-----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, Raq8jgGhPQGAskYNsycyXDUvIeo3wfNkV5BuhnJOy92HQH+hVmvvTfqhyJ6W29vT 71G13JbJelK2UGIcLu18lQ== 0000912057-96-001925.txt : 19960410 0000912057-96-001925.hdr.sgml : 19960410 ACCESSION NUMBER: 0000912057-96-001925 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19960209 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA DIMENSIONS INC CENTRAL INDEX KEY: 0000026990 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 060852458 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-00841 FILM NUMBER: 96514589 BUSINESS ADDRESS: STREET 1: 777 108TH AVENUE NE STREET 2: SUITE 2070 CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 2066881000 MAIL ADDRESS: STREET 1: 777 108TH AVENUE NE SUITE 2070 CITY: BELLEVUE STATE: WA ZIP: 98004 SB-2 1 SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1996 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ DATA DIMENSIONS, INC. (Name of Small Business Issuer as Specified in Its Charter) DELAWARE 7379 06-0852458 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
------------------------ 777 - 108TH AVENUE N.E. BELLEVUE, WASHINGTON 98004 (206) 688-1000 (Address and Telephone Number of Principal Executive Offices) LARRY W. MARTIN CHIEF EXECUTIVE OFFICER AND PRESIDENT 777 - 108TH AVENUE N.E. BELLEVUE, WASHINGTON 98004 (206) 688-1000 (Name, Address and Telephone Number of Agent for Service) ------------------------ COPIES TO: BRUCE A. ROBERTSON MICHAEL J. ERICKSON MICHAEL A. SKINNER LAURA A. BERTIN Garvey, Schubert & Barer Heller, Ehrman, White & McAuliffe 1191 Second Avenue, Suite 1800 6100 Columbia Center - 701 Fifth Avenue Seattle, Washington 98101-2939 Seattle, Washington 98104-7098 (206) 464-3939 (206) 447-0900
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ____________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ____________ If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT (2) PRICE (2) FEE Common Stock, par value $.001 (1)....... 862,500 $6.5625 $5,660,156 $1,951.62 Representative's Warrant to purchase shares of Common Stock................. 75,000 $.001 $75 $0.03 Common Stock, par value $.001, issuable upon exercise of Representative's Warrant................................ 75,000 $7.875 $590,625 $203.64 Total...................................................................................... $2,155.29
(1) Includes 112,500 shares that the Underwriters have the option to purchase solely to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE SHOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1996 PROSPECTUS 750,000 SHARES DATA DIMENSIONS, INC. COMMON STOCK Of the 750,000 shares of Common Stock offered hereby, 678,334 shares are being offered by Data Dimensions, Inc. ("Data Dimensions" or the "Company") and 71,666 shares are being offered by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of shares sold by the Selling Stockholders. See "Principal and Selling Stockholders." The Company's Common Stock is quoted on the over-the-counter market under the symbol "DDIM." The closing bid price for the Common Stock on February 7, 1996, was $7.31 per share (after giving effect to a one-for-three reverse stock split to be effective upon closing of this offering). See "Price Range of Common Stock." The Company has applied to have the Common Stock listed on the Nasdaq SmallCap Market under the symbol "DDIM" effective upon the closing of this offering. ------------------------ THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," BEGINNING ON PAGE 5. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS (2) Per Share....................... $ $ $ $ Total (3)....................... $ $ $ $
(1) Excludes a non-accountable expense allowance payable to Cruttenden Roth Incorporated, representative of the underwriters (the "Representative") and the value of warrants to purchase up to 75,000 shares of Common Stock for an exercise price of 120% of the public offering price to be issued to the Representative (the "Representative's Warrant"). The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses estimated at $434,000, of which approximately $420,000 is payable by the Company and $14,000 is payable by the Selling Stockholders, including the Representative's non-accountable expense allowance and assuming no exercise of the over-allotment option described in Note 3 below. (3) The Company and the Selling Stockholders have granted to the Underwriters a 45-day option to purchase up to 112,500 additional shares of Common Stock on the same terms and conditions as set forth above, solely to cover over-allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are being severally offered by the Underwriters named herein, subject to prior sale, when, as and if delivered and accepted by them, and subject to certain other conditions. The Underwriters reserve the right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that the certificates representing the shares of Common Stock offered hereby will be available for delivery at the offices of the Representative, Irvine, California, on or about , 1996. ------------------------ CRUTTENDEN ROTH INCORPORATED THE DATE OF THIS PROSPECTUS IS , 1996. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT (I) THE OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS HAS NOT BEEN EXERCISED, AND (II) THE ONE-FOR-THREE REVERSE STOCK SPLIT OF THE COMMON STOCK AND ELIMINATION OF THE COMPANY'S PREFERRED STOCK, BOTH TO BE EFFECTIVE UPON THE CLOSING OF THIS OFFERING, HAVE BEEN COMPLETED. SEE "UNDERWRITING," "DESCRIPTION OF CAPITAL STOCK -- REVERSE STOCK SPLIT," AND "DESCRIPTION OF CAPITAL STOCK -- PREFERRED STOCK." THE COMPANY Data Dimensions, Inc. ("Data Dimensions" or the "Company") provides high quality knowledge-based and tool-assisted millennium consulting services. The Company's millennium consulting services are based on its proprietary millennium consulting methodology (the "Millennium Methodology"). This methodology is a documented set of procedures for resolving the widespread problems caused by the inability of computer systems to properly interpret dates for the year 2000 and beyond. Data Dimensions began providing millennium consulting services in 1991 and has specialized in this service since 1993. The Company's clients consist primarily of large business organizations including insurance companies, financial institutions, healthcare providers and public utilities. Data Dimension's experience in analyzing and resolving the millennium problems of business organizations is incorporated in the Millennium Methodology, which enables the Company to develop customized solutions to a client's specific millennium problems. Through the application of the Millennium Methodology, the Company is able to identify, evaluate and select specific software tools that would be most effective in assisting the client with the millennium update process. In addition, during this process the Company gains knowledge about all areas of the client's computer systems, positioning it to provide a broad range of computer consulting services not related to the millennium problem. The millennium consulting industry consists of a wide variety of computer consulting, communications and software companies which offer millennium consulting as part of their services. Data Dimensions is one of a small number of companies which specialize in the millennium consulting business. The industry is expected to grow rapidly as business organizations become aware of the millennium problem and accelerate the pace at which they analyze their computer systems. The Company's strategy is to focus its resources on business organizations that process large volumes of automated transactions involving date computations such as insurance companies, financial institutions, healthcare providers and public utilities. The Company plans to expand both domestically and internationally, and to refine and enhance its proprietary millennium consulting methodology. The Company was incorporated under Delaware law in 1968. The Company's executive offices are located at 777 - 108th Avenue N.E., Bellevue, Washington 98004 and its telephone number is (206) 688-1000. 3 THE OFFERING Common Stock offered by the Company.... 678,334 Common Stock offered by the Selling Stockholders.......................... 71,666 Common Stock to be outstanding after this offering (1)..................... 2,982,488 Use of Proceeds........................ To pay accrued dividends on certain preferred stock and for working capital and general corporate purposes. Nasdaq SmallCap Symbol................. DDIM
- ------------------------ (1) Does not include shares of Common Stock issuable upon exercise of options and warrants outstanding as of the date of this Prospectus, and shares of Common Stock issuable upon exercise of the Representative's Warrant. See "Underwriting." SUMMARY FINANCIAL DATA (IN THOUSANDS EXCEPT SHARE INFORMATION)
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1994 1995 ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Revenue.................................................................... $1,687 $3,360 $6,232 Direct costs............................................................... 1,152 1,980 3,485 ---------- ---------- ---------- Gross margin............................................................... 535 1,380 2,747 General, administrative and selling expenses............................... 795 1,107 2,236 ---------- ---------- ---------- Income from operations..................................................... (260) 273 511 Other expense.............................................................. 110 146 207 ---------- ---------- ---------- Net income (loss).......................................................... $(370) $127 $304 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share................................................ $(0.33) $0.06 $0.12 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding (1).................................. 1,237,821 2,298,821 2,516,932
DECEMBER 31, 1995 ------------------------- ACTUAL AS ADJUSTED(2) --------- -------------- BALANCE SHEET DATA: Working capital (deficit)............................................................... $ (644) $ Total assets............................................................................ 1,804 Total liabilities....................................................................... 2,282 Total stockholders' equity (deficit).................................................... (478)
- ------------------------ (1) Weighted average number of shares of Common Stock and Common Stock equivalents outstanding. (2) Adjusted to give effect to the sale by the Company of 678,334 shares of Common Stock offered hereby at an assumed public offering price of $ per share and the anticipated application of the estimated net proceeds therefrom. See "Use of Proceeds." 4 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY SHARES OF COMMON STOCK OFFERED HEREBY. COMPETITION. The market for millennium consulting services is highly competitive and will become increasingly competitive as the year 2000 approaches. A large number of competing companies engaged in the computer consulting business are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than the Company. Moreover, other than the need for technical expertise, there are no significant proprietary or other barriers to entry in the millennium consulting industry. As a result, there can be no assurance that one of the Company's competitors will not develop a millennium consulting methodology that achieves greater market acceptance than the Company's millennium consulting methodology. Further, there can be no assurance that the Company's resources and marketing strategies will allow the Company to compete successfully in its selected markets. See "Business -- Competition." DECREASE IN MILLENNIUM CONSULTING MARKET AFTER THE YEAR 2000. The Company currently generates substantially all of its revenue from its millennium consulting services, and it expects to continue to do so for the next several years. Although the Company believes that demand for certain millennium consulting services will continue after the year 2000, this demand may diminish significantly. Therefore, the Company plans to pursue opportunities in the computer consulting market that are not related to the millennium problem and develop services to take advantage of those opportunities. The Company intends to use the knowledge obtained in providing its millennium consulting services to address other computer consulting needs of its clients, but there can be no assurance that there will be a market for the Company's computer consulting services after the year 2000 or, if there is a market for the Company's services, that the Company will develop those services sufficiently to compete in that market. The failure to diversify and develop computer consulting services required after the year 2000 could materially and adversely affect the Company's business, results of operations and financial condition. See "Business - -- Strategy -- Position for Post-2000 Market" and "Business -- Company Services - -- Knowledge-Based, Tool-Assisted Consulting." DEPENDENCE ON KEY EXECUTIVE. The Company's past success has depended largely on the efforts of Larry W. Martin, Chief Executive Officer and President of the Company. Mr. Martin is not subject to an employment agreement which would prevent him from leaving the Company or restrict his ability to compete with the Company following the termination of his employment. There can be no assurance that the Company will be able to retain Mr. Martin. Further, the Company does not currently maintain key man life insurance on the life of Mr. Martin. The loss of Mr. Martin could materially and adversely affect the Company's business, operating results and financial condition. See "Management -- Directors and Executive Officers." LIMITED CAPITALIZATION AND POTENTIAL NEED FOR ADDITIONAL WORKING CAPITAL. The Company has reported profits in each of the eight quarters since December 31, 1993. However, as of December 31, 1995, the Company's stockholders' deficit was $478,000 and its working capital deficit was $644,000. Management anticipates that with increased revenue and improved efficiency along with eligible advances available under the Company's factoring agreement, it will be able to fund operations for 1996 and reduce the working capital deficit. The sale of the shares of Common Stock being offered hereby will provide the Company with additional working capital for general use for the next twelve months, but there can be no assurance that the Company will not experience liquidity problems because of adverse market conditions or other unfavorable events. In addition, under the terms of the Company's factoring agreement, the Company may be required to repurchase any receivable sold to the factor that has not been paid within 90 days. To date, the amount of receivables that the Company has been required to repurchase has been insignificant, but there can be no assurance that the Company will not be required to repurchase a significant amount of receivables in the future. Any such repurchase could have a material adverse effect on the Company's liquidity. Further, because of the various business risks described elsewhere in this "Risk Factors" discussion, there can be no assurance that the Company will continue to be profitable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 5 MANAGEMENT OF GROWTH. The Company has experienced significant growth in recent years and intends to pursue rapid growth as part of its business strategy. This growth strategy will require an increase in the number of the Company's personnel, particularly skilled technical, marketing and management personnel. The Company competes with some of the major computer, communications, consulting and software companies, as well as information service departments of major corporations, in seeking to attract qualified personnel. There can be no assurance that the Company will be able to attract and retain the personnel necessary to pursue its growth strategy. Further, the Company will be required to expand, train and manage its employee base. This will require an increase in the level of responsibility for both existing and new management personnel. There can be no assurance that the management skills and systems currently in place will be adequate or that the Company will be able to manage its growth effectively and to assimilate its new employees successfully. Failure to adequately manage the Company's growth could materially and adversely affect the Company's business, operating results and financial condition. See "Business -- Strategy." UNCERTAIN AND UNDEVELOPED MARKET. The world-wide market for millennium consulting services over the next four years has been characterized as a multi-billion dollar market, but this market is only beginning to emerge. Significant expense for sales and marketing may be required to inform the market of the millennium problem and the need for millennium consulting services. There can be no assurance that all segments of the market will understand or acknowledge the millennium problem or appreciate the need for millennium consulting services, or that organizations within the market will devote sufficient resources to obtain the millennium consulting services necessary to address their millennium problems. Further, because this market is relatively new, it is difficult to predict the rate at which this market will grow, if at all. Current and future competitors are likely to introduce a variety of competing services. If the market for millennium consulting services fails to grow, or grows more slowly than anticipated, the Company's business, operating results and financial condition may be materially and adversely affected. See "Business -- Industry Background -- The Millennium Consulting Market." CONCENTRATION OF CLIENTS. During 1995, the Company's largest client accounted for approximately 28% of revenue, the Company's three largest clients accounted for approximately 44% of revenue and the Company's ten largest clients accounted for approximately 72% of revenue. Most of the Company's contracts with its clients are terminable by either party upon written notice. The loss of, or a significant reduction in work orders from, any of the Company's major clients could materially and adversely affect the Company's business, results of operations and financial condition. See "Business -- Clients" POTENTIAL FOR CONTRACT LIABILITY. The Company's millennium consulting services involve key aspects of its clients' computer systems. The Company has never been the subject of a damages claim related to its millennium consulting services. However, any failure in a client's system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. The Company attempts to contractually limit its liability for damages arising from negligent acts, errors, mistakes or omissions in rendering its professional consulting services. Despite this precaution, there can be no assurance that the limitations of liability set forth in its service contracts would be enforceable or would otherwise protect the Company from liability for damages. Additionally, the Company maintains general liability insurance coverage, including coverage for errors or omissions. However, there can be no assurance that such coverage will continue to be available on acceptable terms, or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against the Company that exceed available insurance coverage or changes in the Company's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could materially and adversely affect the Company's business, results of operations and financial condition. LIMITED PROTECTION OF PROPRIETARY RIGHTS. The Company depends in part on its proprietary know-how to differentiate its services from those of its competitors. The Company does not have any patents and relies upon a combination of trade secret, copyright and trademark laws and contractual restrictions to establish and protect its ownership of its millennium consulting methodology. The Company generally enters into non-disclosure and confidentiality agreements with its employees, independent sales representatives, licensees and clients. Despite these precautions, it may be possible for an unauthorized third party to replicate the Company's millennium consulting methodology or to obtain and use information that the Company regards 6 as proprietary. The Company has licensed the use of its millennium consulting methodology to several parties. Although the Company's license agreements contain confidentiality and non-disclosure provisions, there can be no assurance that the licensee will take adequate precautions to protect this methodology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the means used by the Company to protect its millennium consulting methodology will be adequate or that the Company's competitors will not independently develop substantially similar or superior methodologies. See "Business -- Intellectual Property." RISKS OF THIRD PARTY CLAIMS OF INFRINGEMENT. As the number of competitors providing millennium consulting services increases, overlapping methodologies used in such services will become more likely. Although the Company's millennium consulting methodology has never been the subject of an infringement claim, there can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertion of such claims will not result in litigation or that the Company would prevail in such litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on commercially reasonable terms. Furthermore, litigation, regardless of its outcome, could result in substantial cost to the Company and divert management's attention from the Company's operations. Any infringement claim or litigation against the Company could, therefore, materially and adversely affect the Company's business, operating results and financial condition. See "Business - -- Intellectual Property." LACK OF ACTIVE TRADING MARKET; VOLATILITY OF STOCK PRICE. The Company's Common Stock is currently traded on the over-the-counter market. There has not been an active market in this stock. The Company has applied to have its Common Stock listed on the Nasdaq SmallCap Market effective upon the closing of this offering. However, there can be no assurance that an active market for the Common Stock will develop after completion of this offering or, if developed, that it will be sustained. The market price of the Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's operating results, changes in earnings estimates by analysts, announcements of new services offered by the Company or its competitors, developments in the Company's client relationships, general conditions in the computer consulting industry, or other events or factors, including events or factors that may be unrelated to the Company. Further, in recent years, the stock market in general, and the market for shares of stock in technology companies in particular, have experienced extreme price fluctuations. Such extreme market fluctuations could materially and adversely affect the market price of the Common Stock in the future. RISK OF LOW-PRICED STOCKS. The Company has applied to have its Common Stock listed on the Nasdaq SmallCap Market effective upon the closing of this offering. In order to continue to be listed on the Nasdaq SmallCap Market, a company must meet certain financial maintenance criteria. Although the Company currently meets these criteria, there can be no assurance that the Company will continue to do so in the future. Failure to meet these maintenance criteria in the future may result in the delisting of the Common Stock from the Nasdaq SmallCap Market. As a result of such delisting, the Common Stock would be traded on the over-the-counter market, in which case investors may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Common Stock. If the Company's Common Stock were delisted from the Nasdaq SmallCap Market, and the trading price of the Common Stock were less than $5.00 per share, the Common Stock might be considered "penny stock" and trading in the Common Stock might be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934. These rules could adversely affect the ability and willingness of broker-dealers to sell the Common Stock, which could reduce the liquidity of the Common Stock and have a materially adverse effect on the trading market for the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the Company will have 2,982,488 shares of Common Stock outstanding. The Company has also granted options to directors, employees and others to acquire 394,000 shares of Common Stock, subject to certain vesting requirements. Immediately following the completion of this offering, a total of 1,548,072 shares of Common Stock (including the 678,334 shares sold by the Company in this offering) will be freely tradeable without restriction. An additional 543,558 shares of Common Stock will become freely tradeable without restriction after July 31, 1996 upon expiration of lock-up agreements with certain stockholders of the Company. An additional 890,858 shares of Common Stock may be sold subject to the limitations of Rule 144 under the Securities Act, of which 807,358 shares are held by the Company's Chief Executive Officer and President and are subject to a lock-up 7 agreement which expires 180 days after the date of this Prospectus. The possibility that substantial amounts of Common Stock may be sold in the public market would likely have a material adverse effect on prevailing market prices of the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale." BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. A substantial portion of the net proceeds to be received by the Company in connection with this offering are allocated to working capital. Accordingly, management will have broad discretion with respect to the expenditure of such proceeds. Purchasers of shares of Common Stock offered hereby will be entrusting their funds to the Company's management, upon whose judgment they must depend, with limited information concerning management's specific intentions as to the specific working capital requirements to which the funds will be applied. See "Use of Proceeds." OFFICER AND DIRECTOR CONTROL. Upon completion of this offering, the Company's officers and directors will beneficially own approximately 32% of the Company's outstanding Common Stock (approximately 31% if the over-allotment option granted is exercised in full). As a result, although they will not have the ability to control matters requiring approval by the Company's stockholders, they may have the ability to influence how other stockholders will vote on such matters, including the election of directors. See "Principal and Selling Stockholders." ANTI-TAKEOVER EFFECT OF CERTAIN STATUTORY AND CHARTER PROVISIONS. Upon completion of this offering, the Company will be subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, this statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. In addition, certain provisions of the Company's Certificate of Incorporation, as amended, and Amended and Restated Bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. These statutory and charter provisions could have the effect of delaying, deferring or preventing a change in control of the Company and could limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. See "Description of Capital Stock -- Certain Statutory and Charter Provisions Regarding Change of Control." See "Management -- Directors and Executive Officers." FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS. This Prospectus contains certain forward-looking statements, including, among others (i) the potential extent of the millennium problem and the anticipated growth in the millennium consulting market; (ii) anticipated trends in the Company's financial condition and results of operations (including expected changes in the Company's gross margin and general, administrative and selling expenses); (iii) the ability of the Company to decrease its reliance on accounts receivable factoring and to rely on cash generated from operations and the proceeds of this offering to finance its working capital requirements; (iv) the Company's business strategy for expanding its presence in the computer consulting industry (including opening new sales offices, updating its millennium consulting methodology, expanding its licensing arrangements and positioning itself for non-milliennium and post-2000 markets); and (v) the Company's ability to distinguish itself from its current and future competitors. These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. In addition to the other risks described elsewhere in this "Risk Factors" discussion, important factors to consider in evaluating such forward-looking statements include (i) the shortage of reliable market data regarding the millennium consulting market; (ii) changes in external competitive market factors or in the Company's internal budgeting process which might impact trends in the Company's results of operations; (iii) unanticipated working capital or other cash requirements; (iv) changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the millennium update market; and (v) various competitive factors that may prevent the Company from competing successfully in the marketplace. In light of these risks and uncertainties, many of which are described in greater detail elsewhere in this "Risk Factors" discussion, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact transpire. 8 USE OF PROCEEDS The net proceeds to the Company from the sale of the 678,334 shares of Common Stock offered by the Company at the assumed public offering price of $ per share are estimated to be $ ($ if the over-allotment option granted to the Underwriters is exercised in full), after deducting the estimated underwriting discounts and commissions and other estimated offering expenses payable by the Company. The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Stockholders. The Company expects to use the net proceeds (a) to pay accrued dividends on previously outstanding Preferred Stock in the amount of $70,000; and (b) for working capital needs and general corporate purposes. A substantial portion of the net proceeds allocated to working capital will be used to finance accounts receivable growth and decrease the Company's reliance on advances from its factor. The Company's management will have broad discretion with respect to the specific working capital requirements to which the proceeds will be applied. Pending use, the proceeds will be invested in short-term, investment-grade, interest-bearing securities. PRICE RANGE OF COMMON STOCK The Company has applied to have the Common Stock listed on the Nasdaq SmallCap Market, effective upon closing of this offering, under the symbol "DDIM." The stock prices listed below represent the high and low closing bid prices of the Common Stock, as reported in Bloomberg Financial Market Commodities News, a service of Bloomberg L.P. (after giving effect to a one-for-three reverse stock split), for each fiscal quarter beginning with the first fiscal quarter of 1994.
HIGH LOW --------- --------- FISCAL YEAR 1994: First quarter ended March 31, 1994........................................................... $ .75 $ .38 Second quarter ended June 30, 1994........................................................... 2.25 .75 Third quarter ended September 30, 1994....................................................... 3.00 2.25 Fourth quarter ended December 31, 1994....................................................... 2.63 1.50 FISCAL YEAR 1995: First quarter ended March 31, 1995........................................................... 2.63 1.88 Second quarter ended June 30, 1995........................................................... 6.75 2.54 Third quarter ended September 30, 1995....................................................... 4.88 2.25 Fourth quarter ended December 31, 1995....................................................... 10.50 4.31 FISCAL YEAR 1996: First quarter ended March 31, 1996 (through February 7, 1996)................................ 8.63 3.38
On February 7, 1996, the closing bid price of the Common Stock on the over-the-counter market was $7.31 per share. The foregoing quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. As of February 7, 1996, there were approximately 745 holders of record of the Company's Common Stock. DIVIDEND POLICY The Company has never declared or paid cash dividends on its Common Stock. The Company intends to retain earnings, if any, for use in its business and to support growth and does not anticipate paying cash dividends in the foreseeable future. 9 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1995 and as adjusted to reflect the sale by the Company of the 678,334 shares of Common Stock offered hereby at an assumed public offering price of $ per share and the receipt and application of the estimated net proceeds therefrom in accordance with the use anticipated for such proceeds. See "Use of Proceeds."
