-----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, M2P5zsqdByKNl+/ApRewagGahtQixEFlr86vEH1L7PLySZclP28JG7zDpk+KXESn Ir1TAGI3b/GxFW9Z4dCjjA== 0000893816-04-000094.txt : 20041217 0000893816-04-000094.hdr.sgml : 20041217 20041217151453 ACCESSION NUMBER: 0000893816-04-000094 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041001 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041217 DATE AS OF CHANGE: 20041217 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20824 FILM NUMBER: 041211240 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 8-K/A 1 k8b_mdcr.txt AMENDMENT 1 TO IHS 8K FOR FINS & PRO FORMAS UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A AMENDMENT NO. 1 TO A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) October 1, 2004 --------------- INFOCROSSING, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware ---------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-20824 13-3252333 ----------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 2 Christie Heights Street Leonia, New Jersey 07605 -------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (201) 840-4700 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) N/A ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (SEE General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.01 COMPLETION OF ACQUISITION. On October 1, 2004, Infocrossing, Inc. (the "Company") closed the previously announced acquisition of the Medicaid, Medicare and Managed Care Claims Processing Business ("Claims Processing Business") of Verizon Information Technologies Inc. ("VITI") from Verizon Communications, Inc. (NYSE: VZ) for $43.5 million in cash. The sale was structured as an acquisition of the common stock of the Claims Processing Business. The Company financed the acquisition by using cash on hand and by drawing $24.4 million from an existing line of credit provided by CapitalSource Finance LLC. Immediately following the closing of the transaction, the Claims Processing Business' name was changed to Infocrossing Healthcare Services, Inc. ("IHS"). Other than in respect to this transaction, no material relationship exists between the Company or its affiliates and either Verizon Communications, Inc. or VITI. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired Financial statements required by 17 CFR 210.3-05(b) are included herewith as Appendix A. (b) Pro Forma Financial Information Pro forma financial information required by 17 CFR 210 is included herewith as Appendix B. (c) Exhibits 2.1 Purchase and Sale Agreement dated as of September 1, 2004 between the Company and Verizon Data Services, Inc., filed with the initial Current Report on Form 8-K dated October 4, 2004 and incorporated herein by reference. 2.2 Stock Purchase Agreement between the Company and ITO Holdings, LLC, dated as of March 3, 2004, incorporated by reference to Exhibit 2.1 to a Current Report on Form 8-K filed April 7, 2004. 10.1 Consent, Waiver and First Amendment to Acquisition Loan Agreement dated as of October 1, 2004 by and among the Company and CapitalSource Finance, LLC, filed with the initial Current Report on Form 8-K dated October 4, 2004 and incorporated herein by reference. 2 (c) Exhibits (Continued) 10.2 Acquisition Loan Agreement dated July 29, 2004 between the Company, various Lenders and CapitalSource Finance LLC as Agent for the Lenders, incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for June 30, 2004. 10.3 Guarantee and Security Agreement dated as of July 29, 2004, between the Company and certain of the Company's subsidiaries and CapitalSource Finance LLC, incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for June 30, 2004. 10.4 Stock Pledge Agreement dated as of July 29, 2004, between the Company and certain of the Company's subsidiaries and CapitalSource Finance LLC, incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for June 30, 2004. 10.5 Amended and Restated Consent, Waiver, and First Amendment to Acquisition Loan Agreement, dated as of October 6, 2004, by and among the Company and CapitalSource Finance, LLC., incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for September 30, 2004. 10.6 Second Amendment to Acquisition Loan Agreement and Other Documents, dated as of November 8, 2004, by and among the Company and CapitalSource Finance, LLC., incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for September 30, 2004. 10.7 Employment Agreement dated as of October 1, 2004 between Michael J. Luebke and Infocrossing Healthcare Services, Inc. * 23.1 Consent of Moore Stephens Wurth Frazer and Torbet, LLP. * 99.1 Press Release of the Company, dated October 4, 2004, filed with the initial Current Report on Form 8-K dated October 4, 2004 and incorporated herein by reference. * Filed herewith. 3 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. INFOCROSSING, INC. Date: December 17, 2004 By: /s/ WILLIAM J. McHALE -------------------------- William J. McHale SVP - Finance 4 APPENDIX A FINANCIAL STATEMENTS MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT SEPTEMBER 30, 2004, DECEMBER 31, 2003, AND DECEMBER 31, 2002 A-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors of Infocrossing, Inc. We have audited the accompanying statements of assets, liabilities and divisional capital of the Medicaid, Medicare and Managed Care Claims Processing Business of Verizon Information Technologies Inc. as of September 30, 2004, December 31, 2003 and 2002, and the related statements of operations and cash flows for the nine months ended September 30, 2004 and for the years ended December 31, 2003 and 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Medicaid, Medicare and Managed Care Claims Processing Business of Verizon Information Technologies Inc. as of September 30, 2004, December 31, 2003 and 2002, and the results of its operations and its cash flows for the periods then ended, in conformity with U. S. generally accepted accounting principles. As discussed in Note 2, the Medicaid, Medicare and Managed Care Claims Processing Business of Verizon Information Technologies Inc. did not operate as a stand alone separate entity. The financial statements referred to above are based on judgments, estimations, and allocations determined by the management of Infocrossing, Inc. /s/ Moore Stephens Wurth Frazer and Torbet, LLP Orange, California December 10, 2004 A-2 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL CAPITAL ASSETS September 30, December 31, December 31, ------ 2004 2003 2002 -------------------------------------------- CURRENT ASSETS Accounts receivable $ 4,504,463 $ 9,222,265 $ 7,056,360 Unbilled receivables 4,641,971 5,751,257 4,138,186 -------------------------------------------- Total current assets 9,146,434 14,973,522 11,194,546 -------------------------------------------- PROPERTY AND EQUIPMENT, NET 2,048,981 2,506,336 2,731,986 -------------------------------------------- TOTAL ASSETS $ 11,195,415 $ 17,479,858 $ 13,926,532 ============================================ LIABILITIES AND DIVISIONAL CAPITAL - ---------------------------------- CURRENT LIABILITIES Accounts payable and accrued expenses $ 476,600 $ 528,962 $ 755,025 Payroll, payroll taxes and payroll benefits accrued 1,354,080 3,034,416 1,434,054 Deferred revenues - 450 1,182,234 Deferred rent 111,585 120,716 - -------------------------------------------- Total current liabilities 1,942,265 3,684,544 3,371,313 -------------------------------------------- DIVISIONAL CAPITAL 9,253,150 13,795,314 10,555,219 -------------------------------------------- COMMITMENTS AND CONTINGENCIES - - - -------------------------------------------- TOTAL LIABILITIES AND DIVISIONAL CAPITAL $ 11,195,415 $ 17,479,858 $ 13,926,532 ============================================ The accompanying notes are an integral part of these financial statements A-3 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. STATEMENTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2004, AND THE YEARS ENDED DECEMBER 31, 2003 AND 2002 September 30, December 31, December 31, 2004 2003 2002 -------------------------------------------- REVENUES $ 36,213,345 $ 52,014,856 $ 54,256,282 -------------------------------------------- EXPENSES Cost of revenue 23,126,725 35,463,934 37,483,537 Selling, general and administrative expenses 2,831,250 3,725,000 3,650,000 Voluntary separation incentive plan - 2,844,500 - Depreciation and amortization 531,134 298,290 370,148 -------------------------------------------- TOTAL EXPENSES 26,489,109 42,331,724 41,503,685 -------------------------------------------- INCOME BEFORE INCOME TAX PROVISION IN LIEU OF INCOME TAXES 9,724,236 9,683,132 12,752,597 PROVISION IN LIEU OF INCOME TAXES 3,685,000 3,656,000 4,816,000 -------------------------------------------- NET INCOME $ 6,039,236 $ 6,027,132 $ 7,936,597 ============================================ The accompanying notes are an integral part of these financial statements A-4 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2004, AND THE YEARS ENDED DECEMBER 31, 2003 AND 2002 September 30, December 31, December 31, 2004 2003 2002 -------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,039,236 $ 6,027,132 $ 7,936,597 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 