-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J0h6G7wyutxH2Cig/ePbfmK8sPd6S9RGAEf9lPuxJFvYK+xi+XgS99ALxr1ifxh1 qrbjAlOA/9G43qQiSXLZWw== 0000893816-02-000015.txt : 20020515 0000893816-02-000015.hdr.sgml : 20020515 20020515124955 ACCESSION NUMBER: 0000893816-02-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOCROSSING INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20824 FILM NUMBER: 02649954 BUSINESS ADDRESS: STREET 1: 2 CHRISTIE HEIGHTS STREET CITY: LEONIA STATE: NJ ZIP: 07605 BUSINESS PHONE: 2018404700 MAIL ADDRESS: STREET 1: 2 CHRISTIE HEIGHTS STREET CITY: LEONIA STATE: NJ ZIP: 07605 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC DATE OF NAME CHANGE: 19930328 10-Q 1 q0102.txt FIRST QUARTER 2002 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 31, 2002 Commission file number: 0-20824 INFOCROSSING, INC. ------------------------------------------------------------- (Exact name of registrant as specified in its Charter) DELAWARE 13-3252333 ------------------------------------- --------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2 CHRISTIE HEIGHTS STREET LEONIA, NJ 07605 ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 840-4700 Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 5,342,426 shares of the registrant's Common Stock, $0.01 par value, outstanding as of May 10, 2002. Transitional Small Business Disclosure Form (check one): Yes [ ] No [X] PAGE 1 of 22 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31, 2002 2001 -------------- -------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and equivalents $ 9,956,870 $ 24,343,819 Trade accounts receivable, net of allowances for doubtful accounts of $1,061,279 and $1,008,942 4,429,625 2,410,556 Prepaid and refundable income taxes 141,987 139,488 Due from related parties 209,793 205,106 Prepaid license fees 700,518 682,342 Other current assets 1,966,801 986,061 -------------- -------------- 17,405,594 28,767,372 -------------- -------------- PROPERTY and EQUIPMENT, net 19,421,162 17,173,134 -------------- -------------- OTHER ASSETS: Deferred software, net 2,081,657 2,197,070 Goodwill, net 29,122,580 7,736,773 Other intangible assets, net 1,447,418 374,114 Security deposits and other non-current assets 2,743,081 2,525,531 -------------- -------------- 35,394,736 12,833,488 -------------- -------------- TOTAL ASSETS $ 72,221,492 $ 58,773,994 ============== ============== Continued on next page. See Notes to Consolidated Interim Financial Statements (Unaudited). PAGE 2 of 22 INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) MARCH 31, DECEMBER 31, 2002 2001 -------------- -------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 4,239,982 $ 1,914,682 Current portion of long-term debt 59,790 1,000,000 Current portion of capitalized lease obligations 1,936,481 893,683 Current portion of accrued loss on leased facilities 3,219,952 3,313,806 Accrued expenses 7,637,021 6,245,665 Customer deposits, current deferred revenue, and other current liabilities 483,456 450,641 -------------- -------------- 17,576,682 13,818,477 -------------- -------------- LONG-TERM LIABILITIES: Long-term debt, net of current portion 8,401,597 1,761,728 Capitalized lease obligations, net of current portion 1,817,536 1,870,718 Accrued loss on leased facilities, net of current portion 1,077,052 1,127,770 Deferred revenue, net of current portion, and other long-term liabilities 2,374,321 2,270,722 -------------- -------------- 13,670,506 7,030,938 -------------- -------------- COMMITMENTS AND CONTINGENCIES REDEEMABLE 8% SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK; $0.01 par value; 300,000 shares authorized; 157,377 shares issued and outstanding (liquidation preference of $69,719,808 at March 31, 2002) 46,209,337 43,960,634 -------------- -------------- STOCKHOLDERS' DEFICIT: Preferred stock; $0.01 par value; 2,700,000 shares authorized; none issued - - Common stock; $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding of 5,937,416 and 5,912,416 at March 31, 2002 and December 31, 2001, respectively 59,374 59,124 Additional paid-in capital 60,867,845 59,053,570 Accumulated deficit (63,311,531) (62,392,549) -------------- -------------- (2,384,312) (3,279,855) Less 594,990 and 578,623 shares at March 31, 2002 and December 31, 2001, respectively, of common stock held in treasury, at cost (2,850,721) (2,756,200) -------------- -------------- TOTAL STOCKHOLDERS' DEFICIT (5,235,033) (6,036,055) -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 72,221,492 $ 58,773,994 ============== ============== See Notes to Consolidated Interim Financial Statements (Unaudited). PAGE 3 of 22 INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------------------------ 2002 2001 -------------- -------------- REVENUES $ 11,232,692 $ 5,513,751 -------------- -------------- COSTS and EXPENSES: Operating costs 6,592,579 8,364,318 Selling and promotion costs 773,303 1,225,845 Amortization of restricted stock award - 718,750 Amortization of goodwill - 158,198 General and administrative costs 2,156,331 3,111,586 -------------- -------------- 9,522,213 13,578,697 -------------- -------------- INCOME (LOSS) FROM OPERATIONS 1,710,479 (8,064,946) -------------- -------------- Interest income (84,533) (569,874) Interest expense 465,291 91,840 -------------- -------------- 380,758 (478,034) -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES 1,329,721 (7,586,912) Income tax expense - 195,000 -------------- -------------- NET INCOME (LOSS) 1,329,721 (7,781,912) Accretion and accrued dividends on redeemable preferred stock (2,248,703) (2,062,425) -------------- -------------- NET LOSS TO COMMON STOCKHOLDERS $ (918,982) $ (9,844,337) ============== ============== BASIC AND DILUTED EARNINGS PER SHARE: Net loss to common stockholders $ (0.17) $ (1.68) ============== ============== Weighted average number of common shares outstanding 5,342,330 5,873,892 ============== ============== See Notes to Consolidated Interim Financial Statements (Unaudited). PAGE 4 of 22
INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT ADDITIONAL TREASURY COMMON PAID IN ACCUMULATED STOCK AT SHARES PAR VALUE CAPITAL DEFICIT COST TOTAL --------- ---------- -------------- --------------- ------------- -------------- Balances, December 31, 2001 5.912,416 $ 59,124 $ 59,053,570 $ (62,392,549) $ (2,756,200) $ (6,036,055) Exercise of stock option by the surrender of 16,367 shares 25,000 250 94,275 - (94,521) 4 Accretion and accrued dividends on redeemable preferred stock - - - (2,248,703) - (2,248,703) Value of warrants given in connection with a debenture issuance - - 1,720,000 - - 1,720,000 Net income - - - 1,329,721 - 1,329,721 --------- ---------- -------------- --------------- ------------- -------------- Balances, March 31, 2002 5,937,416 $ 59,374 $ 60,867,845 $ (63,311,531) $ (2,850,721) $ (5,235,033) --------- ---------- -------------- --------------- ------------- --------------
See Notes to Consolidated Interim Financial Statements (Unaudited). PAGE 5 of 22 INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------------------------ 2002 2001 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) $ 1,329,721 $ (7,781,912) Adjustments to reconcile net income/ (loss) to cash provided by/(used in) operating activities: Depreciation and amortization 1,362,522 879,735 Amortization of debenture discount 87,278 - Amortization of restricted stock award - 718,750 Credits granted by a software licensor, net of amounts used (882,969) - Decrease/(increase) in: Trade accounts receivable (450,847) 140,173 Prepaid and refundable taxes - 219,459 Prepaid license fees and other current assets 81,091 456,844 Increase/(decrease) in: Accounts payable 2,325,300 1,104,507 Accrued expenses (2,691,270) (211,735) Accrued loss on leased facilities and office closings (131,681) (138,664) Customer deposits, deferred revenues, and other liabilities (328,218) (6,570) -------------- -------------- Net cash provided by/ (used in) operating activities 700,927 (4,619,413) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,441,564) (1,583,583) Purchase of the outstanding shares of AmQUEST, Inc. and certain related costs (20,372,891) - Redemptions at maturity of investments in marketable debt securities - 2,417,309 Purchases of treasury stock - (66,569) Increase in deferred software costs (42,889) (133,771) Decrease/(increase) in security deposits and other non-current assets (133,332) 2,291 -------------- -------------- Net cash (used in)/provided by investing activities (21,990,676) 635,677 -------------- -------------- Continued on next page. See Notes to Consolidated Interim Financial Statements (Unaudited). PAGE 6 of 22 INFOCROSSING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED - CONTINUED) THREE MONTHS ENDED MARCH 31, ------------------------------------ 2002 2001 -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debentures $ 10,000,000 $ - Proceeds from other debt - 11,659 Repayment of debt (2,667,619) (13,750) Repayment of capitalized leases (412,007) (185,303) Repayments from/(advances to) related parties (4,683) 175,653 -------------- -------------- Net cash provided by/(used in) financing activities 6,915,691 (11,740) -------------- -------------- Net cash used in continuing operations (14,374,058) (3,995,476) -------------- -------------- CASH FLOW FROM DISCONTINUED OPERATION: Payments on portion of accrued loss on leased facilities relating to discontinued operation (12,891) (16,985) -------------- -------------- Net decrease in cash and equivalents (14,386,949) (4,012,461) Cash and equivalents, beginning of the period 24,343,819 36,763,831 -------------- -------------- Cash and equivalents, end of the period $ 9,956,870 $ 32,751,370 ============== ============== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 170,639 $ 84,811 ============== ============== Income taxes $ - $ 32,655 ============== ============== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY: Fees and other costs accrued in connection with the purchase of AmQUEST $ 448,080 $ - ============== ============== SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY: Treasury shares received in payment of a stock option exercise $ 94,521 $ 117,000 =============== ============== See Notes to Consolidated Interim Financial Statements (Unaudited). PAGE 7 of 22 INFOCROSSING, INC. & SUBSIDIAIRES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated balance sheet as of March 31, 2002, the consolidated statements of operations, the consolidated statement of stockholders' deficit, and the consolidated statements of cash flows for the three months ended March 31, 2002 have not been audited. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the periods indicated have been made. The results of operations for the periods ended March 31, 2002 and 2001 are not necessarily indicative of the operating results for the full years. Certain reclassifications have been made to the prior periods to conform to the current presentation. Certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These consolidated interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The consolidated financial statements include the accounts of Infocrossing, Inc. and its wholly owned subsidiaries, including, subsequent to its acquisition in February, the accounts of AmQUEST, Inc. (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. 