DECEMBER 31, 1995 -------------------------- ACTUAL AS ADJUSTED (1) --------- --------------- (IN THOUSANDS) Long-term debt....................................................................... $ 0 $ 0 Stockholders' deficit: Common Stock, par value $.001 per share, 20,000,000 shares authorized; 2,304,154 shares issued and outstanding and 2,982,488 shares as adjusted(1)................. 69 Additional paid-in capital......................................................... 1,457 Retained earnings (deficit)........................................................ (2,004) --------- Total stockholders' equity (deficit)............................................. (478) --------- Total capitalization................................................................. $ (478) --------- ---------
- ------------------------------ (1) As adjusted excludes 394,000 shares of Common Stock issuable upon exercise of options outstanding as of December 31, 1995 under the Company's stock option plan, and 75,000 shares of Common Stock issuable upon exercise of the Representative's Warrant. Includes 50,000 shares issuable upon exercise of Common Stock Purchase Warrants expiring on March 5, 1996 and exercisable at $.72 per share. See Note 10 of Notes to Financial Statements. 10 SELECTED FINANCIAL DATA The selected financial data presented below with respect to the Company's statements of operations for each of the three years in the period ended December 31, 1995, and with respect to the Company's balance sheets at December 31, 1994 and 1995, are derived from financial statements of the Company included elsewhere in this Prospectus that have been audited by BDO Seidman, LLP, independent certified public accountants, and are qualified by reference to such financial statements and notes related thereto. The selected financial data with respect to the Company's balance sheet as of December 31, 1993 is derived from the Company's financial statements which were also audited by BDO Seidman, LLP and which are not included herein. The selected financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------------------- 1993 1994 1995 ----------- ----------- ----------- (IN THOUSANDS EXCEPT SHARE INFORMATION) STATEMENT OF OPERATIONS DATA: Revenue.......................................................................... $ 1,687 $ 3,360 $ 6,232 Direct costs..................................................................... 1,152 1,980 3,485 ----------- ----------- ----------- Gross margin..................................................................... 535 1,380 2,747 General, administrative and selling expenses..................................... 795 1,107 2,236 ----------- ----------- ----------- Income (loss) from operations.................................................... (260) 273 511 Other expense.................................................................... $ 110 $ 146 $ 207 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)................................................................ $ (370) $ 127 $ 304 ----------- ----------- ----------- ----------- ----------- ----------- PER SHARE DATA: Net income (loss) per share of Common Stock...................................... $ (0.33) $ 0.06 $ 0.12 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average shares outstanding (1).......................................... 1,237,821 2,298,821 2,516,932
DECEMBER 31, ------------------------------------- 1993 1994 1995 ----------- ----------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital deficit.......................................................... $ (1,284) $ (1,203) $ (644) Total assets..................................................................... 596 972 1,804 Total liabilities................................................................ 1,850 2,100 2,282 Total stockholders' deficit...................................................... (1,255) (1,127) (478)
- ------------------------------ (1) Weighted average number of shares of Common Stock and Common Stock equivalents outstanding. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY. SEE "RISK FACTORS -- FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS." OVERVIEW Data Dimensions provides high quality knowledge-based and tool-assisted millennium consulting services. The Company's millennium consulting services are based on its proprietary millennium consulting methodology. This methodology is a documented set of procedures for resolving the widespread problems caused by the inability of computer systems to properly interpret dates for the year 2000 and beyond. Data Dimensions began providing millennium consulting services in 1991 and has specialized in this service since 1993. The Company's clients consist primarily of large business organizations including insurance companies, financial institutions, healthcare providers and public utilities. The Company sells its services domestically through a direct sales force and independent sales representatives. Approximately 50% of the Company's revenue in 1995 was attributable to direct sales and approximately 44% was attributable to the Company's independent sales representatives. Internationally, the Company has licensed the right to use its millennium consulting methodology to four computer firms located in Canada, United Kingdom, Finland and Israel. Approximately 6% of the Company's revenue in 1995 consisted of royalty and license fees pursuant to license agreements with these consulting firms. In December 1995, the Company transferred an employee to the United Kingdom to pursue the growing international millennium market. Reported revenue consists of billable hours for services rendered by its technical consultants multiplied by contract rates and is recognized at the time services are performed. During 1995, the Company sold its services to approximately 50 clients. The Company also receives royalty income from its licensees, which is recognized as services are rendered by the licensee. Direct costs consist primarily of salaries, benefits and unreimbursed travel expenses directly related to consulting services rendered by the Company. Additionally, since the sales staff is compensated solely based on a percentage of revenue, commissions earned are included in direct costs. Gross margin can vary from period to period based upon the number of billable staff, the number of working days in a period and the number of hours worked per day. In addition, gross margins will depend on the amount of international licensing royalties relative to domestic sales and the number of clients in each phase of the millennium update process. The number of technical consultants employed by the Company is expected to increase in 1996. General, administrative and selling expenses consist primarily of the salaries of the Company's administrative personnel and benefits, travel, promotion and public relations, office expense and other general overhead. With increased growth, the Company expects these expenses to increase in absolute terms but decrease as a percentage of revenue. Other expense consists primarily of finance charges relating to the Company's factored accounts receivable. The Company has net operating loss carryforwards for federal and state income tax purposes and, accordingly, paid no income taxes for 1993, 1994 and 1995. At December 31, 1995, the Company had federal and state net operating loss carryforwards of $3,820,000 and $1,028,000, respectively. Accordingly, the Company does not anticipate paying income taxes for 1996. The Company has provided a 100% valuation allowance on its deferred tax asset of $1,412,000 at December 31, 1995 because management could not determine that it was more likely than not that it would be realized. 12 RESULTS OF OPERATIONS The following table sets forth certain financial data for the periods indicated as a percentage of revenue.
YEAR ENDED DECEMBER 31, ------------------------------------- 1993 1994 1995 ----------- ----------- ----------- Revenue....................................................... 100.0% 100.0% 100.0% Direct costs.................................................. 68.3% 58.9% 55.9% ----- ----- ----- Gross margin.................................................. 31.7% 41.1% 44.1% General, administrative and selling expenses.................. 47.1% 33.0% 35.9% ----- ----- ----- Income (loss) from operations................................. (15.4)% 8.1% 8.2% Other expense................................................. 6.5% 4.3% 3.3% ----- ----- ----- Net income (loss)............................................. (21.9)% 3.8% 4.9% ----- ----- ----- ----- ----- -----
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994 Revenue for the year ended December 31, 1995 was $6,232,000, compared to $3,360,000 in 1994, an increase of $2,872,000 or 85.5%. This increase was the result of an increase in demand for millennium consulting services, the effectiveness of the Company's increased marketing efforts and expanding awareness of the millennium problem which resulted in an increase in the Company's client base. During 1995, the Company's client base grew from approximately 14 clients to approximately 50 clients. Royalty income of approximately $400,000 also contributed to the increase in 1995 revenues. Gross margin for the year ended December 31, 1995 was $2,747,000, compared to $1,380,000 in 1994, an increase of $1,367,000 or 99.1%. Gross margin as a percentage of revenue was 44.1% in 1995 as compared to 41.1% in 1994. This increase in percentage was primarily a result of an increase in the amount of royalty income as a percentage of revenue and an increase in technical staff productivity. Productivity can vary from period to period based upon the number of hours worked per period and the actual contracted billing rates. The Company's technical staff is paid a salary; however, clients are charged a time-based rate. Additionally, during 1995, the number of clients in the planning phase, which the Company bills at higher rates than the implementation phase, increased over 1994, further positively impacting margins. The mix of clients in various phases of the millennium update process is expected to impact gross margin in the next 12 months. General, administrative and selling expenses for the year ended December 31, 1995 were $2,236,000, compared to $1,107,000 in 1994, an increase of $1,129,000 or 102%. The increase was related to the addition of support staff and the hiring of a chief financial officer in the second and third quarters of 1995. At the end of the third quarter, the Company reorganized its domestic operations into three regions and incurred related personnel and lease expenses in order to support future growth. General, administrative and selling expenses as a percentage of revenue increased from 33% in 1994 to 36% in 1995. Although the Company expects general, administrative and selling expenses to increase in absolute terms, these expenses are expected to stabilize or decline slightly as a percentage of revenue. Other expense for the year ended December 31, 1995 was $207,000, compared to $146,000 in 1994, an increase of $60,000 or 41.8%. The increase was attributable to the increase in the volume of accounts receivable factored and the related finance charges. This expense is expected to decrease as the Company factors fewer receivables going forward. Net income for the year ended December 31, 1995 was $304,000, compared to $127,000 in 1994, an increase of $177,000 or 140%. COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993 Revenue for the year ended December 31, 1994 was $3,360,000, compared to $1,687,000 in 1993, an increase of $1,673,000 or 99.2%. The increase was primarily the result of the effectiveness of the Company's marketing efforts and expanding awareness of the millennium problem which resulted in an increase in the Company's client base from approximately three clients in 1993 to approximately 14 clients in 1994. 13 Gross margin for the year ended December 31, 1994 was $1,380,000, compared to $535,000 in 1993, an increase of $845,000 or 158%. Gross margin as a percentage of revenue was 41.1% in 1994 as compared to 31.7% in 1993. The increase in the percentage was the result of an increase in technical staff productivity and a change in the mix of clients in the various stages of the millennium update process. The implementation phase generally has a lower gross margin than the pilot or planning phase. General, administrative and selling expenses for the year ended December 31, 1994 were $1,107,000, compared to $795,000 in 1993, an increase of $312,000 or 39.2%. General, administrative and selling expenses as a percentage of revenue decreased from 47.1% in 1994 to 33.0% in 1993. The Company was not required to significantly increase its administrative support personnel and related expenses in response to higher revenue in 1994. Other expense for the year ended December 31, 1994 was $146,000, compared to $110,000 in 1993, an increase of $36,000 or 32.7%. The increase was attributable to an increase in the volume of factored accounts receivable and the related finance charges. Net income for the year ended December 31, 1994 was $127,000, compared to a net loss of $370,000 in 1993, an increase of $497,000. QUARTERLY RESULTS OF OPERATIONS The following table presents certain unaudited financial data for each of the eight quarters in the period beginning January 1, 1994 and ended December 31, 1995. In the opinion of management of the Company, this information has been prepared on the same basis as the audited financial information appearing elsewhere in this Prospectus and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. The operating results for any quarter are not necessarily indicative of results for any future periods.
1994 QUARTER ENDED 1995 QUARTER ENDED -------------------------------------------------- ------------------------ MARCH 31 JUNE 30 SEPT 30 DEC 31 MARCH 31 JUNE 30 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT PER SHARE INFORMATION) Revenue..................................... $ 736 $ 827 $ 851 $ 946 $ 1,038 $ 1,348 Direct costs................................ 423 479 503 575 632 814 ----------- ----------- ----------- ----------- ----------- ----------- Gross margin................................ 313 348 348 371 406 534 General, administrative and selling expenses................................... 242 277 302 286 331 369 ----------- ----------- ----------- ----------- ----------- ----------- Income from operations...................... 71 71 46 85 75 165 Other expense............................... 36 36 36 38 51 57 ----------- ----------- ----------- ----------- ----------- ----------- Net income.................................. $ 35 $ 35 $ 10 $ 47 $ 24 $ 108 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income per share........................ $ .02 $ .02 $ .00 $ .02 $ .01 $ .04 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average shares outstanding (1)..... 2,200 2,200 2,200 2,300 2,300 2,400 SEPT 30 DEC 31 ----------- ----------- Revenue..................................... $ 1,524 $ 2,322 Direct costs................................ 860 1,179 ----------- ----------- Gross margin................................ 664 1,143 General, administrative and selling expenses................................... 558 978 ----------- ----------- Income from operations...................... 106 165 Other expense............................... 50 49 ----------- ----------- Net income.................................. $ 56 $ 116 ----------- ----------- ----------- ----------- Net income per share........................ $ .02 $ .05 ----------- ----------- ----------- ----------- Weighted average shares outstanding (1)..... 2,500 2,500
- -------------------------- (1) Weighted average number of shares of Common Stock and Common Stock equivalents outstanding. LIQUIDITY AND CAPITAL RESOURCES The Company has experienced significant growth since 1993, with its revenue growing from $1,687,000 in 1993 to $6,232,000 in 1995. During this period, the Company has financed its cash requirements primarily through factoring its accounts receivable and obtaining advance payments for services to be rendered to certain clients. In August 1995, the Company raised gross proceeds of $300,000 in a private placement of the Company's common stock. Net proceeds from the sale of such shares were used for the Company's general working capital needs. At December 31, 1995, the Company had advances of $823,659 under a factoring agreement. Advances are limited to 90% of receivables purchased by the factor. A 10% reserve is established upon the purchase of 14 a receivable. In addition, the Company is required to repurchase from the factor any receivable that has not been paid within ninety days of the invoice date. Obligations under the factoring agreement are secured by all Company assets. The agreement provides for a finance charge equal to 2% per month of the average daily account balance outstanding. The finance charge is deducted from the established reserve. The Company has recorded a reserve for uncollectible accounts receivable of $2,500 as at December 31, 1994 and 1995. Bad debt was insignificant in 1993, 1994 and 1995. At December 31, 1995, the Company had a working capital deficit of $644,000. This deficit is compared to a deficit of $1,203,000 at December 31, 1994, representing a reduction in the Company's working capital deficit of $559,000. This reduction was primarily the result of a $754,000 increase in accounts receivable resulting from higher sales. The Company has no significant commitments for capital expenditures nor does it anticipate entering into any such commitments in 1996. The Company intends to rely on cash generated from operations and the proceeds from this offering to finance its working capital requirements for the next twelve months. The proceeds from this offering should reduce future borrowings under its factoring agreement. In addition, the Company expects to reduce or eliminate its reliance on factoring through traditional financing arrangements, such as a revolving bank credit facility. There can be no assurance, however, that the Company will be able to obtain such bank financing on terms it finds acceptable. To the extent that such amounts are insufficient to finance the Company's working capital requirements, the Company will be required to raise additional funds through equity or debt financing. No assurance can be given that such financing will be available on terms acceptable to the Company, and, if available, such financing may result in further dilution to the Company's stockholders and higher interest expense. During October 1995, the Financial Accounting Standards Board issued Statement No. 123 "Accounting for Stock Based Compensation," which establishes a fair value based method of accounting for stock-based compensation plans and requires additional disclosures for those companies who elect not to adopt the new method of accounting. While the Company studies the impact of the pronouncement, it continues to account for employee stock options under APB Opinion No. 23 "Accounting for Stock Issued to Employees." SFAS No. 123 will be effective for fiscal years beginning after December 15, 1995. COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994 Net cash provided by (used in) operating activities was $(357,600) in 1995 and $252,000 in 1994. An increase in accounts receivable and a decrease in advance billings resulted in the decrease in cash provided by operations. This decrease was partially offset by the increase in 1995 net income over 1994 as well as increases in accounts payable and accrued expenses. Net cash used in investing activities was $160,200 in 1995 and $187,800 in 1994, a decrease of $27,600. The decrease in the amount of cash used in investing activities was attributable to a decrease in cash advanced to an officer and was partially offset by an increase in purchases of equipment and furniture. Net cash provided by (used in) financing activities was $540,600 in 1995 and $(63,100) for 1994. The increase in cash provided by financing activities was due primarily to an increase in advances under the factoring agreement and the proceeds of a private placement. The increase was partially offset by the repayment of notes payable to officers. COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993 Net cash provided by (used in) operating activities was $252,000 in 1994 and $(126,200) in 1993. Net income in 1994 and an increase in advance billings and accrued compensation and commissions contributed to the increase. A decrease in accounts payable and accrued payroll taxes and an increase in accounts receivable partially offset the increase. Net cash used in investing activities was $(187,800) in 1994 and $0 in 1993. The decrease in cash during 1994 was due to an increase in advances to an officer and purchases of equipment and furniture. The cash provided by (used in) financing activities was $(63,100) in 1994 and $167,200 in 1993. The decrease in cash provided by financing activities in 1994 was due to repayments of notes payable to officers which were partially offset by an increase in borrowings under the factoring agreement. 15 BUSINESS THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY. SEE "RISK FACTORS -- FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS." INTRODUCTION Data Dimensions, Inc. ("Data Dimensions" or the "Company") provides high quality knowledge-based and tool-assisted millennium consulting services. The Company's millennium consulting services are based on its proprietary millennium consulting methodology (the "Millennium Methodology"). This methodology is a documented set of procedures for resolving the widespread problems caused by the inability of computer systems to properly interpret dates for the year 2000 and beyond. Data Dimensions began providing millennium consulting services in 1991 and has specialized in this service since 1993. The Company's clients consist primarily of large business organizations including insurance companies, financial institutions, healthcare providers and public utilities. The Company was incorporated under Delaware law in 1968. Data Dimension's experience in analyzing and resolving the millennium problems of business organizations is incorporated in the Millennium Methodology, which enables the Company to develop customized solutions to a client's specific millennium problems. Through the application of the Millennium Methodolgy, the Company is able to identify, evaluate and select specific software tools that would be most effective in assisting the client with the millennium update process. In addition, during this process the Company gains knowledge about all areas of the client's computer systems, positioning it to provide a broad range of computer consulting services not related to the millennium problem. INDUSTRY BACKGROUND THE MILLENNIUM PROBLEM. For several decades, computer programs and programmers have encoded years using a two-digit format (e.g., "96" for "1996"). Many of the computer programs using two-digit date codes to perform computations or decision-making functions will fail due to an inability to properly interpret dates in the 21st century. For example, some computers will misinterpret "00" to mean the year 1900 rather than 2000. These "date-dependent" programs are prevalent in the computer systems used by most companies, including the following: SOFTWARE. Software applications that will be potentially affected by the millennium problem include those performing interest computations, actuarial determinations, financial forecasting and scheduling, human resource planning and inventory maintenance. Moreover, any change made to applications software may require a corresponding change to the data used by that software, which can involve analysis of millions of lines of records contained in an organization's database. In addition, the software portion of an operating system, as well as any of the utilities used by the operating system, such as sorts, communications and language processing may contain date-dependent programs. HARDWARE. Date-dependent functions are routinely incorporated into hardware systems. For example, computer chips found in the operating systems utilized by PCs and mainframes currently include date processing functions. Additionally, the operating systems of some older mainframes will be rendered inoperable due to their inability to interpret dates for the year 2000. EMBEDDED SYSTEMS. Date-dependent programs are often embedded in devices typically not associated with an organization's computers, such as its security, power control, automated conveyor and telephone systems. In addition, such programs are found in many automated teller machines. Because of the extensive automation within most large organizations, resolving the millennium problem may be essential for continuation of critical business functions. In addition to problems arising in its own systems, an organization may be indirectly affected by the date-dependent computer programs and databases used by other organizations. For example, an organization's vendors may have software applications that are directly integrated with the organization's information processing applications and job-streams. THE MILLENNIUM CONSULTING MARKET. The millennium consulting market consists of those aspects of the millennium problem that cannot be resolved by in-house information services personnel. Although the world-wide market for millennium consulting services over the next four years has been characterized as a 16 multi-billion dollar market, the Company believes most organizations will initially attempt to resolve the millennium problem internally. However, due to budget constraints, as well as limitations on resources and expertise, it is likely that a substantial portion of the millennium update process will be outsourced to consulting firms such as the Company. THE DATA DIMENSIONS APPROACH As part of Data Dimensions' "total solutions" approach, the Millennium Methodology is designed to resolve all aspects of a client's millennium problem. The Company determines the effect of the millennium problem on a client's applications software, systems software and hardware and also identifies devices used by a client which contain embedded systems potentially affected by the millennium problem. In addition, the Company interfaces with a client's software vendors to determine the extent to which those vendors are taking responsibility for updating their products, analyzes the millennium problems of the client's vendors and the impact that the client's millennium conversion may have on its customers, vendors and regulators. The Company has established relationships with a number of different software tool developers and vendors in the millennium consulting industry, but is not contractually or otherwise affiliated with any particular software tool vendor. These relationships enable the Company to increase its knowledge concerning the millennium problem and keep abreast of related technical developments that might benefit its clients. In addition, the Company's independence from a particular vendor allows it to offer clients an objective assessment of the strengths and weaknesses of the various software tools currently on the market, and to choose those tools that are best suited for the client's specific millennium conversion requirements. STRATEGY -- MILLENNIUM CONSULTING SERVICES The Company's objective is to expand its position in the computer consulting industry by providing its clients with high quality knowledge-based, tool-assisted computer consulting services, specializing in millennium consulting services. The Company's strategy includes the following key elements: FOCUS ON SPECIFIC INDUSTRIES. The Company will continue to concentrate its resources on business organizations that process large volumes of automated transactions involving date computations, such as insurance companies, financial institutions, healthcare providers and public utilities. The Company believes that these organizations are most likely to be aware of and affected by the millennium problem and are also able to commit substantial resources to finding a solution. EXPAND DOMESTIC COVERAGE. The Company intends to open several new sales and consulting offices in various cities throughout the United States to enhance its accessibility and responsiveness to clients. The Company also will increase the size of its direct sales force and technical staff to meet anticipated market growth. REFINE MILLENNIUM METHODOLOGY. The Company's strategy is to continuously update and refine the Millennium Methodology to incorporate the Company's expanding knowledge base. As part of this process, the Company will continue to test proprietary software tools which are specifically designed to address the unique millennium problems of each of its clients. EXPAND INTERNATIONAL COVERAGE. The Company will continue to pursue strategic opportunities to expand its international presence by licensing the Millennium Methodology to leading computer consulting firms in specifically targeted countries in Europe and the Pacific Rim. The Company believes that these licensing arrangements provide growth potential due to the higher gross margin associated with licensing. In addition, such arrangements will enable the Company to service multinational clients and increase market awareness of the Company's services. STRATEGY -- POSITION FOR POST-2000 MARKET The Company intends to utilize the knowledge and relationships obtained through its millennium consulting services to implement a long-term strategy of providing a full line of computer consulting services to its current and future customers. The Company believes that demand for millennium consulting services 17 will diminish after the year 2000 and intends to mitigate this by positioning itself to provide computer consulting services for projects not related to the millennium problem. For example, clients may require expansion of data fields for zip-codes, branch information and currency fields. COMPANY SERVICES THE MILLENNIUM CONSULTING SERVICE. The Company's millennium consulting service is based on the Millennium Methodology, which consists of three separate phases: planning, pilot and implementation. These phases are offered either individually or together as part of the Company's "total-solutions" approach to resolving a client's millennium problems. PLANNING PHASE. Working with an executive task force composed of a client's information service professionals, finance personnel and key users, the Company takes an inventory of the client's entire applications software portfolio, identifies date-dependent applications and determines the earliest point in the future that these applications will fail. The Company also identifies computer hardware and embedded systems that may be affected by the millennium problem and analyzes the impact of millennium conversion on the client's date-sensitive products, vendor relationships and regulatory environment. Based on this inventory and analysis, the Company determines which design modifications, code revisions and other measures are needed and prepares an initial cost estimate. The typical client is in the planning phase for two to three months. PILOT PHASE. In this phase, the Company tests various software tools on a sample of the applications software identified in the planning phase to determine which tools are best suited to automate or assist with the actual conversion process and to create a stable environment for that process. The Company tests tools already owned by the client, tools currently available in the millennium consulting market and tools developed by the Company specifically for the client. The Company also offers training in the use of these tools for the client's information services personnel. The typical client is in the pilot phase for two to three months. IMPLEMENTATION PHASE. Implementation involves the actual conversion of the code and data contained in a client's operating systems, applications software and related databases in accordance with the specifications determined in the previous phases. During this phase, the Company modifies the code, creates programs to change the data, and builds bridges between changed data and unchanged code. All of this is "unit tested" to ensure that specific functions continue to perform, "string tested" to ensure that all program components required in a process function together, and "system tested" to ensure that system functions within an application are working properly and data bridges are performing correctly. The Company then moves the changed code into the production environment and physically changes the data. Finally, the Company monitors the conversion for a period of time sufficient to confirm that the conversion was successful. The Company estimates that the typical client will be in the implementation phase in excess of two years. TOOL ASSESSMENT. In conjunction with its millennium consulting services, the Company evaluates, analyzes and selects software tools designed to automate or assist with each phase of its millennium consulting service. The Company maintains working relationships with many software tool developers and vendors involved in the millennium conversion business. The Company maintains these relationships to increase its knowledge of the millennium problem and to stay abreast of technical developments. As a result, the Company is able to objectively evaluate the strengths and weaknesses of the various software tools currently on the market. The Company offers tool assessment as part of each phase of the millennium conversion process and as a separate service. KNOWLEDGE-BASED, TOOL-ASSISTED CONSULTING. Although the Company currently generates substantially all of its revenue from its millennium consulting services, the Company intends to develop a broad range of knowledge-based, tool-assisted consulting services not related to the millennium problem. The Company believes that its clients will delay certain data processing projects unrelated to the millennium problem until their millennium problems are resolved. In providing its millennium consulting services, the Company obtains an in-depth understanding of a client's computer systems and business. The Company believes that, 18 as a result of its client-specific knowledge base and its experience in tool-assisted consulting, it will be well-positioned to take advantage of the anticipated backlog of data processing projects which are not related to the millennium problem. SALES AND MARKETING The Company's marketing strategy is to maintain an image as a provider of high quality computer consulting services. The Company focuses its marketing efforts primarily on large business organizations including insurance companies, financial institutions, healthcare providers and public utilities. As part of its marketing strategy, the Company strives to be one of the leading sources of reliable information on the millennium problem and technical consulting industry. To implement this strategy, the Company distributes its quarterly MILLENNIUM JOURNAL to over 10,000 information service professionals within its target market. In addition, the Company's employees frequently participate in technical roundtables and conferences, thus increasing the Company's industry presence and name recognition. Finally, the Company believes that its international licensing arrangements will increase market awareness of its services and allow it to attract multinational clients. The Company currently maintains a direct sales force and a network of independent sales representatives to market its millennium consulting services. The Company relies on its sales force and independent sales representatives to generate new clients as well as to pursue potential leads. To this end, the Company's sales force and representatives are encouraged to engage in direct marketing techniques including visits to businesses within the Company's target market. In addition, the sales force and representatives respond to requests for proposals and follow up on client referrals and leads resulting from technical roundtables and conferences. The Company carefully selects and reviews the members of its sales force and sales representatives. These parties generally enter into agreements with the Company that govern the terms under which they market the Company's services. Such agreements define an approved territory and typically contain one-year terms. CLIENTS The Company's clients consist primarily of business organizations that process large volumes of automated transactions involving date computations, such as insurance companies, financial institutions, healthcare providers and public utilities. The Company's clients include the following organizations:
FINANCIAL INSURANCE COMPANIES INSTITUTIONS HEALTHCARE PROVIDERS PUBLIC UTILITIES OTHER - --------------------- --------------------- --------------------- --------------------- --------------------- Allendale Mutual Insurance Company Bank of Boston Blue Cross/Blue Northeast Utilities ARCO Home Savings of Shield Alabama Ohio Edison Clorox America Blue Cross/Blue Southern UNISYS CIGNA NationsBank Shield Nebraska California Massachusetts Kaiser Edison Company Mutual Permanente
During 1995, the Company provided services to approximately 50 clients. In 1995, the Company's largest client accounted for approximately 28% of revenue, the Company's three largest clients accounted for approximately 44% of revenue and the Company's ten largest clients accounted for approximately 72% of revenue. INTELLECTUAL PROPERTY The Company's intellectual property primarily consists of the Millennium Methodology. The Company does not have any patents and relies upon a combination of trade secret, copyright and trademark laws and contractual restrictions to establish and protect its ownership of the Millennium Methodology. The Company generally enters into non-disclosure and confidentiality agreements with its employees, independent sales representatives, licensees and clients. Despite these precautions, it may be possible for an unauthorized third party to replicate the Millennium Methodology or to obtain and use information that the Company regards as proprietary. 19 The Company has licensed the use of the Millennium Methodology to four computer consulting firms located in Canada, the United Kingdom, Finland and Israel. Although the Company's license agreements with these consulting firms contain confidentiality and non-disclosure provisions, there can be no assurance that the licensee will take adequate precautions to protect the Millennium Methodology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the means used by the Company to protect the Millennium Methodology will be adequate or that the Company's competitors will not independently develop substantially similar or superior methodologies. As the number of competitors providing millennium consulting services increases, overlapping methodologies used in such services will become more likely. Although the Millennium Methodology has never been the subject of an infringement claim, there can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertion of such claims will not result in litigation or that the Company would prevail in such litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on commercially reasonable terms. Furthermore, litigation, regardless of its outcome, could result in substantial cost to, and diversion of effort by, the Company. Any infringement claim or litigation against the Company could, therefore, materially and adversely affect the Company's business, operating results and financial condition. COMPETITION The market for millennium consulting services is highly competitive and will become increasingly competitive as the year 2000 approaches. The primary competitive factors in the millennium consulting industry are price, service, and, most importantly, the expertise and experience of the personnel provided to clients and the ability of such personnel to provide the skills and knowledge necessary to solve data processing problems. The Company believes that its "total solutions" approach to the millennium problem and its experience in providing millennium consulting services distinguish its services from those of its competitors. The principal competitors within the millennium consulting industry are ISSC (a subsidiary of IBM), a joint venture between Coopers & Lybrand and Viasoft, Inc., Computer Horizons Corp. and Cap Gemini America, Inc. Some of the Company's competitors are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than the Company. Moreover, other than the need for technical expertise, there are no significant proprietary or other barriers to entry in the millennium consulting industry. As a result, there can be no assurance that one of the Company's competitors will not develop a millennium consulting methodology which achieves greater market acceptance than the Millennium Methodology. EMPLOYEES As of January 31, 1996, the Company employed 82 full-time employees, including 59 technical consultants, six employees in direct sales and 17 employees in administration and support. None of the Company's employees is represented by a labor union, and the Company has never experienced a work stoppage. The Company considers its relations with its employees to be good. FACILITIES The Company maintains its headquarters in a leased facility in Bellevue, Washington. The lease on this space will expire in June, 1997. In addition, the Company maintains leased office space for its direct sales personnel located in Walnut Creek, California; Joliet, Illinois; Wayland, Massachusetts; Dallas, Texas; and Oxford, United Kingdom. Other than the lease for the Company's headquarters, none of the Company's leases have terms in excess of one year. The Company believes its facilities are in good condition. 20 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the directors and executive officers of the Company is set forth below. Larry W. Martin 59 Chairman of the Board, Chief Executive Officer, President and Director (Class II, exp. 1998) William H. Parsons 63 Executive Vice President, Chief Financial Officer, Secretary, Treasurer and Director (Class III, exp. 1997) Thomas W. Fife 70 Director (Class I, exp. 1996) Richard A. Bergeon 50 Vice President, Technical Services
The Company intends to identify and elect one or more additional independent, unaffiliated directors and designate an audit committee in 1996. LARRY W. MARTIN has been Chief Executive Officer, President and a Director of the Company from June 1990 to the present. In addition, Mr. Martin has been Chairman of the Board of the Company since February 1996. Mr. Martin served as Vice President of Marketing for Manager Software Products, Inc., from 1989 until joining Data Dimensions, Inc. From 1987 to 1989, Mr. Martin served as President and Chief Executive Officer of MicroMain Software, Inc., which produced application generator products. WILLIAM H. PARSONS has been Chief Financial Officer, Executive Vice President, Secretary and Treasurer of the Company since April 1995 and a Director of the Company since June 1994. Mr. Parsons was the Executive Director and Chief Operating Officer of Rubin and Rudman, a mid-size law firm located in Boston, Massachusetts from 1986 to 1995. He has spent over thirty-five years directly involved in business operations as chief financial officer in several industries. THOMAS W. FIFE has been a Director of the Company since June 1995. Mr. Fife also is the co-founder and Chairman of the Board of VoiceCom Systems, Inc. Mr. Fife was Chief Executive Officer of VoiceCom Systems, Inc. from 1984 through 1993, and has served as Chairman of the Board of Directors from June 1993 to the present. He continues to serve as an active member of the VoiceCom Systems, Inc. senior management staff. He also serves as a Director of Application Resources, Inc. headquartered in San Francisco, California. RICHARD BERGEON joined the Company in August 1994 and has been Vice President of Technical Services of the Company since February 1996. From March 1994 until joining the Company, Mr. Bergeon was a Vice President of Essentialists, Inc., a data processing consulting firm. From 1992 to 1994, Mr. Bergeon was a named principal of Bergeon, Fu & Assoc., a computer consulting firm which he co-founded. From 1989 to 1992, Mr. Bergeon was a Vice President of Security Pacific Automation Company, a systems development and maintenance firm. His responsibilities at Security Pacific included internal computer consulting and technical training. The Company's Board of Directors is divided into three classes, with staggered three year terms. Each class consists of one director. Officers serve at the discretion of the Company's Board of Directors. No family relationship exists between any directors or executive officers of the Company. COMPENSATION OF DIRECTORS The Company currently pays $500 per Board meeting attended to each director who is not an employee of the Company. All directors are entitled to reimbursement for expenses incurred in traveling to and from meetings of the Company's Board of Directors. On June 20, 1995, Mr. Fife was granted an option under the Company's 1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock Option Plan to purchase up to 3,333 shares of Common Stock at an exercise price of $4.50 per share. 21 COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth all compensation paid or accrued during the three fiscal years ended December 31, 1995 for the Chief Executive Officer and each executive officer of the Company whose total annual salary and bonuses determined as at December 31, 1995 exceeded $100,000 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------- COMPENSATION SECURITIES NAME AND ------------- UNDERLYING PRINCIPAL POSITION YEAR SALARY OPTIONS(#) - -------------------------------------------- --------- ------------- ------------- Larry W. Martin, CEO and President.......... 1995 $ 406,057 0 1994 395,300 0 1993 148,800 0 William H. Parsons, CFO (1)................. 1995 110,565 99,999 1994 0 0 1993 0 0 Richard A. Bergeon, Vice President (2)...... 1995 103,461 8,333 1994 36,538 0 1993 0 0
- ------------------------------ (1) Mr. Parson's employment with the Company commenced in April 1995. (2) Mr. Bergeon's employment with the Company commenced in August 1994. The following table sets forth all individual grants of stock options made by the Company during the fiscal year ended December 31, 1995 to each of the Named Executive Officers. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
NUMBER OF PERCENT OF TOTAL SECURITIES OPTIONS GRANTED TO EXERCISE OR UNDERLYING OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION NAME GRANTED (#) YEAR (1) ($/SHARE) DATE - ---------------------------------------- ------------------- ------------------- ------------- ------------ Larry W. Martin......................... 0 0 N/A N/A William H. Parsons...................... 49,166 31% $ 2.61 4/17/2005 17,500 11% 4.50 6/20/2005 33,333 20% 5.63 12/26/2005 Richard A. Bergeon...................... 8,333 5% 2.61 1/26/2005
- ------------------------------ (1) Based on stock options representing an aggregate of 160,333 shares of Common Stock granted to employees during the fiscal year ended December 31, 1995. The following table sets forth information, on an aggregated basis, concerning each exercise of stock options during the fiscal year ended December 31, 1995 by each of the Named Executive Officers and the fiscal year-end value of unexercised options. 22 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES FY-END (#) FY-END ($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE - ---------------------------------------- ------------- --------- ---------------- -------------------- Larry W. Martin......................... 26,666 $ 33,600 190,000/0 $ 196,900/0 William H. Parsons...................... 0 0 20,000/80,000 67,080/327,495 Richard A. Bergeon...................... 0 0 3,333/5,000 8,700/13,050
CERTAIN TRANSACTIONS In 1992, Larry W. Martin, the Company's Chief Executive Officer and President, made a demand loan to the Company in the amount of $300,000 bearing interest at prime plus three percent. At December 1994, the principal and accrued interest owing on this loan was $132,500. In February and August 1994, the Company made two loans to Mr. Martin in the amount of $65,000 and $50,000, respectively, each bearing interest at 11% and each payable upon demand. At December 31, 1994, the aggregate principal and accrued interest owing on these loans was $123,800. In January 1995, Mr. Martin's loan to the Company was offset against the Company's loans to Mr. Martin, leaving a balance of $6,859 owing to Mr. Martin. This balance was offset in partial payment of the exercise price of stock options exercised by Mr. Martin in May 1995. In 1995, the Company made a non-interest bearing demand loan to Mr. Martin in the amount of $35,000. This loan will be paid in full upon completion of this offering by offsetting it against the accrued dividends on the Preferred Stock payable to Mr. Martin. In 1995, the Company made payments to two former officers and directors of the Company in the total amount of $111,000. These payments discharged a note payable and accrued consulting fees for services provided in 1992, 1993 and 1994 following the termination of their employment with the Company. 23 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock, as of February 7, 1996, and as adjusted to reflect the sale of the 678,334 shares of Common Stock offered hereby, with respect to (i) each person known by the Company to own beneficially more than 5% of the Common Stock; (ii) each of the Company's directors; (iii) each of the Named Executive Officers; (iv) each Selling Stockholder; and (v) all directors and executive officers of the Company as a group. This table assumes that the over-allotment option granted to the Underwriters has not been exercised and excludes 75,000 shares of Common Stock issuable upon exercise of the Representative's Warrant. See "Underwriting."
SHARES OF COMMON STOCK BENEFICIALLY SHARES OF COMMON OWNED PRIOR TO STOCK BENEFICIALLY OFFERING SHARES TO OWNED AFTER OFFERING ------------------------------ BE SOLD IN --------------------------- NAME AND ADDRESS (1) NUMBER PERCENT OFFERING NUMBER PERCENT - ----------------------------------------- ----------------- ----------- ----------- -------------- ----------- Larry W. Martin (2) ..................... 1,030,692 41.32% 33,334 997,358 31.44% 777 - 108th Avenue N.E. Suite 2070 Bellevue, Washington 98004 Bay Partners IV (3) ..................... 321,661 13.79 0 321,661 10.68 10600 North DeAnza, #100 Cupertino, California 95014 R&W Ventures II (4)(5) .................. 210,603 9.06 0 210,603 7.02 3000 Sand Hill Road Building 2, #175 Menlo Park, California 94025 Rogers Family Trust (4) ................. 33,333 1.45 0 33,333 1.12 3000 Sand Hill Road Building 2, #175 Menlo Park, California 94025 California BP IV L.P. (6) ............... 27,960 1.21 0 27,960 * 10600 North DeAnza, #100 Cupertino, California 95014 William H. Parsons (7) .................. 23,500 1.01 0 23,500 * 777 - 108th Avenue N.E. Suite 2070 Bellevue, Washington 98004 Thomas W. Fife (8) ...................... 666 * 0 666 * 777 - 108th Avenue N.E. Suite 2300 Bellevue, Washington 98004 Richard A. Bergeon (9) .................. 6,666 * 0 6,666 * 777 - 108th Avenue N.E. Suite 2300 Bellevue, Washington 98004 P.R. Zaykowski & Co. L.P................. 8,333 * 8,333 0 * Donald J. Willfong....................... 45,453 1.97 8,333 37,120 1.24 Doyle R. McCravey........................ 8,333 * 6,667 1,666 * All Directors and Officers as a group (4 persons) (10)........................... 1,061,524 42.15 33,334 1,028,190 32.17
- ------------------------ * Represents less than 1% of the total issued and outstanding shares of Common Stock. 24 (1) Except as otherwise indicated, the stockholders identified in this table have sole voting and investment power with regard to the shares shown as beneficially owned by them. (2) Includes 3,000 shares held by Mr. Martin's wife. Also includes 190,000 shares subject to options exercisable within 60 days of February 7, 1996. (3) Includes 28,111 shares issuable upon exercise of warrants expiring March 5, 1996. (4) Roy L. Rogers controls voting and disposition power over all shares beneficially owned by R&W Ventures II and Rogers Family Trust, as General Partner and Trustee, respectively, thereof. (5) Includes 19,444 shares issuable upon exercise of warrants expiring March 5, 1996. (6) Includes 2,444 shares issuable upon exercise of warrants expiring March 5, 1996. (7) Includes 1,667 shares held by Mr. Parson's wife. Also includes 20,000 shares subject to options exercisable within 60 days of February 7, 1996. (8) Includes 666 shares subject to options exercisable within 60 days of February 7, 1996. (9) Includes 3,333 shares subject to options exercisable within 60 days of February 7, 1996. (10) Includes 213,999 shares subject to options exercisable within 60 days of February 7, 1996. 25 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The Company has 20,000,000 authorized shares of Common Stock, of which 2,304,154 shares were issued and outstanding as of February 7, 1996. Holders of the Common Stock are entitled to one vote per share on all matters requiring stockholder action. The Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), does not permit cumulative voting for the election of directors. Holders of Common Stock have no preemptive or other subscription rights and there are no redemption, sinking fund or conversion privileges applicable thereto. Holders of the Common Stock are entitled to receive dividends as and when declared by the Company's Board of Directors out of funds legally available therefor. See "Dividend Policy." Upon liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities. All outstanding shares of the Common Stock are, and all shares to be issued and sold by the Company in this offering will be, fully paid and non-assessable. REVERSE STOCK SPLIT At a special meeting to be held on February 16, 1996, the Company's stockholders will be asked to approve, subject to the closing of this offering, an amendment to its Certificate of Incorporation to give effect to a one-for-three reverse stock split of the Common Stock. As a result of the one-for-three reverse stock split, each three shares of the Company's Common Stock, par value $.01 per share, outstanding immediately prior to closing of this offering will be exchanged for one share of Common Stock, par value $.001 per share. Purchasers in this offering will receive shares of Common Stock, which shares will not be subject to the reverse stock split. PREFERRED STOCK The Company has 3,000,000 authorized shares of Series A Preferred Stock, par value $.01 per share (the "Preferred Stock"), 2,800,000 shares of which have been converted to Common Stock and are no longer issuable. At a special meeting to be held on February 16, 1996, the Company's stockholders have been asked to approve, subject to the closing of this offering, an amendment to its Certificate of Incorporation to eliminate authorization of the Preferred Stock. REGISTRATION RIGHTS OF CERTAIN HOLDERS Upon the completion of this offering, the holders of 76,667 shares of Common Stock (the "Registrable Securities") or their transferees are entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement between the Company and the holders of the Registrable Securities. If the Company registers any of its Common Stock either for its own account or for the account of other security holders, the holders of Registrable Securities are entitled to include their shares of Common Stock in the registration, subject to the ability of the underwriters to limit the number of shares included in the registration to not more than 10% of the offering. All registration expenses must be borne by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the sale of shares in connection with any registration shall be borne by the holders of the securities registered pro rata on the basis of the number of shares of such securities being registered. REPRESENTATIVE'S WARRANT For a description of the warrant to be sold to the Representative in connection with this offering, see "Underwriting." CERTAIN STATUTORY AND CHARTER PROVISIONS REGARDING LIMITATIONS OF LIABILITY OF DIRECTORS As permitted by the Delaware General Corporation Law, the Company's Certificate of Incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director except liability for (i) breaches of the duty of loyalty to the Company or its stockholders, (ii) acts or omissions in bad faith or involving intentional misconduct or knowing violations of 26 law, (iii) a violation of Section 174 of the Delaware General Corporation Law (including the payment of unlawful dividends or unlawful stock purchases or redemptions), or (iv) transactions in which a director receives an improper personal benefit. The Company's Certificate of Incorporation further provides that, if the Delaware General Corporation Law is amended to authorize the elimination or limitation of director liability which is greater than therein provided, then the liability of a director of the Company will be eliminated or limited to the fullest extent permitted by such law, as so amended. CERTAIN STATUTORY AND CHARTER PROVISIONS REGARDING CHANGE IN CONTROL Upon completion of this offering, the Company will be subject to Section 203 of the Delaware General Corporation Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt of the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. The Company's Certificate of Incorporation includes a provision which requires the affirmative vote of the holders of 66 2/3% of the shares of the "Public Stock" for the adoption or authorization of any "Business Combination," for the amendment or repeal of the section of the Company's Bylaws which fixes the number of directors constituting the Company's board of directors, and for the repeal or amendment of this supermajority voting provision. "Public Stock" is defined in the Company's Certificate of Incorporation as stock of the Company entitled to vote on any business combination other than such stock held by a "Controlling Stockholder." A "Controlling Stockholder" is any person, firm or corporation which is, or at any time has been, or which together with certain described affiliates or associates is, or at any time has been, the beneficial owner of 30% or more of the Company's voting stock. A Controlling Stockholder is deemed to beneficially own shares of stock in the Company which it has the right to acquire pursuant to an agreement, or upon exercise of conversion rights, warrants or options, or otherwise. "Business Combination" is defined in the Company's Certificate of Incorporation as any merger or consolidation of the Company with or into any other corporation, any exchange of shares of the Company's voting stock for securities or obligations of, another corporation, a sale or lease of all or substantially all of the property and assets of the Company to any person, firm or corporation, or a sale or lease to the Company or any subsidiary of the Company of any assets having an aggregate fair market value of more than $2 million in exchange for securities of the 27 Company. The Company's Certificate of Incorporation further provides that a majority of the Company's directors has the power to determine whether any person is a Controlling Stockholder and whether assets being acquired by the Company in exchange for its securities have an aggregate fair market value greater than $2 million. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's securities is American Stock Transfer and Trust Company. 28 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering and, after giving effect to a one-for-three reverse stock split of the Common Stock, there will be 2,982,488 shares of Common Stock outstanding. Immediately following the completion of this offering, a total of 1,548,072 shares of Common Stock (including the 678,334 shares sold by the Company in this offering) will be freely tradeable without restriction, An additional 543,558 shares of Common Stock will become freely tradeable without restriction after July 31, 1996 upon expiration of lock-up agreements with certain stockholders of the Company. An additional 890,858 shares of Common Stock may be sold subject to the limitations of Rule 144 under the Securities Act, of which 807,358 shares are held by the Company's Chief Executive Officer and President and are subject to a lock-up agreement which expires 180 days after the date of this Prospectus. In general, under Rule 144 a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least two years, including persons who may be deemed to be affiliates of the Company, would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of then-outstanding shares of Common Stock or the average weekly trading volume in the Common Stock as reported by Nasdaq during the four calendar weeks preceding such sale. Sales pursuant to Rule 144 also are subject to certain other requirements relating to the manner of sale, notice and availability of current public information about the Company. Affiliates may publicly sell shares not constituting restricted securities under Rule 144 in accordance with the foregoing volume limitations and other restrictions but without regard to the two-year holding period. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding a sale by such person, and who has beneficially owned restricted shares for at least three years, would be entitled to sell such shares under Rule 144 without regard to any of the limitations described above. No prediction can be made as to the effect, if any, that future sales of shares or the availability of shares for future sale will have on the prevailing market price of the Common Stock. Sales of substantial amounts of Common Stock of the Company in the public market or the perception that such sales might occur, could adversely affect the prevailing market price of the Common Stock. 29 UNDERWRITING The Underwriters named below, acting through Cruttenden Roth Incorporated (the "Representative"), have agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock set forth opposite their respective names in the table below:
NUMBER UNDERWRITERS OF SHARES - --------------------------------------------------------------------------------- ---------- Cruttenden Roth Incorporated..................................................... ---------- Total........................................................................ 750,000 ---------- ----------
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent. The nature of the Underwriters' obligation is that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Underwriters, for whom Cruttenden Roth Incorporated is acting as Representative (the "Representative"), that the Underwriters propose initially to offer the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and to certian dealers (which may include Underwriters) at such public offering price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may reallow, a discount not to exceed $ per share in sales to certain other dealers. After the offering to the public, the public offering price and concessions and discounts may be changed by the Representatives of the Underwriters. The Company granted to the Underwriters an option, exercisable not later than 45 days after the date of this Prospectus, to purchase up to an additional 112,500 shares of Common Stock, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the table above bears to the number of shares of Common Stock offered hereby, and the Company will be obligated pursuant to the option to sell such shares to the Underwriters. The Underwriters may exercise the option only for the purposes of covering over-allotments, if any, made in connection with the distribution of the shares of Common Stock to the public. The Company has agreed to pay the Representative a non-accountable expense allowance of three percent of the offering proceeds, which will include proceeds from the over-allotment option, if exercised. The Representative's expenses in excess of the non-accountable expense allowance, including its legal expenses, will be borne by the Representative. The Representative has informed the Company that the Underwriters do not intend to confirm sales of shares of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. All of the Company's current directors and officers, who will own an aggregate of 814,191 shares of Common Stock upon completion of this offering, have agreed not to sell, offer to sell, contract to sell or otherwise dispose of any of their shares of Common Stock or any other security convertible into or exchangeable for, or options or warrants to purchase or acquire, shares of Common Stock without the prior written consent of the Representative prior to July 31, 1996 or, in the case of Larry W. Martin, the Company's Chief Executive Officer and President, prior to 180 days after the date of this Prospectus. See "Shares Eligible for Future Sale." In addition, the Company has agreed not to sell, issue, contract to sell, offer to sell 30 or otherwise dispose of any shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock without the prior written consent of Cruttenden Roth Incorporated during the same period. The Company has agreed to sell to the Representative, for nominal consideration, a warrant to purchase from the Company up to 75,000 shares of Common Stock at an exercise price per share equal to 120% of the offering price (the "Representative's Warrant"). The Representative's Warrant is exercisable for a period of four years beginning one year from the date of this Prospectus, and is not transferable for a period of one year except to officers of the Representative or to any successor to the Representative. The Representative's Warrant includes a net exercise provision permitting the holder(s) to pay the exercise price by cancellation of a number of shares with a fair market value equal to the exercise price of the Representative's Warrant. The Representative's Warrant and the shares of the Common Stock issuable upon exercise of the Representative's Warrant are being registered together with the Common Stock offered hereby. In addition, the Company has granted certain other registration rights to the holders of the Representative's Warrant. The foregoing sets forth the material terms and conditions of the Underwriting Agreement, but does not purport to be a complete statement of the terms and conditions thereof, copies of which are on file at the offices of the Representative, the Company and the Commission. See "Available Information." LEGAL MATTERS The law firm of Garvey, Schubert & Barer, Seattle, Washington has acted as counsel to the Company in connection with this offering and will render an opinion as to the legality of the shares of Common Stock being offered hereby. Heller, Ehrman, White & McAuliffe, Seattle, Washington, has acted as counsel to the Underwriters in connection with certain legal matters relating to this offering. EXPERTS The financial statements included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such requests given upon the authority of said firm as experts in auditing and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements, and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company has filed with the Commission a registration statement (the "Registration Statement") with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes part of the Registration Statement, does not contain all of the information contained in the Registration Statement and the exhibits thereto. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement, including the exhibits thereto, which may be examined without charge at, and copies of all or part of which may be obtained at prescribed rates from, the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each statement being qualified in all respects by such reference. 31 DATA DIMENSIONS, INC. INDEX TO FINANCIAL STATEMENTS