531,134 298,290 370,148 Changes in operating assets and liabilities: Accounts receivable 4,717,802 (2,165,905) 1,512,837 Unbilled receivables 1,109,286 (1,613,071) (231,898) Accounts payable and accrued expenses (52,362) (226,063) 43,061 Deferred revenues (450) (1,181,784) (12,000,157) Deferred rent (9,131) 120,716 - Payroll, payroll taxes and payroll benefits payable (1,680,336) 1,600,362 (41,895) Other current liabilities - - (1,889,418) -------------------------------------------- Net cash flows from operating activities 10,655,179 2,859,677 (4,300,725) -------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (73,779) (72,640) (446,437) -------------------------------------------- Net cash flows from investing activities (73,779) (72,640) (446,437) -------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Deemed cash contributions by parent - - 4,747,162 Deemed cash distributions to parent (10,581,400) (2,787,037) - -------------------------------------------- Net cash flows from financing activities (10,581,400) (2,787,037) 4,747,162 -------------------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS - - - CASH AND CASH EQUIVALENTS, BEGINNING - - - -------------------------------------------- CASH AND CASH EQUIVALENTS, ENDING $ - $ - $ - ============================================ Provision in lieu of income taxes deemed paid $ 3,685,000 $ 3,656,000 $ 4,816,000 ============================================ The accompanying notes are an integral part of these financial statements A-5 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS, ACQUISTION AND TRANSITION Medicaid, Medicare and Managed Care Claims Processing Business of Verizon Information Technologies Inc. (the "Claims Processing Business") is engaged in the business of providing customers in the healthcare industry with information technology outsourcing services, healthcare transaction processing services, Health Insurance Portability and Accountability Act consulting and implementation services, payer application solutions and Medicaid fiscal agent services. Such customers mainly are located in Missouri, Florida, Arizona, Alabama, Arkansas, North Dakota, Utah, and Montana. Effective October 1, 2004, Infocrossing, Inc. ("Infocrossing") acquired 150 shares of no par value common stock (constituting all of the authorized, issued and outstanding shares of common stock) of Verizon Information Technologies Inc. ("VITI") from Verizon Data Services, Inc. ("VDSI" or "Parent") for $43,500,000. Prior to the acquisition of its capital stock VITI's business activities consisted of several operating businesses including the activities of the Claims Processing Business. As part of the sale of its capital stock, VITI transferred all non-claims processing business and specific assets and liabilities to another entity which was not part of the acquisition. Following the purchase, VITI's name was changed to Infocrossing Healthcare Services, Inc. (the "Company"). Also, effective October 1, 2004, VITI entered into a transition services agreement with Verizon Information Technologies LLC, ("VITL"), by which VITI will purchase from VITL certain data processing services, including computing and help desk services, as set forth in this agreement for an initial term of six months with automatic renewals for successive periods of three months unless either party shall have given the other party appropriate notice of termination. The agreement establishes a monthly mainframe processing fee based on actual usage of CPU hours for prime CPU, CPU hours for batch CPU, as well as other processing charges. In addition, professional services are billed separately on a per hour basis. Management of the Claims Processing Business estimates that the need to utilize the transition services provided by VITL will be six months, after which Infocrossing will be rendering the majority of the services currently provided by the transition service agreement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. Prior to the acquisition by Infocrossing, no financial statements were available with accounting and disclosures normally presented for a separate legal entity. The financial statements of the Claims Processing Business present its operating results and financial position and are based on the historical accounting records of VITI. All of the accounting judgments, estimations and allocations in these financial statements are assumptions that the management of Infocrossing believe are reasonable for the purpose of preparing the Claims Processing Business' financial statements. However, these policies, including various allocations, are estimates and are not necessarily indicative of the costs that would have resulted had the Claims Processing Business operated as a stand-alone, separate entity. The accompanying financial statements do not reflect purchase price allocation adjustments which will be made by Infocrossing. The financial statements of the Claims Processing Business have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission ("SEC") for inclusion in an amendment to Form 8-K to be filed by Infocrossing in connection with the acquisition of the Claims Processing Business as disclosed in Note 1. A-6 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) DIVISIONAL CAPITAL. All charges and allocations of costs for functions and services provided by Parent are deemed paid by the Claims Processing Business, in cash, in the period in which the cost is recorded in these financial statements. All cash is deemed to be distributed to the Parent as received. Changes in Divisional Capital were as follows: Balance at December 31, 2001 $ (2,128,540) Net income 7,936,597 Capital contributions by Parent 4,747,162 ----------------- Balance at December 31, 2002 10,555,219 Net income 6,027,132 Deemed distributions to Parent (2,787,037) ----------------- Balance at December 31, 2003 13,795,314 Net income 6,039,236 Deemed distributions to Parent (10,581,400) ----------------- Balance at September 30, 2004 $ 9,253,150 ================= As discussed in Note 1, Infocrossing acquired all the capital stock of VITI. The capital structure as of October 1, 2004, is as follows: Common stock, no par value 150 shares authorized; issued and outstanding, as of September 30, 2004 and December 31, 2003 and 2002 $ 150 Accumulated earnings, net of deemed distributions of $8,621,275 to the Parent 9,253,000 ----------------- $ 9,253,150 ================= UNBILLED RECEIVABLES. Unbilled receivables include amounts billable for services rendered prior to September 30, 2004 and December 31, 2003 and 2002, that were billed after the end of the respective periods. ALLOWANCE FOR DOUBTFUL ACCOUNTS. Management of the Claims Processing Business evaluates accounts receivable periodically for potential uncollectible receivables based on contractual due dates. Historically, the Claims Processing Business has not experienced any significant bad debts. A-7 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets consist of property and equipment. The Claims Processing Business reviews its long-lived assets for impairment whenever events or business circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. No adjustments to the carrying value of long-lived assets were recorded for the nine-month period ended September 30, 2004, and for the years ended December 31, 2003 and 2002. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over estimated useful lives of 3 to 10 years, except for leasehold improvements where amortization is calculated over their estimated useful lives or underlying lease terms, whichever is shorter. Maintenance and repairs are expensed as incurred. REVENUE RECOGNITION. The Claims Processing Business recognizes revenues from services when the services are rendered in accordance with customer contracts. Prepayments on contracts are recorded as deferred revenue in the accompanying statements of assets, liabilities and divisional capital. Unbilled services on contracts are recorded as unbilled receivables in the accompanying statements of assets, liabilities, and divisional capital. INCOME TAXES. The Claims Processing Business did not constitute a separate tax filing entity for income tax purposes. Accordingly, the Claims Processing Business has recorded an "income tax provision in lieu of taxes" as if it had filed separate income tax returns as a stand alone entity. Such provision has been recorded in the accompanying financial statements using the maximum statutory tax rates in effect during the respective periods. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. As of September 30, 2004 and December 31, 2003 and 2002, there were no deferred tax assets or liabilities. ADVERTISING AND MARKETING. Advertising and marketing costs are expensed as incurred. RESEARCH AND DEVELOPMENT. Research and development costs are expensed as incurred. A-8 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Claims Processing Business' significant estimates primarily relate to the assessment of the required accounts receivable allowance for doubtful accounts, determinations of unbilled receivables and the allocation of certain shared costs and expenses allocated to the Claims Processing Business. Actual results could differ from those estimates. LEASES. Operating leases and related rentals are charged to expense as incurred, over the respective lease periods. Where leases provide for incentives such as a free rent period or escalation clauses, the total base rental set-out under the lease is charged on a straight line basis over the respective term of the related leases, and the difference between that amount and the amount payable is reflected as deferred rent in the accompanying financial statements. The base rent is expensed on a straight-line basis over the term of the leases. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of accounts receivable, unbilled receivables, accounts payable and accrued expenses, payroll, payroll taxes and other current liabilities approximate fair value due to the short maturities of these instruments. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2003, FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003. The adoption of this statement had no effect on the Claims Processing Business' operating results or financial position. In May 2003, the FASB issued SFAS 150, "Accounting for Certain financial Instruments with Characteristics of Both Liabilities and Equity". The statement improves the accounting for three types of financial instruments that were previously accounted for as equity - mandatory redeemable shares, instruments that may require the issuer to buy back shares and certain obligations that can be settled with shares. The statement requires that those instruments be accounted for as liabilities in the statement of financial position. The statement is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement had no affect on the Claims Processing Business' operating results or financial position. A-9 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 4. PROPERTY AND EQUIPMENT As of September 30, 2004, December 31, 2003 and December 31, 2002, property and equipment consisted of: September 30, December 31, December 31, 2004 2003 2002 -------------------------------------------- Software $ 1,812,978 $ 120,909 $ 120,909 Data processing equipment 1,692,988 1,163,512 1,064,127 Other equipment 407,293 385,794 332,542 Furniture and fixtures 237,981 237,981 237,981 Leasehold improvements 100,989 100,989 84,888 System development - 2,169,265 2,265,363 -------------------------------------------- 4,252,229 4,178,450 4,105,810 Accumulated depreciation and amortization (2,203,248) (1,672,114) (1,373,824) -------------------------------------------- Property, plant and equipment, net $ 2,048,981 $ 2,506,336 $ 2,731,986 ============================================ Depreciation and amortization expense amounted to $531,134, $298,290, and $370,148, for the nine month period ended September 30, 2004 and the years ended December 31, 2003 and 2002, respectively. 5. INCOME TAXES The Claims Processing Business did not constitute a separate entity for income tax purposes. Accordingly, the Claims Processing Business has recorded an "income tax provision in lieu of income taxes, as if it had filed separate income tax return as a stand alone entity. As of September 30, 2004, and December 31, 2003 and 2002, there were no deferred tax assets or liabilities. The provision in lieu of income taxes has been recorded using the maximum statutory tax rates in effect during the respective periods, as follows: YEARS ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, 2004 2003 2002 ------------------ ----------------------------- Federal tax provision in lieu of income taxes $ 3,137,000 $ 3,105,000 $ 4,120,000 State tax provisions In lieu of income taxes 548,000 551,000 696,000 ------------------ ------------- ------------- $ 3,685,000 $ 3,656,000 $ 4,816,000 ================== ============= ============= A-10 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 5. INCOME TAXES (CONT'D) Income tax expense for the nine month period ended September 30, 2004 and the years ended December 31, 2003 and 2002 is determined in accordance with FAS 109. Reconciliations between the effective tax rate on income before provision in lieu of income taxes and the federal statutory rate are presented below:
NINE MONTHS ENDED % OF YEAR ENDED % OF YEAR ENDED % OF SEPTEMBER 30, 2004 PRETAX DECEMBER 31, 2003 PRETAX DECEMBER 31, 2002 PRETAX ------------------ ------ ----------------- ------ ----------------- ------ Tax at statutory rate $ 3,403,483 35.0% $ 3,389,096 35.0% $ 4,463,409 35.0% State taxes - net 360,694 3.70 363,660 3.76 458,176 3.59 Other - net (79,177) (.82) (96,756) (1.0) (105,585) (.83) ---------------- ----- ---------------- ----- ---------------- ----- Provision in lieu of income taxes $ 3,685,000 37.88% $ 3,656,000 37.76% $ 4,816,000 37.76% ================ ===== ================ ===== ================ =====
6. VOLUNTARY SEPARATION INCENTIVE PLAN During 2003, Verizon Communications, Inc. ("Verizon") offered certain of its qualifying employees and employees of its subsidiaries the opportunity to separate from their employment. The Voluntary Separation Incentive Plan (the "Plan") provided for a lump sum separation payment plus continuing benefits extending for a period subsequent to their separation. In this regard, certain employees of the Claims Processing Business separated from their employment under the Plan. The cost associated with the lump sum separation payment aggregated $2,844,500. The cost associated with providing continuing benefits extending for a period subsequent to the employees' separation cannot be reasonably estimated. 7. RETIREMENT PLANS Employees of the Claims Processing Business, as well as employees of other business units, affiliates and subsidiaries of Verizon were able to participate in the available retirement plans they qualified for by virtue of their employment. The expense associated with these plans is included in and recorded as part of the overall employee benefit costs. Such costs are included in cost of revenue in the accompanying financial statements. 8. STOCK OPTIONS Employees, to the extent they qualified, of the Claims Processing Business, as well as employees of other business units and subsidiaries of Verizon were able to participate in Verizon Stock Option Plans. There is no established market value for the stock of the Claims Processing Business and the expense, if any, associated with the stock options would be in part determined based on the Verizon share price. No expense that might be associated with the Stock Option Plan is being recorded in the accompanying financial statements. A-11 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 9. COMMITMENTS The Claims Processing Business currently has operating leases for facilities in Phoenix, Arizona, and Jefferson City, Missouri. The lease in Arizona expires on April 30, 2008 with an option to renew for an additional five-year period. Effective May 1, 2003, the original lease was amended and decreased from approximately 45,307 rentable square feet to approximately 11,326 rentable square feet. The lease provides for a rent concession of seven months and contains escalation clauses, which cause the monthly base rent to increase by a stated amount over the term of the lease. The lease in Jefferson City expires on November 15, 2007 and has two one-year renewal options. Effective May 13, 2002, the original lease was amended and increased from approximately 18,630 gross square feet to approximately 24,730 gross square feet. Following is a summary of the net facility costs for operating leases for the nine-month period ended September 30, 2004, and the years ended December 31, 2003 and 2002: September 30, December 31, December 31, 2004 2003 2002 -------------------------------------------- Facility costs $ 514,863 $ 1,115,573 $ 1,507,872 Sublease income (9,009) - (749,411) ------------- ------------- ------------- Net facility costs $ 505,854 $ 1,115,573 $ 758,461 ============= ============= ============= The following is a schedule of annual future minimum rental payments, excluding property taxes and other operating expenses, required under all non-cancelable operating leases: Total Operating Lease Payments --------------------- Period ending December 31: 2004 $ 124,039 * 2005 507,480 2006 513,143 2007 499,008 2008 84,945 -------------------- $ 1,728,615 ==================== * Three month period October 31, 2004 through December 31, 2004 A-12 MEDICAID, MEDICARE AND MANAGED CARE CLAIMS PROCESSING BUSINESS OF VERIZON INFORMATION TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 10. BUSINESS CONCENTRATIONS AND CONTINGENCIES CREDIT RISK. The Claims Processing Business provides services primarily to large not-for profit and commercial corporations, and departmental units of the State of Missouri. 