception
of Mr. Fields, who was paid $50,000 in August 2005.
(b) The amount shown in the columns for Option Awards is the dollar amount
recognized for financial statement reporting purposes in 2006 in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 123(R), Share-Based Payments ("SFAS 123)" for equity award expense
(excluding any risk of forfeiture, per SEC regulations). For financial
statement purposes, the value of the options as of the date of grant
is amortized over the applicable vesting period. Prior to 2006, the
Company had accounted for Option Awards using the intrinsic method
previously allowable under APB Opinion No. 25, Accounting for Stock
Issued to Employees. The Company adopted SFAS 123(R) using the
modified-prospective method on January 1, 2006. Therefore, amounts in
this column include the expense for awards granted in 2006 and
previous years as if the Company had adopted the modified-prospective
method earlier. All of these awards were granted to the Named
Executives under the 2005 Stock Plan or a predecessor plan. All such
plans had been approved by the stockholders and all grants were at or
above fair market value, as defined in the applicable plan, on the
date of grant. Assumptions used to value the stock options are set
forth in Note 9 in the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for December 31,
2006.
(c) Increase in actuarial value of Messrs. Lonstein and Wallach's
accumulated benefit under an unfunded defined benefit pension plan
from the pension plan measurement date used for financial statement
reporting purposes with respect to the registrant's audited financial
statements for the prior completed fiscal year to the pension plan
measurement date used for financial statement reporting purposes with
respect to the registrant's audited financial statements for the
covered fiscal year. This plan began in 2005. See "Employment
Agreements" below.
(d) Other compensation consists of insurance premiums, personal use of
Company supplied vehicles, and health club (and related) expenses.
(e) Mr. Fields joined the Company in August 2005.
- 16 -
GRANTS OF PLAN-BASED AWARDS
The following table gives information concerning grants made to the Named
Executives during 2006:
GRANTS OF PLAN-BASED AWARDS
Name All Other Option
Awards: Number of Exercise or Base Closing Market Grant Date Fair
Securities Underlying Price of Option Price on Date of Value of Stock and
Grant Date Options (#) Awards ($/Sh) Grant ($/Sh) Option Awards ($)
Zach Lonstein (a) - - - - -
William J. McHale (b) 9/20/06 17,500 $13.025 (c) $13.06 $101,972
Robert B. Wallach (a) - - - - -
Lee C. Fields - - - - -
Nicholas J. Letizia - - - - -
(a) 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. Mr. Wallach's employment agreement provides
that no stock option awards will be granted through December 31, 2006.
(b) These options vest as to one third on the first anniversary of the
grant, with the remainder vesting ratably over the following 24 months.
(c) Options are granted at the average of the high and low prices for the
date of grant.
There were no grants pursuant to non-equity incentive or equity incentive plans
in 2006.
The Company did not award any stock or stock appreciation rights, nor did it
reprice any stock options during the twelve months ended December 31, 2006.
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED AWARDS
TABLES
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.
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 was amended December 22, 2006
and, as amended, provides for full-time employment for three 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. The
purpose of the amendment to Mr. Wallach's employment agreement was to add an
additional full-time year and extend the term of the agreement accordingly. The
first year of full-time employment for both executives began on January 1, 2005.
During part-time periods, if they elect to remain on the Board of Directors,
they will remain as Chairman and Vice Chairman. Mr. Lonstein's agreement
terminates on December 31, 2012, and Mr. Wallach's agreement terminates on
December 31, 2011.
- 17 -
The employment agreements provide for lifetime pension benefits of $180,000
annually for Mr. Lonstein beginning January 1, 2012, and $120,000 annually for
Mr. Wallach beginning January 1, 2010. The Company will also continue to provide
medical, life and disability benefits for life to the executives and their
spouses. The Company also is obligated to pay for a $2 million life insurance
policy for Mr. Lonstein and a $500,000 policy for Mr. Wallach during the term
of the applicable agreement. Each executive may 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 or 2006, and does not expect to contribute to this
plan in 2007. The amount accrued for this benefit as of December 31, 2006 was
$795,226. The Company expects to have no payment obligation for the years 2006
through 2009, and expects to pay $1,740,000 for the years 2010 through 2016.
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. Mr.
Wallach's employment agreement provides that no stock option awards will be
granted through December 31, 2006.
The agreements with Messrs. Lonstein and Wallach provide that during the period
ending two years after termination, the executive will not use for competitive
purposes or disclose the Company's confidential information or solicit any
employees of the Company for employment, or clients of the Company for computer
outsourcing services by any person other than the Company.