PAGE --------- Report of Independent Certified Public Accountants......................................................... F-2 Balance Sheets............................................................................................. F-3 Statements of Operations................................................................................... F-4 Statements of Stockholders' Deficit........................................................................ F-5 Statements of Cash Flows................................................................................... F-6 Notes to Financial Statements.............................................................................. F-7
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Data Dimensions, Inc. We have audited the accompanying balance sheets of Data Dimensions, Inc. as of December 31, 1994 and 1995, and the related statements of operations, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 Data Dimensions, Inc. as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Seattle, Washington January 22, 1996 F-2 DATA DIMENSIONS, INC. BALANCE SHEETS ASSETS
DECEMBER 31, ---------------------------- 1994 1995 ------------- ------------- Current assets Cash.............................................................................. $ 42,100 $ 64,800 Accounts receivable, less allowance for doubtful accounts of $2,500 in 1994 and 1995............................................................................. 695,000 1,448,600 Due from officer.................................................................. 123,800 35,000 Prepaid and other assets.......................................................... 36,000 89,600 ------------- ------------- Total current assets............................................................ 896,900 1,638,000 ------------- ------------- Equipment and furniture Computers and equipment........................................................... 120,700 222,300 Furniture......................................................................... 11,500 15,800 Leasehold improvements............................................................ 7,000 21,500 ------------- ------------- 139,200 259,600 Less accumulated depreciation....................................................... 63,900 93,300 ------------- ------------- Equipment and furniture, net........................................................ 75,300 166,300 ------------- ------------- $ 972,200 $ 1,804,300 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Advance billings.................................................................. $ 829,100 $ 654,800 Advances from factor.............................................................. 510,500 823,700 Accrued compensation.............................................................. 115,700 221,300 Accounts payable.................................................................. 57,600 211,400 Accrued payroll taxes............................................................. 169,800 121,300 Accrued commissions............................................................... 80,500 142,500 Dividends payable................................................................. 70,000 70,000 Accrued expenses.................................................................. 55,400 37,300 Notes and other payables to officers.............................................. 211,000 -- ------------- ------------- Total current liabilities....................................................... 2,099,600 2,282,300 ------------- ------------- Stockholders' deficit Series A preferred stock; $.01 par value; 200,000 shares authorized; none issued........................................................................... -- -- Common stock; $.01 par value; 20,000,000 shares authorized; 6,515,464 and 6,912,464 shares issued.......................................................... 65,200 69,200 Capital in excess of par value.................................................... 1,115,800 1,456,900 Accumulated deficit............................................................... (2,308,400) (2,004,100) ------------- ------------- Total stockholders' deficit..................................................... (1,127,400) (478,000) ------------- ------------- $ 972,200 $ 1,804,300 ------------- ------------- ------------- -------------
See accompanying notes to financial statements. F-3 DATA DIMENSIONS, INC. STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1995 1993 ------------ ------------ ------------ (RESTATED) Revenue................................................................. $ 1,686,500 $ 3,359,800 $ 6,231,600 Direct costs............................................................ 1,151,700 1,980,000 3,484,700 ------------ ------------ ------------ Gross margin............................................................ 534,800 1,379,800 2,746,900 General, administrative and selling expenses............................ 794,700 1,107,200 2,235,800 ------------ ------------ ------------ Income (loss) from operations........................................... (259,900) 272,600 511,100 ------------ ------------ ------------ Other (income) expense Interest.............................................................. 109,700 152,600 205,900 Other................................................................. -- (6,900) 900 ------------ ------------ ------------ Total other expense................................................. 109,700 145,700 206,800 ------------ ------------ ------------ Net income (loss)....................................................... $ (369,600) $ 126,900 $ 304,300 ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) per share............................................. $ (.10) $ .02 $ .04 Weighted average number of common shares and common stock equivalents outstanding............................................................ 3,713,464 6,896,464 7,550,797 ------------ ------------ ------------ ------------ ------------ ------------ Pro forma -- unaudited Net income (loss) per share........................................... $ (.33) $ .06 $ .12 Shares used in computation of pro forma net income (loss) per share... 1,237,821 2,298,821 2,516,932
See accompanying notes to financial statements. F-4 DATA DIMENSIONS, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT
NUMBER OF NUMBER OF CAPITAL IN PREFERRED PREFERRED COMMON COMMON EXCESS OF ACCUMULATED SHARES STOCK SHARES STOCK PAR VALUE DEFICIT TOTAL ----------- --------- ---------- ----------- ----------- ------------ ------------ Balance, January 1, 1993............ 2,800,000 $ 28,000 3,713,464 $ 37,100 $ 1,115,400 $ (2,030,700) $ (850,200) Dividends........................... -- -- -- -- -- (35,000) (35,000) Net loss restated................... -- -- -- -- -- (369,600) (369,600) ----------- --------- ---------- ----------- ----------- ------------ ------------ Balance, December 31, 1995.......... 2,800,000 $ 28,000 3,713,464 $ 37,100 $ 1,115,400 $ (2,435,300) $ (1,254,800) Conversion of preferred stock to common stock....................... (2,800,000) (28,000) 2,800,000 28,000 -- -- -- Issuance of common stock............ -- -- 2,000 100 400 -- 500 Net income.......................... -- -- -- -- -- 126,900 126,900 ----------- --------- ---------- ----------- ----------- ------------ ------------ Balance, December 31, 1994.......... -- -- 6,515,464 65,200 1,115,800 (2,308,400) (1,127,400) Issuance of common stock............ -- -- 397,000 4,000 341,100 -- 345,100 Net income.......................... -- -- -- -- -- 304,300 304,300 ----------- --------- ---------- ----------- ----------- ------------ ------------ Balance, December 31, 1995.......... -- $ -- 6,912,464 $ 69,200 $ 1,456,900 $ (2,004,100) $ (478,000) ----------- --------- ---------- ----------- ----------- ------------ ------------ ----------- --------- ---------- ----------- ----------- ------------ ------------
See accompanying notes to financial statements. F-5 DATA DIMENSIONS, INC. STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH
YEARS ENDED DECEMBER 31, ------------------------------------- 1994 1995 1993 ----------- ----------- ----------- (RESTATED) Cash flows from operating activities Net income (loss)......................................................... $ (369,600) $ 126,900 $ 304,300 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................................... 15,100 15,900 32,900 Loss on disposition of assets........................................... -- 1,900 1,300 Provision for bad debts................................................. 4,769 1,800 -- Changes in assets and liabilities: Accounts receivables.................................................... (261,769) (168,700) (753,600) Prepaid and other assets................................................ 30,400 (38,600) (53,600) Advance billings........................................................ 399,200 429,900 (174,300) Accounts payable........................................................ (68,600) (56,100) 153,800 Accrued compensation.................................................... (29,600) 35,700 105,600 Accrued commissions..................................................... -- 80,500 62,000 Accrued payroll taxes................................................... 113,300 (164,600) (48,500) Accrued expenses........................................................ 40,600 (12,600) 12,500 ----------- ----------- ----------- Net cash provided by (used in) operating activities......................... (126,200) 252,000 (357,600) ----------- ----------- ----------- Cash flows from investing activities Purchases of equipment and furniture...................................... -- (64,000) (125,200) Advances to officer....................................................... -- (123,800) (35,000) ----------- ----------- ----------- Net cash used in investing activities....................................... -- (187,800) (160,200) ----------- ----------- ----------- Cash flows from financing activities Decrease in checks issued against future deposits......................... (25,800) -- -- Decrease in line-of-credit................................................ (27,900) -- -- Repayment of notes payable to officers.................................... -- (236,000) (111,000) Proceeds from notes and other payables to officers........................ 53,500 32,000 -- Increase in advances from factor.......................................... 167,400 140,400 313,200 Issuance of common stock.................................................. -- 500 338,300 ----------- ----------- ----------- Net cash provided by (used in) financing activities......................... 167,200 (63,100) 540,500 ----------- ----------- ----------- Net increase in cash........................................................ 41,000 1,100 22,700 Cash, beginning of year..................................................... -- 41,000 42,100 ----------- ----------- ----------- Cash, end of year........................................................... $ 41,000 $ 42,100 $ 64,800 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes to financial statements. F-6 DATA DIMENSIONS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES NATURE OF BUSINESS AND SIGNIFICANT CUSTOMERS Data Dimensions, Inc. (the Company) provides millennium conversion computer consulting services to customers located throughout the United States, Canada and Europe. The Company is incorporated in the state of Delaware. In fiscal years 1993, 1994 and 1995, sales to several major customers exceeding 10% of total revenue were: 1993 -- three customers accounted for 12%, 17% and 21% of revenue, 50% in the aggregate; 1994 -- three customers accounted for 10%, 11% and 49% of revenue, 70% in the aggregate; and 1995 -- one customer accounted for 28%. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. EQUIPMENT AND FURNITURE Equipment and furniture are stated at cost and are depreciated using the straight-line method over estimated useful lives of 5 years. Leasehold improvements are amortized over the lesser of the lease term, or useful lives. Repairs and maintenance expenditures which do not extend productive life are expensed as incurred. REVENUE RECOGNITION Revenue is recognized based on hours incurred, extended at contract rates. Advance billings are provided for by certain contracts and will be recognized as revenue when the related services are performed. NET INCOME (LOSS) PER SHARE Net loss per share for 1993 is computed by dividing net loss plus the Series A preferred stock dividends by the weighted average number of common shares outstanding. Net income per share for 1994 and 1995 is computed by dividing net income by the weighted average number of common shares. The Company's outstanding options and warrants are considered to be common stock equivalents in calculating primary earnings per share. Fully diluted earnings per share is equivalent to primary earnings per share. INCOME TAXES Deferred taxes are provided for temporary differences in the basis of assets and liabilities for book and tax purposes. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded. RECLASSIFICATION Certain balances have been reclassified in the 1994 financial statements to conform with the 1995 presentation. NOTE 2 -- LIQUIDITY AND CAPITAL RESOURCES The Company has reported net income of $304,300 in 1995, however, as of December 31, 1995, has a working capital deficit of $644,300. The Company's 1996 operating plan has been developed to improve operating efficiency and increase sales by broadening its revenue base. Management anticipates that with increased revenues and improved efficiency along with advances available under the Company's factoring agreement, it will be able to fund operations for 1996 and reduce the working capital deficit. Although the Company believes its 1996 operating plan will be adequate to meet its working capital needs, there can be no assurance that the Company will not experience liquidity problems because of adverse market conditions or other unfavorable events. F-7 DATA DIMENSIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company has commenced an offering of approximately 2,000,000 shares of its common stock which is expected to close in March 1996. In conjunction with the closing of the offering, the Company intends to eliminate the authorization of its preferred stock and complete a one-for-three reverse common stock split. Pro forma net income (loss) per share and the number of shares used in the computation of per share amounts are set forth in the accompanying statement of operations. NOTE 3 -- SERIES A PREFERRED STOCK During 1994, 2,800,000 shares of Series A preferred stock were converted into 2,800,000 shares of the Company's common stock under terms of the preferred stock agreement. The Company can not declare or pay dividends on its common stock until the balance of dividends in arrears on the Series A preferred stock of $70,000 at December 31, 1995 are paid. See Note 2. NOTE 4 -- STATEMENTS OF CASH FLOWS Supplemental disclosures of cash flow information are as follows:
1993 1994 1995 --------- ---------- ---------- Cash paid during the years for: Interest................................................. $ 81,000 $ 152,250 $ 205,900 --------- ---------- ---------- --------- ---------- ----------
Noncash financing activities are as follows: During 1994, 2,800,000 shares of Series A preferred stock were converted to 2,800,000 shares of common stock. During 1995, $123,800 of notes and accrued interest payable to the Company's President were offset against his note receivable. Additionally, 16,300 shares of common stock were issued in exchange for $6,800 of his notes payable. NOTE 5 -- INCOME TAXES Deferred tax assets are comprised of the following:
1993 1994 1995 ------------- ------------- ------------- Net operating loss carryforwards: Federal........................................ $ 1,367,800 $ 1,412,500 $ 1,300,000 State.......................................... 84,400 111,000 97,000 Other.......................................... 4,800 6,500 15,000 ------------- ------------- ------------- 1,457,000 1,530,000 1,412,000 Valuation allowance.............................. (1,457,000) (1,530,000) (1,412,000) ------------- ------------- ------------- $ -- $ -- $ -- ------------- ------------- ------------- ------------- ------------- -------------
The Company has provided a 100% valuation allowance on deferred tax assets since management could not determine that it was more likely than not that they would be realized. F-8 DATA DIMENSIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5 -- INCOME TAXES (CONTINUED) The federal and state income tax provision (benefit) is as follows for the years ended December 31, 1993, 1994 and 1995:
1993 1994 1995 --------- ---------- ----------- Current Provision Federal................................................. $ -- $ 20,936 $ 105,000 State................................................... -- 9,015 13,000 --------- ---------- ----------- -- 29,951 118,000 --------- ---------- ----------- Deferred Benefit.......................................... -- (29,951) (118,000) --------- ---------- ----------- Total Tax Provision................................... $ -- $ -- $ -- --------- ---------- ----------- --------- ---------- -----------
The deferred benefit consists entirely of the utilization of federal and state net operating loss carryforwards. At December 31, 1995, the Company has federal net operating loss carryforwards of approximately $3,820,000 with expiration dates through 2008. Additionally, the Company has state net operating loss carryforwards of approximately $1,028,000 with expiration dates through 2000. The use of federal operating loss carryforwards following certain changes in ownership is subject to limitations. The Company anticipates that these limitations may significantly diminish the net operating loss carryforwards available for utilization in future years. NOTE 6 -- ADVANCES FROM FACTOR The Company factors its accounts receivable with a bank with full recourse. The bank advances 90% of the face value of factored receivables and charges a financing fee of 2% per month on the outstanding balance. Advances under the factoring agreement are $823,700 at December 31, 1995 and are limited to the lesser of eligible receivables or $1,250,000. The factor agreement is collateralized by substantially all assets of the Company and expires in June 1996. Financing fees during 1993, 1994 and 1995 were $109,800, $144,200 and $202,100, respectively. The weighted average interest rate during 1993, 1994 and 1995 was 20%, 34% and 27% respectively. NOTE 7 -- RELATED-PARTY TRANSACTIONS The Company had consulting and employment agreements with former officers, which expired December 31, 1994. At December 31, 1994, there was consulting fees of $66,000 accrued, which the Company paid during the year ended December 31, 1995. Consulting fee expense was $72,000 and $32,000 in 1993 and 1994. The Company had a note payable to a former officer bearing interest at 12% and payable on demand. The amount outstanding at December 31, 1994 was $45,000. In 1995, the outstanding principal balance was paid. Interest expense relating to this note was approximately $5,400, $4,000 and $4,000 in 1993, 1994 and 1995. The Company had a note payable and receivable with its President at December 31, 1994 of $132,500 and $123,800, respectively, including related accrued interest of $32,500 and $8,800, respectively. The note payable and receivable were bearing interest at prime (8.75% at December 31, 1995) plus 3% and 11%, respectively and were payable upon demand. During January 1995, the client offset the note payable with the note receivable. The remaining accrued interest of $6,800 was offset against issuance of shares of common stock. Interest expense related to the notes payable was $27,000 and $21,100 in 1993 and 1994. Interest income related to the notes receivable was $0 and $8,800 in 1993 and 1994. There was no interest expense or income related to these notes in the fiscal year ended December 31, 1995. At December 31, 1995 there is an unsecured, non-interest bearing receivable due from the President for $35,000. F-9 DATA DIMENSIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- OPERATING LEASES The Company leases equipment and office space in Washington and Texas under noncancelable operating leases. Future minimum lease payments for the remaining terms of the leases are as follows:
YEARS ENDING DECEMBER 31, - --------------------------------------------- 1996......................................... $ 101,700 1997......................................... 53,900 1998......................................... 2,900 ---------- $ 158,500 ---------- ----------
Rent expense was $77,800, $36,800 and $139,600 in 1993, 1994 and 1995, respectively. NOTE 9 -- EMPLOYEE BENEFIT PLAN During 1995, the Company implemented a 401(k) employee benefit plan for those employees who meet the eligibility requirements set forth in the plan. Eligible employees may contribute up to 15% of their compensation. The Company's annual contribution to the plan is determined by the board of directors. The Company made no contributions during the year ended December 31, 1995. NOTE 10 -- STOCK OPTIONS AND WARRANTS The Company has an incentive stock option plan under which options to purchase shares of the Company's common stock may be granted to employees. The plan provides that the option price shall not be less than the fair market value of the shares on the date of grant and that the options expire in the fifth year after that date. The options vest ratably over four or five year periods as provided for in each employee's option agreement. The following is a summary of transactions:
COMMON SHARES UNDER OPTION -------------------------------- 1993 1994 1995 --------- --------- ---------- Outstanding, January 1............................................... 732,500 772,500 800,000 Exercised during the year (at prices ranging from $.25 to $1.00 per share).............................................................. -- (97,000) Granted during the year (at prices ranging from $.25 to $2.00 per share).............................................................. 110,000 37,500 485,000 Expired during the year.............................................. (70,000) (10,000) (6,000) --------- --------- ---------- Outstanding, December 31 (at prices ranging from $.25 to $2.00 per share).............................................................. 772,500 800,000 1,182,000 --------- --------- ---------- Eligible, December 31, for exercise currently (at prices ranging from $.25 to $2.00 per share)............................................ 499,000 649,500 735,000 --------- --------- ---------- --------- --------- ----------
At December 31, 1994 and 1995, there were 1,000,000 and 1,500,000 shares reserved for options to be granted under the plans. In March 1991, in connection with promissory note agreements, the Company issued warrants to certain stockholders. The warrants are exercisable for 150,000 shares of common stock at $.24 per share and expire in March 1996. Through December 31, 1995, no warrants had been exercised. NOTE 11 -- PRIOR PERIOD ADJUSTMENT An error in recording prior years' interest and penalties on overdue payroll taxes was discovered in 1994. Correction of this error resulted in an increase of the 1993 reported loss and an increase in accrued payroll taxes of $78,000. F-10 - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. -------------------------- TABLE OF CONTENTS
PAGE Prospectus Summary............................ 3 Risk Factors.................................. 6 Use of Proceeds............................... 10 Price Range of Common Stock................... 10 Dividend Policy............................... 10 Capitalization................................ 11 Selected Financial Data....................... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 Business...................................... 18 Management.................................... 23 Certain Transactions.......................... 25 Principal and Selling Stockholders............ 26 Description of Capital Stock.................. 28 Shares Eligible for Future Sale............... 30 Underwriting.................................. 31 Legal Matters................................. 32 Experts....................................... 32 Available Information......................... 32 Index to Consolidated Financial Statements.... F-1
-------------------------- 750,000 SHARES COMMON STOCK DATA DIMENSIONS, INC. ---------------------- PROSPECTUS ---------------------- CRUTTENDEN ROTH INCORPORATED , 1996 - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Certificate of Incorporation, as amended, contains a provision that requires the Company to indemnify its directors, officers, agents and employees to the extent permitted under Delaware law. The Company's Amended and Restated Bylaws provide that the Company shall indemnify its directors, officers, employees and other agents to the fullest extent permitted by law. The Company believes that indemnification under its Amended and Restated Bylaws covers at least negligence and gross negligence on the part of the indemnified parties. The Company's Amended and Restated Bylaws also require it to maintain insurance, to the extent reasonably available and at its expense, to protect any person entitled to indemnity thereunder against any liability for which indemnification would be provided thereunder, whether or not the Company has the power to indemnify such person against such liability under Delaware law. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All amounts are estimated except the Securities and Exchange Commission registration fee. Securities and Exchange Commission Registration Fee............... $ 2,155 National Association of Securities Dealers, Inc. Filing Fee....... 1,125 Nasdaq Filing Fee................................................. 8,095 Non-accountable expense allowance................................. 133,547 Blue Sky Fees and Expenses........................................ 40,000 Legal Fees and Expenses........................................... 150,000 Accounting Fees and Expenses...................................... 15,000 Printing and Engraving Expenses................................... 65,000 Transfer Agent Fee................................................ 3,000 Miscellaneous Expenses............................................ 2,078 --------- Total......................................................... 420,000 --------- ---------
In the event the Underwriters' over-allotment option is exercised in full, an additional $22,148 in non-accountable expenses will be payable by the Registrant. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Since January 1993, the following securities of the Registrant have been issued without registration under the Securities Act: 1. In an offering closing on August 29, 1995, seven individuals and entities, all of whom were "accredited investors" under Regulation D promulgated by the Securities and Exchange Commission, purchased a total of 300,000 shares of the Registrant's common stock, par value $.01 per share, for a total purchase price of $300,000 (does not reflect a one-for-three reverse stock split to be effective upon the completion of this offering). These shares are entitled to certain registration rights. 2. On September 26, 1993, the Registrant's outstanding shares of Series A Preferred Stock, par value $.01 per share (the "Preferred Stock"), were automatically converted into 2,800,000 shares of Registrant's Common Stock for no additional consideration. The foregoing sales were made without registration pursuant to the exemption available under Section 4(2) of the Act applicable to transactions not involving a public offering or pursuant to the terms and provisions of Regulation D promulgated by the Securities and Exchange Commission. The following factors were relied upon by the Registrant to establish the availability of this exemption for the sales of securities described above: (1) Each purchaser was an accredited investor or was sophisticated in relation to his or her investment; (2) Each purchaser gave written assurance of investment intent; (3) Share certificates or II-1 warrants included legends referring to restrictions on transfer; (4) Sales were made to a limited number of persons; and (5) Each purchaser was given, or had full access to, all material information regarding the Registrant and the security necessary to make an informed decision. No underwriting commissions or discounts were paid with respect to any of the sales of unregistered securities described above. ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
NO. DESCRIPTION - ------------------------------------------------------- 1.1* Form of Underwriting Agreement 3.1 Certificate of Incorporation and all amendments thereto 3.2 Amended and Restated Bylaws 4.1 Form of Common Stock Certificate 4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of Incorporation and Amended and Restated Bylaws of the Company defining the rights of the holders of Common Stock 5.1* Opinion of Garvey, Schubert & Barer regarding legality 10.1 Stock Purchase Warrant issued on March 6, 1991 by the Company to R&W Ventures II granting R&W Ventures II the right to purchase from the Company 58,333 shares of the Company's Common Stock at a price of $0.24 per share 10.2 Stock Purchase Warrant issued on March 6, 1991 by the Company to BPIV granting BPIV the right to purchase from the Company 7,333 shares of the Company's Common Stock at a price of $0.24 per share 10.3 Stock Purchase Warrant issued on March 6, 1991 by the Company to Bay Partners IV granting Bay Partners IV the right to purchase from the Company 84,334 shares of the Company's Common Stock at a price of $0.24 per share 10.4 1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock Option Plan 10.5 Lease Agreement, dated June 7, 1994, between the Company and Rainier Plaza Limited Partnership 10.6 Lease Agreement, dated December 14, 1994, between the Company and Wright Runstad Properties L.P. 10.7 Factoring Agreement, dated June 13, 1995, between the Company and Silicon Valley Financial Services 10.8 Promissory Note, dated February 28, 1994, made by Larry W. Martin in favor of the Company in the original principal amount of $65,000 10.9 Promissory Note, dated August 31, 1994, made by Larry W. Martin in favor of the Company in the original principal amount of $50,000 10.10 1996 Client Services Agreement and Financial Schedule, dated September 27, 1995, between the Company and Kaiser Permanente 23.1 Consent of Independent Auditors 27.1 Financial Data Schedule
- ------------------------ * To be filed by amendment. II-2 (B) FINANCIAL STATEMENT SCHEDULES Report of Independent Auditors on Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. For determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer under Rule 424(b)(1), or (4), or 497(h) under the Securities Act will be treated as part of this Registration Statement as of the time the Commission declares it effective. For determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus will be treated as a new Registration Statement for the securities offered in the Registration Statement, and the offering of the securities at that time will be treated as the initial bona fide offering of those securities. II-3 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has authorized this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bellevue, State of Washington, on February 9, 1996. REGISTRANT: DATA DIMENSIONS, INC. By /s/ LARRY W. MARTIN ------------------------------------ Larry W. Martin, CEO & President In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities stated on February 9, 1996. Principal Executive Officer: By /s/ LARRY W. MARTIN ----------------------------------- Larry W. Martin, CEO & President Principal Financial and Accounting Officer: By /s/ WILLIAM H. PARSONS ----------------------------------- William H. Parsons, Chief Financial Officer Board of Directors: By /s/ LARRY W. MARTIN ----------------------------------- Larry W. Martin, Director By /s/ WILLIAM H. PARSONS ----------------------------------- William H. Parsons, Director By /s/ THOMAS W. FIFE ----------------------------------- Thomas W. Fife, Director II-4 EXHIBIT INDEX 1.1* Form of Underwriting Agreement 3.1 Certificate of Incorporation and all amendments thereto 3.2 Amended and Restated Bylaws 4.1 Form of Common Stock Certificate 4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of Incorporation and Amended and Restated Bylaws of the Company defining the rights of the holders of Common Stock 5.1* Opinion of Garvey, Schubert & Barer regarding legality 10.1 Stock Purchase Warrant issued on March 6, 1991 by the Company to R&W Ventures II granting R&W Ventures II the right to purchase from the Company 58,333 shares of the Company's Common Stock at a price of $0.24 per share 10.2 Stock Purchase Warrant issued on March 6, 1991 by the Company to BPIV granting BPIV the right to purchase from the Company 7,333 shares of the Company's Common Stock at a price of $0.24 per share 10.3 Stock Purchase Warrant issued on March 6, 1991 by the Company to Bay Partners IV granting Bay Partners IV the right to purchase from the Company 84,334 shares of the Company's Common Stock at a price of $0.24 per share 10.4 1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock Option Plan 10.5 Lease Agreement, dated June 7, 1994, between the Company and Rainier Plaza Limited Partnership 10.6 Lease Agreement, dated December 14, 1994, between the Company and Wright Runstad Properties L.P. 10.7 Factoring Agreement, dated June 13, 1995, between the Company and Silicon Valley Financial Services 10.8 Promissory Note, dated February 28, 1994, made by Larry W. Martin in favor of the Company in the original principal amount of $65,000 10.9 Promissory Note, dated August 31, 1994, made by Larry W. Martin in favor of the Company in the original principal amount of $50,000 10.10 1996 Client Services Agreement and Financial Schedule, dated September 27, 1995, between the Company and Kaiser Permanente 23.1 Consent of Independent Auditors 27.1 Financial Data Schedule