30-day terms are extended for all customers based on their financial condition and collateral is generally not required. CUSTOMER CONCENTRATIONS. The following table discloses the number of customers and their respective percentages of gross accounts receivable as of September 30, 2004, December 31, 2003 and 2002: Number of Percentage of of gross accounts customers receivable ----------------- -------------------- September 30, 2004 3 74.70% December 31, 2003 1 75.43% December 31, 2002 2 71.31% The concentration is mostly related to Medicaid fiscal agent services provided to departmental units of the State of Missouri as well as data processing services for Medicare claims. The maximum amount of loss due to credit risk that, based on the gross accounts receivable, the Claims Processing Business would incur if the customers that make up the concentration failed to perform according to the terms of the contracts is approximately $3,365,000, $6,957,000, and $5,032,000, as of September 30, 2004, and December 31, 2003, and 2002, respectively. For the nine months ended September 30, 2004, two customers accounted for 69.79% of revenues. For the years ended December 31, 2003 and 2002, two customers accounted for 66.82% and 66.26% of revenues, respectively. Although a number of Medicaid and Medicare projects for which the Claims Processing Business is the contractor or subcontractor are planned as multi-year projects, the government normally funds these projects on an annual or more frequent basis. Generally, the government has the right to change the scope of, or terminate, these projects at its convenience. Certain customer contracts require, among other things, the Claims Processing Business to meet certain performance benchmarks as established and defined in the respective contracts, and may provide for penalties in the event contractor standards are not achieved. 11. SUBSEQUENT EVENTS On October 1, 2004, Infocrossing acquired 150 shares of no par value common stock (constituting all of the authorized, issued and outstanding shares of common stock) of VITI from VDSI, for $43,500,000. The acquisition by Infocrossing was partially financed with a non-revolving loan of $24,375,000, in connection with which Infocrossing pledged the stock of VITI, and VITI joined in a Guaranty and Security Agreement executed by all of Infocrossing's subsidiaries to unconditionally guarantee Infocrossing's obligations pursuant to the loan. VITI granted a lien to Infocrossing's lender on substantially all of its assets other than permitted liens as allowed in the loan agreement. Following the purchase VITI's, (the Claims Processing Business'), name was changed to Infocrossing Healthcare Services, Inc. A-13 APPENDIX B UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2004, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004, AND FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION On October 1, 2004, we acquired the Medicaid, Medicare and Managed Care claims processing business (the "Claims Processing Business") of Verizon Information Technologies Inc. ("VITI") from Verizon Communications Inc. (NYSE: VZ). The sale was structured as an acquisition of the common stock of the Claims Processing Business. The purchase price was $43.5 million in cash (the "IHS Acquisition"). Immediately following the closing of the IHS Acquisition, the Claims Processing Business' name was changed to Infocrossing Healthcare Services, Inc. ("IHS"). The IHS Acquisition was pursuant to a Purchase and Sale Agreement, dated as of September 1, 2004, between Verizon Data Services, Inc. (VITI's parent) and us. The IHS Acquisition, as discussed in the Notes to the unaudited pro forma information, resulted in goodwill of $32.4 million. On April 2, 2004, we acquired all of the outstanding capital stock of ITO Acquisition Corporation, a California corporation doing business as Systems Management Specialists ("SMS"), from ITO Holdings, LLC ("Holdings") for approximately $35 million in cash and 135,892 shares of common stock of the Company (the "SMS Acquisition"). The SMS Acquisition was pursuant to a Stock Purchase Agreement, dated as of March 3, 2004 between Holdings and us. In June 2004, we changed SMS' name to Infocrossing West, Inc. The following unaudited condensed combined pro forma balance sheet at September 30, 2004 gives effect to the IHS Acquisition as if it had been completed as of September 30, 2004. The acquisition was accounted for under the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values at the date of the acquisition. The purchase price has been allocated to the assets acquired and the liabilities assumed based upon estimates of their respective fair values, which are subject to adjustment. The following unaudited condensed combined pro forma Statements of Operations for the year ended December 31, 2003 and the nine month period ended September 30, 2004 give effect to the IHS Acquisition and the SMS Acquisition as if they had occurred on January 1, 2003. For the purposes of the pro forma Statements of Operations, we have assumed that, other than the related financings, we had sufficient cash to make the acquisitions. The pro forma information has been prepared by our management. The pro forma information may not be indicative of the results that actually would have occurred had the transactions been in effect on the dates indicated, nor does it purport to indicate the results that may be obtained in the future. The pro forma information should be read in conjunction with the financial statements and notes thereto of the Claims Processing Business appearing as appendix A in this Report and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and our Annual Report on Form 10-K for the year ended December 31, 2003. The pro forma Statements of Operations do not give effect to planned synergies and cost savings. B-1
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 2004 (IN THOUSANDS) INFOCROSSING HEALTHCARE INFOCROSSING, SERVICES, INC. PRO FORMA PRO FORMA INC. (A) (B) ADJUSTMENTS COMBINED ----------------- ----------------- ----------------- ------------------ ASSETS CURRENT ASSETS: Cash, cash equivalents, and restricted cash $ 38,743 $ - $ (19,125) (C) $ 19,618 Trade accounts receivable, net of allowances for doubtful accounts 12,027 9,146 21,173 Prepaid expenses and other current assets 6,040 - 677 (D) 6,717 ----------------- ----------------- ----------------- ------------------ 56,810 9,146 (18,448) 47,508 PROPERTY AND EQUIPMENT, NET 22,666 2,049 - 24,715 ----------------- ----------------- ----------------- ------------------ OTHER ASSETS: Goodwill 77,837 - 32,437 (E) 110,274 Other intangible assets, net 3,573 - 4,073 (F) 7,646 Security deposits and other non-current assets 2,582 - - 2,582 ----------------- ----------------- ----------------- ------------------ 83,992 - 36,510 120,502 ----------------- ----------------- ----------------- ------------------ TOTAL ASSETS $ 163,468 $ 11,195 $ 18,062 $ 192,725 ================= ================= ================= ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,215 $ - $ - $ 6,215 Current portion of long-term debt and capitalized lease obligations 3,628 - - 3,628 Accrued expenses 6,623 1,830 3,052 (G) 11,505 Deferred rent - 112 (112) (H) - Current deferred revenue 1,235 - - 1,235 ----------------- ----------------- ----------------- ------------------ 17,701 1,942 2,940 22,583 LONG-TERM LIABILITIES: Convertible notes 69,511 - - 69,511 Other long-term debt and capitalized lease obligations 6,275 - 24,375 (I) 30,650 Other long-term liabilities 2,260 - - 2,260 ----------------- ----------------- ----------------- ------------------ TOTAL LIABILITIES 95,747 1,942 27,315 125,004 ----------------- ----------------- ----------------- ------------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common Stock 193 - - 193 Additional paid-in capital 144,182 9,253 (9,253) (J) 144,182 Accumulated Deficit (73,516) - - (73,516) ----------------- ----------------- ----------------- ------------------ 70,859 9,253 (9,253) 70,859 Less common stock held in treasury, at cost (3,138) - - (3,138) ----------------- ----------------- ----------------- ------------------ TOTAL STOCKHOLDERS' EQUITY 67,721 9,253 (9,253) 67,721 ----------------- ----------------- ----------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 163,468 $ 11,195 $ 18,062 $ 192,725 ================= ================= ================= ==================
See accompanying notes to unaudited condensed combined pro forma financial information. B-2
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 (IN THOUSANDS, EXCEPT PER SHARE DATA) INFOCROSSING INFOCROSSING, INFOCROSSING HEALTHCARE PRO FORMA INC. (K) WEST, INC (L) SERVICES (M) ADJUSTMENTS PRO FORMA COMBINED ----------------- ------------------ ----------------- ------------------ ------------------- Revenues $ 55,228 $ 36,317 $ 52,015 $ - $ 143,560 --------------- ---------------- --------------- --------------- ----------------- Costs of revenue, excluding depreciation shown below 36,706 36,586 35,464 - 108,756 Selling, general & administrative expenses 8,565 891 3,725 - 13,181 Non-recurring costs: Migration costs - 4,078 - - 4,078 Losses on impairment and abandonment - 1,014 - - 1,014 Voluntary separation incentive plan - - 2,845 - 2,845 Depreciation and amortization 6,061 2,223 298 (262) (N) 8,320 --------------- ---------------- --------------- --------------- ----------------- 51,332 44,792 42,332 (262) 138,194 --------------- ---------------- --------------- --------------- ----------------- Operating income 3,896 (8,475) 9,683 262 5,366 Net interest expense (income) 2,498 205 - 3,454 (O) 6,157 --------------- ---------------- --------------- --------------- ----------------- Income (loss) before income tax expense (benefit) 1,398 (8,680) 9,683 (3,192) (791) Income tax expense (benefit) 42 2 3,656 (3,656) (P) 44 --------------- ---------------- --------------- --------------- ----------------- Net income (loss) 1,356 (8,682) 6,027 464 (835) Accretion and dividends on redeemable preferred stock (6,877) - - - (6,877) --------------- ---------------- --------------- --------------- ----------------- Net income (loss) to common stockholders $ (5,521) $ (8,682) $ 6,027 $ 464 $ (7,712) =============== ================ =============== =============== ================= Basic and diluted net loss to common stockholders per share $ (0.71) $ (0.98) =============== ================= Weighted average common shares outstanding 7,730 136 (Q) 7,866 =============== =============== =================