In August 2005, the Company entered into an employment agreement for a term of
three years with Lee C. Fields to serve as Executive Vice President for
Marketing and Business Development. The agreement provides, among other things,
an annual salary of $300,000, which may be adjusted upwards annually by the
Board of Directors or a compensation committee of the Board; the ability to earn
two bonuses, one of up to 100% of his annual salary and a second one of up to
50% of his annual salary based upon the achievement of goals to be determined by
the Board or a compensation committee of the Board; a sign-on bonus of $100,000,
half of which was paid in 2005 and the second half of which was paid in 2006;
and the grant of an option to purchase 200,000 shares of the Company's common
stock with an exercise price equal to the fair market value on August 8, 2005,
vesting 25% immediately, 25% after one year, and the remainder vesting ratably
over the next twenty-four months. The employment agreement also provides for
severance payable under certain circumstances equal to 100% of annual salary if
the termination occurs in the first year of the agreement, 83.33% if the
termination occurs in the second year, and 66.66% if the termination occurs in
the third year, plus a prorated amount of the total bonus Mr. Fields would have
been entitled to earn in the year of termination.
- 18 -
During the period ending one year after the later of the termination of the
agreement with Mr. Fields or the final severance payment, the executive will not
use for competitive purposes or disclose the Company's confidential information
or solicit any employees of the Company with whom he had contact for employment,
or clients or prospective clients of the Company with respect to which he had
material contact for computer outsourcing services by any person other than the
Company. The confidentiality term is extended for material non-public
information and trade secrets to the date which such information ceases being
material non-public information or the trade secrets under applicable law are
generally known by the public.
See Potential Payments upon Termination of Employment or Change in Control
beginning on page 20.
Other Compensation Information
The Named Executives may participate in certain group life, health, and other
non-cash benefit plans, which are generally available to all Company employees.
As noted above, beginning in 2006, certain executives and senior employees were
enrolled in an executive life and disability plan. 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 years ended December 31, 2006, 2005, and 2004, the
Company did not make any matching contributions.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table contains the year-end balances of unexercised stock options
held by the Named Executives. There are no outstanding grants of stock, and the
options were not granted pursuant to an equity incentive plan.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
Number of Securities Number of Securities
underlying underlying
Unexercised Options Unexercised Options Option Exercise Option Expiration
Name (#) Exercisable (#) Unexercisable Price ($) Date
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Zach Lonstein 150,000 - $10.40625 11/09/09
300 - 6.53000 12/21/10
10,000 - 6.97550 01/29/13
500,000 - 12.03500 08/22/14
(a) 750,000 - 25.00000 05/11/08
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
William J. McHale 16,000 - $8.07000 09/02/12
7,500 - 9.91000 12/14/13
8,892 1,108 (b) 13.86500 04/13/14
26,668 13,332 (c) 17.38000 12/28/14
- 17,500 (d) 13.02500 09/19/16
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Robert B. Wallach 150,000 - $8.25000 02/18/08
150,000 - 10.40625 11/09/09
50 - 5.93800 12/21/10
10,000 - 6.97550 01/29/13
350,000 - 12.03500 08/22/14
100 - 8.21000 12/14/15
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Lee C. Fields 116,668 83,332 (e) $9.05000 08/07/15
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Nicholas J. Letizia 8,000 - $9.00000 11/01/08
20,000 - 9.34375 11/03/09
1,000 - 6.26850 02/03/12
50 - 9.91000 12/14/13
15,000 - 9.91000 12/14/13
22,224 2,776 (b) 13.86500 04/13/14
26,668 13,332 (c) 17.38000 12/28/14
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- 19 -
(a) Option was granted 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 certain prior investors.
(b) Vests ratably on the first day of the next four months. (c) Vests
ratably on the first day of the next twelve months.
(d) 5,833 shares vest 09/20/07, with the remainder vesting ratably on the
first day of the next 24 months. (e) Vests ratably on the first day of
the next 20 months.
OPTION EXERCISES AND STOCK VESTED
The Named Executives did not exercise stock options during 2006. There are no
outstanding stock grants.
PENSION BENEFITS
As discussed above in "Employment Agreements", their respective employment
agreements provide for lifetime pension benefits of $180,000 annually for Mr.
Lonstein beginning January 1, 2012, and $120,000 annually for Mr. Wallach
beginning January 1, 2010.
The following table gives information as of December 31, 2006 with respect to
this benefit. There is no formal plan, and the benefit is unfunded. The number
of years of service has no bearing on the benefit amount.
PENSION BENEFITS
Name Number of Years Present Value of Payments During the
Credited Service (#) Accumulated Benefit ($) Last Fiscal Year ($)
Zach Lonstein 22 $402,087 -
Robert B. Wallach 11 393,139 -
NONQUALIFIED DEFERRED COMPENSATION AND OTHER NONQUALIFIED DEFERRED COMPENSATION
PLANS
None.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Termination of Employment
The employment agreements the Company has with each of Messrs. Lonstein,
Wallach, and Fields have severance payments in the event the applicable
executive's employment is terminated for reasons other than "cause" or the
executive leaves for "good reason." "Cause" and "good reason" are defined in the
applicable agreements.