2. PURCHASE OF AMQUEST, INC. On February 5, 2002, the Company entered into a Stock Purchase Agreement with American Software, Inc. ("ASI"), a Georgia corporation, whereby the Company purchased all of the outstanding capital stock of AmQUEST, Inc. ("AmQUEST"), a Georgia corporation, from its former parent company ASI (the "AmQUEST Acquisition"). As consideration for the purchase of AmQUEST's shares, the Company paid ASI $20,284,000 in cash, subject to finalizing certain post closing adjustments. In addition, the Company incurred an estimated $537,000 in professional fees and other costs. The Company financed the AmQUEST Acquisition through the application of the proceeds of the financing described in Note 3 and cash held by the Company. PAGE 8 of 22 The following unaudited condensed consolidated pro forma financial statement of operations is presented to illustrate the effects of the acquisition of AmQUEST as if such transaction had occurred on the first day of the periods presented (January 1, 2002 and 2001). The pro forma statement of operations may not be indicative of the results that actually would have occurred had the combination been in effect on the date indicated, nor does it purport to indicate the results that may be obtained in the future. CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, --------------------------------- 2002 2001 -------------- --------------- Revenues $ 12,708 $ 10,443 -------------- --------------- Net income/(loss) $ 1,115 $ (9,483) ============== =============== Net loss to common stockholders $ (1,134) $ (11,545) ============== =============== Net loss to common stockholders per basic and diluted share $ (0.21) $ (1.97) ============== =============== 3. DEBT Private Sale of Debentures with Warrants On February 1, 2002, in anticipation of the AmQUEST Acquisition, the Company entered into a Securities Purchase Agreement (the "SPA") with a group of private investors (the "Investors") whereby the Company issued Senior Subordinated Debentures (the "Debentures") and warrants to purchase, initially, 2,000,000 shares of the common stock of the Company (the "Initial Warrants") (subject to adjustments as discussed below) in exchange for an investment of $10,000,000. Pursuant to the SPA, the proceeds of the sale of the Debentures were used to partially fund the AmQUEST Acquisition. The Debentures were issued at an aggregate face value of $10,000,000 with a maturity of three years from February 1, 2002 (the "Issuance Date"), with the right to extend the term of the Debentures for one additional year to February 1, 2006 at the Company's sole option. Pursuant to the terms of the Debenture, the Company is required to make semi-annual interest payments of 12% per annum for the first two years, 13% per annum for the period commencing on February 1, 2004 and ending on February 1, 2005, and (if the Company elects to extend the maturity date as described above), 14% per annum. The Company has the option to pay interest in the form of (a) cash; (b) additional Debentures, or (c) a combination of cash and additional Debentures. If the Company chooses to make interest payments using additional Debentures, the Company may be required to issue additional warrants (the "Additional Warrants") pursuant to the terms of the Debentures. PAGE 9 of 22 The initial carrying values of the Debentures ($8,280,000) and Initial Warrants ($1,720,000) were determined by apportioning an amount equal to the proceeds from the private sale multiplied by the relative value of each item as of the Issuance Date. The difference between the carrying value and the face value of the Debentures is being recorded as additional interest expense through February 1, 2005 (the initial maturity date of the Debentures) using the interest method. The Initial Warrants have been issued pursuant to that certain Warrant Agreement dated as of February 1, 2002 by and between the Company and the Investors (the "Warrant Agreement") and are subject to certain customary anti-dilution adjustments. The exercise price of the Initial Warrants is $5.86. The Warrants expire on January 31, 2007. In addition, up to 1,500,000 of the Initial Warrants may be cancelled upon the prepayment of the Debentures. Cancellation of the Initial Warrants may take place as follows: (i) If the Debentures are repaid in full during the first year, 1,500,000 Initial Warrants will be immediately cancelled. (ii) If the Debentures are repaid in full after February 1, 2003 and before February 1, 2005, Initial Warrants will be cancelled according to the following formula: 62,500 shares multiplied by the number of full months between the prepayment and February 1, 2005. (iii) The Company is entitled to make, at any time, one (and only one) partial prepayment of the Debentures in the amount of at least 50% of the total outstanding indebtedness. In the event of such a partial prepayment, the number of Initial Warrants to be cancelled shall be equal to the product of (a) the number of Initial Warrants that would be cancelled pursuant to items (i) and (ii) as if full repayment had been made, and (b) the ratio of the amount of Debentures actually prepaid and the aggregate principal amount of Debentures outstanding on the date of such partial prepayment (the "Prepayment Fraction"); and (iv) If the Company makes a partial prepayment as described in (iii) and then, before February 1, 2005, repays all the remaining aggregate principal amount of Debentures outstanding, the number of Initial Warrants to be cancelled shall be equal to the product of (x) the number of Initial Warrants that would be cancelled pursuant to items (i) and (ii) as if full repayment had been made, and (y) 1 minus the Prepayment Fraction. Additional Warrants, may be issued if the Company chooses to make interest payments using additional Debentures. Additional warrants will not be subject to cancellation. The fair market value of Additional Warrants issued, if any, will be recorded as deferred financing costs and amortized over the remaining term of the Debentures. Repayment of Bank Loan At the time of the AmQUEST Acquisition, the Company repaid the $2,660,000 balance outstanding on a bank loan. PAGE 10 of 22 4. CREDITS GRANTED On January 10, 2002, the Company and a software licensor (the "Licensor") entered into a Release Agreement (the "Agreement") in settlement of a dispute of certain claims the Company had sought against the Licensor under a software license and support agreement. Pursuant to the Agreement, the Company received credits totaling $2,000,000 to be used towards certain future purchases (the "Credits"). The Credits are subject to restrictions and expire on December 31, 2002 if unused. Additionally, support fees of $1,136,000 under the software and support agreement, including $522,000 of past due amounts, were waived by the Licensor. Pursuant to the Agreement, the Company agreed to release and hold harmless the Licensor and its subsidiaries from any and all claims, damages, actions or causes of action of any kind arising prior to the date of the Agreement. The Company expects that it will fully utilize the Credits in 2002 and, accordingly, recognized the Credits in its statement of operations in the three months ended March 31, 2002. Additionally, accrued expenses related to the unpaid support fees totaling $796,000 were reversed in connection with the Agreement. As of March 31, 2002, unused Credits totaling approximately $883,000 are recorded as current assets. 5. GOODWILL In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The Company applied SFAS 142 beginning January 1, 2002. The Company has performed the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002, with no resulting impairment charge. SFAS 142 also requires that the Company report, on a pro forma basis, the amount of net income or loss for periods presented prior to January 1, 2002 as if SFAS 142 were implemented on January 1, 2001 and goodwill had not been amortized. CONSOLIDATED PRO FORMA STATEMENT OF NET LOSS THREE MONTHS ENDED MARCH 31, 2001 AS REPORTED PRO FORMA ---------------- ----------------- Net loss to common stockholders $ (9,844,337) $ (9,686,139) ================ ================= Net loss to common stockholders per basic and diluted share $ (1.68) $ (1.65) ================ ================= PAGE 11 of 22 6. BASIC AND DILUTED EARNINGS PER COMMON SHARE Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128") requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed using the weighted average number of common shares plus the dilutive effect of common stock equivalents. Stock options and warrants which are antidilutive are excluded from the computation of weighted average shares outstanding. Certain options which are currently antidilutive may be dilutive in the future. In determining the diluted loss per common share for the three-month periods ended March 31, 2002 and 2001, common stock equivalents are ignored since the effect of including such equivalents would have been antidilutive. 7. SUBSEQUENT EVENTS In April 2002, the Company renegotiated its lease with respect to a data center in the Atlanta, Georgia, metropolitan area. The renegotiated lease, which is payable through December 2015, reduces the leased space by more than 20,000 square feet and increases the base rent by $2.00 per square foot, subject to future escalations of approximately 2.5% per lease year. The total estimated savings under the renegotiated lease approximate $5 million. The Company is relocating the operations of AmQUEST to the facility. Also, on May 6, 2002, the Company reached an agreement with the landlord of a facility the Company had been developing in the Northern Virginia high tech corridor. The agreement releases the Company from the future payments under its lease, which amounted to approximately $30 million through November 2015. The agreement also requires a cash payment of approximately $1,515,000 and the forfeiture of a $1,460,000 deposit. As of December 31, 2001, the Company had recorded a provision of $5,650,000 for this expected result, including the write-off of approximately $2,742,000 of construction-in-progress costs. PAGE 12 of 22 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE-MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 RESULTS OF OPERATIONS Infocrossing is a premier provider of a full range of IT outsourcing services, including mainframe and open system outsourcing, business process outsourcing, IT infrastructure consulting and business continuity services. Due to rapid changes and increasing complexities in information technology, outsourcing is an efficient solution for many businesses and continues to be a growing trend. The Company has grown through strategic acquisitions as well as organic growth. During 2001, the Company signed a significant new IT managed services contract with a new customer that by its terms, and as subsequently amended, is expected to generate $50 million in revenues over the four-year life of its initial term. On February 5, 2002, the Company entered into a Stock Purchase Agreement with American Software, Inc. ("ASI"),whereby the Company purchased all of the outstanding capital stock of AmQUEST, Inc. ("AmQUEST"), from ASI (the "AmQUEST Acquisition"). As consideration for the purchase of AmQUEST's shares, the Company paid ASI $20,284,000 in cash, subject to certain post closing adjustments. In addition, the Company has incurred an estimated $537,000 in other acquisition related costs. The acquisition combines two highly complementary businesses and allows Infocrossing and its customers to benefit from increased scale, enhanced services and expanded geographic reach. Consistent with the Company's historical revenue base, AmQUEST's revenues are derived primarily from multi-year service contracts. The combination strengthens Infocrossing's position as one of the leading providers of IT outsourcing solutions for large and mid-size companies. For the three months ended March 31, 2002 (the "Current Quarter"), revenues increased $5,719,000 (104%) to $11,233,000 from $5,514,000 for the three months ended March 31, 2001 (the "Prior Quarter"). Revenues from AmQUEST contributed $3,142,000 of this increase. Revenues grew by 47%, excluding growth contributed by AmQUEST. This organic revenue growth is attributable to a significant customer that began using the Company's services in 2001. This significant IT managed services contract, as subsequently amended, is expected to generate $50 million in revenues over the four-year life of its initial term. There were no revenues from this customer in the Prior Quarter. Operating costs decreased $1,772,000 (21%) to $6,593,000 during the Current Quarter compared with $8,364,000 in the Prior Quarter. Operating costs include depreciation and amortization of $1,175,000 and $639,000 in the Current Quarter and Prior Quarter, respectively. With additional operating costs of AmQUEST excluded, operating costs declined by $3,986,000 (48%). PAGE 13 of 22 On January 10, 2002, the Company settled a dispute of certain claims with a software licensor. Pursuant to the settlement, the Company received credits totaling $2,000,000 to be used towards certain future purchases. The entire value of these credits has been recorded in the Current Quarter. As of March 31, 2002, credits totaling $1,117,000 had been applied against certain software license fees. The remaining credits are expected to be used by June 30, 2002. Additionally, the Company reversed accrued expenses of $796,000 for software support and maintenance fees in the Current Quarter in connection with the settlement of the dispute. Beginning in the second quarter of 2001, the Company took steps to minimize its costs through staff reductions and by suspending the operations at its metropolitan Atlanta data center and the further development of the Northern Virginia data center. Included in operating costs in the Current and Prior Quarters are costs for these facilities of $565,000 and $1,404,000, respectively. Selling and promotion costs decreased $453,000 (37%) to $773,000 in the Current Quarter from $1,226,000 in the Prior Quarter. With the effect of AmQUEST excluded, selling costs declined $698,000 (57%). Amortization related to a restricted stock award to a former executive was $719,000 in the Prior Quarter. The former executive had resigned in November 2001, and the remaining unamortized balance of the award was written off at that time. In accordance with Statement of Financial Accounting Standards No. 142, goodwill is no longer subject to amortization. In the Prior Quarter, goodwill amortization was $158,000. General and administrative expense decreased $955,000 (31%) to $2,156,000 for the Current Quarter from $3,112,000 for the Prior Quarter. With the effect of AmQUEST excluded, general administration expense declined $1,129,000 (36%), reflecting in large part the cost savings initiatives and staff reductions during 2001. Included in general and administrative expense is depreciation and amortization (excluding goodwill amortization) of $188,000 and $83,000 in the Current Quarter and Prior Quarter, respectively. The Company recorded net interest expense of $381,000 in the Current Quarter, compared with net interest income of $478,000 in the Prior Quarter. The net reduction of $859,000 reflects a decrease in interest income of $485,000 from a lower average balance of interest-earning assets during the Current Quarter and, to a lesser extent, lower interest rates. The net reduction also includes an increase of $373,000 in interest expense on a larger average outstanding debt balance than in the Prior Quarter. In the Current Quarter, the Company issued $10,000,000 of Senior Subordinated Debentures in connection with the AmQUEST Acquisition, currently bearing interest at a rate of 12%. Amortization of debt issuance costs, comprised primarily of amortization of the value ascribed to warrants issued in connection with the debt, also contributed to the increased interest expense in the Current Quarter. PAGE 14 of 22 In the Current Quarter, the Company recorded no income tax benefit. Tax expense of $195,000 was recorded in the Prior Quarter representing the difference between the estimated benefit as previously reported in the period ended December 31, 2000 compared with the amount recognized in the Company's income tax return. The cumulative tax benefit recorded by the Company is limited to the refund of taxes paid in prior years that the Company has received as a result of carrying back a portion of its pre-tax loss. Cumulative pre-tax losses that cannot be carried back can be carried forward for a period of 20 taxable years for Federal income tax purposes. The Company's net operating loss carry-forwards begin to expire in 2020. The deferred tax asset associated with carrying forward cumulative pre-tax losses has been fully offset by a valuation allowance due to the uncertainty of realizing such tax benefits. The Company had net income of $1,330,000 in the Current Quarter versus a net loss of $7,782,000 in the Prior Quarter. Net loss to common stockholders after accretion and accrued dividends on preferred stock was $919,000 for the Current Quarter versus a loss of $9,844,000 in the Prior Quarter. The loss per common share was $0.17 for the Current Quarter compared with a loss per common share of $1.68 in the Prior Quarter, on both a basic and diluted basis. Common stock equivalents were ignored in determining the net loss per share for both periods, since the inclusion of such equivalents would be antidilutive. LIQUIDITY AND CAPITAL RESOURCES During the three months ended March 31, 2002, the Company's operating activities provided cash of approximately $701,000, primarily as a result of net income of $1,330,000. Non-cash expenses of $1,363,000 in depreciation and amortization and $87,000 in debenture discount amortization were partially offset by $883,000 of non-cash income composed of credits granted by a software licensor (net of amounts used). As previously described, of $2,000,000 of credits issued by a software licensor, the Company applied credits totaling $1,117,000 against certain software license fees in the Current Quarter. Cash generated by operating activities was partially reduced by several working capital requirements. The Company had an increase in accounts receivable of $451,000; a net decrease of $366,000 in accounts payable and accrued expenses; a decrease of $328,000 in customer deposits, deferred revenue and other liabilities; and payments against the accrued loss on leased facilities of $132,000. The Company purchased all the outstanding shares of AmQUEST, Inc., which, with other transaction-related costs, used approximately $20,373,000 of cash in the current period. This transaction and the related issuance of debentures are more fully described below. Additional uses of cash in investing activities included $1,442,000 for the purchase of equipment, software, and other fixed assets and $43,000 for product development and enhancements. In addition, there was an increase in other assets related to fees for the issuance of the debentures. Principal financing activities included proceeds of $10,000,000 from the issuance of debentures (more fully described below); and $3,080,000 in payments of principal with respect to debt and capital lease obligations. PAGE 15 of 22 On February 1, 2002, in anticipation of the AmQUEST Acquisition, the Company entered into a Securities Purchase Agreement (the "SPA") with a group of private investors (the "Investors") whereby the Company issued Senior Subordinated Debentures (the "Debentures") and warrants to purchase, initially, 2,000,000 shares of the common stock of the Company (the "Initial Warrants") (subject to adjustments as discussed below) in exchange for an investment of $10,000,000. Pursuant to the SPA, the proceeds of the sale of the Debentures were used to partially fund the acquisition of AmQUEST. The Debentures were issued at an aggregate face value of $10,000,000 with a maturity of three years from February 1, 2002 (the "Issuance Date"), with the right to extend the term of the Debentures for one additional year to February 1, 2006 at the Company's sole option. Pursuant to the terms of the Debenture, the Company is required to make semi-annual interest payments of 12% per annum for the first two years, 13% per annum for the period commencing on February 1, 2004 and ending on February 1, 2005, and (if the Company elects to extend the maturity date for one year), 14% per annum. The Company has the option to pay interest in the form of (a) cash; (b) additional Debentures, or (c) a combination of cash and additional Debentures. If the Company chooses to make interest payments using additional Debentures, the Company may be required to issue additional warrants (the "Additional Warrants") pursuant to the terms of the Debentures. The Initial Warrants have been issued pursuant to a warrant agreement and are subject to certain customary anti-dilution adjustments. The exercise price of the Initial Warrants is $5.86. The Warrants expire if unexercised by January 31, 2007. In addition, up to 1,500,000 of the Initial Warrants may be cancelled upon the prepayment of the Debentures. Cancellation of the Initial Warrants may take place as follows: (i) If the Debentures are repaid in full during the first year, 1,500,000 Initial Warrants will be cancelled. (ii) If the Debentures are repaid in full after February 1, 2003 and before February 1, 2005, Initial Warrants will be cancelled according to the following formula: 62,500 shares multiplied by the number of full months between the prepayment and February 1, 2005. (iii) The Company is entitled to make, at any time, one (and only one) partial prepayment of the Debentures in the amount of at least 50% of the total outstanding indebtedness. In the event of such a partial prepayment, the number of Initial Warrants to be cancelled shall be equal to the product of (a) the number of Initial Warrants that would be cancelled pursuant to items (i) and (ii) as if full repayment had been made, and (b) the ratio of the amount of Debentures actually prepaid and the aggregate principal amount of Debentures outstanding on the date of such partial prepayment (the "Prepayment Fraction"). (iv) If the Company makes a partial prepayment as described in (iii) and then, before February 1, 2005, repays all the remaining aggregate principal amount of Debentures outstanding, the number of Initial Warrants to be cancelled shall be equal to the product of (x) the number of Initial Warrants that would be cancelled pursuant to items (i) and (ii) as if full repayment had been made, and (y) 1 minus the Prepayment Fraction. PAGE 16 of 22 Additional Warrants, may be issued if the Company chooses to make interest payments using additional