See accompanying notes to unaudited condensed combined pro forma financial information. B-3
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (IN THOUSANDS, EXCEPT PER SHARE DATA) INFOCROSSING INFOCROSSING, INFOCROSSING, HEALTHCARE PRO FORMA INC. (R) WEST, INC. (S) SERVICES (T) ADJUSTMENTS PRO FORMA COMBINED ----------------- ------------------ ----------------- ------------------ ------------------- Revenues $ 66,232 $ 8,390 $ 36,213 $ - $ 110,835 --------------- ---------------- --------------- --------------- ----------------- Costs of revenue, excluding depreciation shown below 46,303 6,461 23,127 - 75,891 Selling, general & administrative expenses 7,559 2,772 2,831 - 13,162 Depreciation and amortization 5,896 556 531 174 (N) 7,157 --------------- ---------------- --------------- --------------- ----------------- 59,758 9,789 26,489 174 96,210 --------------- ---------------- --------------- --------------- ----------------- Operating income (loss) 6,474 (1,399) 9,724 (174) 14,625 Net interest expense 3,924 102 - 1,838 (O) 5,864 --------------- ---------------- --------------- --------------- ----------------- Income (loss) before income tax expense (benefit) 2,550 (1,501) 9,724 (2,012) 8,761 Income tax expense (benefit) (4) - 3,685 (2,915) (P) 766 --------------- ---------------- --------------- --------------- ----------------- Net income (loss) 2,554 (1,501) 6,039 903 7,995 =============== ================ =============== =============== ================= Basic net income per share $ 0.15 $ 0.46 =============== ================= Weighted average common shares outstanding 17,382 17,382 =============== ================= Diluted net income per share $ 0.13 $ 0.41 =============== ================= Weighted average common shares and equivalents outstanding 19,599 19,599 =============== =================
See accompanying notes to unaudited condensed combined pro forma financial information. B-4 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION (DOLLAR AMOUNTS IN THOUSANDS) On October 1, 2004, we acquired the Medicaid, Medicare and Managed Care claims processing business (the "Claims Processing Business") of Verizon Information Technologies Inc. ("VITI") from Verizon Communications Inc. (NYSE: VZ). The sale was structured as an acquisition of the common stock of the Claims Processing Business. The purchase price was $43.5 million cash (the "IHS Acquisition"). Immediately following the closing of the transaction, the Claims Processing Business' name was changed to Infocrossing Healthcare Services, Inc. ("IHS"). The IHS Acquisition was pursuant to a Purchase and Sale Agreement, dated as of September 1, 2004, between Verizon Data Services, Inc. (VITI's parent) and us. The IHS Acquisition, as discussed in the following Notes, resulted in goodwill of $32,437. The IHS Acquisition was partially financed by borrowing $24,375 on October 1, 2004 from a non-revolving loan facility at an interest rate of Prime plus 3% with a floor of 8.5% maturing on March 15, 2009. The amount borrowed represents the full loan availability under the line. The $625 balance must remain available in the event we are required to fund an Interest Reserve, as defined in the loan agreement. On June 30, 2004, we completed a private offering of $60,000 aggregate principal amount of 4.0% Convertible Senior Notes due July 15, 2024 (the "Notes"). Approximately $40,000 of the net proceeds from this offering were used to repay two 9.0% term loans, including the loan to purchase SMS described below. On July 6, 2004, the initial purchaser exercised its option in full to purchase an additional $12,000 of the Notes. Net proceeds after a discount of $2,520 and approximately $752 of costs and fees were approximately $68,728. Interest on the Notes is payable semi-annually in arrears beginning on January 15, 2005. These Notes are reflected in the balance sheet of Infocrossing, Inc. at September 30, 2004. On April 2, 2004, we acquired all of the outstanding capital stock of ITO Acquisition Corporation, a California corporation doing business as Systems Management Specialists ("SMS"), from ITO Holdings, LLC ("Holdings") for $34,919 in cash and 135,892 shares of our common stock valued at approximately $1,859 (the "SMS Acquisition"). SMS, headquartered in Orange County, California, provides computing operations, business process outsourcing and managed application services to clients primarily located in the western United States. The assets and liabilities of SMS are included in the balance sheet of Infocrossing, Inc. at September 30, 2004. In June 2004, we changed SMS' name to Infocrossing West, Inc. A portion of the funding for the SMS Acquisition was obtained from a loan in the amount of $15,000 at an interest rate of Prime plus 3% with a floor of 9% maturing October 21, 2008. This loan was repaid June 30, 2004 from the proceeds of the Notes as described above. B-5 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) A. Our unaudited condensed consolidated balance sheet as of September 30, 2004, which includes our previously completed SMS Acquisition. B. The unaudited condensed balance sheet of Claims Processing Business as of September 30, 2004. C. To record the cash paid for the IHS Acquisition and proceeds from the related loan. Cash paid for the IHS Acquisition $ (43,500) Proceeds from a loan 24,375 ------------- $ (19,125) ============= D. To record a receivable from the Verizon Data Services, Inc. for certain disbursements of amounts accrued by the Claims Processing Business. E. To record the adjustment to goodwill. Purchase price: Cash $ 43,500 Fees and costs 1,693 $ 45,193 ----------- Tangible assets acquired and liabilities assumed (net of adjustments): Trade accounts receivable $ 9,146 Prepaid expenses and other current assets 677 Property and equipment 2,049 Accrued expenses (1,889) Accrual for purchase related costs (1,300) 8,683 ----------- ---------- 36,510 Less balance allocated to customer lists 4,073 ---------- Total goodwill $ 32,437 ========== F. To record the fair value of the customer list acquired based on a valuation performed by management. B-6 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) G. To record adjustments to accrued expenses. Fees and costs associated with the IHS Acquisition $ 1,693 Accrual for outstanding checks 59 Accrual for redundant leases 1,150 Accrual for severance 150 ------------- $ 3,052 ============= H. To record the elimination of the Claims Processing Business' deferred rent. I. To record borrowing related to the IHS Acquisition. J. To record the elimination of the Claims Processing Business' historical equity. K. Reflects our consolidated condensed statement of operations for the year ended December 31, 2003. L. Reflects the condensed statement of operation of SMS for the year ended December 31, 2003, which includes the operations of the Acxiom Los Angeles Outsourcing Data Center from June 30, 2003, the date SMS acquired certain of the assets, rights, and properties and assumed certain obligations of the Acxiom Los Angeles Outsourcing Data Center from Acxiom Corporation (the "Acxiom Acquisition"). For the purposes of this pro forma statement of operations, the Acxiom Acquisition has been assumed to occur on January 1, 2003. See Amendment No. 1 to our Current Report on Form 8-K/A for the SMS Acquisition filed on June 10, 2004. M. Reflects the condensed statement of operations of the Claims Processing Business for the year ended December 31, 2003. B-7 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) N. Depreciation and amortization expense was adjusted for a reduction in the fair valaue of the SMS customer lists and a reduction in SMS fixed asset fair values as a result of the purchase price allocation, increased customer list amortization expense for six months relating to the assumed Acxiom Acquisition on January 1, 2003 (See Note L), and the additional expense of the amortization of the IHS customer list. Nine Months Year Ended Ended December 31, September 2003 30, 2004 -------------------------- SMS fixed asset depreciation reduction (1) $ (726) $ (181) Amortization of customer list related to the Acxiom Acquisition 90 - SMS customer list amortization reduction (150) (38) Amortization of the IHS customer list (2) 524 393 ---------- --------- $ (262) $ 174 ========== ========= (1) The amounts for the nine months ended September 30, 2004 include SMS and Acxiom adjustments through March 31, 2004. Effective April 1, 2004, SMS and Acxiom are included in our statement of operations. (2) The IHS customer list is being amortized over ten years. O. To record additional interest expense for the loans used for the SMS Acquisition and the IHS Acquisition, and amortization of deferred financing costs. Nine Months Year Ended Ended December 31, September 2003 30, 2004 -------------------------- Interest expense for the SMS loan (9% per annum) (1) $ 1,207 $ 230 Interest expense for the IHS loan (8.5% per annum) 2,101 1,571 Amortization of deferred financing costs (1) 146 37 -------------------------- $ 3,454 $ 1,838 ========================== (1) The amounts for the nine months ended September 30, 2004 include SMS and Acxiom adjustments through March 31, 2004. Effective April 1, 2004, SMS and Acxiom are included in our statement of operations. B-8 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) P. To record adjustments to taxes, including the elimination of the Claims Processing Business provisions in lieu of income taxes. For the nine months ended September 30, 2004, record $770 in income tax expense for the additional pro forma net income contributed by IHS, in excess of the approximately $6,500 of Federal net operating loss carryforwards available to us in 2004. For the year ended December 31, 2003, no additional tax is required due to the loss. At December 31, 2003. we have net operating loss carry-forwards of approximately $37.3 million for Federal income tax purposes that begin to expire in 2019. The use of these net operating loss carry-forwards may be restricted in amount in future years pursuant to Section 382 of the Internal Revenue Code. 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. Q. To record the additional shares issued in connection with the SMS Acquisition. R. Reflects our unaudited condensed consolidated income statement for the nine months ended September 30, 2004, which includes the accounts of SMS after April 1, 2004. S. Reflects the unaudited condensed income statement of SMS for the three months ended March 31, 2004 (through the date of the SMS Acquisition). T. Reflects the audited condensed income statement of the Claims Processing Business for the nine months ended September 30, 2004. B-9 EX-23 2 x23bmdcr.txt CONSENT OF MSWFT Consent of Independent Registered Public Accounting Firm The Board of Directors Infocrossing, Inc.: We consent to the incorporation of our report dated December 10, 2004, with respect to the statements of assets, liabilities, and divisional capital of the Medicaid, Medicare and Managed Care Claims Processing Business of Verizon Information Technologies Inc. as of September 30, 2004, December 31, 2003 and 2002, and the related statements of operations and cash flows for the nine months ended September 30, 2004 and for the years ended December 31, 2003 and 2002 included in Amendment 1 to the Current Report (Form 8-K/A) for the acquisition of the Medicaid, Medicare and Managed Care Claims Processing Business of Verizon Information Technologies Inc. /s/ MOORE STEPHENS WURTH FRAZER AND TORBET, LLP Orange, California December 17, 2004 EX-10 3 x107bihs.txt LUEBKE EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of October 1, 2004 by Michael J. Luebke ("Executive"), and Infocrossing Healthcare Services, Inc., a Delaware corporation (the "Company"). RECITALS WHEREAS, the Company desires to employ Executive and to enter into this Agreement embodying the terms of such employment; and WHEREAS, Executive desires to enter into this Agreement and to accept employment with the Company, subject to the terms and conditions of this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements set forth herein and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, on an at-will basis on the terms and conditions set forth in this Agreement. 2. Position and Duties. (a) Position. During the term of his employment by the Company, Executive shall serve as the President and report directly to the Board of Directors of the Company. (b) Duties. Executive shall have such duties and authority consistent with the position of President as shall be assigned to him from time to time by the Board of Directors. Executive shall devote his full business time, attention, skill and best efforts to the performance of his duties under this Agreement and shall not engage in any other business or occupation while employed by the Company. Notwithstanding the foregoing, nothing herein shall preclude Executive from: (i) engaging in charitable activities and community affairs and (ii) managing his personal investments and affairs; PROVIDED, HOWEVER, that the activities set out in clauses (i) and (ii) shall be limited by Executive so as not to materially interfere, individually or in the aggregate, with the performance of his duties and responsibilities hereunder. 3. Compensation. (a) Base Salary. During the term of Executive's employment, the Company shall pay Executive an annual base salary of $250,000 (the "Annual Base Salary") payable in accordance with the Company's regular payroll practices. The Annual Base Salary shall be reviewed at least annually by the Board of Directors and may be adjusted in the sole discretion of the Board of Directors. (b) Parent Options. Subject and pursuant to the terms and conditions of the Parent's 2002 Stock Option and Stock Appreciation Rights Plan (the "Plan"), the Company agrees to promptly cause to be granted to the Executive the right and option (the "Parent Options") to purchase up to 50,000 shares of common stock of the Parent, par value $.01 per share ("Common Stock"), to be issued as provided in the Plan. All such Parent Options shall be Incentive Stock Options, as defined in Section 422A of the Internal Revenue Code of 1986 (the "Code"), to the extent permissible thereunder. Any Parent Options in excess of the limits of Section 422A of the Code shall be non-qualified stock options having a term of ten (10) years from the date of grant. All Parent Options shall be exercisable at a price equal to the Fair Market Value (as defined in the Plan) on October 1, 2004, the date of grant. Parent Options to purchase 16,666 shares of Common Stock shall vest on October 1, 2004; Parent Options to purchase 16,667 shares of Common Stock shall vest on October 1, 2005; and Parent Options to acquire the remaining 16,667 shares shall vest on October 1, 2006. (c) Performance Bonus. The Company may provide a performance bonus with a target amount of $100K payable at the close of each fiscal year other than the fiscal year ending December 31, 2004. For the fiscal year ending December 31, 2004, The Company's Board of Directors may award Executive a performance bonus in sole and absolute discretion. For subsequent fiscal years, the Board of Directors in conjunction with the Compensation Committee of the Board of Directors of Parent will establish criteria and conditions to be satisfied for Executive to earn the target amount of the performance bonus. The Board of Directors and the Compensation Committee of the Board of Directors of Parent will determine such criteria and conditions in their sole and absolute discretion. Such goals and conditions will be communicated to Executive during the first quarter of the applicable fiscal year. Any performance bonus due to Executive shall be paid to Executive not later than ninety (90) days following the end of the applicable fiscal year. Notwithstanding performance, the Company's Board of Directors may adjust the actual bonus as the Board of Directors deems necessary, in their absolute discretion, in view of the Company's overall financial condition. (d) Additional Compensation. In addition to the Annual Base Salary and the Parent Options, Executive shall receive such additional compensation, bonus pay and additional grants of options to acquire Common Stock as the Board of Directors may award Executive from time to time in the Board's sole and absolute discretion. (e) Withholding. The Company shall deduct and withhold from any compensation payments payable to Executive all social security and other federal, state and local taxes and charges in the minimum amounts (or such greater amounts as Executive may from time to time request) which currently are or which hereafter may be required by law to be so deducted and withheld, including withholding pursuant to bonus withholding rates, as applicable. 