With respect to Messrs. Lonstein and Wallach, "cause" shall mean: (i) the
executive is convicted of, or pleads nolo contendere to, a felony; (i) the
willful and continuous failure by the executive to substantially perform his
duties, other than as a result of incapacity due to physical or mental injury or
illness, following a notice and cure period; or (iii) the executive engages in
willful misconduct in the performance of his duties that is demonstrably and
materially injurious to the Company. "good Reason" shall mean: (i) involuntary
loss of the executive's title or position other than for cause; (ii) a material
diminution in the nature or scope of the executive's duties or responsibilities
or the assignment of duties or responsibilities materially inconsistent with his
position; (iii) the relocation of the executive's principal office to a location
more than 25 miles from its current location in Leonia, NJ; or (iv) the failure
of the Company, after five days notice, to comply with the terms of the
agreement relating to compensation and benefits.
- 20 -
In the case of Messrs. Lonstein and Wallach, if the Company terminates the
applicable employment agreement without cause or if the executive terminates the
agreement with good reason, the executive will receive, in addition to amounts
then due and owing that relate to the period prior to termination, a lump sum
equal to the balance of the base salary otherwise payable during the balance of
the term of the applicable agreement plus the prorated targeted bonus for the
year in which termination occurs; retirement benefits will be accelerated,
without actuarial adjustment, unless the normal retirement date already has
occurred; unvested options and unvested restricted shares, if any, shall vest
immediately and continue to be exercisable for the remainder of their original
terms; and the Company will continue to provide the executive with, and pay for
the repair and maintenance of, a current model automobile for the balance of the
term of the applicable agreement (through 2012 in the case of Mr. Lonstein and
2011 in the case of Mr. Wallach). Retirement benefits include lifetime health,
life, disability, dental and vision insurance benefits for the executive and his
spouse substantially equivalent to the benefits provided to the Company's Chief
Executive Officer (or in the absence of a Chief Executive Officer, the highest
compensated individual then employed by the Company) and his or her spouse (or
in the absence of a spouse, the benefits to which such spouse would otherwise be
eligible) from time to time. As part of their employment agreements, during the
term of the respective employment agreements, the Company pays the premiums on
life insurance policies for Messrs. Lonstein and Wallach in the amount of
$2,000,000 and $500,000, respectively, and the executives can designate the
beneficiaries under such policies. In addition to the benefits otherwise payable
in the event of termination without cause by the Company or good reason by the
executive, the Company is not relieved of its obligations to maintain and pay
for the premiums on the aforesaid life insurance policy on Messrs. Lonstein and
Wallach.
If the employment agreements with Messrs. Lonstein and Wallach are terminated by
the Company for "cause" or by the executive without "good reason," the Company's
obligations are to pay compensation accrued through the termination date.
Retirement benefits will commence on the normal retirement date, as defined in
the applicable agreement. In addition, all stock options will expire.
If Messrs. Lonstein and Wallach terminate employment as a result of death or
disability, the Company will be obliged to make a lump sum payment equal to the
lesser of two times the executive's base salary at the time of death or
disability or the balance of the base salary otherwise payable during the
balance of the term of the applicable agreement. In addition, the executive will
receive the prorated targeted bonus for the applicable year; retirement benefits
will be accelerated, unless the normal retirement date already has occurred,
without actuarial adjustment; and all unvested options shall vest immediately
and remain exercisable for one year following death or termination, except for
certain options which shall remain exercisable over their original terms. With
respect to Messrs. Lonstein and Wallach, "disability" has the same meaning as
set forth in long-term disability plan maintained by the Company covering the
executive, or if no such policy is available, an incapacity due to mental or
physical illness or injury which prevents the executive from substantially
performing the duties required under the agreement and which will be more likely
than not to extend beyond the end of the term of the agreement in the opinion of
a physician selected by the Company and reasonably acceptable to the executive
or his legal representative.