Debentures. Additional warrants will not be subject to cancellation. The fair market value of Additional Warrants issued, if any, will be recorded as deferred financing costs and amortized over the remaining term of the Debentures. In addition to net cash provided by operating activities described above, another measure of a company's ability to generate cash from its operations is earnings before interest, taxes, depreciation, and amortization ("EBITDA"). For the three months ended March 31, 2002, the Company's EBITDA was $3,160,000 compared to an EBITDA loss of $6,466,000 in the Prior Quarter. EBITDA in the Current Quarter includes $2,000,000 of Credits issued by a software licensor, as previously described. Moreover, the significant improvement in EBITDA reflects organic revenue growth combined with the cost savings and the contribution of AmQUEST to the Company's operations. In April 2002, the Company renegotiated the lease of its data center in metropolitan Atlanta and, separately, on May 6, 2002, the Company reached an agreement with the landlord of its partially developed data center in Northern Virginia to terminate the lease. Savings under the renegotiated and terminated leases are expected to add to EBITDA prospectively by approximately $600,000 per quarter. As of March 30, 2002, the Company had cash and equivalents of $9,957,000. The Company believes that the combination of its cash and other current assets will provide adequate resources to fund its ongoing operating requirements. NEW FINANCIAL ACCOUNTING STANDARDS In June 2001, the FASB issued Statements of Financial Accounting Standards No. 141, "Business Combinations", effective for all combinations initiated after June 30, 2001, and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company applied SFAS 142 beginning January 1, 2002. The Company has performed the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002, with no resulting impairment charge. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 establishes a single accounting model, based upon the framework established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of", for long-lived assets to be disposed of by sale and to address significant implementation issues. The Company adopted SFAS 144 in the first quarter of 2002. The Company believes that the adoption of this statement will not have a material impact on its financial position, results of operations, and cash flows. PAGE 17 of 22 FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. As such, final results could differ from estimates or expectations due to risks and uncertainties including, but not limited to: incomplete or preliminary information; changes in government regulations and policies; continued acceptance of the Company's products and services in the marketplace; competitive factors; new products; technological changes; the Company's dependence on third party suppliers; intellectual property rights; and other risks. For any of these factors, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. PAGE 18 of 22 PART II - OTHER INFORMATION ITEM 1 -LEGAL PROCEEDINGS None. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK The Company is not exposed to gains or losses related to the impact of interest rate changes, foreign currency fluctuations, or changes in the market values of its investments. The Company generally invests in fixed income securities - typically commercial paper, certificates of deposit and money market accounts issued only by major corporations and financial institutions of recognized strength and security - and holds all investments to maturity. At March 31, 2002, the Company's outstanding fixed rate debt approximated $12,215,000. If market rates decline, the Company runs the risk that the related required payments on the fixed rate debt will exceed those that would be paid based on current market rates. MARKET RISK The Company's accounts receivable are subject, in the normal course of business, to collection risks. The Company regularly assesses these risks and has established policies and business practices to mitigate the adverse effects of collection risks. As a result, the Company does not anticipate any material losses in this area in excess of the recorded allowance for doubtful accounts. FOREIGN CURRENCY RISKS The Company has no material foreign operations. PAGE 19 of 22 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 2.1 Stock Purchase Agreement dated as of February 5, 2002by and between the Company and American Software, Inc., incorporated by reference to Exhibit 2.1 to a Current Report on Form 8-K filed February 5, 2002. 3.1A Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Form 10-KSB for the period ended October 31, 1999. 3.1B Certificate of Amendment to the Company's Certificate of Incorporation, filed May 8, 2000, to increase the authorized shares and to remove Article 11, incorporated by reference to the Company's report on Form 10-Q for the period ended April 30, 2000. 3.1C Certificate of Amendment to the Company's Certificate of Incorporation, filed as of June 5, 2000, to change the name of the Company to Infocrossing, Inc., incorporated by reference to the Company's report on Form 10-Q for the period ended April 30, 2000. 3.2 Amended and Restated By-Laws, incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for the period ended October 31, 1999. 4.1 Securities Purchase Agreement dated as of February 1, 2002 by and between the Company and the Purchasers named therein, incorporated by reference to Exhibit 4.1 to a Current Report on Form 8-K filed February 5, 2002. 4.2 Warrant Agreement dated as of February 1, 2002 by and between the Company and the Warrantholders party thereto, incorporated by reference to Exhibit 4.3 to a Current Report on Form 8-K filed February 5, 2002. 4.3 Amended and Restated Registration Rights Agreement by and between the Company, and the Holders named therein, incorporated by reference to Exhibit 99.4 to a Current Report on Form 8-K filed February 5, 2002. 4.4 Second Amended and Restated Stockholders Agreement dated as of February 1, 2002 by and between the Company and the Stockholders named therein, incorporated by reference to Exhibit 99.5 to a Current Report on Form 8-K filed February 5, 2002. 4.5 Management Rights Letter dated as of February 1, 2002 between the Company and the Purchasers named therein, incorporated by reference to Exhibit 99.3 to a Current Report on Form 8-K filed February 5, 2002 4.6 Agreement Letter dated as of February 1, 2002 between the Company, the Warrantholders named therein, and the Camden Entities named therein, incorporated by reference to Exhibit 99.6 to a Current Report on Form 8-K filed February 5, 2002 PAGE 20 of 22 (a) Exhibits (Continued): 10.1 First Amendment to Lease dated as of April 1, 2002 by and between Crocker Realty Trust, L.P. and the Company. 10.2 Lease Termination Agreement dated as of April 19, 2002 by and between Beco-Terminal LLC and the Company. (b) Reports on Form 8-K: A Current Report on Form 8-K was filed on February 5, 2002, covering the acquisition of AmQUEST, Inc. on February 5, 2002 and a related financing arrangement which closed on February 1, 2002. PAGE 21 of 22 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INFOCROSSING, INC. /s/ May 14, 2002 ------------------------------------ Zach Lonstein Chairman & Chief Executive Officer /s/ May 14, 2002 ------------------------------------ William B. Fischer Senior Vice President & Chief Financial Officer PAGE 22 of 22 EX-10 2 x10-1.txt 1ST AMENDMENT TO NORCROSS LEASE FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (this "AMENDMENT") is made and entered into as of this 1st day of April, 2002 by and between CROCKER REALTY TRUST, L.P., a Delaware limited partnership doing business in Georgia as Crocker Realty, L.P. ("LANDLORD") and INFOCROSSING, INC. f/k/a Computer Outsourcing Services, Inc., a Delaware corporation ("TENANT"). WHEREAS, Landlord and Tenant made and entered into that certain Office Lease Agreement as of May 22, 2000 (the LEASE), pursuant to which Landlord leased to Tenant certain premises consisting of approximately 52,174 rentable square feet located in the building at 6620 Bay Circle Drive, Norcross, Gwinnett County, Georgia (as more particularly described in the Lease, the PREMISES); and WHEREAS, certain disputes have arisen between Landlord and Tenant regarding the compliance by each party with the terms of the Lease; and WHEREAS, the disputes have resulted in certain litigation (the "LITIGATION") styled as Infocrossing, Inc. v. Crocker Realty Trust, L.P. d/b/a Crocker Realty, L.P., Case No. 01-A-9588-6, pending before the Superior Court of Gwinnett County, Georgia (the "COURT"); and WHEREAS, Landlord and Tenant have agreed to resolve such disputes and the Litigation, and have agreed as part of such resolution to amend the Lease to, among other things, reduce the amount of space leased by Tenant, increase the applicable rental rate on the reduced space, and provide for the payment of Minimum Rent (as defined in the Lease) annually in advance for the next five (5) years; NOW, THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend the Lease as follows: 1. The cover page of the Lease, entitled "Office Lease Agreement", shall be amended by replacing the figure "52,174" with the figure "30,607". 2. PARAGRAPH 1(A) of the Lease shall be amended to reduce the size of the "Premises" by replacing the first appearance of the figure "52,174" with the figure "30,607". PARAGRAPH 1(A) shall be further amended by replacing the second appearance of the figure "52,174" with the figure "52,968". 3. In PARAGRAPH 1(B) of the Lease, the following amendments shall be made: (i) the phrase "and install on the roof of the Building" in the first sentence shall be replaced by "the portion of the roof directly over the Premises"; (ii) the sentence that begins "Except as expressly" and ends with "for any purpose" shall be amended by replacing the phrase "the roof of the Building" with the phrase "the portion of the roof of the Building directly over the Premises"; (iii) the sentence that precedes the numbered paragraphs shall be amended by replacing the phrase "the roof" with the phrase "the portion of the roof directly over the Premises"; (iv) Subsection (F) shall be amended by replacing the phrase "the roof" in the second sentence before the "provided that" with the phrase "the portion of the roof directly over the Premises". 4. PARAGRAPH 1(C) of the Lease shall be amended by changing "One hundred percent (100%)" to "Fifty-seven and 78/100 percent (57.78%)", by changing "Twenty-eight and 56/100 percent (28.56%)" to "Sixteen and 68/100 percent (16.68%)", and by changing "182,684" to "183,478". 5. With regard to PARAGRAPH 2 of the Lease, the parties hereto confirm that the "Commencement Date" under the Lease occurred on July 4, 2000, and that the term of the Lease as amended hereby expires (unless earlier terminated pursuant to the terms of the Lease as so amended) on July 31, 2015 as per commencement date letter executed August 3, 2000. 