4. Benefits; Vacation and Expense Reimbursement. (a) Benefits. During the term of Executive's employment, Executive shall be entitled to participate in all fringe benefits (including without limitation, group medical and dental insurance) and other benefit plans which are available from time to time to executive employees of the Company subject in each case to the generally applicable terms and conditions of the applicable plan or program. The Company agrees to pay Executive the difference between his existing Verizon health plan and the Company's health plan up to an amount equal to the Company's health plan. In addition, the Company shall purchase a disability insurance policy on behalf and for the benefit of Executive pursuant to which Executive shall be eligible to receive annual payments in an amount equal to no less than 60% of the Annual Base Salary in effect at the time Executive is deemed to have become disabled pursuant to Section 6(c) of this Agreement. (b) Vacation; Holidays and Sick Leave. During the term of Executive's employment, Executive shall be entitled to five (5) weeks of paid time off ("PTO") per year under the same terms and conditions as other employees of the Company. In addition, Executive shall be entitled to all paid Company holidays and other benefits as are generally provided to other executives of the Company in accordance with the Company policies in effect from time to time. (c) Expense Reimbursement. Executive shall be authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement and the Company shall reimburse him, in accordance with Company policies and procedures, for all business expenses incurred in connection with carrying out the business of the Company upon presentation of expense statements or such other supporting information as the Company may customarily require of its executives. 5. Confidentiality Agreement. Concurrently with the execution of this Agreement, Executive shall execute the Company's standard Employee Confidentiality and Invention Assignment Agreement (the "Confidentiality Agreement"). 6. Termination of Executive's Employment. (a) Termination of Employment. Executive's employment may be terminated (i) by the Company, at any time, for any reason or for no reason (including, without limitation, due to the Disability (as defined below) of Executive) and (ii) by Executive at any time with or without Good Reason (as defined below). In addition, Executive's employment shall terminate upon the death of Executive. (b) Definitions. (i) Disability. For purposes of this Agreement, a "Disability" shall occur in the event that there is a determination by the Company, upon the advice of an independent qualified physician, reasonably acceptable to Executive, that Executive has become physically or mentally incapable of performing his duties under this Agreement and such disability has disabled Executive, or can reasonably be anticipated to disable Executive, for a cumulative period of one hundred eighty (180) days within a twelve (12) month period. (ii) Good Reason. For purposes this Agreement, "Good Reason" shall mean: (A) the occurrence of any material breach of this Agreement by the Company which remains uncured for a period of more than thirty (30) days after written notice of such breach and of Executive's intention to terminate his employment for "Good Reason" if such breach is not remedied; (B) a failure to pay any amount due hereunder within ten (10) business days following written demand for payment, which demand shall state that Executive intends to resign for Good Reason if such payment is not made within such ten (10) business day period; (C) the assignment to Executive of duties or responsibilities materially inconsistent with Executive's current position, duties or responsibilities sufficient to constitute a substantial diminution of status within the Company which duties or responsibilities are not reassigned within thirty (30) days after written demand from Executive, which demand shall state that Executive intends to resign for Good Reason if such duties and responsibilities are not reassigned; or (D) a relocation of the office of the Company to which Executive is required to report to a location outside of a fifty (50) mile radius of the then existing location of such office or a requirement that Executive relocate his residence from Tampa, Florida. (iii) Change of Control. If there is a change of control, Executive will be entitled to compensation under paragraph 7(a) below, as well as vest in all stock options. 7. Compensation Upon Termination of Employment. (a) Generally. Except as otherwise provided in Section 7(b) and Section 7(c), if the Company terminates Executive's employment for any reason (including, without limitation, as a result of Executive's death or Disability) or Executive terminates his employment for Good Reason, the Company shall: (i) immediately upon such termination, pay to Executive (A) any unpaid Annual Base Salary at the rate then in effect accrued through and including the date of termination and (B) an amount equal to the value of Executive's accumulated PTO; (ii) subject to Section 8(a), pay to Executive a minimum severance of one twelfth of the Annual Base Salary in effect as of the date of the termination of Executive's employment each month after such termination (such monthly payments, the "Monthly Severance Payments"), in accordance with the Company's regular payroll practices and payroll schedule for a period of twelve (12) months (the "Severance Period"); PROVIDED, HOWEVER, that, if Executive enters into an employment or consulting relationship with any other party during the Severance Period, the Monthly Severance Payments shall immediately be reduced by fifty percent (50%) for the remainder of the Severance Period; PROVIDED FURTHER, that, if Executive's employment is terminated as a result of Executive's Disability, the Monthly Severance Payments shall be reduced by the amount, if any, paid to Executive during the Severance Period under any disability insurance policy purchased by the Company on behalf and for the benefit of Executive; Executive will continue to accrue stock options during his entire severance period; and (iii) subject to Section 8(a), make all payments necessary to provide Executive with continuation coverage under the Company's group health plan until the earlier to occur of (A) the expiration of the Severance Period or, (B) in the event Executive enters into an employment or consulting relationship with any other party during the Severance Period, the date on which Executive becomes eligible to participate in the group health plan of such other party. Executive's right to receive the severance benefits described in Section 7(a)(ii) and Section 7(a)(iii) shall be subject to (x) Executive's execution of a full and complete release in favor of the Company and its officers, directors, shareholders and affiliates (and the respective officers, directors and shareholders of such affiliates), in form and substance reasonably acceptable to the Company, releasing the Company and such other parties from any and all claims of Executive in connection with his employment by the Company, and (y) Executive's compliance with the provisions of Section 8 of this Agreement. Except for the salary, PTO and severance payments described in this Section 7(a), the Company shall not be obligated to make any further payments to Executive hereunder. (b) Compensation Upon Termination by Company in Event of Misconduct. In the event that the Company terminates Executive's employment as a result of Misconduct (as defined below), the Company shall, immediately upon such termination, pay to Executive (i) any unpaid Annual Base Salary at the rate then in effect accrued through and including the date of termination and (ii) an amount equal to the value of Executive's accumulated PTO. Upon the payment of the amounts described in the previous sentence, the Company shall not be obligated to make any further payments to Executive hereunder. For purposes of this Section 7(b), "Misconduct" shall mean (1) any act of theft, fraud, embezzlement, falsification of Company or customer documents, misappropriation of funds or other assets of the Company, or other acts of dishonesty or misconduct involving the property or affairs of the Company or the carrying out of Executive's duties; (2) a conviction (by trial, upon a plea or otherwise) or the admission of guilt of any felony or misdemeanor involving moral turpitude or other act of dishonesty, fraud or deceit; or (3) the repeated material violation of any written policy or procedure of the Company. (c) Compensation Upon Termination by Executive Without Good Reason. If Executive terminates his employment without Good Reason, the Company shall, immediately upon such termination, pay to Executive (i) any unpaid Annual Base Salary at the rate then in effect accrued through and including the date of termination and (ii) an amount equal to the value of Executive's accumulated PTO. Upon the payment of the amounts described in the previous sentence, the Company shall not be obligated to make any further payments to Executive hereunder. 