In the case of Mr. Fields, "cause" shall mean: (i) theft, fraud, or similar acts
of dishonesty or misconduct involving the property or affairs of the Company or
the carrying out of the executive's duties for the Company; (ii) conviction or
the admission of guilt of any felony or misdemeanor involving moral turpitude or
other act of dishonesty, fraud or deceit; or (iii) the repeated material
violation of any written policy or procedure of the Company subject to a notice
and cure period. "Good reason" shall mean: (i) the occurrence of any material
breach by the Company which remains uncured for a period of more than thirty
days after written notice of such breach and of the executive's intention to
terminate his employment for "good reason" if such breach is not remedied; (ii)
failure by the Company to pay any amount due within ten business days following
written demand for payment, which demand shall state that the executive intends
to resign for good reason if such payment is not made within such period; (iii)
the assignment to the executive of duties or responsibilities materially
inconsistent with the executive's current position, duties, or responsibilities
sufficient to constitute a substantial diminution of status within the Company
which duties or responsibilities are not reassigned within thirty days after
written demand from the executive, which demand shall state that he intends to
resign for good reason if such duties and responsibilities are not reassigned;
(iv) a relocation of the Company's office to which the executive is required to
report to a location that is more than fifty miles from the office's current
location in Norcross, GA; or (v) or a requirement that the executive relocate
his personal residence.
- 21 -
In the case of termination of the agreement with Mr. Fields by the Company
without cause or by Mr. Fields with good reason, severance shall equal the sum
of (i) annual base salary at the time of termination multiplied by the
"Severance Benefit Factor," as described below, and (ii) an amount equal to the
target bonus for the year of termination multiplied by a fraction, the numerator
of which is the number of days in the fiscal year up to and including the date
of termination and the denominator of which is 365. The Severance Benefit Factor
initially was 100% of the sum of Mr. Fields' annual base salary if termination
had occurred during the first twelve months of the scheduled term. The factor
declines to 83.33% during the second twelve months of the scheduled term and
then to 66.66% during the final twelve months of the scheduled term. If Mr.
Fields accepts employment or a consulting engagement with a third party, the
amount of any remaining installments shall be reduced to 50% effective with the
commencement of such employment or consulting engagement. In addition, any
unvested (or exercisable) stock options due to vest during the fiscal year in
which termination occurs shall vest immediately and all options shall continue
to be exercisable in accordance with the terms of the 2005 Stock Plan. Mr.
Fields also will receive any other benefits as may be provided under the terms
of any employee benefit program offered by the Company in which he was a
participant, however, the Company shall pay for cost of his continued
participation in the Company's health plan until the earlier of the termination
of the severance period or he commences new employment and becomes eligible to
participate in the group health plan of such new employer.
Mr. Fields shall be "disabled" if the Company reasonably determines, after any
period of leave required by law, that a physical or mental impairment or
condition renders the executive incapable of performing his essential job
functions. The Company shall consider any reasonable accommodations that might
enable the executive to safely and successfully perform his essential job
functions provided the Company receives documentation establishing that the
executive's physical or mental impairment or condition substantially limits one
or more major life activities, and the accommodation sought does not pose an
undue hardship on the Company. The executive's receipt of disability benefits
under the Company's disability benefit plans or any privately owned long term
disability insurance plan, or receipt of Social Security disability or workers'
compensation benefits, is deemed to be conclusive evidence of disability.
If the agreement with Mr. Fields terminates due to any reason other than by the
Company for cause or by the executive without good reason, the Company shall be
obliged to pay all compensation and benefits accrued through the date of
termination as well as such other benefits, if any, as may be provided under the
terms of any employee benefit, incentive, option, stock award, and other plans
or programs of the Company in which the executive participated.
In the event of the death or disability of any Named Executive, the executive or
his beneficiary, as the case may be, is entitled to receive the proceeds of life
insurance policies equal to two times base salary with a maximum limit of
$750,000; accidental death and dismemberment benefits up to a maximum of two
times base salary with a limit of $750,000; short-term disability benefits,
following a seven day waiting period, equal to 60% of base salary, with a
maximum of $3,000 per week, for six months; and long-term disability, upon
expiration of short-term disability benefits, equal to 60% of base salary with a
maximum benefit of $13,000 per month. Each Named Executive pays for the premiums
of the foregoing insurance. The Company pays the executive additional
compensation equal to 135% of the premiums for the foregoing coverage. The 35%
"gross-up" is designed to offset the tax expense on the additional compensation.
Messrs. Lonstein, Wallach, and Fields receive the foregoing benefits in addition
to the compensation and benefits specified in their respective employment
agreements.
Change in Control
The employment agreements with Messrs. Lonstein and Wallach provide that within
90 days of the change in control, the executive may elect to terminate his
employment. If the executive elects to terminate the agreement, all base salary
payable in the future (aside from any potential future increases) shall become
immediately due. Each of them also will receive the prorated targeted bonus for
the year in which the change in control occurs. All unvested stock options will
vest immediately and be exercisable over their original terms. Retirement
benefits will be accelerated, without actuarial adjustment, unless the normal
retirement date already has occurred. Retirement benefits include lifetime
health, life, disability, dental and vision insurance benefits for the executive
and his spouse substantially equivalent to the benefits provided to the
Company's Chief Executive Officer (or in the absence of a Chief Executive
Officer, the highest compensated individual then employed by the Company) and
his or her spouse (or in the absence of a spouse, the benefits to which such
spouse would otherwise be eligible) from time to time.