- ------------------------ *To be filed by amendment. II-5 EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF ""DATA DIMENSIONS, INC.'', FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF SEPTEMBER, A.D. 1991, AT 9 0'CLOCK A.M. [SEAL] /s/ EDWARD J. FREEL --------------------------- EDWARD J. FREEL, SECRETARY OF STATE 0696915 8100 AUTHENTICATION: 7609338 950184728 DATE: 08-15-95 SAME DAY SERVICE DATE SUBMITTED 9-27-91 ------------------ FILED BY: INCORPORATING SERVICES, LTD FILE DATE 9-27-91 ----------------------------- --------------- Barbara ----------------------------- TIME 0900 P.O. BOX 899 --------------- ----------------------------- DOVER, DE 19903-0899 FILER'S NO. 9008413 ----------------------------- -------------- NAME OF COMPANY DATA DATA DIMENSIONS, INC. ------------------------------------------------------- FILE NUMBER 06969-15 ----------- TYPE OF DOCUMENT Amendment SECTION NO. --------------------------- ------------ CHANGES NAME ---------------------- CHANGES AGENT/OFFICE ------------- STOCK $ ---------------------------- TO $ ---------------------------- Franchise Tax $ - ------ --------------------- Filing Tax-Fee $ ------------------ Receiving and Indexing $ ------------------ NO. Certified Copies $ ------- ------------------ NO. 2 PAGES (If prepared ------- by the Division of Corp.) $ ------------------ OTHER $ ---------------------------------------------------- ------------------ OTHER $ ---------------------------------------------------- ------------------ TOTAL $ ------------------ STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS RECEIVED 01:15 PM 09/27/1991 9' 05151 SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 09/27/1991 912705151 - 696915 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF DATA DIMENSIONS, INC. PURSUANT TO SECTION 242 OF THE GENERAL CORP0RATION LAW OF THE STATE OF DELAWARE I, Larry Martin, President and Chief Executive Officer and Secretary of Data Dimensions, Inc. a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 242 thereof, DO HEREBY CERTIFY: FIRST: That the amendment to the Corporation's Certificate of Incorporation set forth in the following resolutions have been approved by the Corporation's Board of Directors and stockholders and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. "RESOLVED, that the Certificate of Incorporation of the Corporation be amended by striking Articles THIRD and FOURTH in their entirety and substituting in lieu and in place thereof the following: THIRD: The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is twenty-three million (23,000,000), consisting of: (1) twenty million (20,000,000) shares of Common Stock, par value one cent ($.01) per share (the "Common Stock"); and (2) three million (3,000,000) shares of Preferred Stock, par value one cent ($.01) per share (the "Preferred Stock"). B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights to the shares of 1 each such series and any qualifications, limitations or restrictions thereon; and to increase or decrease the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series should be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolutions originally fixing the number of shares of such series. The first series of Preferred Stock shall be designated "Series A Preferred Stock," which series shall consist of 3,000,000 shares. The powers, preferences, rights, qualifications, limitations and restrictions granted to or imposed upon the shares of the Series A Preferred Stock are as follows: 1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred Stock shall be entitled, when and as declared by the Board of Directors, to cash dividends out of funds legally available therefor, in the annual amount of $0.0125 per share, as adjusted to reflect stock splits, stock dividends, recapitalizations and the like, prior to the declaration, setting aside or payment of any dividend to the holders of the corporation's Common Stock, payable quarterly on the thirtieth day of January, April, July and October in each year, unless such date is not a business day, in which event on the next business day, commencing on the first such date after the issuance of the Series A Preferred Stock, to holders of record on such dates. Dividends shall be cumulative. Dividends shall accrue on each share of Series A Preferred Stock from the date of issue thereof. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments which may be in arrears. Dividends payable on the Series A Preferred Stock for any period less than a full quarter shall be computed on the basis of a 365 or 366 day year, as the case may be, and paid for the actual number of days elapsed. If in any quarter-yearly dividend period, dividends in the annual amount of $0.0125 per share shall not have been declared and paid or set apart for payment on all outstanding shares of Series A Preferred Stock for such quarter-yearly dividend period and all preceding quarter-yearly dividend periods from and after the first day from which dividends are cumulative, then, until the aggregate deficiency shall be declared and fully paid or set apart for payment, the Corporation shall not (i) declare or pay or set apart for payment any dividends or make any other distribution on the common stock or any other capital stock or securities having an equity interest in the Corporation ranking junior to or on a parity with the Series A Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock or any other capital stock of the Corporation ranking junior to or on a parity with the Series A Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation), or 2 (ii) make any payment on account of the purchase, redemption, other retirement or acquisition of any common stock or any other capital stock or securities having an equity interest in the Corporation ranking junior to or on a parity with the Series A Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary, the assets and funds of this Corporation available for distribution to stockholders shall be distributed as follows: (i) The holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets and funds of this corporation to the holders of Common Stock, by reason of their ownership thereof an amount per share equal to $0.25 for each outstanding share of Series A Preferred Stock, subject to adjustment for stock splits, stock dividends, recapitalizations and the like, plus any declared but unpaid dividends on such share. If upon the occurrence of any liquidation, dissolution or winding up of this Corporation the assets and funds available for distribution among the holders of the Series A Preferred Stock pursuant to this subsection (i) shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the aggregate liquidation preference to which such holder would be entitled under this subsection (i) if the full aforesaid preferential amount were available for distribution. (ii) After the distributions described in subsection (i) above have been paid, the remaining assets and funds of the Corporation available for distribution to stockholders shall be distributed pro rata among the holders of Common Stock and Series A Preferred Stock (on an as converted into Common Stock basis). (b) A consolidation or merger of this Corporation with or into any other corporation or corporations pursuant to which more than 50% of the voting power of the Corporation is transferred to third parties, or a sale, conveyance or disposition of all or substantially all of the assets of this Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the corporation is disposed of, shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 2. (c) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation which will involve the distribution of assets other than cash or securities, competent independent appraisers reasonably acceptable to the Corporation and the holders of at least a majority of the then outstanding shares of 3 Series A Preferred Stock shall promptly be engaged to determine the value of the assets to be distributed to the holders of shares of Series A Preferred Stock. In the event of any transaction described under subsection 2(b), any securities to be delivered to the holders of the Series A Preferred Stock shall be valued as follows: (i) if traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 30-day period ending three (3) days prior to the closing. (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever are applicable) over the 30-day period ending three (3) days prior to the closing. If there is no active market, or if the securities are subject to investment letter or other similar restrictions on free marketability, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the then outstanding shares of Series A Preferred Stock which would be entitled to receive such securities. 3. CONVERSION. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) OPTIONAL AND AUTOMATIC CONVERSION. (i) Subject to subsection (c) below, each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this Corporation or any transfer agent for the Series A Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.25 (the "Original Series A Issue Price") by the Conversion Price at the time in effect for such share. The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price; provided, however, that the Conversion Price for the Series A Preferred Stock shall be subject to adjustment as set forth in subsection (c) below. (ii) Each outstanding share of Series A Preferred Stock shall automatically be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price by the Conversion Price at the time in effect for such Series A Preferred Stock on the second anniversary of the first date of issuance of shares of Series A Preferred Stock. (b) MECHANICS OF CONVERSION. Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Series A Preferred Stock, and shall give 4 written notice by mail, postage prepaid, to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, or to the nominee or nominees of such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (c) CONVERSION PRICE ADJUSTMENTS. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding Common Stock, the Conversion Price of the Series A Preferred Stock in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Corporation shall at any time combine the outstanding shares of Common Stock, the Conversion Price of the Series A Preferred Stock in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (ii) If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3), provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock the number of shares of stock or other securities or property of the Corporation, or otherwise, to which a holder of Common Stock deliverable upon conversion of the Series A Preferred Stock would have been entitled upon such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the conversion price for the Series A Preferred stock then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (iii) Subject to subsection (c)(iv) below, upon the issuance by the Corporation of Common Stock, or any right or option to purchase Common Stock or securities convertible into or exchangeable for Common Stock, or any option to purchase or right to subscribe for any security convertible into or exchangeable for 5 Common Stock, for a consideration per share less than the Conversion Price for the Series A Preferred Stock in effect immediately prior to the time of such issuance and sale other than an issuance of stock or securities pursuant to subsection (i) of this subsection (c), then forthwith upon such issue or sale, the Conversion Price for the Series A Preferred Stock shall be reduced to the price (calculated to the nearest cent) determined by dividing: (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Conversion Price for the Series A Preferred Stock, as the case may be, (y) the number of shares of Common Stock issuable upon conversion or exchange of any obligations or any securities of the Corporation outstanding immediately prior to such issue or sale multiplied by the then existing Conversion Price for the Series A Preferred Stock, and (z) an amount equal to the aggregate "consideration actually received" by the Corporation upon such issue or sale, by (B) the sum of the number of shares of Common Stock outstanding immediately after such issue or sale and the number of shares of Common Stock issuable upon conversion or exchange of any obligations or of any securities of the corporation outstanding immediately after such issue or sale. (iv) For purposes of subsection (c)(iii) above, the following provisions shall be applicable: (A) In the case of an issue or sale for cash of shares of Common Stock, the "consideration actually received" by the Corporation therefor shall be deemed to be the amount of cash received, before deducting therefrom any commissions or expenses paid by the corporation. (B) In the case of the issuance (otherwise than upon conversion or exchange of obligations or shares of stock of the Corporation) of additional shares of Common Stock for a consideration other than cash or a consideration partly other than cash, the amount of the consideration other than cash received by the Corporation for such shares shall be deemed to be the value of such consideration as determined in good faith by the Board of Directors. (C) In the case of the issuance by the Corporation in any manner of any rights to subscribe for or to purchase shares of Common Stock, or any options for the purchase of shares of Common Stock or securities convertible into Common Stock, all shares of Common Stock or securities convertible into Common Stock to which the holders of such rights or options shall be entitled to subscribe for or purchase pursuant to such rights or options shall be deemed "outstanding" as of the date of the offering of such rights or the granting of such options, as the case may be, and the minimum aggregate consideration named in such rights or options for the shares of Common Stock or securities convertible into Common Stock covered thereby, 6 plus the consideration, if any, received by the Corporation for such rights or options, shall be deemed to be the "consideration actually received" by the Corporation (as of the date of the offering of such rights or the granting of such options, as the case may be) for the issuance of such shares. (D) In the case of the issuance or issuances by the corporation in any manner of any obligations or of any securities of the Corporation that shall be convertible into or exchangeable for Common Stock, all shares of Common Stock issuable upon the conversion or exchange of such obligations or securities shall be deemed issued as of the date such obligations or securities are issued, and the amount of the "consideration actually received" by the Corporation for such additional shares of Common Stock shall be deemed to be the total of (X) the amount of consideration received by the corporation upon the issuance of such obligations or securities, as the case may be, plus (Y) the minimum aggregate consideration, if any, other than such obligations or securities, receivable by the Corporation upon such conversion or exchange, except in adjustment of dividends. (E) The amount of the "consideration actually received" by the Corporation upon the issuance of any rights or options referred to in subsection (C) above or upon the issuance of any obligations or securities which are convertible or exchangeable as described in subsection (D) above, and the amount of the consideration, if any, other than such obligations or securities so convertible or exchangeable, receivable by the Corporation upon the exercise, conversion or exchange thereof shall be determined in the same manner provided in subsections (A) and (B) above with respect to the consideration received by the corporation in case of the issuance of additional shares of Common Stock; PROVIDED, HOWEVER, that if such obligations or securities so convertible or exchangeable are issued in payment or satisfaction of any dividend upon any stock of the Corporation other than Common Stock the amount of the "consideration actually received" by the Corporation upon the original issuance of such obligations or securities so convertible or exchangeable shall be deemed to be the value of such obligations or securities, as of the date of the adoption of the resolution declaring such dividend, as determined by the Board of Directors at or as of that date. On the expiration of any rights or options referred to in subsection (C), or the termination of any right of conversion or exchange referred to in subsection (D), or any change in the number of shares of Common Stock deliverable upon exercise of such options or rights or upon conversion of or exchange of such convertible or exchangeable securities, the Conversion Price for the Series A Preferred Stock then in effect shall forthwith be readjusted to such Conversion Price for the Series A Preferred Stock as would have obtained had the adjustments made upon the issuance of such option, right or convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered or to be delivered upon the exercise of such rights or options or upon the conversion or exchange of such securities. 7 (F) Anything herein to the contrary notwithstanding, the corporation shall not be required to make any adjustment of the Conversion Price for the Series A Preferred Stock in the case of the grant of options to purchase, or the issue of shares of, Common Stock to employees, consultants, vendors and directors pursuant to plans or arrangements approved by the Corporation's Board of Directors, and which grants or issuances also are approved by the Corporation's Board of Directors. (G) For purposes hereof, the Conversion Price for the Series A Preferred Stock shall be determined and reduced only once with respect to any offering of this Corporation's securities for financing purposes, provided all closings with respect to any such offering occur within a period of no more than 60 days from the first closing of such offering. Securities offered by this Corporation shall be considered part of a single offering only if the securities are of the same class and series and only if issued at an identical price per share. (v) This Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this subsection (c) and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. (d) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon conversion of the Series A Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock pursuant to this Section 3, this Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series A Preferred Stock at the time in effect and (C) the number of shares of 8 Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series A Preferred Stock. (e) NOTICES OF RECORD DATE. In the event of any taking by this Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Series A Preferred Stock, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. Failure to give such notice shall not in any way affect the legality of such transaction. (f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such stock, this Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. (g) NOTICES. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this corporation. 4. VOTING RIGHTS. The holder of each share of Series A Preferred Stock shall be entitled to such number of votes for the Series A Preferred Stock held by him on the record date fixed for any meeting of stockholders or on the effective date of any written consent, as shall be equal to the number of whole shares of Common Stock into which such shares of Series A Preferred Stock are convertible immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, shall be entitled, notwithstanding any provisions hereof, to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any questions upon which holders of Common Stock have the right to vote. 9 5. STATUS OF CONVERTED STOCK. In the event any shares of Series A Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall be cancelled and shall not be issuable by the Corporation. The Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. RESOLVED FURTHER, that the Certificate of Incorporation be amended by adding as a new Article TWELFTH the following: TWELFTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for beach of fiduciary duty as a director, except or liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing provisions of this Article TWELFTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification." IN WITNESS WHEREOF, Data Dimensions, Inc. has caused this Certificate of Amendment to be executed and attested by its duly authorized officers on this 27th day of September, 1991. /s/ Larry W. Martin ------------------------------- Larry W. Martin, President and Chief Executive Officer ATTEST: /s/Larry W. Martin - ----------------------- Larry W. Martin, Secretary 10 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "DATA DIMENSIONS, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF SEPTEMBER, A.D. 1987, AT 9 O'CLOCK A.M. [State of Delaware Official Seal] /s/ Edward J. Freel [Secretary's Office Seal] ----------------------------------- Edward J. Freel, Secretary of State AUTHENTICATION: 7609337 DATE: 08-15-95 DATE SUBMITTED___________ FILED BY: McDerMott, Will & Emery FILE DATE September 8, 1987 -------------------------- ----------------------- 2049 Century Park East TIME 9 AM -------------------------- ------------------------------ Suite 699 ------------------------- Los Angeles, CA 90067 FILER'S NO.---------------------- -------------------------- NAME OF COMPANY DATA DIMENSIONS, INC -------------------------------------------------------------- FILE NUMBER 0696915 ----------------------- TYPE OF DOCUMENT Amendment SECTION NO. 242 ----------------------- ----------------------- CHANGES NAME ------------------- CHANGES AGENT/OFFICE ----------- STOCK $ 700,000 -------------------------- TO $ 2,000,000 -------------------------- FRANCHISE TAX $ ----------- ------------------ Filing Fee Tax $ 130 ------------------- Receiving and Indexing $ 25 ------------------- No. 2 Certified Copies $ 20 ---- ------------------- No. PAGES (If prepared --- by the Division of Corp.) $__________________ OTHER________________________________________________ $__________________ OTHER________________________________________________ $__________________ TOTAL $__________________ CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Data Dimension, Inc., a corporation organized and existing under and by virtue of General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Data Dimension, Inc., resolutions were adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "FOURTH" so that, as amended said Article shall be and read as follows: "FOURTH: THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS TWENTY MILLION (20,000,000) AND THE PAR VALUE OF EACH SUCH SHARE IS TEN CENTS ($.10) AMOUNTING IN THE AGGREGATE TO TWO MILLION DOLLARS ($2,000,000.00)." SECOND: That thereafter, an annual meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. - FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Data Dimensions, Inc. has caused this certificate to be signed by William R. Brown, its President, and John E. Flood, Jr., its Secretary, this 2nd day of June, 1987. DATA DIMENSIONS, INC. BY: /s/ William R. Brown --------------------- William R. Brown President ATTEST: /s/ John E. Flood, Jr. ----------------------- John E. Flood, Jr. Secretary/Treasurer [STATE OF DELAWARE SEAL] STATE OF DELAWARE OFFICE OF SECRETARY OF STATE I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY that the above and foregoing is a true and correct copy of Certificate of Change of Location of Registered Office of the companies represented by "The Corporation Trust Company", as it applies to "DATA DIMENSIONS, INC.", as received and filed in this office the twenty-seventh day of July, A.D. 1984, at 4:30 o'clock P.M. In Testimony Whereof, I have hereunto set my hand and official seal at Dover this twenty-eighth day of August in the year of our Lord one thousand nine hundred and eighty-seven. [OFFICIAL SEAL] /s/ Michael Harkins ------------------- Michael Harkins, Secretary of State Form 122 CERTIFICATE OF CHANGE OF ADDRESS OF REGISTERED OFFICE AND OF REGISTERED AGENT PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE To: DEPARTMENT OF STATE Division of Corporations Townsend Building Federal Street Dover, Delaware 19903 Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code, the undersigned Agent for service of process, in order to change the address of the registered office of the corporations for which it is registered agent, hereby certifies that: 1. The name of the agent is: The Corporation Trust Company' 2. The address of the old registered office was: 100 West Tenth Street Wilmington, Delaware 19801 3. The address to which the registered office is to be changed is: Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 The new address will be effective on July 30, 1984. 4. The names of the corporations represented by said agent are set forth on the list annexed to this certificate and made a part hereof by reference. IN WITNESS WHEREOF, said agent has caused this certificate to be signed on its behalf by its Vice-President and Assistant Secretary this 25th day of July, 1984. THE CORPORATION TRUST COMPANY ----------------------------- (Name of Registered Agent) By /s/ Virginia Colwell -------------------------- (Vice-President) ATTEST: /s/ (illegible signature) - ------------------------ (Assistant Secretary) STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE COURT ORDERED CERTIFICATE OF AMENDMENT OF "DATA DIMENSIONS, INC.", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF DECEMBER, A.D. 1983, AT 9 O'CLOCK A.M. [SEAL OF STATE OF DELAWARE] [SEAL] /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State 0696915 8100 AUTHENTICATION: 7609336 950184728 DATE: 08-15-95 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION (PURSUANT TO DELAWARE CORPORATION LAW TITLE 8, SECTION 303 OF THE DELAWARE CODE) DATA DIMENSIONS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: On November 19, 1981, Data Dimensions, inc. ("DDI") filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code ("Bankruptcy Code") with the United States Bankruptcy Court for the District of Connecticut, Bridgeport, Division. SECOND: That subsequent thereto, DDI filed with the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division, a Plan of Reorganization and Disclosure Statement. THIRD: That subsequent thereto, DDI filed with the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division, an Amended Plan of Reorganization and an Amended Disclosure Statement. FOURTH: That subsequent thereto, and on or about December 3, 1983, DDI filed with the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division, a Consolidated Amended Plan of Reorganization with Changes Pursuant to Court Hearing November 22, 1983, (a copy of which is attached hereto as EXHIBIT B) as well as a Consolidated Amended Disclosure Statement with Changes pursuant to court hearing November 22, 1983 (a copy of which is attached hereto as EXHIBIT C) wherein its Plan of Reorganization, providing for an increase in the number of the Company's authorized shares of common stock to 7,000,000 was presented to the court. - --------- FIFTH: That on December 15, 1983, DDI submitted to the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division, Certification of Votes, wherein the Company certified to the court and the shareholders of the Company voted in favor of the Plan of Reorganization (see EXHIBIT D). SIXTH: That on December 15, 1983, the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division, Alan H. W. Shiff, United States Bankruptcy Court judge presiding, issued an order confirming the Consolidated Amended Plan of Reorganization with Changes Pursuant to Court Hearing November 22, 1983 approving the plan and specifically noting that the plan had been accepted in writing by the equity security holders whose acceptance is required by law. (see EXHIBIT A attached hereto which is a certified copy of said order). SEVENTH: That the resolution setting forth the proposed amendment, as approved by the shareholders pursuant to the Consolidated Amended Plan of Reorganization and Consolidated Amended Disclosure Statement as approved by the Bankruptcy Court pursuant to Section 303 of the Delaware Code, is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered Fourth so that as amended, said Article shall be and read as follows: "FOURTH: THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS SEVEN MILLION (7,000,000) AND THE PAR VALUE OF EACH OF SUCH SHARES IS TEN CENTS ($.10) AMOUNTING IN THE AGGREGATE TO SEVEN HUNDRED THOUSAND DOLLARS ($700,000.00)". EIGHT: THAT SAID AMENDMENT WAS DULY ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 303 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE. NINTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Data Dimensions, Inc. has changed its corporate seal to be hereunto affixed and this Certificate to be signed by Lester M. Gottlieb, its President, and Victor F. Donnelly, its Secretary. Dated at Norwalk, Connecticut this 27th day of December, 1983. DATA DIMENSIONS, INC. /s/ Lester M. Gottlieb -------------------------------------------- Lester M. Gottlieb Its President /s/ Victor F. Donnelly -------------------------------------------- Victor F. Donnelly Its Secretary/Treasurer EXHIBIT A BK 14 (Rev 1979) UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF CONNECTICUT I, Dorothy Watts, Deputy Clerk of Bankruptcy Court in and for said District, do hereby certify that the attached copy of Order Confirming Plan _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ in the case of DATA DIMENSIONS, INC. a/k/a DDEC of Texas, Inc. _______________________________________________________________________________ debtor No. 5-81-01236 has been compared with the original thereof and that it is a complete and correct copy of such original as it appears of record and on file in my office. In testimony whereof I have hereunto set my hand at Bridgeport, Connecticut in said District, this 27th day of December 1983 [SEAL] [name] /s/ DOROTHY WATTS SEAL OF THE U.S. BANKRUPTCY COURT Date of issuance December 27, 1983 UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT In re: Bankruptcy Case No. DATA DIMENSIONS, INC. 5-81-01236 a/k/a DDEC of Texas, Inc. Chapter 11 Debtor ORDER CONFIRMING PLAN The "Consolidated Amended Plan of Reorganization with Changes Pursuant to Court Hearing November 22, 1983," incorporating all amendments and modifications of the plan under Chapter 11 of the Bankruptcy Code originally filed by the debtor on October 27, 1983, and summary thereof having been transmitted to creditors and equity security holders; and It having been determined after hearing or notice that: 1. The (illegible) has been accepted by among the creditors and equity security holders which acceptance is required by law; and 2. The provisions of chapter 11 of the Bankruptcy Code have been complied with, and the plan has been proposed in good faith and not by any means (illegible); and 3. Each holder of a claim or (illegible) accepted the plan or will receive or retain with the plan property of a value, as of the effectiveness of the plan, that is not less than the amount that such holder would receive or retain if the debtor were liquidated under chapter 7 of the Code on such date; and 4. All payments made or promised by the debtor or by a person issuing such securities or acquiring property under the plan or by any other person for services or for costs and expenses in, or in connection with, the plan and incident to the case, have been fully disclosed to the court and are reasonable or, if to be fixed after confirmation of the plan, will be subject to the approval of the court; and 5. The identity, qualifications, and affiliations of the persons who are to be directors or officers of the debtor after confirmation of the plan have been fully disclosed, and the appointment of such persons to such offices, or their continuance therein, is equitable, and consistent with the interests of the creditors and equity security holders and with public policy; and 6. The identity of any insider that will be employed or retained by the debtor and his compensation has been fully disclosed; and 7. Confirmation of the plan is not likely to be followed by the liquidation, or the need for further reorganization, of the debtor or any successor to the debtor under the plan. IT IS ORDERED THAT: The consolidated Amended Plan of Reorganization with Changes Pursuant to Court Hearing November 22, 1983, a copy of which plan is attached hereto, is confirmed. Dated at Bridgeport, Connecticut this 15th day of December, 1983. By the Court /s/ ALAN H. W. SHIFF ------------------------------ Alan H. W. Shiff United States Bankruptcy Judge EXHIBIT B --------- EXHIBIT B UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT - ------------------------------------- In re: ) ) Bankruptcy Case No. DATA DIMENSIONS, INC., a/k/a ) 5-81-01236 DDEC OF TEXAS, INC., ) ) Chapter 11 Debtor ) October 25, 1983 - ------------------------------------- CONSOLIDATED AMENDED PLAN OF REORGANIZATION WITH CHANGES PURSUANT TO COURT HEARING NOVEMBER 22, 1983 Data Dimensions, Inc., debtor and debtor in possession, ("Debtor") proposes the following amended plan of reorganization ("Plan") pursuant to Section 1121(a) of Chapter 11 of Title 11, United States Code ("Bankruptcy Code"). ARTICLE 1 DEFINITIONS 1. "Bankruptcy Court" is defined to mean United States Bankruptcy Court for the District of Connecticut, Bridgeport Division ("Bankruptcy Court"). UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT - ------------------------------------- In re: ) ) Bankruptcy Case No. DATA DIMENSIONS, INC., a/k/a ) 5-81-01236 DDEC OF TEXAS, INC., ) ) Chapter 11 Debtor ) October 25, 1983 - ------------------------------------- CONSOLIDATED AMENDED PLAN OF REORGANIZATION WITH CHANGES PURSUANT TO COURT HEARING NOVEMBER 22, 1983 Data Dimensions, Inc., debtor and debtor in possession, ("Debtor") proposes the following amended plan of reorganization ("Plan") pursuant to Section 1121(a) of Chapter 11 of Title 11, United States Code ("Bankruptcy Code"). ARTICLE 1 DEFINITIONS 1. "Bankruptcy Court" is defined to mean United States Bankruptcy Court for the District of Connecticut, Bridgeport Division ("Bankruptcy Court"). -2- 2. "Claim" is defined to mean claim as finally allowed by the Bankruptcy Court. 