6. PARAGRAPH 3(F) of the Lease shall be deleted in its entirety and shall be replaced by the following: "Tenant will deliver to Landlord an Irrevocable Letter of Credit (any letter of credit delivered hereunder, the "L/C") in the amount of THREE HUNDRED SIXTY SEVEN THOUSAND TWO HUNDRED EIGHTY-FOUR AND 00/100 DOLLARS ($367,284.00) (THE "REQUIRED AMOUNT") as security for Tenant's performance of all obligations hereunder. Upon the occurrence of an Event of Default by Tenant, Landlord may, at its option, draw upon the L/C on account of any rent or other sums owing by Tenant, and thereupon Tenant shall immediately increase the L/C (or provide a replacement L/C) so that Landlord will always have an L/C in the full Required Amount. Neither the L/C nor the proceeds thereof shall constitute liquidated damages with regard to an Event of Default by Tenant. From and after July 4, 2004, and provided that no default or Event of Default exists hereunder on the date that any replacement L/C or L/C amendment is tendered to Landlord, the Required Amount shall be reduced to Two Hundred Ninety-Three Thousand Eight Hundred Twenty-Seven and 20/100 ($293,827.20). From and after July 4, 2005, and provided that no default or Event of Default then exists hereunder on the date that any replacement L/C or L/C amendment is tendered to Landlord, the Required Amount shall be reduced to Two Hundred Twenty Thousand Three Hundred Seventy and 40/100 Dollars ($220,370.40). From and after July 4, 2 2006, and provided that no default or Event of Default exists hereunder on the date that any replacement L/C, L/C amendment or cash security deposit is tendered to Landlord, Tenant shall be entitled to replace the then-existing L/C with an L/C (or, at Tenant's option, a cash security deposit (a "DEPOSIT")) in an amount equal to the Minimum Rent and Additional Rent for the three (3) calendar months following the date that the replacement collateral is presented to Landlord. If at any time Tenant would be entitled pursuant to this Paragraph to replace the L/C with an L/C in a smaller amount but for the existence of a default hereunder, Tenant shall have the right to make such replacement once the default has been cured by Tenant so long as in the interim the default has not become an Event of Default. In any case where Tenant is entitled to present an L/C in a reduced Required Amount, Tenant shall have the right either (I) to replace the existing L/C with a new L/C in the reduced Required Amount, or (II) to have the L/C amended by the issuing bank to reflect such reduction. Landlord agrees to cooperate with Tenant to effect such reduction or amendment by, among other things, confirming Tenant's right to implement same to the issuing bank, PROVIDED THAT under no circumstance shall Landlord be required to surrender the L/C in its possession until a complying replacement has been provided to Landlord. Tenant shall maintain with Landlord an L/C or Deposit in the amounts required hereunder for the entire Term. Upon full payment and performance of this Lease by Tenant (including without limitation, final payment of any Additional Rent owed by Tenant and the return of possession of the Premises to Landlord in the condition required hereunder), Landlord shall return to Tenant the L/C (or the Deposit, as applicable) after drawing or applying any rental or other sums owed by Tenant pursuant to this Lease. Tenant shall at all times have a valid, enforceable L/C (or Deposit, when permitted) posted with Landlord in the amount required hereunder. Should Tenant at any time fail to replace an expiring L/C with a new L/C in the amount then required hereunder at least ten (10) days prior to expiration, Landlord shall have the right to draw on the existing L/C and may hold the funds drawn as a Deposit hereunder. The form and content of any L/C provided hereunder, and the acceptability of the financial institution providing same, shall at all times be subject to the Landlord's approval, which shall not be unreasonably withheld, conditioned or delayed. Any Deposit held hereunder may be held in whatever lawful manner Landlord may choose, and Landlord shall be entitled to any interest as it may accrue on such Deposit. Upon the occurrence of an Event of Default by Tenant, Landlord may, at its option, apply all or any part of any Deposit on account of any rent or other sums owing by Tenant, and thereupon Tenant shall immediately redeposit with Landlord the amount so applied in order that Landlord will always have the full Deposit on hand throughout the term of this Lease. The Deposit shall never constitute liquidated damages." 7. PARAGRAPH 8 of the Lease shall be amended by adding the words "serving the Premises" after the word "equipment" in the first sentence of the second paragraph of that Paragraph. 3 8. PARAGRAPH 9 of the Lease shall be amended by adding the words "for the Premises" to the end of Subsection 9(a) after the word "services". 9. PARAGRAPH 12 of the Lease shall be amended by deleting the first sentence thereof, and adding the following in its place: "Tenant shall not be entitled to install any signage on the Building or the exterior of the Premises (other than identification signage on the door of the Premises) without the prior written consent of Landlord, which consent will not be unreasonably withheld, conditioned or delayed." 10. The first paragraph of PARAGRAPH 18 of the Lease shall be amended (I) by redesignating it as subparagraph (a), (II) by adding the phrase "(a) Subject to certain conditions set forth in Paragraph 18(b) below," to the beginning thereof, and (III) by adding the phrase "(except when such payment is made pursuant to the express terms hereof)" after the phrase "one (1) month in advance". 11. The second paragraph of PARAGRAPH 18 of the Lease shall be deleted in its entirety and replaced in its entirety by the following: "(b) The subordination of the Lease to any mortgage (as defined in Paragraph 32(l) hereof) that is made by Landlord after April 1, 2002 is expressly conditioned on the execution and delivery by the associated mortgagee (as defined in Paragraph 32(l) hereof) of a non-disturbance agreement that provides that (a) Tenant will not be named or joined in any proceeding to enforce the mortgagee's interest unless required by law in order to perfect the proceeding, (b) enforcement of the mortgagee's interest shall not terminate the Lease or disturb Tenant in the possession and use of the Premises (except in the case where Tenant is in default under the Lease beyond any applicable notice and cure period), and (c) any party succeeding to the interest of Landlord as a result of the enforcement of the holder's interest shall be bound to Tenant under all the terms, conditions and covenants of the Lease for the balance of the term thereof, with the same force and effect as if such party were the original Landlord under this Lease. Landlord and Tenant agree that any non-disturbance agreement in form and substance substantially similar to the form attached hereto as Exhibit H shall satisfy the requirements of this Paragraph. Landlord shall have no obligation to Tenant to obtain any such non-disturbance agreement; instead, should Landlord fail to obtain such a non-disturbance agreement, the Lease will not be subordinate to such mortgage." 12. Notwithstanding anything else to the contrary in the Lease (as amended hereby), the subordination of the Lease to the existing deed to secure debt encumbering the Property made in favor of Principal Life Insurance Company ("PRINCIPAL") shall be subject to the receipt by Tenant of a letter from Principal, in the form attached hereto as EXHIBIT "E". Landlord hereby agrees to obtain such a letter from Principal contemporaneously with 4 Landlord's execution of this Amendment and deliver same to Tenant promptly thereafter. Tenant shall reimburse Landlord for any charges assessed by Principal in connection with obtaining such letter (up to $500.00) promptly upon request therefor by Landlord. Landlord hereby represents to Tenant that the existing deed to secure debt made in favor of Principal is the only deed to secure debt made by Landlord and having the Premises as security thereunder that is unsatisfied as of the date hereof. 13. The Atlanta-area "copy to" notice address for Landlord set forth on page 20 of the Lease shall be changed from "2675 Paces Ferry Road, Suite 320, Atlanta, Georgia 30339, Attn: Mr. Christopher L. Becker, Facsimile: (770) 435-7080" to "2951 Flowers Road South, Suite 100, Atlanta, Georgia, 30341, Attn: Mr. Chris Becker, Facsimile: (770) 458-8949". 14. Notwithstanding any contrary term in the Lease (as amended hereby), Landlord shall not have any obligation, liability or responsibility with regard to the tenant improvements that Tenant has made to or constructed in the Premises including, without limitation, the obligation to insure same, to rebuild or restore same in connection with a casualty or condemnation, or to assure that same are in compliance with any applicable laws, statutes, ordinances, rules and regulations. 15. EXHIBIT "A" to the Lease shall be replaced by EXHIBIT "A" hereto. EXHIBIT "B" to the Lease shall be replaced by EXHIBIT "B" hereto. EXHIBIT "C" to the Lease shall also be replaced by EXHIBIT "B" hereto. EXHIBIT "D" to the Lease shall be replaced by EXHIBIT "D" hereto. 16. Paragraph 5 of EXHIBIT "G" to the Lease is hereby deleted. Paragraph 9 shall be limited to application in circumstances in which Tenant has exercised its rights under Paragraph 5, and shall be amended to include as the address for "Guarantor" the same address as is set forth for Tenant on the signature page of the Lease (as amended hereby). 17. Pursuant to this Amendment, the Premises is being reduced in size from 52,174 rentable square feet to 30,607 rentable square feet. The portion of the Premises being returned by Tenant to Landlord (the "RETURN SPACE") is reflected in the difference between the existing EXHIBIT "B" to the Lease and the replacement EXHIBIT "B" attached to this Amendment. Landlord shall have control over the Return Space immediately upon the execution hereof by Landlord, and Tenant's access thereto shall be limited to that provided in Sections 17 and 18 of this Amendment. Landlord shall also have reasonable access to the Premises, in addition to its rights of access under the Lease, for all matters necessary or desirable in the re-demising of the Return Space, for a period of time through and including April 19, 2002. Tenant shall use reasonable efforts to comply with such access rights. Without limiting the generality of the foregoing, and notwithstanding any other contrary terms in the Lease (as amended hereby), Landlord shall have the right (but not the obligation) to re-configure the utility service to the Building, including electricity, gas, water and sewer, so as to permit the re-demising and re-letting of the Return Space as a space separate from 5 the Premises. In connection with such re-demising, and without limiting the generality of the foregoing, Landlord shall be entitled to remove from the Premises the switchgears, transfer switches and other related electrical equipment set forth on EXHIBIT "F" hereto and to cause an electrical transformer to be disconnected from the Premises, moved from the Exterior Areas (as defined in the Lease) and attached to the electrical facilties in the Return Space. In connection with such re-demising, Tenant shall cause the two existing interior doorways between the Premises and the Return Space to be sealed. Such sealing shall be completed by Tenant between April 17, 2002 and April 19, 2002. Tenant shall cause such doorways to be sealed in such a fashion so that the entire demising wall of which they are