- 22 -
The employment agreement with Mr. Fields provides that he will be entitled to
terminate his employment voluntarily for any reason within 90 days following the
change in control. If the executive does so, he shall receive within 90 days
following the termination date all compensation and benefits accrued through the
termination date and any of his unvested stock options or other awards under the
2005 Stock Plan shall vest immediately.
The employment agreements with each of the three executive officers noted above
provide that the Company will make a payment to the executive to put the
executive in the same economic position to cover any excise or other tax imposed
on the executive if certain payments are deemed to be parachute payments for
purposes of Section 4999 of the Code.
With the assistance of James F. Reda & Associates, LLC, an executive
compensation consulting firm, in March 2007, the Options and Compensation
Committee recommended to the Board of Directors that the Company should
establish a transaction bonus pool of up to five million dollars ($5,000,000) in
the event there is a Change in Control, as defined below. On March 5, 2007, the
Board of Directors adopted the Committee's recommendation. The recipients of
awards under this arrangement may include the Company's principal executive
officer, president, principal financial officer, principal operating officer,
and Named Executives as well as other officers and employees of the Company. Any
awards under this plan shall be made by the Options and Compensation Committee
of the Company's Board of Directors in the sole discretion of the members of
such committee. "Change in Control" of the Company shall mean a Change in
Control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Act"), or any successor thereto, provided that
without limiting the foregoing, a Change in Control of the Company also shall
mean the occurrence of any of the following events:
(i) any "person" (as defined under Section 3(a)(9) of the Act) or
"group" of persons (as provided under Section 13d-3 of the Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 or otherwise
under the Act), directly or indirectly (including as provided in Rule
13d-3(d)(1) of the Act), of capital stock of the Company the holders of
which are entitled to vote for the election of directors ("voting
stock") representing that percentage of the Company's then outstanding
voting stock (giving effect to the deemed ownership of securities by
such person or group, as provided in Rule 13d-3(d)(1) of the Act, but
not giving effect to any such deemed ownership of securities by another
person or group) equal to or greater than twenty-five percent (25%) of
all such voting stock;
(ii) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constituted the Board
of Directors of the Company (including for this purpose any new
director whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of
such period) cease for any reason to constitute at least a majority of
the Board of Directors of the Company (excluding any Board seat that is
vacant or otherwise unoccupied); or
(iii) there shall be consummated any consolidation, merger, stock for
stock exchange or similar transaction (collectively, "Merger
Transactions") involving securities of the Company in which holders of
voting stock of the Company immediately prior to such consummation own,
as a group, immediately after such consummation, voting stock of the
Company (or, if the Company does not survive the Merger Transaction,
voting securities of the corporation surviving such transaction) having
less than fifty percent (50%) of the total voting power in an election
of directors of the Company (or such other surviving corporation).
- 23 -
Pro Forma Analysis
The information below describes the amount of compensation that would become
payable to Named Executives under existing agreements and plans if the Named
Executive's employment had terminated and/or a change in control had occurred on
December 31, 2006, given the Named Executive's compensation and service levels
as of such date and, if applicable, based on the Company's closing stock price
on that date. These benefits are in addition to benefits available prior to the
occurrence of any termination of employment, including under then-exercisable
stock options, and benefits available generally to salaried employees. In
addition, in connection with any actual termination of employment or change in
control transaction, the Company may determine to enter into an agreement or to
establish an arrangement providing additional benefits or amounts, or to alter
the terms of benefits described below, as the Committee determines appropriate.
The actual amounts that would be paid upon a Named Executive's termination of
employment or in connection with a change in control can be determined only at
the time of any such event. In addition, as discussed above, the recipients of
awards under the Company's transaction bonus pool may include one or more of the
Company's Named Executives. Due to the number of factors that affect the nature
and amount of any benefits provided upon the events discussed below, any actual
amounts paid or distributed may be higher or lower than reported below. Factors
that could affect these amounts include the timing during the year of any such
event, the Company's stock price and the executive's age.