3. "Effective Date" is defined to mean within ten days of the date when the order confirming the Plan becomes final and non-appealable. 4. "Petition" is defined to mean the Debtor's voluntary petition for reorganization under the Bankruptcy Code filed with the Bankruptcy Court on November 19, 1981. 5. "Closing" is defined to mean the closing of the sale of assets by Antaeus Personnel Services Corporation ("Antaeus") to the Debtor. ARTICLE 2 CLASSIFICATION OF CLAIMS AND INTERESTS CLASS 1A: ADMINISTRATIVE CLAIMS: all claims entitled to priority pursuant to Sections 503(b) and 507(a)(1) of the Bankruptcy Code. CLASS 1B: PRIORITY WAGE CLAIMS: all claims entitled to priority under Section 507(a)(3) of the Bankruptcy Code. CLASS 1C: PRIORITY TAX CLAIMS UNDER $4,000: all claims of state and local taxing authorities under $4,000 -3- entitled to Priority under Section 507(a)(6) of the Bankruptcy Code. CLASS 1D: PRIORITY TAX CLAIMS OVER $4,000: all claims of state and local taxing authorities over $4,000 entitled to priroity under Section 507(a)(6) of the Bankruptcy Code. CLASS 2: Datapoint Corporation CLASS 3: Unsecured Claims in an amount of $1,000 or less. CLASS 4: Unsecured Claims in an amount over $1,000. CLASS 5: Interests of holders of the Debtor's common stock. ARTICLE 3 TREATMENT OF CLASSES UNDER THE PLAN CLASS 1A AND CLASS 1B All ADMINISTRATIVE CLAIMS and PRIORITY WAGE CLAIMS shall be paid: (a) in full upon the later of (i) the Effective date; (ii) the date when an order of the Bankruptcy Court allowing any such claim is final and non-appealable, or (iii) when any such claim would be due in the ordinary course of business; or (b) upon such terms as may be agreed upon between any such -4- holder of an Administrative Claim or Priority Claim and the Debtor. IMPAIRMENT: Class 1A and Class 1B are not impaired under the Plan. CLASS 1C: PRIORITY TAX CLAIMS OF $4,000 AND UNDER shall be paid in full by a cash payment on the Effective Date. IMPAIRMENT: Class 1C is not impaired under the Plan. CLASS 1D: PRIORITY TAX CLAIMS IN EXCESS OF $4,000 shall be paid (a) in full by making a cash payment of twenty (20%) percent of such claims on the Effective Date, followed by equal quarterly deferred cash payments, with interest at eight (8%) percent per annum in accordance with Section 1129(a)(9) of the Bankruptcy Code, which payments shall aggregate an amount equal to the value, as of the Effective Date, of the allowed amount of such claims; or upon any other terms more favorable to the Debtor as may be agreed to with any holder of such claims. IMPAIRMENT: Class 1D is impaired under the Plan CLASS 2: -------- DATAPOINT CORPORATION has settled its claim against the Debtor pursuant to Stipulation and Bankruptcy Court Order and is not a creditor for voting purposes. CLASS 3: -------- UNSECURED CLAIMS IN AN AMOUNT OF $1,000 OR LESS shall be paid in full by a cash payment on the Effective Date. IMPAIRMENT: Class 3 is not impaired under the Plan CLASS 4: -------- A cash payment of twenty-seven (27%) percent of UNSECURED CLAIMS IN EXCESS OF $1,000 shall be made on the Effective Date and an additional four (4%) percent of said claims shall be made within sixty (60) days after Closing for a total payment of thirty-one (31%) percent of UNSECURED CLAIMS IN EXCESS OF $1,000, in full and final satisfaction, settlement, release and discharge of such claims. IMPAIRMENT: Class 4 is impaired under the Plan. CLASS 5: --------- The Holders of interests of the shares of the Debtor's common stock shall retain their common stock and shall receive no distribution under the Plan on account of such interests, but their holdings will be diluted from 100% to approximately 5 30% by the issuance of 2,489,212 new shares of the Debtor's common stock. IMPAIRMENT: Class 5 is impaired under the Plan. Article 4 ----------- MEANS FOR EXECUTION OF THE PLAN -------------------------------- The Debtor shall continue in possession of all its property and shall implement the Plan by continuing to bill its customer lease base, by purchasing the assets of Antaeus, and by continuing the present operations of Antaeus. The Debtor shall increase the number of its authorized shares of common stock to 7 million and shall purchase the assets of Anteus in exchange for 2,489,212 newly issued shares (the "Transaction"). At the conclusion of the Transaction, Anteus will own 70% of the Debtor's outstanding shares of common stock. The Transaction shall be consummated in accordance with Delaware Corporation Law, Delaware Code Title 8, Section 303. Pursuant to Section 1123(a)(b) of the Bankruptcy Code, the Debtor shall not issue non-voting equity securities. 6 Article 5 --------- EXECUTORY CONTRACTS ------------------- The Sublease commencing July 1, 1981 with Tymnet, Inc. as sublessor for the premises presently occupied by the Debtor at 50 Washington Street, Norwalk, Connecticut shall be assumed by the Debtor. There are no defaults thereunder. All other executory contracts not specifically assumed or rejected prior hereto are hereby rejected. Dated as of the 22nd day of November, 1983. DATA DIMENSIONS, INC. By /s/ Lester M. Gottlieb ---------------------- Lester M. Gottlieb Its President 7 EXHIBIT C --------- EXHIBIT C ----------- UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT - ------------------------------------ ) In re: ) DATA DIMENSIONS, INC., a/k/a ) Case No. 5-81-01236 DDEC OF TEXAS, INC., ) Chapter 11 ) DEBTOR ) - ----------------------------------- CONSOLIDATED AMENDED DISCLOSURE STATEMENT WITH CHANGES PURSUANT TO COURT HEARING NOVEMBER 22, 1983 ARTICLE I ---------- GENERAL -------- On November 19, 1981, Data Dimensions, Inc., the above named debtor and debtor in possession ("Debtor"), a Delaware corporation, filed its voluntary petition for reorganization ("Petition") under Chapter 11 of Title 11 of the United States Code ("Bankruptcy Code") with the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division ("Bankruptcy Court"). UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT - ----------------------------------- ) In re: ) ) DATA DIMENSIONS, INC., a/k/a ) Case No. 5-81-01236 DDEC OF TEXAS, INC., ) Chapter 11 ) Debtor ) ) - ----------------------------------- CONSOLIDATED AMENDE DISCLOSURE STATEMENT WITH CHANGES PURSUANT TO COURT HEARING NOVEMBER 22, 1983 ARTICLE I GENERAL On November 19, 1981, Data Dimensions, Inc., the above named debtor and debtor in possession ("Debtor"), a Delaware corporation, filed its voluntary petition for reorganization ("Petition") under Chapter 11 of Title 11 of the united States Code ("Bankruptcy Code") with the United States Bankruptcy Court for the District of Connecticut, Bridgeport Division ("Bankruptcy Court"). -2- By Order dated January 22, 1982, the Bankruptcy Court appointed the following claimants as the committee of creditors holding unsecured claims ("Creditors' Committee"): Alanthus Data Communications Corporation 6011 Executive Boulevard, Suite 300 Rockville, Maryland 20852 Texas Instruments Consolidated Computer Corp. P. O. Box 1444, MS 7821 c/o Mark N. Bloom, Esq. Houston, TX 77001 Dorfman & Bloom 380 Lexington Avenue Digital Equipment P. O. Box 1685 Robustelli Travel Service Boston, MA 02105 30 Spring Street Stamford, CT 06902 National Computer Communications Corp. Durango 260 West Avenue, Box 602 3003 N. First Street Stamford, CT 06904 San Jose, CA 95134 General Data Comm. Communications Corp. P. O. Box 8068-1236 One Communications Plaza Philidelphia, PA 19177 Stamford, CT 06902 Centronics Sales & Services Corp. P. O. Box 3234 Boston, MA 02241 Andrew M. Dipietro, Jr. a member of the firm of DiPietro, Kantrovitz & Brownstein, 900 Chapel Street, New Haven, CT 06505 serves as counsel to the Creditors' Committee. Pursuant to Section 1125(b) of the Bankruptcy Code, the Debtor transmits this Consolidated Amended Disclosure Statement ("Disclosure Statement"), approved by the Court on November 22, -3- 1983, to all known holders of claims against and interests in the Debtor's estate in order to provide adequate information to enable such holders to make an informed judgment about the merits of the Consolidated Amended Plan of Reorganization ("Plan"), filed by the Debtor with the Bankruptcy Court on November 22, 1983. Accompanying this Statement are copies of the following documents: 1. The Plan; 2. Court Order and Notice dated November 23, 1983 fixing the time for (a) Filing acceptances or refections of the Plan (b) The hearing to consider confirmation of the Plan ("Confirmation Hearing") and (c) Filing objections to confirmation of the Plan; and 3. The Ballot for the acceptance or rejection of the Plan. NO REPRESENTATIONS CONCERNING THE DEBTOR, ITS FUTURE BUSINESS OPERATIONS OR THE VALUE OF ITS PROPERTY HAVE BEEN AUTHORIZED BY THE DEBTOR OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. NO SUCH REPRESENTATION WHICH IS OTHER -4- THAN OR INCONSISTENT WITH THE INFORMATION CONTAINED HEREIN AND IN THE PLAN SHOULD BE RELIED UPON BY ANY CREDITOR OR HOLDER OF AN INTEREST IN DETERMINING THE MERITS OF THE PLAN. THIS DISCLOSURE STATEMENT CONTAINS FINANCIAL INFORMATION THROUGH DECEMBER 31, 1982 WHICH HAS BEEN SUBJECT TO A CERTIFIED AUDIT BY ARTHUR ANDERSEN & CO., INDEPENDENT PUBLIC ACCOUNTANTS. The Bankruptcy Court has scheduled a Confirmation Hearing for December 15, 1983 at 11:30 o'clock a.m. Holders of claims and interests entitled to vote on the Plan may do so by completing and mailing the Ballot, which must be received no later than December 14, 1983, to Mr. Victor F. Donnelly, Data Dimensions, Inc., 50 Washington Street, Norwalk, Connecticut 06854. In order for the Plan to be confirmed by the Bankruptcy Court, the Plan must be accepted by the holders of Class 4 claims and by the holders of Class 5 interests. Acceptance of the Plan by Class 4 can only be effected if the Plan is accepted by creditors holding at least 2/3 in amount and more than 1/2 in number of the allowed claims of Class 4 that have actually voted to accept or reject the Plan. Acceptance of the Plan by Class 5 can only be effected if the Plan is accepted by shareholders holding at least 2/3 in amount of the outstanding shares that have actually voted to accept or reject the Plan. -5- In the event the requisite acceptances are not obtained, the Plan may nevertheless be confirmed if the Bankruptcy Court finds that the Plan accords fair and equitable treatment to the class rejecting it. ARTICLE II BACKGROUND A. HISTORY The Debtor was incorporated in the States of Delaware in 1968 and became a publicly held company in 1969. Prior to the filing of the Petition, the Debtor maintained nine branch offices located throughout the country for selling and leasing computer terminals and systems to a nationwide client base. From 1969, revenues showed a growth pattern and in 1978 reached a peak of $12,696,100. The Debtor subsequently suffered a decline in sales and increased costs. Its inability to meet its expenses and to obtain new financing led to the filing of the Petition in November of 1981. The Debtor's quarterly report to the Security and Exchange Commission for the three months ended September 30, 1981 indicated that it had a severely restricted cash flow and that it was highly illiquid at that time. -6- In 1980, the Debtor discontinued the operations of its wholly owned data processing subsidiary, Ledgermatic, Inc., which is not in bankruptcy. B. ADMINISTRATIVE PERIOD Subsequent to the filing of the Petition, the Debtor continued to operate its business and manage its property in accordance with the provisions of the Bankruptcy Code. Management closed branch offices and reduced home office personnel to a small nucleus necessary to administer the monthly billing and to perform credit and collection activities, in addition to other requirements of administering the estate. The closing of branch offices included the rejection of certain leases having no value to the estate and the assumption and assignment of one leasehold interest, with the approval of the Bankruptcy Court. In addition, the Debtor liquidated personal property, mostly items used in its various offices, through private sale duly noticed with the Court. Because of reduced personnel, the Debtor entered into an agreement with National Computer Communications Corp. (NCC) for management of the Debtor's lease base. The agreement was -7- approved by the Creditors' Committee and received Court approval by Order dated April 26, 1982. The contract was fully performed pursuant to its terms for one year beginning March 1, 1982. The Debtor resumed the management of the reduced lease base immediately thereafter. By Order of the Court dated November 9, 1982, and with the approval of the Creditors' Committee, litigation in state court resulting from arbitration proceedings begun in 1980, was settled by Stipulation with Bisceglia Brothers, Inc. By Order of the Court dated June 21, 1983, and with the approval of the Creditors' Committee, Datapoint Corporation's Bankruptcy Court suit against the Debtor alleging a secured claim was settled by Stipulation. Through sale of assets, accumulation of income, and investment of cash, the Debtor increased its available cash from $122.2 thousand in December of 1981 to $666.3 thousand in September, 1983 (after payment to the Class 2 creditor, Datapoint Corporation). On August 27, 1982, the Debtor announced that it had reached an agreement in principle with ICS Group, Inc. ("ICS") of Torrance, California, a privately held data processing services company, for the merger of ICS into the Debtor. -8- Pursuant to negotiations with ICS, the proposed transaction was restructured to provide for the Debtor to purchase the business and all of the assets of ICS for 80% of the outstanding capital stock of the Debtor and for the present stockholders to retain a 20% ownership interest after confirmation of a plan. Negotiations directed toward concluding a definitive agreement with ICS were undertaken but could not be consummated. The closing of the proposed transaction was subject to a number of conditions, including the preparation and execution of a mutually satisfactory purchase agreement, the approval of the stockholders and Board of Directors of ICS, and the resolution of litigation with Datapoint Corporation. On June 24, 1983, however, after having undergone a series of operational, management and ownership changes, ICS sold its personnel (software) services division, which was the Debtor's primary interest, to a newly formed company, Antaeus Personnel Services Corporation ("Antaeus"). Antaeus continued the personnel services operations of ICS under the fictitious name of ICS Software Services, and the Debtor began negotiations with Antaeus. -9- ARTICLE III THE PLAN A. DEFINITIONS 1. "Claim" is defined to mean claim as finally allowed by the Bankruptcy Court. 2. "Effective Date" is defined to mean within ten days of the date when the order confirming the Plan becomes final and non-appealable. 3. "Reorganized Debtor" is defined to mean Data Dimensions, Inc. subsequent to the consummation of the purchase-sale agreement described below in Section B of this article. B. BASIS OF PLAN: PURCHASE-SALE AGREEMENT The authorized capital stock of the Debtor consists of three million shares of common stock, having a par value of $.10 each, of which 1,046,164 shares are issued and outstanding. All of the issued shares are validly issued, fully paid and nonassessable, and all security regulations have been complied with. There are no outstanding subscriptions, options, rights, warrants, convertible securities, or other agreements or commitments obligating the corporation to issue or to -10- transfer from treasury any additional shares of its capital stock except as provided herein. In October, 1983, an agreement ("Agreement") was reached among (1) the Debtor, (2) Antaeus, and (3) Antaeus's parent, Antaeus Management Corporation ("AMC").1/ Under the terms of the Agreement, the Debtor will increase the number of its authorized shares of common stock to seven million. The Debtor will purchase the assets of Antaeus in return for 2,489,212 newly issued shares of the Debtor's common stock, the closing of such sale ("Closing") to be held within 60 days of the Effective Date. Upon the Closing, Antaeus will own approximately 70% of the Debtor's outstanding shares of common stock. This transaction will be effected pursuant to and in accordance with Delaware Corporation Law, Title 8, Section 303 of the Delaware Code. A copy of the Delaware Code, Title 8, Section 303 is attached hereto as Exhibit X. The ongoing business of Antaeus, as described below in Article IV, will be continued by the Reorganized Debtor. The Agreement further provides that the Reorganized Debtor will enter into a two-year contract with AMC for the services ____________ 1/ Antaeus is a wholly owned subsidiary of AMC. -11- of Mr. John E. Flood, Jr. and Mr. William R. Brown to manage the Reorganized Debtor at a combined compensation level of $300,000.00 per year. Corporate headquarters will be relocated from Norwalk, Connecticut to Torrance (Los Angeles area), California.2/ The assets of Antaeus consist of accounts receivable, service contracts, good will and client lists. The Balance Sheet for September 30, 1983 and the Operating Statement for the period June 26, 1983 through September 30, 1983 for Antaeus are attached hereto as Exhibits C and D respectively. C. CLASSIFICATION AND TREATMENT OF CLAIMS The Plan is based upon the Debtor's analysis and determination that the holders of claims in Class 4 and the holders of interests in Class 5 will receive or retain under the Plan, on account of such claims and interests, value, as of the Effective Date, that is more than the amount such holders would receive if the Debtor were liquidated under Chapter 7 of the Bankruptcy Code. - -------------------- 2/ Resumes of Messrs. Brown and Flood are attached hereto as Exhibits A and B respectively. -12- There are no secured claims against the Debtor. CLASS 1 (ADMINISTRATIVE CLAIMS, PRIORITY WAGE CLAIMS AND PRIORITY TAX CLAIMS) The claims in Class 1 include: CLASS 1A: ADMINISTRATIVE CLAIMS, including attorneys' and accountants' fees, allowable under Section 503(b) of the Bankruptcy Code and entitled to priority under Section 507(a)(1) of the Bankruptcy Code. CLASS 1B: PRIORITY WAGE CLAIMS entitled to priority under 507(a)(3) of the Bankruptcy Code. CLASS 1C: PRIORITY TAX CLAIMS UNDER $4,000 of state and local governments which are entitled to priority under Section 507(a)(6) of the Bankruptcy code. CLASS 1D: PRIORITY TAX CLAIMS OVER $4,000 of state and local governments which are entitled to priority under Section 507(a)(6) of the Bankruptcy Code. ADMINISTRATIVE CLAIMS are estimated at $226,300 and consist of Attorneys' fees 3/ - -------------------- 3/ Subject to approval by the Bankruptcy Court upon application, notice and hearing. -13- Debtor's general counsel (includes a prepetition retainer of $20,000) $120,000 Counsel to Creditors' Committee $ 20,000 Special Securities Counsel $ 27,400 Accountants' fees 4/ $ 20,900 Other administrative expenses and accruals including sales and personal property taxes payable $ 37,700 PRIORITY WAGE CLAIMS consist of the claims of employees for wages, salaries, or commissions earned by an individual within 90 days before the date of the filing of the Petition only to the extent of $2,000 for each such employee. Priority Wage Claims total approximately $20,700. PRIORITY TAX CLAIMS total approximately $345,537 and are divided as follows: (a) Claims of $4,000 and under, totalling approximately $79,700; (b) Claims in excess of $4,000 totalling approximately $274,737. - -------------------- 4/ Subject to approval by the Bankruptcy Court upon application, notice and hearing. -14- All ADMINISTRATIVE CLAIMS and PRIORITY WAGE CLAIMS shall be paid: (a) in full upon the later of (i) the Effective Date, (ii) the date when an order of the Bankruptcy Court allowing any such claim is final and non-appealable, or (iii) when any such claim would be due in the ordinary course of business; or (b) upon such terms as may be agreed upon between any such holder of an ADMINISTRATIVE CLAIM or PRIORITY WAGE CLAIM and the Debtor. PRIORITY TAX CLAIMS of $4,000 and under shall be paid in full by a cash payment on the Effective Date. D. PRIORITY TAX CLAIMS IN EXCESS OF $4,000 shall be paid (a) in fully by making a cash payment of twenty (20%) percent of such claims on the Effective Date,followed bye qual quarterly deferred cash payments,with interest, in accordance with Section 1129(a)(9) of the Bankruptcy Code, which payments shall aggregate an amount equal to the value as of the Effective Date, of the allowed amount of such claims; or (b) upon any other terms more favorable to the Debtor as may be agreed to with any holder of such Claims. Classes 1A, 1B, and 1C are not impaired under the Plan. Class 1D is impaired under the Plan. -15- CLASS 2 (DATAPOINT CORPORATION) Class 2 consists of Datapoint Corporation, which filed suit in the Bankruptcy Court alleging a secured claim. By Order of the Court dated June 21, 1983, a Stipulation of Settlement among the parties, consented to by the Creditors' Committee, was approved wherein it was agreed that the claim of Datapoint is not substantially similar to those of the general unsecured creditors and is therefore in a separate class of claims consisting only of itself;and wherein it was further agreed that Datapoint Corporation shall not be treated as a creditor for the purpose of voting. Accordingly, acceptance of the Plan by the holder of the Class 2 claim is not required. CLASS 3 (UNSECURED CLAIMS OF $1,000 OR LESS) Class 3 consists of all general, unsecured claims of $1,000 or less and was established for administrative convenience in accordance with Section 1122(b) of the Bankruptcy Code. Class 3 claims total approximately $25,408 and shall be paid in full by a cash payment on the Effective Date. Class 3 is not impaired under the Plan, and acceptance of the Plan by holders of Class 3 claims is not required. -16- CLASS 4 (UNSECURED CLAIMS IN EXCESS OF $1,000) Class 4 consists of all general, unsecured claims in excess of $1,000 and total approximately $692,000. A cash payment of twenty-seven (27%) percent of Class 4 claims shall be made on the Effective Date, with an additional four (4%) percent to be made within sixty (60) days after Closing, for a total payment of thirty-one (31%) percent of Class 4 claims, in full and final satisfaction, settlement, release and is charge of such claims. Class 4 is impaired under the Plan, and the acceptance of the Plan by holders of Class 4 claims is required. CLASS 5 (SHAREHOLDERS) Class 5 consists of the interests of the holders of the Debtor's shares of common stock. The holders of such interests shall retain their common stock, but their holdings will be diluted from 100% to approximately 30% by the issuance of 2,489,212 shares of the Debtor's common stock to Antaeus upon Closing. On October 12, 1983, there were 1,048,164 shares of the Debtor's common stock, par value $0.10 per share, issued and outstanding. The number of holders of record of the Debtor's common stock as of October 12, 1983 was approximately 800. -17- Class 5 is impaired under the Plan because the ownership interest in the Debtor is being diluted, and therefore acceptance of the Plan by holders of Class 5 is required. ARTICLE IV EXECUTION OF PLAN The Plan is based upon (1) the retention by the Debtor of all of its property after the foregoing distributions; (2) the continuation of the present lease billing operation;5/ (3) the purchase of assets from Antaeus as described in Article III, Section B; and (4) the continuation and expansion of the present operations of Antaeus which is described as follows: Antaeus is presently in the business of providing computer systems professionals on a contract basis and, through a licensed California agency, permanent placement of computer professionals ("Software Services Business"). - -------------------- 5/ For a number of years, the Debtor placed equipment on lease to a diversified customer base through a nationwide sales force. While new sales and leases were generally discontinued after the filing of the Petition, prior placements continue to be billed. At October 1, 1983, the monthly gross billing amounted to $14,000 and is expected to decline. -18- The Software Services Business is based upon the necessity of computer systems development and maintenance within the data processing operations of most companies. In many cases, staffing cannot keep pace with demand and turnover, causing costly shortages of trained staff, slipped schedules, reduced quality, and negative impacts on the company's profitability because of higher than anticipated costs and missed schedules. In addition, special assignment projects may create short-term needs for certain levels of expertise and experience not commonly required and on staff. The Software Services Business provides companies with the ability to contract for these outside resources as a cost-effective complement to traditional staffing approaches. Antaeus presently maintains a data base of qualified people willing to undertake temporary assignments. The facility is available to select by programming language, computer operating system, application, type of computer, and sub-specialties available in communications systems, data base management, and computer utility programs. Since the purchase of the ICS Personnel Services business on June 24, 1983, Antaeus has increased the number of contractors from 25 to 48. They are presently billing at a level of over $300,000 per month. -19- ARTICLE V EXECUTORY CONTRACTS The Debtor presently occupies office space at 50 Washington Street, Norwalk, Connecticut under a Sublease with Tymnet, Inc. as sublessor for a term of 33 months commencing July 1, 1981 and ending February 28, 1984 ("Sublease"). The Plan provides that the Debtor will assume the Sublease. The Debtor has remained current in its payments under the Sublease throughout the administrative period. ARTICLE VI FINANCIAL INFORMATION A. SECURITY AND EXCHANGE COMMISSION REPORTS A copy of the Annual Report (Form 10-K) filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1982, and copies of the Quarterly Reports (forms 10-Q) filed with the securities and Exchange Commission for the quarters ended June 30, 1983 and September 30, 1983 are on file with the Bankruptcy Court and are available for inspection. As indicated on page F-1 of the Annual Report, certain information contained therein has been subject to a certified audit by Arthur Anderson & Co. -20- B. STRUCTURE OF PLAN ON EFFECTIVE DATE The Plan assumes that certain assets, including approximately $71,413 in cash will remain with the Debtor to finance the Plan. A schedule summarizing the financial structure of the Plan on the Effective Date is set forth as follows: Class 1 $361,347 Class 2 (previously paid) Class 3 $ 25,400 Class 4 $186,840 Class 5 -0- Cash for Working Capital $ 71,413 -------- TOTAL CASH AVAILABLE $645,000 ******** C. LIQUIDATION ANALYSIS Exhibit G attached hereto is a statement prepared by the Debtor setting forth the Debtor's estimated liquidation value of its assets and distribution to creditors, assuming a liquidation as of November 1, 1983. Such statement reflects a distribution to general unsecured creditors upon liquidation of the assets of the Debtor's estate of only up to fourteen and one-half (14.5%) percent of their claims PRIOR TO PAYMENT OF COSTS AND EXPENSES IN THE LIQUIDATION PROCEEDINGS. Such distribution to unsecured creditors could be reduced further by a potentially lengthy time period to complete the liquidation -21- and the failure to realize estimated liquidation values of the Debtor's non-cash assets. A detailed schedule of cash and cash equivalents in the estate at September 30, 1983 is attached hereto as Exhibit H. D. INSIDER CLAIMS Lester M. Gottlieb, President of the Debtor and Chairman of the Board of Directors, has a priority wage claim of $2,000 and a general unsecured claim for wages and expenses of $24,343.15. Victor F. Donnelly, Treasurer of the Debtor, has a priority wage claim of $153.85 and a general unsecured claim of $75.54 for expenses. Patricia E. Mitchell, Assistant Secretary of the Debtor, has a priority wage claim of $1,155.00 Lester M. Gottlieb of the beneficial owner of 157,359 shares of the Debtor's common stock; his wife Sarah Gottlieb is the beneficial owner of 25,000 shares of the debtor's common stock and holds 4,000 shares as custodian for three Gottlieb children. Ernest B. Dale, a Director of the Debtor, is the beneficial owner of 2,500 shares of the Debtor's common stock, 1750 of such shares being held jointly by his wife Heddy Dale. Mr. Dale has received no compensation for services as Director during the course of the bankruptcy proceedings. -22- Patricia E. Mitchell, Assistant Secretary of the Debtor, is the beneficial owner of 1484 shares of the Debtor's common stock. ARTICLE VII MANAGEMENT Management and control of the Reorganized Debtor will be assumed by John E. Flood, Jr. and William R. Brown pursuant to the Agreement as set forth herein in Article III, Section B. Lester B. Gottlieb, Victor F. Donnelly, and Patricia E. Mitchell, the President, Treasurer, and Assistant Secretary of the Debtor, respectively, will provide transitional services at their present rates of compensation for a period of no more than one year after closing. Mr. Gottlieb is presently compensated at $40,000 per annum, Mr. Donnelly at $27,500 per annum, and Ms. Mitchell at $31,900 per annum. No other insider as defined by 11 U.S.C. Section 101(25) (B), will be retained by the Reorganized Debtor. Dated as of the 22nd day of November, 1983. DATA DIMENSIONS, INC. By /s/ Lester M. Gottlieb ---------------------------- Lester M. Gottlieb Its President Resume of WILLIAM R. BROWN Born in Tivoli, New York in 1929, William R. Brown holds the Bachelor of Science degree in Commerce from Rider College, and he is a graduate of the Executive School at Santa Clara University. He is President of Antaeus Personnel Services Corporation and has 25 years of experience in group management, corporate development and planning, finance, marketing and personnel services. Prior to joining Antaeus Personnel Services Corporation, Mr. Brown held positions as: - President and General Manager, Special Businesses Division, Xerox Corporation, El Segundo, CA. - Director, Corporate Planning, Xerox. - Director, Business Development, Xerox. - Corporate Manager, Pricing and Financial Analysis, Xerox. - Director of Marketing Practices, Data Processing Division, IBM. - Manager of Budgets, Data Processing Division, IBM. - Regional Controller, IBM. EXHIBIT A Resume of JOHN E. FLOOD, JR. Born in Sanford, Maine, in 1929, John E. Flood, Jr. is a graduate of the Harvard Business School (MBA) and a graduate of the University of North Carolina - Chapel Hill (BA). He is Chairman of the Board of Antaeus Personnel Services Corporation and has 26 years of business experience in general management, marketing management, finance and planning. Prior to joining Antaeus Personnel Services Corporation, Mr. Flood held positions as: - Chairman of the Board and Chief Executive Officer of Ticor Title Insurance. - Chairman of the Board and Chief Executive of Title Insurance and Trust Company (now operating as Trust Services of America). - Founder Chairman of Ticor Home Protection Company. - Group Vice President of Chelsea Industries. - General Manager, Files Department of Mobil Chemical Company. - Marketing Consultant with Litton Industries. - Project Officer at the Bureau of Aeronautics, United States Navy. EXHIBIT B ANTAEUS PERSONNEL SERVICES CORPORATION BALANCE SHEET September 30, 1983 (UNAUDITED)
ASSETS ------ Current Assets Cash $ 6,016 Accounts Receivable - Trade 240,947 Accounts Receivable - Other 9,900 Prepaid Expenses 2,751 -------- Total Current Assets $259,614 -------- Fixed Assets $ 15,325 Organization Costs 544 Note Receivable 45,000 -------- Total Assets $320,483 -------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities Accounts Payable $127,346 Accrued Expense 600 Note Payable 35,000 -------- Total Current Liabilities $162,946 -------- Capital Stock $155,820 Retained Earnings 1,717 -------- Total Liabilities and Shareholders' Equity $320,483 -------- --------
EXHIBIT C ANTAEUS PERSONNEL SERVICES CORPORATION OPERATING STATEMENT June 26, 1983 through September 30, 1983 Revenues $749,667 - -------- -------- Expenses - -------- Contractors $540,326 Rent 12,710 Outside Service 20,485 Payroll 90,874 Management Fees 63,035 Insurance 10,556 Travel and Entertainment 4,440 Advertising 5,544 -------- Total Expenses $747,970 -------- -------- Net Profit $ 1,717 --------
EXHIBIT D Assume Liquidation* (Excluding Costs and Expenses of Liquidation) At January 1, 1984 Cash Available......................... $645,000 Add proceeds for: Sale of lease base and accounts receivable............... $ 30,000 Sale of Ledgermatic................. 25,000 Sale of Inventory and furniture..... 5,000 60,000 -------- -------- Subtotal......................... 705,000 Deduct Payments: Adminstrative Claims: Debtor's General Counsel.......... 120,000 Counsel to Creditors Committee.... 20,000 Special Securities Counsel........ 27,400 Accountants Fees.................. 20,900 Sales and Personal Property Taxes, and other Accrued Liabilities... 37,700 $226,000 ------- Priority Employees.................. 20,669 Taxes............................... 354,437 -------- 601,106 -------- Available for General Unsecured Creditors (Prior to payment of the costs and expenses of liq- uidation)......................... $103,894 -------- -------- Amount due General Unsecured Creditors......................... $717,800 -------- -------- Payout Rate....................... 14.5%* -------- --------
*The Debtor is contesting approximately 15 tax claims. Should the Debtor prevail in all cases, the payment rate would be increased to 22%. Exhibit G Plan of Reorganization Schedule of Cash SEPTEMBER 30, 1983