a part will be fire rated to the same one hour rating as the demising wall is prior to the sealing. Landlord and Tenant hereby each agree to conduct their activities in connection with the re-demising of the Premises and the Return Space in such a fashion so as to minimize (to the extent reasonably possible) the disruption caused by such re-demising on the business conducted in the other's premises. Tenant shall remove any and all property in which it claims an interest from the Return Space no later than April 19, 2002, and Landlord shall provide Tenant with reasonable access to the Return Space for the purpose of such removal. Tenant shall repair any and all damage to the Return Space caused by, or existing as a result of, such removal on or before April 19, 2002. Should Tenant fail to do so, Landlord may make such repairs and Tenant shall reimburse Landlord for the reasonable cost of such repairs promptly upon invoice therefor. After the removal of all of its property, Tenant shall on or before April 19, 2002, return the Return Space to a broom clean condition. Other than the foregoing obligations, Landlord will accept the Return Space "as is" PROVIDED THAT such acceptance "as is" shall not relieve Tenant of any liability that it would otherwise have under Paragraphs 4(a) or 24(a)(ii) of the Lease with respect to the Return Space. After April 19, 2002, Tenant shall have no right whatsoever to the Return Space, access thereto, or any property located therein, except as provided for in Section 18 below. To the extent that any property remains in the Return Space after April 19, 2002, Landlord shall have the right to dispose of same as it sees fit, and shall not be required to account to Tenant for any such property or any proceeds realized therefrom. Tenant shall reimburse Landlord for the reasonable costs of the disposal of such property, and shall indemnify Landlord for any claims of third parties with respect thereto. Notwithstanding anything in this Section, Tenant shall not have the obligation to remove any raised flooring from the Return Space. Such raised flooring shall remain or become the property of Landlord, and Landlord may retain or remove such raised flooring as it sees fit in its sole discretion. 18. Notwithstanding anything to the contrary set forth in the Lease or this Amendment: (i) Landlord and Tenant shall each have access to the common utility closets depicted on Exhibit "B" hereto; (ii) Landlord shall have the right at reasonable times on reasonable notice to enter the Premises to maintain and repair the portion of the wet sprinkler system and plumbing lines remaining in the Premises that serve the Return Space (Tenant having 6 also agreed that such sprinklers and plumbing lines may remain therein); and (iii) Tenant shall have the right at reasonable times on reasonable notice to enter the Return Space to maintain and repair communication and other cabling and wiring above the ceiling plenum of the Return Space (Landlord having also agreed that such communications and other cabling and wiring may remain therein). 19. The obligations of Tenant under the Lease (as amended hereby) with regard to Operating Expenses and Taxes for the calendar year 2002 shall be assessed in two parts: January 1, 2002 through and including March 31, 2002, and April 1, 2002 through and including December 31, 2002. Tenant's Proportionate Share for the first period will be as set forth in the Lease prior to this Amendment, and Tenant's Proportionate Share for the second period shall be as set forth in the Lease as amended hereby. 20. Contemporaneously with the execution hereof by Tenant, Tenant shall pay to Landlord $524,634.64 (the "MINIMUM RENT Payment"). The payment of the Minimum Rent Payment shall constitute the payment in full of the Minimum Rent under the Lease (as amended hereby) for the period from April 1, 2002 through and including March 31, 2003. Such payment shall not affect the obligation of Tenant to make any other payments due under the Lease (as amended hereby) with regard to such period including, without limitation, any payments due for Operating Expenses, Taxes or other Additional Rent. 21. Notwithstanding the terms of the Lease including, without limitation, the terms of Paragraph 3 of the Lease, Tenant shall be obligated to pay in full the entire amount of the Minimum Rent for (I) the months of April 2003 - March 2004 on or before March 31, 2003, (II) the months of April 2004 - March 2005 on or before March 31, 2004, (III) the months of April 2005-March 2006 on or before March 31, 2005, and (IV) the months of April 2006-March 2007 on or before March 31, 2006. The making of any such payment by Tenant shall not affect the obligation of Tenant to make any other payments due under the Lease (as amended hereby) for the associated time period including, without limitation, any payments due for Operating Expenses, Taxes or other Additional Rent. Landlord shall have the right, as to any payment required by the terms of this Section 21, to waive the right to require Tenant to pay one (1) year's Minimum Rent in advance by providing written notice to Tenant of such waiver. Should Landlord provide such notice, Tenant shall not be required to make such advance payment, but instead shall be required to pay such Minimum Rent in monthly installments as otherwise required by Paragraph 3 of the Lease. Landlord shall have the right to provide such notice as to any or all of the payments required by this Section 21. 22. Substantially contemporaneously with the execution of this Amendment by Landlord, Landlord has drawn upon the letter of credit presently securing the Lease (the "EXISTING LETTER OF CREDIT") in an amount equal to $523,226.87. Such a draw has been utilized by Landlord to satisfy the 7 monthly obligations of Tenant for Minimum Rent, Operating Expenses and Taxes under the Lease for the period from September, 2001, through and including March, 2002. Tenant hereby consents to and ratifies in all respects such draw and such application. Landlord hereby affirms that, after such draw and application, there are not any other monthly rental amounts, Operating Expenses, or Taxes due for such period under the Lease (as amended), other than any amount that will be due for the period from January 1, 2002, through and including March 31, 2002, as part of the year-end reconciliation for Taxes and Operating Expenses for the calendar year 2002. Landlord hereby waives any claim for late fees or interest with regard to the amounts satisfied by such draw and application. Contemporaneously with the execution hereof, Tenant shall deliver to Landlord a replacement letter of credit, in form and content and from a financial institution reasonably satisfactory to Landlord, in the amount of Three Hundred Sixty-Seven Thousand Two Hundred Eighty-Four and 00/100 dollars ($367,284.00)(the "REPLACEMENT LETTER OF Credit"). Such Replacement Letter of Credit shall not expire for at least one (1) year from the date of delivery. Once presented, the Replacement Letter of Credit shall constitute the L/C for all purposes under the Lease (as amended hereby). Once the Replacement Letter of Credit has been provided to Landlord, Landlord will return the Existing Letter of Credit to Tenant. Failure by Tenant to timely present to Landlord the Replacement Letter of Credit shall constitute an Event of Default under the Lease (as amended hereby). Landlord hereby agrees that (I) the form of L/C attached hereto as EXHIBIT "G" is acceptable to Landlord for the Replacement L/C, and (II) Wachovia Bank, National Association and Fleet Bank, N.A. are acceptable financial institutions for the purposes of this Section 22. 23. This Amendment shall be effective as of April 1, 2002. 24. Contemporaneously with the execution and delivery hereof, Tenant and Landlord shall execute a mutual dismissal of the Litigation with prejudice and shall file same with the Court. Landlord and Tenant hereby represent and warrant to one another that they are not aware of any default by the other under the Lease as of the date hereof other than those alleged in the pleadings filed in the Litigation, and that all such known defaults (and any related claims, liabilities, losses, costs and expenses) have been resolved herein and are hereby waived. Each party shall bear its own costs as to the Litigation. 25. Notwithstanding anything else contained in the Lease as amended, Tenant shall be entitled to utilize no more than fifty-eight (58) of the parking spaces located in the parking lots contiguous to the Building, on an unassigned, rent free basis, for the daily parking of passenger vehicles by its employees and visitors. Such use shall be in common with any other tenants of the Building. Should Tenant repeatedly utilize more than the number of parking spaces to which it is entitled pursuant hereto and fail to discontinue any overutilization within three (3) business days after written notice of such overutilization from Landlord, Landlord may (acting reasonably) assign fifty-eight (58) specific parking spaces to Tenant for 8 use by Tenant on a rent free basis for the daily parking of passenger vehicles by its employees and visitors. 26. MISCELLANEOUS PROVISIONS. a. TIME IS OF THE ESSENCE. Time is of the essence with respect to each party's obligations under this Amendment. b. GOVERNING LAW. This Amendment shall be governed by the laws of the State of Georgia. c. ENTIRE AGREEMENT. This Agreement and the documents and instruments referenced herein represent the entire agreement of the parties with respect to the subject matter hereof, and supercede any prior oral or written understandings with respect thereto. d. LEASE IN FULL FORCE AND EFFECT. Except as modified herein, the Lease remains in full force and affect, and represents a binding and enforceable agreement by and between Landlord and Tenant, enforceable in accordance with its terms. e. SEVERABILITY. If any provision of this Amendment shall be determined to be illegal, invalid or unenforceable, such determination shall not affect any other provision of this Amendment and all such other provisions shall remain in full force and effect, and in lieu of each such provision that is found to be illegal, invalid or unenforceable, a provision shall be added as part of this Amendment that is as similar to the illegal, invalid or unenforceable provision as may be possible and be legal, valid or enforceable. The invalidity or unenforceability of any provision hereof shall not affect or impair any other provisions. f. CAPTIONS. The captions and headings contained in this Amendment are not part of this Amendment, are for convenience only and do not in any way limit, amplify or modify the terms and provisions of this Amendment, and shall have no effect upon the construction or interpretation of any part hereof. g. MULTIPLE COUNTERPARTS. This Amendment may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. h. SUCCESSORS AND ASSIGNS. The Lease, as amended hereby, shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, executors, administrators, successors and assigns. i. AMENDMENTS. None of the covenants, terms or conditions of this Amendment to be kept and performed by either party, shall in any manner be altered, waived, modified, changed or abandoned except by a written instrument, duly signed and delivered by both parties. j. AUTHORITY. By their respective signatures below, each of Landlord and Tenant hereby acknowledge, represent and warrant that they are duly organized and existing, that they are qualified to do business in the State of Georgia and are in good standing with the State of Georgia, that they have full right and authority to enter into this Amendment, 9 and that the persons signing on their behalf were authorized to do so by all necessary action. k. TENANT BROKERS. Tenant hereby represents and warrants to Landlord that no broker, finder or other agent (a "BROKER") was involved on Tenant's behalf in the negotiation or consummation of this Amendment, and that no Broker claiming by or through Tenant will be entitled to a commission or other compensation as a result of the execution of this Amendment or the performance of the parties hereunder. Tenant hereby agrees to indemnify and hold harmless Landlord for any claims, obligations, losses, costs or expenses incurred by Landlord as a result of (I) the falsity of the representation and warranty contained in this Section 26(k), or (II) any claims by any Broker for any compensation with regard to this Amendment where the Broker claims that its right to such compensation arises in whole or in part through the acts or omissions of Tenant (and through no act or omission of Landlord). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 10 l. LANDLORD BROKERS. Landlord hereby represents and warrants to Tenant that no Broker was involved on Landlord's behalf in the negotiation or consummation of this Amendment, and that no Broker claiming by or through Landlord will be entitled to a commission or other compensation as a result of the execution of this Amendment or the performance of the parties hereunder. Landlord hereby agrees to indemnify and hold harmless Tenant for any claims, obligations, losses, costs or expenses incurred by Tenant as a result of (I) the falsity of the representation and warranty contained in this Section 26(l), or (II) any claims by any Broker for any compensation with regard to this Amendment where the Broker claims that its right to such compensation arises in whole or in part through the acts or omissions Landlord (and through no act or omission of Tenant). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed as of the day and year first above written. LANDLORD: CROCKER REALTY TRUST, L.P., a Delaware limited partnership By: CRT-LLP, a Delaware limited liability company, its sole general partner By: Crocker Operating Partnership, L.P., a Delaware limited partnership, its sole member By: Crocker Realty Trust, Inc., a Maryland corporation, its sole general partner By: /s/ Print Name: Christopher L. Becker Title: Vice President Date of execution: ____________ [SIGNATURES CONTINUE ON SUBSEQUENT PAGE] 11 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] TENANT: INFOCROSSING, INC. f/k/a Computer Outsourcing Services, Inc., a Delaware corporation By: /s/ Print Name: Zach Lonstein Title: Chairman & CEO Date of execution: as of April 1, 2002 12 EXHIBIT "A" (Legal Description of Property) 13 EXHIBIT "B" (Premises and Exterior Areas) 14 EXHIBIT "D" (Minimum Rent) FROM TO PSF MONTHLY PERIOD TOTAL 04/01/02 07/31/02 $16.86 $43,002.84 $172,011.34 08/01/02 07/31/03 $17.28 $44,077.91 $528,934.87 08/01/03 07/31/04 $17.71 $45,179.85 $542,158.24 08/01/04 07/31/05 $18.16 $46,309.35 $555,712.20 08/01/05 07/31/06 $18.61 $47,467.08 $569,605.00 08/01/06 07/31/07 $19.08 $48,653.76 $583,845.13 08/01/07 07/31/08 $19.55 $49,870.10 $598,441.26 08/01/08 07/31/09 $20.04 $51,116.86 $613,402.29 08/01/09 07/31/10 $20.54 $52,394.78 $628,737.35 08/01/10 07/31/11 $21.06 $53,704.65 $644,455.78 08/01/11 07/31/12 $21.58 $55,047.26 $660,567.17 08/01/12 07/31/13 $22.12 $56,423.45 $677,081.35 08/01/13 07/31/14 $22.67 $57,834.03 $694,008.39 08/01/14 07/31/15 $23.24 $59,279.88 $711,358.60 15 EXHIBIT "E" (Principal Letter) As of April 1, 2002 BY FEDERAL EXPRESS Infocrossing, Inc. 2 Christie Heights Street Leonia, New Jersey 07605 Re: Subordination, Non-Disturbance, and Attornment Agreement (the "Agreement") between Principal Life Insurance Company, as Lender ("Lender"), Crocker Realty Trust, L.P., as Landlord ("Landlord"), and Infocrossing, Inc., successor in interest to COMPUTER OUTSOURCING SERVICES, INC., AS TENANT ("TENANT") Dear Sir or Madam: This letter confirms that the Agreement shall affect both: (i) that certain lease (the "Lease") dated May 22, 2000 between Landlord and Tenant; and (ii) that certain First Amendment to Lease (the "First Amendment") dated as of April 1, 2002 by and between Landlord and Tenant, and the term the "Lease", as used in the Agreement, shall be deemed to refer to the Lease as amended by the First Amendment. Sincerely, PRINCIPAL LIFE INSURANCE COMPANY By: _______________________________ Name: Its: Authorized Signatory 16 Acknowledged and Agreed: LANDLORD: CROCKER REALTY TRUST, L.P. doing business in Georgia as CROCKER REALTY, L.P. By: CRT-GP, LLC its sole general partner By: Crocker Operating Partnership, L.P. its sole member By:________________________________ Name: Its: TENANT: INFOCROSSING, INC. By:___________________ Printed Name:__________ Title:_________________ 17 EXHIBIT "F" (Equipment) 1) General Electric Dead Front Switchboard #A-812720 2) General Electric Dead Front Switchboard #C472530 3) Westinghouse Transfer Switch attached to Item #2 4) Transformer Located in Exterior Area (Currently Unused) 18 EXHIBIT "G" (Form of Letter of Credit) 19 EX-10 3 x10-2.txt STERLING TERMINATION AGREEMENT LEASE TERMINATION AGREEMENT THIS LEASE TERMINATION AGREEMENT (this "Agreement") is made and entered into as of the 19th day of April, 2002, by and between (i) INFOCROSSING, INC., a Delaware corporation ("Tenant"), and (ii) BECO-TERMINAL LLC, a Virginia limited liability company ("Landlord"). RECITALS A. Landlord and Tenant executed that certain Lease dated July 21, 2000, as amended by that certain First Amendment to Lease dated December 18, 2000 (collectively, the "Lease"), whereunder Tenant leased certain premises from Landlord known as Cyber Fortress I, consisting of approximately 54,800 rentable square feet of space (the "Premises") and located at 45580 Terminal Drive, Dulles, Loudoun County, Virginia 20164 (the "Building"). B. Landlord is the current holder of all of the landlord's interest under the Lease. C. Pursuant to the Lease, Tenant delivered to Landlord or its designee a letter of credit No. JS1221045 (the "Letter of Credit") issued by Fleet National Bank ("Fleet") to Landlord in the original amount of One Million Four Hundred Sixty Thousand and 00/100 Dollars ($1,460,000.00) to secure its obligations to provide a security deposit pursuant to the Lease. D. Landlord and Tenant desire to (i) amend the Lease to provide for the immediate draw down of the Letter of Credit; (ii) terminate the Lease and the rights and obligations thereunder upon the terms and conditions hereinafter set forth; (iii) provide for the assignment, reversion, conveyance and transfer to Landlord of any and all of Tenant's right, title and interest in and to the Premises; and (iv) reflect certain other understandings and agreements between the parties. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto, intending legally to be bound, hereby covenant and agree as follows: 1. RECITALS. The foregoing Recitals are hereby incorporated herein and made a substantive part hereof. 2. AMENDMENT TO LEASE; AUTHORIZATION REGARDING LETTER OF CREDIT. Landlord and Tenant hereby agree that the Lease is hereby amended by adding to the end of Section 23.04 of the Lease the following: "Notwithstanding anything herein to the contrary, Tenant hereby authorizes Landlord to draw down the entire Letter of Credit and to retain all of such proceeds as Rental currently due under this Lease, and irrevocably waives any and all rights it may have to object to Landlord's certification of the Letter of Credit, drawing upon the Letter of Credit or retention of the Letter of Credit proceeds. This Section 23.04 shall survive the termination of the Lease." 1 3. TERMINATION OF THE LEASE. (a) In consideration of Tenant's delivery or agreement to deliver to Landlord the items described in Paragraph 3(b), and of Landlord's release of Tenant in Paragraph 4(b), Landlord and Tenant agree that the Lease is terminated concurrently with the execution and delivery of this Agreement (the "Effective Date"). (b) On the Effective Date, Tenant shall deliver: (1) To Landlord, actual physical possession of the Premises, as well as all of Tenant's property, improvements, fixtures and equipment, if any, located at the Premises (including, but not limited to, the UPS system and air conditioner units) on the day hereof (collectively the "Property"), and any assignable manufacturer's warranties or prepaid service contracts associated therewith; (2) One Million Five Hundred Fifteen Thousand and 00/100 Dollars ($1,515,000.00) by wire transfer of immediately available federal funds to the account (the "Mortgagee's Account") for the benefit of Landlord's mortgagee, Teachers Insurance and Annuity Association (the "Mortgagee") as follows: Wire funds to: Bank of America Atlanta, Georgia ABA# 061000052 Acct# 00325-169-7902 Acct: CapMark Services, L.P. Ref: Loan No. 400034821; and (3) To Landlord, all keys, codes, combinations and other information or materials currently in Tenant's possession that is useful or necessary in the operation of the Premises (including, but not limited to, items pertaining to any security system). 4. MUTUAL RELEASE (a) Effective on the Effective Date, Landlord releases Tenant, its officers, directors, agents, employees, partners, members and shareholders from any and all obligations, liabilities, claims, rights or causes of action arising out of, with respect to, or in connection with the Lease and/or the Premises, excluding only all obligations of Tenant under this Agreement; provided, however, that nothing in this Paragraph 4(a) shall affect or vitiate Landlord's right under the Lease (as amended by Paragraph 2 of this Agreement) to draw upon the full Letter of Credit and to retain all of the proceeds of such Letter of Credit. 2 (b) Effective on the Effective Date, Tenant releases Landlord and Mortgagee (and their respective officers, directors, agents, employees, partners, members and shareholders) from any and all obligations, liabilities, claims, rights, actions or causes of action arising out of, with respect to, or in connection with the Lease and/or the Premises, excluding only all obligations of Landlord under this Agreement; and (c) In the event Tenant fails to perform its obligations under this Agreement or breaches any covenant or representation herein, Landlord shall have the right to avail itself of any and all rights and remedies which Landlord may have at law or in equity or under this Agreement. 