If Mr. Lonstein had been terminated by the Company without cause or he had
resigned for good reason on December 31, 2006, he would have received a lump sum
payment of approximately $2,963,000 on his termination date, representing the
total salary due through the end of his contract (including the part time
periods), and his retirement payments of $15,000 per month would begin on July
1, 2007, an acceleration of four and one-half years, resulting in potentially an
additional $810,000 in pension cost to the Company. The Company would continue
to provide the executive with, and pay for the repair and maintenance of, a
current model automobile for the balance of the term of his agreement, which at
current rates would cost the Company approximately $320,000. Also, following
termination by the Company without cause or by the executive with good reason,
Mr. Lonstein would receive lifetime health, life, disability, dental and vision
insurance benefits for himself and his spouse, substantially equivalent to the
benefits provided to the Company's Chief Executive Officer (or in the absence of
a Chief Executive Officer, the highest compensated individual then employed by
the Company) and his or her spouse (or in the absence of a spouse, the benefits
to which such spouse would otherwise be eligible) from time to time, which at
current rates would cost approximately $11,200 annually. During the term of his
employment agreement, the Company will pay the premiums on a $2,000,000 life
insurance policy, which currently amounts to $6,500 annually. The premium on
this policy remains fixed until the policy expires in September 2009. The
Company has estimated that the cost of continuing this policy through December
31, 2012 would be $40,000, based on current rates, using the same rating as the
existing policy.
If Mr. Wallach had been terminated by the Company without cause or he had
resigned for good reason on December 31, 2006, he would have received a lump sum
payment of approximately $2,014,700 on his termination date, representing the
total salary due through the end of his contract (including the part time
periods), and his retirement payments of $10,000 per month would begin on July
1, 2007, an acceleration of two and one-half years, resulting in potentially an
additional $300,000 in pension cost to the Company. The Company would continue
to provide the executive with, and pay for the repair and maintenance of, a
current model automobile for the balance of the term of his agreement, which at
current rates would cost the Company approximately $175,000. Also, following
termination by the Company without cause or by the executive with good reason,
Mr. Wallach would receive lifetime health, life, disability, dental and vision
insurance benefits for himself and his spouse, substantially equivalent to the
benefits provided to the Company's Chief Executive Officer (or in the absence of
a Chief Executive Officer, the highest compensated individual then employed by
the Company) and his or her spouse (or in the absence of a spouse, the benefits
to which such spouse would otherwise be eligible) from time to time, which at
current rates would cost approximately $11,300 annually. During the term of his
employment agreement, the Company will pay the premiums on a $500,000 life
insurance policy, which currently amounts to $6,300 annually. The premium on
this policy remains fixed until the policy expires in April 2009. The Company
has estimated that the cost of continuing this coverage through December 31,
2010 would be $33,000, based on current rates, using the same rating as the
existing policy.
- 24 -
Had a change in control occurred on December 31, 2006, and had Mr. Lonstein
elected termination, he would have received a lump sum payment of approximately
$2,963,000 on his termination date, representing the total salary due through
the end of his contract (including the part time periods), and his retirement
payments of $15,000 per month would begin July 1, 2007, an acceleration of four
and one-half years, resulting in potentially an additional $810,000 in pension
cost to the Company.
Had a change in control occurred on December 31, 2006, and had Mr. Wallach
elected termination, or if he had been terminated by the Company without cause
or had resigned for good reason, at a minimum he would have received a lump sum
payment of approximately $2,090,452 on his termination date, representing the
total salary due through the end of his contract (including the part time
periods), and his retirement payments of $10,000 per month would begin July 1,
2007, an acceleration of two and one-half years, resulting in potentially an
additional $300,000 in pension cost to the Company.
Following termination for an assumed change in control as of December 31, 2006,
Messrs. Lonstein and Wallach and their respective spouses would be eligible for
lifetime health, life, disability, dental, and vision insurance benefits
substantially equivalent to the benefits provided to the Company's Chief
Executive Officer (or in the absence of a Chief Executive Officer, the highest
compensated individual then employed by the Company) and his or her spouse (or
in the absence of a spouse, the benefits to which such spouse would otherwise be
eligible) from time to time. At current rates, this coverage costs approximately
$11,200 annually for Mr. Lonstein and $11,300 annually for Mr. Wallach.
Options held by Messrs. Lonstein and Wallach are fully vested, and therefore no
acceleration of vesting would be required.
Had either Messrs. Lonstein or Wallach terminated due to their death on December
31, 2006, their estate would have received a lump sum payment equal to two times
the annual base salary, or $983,742. Mr. Lonstein's beneficiaries would receive
$2,650,000 in life insurance benefits ($3,300,000 for accidental death). Mr.
Wallach's estate would receive $1,150,000 in life insurance payments ($1,800,000
for accidental death). Had either terminated because of disability, each would
have received the lump sum payment of $983,742 and retirement payments would
have begun immediately, resulting in potentially an additional $900,000 for Mr.
Lonstein or $360,000 for Mr. Wallach. Mr. Lonstein would receive disability
benefits totaling approximately $573,300, and Mr. Wallach would receive
disability income benefits totaling approximately $54,000 and nursing care
benefits of approximately $102,000 per year payable for life.
Had Mr. Fields been terminated on December 31, 2006, he would have been entitled
to severance of $249,990, assuming he did not commence new employment or a
consulting engagement during the severance period ending December 31, 2007.