8. Non-Competition and Non-Solicitation. (a) Non-Competition. Executive acknowledges that the nature of the Company's business is such that if the Executive were to become employed by, or substantially involved in, the business of a competitor of the Company following the termination of the Executive's employment with the Company, it would be very difficult for Executive not to rely on or use the Company's trade secrets and confidential information. Thus, to avoid the inevitable disclosure of the Company's trade secrets and confidential information, Executive agrees and acknowledges that Executive's right to receive the severance benefits described in Section 7(a)ii and Section 7(a)iii shall be conditioned upon Executive not directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor, principal, partner, major stockholder, corporate officer, director or otherwise), management or control of, any person, firm, corporation or business that competes with the Company's business at the time of termination for a period equal to Executive's severance period. Notwithstanding the foregoing, Executive shall not be prohibited from owning shares of a business that competes with the Company's business if the shares are listed on a national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, and the investment in such shares does not exceed two percent (2%) of the outstanding shares of such class of shares. (b) Non-Solicitation. Executive agrees and acknowledges that, for a period of twelve (12) months after the termination of Executive's employment with the Company for any reason, Executive shall not, either directly or indirectly, personally, or on behalf of or in conjunction with any person or firm, divert or take away any client or customer of the Company or solicit, induce, facilitate, recruit, encourage or cause any employee, consultant, contractor, agent or representative of the Company, to leave their employment or engagement with the Company for any reason. (c) Understanding of Covenants. Executive hereby represents that he: (i) is familiar with the foregoing covenants not to compete and not to solicit; (ii) is fully aware of and agrees specifically to his obligations thereunder, including, without limitation, the reasonableness of the length of time and scope of these covenants: (iii) acknowledges that the remedies set forth herein for violation of such covenants are in addition to any remedies that the Company may have in law or in equity; and (iv) understands that he will also be executing simultaneously with this Agreement, the Confidentiality Agreement and that the obligations set forth in that Agreement are in addition to those set forth in this Section. 9. Remedies. The parties hereto agree that the Company would suffer irreparable harm from a breach by Executive of any of the covenants or agreements contained in Section 8 of this Agreement. Therefore, in the event of the actual or threatened breach by Executive of any of the provisions of Section 8 of this Agreement, the Company may, in addition and supplementary to other rights and remedies existing in its favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violation of the provisions thereof. 10. Representation of Executive. Executive hereby warrants and represents that he is not bound by any other agreement or subject to any other restriction which would either prevent him from entering into this Agreement or from performing his duties as contemplated hereunder. 11. Indemnification. The Company shall, to the maximum extent permitted by the General Corporation Law of the State of California, indemnify Executive and hold Executive harmless from and against any claim, loss or cause of action arising from or out of Executive's performance as an officer or employee of the Company or in any other capacity, including serving as a fiduciary, in which Executive serves at the request of the Company, except for acts or omissions not in good faith or which involve gross negligence, intentional misconduct or a knowing violation of law, for any breach of Executive's duty of loyalty or any other fiduciary duty to the Company, or for any transaction from which Executive derived an improper personal benefit. If any claim is asserted against Executive for which Executive reasonably believes in good faith he is entitled to be indemnified hereunder, the Company shall, at its option, (i) assume the defense thereof; or (ii) pay Executive's reasonable legal expenses (or cause such expenses to be paid), if the Company does not so assume the defense; PROVIDED, HOWEVER that Executive shall reimburse the Company for such amounts if Executive shall be found by a final, non appealable order of a court of competent jurisdiction or any arbitrator or mediator (whose judgment Executive has agreed to be bound by) not to be entitled to indemnification. 12. Arbitration and Equitable Relief. (a) Executive and the Company each agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Orange County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any dispute or claim, without reference to rules of conflict of law. The arbitration proceedings shall be governed by California arbitration law and by the Rules. (c) The Company shall pay the costs and expenses of such arbitration, and each party shall separately pay his or its attorneys' fees and expenses. (d) Executive has read and understands this Section 12. Executive understands that by signing this Agreement, Executive agrees to submit any future claims arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof to binding arbitration, and that this arbitration clause constitutes a waiver of Executive's right to a jury trial and relates to the resolution of all disputes relating to all aspects of the employer/executive relationship, including but not limited to, the following claims: (i) employment; breach of contract, both express and implied; breach of the covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; and defamation; (ii) any and all claims for violation of any federal state or municipal law, regulation, statute or ordinance, including, but not limited to, Title VII of the Civil Rights act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities act of 1990, the Fair Labor Standards Act, the California Fair Employment and Housing Act, and the California Labor Code Section 201, ET SEQ; and (iii) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination. (e) By signing this Agreement, the Company agrees to submit any future claims arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach or termination thereof to binding arbitration, and further agrees that this arbitration clause constitutes a waiver of the Company's right to a jury trial and relates to the resolution of all disputes relating to all aspects of the relationship between the Company and Executive. (f) Adherence to this Section regarding Arbitration shall not limit the right of the parties hereto to obtain any provisional remedy including, without limitation, injunctive or similar relief, from any court of competent jurisdiction as may be necessary to protect their respective rights and interests pending arbitration, particularly if necessary to avoid irreparable harm. 13. Successors and Assigns. This Agreement may not be assigned by Executive; PROVIDED, HOWEVER, that Executive's rights to payments hereunder shall, upon his death, inure to the benefit of Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. This Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company. 14. Modification or Waiver. No provision of this Agreement may be modified, waived, or discharged unless agreed to in writing by both parties hereto. The failure of a party to insist upon strict adherence to any term, condition or other provision of this Agreement shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term, condition or other provision of this Agreement. 15. Notices. All notices or other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or delivered by a recognized delivery service or mailed, postage prepaid, by express, certified or registered mail, return receipt requested, and addressed to the Company or Executive, as applicable, at the address set forth below (or to such other address as shall have been previously provided in accordance with this Paragraph 14): If to the Company: Infocrossing Healthcare Services, Inc. c/o Infocrossing, Inc. 2 Christie Heights Street Leonia, NJ 07605 Attention: General Counsel Fax: (201) 840-7126 If to Executive: Michael J. Leubke 17926 Cachet Isle Drive Tampa, FL 33647 Fax: 813-982-2020 (voice & fax) 16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of Florida without regard to its conflict of laws provisions. 17. Severability. Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or term or the remaining provisions or terms of this Agreement. 18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 19. Entire Agreement. This Agreement and the Confidentiality Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. 20. Acknowledgement of Executive. EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO CONSULT TAX AND LEGAL COUNSEL IN REGARD TO THIS AGREEMENT, THAT HE HAS READ AND UNDERSTANDS THIS AGREEMENT, THAT HE IS FULLY AWARE OF ITS LEGAL EFFECT, AND THAT HE HAS ENTERED INTO IT FREELY AND VOLUNTARILY AND BASED ON HIS OWN JUDGMENT AND NOT ON ANY REPRESENTATIONS, UNDERSTANDINGS, OR PROMISES OTHER THAN THOSE CONTAINED IN THIS AGREEMENT. [Remainder of Page Intentionally Left Blank] [Signature Page to Employment Agreement] IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. EXECUTIVE INFOCROSSING HEALTHCARE SERVICES, INC. /s/ MICHAEL J. LUEBKE By: /s/ ROBERT B. WALLACH - ------------------------------- ---------------------------------- Michael J. Luebke Name: Robert B. Wallach Title: Vice Chairman -----END PRIVACY-ENHANCED MESSAGE-----