5. BANKRUPTCY. Notwithstanding anything in this Agreement to the contrary, should Tenant be the subject of a voluntary or involuntary petition in bankruptcy or of a liquidation or receivership proceeding in state court (collectively, a "Bankruptcy") and should Landlord be required to return all or any part of the consideration received by Landlord hereunder or return or restore all or any part of the Letter of Credit, or any other funds paid by Tenant to Landlord under the Lease and/or this Agreement (whether as a preferential transfer or otherwise, and whether by court order, settlement or otherwise), then, and in that event it is hereby acknowledged and agreed that (i) the release of Tenant as provided for in Paragraph 4(b) above shall be of no effect; (ii) the termination of the Lease in Paragraph 3 above shall be deemed for all purposes of the Lease and this Agreement to be pursuant to Section 21.02(b) of the Lease, and damages due to Landlord as a result of Tenant's breach of the Lease and Landlord's acceleration of the Rentals shall be determined in accordance with such Section 21.02(b) of the Lease less a credit for any portion of the consideration or Letter of Credit proceeds received and retained by Landlord hereunder. 6. TRANSFER OF THE PREMISES. Effective on the Effective Date, Tenant transfers, assigns and conveys to Landlord without recourse, representation or warranty except as otherwise expressly specified herein, and Landlord hereby unconditionally accepts, all of Tenant's right, title and interest in and to the Lease, the Premises, the Property and any transferable manufacturer's warranties or prepaid service contracts relating thereto. 7. REPRESENTATIONS AND WARRANTIES. (a) BY TENANT. Tenant represents, warrants and covenants to Landlord that as of the Effective Date: (i) The Lease is the only agreement, written, oral or otherwise, between Landlord and Tenant in respect of the Premises (other than the letter agreement between them dated March 26, 2002 ("the Letter Agreement")), and the Lease has not been amended, superseded, added to or interpreted, in writing, orally or otherwise, at any time, except as set forth in Recital A of this Agreement. (ii) Landlord shall receive good and absolute title to the Premises and the Property, free from any and all liens, charges, 3 encumbrances or claims of whatever kind or nature arising out of, or in connection with, Tenant's use, occupancy or operation of the Premises or the Property. No party other than Tenant has any right to, or interest in, the Lease or the Property, whether as a secured party, subtenant or otherwise. To Tenant's knowledge, there is no claim, protest, appeal, litigation or proceeding pending or threatened which involves the Lease or the Property. (iii) Tenant has not assigned, subleased or otherwise transferred any or all of its interest in the Premises, the Lease, or the Property to any other entity or person. (iv) Tenant has the full right, power and authority to execute, deliver and perform its obligations under this Agreement. (v) The individual signing this Agreement on behalf of Tenant has the full right, power, capacity and authority to execute and deliver this Agreement as a binding and valid obligation of Tenant. (vi) There are no outstanding claims, contracts or agreements of any kind which are binding on Tenant with agents, consultants, advisors, salesmen or dealers for management, maintenance or other services relating to the Premises which shall be binding on Landlord or which may hereafter give rise to liens on the Premises. (b) BY LANDLORD. Landlord represents, warrants and covenants to Landlord that as of the Effective Date: (i) Landlord has the full right, power and authority to execute, deliver and perform its obligations under this Agreement. (ii) The individual signing this Agreement on behalf of Landlord has the full right, power, capacity and authority to execute and deliver this Agreement as a binding and valid obligation of Landlord. 8. INDEMNIFICATION. Each party hereto ("Indemnitor") covenants and agrees that it will indemnify, reimburse and hold harmless the other party hereto from, against and in respect of any and all claims, losses, costs, damages, and liabilities, including but not limited to reasonable legal fees and expenses, arising out of, resulting from or related to any breach of Indemnitor's representations, warranties or covenants herein, or of any misrepresentation by Indemnitor herein. This Section 8 shall not survive the foreclosure of any mortgage or deed of trust currently encumbering the Premises, or any part thereof, or the granting of a deed in lieu of such foreclosure. 9. OTHER PROVISIONS. (a) GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Virginia. 4 (b) CONSENT TO JURISDICTION; SERVICE OF PROCESS. Tenant hereby agrees and consents that any action or proceeding arising out of or brought to enforce the provisions of this Agreement may be brought in any appropriate court in the Commonwealth of Virginia or in any other court having jurisdiction over the subject matter, all at the sole election of Landlord, and by the execution of this Agreement Tenant irrevocably consents to the jurisdiction of each such court. The Tenant hereby irrevocably appoints the State Corporation Commission of the Commonwealth of Virginia located at P.O. Box 1197, Richmond, Virginia 23218-1197 as its agent to accept service of process for it and on its behalf in any proceeding brought pursuant to the provisions of this Paragraph 9(b) (c) FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. The parties hereto agree that they will, from time to time, execute and deliver, or cause to be executed and delivered, such supplements hereto and such further instruments as may reasonably be required for carrying out the intention of the parties to, or facilitating the performance of, this Agreement. (d) BINDING EFFECT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective personal and legal representatives, heirs, executors, administrators, successors and assigns. (e) SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. (f) ENTIRE AGREEMENT. This Agreement sets forth the final and entire agreement between the parties hereto with respect to the termination of the Lease, and is intended to be an integration of all prior negotiations and understandings, and Landlord, Tenant, and their agents shall not be bound by any terms, conditions, statements, warranties, or representations, oral or written, express or implied, not set forth or incorporated herein, including but not limited to the Letter Agreement. No change or modification of this Agreement shall be valid unless the same is in writing, signed by Landlord and Tenant and consented to by Mortgagee. No waiver of any of the provisions of this Agreement shall be valid unless the same is in writing and signed by the party against which it is sought to be enforced. (g) COUNTERPARTS. This Agreement may be executed in counterparts by the parties. It is not necessary that the signatures of the parties appear on the same counterpart or counterparts. All counterparts shall collectively constitute a single agreement. (h) COUNSEL. Landlord and Tenant each represent to the other that it has had full opportunity to consult with an attorney of its choice or that it has relied upon the legal advice of the attorney of its choice, that the terms of this Agreement have been completely read and explained to it by such attorney, and that those terms were fully understood and voluntarily accepted by Landlord or Tenant (as applicable). 5 (i) LANDLORD'S LENDER. The Mortgagee has indicated its consent to and approval of the terms hereof by its signature in the space below. The Mortgagee is not, however, a party to this Agreement. (j) NOTICES. (i) Any notice, report, demand, request or other instrument or communication authorized, required, or desired to be given under this Agreement by Landlord or Tenant shall be in writing and shall only be deemed given if addressed to the party intended to receive the same, at the address of such party set forth below, (i) when delivered at such address by hand or by overnight delivery service, or (ii) when delivered by facsimile at the facsimile number listed below, AND the sending party receives a facsimile confirming receipt. If to Landlord: James H. Lystad, Esq. BECO Management, Inc. 5410 Edson Lane Suite 200 Rockville, MD 20852 Fax: 301.816.1501 Tel.: 301.816.1570 With a copy to: Richard J. Melnick, Esq. Greenberg Traurig, LLP 1750 Tysons Boulevard, Suite 1200 McLean, VA 22102 Fax: 703.714.8310 Tel.: 703.903.7505 If to Tenant: Mr. Zach Lonstein, Chairman Infocrossing, Inc. 2 Christie Heights Street Leonia, New Jersey 07605 Fax: 201.840.7126 Phone: 201.840.4700 With a copy to: Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 Attention: Larry M. Loeb, Esq. Fax: 212.715.8058 Phone: 212.715.9114 6 (ii) Either party may change the address to which any such notice, report, demand, request or other instrument or communications to such party is to be delivered or mailed, by giving written notice of such change to the other parties, but no such notice of change shall be effective unless and until received by such other parties. (k) WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE, IRREVOCABLY AND UNCONDITIONALLY, TRIAL BY JURY IN ANY ACTION BROUGHT ON, UNDER OR BY VIRTUE OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY OF THE DOCUMENTS OR CERTIFICATES EXECUTED IN CONNECTION HEREWITH, THE PREMISES OR ANY CLAIMS, DEFENSES, RIGHTS OF SET-OFF OR OTHER ACTIONS PERTAINING HERETO OR TO ANY OF THE FOREGOING. THIS PARAGRAPH 9(K) SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS AGREEMENT (l) TIME. TIME IS OF THE ESSENCE OF THIS AGREEMENT. [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first set forth above. WITNESS/ATTEST: LANDLORD: BECO-TERMINAL LLC By: BRIT-Terminal Intermediary LLC, its Managing Member /s/ Amy Kwah By: /s/ - ------------------------------ -------------------------------------- Print Name: Chris Epstein -------------------------------------- Title: President, Beco-Data LLC, its Manager -------------------------------------- WITNESS/ATTEST: TENANT: INFOCROSSING, INC. /s/ By: /s/ - ------------------------------ -------------------------------------- Kathryn Yodice Print Name: Nicholas J. Letizia -------------------------------------- Title: Senior Vice President -------------------------------------- WITNESS/ATTEST: CONSENT: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA /s/ Robert C. Ray By: /s/ - ------------------------------ -------------------------------------- Print Name: David Rodriguez -------------------------------------- Title: Associate Director -------------------------------------- 8 STATE OF NEW JERSEY -------------------------- ) ) ss. COUNTY OF BERGEN ) -------------------------- The foregoing instrument was acknowledged and sworn before me this 19th day of April, 2002, by Nicholas J. Letizia, as Senior Vice President of INFOCROSSING, INC., a Delaware corporation. /s/ Roberta Matera Notary Public [SEAL] My Commission Expires: 2/17/04 STATE OF MARYLAND -------------------------- ) ) ss. COUNTY OF MONTGOMERY ) -------------------------- The foregoing instrument was acknowledged and sworn before me this 22nd day of April, 2002, by Chris Epstein, as President of Beco-Data LLC, Manager of BRIT-TERMINAL INTERMEDIARY LLC, a Virginia limited liability company, the Managing Member of BECO-TERMINAL LLC, a Virginia limited liability company. /s/ James H. Lystad Notary Public [SEAL] My Commission Expires: 10/20/03 9 STATE OF NEW YORK ---------------------------- ) ) ss. COUNTY OF NEW YORK ) ---------------------------- The foregoing instrument was acknowledged and sworn before me this 2nd day of May, 2002, by DAVID RODRIGUEZ, as Associate Director of TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation. /s/ G. Ann Olivia Notary Public [SEAL] My Commission Expires: 11/30/02 107664V8 -----END PRIVACY-ENHANCED MESSAGE-----