Severance is payable in equal monthly installments. The Company would be
obligated to pay for his health coverage for the same period, for a cost of
$17,276. The obligation to pay for health coverage would terminate early if he
became eligible to participate in a health plan provided by a new employer. In
addition, unvested options to purchase 83,333 shares of the Company's common
stock at $9.05 per share would have become vested. At the closing price of the
Company's common stock at December 29, 2006 of $16.30, such accelerated vesting
would have been worth approximately $604,164. The acceleration of vesting would
also have applied had there been a change in control on that date. Had Mr. Field
died on December 31, 2006, his beneficiaries would have received insurance
benefits of $500,000 ($1,000,000 for accidental death). Had he become disabled,
he would be entitled to disability income payments through age 65 totaling
$588,000.
Had any of Messrs. Lonstein, Wallach or Fields been terminated for cause or
resigned without good reason, they would have received accrued pay and benefits
through the date of termination, but no severance payments or benefit
continuation. For Messrs. Lonstein and Wallach, however, their retirement
payments would begin on their respective normal retirement dates of January 1,
2012 in the case of Mr. Lonstein and January 1, 2010 in the case of Mr. Wallach.
- 25 -
Messrs. Letizia and McHale do not have employment agreements. Upon Mr. Letizia's
death, his beneficiaries would receive insurance benefits of $383,000 ($766,000
for accidental death). If he had become disabled on December 31, 2006, his
disability benefits would have totaled $240,700 through age 65. Upon Mr.
McHale's death, his beneficiaries would receive insurance benefits of $370,000
($740,000 for accidental death). If he had become disabled on December 31, 2006,
his disability benefits through age 65 would have totaled $259,000.
COMPENSATION OF DIRECTORS
For the year ended December 31, 2006, the following table contains the
components of compensation for the non-employee directors. Messrs. Lonstein and
Wallach are employee directors, and receive no additional compensation for their
services as directors.
DIRECTOR COMPENSATION
Fees Earned or Option Awards
Name Paid in Cash ($) ($)(a) Total ($)
Peter J. DaPuzzo $68,500 $69,631 $138,131
Jeremiah M. Healy 65,000 67,745 132,745
Kathleen A. Perone 72,000 69,631 141,631
Howard L. Waltman 67,500 58,311 125,811
(a) The amount shown in the column for Option Awards is the dollar amount
recognized for financial statement reporting purposes in 2006 in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 123(R), Share-Based Payments ("SFAS 123)" for equity award expense
(excluding any risk of forfeiture, per SEC regulations).
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.
The Options and Compensation Committee, with the assistance of James F. Reda &
Associates, LLC, an executive compensation consulting firm, presented
recommendations to the Board of Directors with respect to adopting a new
compensation program for the Company's independent directors. The Board of
Directors considered such recommendations and made certain modifications. In
February 2006, the Board of Directors approved 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. In addition, 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. Employees of the
Company who are also Directors do not receive compensation for their service as
Directors.
- 26 -
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 outstanding debentures, 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
stockholders, 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 1,153,076 of the 1,476,903 warrants remaining
unexercised from this transaction. Exercise of these warrants is limited to the
extent necessary to ensure 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.
As of December 31, 2006, Mr. Lonstein was indebted to the Company in the amount
of $56,118. This indebtedness is payable on demand and bears interest at the
prime rate of interest plus 1% per annum.
As of December 31, 2006, Mr. Wallach was indebted to the Company in the amount
of $65,380. 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 bonus payments
against the balance due to the Company.
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.
- 27 -
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 27, 2007, assuming the conversion
of their Notes into shares, LBI and Lehman each beneficially owned 3.5% of the
Company's outstanding common stock. The Notes were not convertible as of April
27, 2007 since certain conditions precedent to conversion had not been
satisfied. Lehman and LBI hold an aggregate of $20,000,000 of the Notes,
convertible into 1,576,042 common shares.
The Company's written policy requires that transactions with related parties be
reviewed by the General Counsel and/or the Chief Financial Officer. The
Company's Codes of Ethics and Conduct both forbid employees from engaging in any
activity that might present a conflict of interest. Any transactions that might
appear to involve a conflict of interest must be submitted by the General
Counsel or Chief Financial Officer to the Audit Committee for review. Such
transactions may include, but are not limited to, any significant ownership
interest in any supplier or customer; any consulting or employment relationship
with any customer, supplier or competitor; any outside business activity that
detracts from an individual's ability to devote appropriate time and attention
to his or her responsibilities with the Company; the receipt of non-nominal
gifts or excessive entertainment from any company with which the Company has
current or prospective business dealings; being in the position of supervising,
reviewing or having any influence on the job evaluation, pay or benefit of any
immediate family member; and selling anything to the Company or buying anything
from the Company, except on the same terms and conditions as other directors,
officers or employees are permitted to so purchase or sell. Any transaction or
relationship with a member of the immediate family of a director, officer or
employee will be subject to the same review and approval process as if the
transaction or relationship were directly with the director, officer or
employee. The Company reviews this policy with directors and executive officers
at least annually.
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: Secretary, 2 Christie
Heights Street, Leonia, NJ 07605.
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, 2006, 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, 2006: for Mr. McHale, one report,
and for Ms. Perone and Messrs DaPuzzo, Targoff, and Waltman, four reports each.
- 28 -
INFORMATION CONCERNING INDEPENDENT AUDITORS
On November 7, 2006, the Audit Committee of the Board of Directors appointed
Ernst & Young, LLP as independent auditor for the 2006 audit.
Fees of Ernst & Young, LLP, the Company's Independent Auditors (in thousands):
For the Years ended December
31,
------------------------------
2006 2005
------------- -------------
Audit fees $ 1,246 $ 1,342
Audit-related fees - for accounting
consultation 28 25
Tax fees - for corporate return
preparation and tax audit support 378 234
---------- ---------
$ 1,652 $ 1,601
========== =========
The Audit Committee's policy requires advance approval of all audit,
audit-related, tax services, and other services performed by the independent
auditor, and such fees were so approved. 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.
PROPOSAL II - APPROVAL OF THE PROPOSAL TO AMEND THE
COMPANY'S 2005 STOCK PLAN
Effective as of April 30, 2007, 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
of common stock reserved for issuance under the 2005 Plan will increase from
2,000,000 to 2,500,000. This proposal will be adopted 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.
The Board of Directors believes that it is important that equity be part of its
overall compensation strategy 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.
- 29 -
During 2006, options were granted in the following amounts:
Amount
Of the Named Executives:
William J. McHale 17,500
All other officers as a group 130,050
Non-employee directors 66,588
All other employees 433,550
---------
Total 647,688
---------
At December 31, 2006, there were 4,072,982 shares outstanding with a weighted
average exercise price of $14.18. At April 27, 2007, the closing price of the
Company's common stock was $16.07, therefore the value of the outstanding
options is approximately $7,698,000.
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 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. Because awards are established at the discretion of the
Committee subject to the limits described above, the number of shares or options
that may be granted to any participant under the plan cannot be determined.
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.
- 30 -
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.
- 31 -
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 2005 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.
- 32 -
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table presents information, as of December 31, 2006, 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) 4,072,982 $14.174 1,009,212 (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, 75,000 are reserved pursuant to
an executive's employment agreement (See "Employment Agreements", above),
subject to his continued employment.
At December 31, 2006, we had reserved 1,591,903 common shares for issuance upon
exercise of the following warrants: (i) 65,000 shares exercisable at $18.00 per
share expiring September 16, 2010; (ii) 50,000 shares exercisable at $15.00 per
share expiring January 13, 2009; and (iii) 1,476,903 shares exercisable at $7.86
per share expiring October 20, 2008.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING - DISCRETIONARY VOTING AUTHORITY
In order for a stockholder proposal to be considered for inclusion in the
Company's Proxy Materials for the 2008 Annual Meeting, it must be received by
the Company's Secretary at 2 Christie Heights Street, Leonia, NJ 07605, no later
than January 11, 2008.
If the Company is not notified by March 27, 2008 of any proposal intended to be
presented for consideration at the 2008 Annual Meeting, then the proxies named
by it with respect to that meeting shall have discretionary voting authority
with respect to such proposal.
If any matters not described in this Proxy Statement should properly come before
the Meeting, the persons named in the enclosed Proxy shall have discretionary
voting authority with respect to such proposal.
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, 2006 WILL BE PROVIDED WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE SECRETARY,INFOCROSSING,
INC., 2 CHRISTIE HEIGHTS STREET, LEONIA, NJ 07605.
- 33 -
FORM OF PROXY
FRONT
PROXY
INFOCROSSING, INC.
PROXY FOR THE ANNUAL MEETING ON JUNE 21, 2007
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
21, 2007 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 NOMINEE LISTED BELOW IS RECOMMENDED BY THE BOARD
OF DIRECTORS
I. ELECTION OF DIRECTOR II. PROPOSAL to increase the
number of authorized shares of
FOR the election of common stock reserved for issuance
Kathleen A. Perone [ ] under the Company's 2005 Stock
Plan to 2,500,000 from 2,000,000.
WITHHOLD authority to vote for
the Nominee [ ] FOR PROPOSAL II [ ]
AGAINST PROPOSAL II [ ]
ABSTAIN FROM PROPOSAL II [ ]
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.