Principal Interest Checking Accounts Amount Receivable - ----------------- --------- ----------- Citytrust $ 3,894 $ -- 961 Main Street Bridgeport, CT 06601 Act. #807-459-3 Citibank, N.A. 1,123 -- 111 Wall Street New York, NY 10043 Act. #739-30724384-28 Union Trust Company 1,700 -- Old Greenwich Office Old Greenwich, CT 06870 Act. #1-290-283 Money Market Accounts - --------------------- Citytrust 48,413 113 961 Main Street Bridgeport, CT 06601 Act. #923-263-5 Union Savings Bank 101,699 -- P.O. Box 647 Danbury, CT 06810 Act. #00670003489 Merchants Bank 67,833 -- P.O. Box 760 Norwalk, CT 06882 South Norwalk Savings 88,516 -- 50 North Main Street South Norwalk, CT 06856 Act. #00630005236 Union Trust Company 101.499 -- Box 6000 Norwalk, CT 06852 Act. #3-207-408
Exhibit H Page 1
Principal Interest Amount Receivable --------- ---------- Citytrust $ 50,000 $ 307 961 Main Street Bridgeport, CT 06601 (Commercial Paper) Act. #83EL34 Guardian Savings & Loan 100,000 599 3951 San Felipe Houston, TX 77027 (Jumbo Certificate) Act. #17-450908-9 State Savings & Loan 100,000 660 222 No. El Dorado Street P.O. Drawer D Stockton, CA 95201 Act. #90-528295-4 Total $664,677 $ 1,679 -------- -------- -------- --------
EXHIBIT H, Page 2 EXHIBIT D Filed with the United States Bankruptcy Court, District of Connecticut, Bridgeport Division, December 19, 1983 EXHIBIT D UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT In re: ) ) DATA DIMENSIONS, INC. ) Bankruptcy Case No. a/k/a DDEC of Texas, Inc., ) 5-81-01236 ) Chapter 11 Debtor ) - ---------------------------------------- CERTIFICATION OF VOTES The undersigned officer of the debtor hereby certifies that: 1. 24 creditors in Class 4 holding a total of $493,530 in general unsecured claims voted in writing FOR the debtor's plan of reorganization. 2. 0 creditors in Class 4 holding a total of $0 in general unsecured claims voted in writing AGAINST the debtor's plan of reorganization. *3. 97 shareholders in Class 5 holding a total of 476,042 shares of common stock in the debtor voted in writing FOR the debtor's plan of reorganization. **4. 1 shareholders in Class 5 holding a total of 100 shares of common stock in the debtor voted in writing AGAINST the debtor's plan of reorganization. 5. Exhibit A attached hereto identifies the individual votes as received by the undersigned. DATA DIMENSIONS, INC. By ------------------------------------ Victor F. Donnelly Its Treasurer * includes 161,343 shares of 3 insiders ** represents 7 accounts STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "DATA DIMENSIONS, INC.", FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY OF JUNE, A.D. 1978, AT 10 O'CLOCK A.M. [SEAL] /s/ Edward J. Freel ---------------------------------------- EDWARD J. FREEL, SECRETARY OF STATE 0696915 8100 AUTHENTICATION: 7609335 950184728 DATE: 08-15-95 CERTIFICATE OF AMENDMENT OF DATA DIMENSIONS, INC. FILED 10 AM JUN 21 1978 (Illegible text) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF DATA DIMENSIONS, INC. -------------------------- Pursuant to Section 242 of the General Corporation Law of the State of Delaware -------------------------- We, LESTER M. GOTTLIEB and CHARLES F. CRAMES, respectively President and Secretary of Data Dimensions, Inc. ("Corporation"), a corporation organized and existing under the laws of the State of Delaware, do hereby certify as follows: 1. The Certificate of Incorporation of the Corporation is hereby amended by deleting Articles FOURTH and SEVENTH in their entirety and substituting in lieu and in place thereof the following: "FOURTH: The total number of shares of stock which the corporation shall have authority to issue is three million (3,000,000) and the par value of each of such shares is Ten Cents ($.10) amounting in the aggregate to Three Hundred Thousand Dollars ($300,000). SEVENTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders, it is further provided: (1) The property, affairs and business of the corporation shall be managed by its board of directors consisting of such number of directors as shall be specified in Article III, Section 1 of the by-laws of the corporation. The exact number of directors within the maximum and minimum limitations specified in such Article III, Section 1 shall be fixed from time to time by resolution of the board of directors. The directors shall be classified with respect to the time during which they shall severally hold office by dividing them into three classes, each class consisting of one-third of the number of directors constituting the whole board, as authorized by resolution of the board of directors, and all directors of the corporation shall hold office until their successors shall be elected and shall qualify. At the meeting of the stockholders of the corporation held for the election of the first such classified board, the directors of Class I shall be elected for a term of one year, the directors of Class II for a term of two years, and the directors of Class III for a term of three years. At each annual meeting of stockholders held thereafter, the 2 successors to the class of directors whose terms shall expire that year shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year. In instances where the total number of directors constituting the whole board, as authorized by resolution of the board of directors, is a number other than an integral multiple of three, the number of directors to be elected to each class shall reasonably approximate the number which would have been elected to such class had the total number of directors constituting the whole board been an integral multiple of three, as determined by the board of directors. The directors shall have the power, from time to time and at any time, when the stockholders are not assembled at a meeting, to increase or decrease their own number, within the maximum and minimum limitations specified in Article III, Section 1 of the by-laws of the Corporation, by resolution of the board of directors. If the number of directors be increased, all of the additional directors may be elected and classified by a majority of directors in office at the time of the increase, or, if not so elected by the directors, they shall be elected and classified by plurality vote by the stockholders at such annual meeting. Directors need not be stockholders. (2) In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the board of directors is expressly authorized and empowered: 3 (a) To make, alter, amend or repeal the by-laws. (b) To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. (c) To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which is was created. (d) By a majority of the while board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution or in the by-laws of the Corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, the by-laws may provide that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they 4 constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. (e) Without the assent or vote of the stockholders of the corporation to authorize and issue obligations of the corporation, secured or unsecured, to include therein such provisions as to redeemability, convertibility or otherwise, as the board of directors, in its sole discretion, may determine, and to authorize the mortgaging or pledging as security therefor of any property of the corporation, real or personal, including after-acquired property; (f) To establish bonus, profit sharing or other types of incentive or compensation plans for the employees (including officers and directors) of the corporation and to fix the amount of profits to be distributed or shared and to determine the persons to participate in any such plans and the amounts of their respective participation. In addition to the powers and authorities hereinbefore or by statute expressly conferred upon it, the board of directors may exercise all such powers and do all such acts and things as may be exercised or done by the corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of this Certificate of Incorporation and of the by-laws of the corporation. 5 (3) (a) The affirmative vote of the holders of 66-2/3% of the shares of the Public Stock (as hereinafter defined) considered for the purposes of this Paragraph 3 as one class, shall be required for the adoption or authorization of any Business Combination (as hereinafter defined) with a Controlling Stockholder (as hereinafter defined). (b) For the purposes of this Article SEVENTH, (i) The term "Controlling Stockholder" shall mean any person, firm or corporation which is the beneficial owner of 30% or more of the Voting Stock (as hereinafter defined), or which at any time has been the beneficial owner of 30% or more of the Voting Stock, or which together with any (a) "affiliate" or "associate" (as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1978); and/or (b) any person, firm or corporation with whom or which it has any agreement, arrangement or understanding, voting or disposing of stock of the corporation; and/or (c) the successors and assigns of such persons in any transaction or series of transactions not involving a public offering of the corporation's stock within the meaning of the Securities Act of 1933; is the beneficial owner of 30% or more 6 of the Voting Stock, or which at any time has been the beneficial owner of 30% or more of the Voting Stock; (ii) a Controlling Stockholder shall be deemed to be the beneficial owner of any shares of stock of the corporation which is has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (iii) the outstanding shares of any class of stock of the corporation shall be deemed to include shares deemed owned through application of clause (ii) above but shall not include any other shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise; (iv) the term "Business Combination" shall mean a any merger or consolidation of the corporation with or into any other corporation, an exchange of shares of Voting Stock for securities or obligations of, another corporation, a sale or lease of all or substantially all of the property and assets of the corporation to any person, firm or corporation, or a sale or lease to the corporation or any subsidiary thereof of any assets having an aggregate fair market value of more than $2 million in exchange for securities of the corporation. 7 (v) the term "Public Stock" shall mean the Voting Stock held by any person, firm or corporation other than a Controlling Stockholder; and (vi) the term "Voting Stock" shall mean the stock of the corporation entitled to vote on any business combination. (d) A majority of the directors shall have the power and duty to determine for the purposes of this Article SEVENTH, Paragraph 3, on the basis of information known to them whether (i) any person, firm or corporation is a Controlling Stockholder; and (ii) the assets being acquired by the corporation, or any subsidiary thereof, have an aggregate fair market value of less than $2 million. (4) (a) The affirmative vote of the holders of 66-2/3% of the shares of Public Stock, considered for the purposes of this Paragraph 4 as one class, shall be required for the amendment or repeal by the stockholders of that section of the by-laws of the corporation which fixes the number of directors constituting the whole board of directors. The foregoing provision shall not affect or impair the power of the board of directors to amend or repeal such by- law provision. (b) A majority of the directors shall 8 have the power and duty to determine for the purposes of this Article SEVENTH, Paragraph 4, on the basis of information known to them whether any person, firm or corporation is a Controlling Stockholder. (5) No amendment to the Certificate of Incorporation of the corporation shall change, repeal or make inoperative any of the provisions of this Article SEVENTH, Paragraphs 3 or 4, unless such amendment receives the affirmative vote of the holders of 66-2/3% of the shares of the Public Stock, considered for the purposes of this Paragraph 5 as one class. (6) Nothing contained in this Article SEVENTH shall be construed to relieve any person, firm or corporation from any fiduciary obligation imposed by law. The voting requirements of this Article SEVENTH shall be in addition to the voting requirements imposed by law or other provisions of this Certificate of Incorporation in favor of certain classes of stock." 2. Such amendment of the Certificate of Incorporation of the Corporation has bene duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 9 3. The capital of the Corporation will not be reduced under or by reason of this amendment. IN WITNESS WHEREOF, we, Lester M. Gottlieb and Charles F. Crames, respectively President and Secretary of Data Dimensions, Inc., have signed this certificate and have caused the corporate seal of the Corporation to be hereunto affixed this 15th day of June, 1978. DATA DIMENSIONS, INC. By /s/ Lester M. Gottlieb ---------------------------- Lester M. Gottlieb, President ATTEST: /s/ Charles F. Crames - ---------------------------- Charles F. Crames, Secretary [Corporate Seal] 10 STATE OF CONNECTICUT) : ss.: COUNTY OF FAIRFIELD) BE IT REMEMBERED that on June 15, 1978, before me, a Notary Public duly authorized by law to take acknowledgments of deeds, personally came LESTER M. GOTTLIEB, President of Data Dimensions, Inc., who duly signed the foregoing instrument before me and acknowledged that such signing is his act and deed, that such instrument, as executed, is the act and deed of said corporation, and that the facts stated herein are true. GIVEN under my hand on June 15, 1978. /s/ illegible -------------------- Notary Public Notary Public My commission expires on March 31, 1983. 11 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "DATA DIMENSIONS, INC.", FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY OF DECEMBER, A.D. 1968, AT 10 O'CLOCK A.M. [SEAL] /s/ Edward J. Freel --------------------------------------- Edward J. Freel, Secretary of State 0696915 8100 AUTHENTICATION: 7609334 950184728 DATE: 08-15-95 CERTIFICATE OF INCORPORATION OF DATA DIMENSIONS, INC. * * * * * FIRST. The name of the corporation is DATA DIMENSIONS, INC. SECOND. The address of its registered office in the State of Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted is: To establish, maintain, and furnish, services related to the collection, processing and maintenance of data, records, information, and communications of all kinds, and the development, installation, and operation, of procedures and equipment suitable or useful in connection therewith. To develop, manufacture, produce, assemble, fabricate, import, lease, purchase or otherwise acquire, invest in, own, hold, use, license the use of, install, operate, handle, maintain, service, repair, sell, pledge, mortgage, exchange, export, distribute, lease, assign, dispose of, and - 1 - deal in and with, as principal or agent, at wholesale, retail, on commission or otherwise, computers, electronic systems, equipment, components, electrical and electro-mechanical apparatus, data processing equipment, cables, motors, dynamos, generating plants, meters, supplies, parts, appliances, tools, goods, wares, merchandise, commodities, articles of commerce, and property of every kind and description used or useful in connection therewith. To prepare, develop and establish computer programming libraries and manuals of operation and maintenance, and to instruct and train operating and maintenance crews for computers, electronic and electro-mechanical systems and equipment of every kind and description. To employ persons to write and to print or publish or cause to be printed or published any articles, magazines or books which the corporation may desire, and to sell, distribute and deal with any matter or print as the corporation may see fit. To engage in the business of an employment agency; and to establish, maintain, and operate systems, for the purpose of supplying professional, specialized, skilled and unskilled workers to perform services and labor for offices, businesses and industries on a temporary or permanent basis. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole - 2 - or any part of the obligations or liabilities of any person, firm, association or corporation. To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trade-marks and trade names, relating to or useful in connection with any business of this corporation. To acquire by purchase, subscription or otherwise, and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the government of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof. - 3 - To borrow or raise moneys for any of the purposes of the corporation and, from time to time without limit as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes. To purchase, receive, take by grant, gift, devise, bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, all or any of the corporation's property and assets, or any interest therein, wherever situated. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of Delaware or by any other law of Delaware or by this certificate of incorporation together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the corporation. The business and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in - 4 - nowise limited or restricted by reference to, or inference from, the terms of any other clause in this certificate of incorporation, but the business and purposes specified in each of the foregoing clauses of this article shall be regarded as independent business and purposes. FOURTH. The total number of shares of stock which the corporation shall have authority to issue is one million five hundred thousand (1,500,000) and the par value of each of such shares is Ten Cents ($.10) amounting in the aggregate to One Hundred Fifty Thousand Dollars ($150,000.00). FIFTH. The name and mailing address of each incorporator is as follows: NAME MAILING ADDRESS ---- --------------- B. J. Consono 100 West Tenth Street Wilmington, Delaware F. J. Obara, Jr. 100 West Tenth Street Wilmington, Delaware A. D. Grier 100 West Tenth Street Wilmington, Delaware SIXTH. The corporation is to have perpetual existence. SEVENTH. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter or repeal the by-laws of the corporation. -5- To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, the by-laws may provide that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called upon such notice as is required by statute, -6- or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the corporation. Without the assent or vote of the stockholders of the Corporation to authorize and issue obligations of the Corporation, secured or unsecured, to include therein such provisions as to redeemability, convertibility or otherwise, as the Board of Directors, in its sole discretion, may determine, and to authorize the mortgaging or pledging as security therefor of any property of the Corporation, real or personal, including after-acquired property; To establish bonus, profit sharing or other types of incentive or compensation plans for the employees (including officers and directors) of the Corporation and to fix the amount of profits to be distributed or shared and to determine the persons to participate in any such plans and the amounts of their respective participation. EIGHTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable -7- jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. NINTH. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the -8- State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. TENTH. The corporation shall indemnify its directors, officers, agents and employees to the extent permitted by the laws of the State of Delaware. ELEVENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 24th day of December, 1968. /s/ B. J. CONSONO ----------------------------------- /s/ F. J. OBARA, JR. ----------------------------------- /s/ A. D. GRIER ----------------------------------- -9- STATE OF DELAWARE ) ) ss: COUNTY OF NEW CASTLE ) BE IT REMEMBERED that on this 24th day of December, 1968, personally came before me, a Notary Public for the State of Delaware, B. J. Consono, F. J. Obara, Jr. and A. D. Grier, all of the parties to the foregoing certificate of incorporation, known to me personally to be such, and severally acknowledged the said certificate to be the act and deed of the signers respectively and that the facts stated therein are true. GIVEN under my hand and seal of office the day and year aforesaid. /s/ G. DANA ATWELL ------------------------------------ Notary Public [SEAL] EX-3.2 3 EXHIBIT 3.2 DATA DIMENSIONS, INC. A DELAWARE CORPORATION AMENDED AND RESTATED BYLAWS ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the last annual meeting of stockholders. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by either the Board of Directors or by the President and shall be called by the President and Secretary at the request in writing of stockholders holding a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose of the meeting. Meetings shall be held at such place, on such date, and at such time as the person calling the meeting shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. 1 SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. SECTION 5. CONDUCT OF THE STOCKHOLDERS' MEETING. At every meeting of the stockholders, the Chairman, if there is such an officer, or if not, the President of the Corporation, or in his absence the Vice President designated by the President, or in the absence of such designation any Vice President, or in the absence of the President or any Vice President, a chairman chosen by the majority of the voting shares represented in person or by proxy, shall act as Chairman. The Secretary of the Corporation or a person designated by the Chairman shall act as Secretary of the meeting. Unless otherwise approved by the Chairman, attendance at the stockholders' meeting is restricted to stockholders of record, persons authorized in accordance with Section 8 of these Bylaws to act by proxy, and officers of the corporation. SECTION 6. CONDUCT OF BUSINESS. The Chairman shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the Chairman's discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. The Chairman shall also conduct the meeting in an orderly manner, rule on the precedence of and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part. The Chairman may impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any person in attendance become unruly or obstruct the meeting proceedings, the Chairman shall have the power to have such person removed from participation. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 6. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 6, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 7. PROXIES AND VOTING. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an 2 instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. No stockholder may authorize more than one proxy for his shares. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. SECTION 8. STOCK LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of at such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. 3 ARTICLE II BOARD OF DIRECTORS SECTION 1. NUMBER AND TERM OF OFFICE. The number of directors which shall constitute the whole board shall be not less than three nor more than fifteen. The number of directors shall initially be set at three and, thereafter, within the limits above specified, shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by resolution of the Board or by the stockholders at the annual meeting. The directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of each of the classes as provided in the Certificate of Incorporation. At each annual meeting of stockholders following their initial election, directors shall be elected to succeed those directors whose terms expire for a term of office to expire at the third succeeding annual meeting of stockholders after their election. All directors shall hold office until the expiration of the term for which elected and until their respective successors are elected, except in the case of the death, resignation or removal of any director. SECTION 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, removal from office, disqualification or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 3. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by one-third of the directors then in office (rounded up to the nearest whole number) or by the President and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such 4 special meeting shall be given each director by whom it is not waived by mailing written notice not fewer than five (5) days before the meeting or by telecopying, telegraphing or personally delivering the same not fewer than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. SECTION 6. QUORUM. At any meeting of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting at another place, date, or time, without further notice or waiver thereof. SECTION 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. SECTION 8. CONDUCT OF BUSINESS. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. SECTION 9. POWERS. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; 5 (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these bylaws, for the management of the Corporation's business and affairs. SECTION 10. COMPENSATION OF DIRECTORS. Directors, as such, may receive, pursuant no resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. SECTION 11. NOMINATION OF DIRECTOR CANDIDATES. Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. ARTICLE III COMMITTEES SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. 6 SECTION 2. CONDUCT OF BUSINESS. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the authorized members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE IV OFFICERS SECTION 1. GENERALLY. The officers of the Corporation shall consist of a President, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, and such other officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Chairman of the Board, if there shall be such an officer, and the President shall each be members of the Board of Directors. Any number of offices may be held by the same person. SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these bylaws. SECTION 3. PRESIDENT. The President shall be the chief executive officer of the Corporation. Subject to the provisions of these bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to his or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation. SECTION 4. VICE PRESIDENT. Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One Vice President shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President's absence or disability. 7 SECTION 5. TREASURER. The Treasurer shall have the responsibility for maintaining the financial records of the Corporation and shall have custody of all monies and securities of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe. SECTION 6. SECRETARY. The secretary shall issue all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders, the Board of Directors, and all committees of the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. SECTION 7. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. SECTION 8. REMOVAL. Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors. SECTION 9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V STOCK SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile. SECTION 2. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these bylaws, 8 an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. SECTION 3. RECORD DATE. The Board of Directors may fix a record date, which shall not be more than sixty (60) nor fewer than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. SECTION 5. REGULATIONS. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES SECTION 1. NOTICES. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy or commercial courier service. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address a the same appears on the books of the Corporations. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or the time such notice is dispatched, if delivered through the mails or by telegram, mailgram, telecopy or commercial courier service. SECTION 2. WAIVERS. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. 9 ARTICLE VII MISCELLANEOUS SECTION 1. FACSIMILE SIGNATURES. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. SECTION 2. CORPORATE SEAL. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be as fixed by the Board of Directors. SECTION 5. TIME PERIODS. In applying any provision of these bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, or of a Partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held 10 harmless by the Corporation to the fullest extent authorized by Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this bylaw or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER, that, except as provided in Section 2 of this Article VIII, the Corporation shall indemnify any such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the action, suit or proceeding (or part thereof) was authorized by the board of directors of the Corporation, (c) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Delaware General Corporation Law, or (d) the action, suit or proceeding (or part thereof) is brought to establish or enforce a right to indemnification under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1 of this Article VIII is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other then an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount 11 claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person in Sections 1 and 2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 4. INDEMNIFICATION CONTRACTS. The board of directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the board of directors so determinates, greater than, those provided for in this Article VIII. SECTION 5. INSURANCE. The Corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECTION 6. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article VIII by the stockholders and the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. 12 ARTICLE IX AMENDMENTS The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. 13 CERTIFICATE OF SECRETARY I, Larry Martin, hereby certify: That I am the duly elected and acting Secretary of DATA DIMENSIONS, INC., a Delaware corporation; and That the foregoing Bylaws comprising thirteen (13) pages, constitute the original Bylaws of said Corporation as duly adopted by unanimous written consent of the Board of Directors of the Corporation on July __, 1991. IN WITNESS WHEREOF, I have hereunder subscribed my name this ____ day of _______________, 1991. /s/ Larry Martin --------------------------------------- Larry Martin 14 EX-4.1 4 EXHIBIT 4.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMON STOCK COMMON STOCK NUMBERS SHARES DATA DIMENSIONS INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR THE STATE OF DELAWARE CERTAIN DEFINITIONS CUSIP 237654 20 7 ---------------------------------------------------------------------- THIS CERTIFIES THAT is the record holder of ---------------------------------------------------------------------- FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE, OF ------------------------- DATA DIMENSIONS, INC. ---------------------- transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: DATA DIMENSIONS, INC. CORPORATE SEAL /s/ William H. Parsons 1968 /s/ Larry W. Martin William H. Parsons DELAWARE Larry W. Martin SECRETARY * PRESIDENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER AND TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE - ---------------------------------------------- AMERICAN BANK NOTE COMPANY FEB 7, 1996 3504 ATLANTIC AVENUE SUITE 12 042224fc LONG BEACH, CA 90807 (310) 959-2333 7B NEW (FAX) (310) 425-7450 - ---------------------------------------------- The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation of series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face fo this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ...............Custodian............... (Cust) (Minor) under Uniform Gifts to Minors Act.................................... (State) UNIF TRF MIN ACT -- ..........Custodian (until age........) (Cust) ................under Uniform Transfers (Minor) to Minors Act.......................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED,__________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________ _______________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated___________________________________ X ______________________________________ X ______________________________________ THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS NOTICE: WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By____________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17 Ad-15. - ---------------------------------------------- AMERICAN BANK NOTE COMPANY FEB 7, 1996 3504 ATLANTIC AVENUE SUITE 12 042224bk LONG BEACH, CA 90807 (310) 989-2333 (FAX) (310) 426-7450 NEW - ---------------------------------------------- EX-10.1 5 EXHIBIT 10.1 March 6, 1991 THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, (AS AMENDED THE "ACT"). NEITHER THIS WARRANT NOR THE COMMON STOCK MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR AN OPINION IS OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT. VOID AFTER 5:00 P.M. CALIFORNIA TIME ON MARCH 5, 1996, OR, IF NOT A BUSINESS DAY, AT 5:00 P.M. CALIFORNIA TIME, ON THE NEXT FOLLOWING BUSINESS DAY, UNLESS EXTENDED BY THE COMPANY. WARRANT TO PURCHASE 58,333 SHARES OF COMMON STOCK OF DATA DIMENSIONS, INC. TRANSFER RESTRICTED This certifies that, in consideration for (i) entering into the Note and Warrant Purchase Agreement dated March 6, 1991, with Data Dimensions, Inc., a Delaware corporation (the "Company"), (ii) the purchase of a Note thereunder and (iii) for payment of Five Hundred Eighty-Three and 33/XXX ($583.33) R&W Ventures II (the "Warrant Holder"), is entitled to purchase from the Company at any time before 5:00 P.M., California time, on March 5, 1996 (or, if that day is not a Business Day, as defined below, at or before 5:00 P.M., California time, on the next following Business Day) the number of fully paid and nonassessable shares of Common Stock of the Company (the "Stock") stated above at the Purchase Price (as defined below). The Purchase Price and the number of shares which may be purchased on exercise of this Warrent are subject to adjustment as provided below. (Revised January 23, 1992) ARTICLE I DEFINITIONS SECTION 1.01. (1) The term "Warrant Holder" as used in this Warrant means the person or entity named above, or any subsequent transferee. (2) The term "Business Day" as used in this Warrant means a day other than a Saturday, Sunday or any other day on which banks in the State of California are authorized by law to remain closed. (3) Except as otherwise provided herein, the term "Purchase Price" as used in this Warrant initially means $0.24 per share. (4) The term "Expiration Date" as used in this Warrant means the earlier of 5:00 P.M., California time on (a) March 5, 1996 (or if that day is not a Business Day, on the next following Business Day) and (b) the date of the closing of an acquisition of the Company as a result of a merger or sale of assets. (5) The term "Warrant Shares" as used in this Warrant means the shares of Common Stock or other securities deliverable upon exercise of conversion of this Warrant. ARTICLE II DURATION AND EXERCISE OF CONVERSION OF WARRANT SECTION 2.01. This Warrant may be exercised or converted at any time before 5:00 P.M., California time on the Expiration Date. If this Warrant is not exercised or converted at or before 5:00 P.M., California time on the Expiration Date, it will become void and all rights under this Warrant will cease at that time. SECTION 2.02. (1) This Warrant may be exercised in whole or part by the Warrant Holder by the surrender of this Warrant together with a duly executed copy of the Notice of Exercise or Conversion attached hereto as EXHIBIT A, at the pricicpal office of the Company, accompanied by payment of the Purchase Price for the number of Warrant Shares for which purchase rights hereunder are being exercised. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all 2 purposes as the holder of such shares of record as of the close of business on such date. As promptly as practiable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share as provided above. (2) In lieu of exercising this Warrant or any portion hereof, the Warrant Holder shall have the right to convert this Warrant or any portion hereof into shares of Common Stock without payment of additional consideration by executing and delivering to the Company at its principal office this Warrant and the Notice of Exercise or Conversion attached hereto as EXHIBIT A, specifying the portion of the Warrant to be converted. The number of Warrant Shares to be issued upon such conversion shall be computed using the following formula: X = (P)(Y)(A-B)/A where X = the number of Warrant Shares to be issued to the Warrant holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted, Y = the total number of Warrant Shares issuable upon exercise of the Warrant in full, A = the fair market value of one share of Common Stock as determined by the average of the closing ask price and bid price for the Company's Common Stock on the most recent date upon which the Company's Stock was traded, or if no trade occurred in the previous thirty days, as determined in good faith by the Company's Board of Directors, and B = the Purchase Price on the date of receipt by the Company of the notice of conversion. The portion of this Warrant represented by the variable "P" above shall be immediately cancelled. (3) In the event the purchase rights evidenced by this Warrant are exercised or converted in whole or in part, one or more certificates for the purchased shares shall be issused as soon as practicable thereafter to the person exercising or converting such rights. Such person shall also be issued at such time a new Warrant representing the number of shares (if any) for which the purchase rights under this Warrant remain unexercised or uncoverted and in continuing force and effect. 3 ARTICLE III ADJUSTMENT OF PURCHASE PRICE. NUMBER OF SHARES OR NUMBER OF WARRANTS SECTION 1.01. The Purchase Price, the number and type of securities issuable on exercise of this Warrant and the number of Warrants outstanding, are subject to adjustment as follows: If the Company (i) pays a dividend or makes a distribution on its Common Stock in Common Stock. (ii) subdivides or reclassifies the outstanding shares of its Common Stock into a greater number of shares, or (ii) combines or reclassifies the outstanding shares of its Common Stock into a smaller number of shares, at the close of business on the record date for that corporate action the Purchase Price will be proportionately reduced or increased. SECTION 3.02. Upon each adjustment of the Purchase Price as a result of calculations made in Section 3.01 above, this Warrant will after such adjustment evidence the right to purchase, at the adjusted Purchase Price, the number of Warrant Shares obtained by (i) multiplying (A) the number of Warrant Shares issuable on exercise of this Warrant immediately prior to the adjustment by (B) the Purchase Price in effect immediately prior to the adjustment and (ii) dividing the resulting product by the Purchase Price in effect immediately after the adjustment. However, the Company will not be required to issue a fractional share or to make any payment in lieu of issuing a fractional share. SECTION 3.03. Whenever the Purchase Price or the number of shares or type of securities issuable on exercise of this Warrant is adjusted as provided in this Article III, the Company (i) will compute the adjusted Purchase Price and the adjusted number of Warrant Shares and (ii) will prepare a certificate signed by its Chairman, President, Vice President, Treasurer or Secretary setting forth the adjusted Purchase Price and the adjusted number of Warrant Shares and showing in reasonable detail the facts upon which the adjustments were based, and (ii) will mail a copy of that certificate to the Warrant Holder. SECTION 3.04. If at any time when this Warrant is outstanding the Company (a) declares a dividend (or authorizes any other distribution) on its Common Stock payable otherwise than in cash out of its undistributed net income: (b) authorizes the granting to the holders of its Common Stock of rights to subscribe for or purchase any shares of Common Stock or other equity securities or other assets: 4 (c) authorizes a reclassification of its Common Stock (other than a subdivision or combination of its outstanding Common Stock), or a consolidation or merger to which the Company is a party, or a sale or transfer of all or substantially all the assets of the Company; or (d) authorizes as voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company will mail to the Warrant Holder at least 20 days (or 10 days in an instance specified in clause (a) or (b)) prior notice of the record date, or other date, for determining the shareholders entitled to receive the dividend, distribution or rights, or the securities or other property deliverable as a result of the reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. SECTION 3.05. The form of this Warrant need not be changed because of any changes in the Purchase Price or in the number of Warrant Shares and Warrants issued after that change may continue to describe the Purchase Price and the number of Warrant Shares which were described in this Warrant as initially issued. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDER SECTION 4.01. If this Warrant is exercised. the Warrant Holder will for all purposes be deemed to become the holder of record of the Common Stock into which this Warrant is exercisable, and the certificate will be dated the date this Warrant is surrendered for exercise, except that if that is a date when the stock transfer books of the Company are closed, the Warrant Holder will be deemed to become the record holder of the shares on, and the certificate will be dated, the next succeeding Business Day when the stock transfer books of the Company are open. Until this Warrant is exercised, the Warrant Holder, as such, will not be entitled to any of the rights of a shareholder of the Company, including the right to vote, to receive dividends or other distributions or to exercise preemptive rights (if any), and will not be entitled to receive notice of any proceedings of the Company, except as provided in this Warrant. SECTION 4.02. The Company covenants and agrees that: (1) at all times it will reserve and keep available for the exercise of this Warrant a sufficient number of authorized but unissued shares of Common Stock to permit the exercise in full of this Warrant; (2) all shares of Common Stock issued on exercise of this Warrant will be validly issued, fully paid, nonassessable and free of preemptive rights. 5 SECTION 4.03. Notices to the Warrant Holder relating to this Warrant will be effective on the third business day after mailing and will be sufficiently given or made if personally delivered or if sent by first class mail (which may be certified or registered), postage prepaid. addressed to the Warrant Holder at the address shown on the books of the Company. ARTICLE V TREATMENT OF WARRANT HOLDER SECTION 5.01. Prior to the presentation of this Warrant for registration of transfer, the Company may treat the Warrant Holder for all purposes as the owner of this Warrant and the Company will not be affected by any notice to the contrary. ARTICLE VI COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS SECTION 6.01. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation of them at the principal office of the Company together with a written notice signed by the Warrant Holder, specifying the names and denominations in which new Warrants are to be issued. SECTION 6.02. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification, or, in case of mutilation, upon surrender of the mutilated Warrant, the Company will execute and deliver a new Warrant bearing the same terms and date as the lost, stolen or destroyed Warrant, which will thereupon become void. ARTICLE VII RESTRICTION ON SALE OR OTHER DISPOSITION OF WARRANT SHARES SECTION 7.01. The Warrant and Warrant Shares may not be sold or otherwise disposed of except in a transaction registered under the Act, or which, in the opinion of counsel to the Warrant Holder, acceptable to the Company, is exempt from the registration requirements of the Act. SECTION 7.02. All certificates evidencing the Warrant Shares shall bear the following legend: 6 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) THE DISPOSITION IS MADE PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR (iii) AN OPINION IS OBTAINED FROM COUNSEL TO THE HOLDER. REASONABLEY SATISFACTORY TO COUNSEL TO THE COMPANY. THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT. ARTICLE VIII OTHER MATTERS SECTION 8.01. The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company in respect of the issuance or delivery of Warrant Shares upon the exercise of this Warrant Holder. SECTION 8.02. All the covenants and provisions of this Warrant by or for the benefit of the Company and the Warrant Holder will bind and inure to the benefit of their successors and assigns. SECTION 8.03. All notices and other communications under this Warrant must be in writing. Any notice or communication to the Company will be effective upon the earlier of actual receipt and the third business day after mailing by first-class mail (which may be certified or registered), as postage prepaid, addressed (until another address is designated by the Company) as follows: Data Dimensions, Inc. 24404 S. Vermont Avenue Harbor City, CA 90710 Any notice or demand authorized by this Warrant to be given or made by the Company to or on the Warrant Holder must be given in accordance with Section 4.03. SECTION 8.04. The validity, interpretation and performance of this Warrant will be governed by the laws of the State of California. SECTION 8.05. Nothing in this Warrant will give any person or corporation other than the Company and the Warrant Holder any right or claim under this Warrant and all agreements in this Warrant will be for the sole benefit of the Company and its 7 successors and assigns and of the Warrant Holder and its respective successors and assigns. SECTION 8.06. The Article headings in this Warrant are for convenience only, are not part of this Warrant, and will not affect the interpretation of its terms. SECTION 8.07. The provisions of Article VII shall survive the exercise or termination of this Warrant. IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of the 6th day of March 1991. DATA DIMENSIONS, INC. By /s/ Larry Martin --------------------------- Title President ------------------------- 8 EXHIBIT A NOTICE OF EXERCISE OR CONVERSION Date: __________, 19__ Data Dimensions, Inc. 24404 S. Vermont Avenue Harbor City, CA 90710 Ladies and Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Data Diminsions, Inc. (the "Company"), dated March 6, 199_ (the "Warrant") and to purchase thereunder _______________ shares of the Common Stock of the Company (the "Shares") at a purchase price of __________ Dollars ($______) per Share or an aggregate purchase price of _________ Dollars ($______) (the "Purchase Price"). Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. / / The undersigned hereby elects to convert ______ percent (_%) of the value of the Warrant at a purchase price of __________ Dollars ($______) per Share. Very truly yours. By ________________________ Receipt Acknowledged: DATA DIMENSIONS, INC. By _________________________ Title ______________________ Date _______________________ EX-10.2 6 EXHIBIT 10.2 March 6, 1991 THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. (AS AMENDED THE "ACT"). NEITHER THIS WARRANT NOR THE COMMON STOCK MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR AN OPINION IS OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT. VOID AFTER 5:00 P.M. CALIFORNIA TIME ON MARCH 5, 1996, OR, IF NOT A BUSINESS DAY, AT 5:00 P.M. CALIFORNIA TIME, ON THE NEXT FOLLOWING BUSINESS DAY, UNLESS EXTENDED BY THE COMPANY. WARRANT TO PURCHASE 7,333 SHARES OF COMMON STOCK OF DATA DIMENSIONS, INC. TRANSFER RESTRICTED This certifies that, in consideration for (I) entering into the Note and Warrant Purchase Agreement dated March 6, 1991, with Data Dimensions, Inc., a Delaware corporation (the "Company"), (ii) the purchase of a Note thereunder and (iii) for payment of Seventy-Three and 33/XXX ($73.33) BPIV (the "Warrant Holder"), is entitled to purchase from the Company at any time before 5:00 p.m., California time, on March 5,1996 (or, if that day is not a Business Day, as defined below, at or before 5:00 p.m., California time, on the next following Business Day)the number of fully paid and nonassessable shares of Common Stock of the Company (the "Stock") stated above at the Purchase Price (as defined below). The Purchase Price and the number of shares which may be purchased on exercise of this Warrant are subject to adjustment as provided below. (Revised January 23, 1992) ARTICLE I DEFINITIONS SECTION 1.01. (1) The term "Warrant Holder" as used in this Warrant means the person or entity named above, or any subsequent transferee. (2) The term "Business Day" as used in this Warrant means a day other than a Saturday, Sunday or any other day on which banks in the State of California are authorized by law to remain closed. (3) Except as otherwise provided herein, the term "Purchase Price" as used in this Warrant initially means $0.24 per share. (4) The term "Expiration Date" as used in this Warrant means the earlier of 5:00 p.m., California time on (a) March 5, 1996 (or if that day is not a Business Day, on the next following Business Day) and (b) the date of the closing of an acquisition of the Company as a result of a merger or sale of assets. (5) The term "Warrant Shares" as used in this Warrant means the shares of Common Stock or other securities deliverable upon exercise or conversion of this Warrant. ARTICLE II DURATION AND EXERCISE OR CONVERSION OF WARRANT SECTION 2.01. This Warrant may be exercised or converted at any time before 5:00 p.m., California time, on the Expiration Date. If this Warrant is not exercised or converted at or before 5:00 p.m., California time, on the Expiration Date, it will become void, and all rights under this Warrant will cease at that time. SECTION 2.02. (1) This Warrant may be exercised in whole or part by the Warrant Holder by the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise or Conversion attached hereto as EXHIBIT A, at the principal office of the Company, accompanied by payment of the Purchase Price for the number of Warrant Shares for which purchase rights hereunder are being exercised. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all 2 purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share as provided above. (2) In lieu of exercising this Warrant or any portion hereof, the Warrant Holder shall have the right to convert this Warrant or any portion hereof into shares of Common Stock without payment of additional consideration by executing and delivering to the Company at its principal office this Warrant and the Notice of Exercise or Conversion attached hereto as EXHIBIT A, specifying the portion of the Warrant to be converted. The number of Warrant Shares to be issued upon such conversion shall be computed using the following formula: X = (P)(Y)(A-B)/A where X = the number of Warrant Shares to be issued to the Warrant holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted. Y = the total number of Warrant Shares issuable upon exercise of the Warrant in full. A = the fair market value of one share of Common Stock as determined by the average of the closing ask price and bid price for the Company's Common Stock on the most recent date upon which the Company's Stock was traded, or if no trade occurred in the previous thirty days, as determined in good faith by the Company's Board of Directors, and B = the Purchase Price on the date of receipt by the Company of the notice of conversion. The portion of this Warrant represented by the variable "P" above shall be immediately cancelled. (3) In the event the purchase rights evidenced by this Warrant are exercised or converted in whole or in part, one or more certificates for the purchased shares shall be issued as soon as practicable thereafter to the person exercising or converting such rights. Such person shall also be issued at such time a new Warrant representing the number of shares (if any) for which the purchase rights under this Warrant remain unexercised or unconverted and in continuing force and effect. 3 ARTICLE III ADJUSTMENT OF PURCHASE PRICE NUMBER OF SHARES OR NUMBER OF WARRANTS SECTION 1.01. The Purchase Price, the number and type of securities issuable on exercise of this Warrant, and the number of Warrants outstanding, are subject to adjustment as follows: If the Company (I) pays a dividend or makes a distribution on its Common Stock in Common Stock, (ii) subdivides or reclassifies the outstanding shares of its Common Stock into a greater number of shares, or (ii) combines or reclassifies the outstanding shares of its Common Stock into a smaller number of shares, at the close of business on the record date for that corporate action the Purchase Price will be proportionately reduced or increased. SECTION 3.02. Upon each adjustment of the Purchase Price as a result of calculations make in Section 3.01 above, this Warrant will after such adjustment evidence the right to purchase, at the adjusted Purchase Price, the number of Warrant Shares obtained by (i) multiplying (A) the number of Warrant Shares issuable on exercise of this Warrant immediately prior to the adjustment by (B) the Purchase Price in effect immediately prior to the adjustment and (ii) dividing the resulting product by the Purchase Price in effect immediately after the adjustment. However, the Company will not be required to issue a fractional share or to make any payment in lieu of issuing a fractional share. SECTION 3.03. Whenever the Purchase Price or the number of shares or type of securities issuable on exercise of this Warrant is adjusted as provided in this Article III, the Company (i) will compute the adjusted Purchase Price and the adjusted number of Warrant Shares and (ii) will prepare a certificate signed by its Chairman, President, Vice President, Treasurer or Secretary setting forth the adjusted Purchase Price and the adjusted number of Warrant Shares and showing in reasonable detail the facts upon which the adjustments were based, and (ii) will mail a copy of that certificate to the Warrant Holder. SECTION 3.04. If at any time when this Warrant is outstanding the Company (a) declares a dividend (or authorizes any other distribution) on its Common Stock payable otherwise than in cash out of its undistributed net income: (b) authorizes the granting to the holders of its Common Stock of rights to subscribe for or purchase any shares of Common Stock, or other equity securities, or other assets: 4 (c) authorizes a reclassification of its Common Stock (other than a subdivision or combination of its outstanding Common Stock), or a consolidation or merger to which the Company is a party, or a sale or transfer of all or substantially all the assets of the Company; or (d) authorizes as voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company will mail to the Warrant Holder at least 20 days (or 10 days in an instance specified in clause (a) or (b) prior notice of the record date, or other date, for determining the shareholders entitled to receive the dividend, distribution or rights, or the securities or other property deliverable as a result of the reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. SECTION 3.05. The form of this Warrant need not be changed because of any changes in the Purchase Price or in the number of Warrant Shares and Warrants issued after that change may continue to describe the Purchase Price and the number of Warrant Shares which were described in this Warrant as initially issued. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDER SECTION 4.01. If this Warrant is exercised, the Warrant Holder will for all purposes be deemed to become the holder of record of the Common Stock into which this Warrant is exercisable, and the certificate will be dated the date this Warrant is surrendered for exercise, except that if that is a date when the stock transfer books of the Company are closed, the Warrant Holder will be deemed to become the record holder of the shares on and the certificate will be dated, the next succeeding Business Day when the stock transfer books of the Company are open. Until this Warrant is exercised the Warrant Holder, as such, will not be entitled to any of the rights of a shareholder of the Company, including the right of vote, to receive dividends or other distributions or to exercise preemptive rights (if any), and will not be entitled to receive notice of any proceedings of the Company, except as provided in this Warrant. SECTION 4.02. The Company covenants and agrees that: (1) at all times it will reserve and keep available for the exercise of this Warrant a sufficient number of authorized but unissued shares of Common Stock to permit the exercise in full of this Warrant; (2) all shares of Common Stock issued on exercise of this Warrant will be validly issued, fully paid, nonassessable and free of preemptive rights. 5 SECTION 4.03. Notices to the Warrant Holder relating to this Warrant will be effective on the third business day after mailing and will be sufficiently given or made if personally delivered or if sent by first class mail (which may be certified or registered), postage prepaid, addressed to the Warrant Holder at the address shown on the books of the Company. ARTICLE V TREATMENT OF WARRANT HOLDER SECTION 5.01. Prior to the presentation of this Warrant for registration of transfer, the Company may treat the Warrant Holder for all purposes as the owner of this Warrant and the Company will not be affected by any notice to the contrary. ARTICLE VI COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS SECTION 6.01. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation of them at the principal office of the Company together with a written notice signed by the Warrant Holder, specifying the names and denominations in which new Warrants are to be issued. SECTION 6.02. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction. of reasonably satisfactory indemnification. Or, in the case of mutilation, upon surrender of the mutilated Warrant, the Company will execute and deliver a new Warrant bearing the same terms and date as the lost, stolen or destroyed Warrant, which will thereupon become void. ARTICLE VII RESTRICTION ON SALE OR OTHER DISPOSITION OF WARRANT SHARES SECTION 7.01. The Warrant and Warrant Shares may not be sold or otherwise disposed of except in a transaction registered under the Act, or which, in the opinion of counsel to the Warrant Holder, acceptable to the Company, is exempt from the registration requirements of the Act. SECTION 7.02. All certificates evidencing the Warrant Shares shall bear the following legend: 6 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) THE DISPOSITION IS MADE PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR (iii) AN OPINION IS OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT. ARTICLE VIII OTHER MATTERS SECTION 8.01. The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company in respect of the issuance or delivery of Warrant Shares upon the exercise of this Warrant by the Warrant Holder. SECTION 8.02. All the covenants and provisions of this Warrant by or for the benefit of the Company and the Warrant Holder will bind and inure to the benefit of their successors and assigns. SECTION 8.03. All notices and other communications under this Warrant must be in writing. Any notice or communication to the Company will be effective upon the earlier of actual receipt and the third business day after mailing by first-class mail (which may be certified or registered), as postage prepaid, addressed (until another address is designated by the Company) as follows: Data Dimensions, Inc. 24404 S. Vermont Avenue Harbor City, CA 90710 Any notice or demand authorized by this Warrant to be given or made by the Company to or on the Warrant Holder must be given in accordance with Section 4.03. SECTION 8.04. The validity, interpretation and performance of this Warrant will be governed by the laws of the State of California. SECTION 8.05. Nothing in this Warrant will give any person or corporation other than the Company and the Warrant Holder any right or claim under this Warrant, and all agreements in this Warrant will be for the sole benefit of the Company and its 7 successors and assigns and of the Warrant Holder and its respective successors and assigns. SECTION 8.06. The Article headings in this Warrant are for convenience only, are not part of this Warrant, and will not affect the interpretation of its terms. SECTION 8.07. The provisions of Article VII shall survive the exercise or termination of this Warrant. IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of the 6th day of March, 199 /. DATA DIMENSIONS, INC. By /s/ Larry Martin -------------------------------- Title President ----------------------------- 8 EXHIBIT A NOTICE OF EXERCISE OR CONVERSION Date: ________, 19__ Data Dimensions, Inc. 24404 S. Vermont Avenue Harbor City, CA 90710 Ladies and Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Data Dimensions, Inc. (The "Company"), dated March 6, 199_ (the "Warrant") and to purchase thereunder________ shares of the Common Stock of the Company (the "Shares") at a purchase price of _______ Dollars ($______) per Share or an aggregate purchase price of ________ Dollars ($______) (the "Purchase Price"). Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. / / The undersigned hereby elects to convert _______ percent (__%) of the value of the Warrant at a purchase price of ________ Dollars ($_____) per share. Very truly yours. By ---------------------- Receipt Acknowledged: DATA DIMENSIONS, INC. By ------------------ Title --------------- Date ---------------- EX-10.3 7 EXHIBIT 10.3 Exhibit 10.3 March 6, 1991 THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, (AS AMENDED THE "ACT"). NEITHER THIS WARRANT NOR THE COMMON STOCK MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, PURSUANT TO RULE 144 UNDER THE ACT IF AVAILABLE, OR AN OPINION IS OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLE SATISFACTORY TO COUNSEL TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT. VOID AFTER 5:00 P.M. CALIFORNIA TIME ON MARCH 5, 1996, OR, IF NOT A BUSINESS DAY, AT 5:00 P.M. CALIFORNIA TIME, ON THE NEXT FOLLOWING BUSINESS DAY, UNLESS EXTENDED BY THE COMPANY. WARRANT TO PURCHASE 84,334 SHARES OF COMMON STOCK OF DATA DIMENSIONS, INC. TRANSFER RESTRICTED This certifies that, in consideration for (i) entering into the Note and Warrant Purchase Agreement dated March 6, 1991, with Data Dimensions, Inc., a Delaware corporation (the "Company"), (ii) the purchase of a Note thereunder and (iii) for payment of Eight Hundred Forty-Three and 34/XXX ($843.34) Bay Partners IV (the "Warrant Holder"), is entitled to purchase from the Company at any time before 5:00 p.m., California time, on March 5, 1996 (or, if that day is not a Business Day, as defined below, at or before 5:00 p.m., California time, on the next following Business Day) the number of fully paid and nonassessable shares of Common Stock of the Company (the "Stock") stated above at the Purchase Price (as defined below). The Purchase Price and the number of shares which may be purchased on exercise of this Warrant are subject to adjustment as provided below. (Revised January 23, 1992) ARTICLE I DEFINITIONS SECTION 1.01 (1) The term "Warrant Holder" as used in this Warrant means the person or entity named above, or any subsequent transferee. (2) The term "Business Day" as used in this Warrant means a day other than a Saturday, Sunday or any other day on which banks in the State of California are authorized by law to remain closed. (3) Except as otherwise provided herein, the term "Purchase Price" as used in this Warrant initially means $0.24 per share. (4) The term "Expiration Date" as used in this Warrant means the earlier of 5:00 P.M., California time on (a) March 5, 1996 (or if that day is not a Business Day, on the next following Business Day) and (b) the date of the closing of an acquisition of the Company as a result of a merger or sale of assets. (5) The term "Warrant Shares" as used in this Warrant means the shares of Common Stock or other securities deliverable upon exercise or conversion of this Warrant. ARTICLE II DURATION AND EXERCISE OR CONVERSION OF WARRANT SECTION 2.01. This Warrant may be exercised or converted at any time before 5:00 P.M., California time, on the Expiration Date. If this Warrant is not exercised or converted at or before 5:00 P.M., California time, on the Expiration Date, it will become void, and all rights under this Warrant will cease at that time. SECTION 2.02. (1) This Warrant may be exercised in whole or part by the Warrant Holder by the surrender of this Warrant, together with a duly executed copy of the Notice of Exercise or Conversion attached hereto as EXHIBIT A, at the principal office of the Company, accompanied by payment of the Purchase Price for the number of Warrant Shares for which purchase rights hereunder are being exercised. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all 2 purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share as provided above. (2) In lieu of exercising this Warrant or any portion hereof; the Warrant Holder shall have the right to convert this Warrant or any portion hereof into shares of Common Stock without payment of additional consideration by executing and delivering to the Company at its principal office this Warrant and the Notice of Exercise or Conversion attached hereto as EXHIBIT A, specifying the portion of the Warrant to be converted. The number of Warrant Shares to be issued upon such conversion shall be computed using the following formula: X = (P)(Y)(A-B)/A where X = the number of Warrant Shares to be issued to the Warrant holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted. Y = the total number of Warrant Shares issuable upon exercise of the Warrant in full. A = the fair market value of one share of Common Stock as determined by the average of the closing ask price and bid price for the Company's Common Stock on the most recent date upon which the Company's Stock was traded or if no trade occurred in the previous thirty days, as determined in good faith by the Company's Board of Directors, and B = the Purchase Price on the date of receipt by the Company of the notice of conversion. The portion of this Warrant represented by the variable "P" above shall be immediately cancelled. (3) In the event the purchase rights evidenced by this Warrant are exercised or converted in whole or in part, one or more certificates for the purchased shares shall be issued as soon as practicable thereafter to the person exercising or converting such rights. Such person shall also be issued at such time a new Warrant representing the number of shares (if any) for which the purchase rights under this Warrant remain unexercised or unconverted and in continuing force and effect. 3 ARTICLE III ADJUSTMENT OF PURCHASE PRICE NUMBER OF SHARES OR NUMBER OF WARRANTS SECTION 1.01. The Purchase Price, the number and type of securities issuable on exercise of this Warrant and the number of Warrants outstanding, are subject to adjustment as follows: If the Company (i) pays a dividend or makes a distribution on its Common Stock in Common Stock, (ii) subdivides or reclassifies the outstanding shares of its Common Stock into a greater number of shares, or (ii) combines or reclassifies the outstanding shares of its Common Stock into a smaller number of shares, at the close of business on the record date for that corporate action the Purchase Price will be proportionately reduced or increased. SECTION 3.02. Upon each adjustment of the Purchase Price as a result of calculations made in Section 3.01 above this Warrant will after such adjustment evidence the right to purchase, at the adjusted Purchase Price, the number of Warrant Shares obtained by (i) multiplying (A) the number of Warrant Shares issuable on exercise of this Warrant immediately prior to the adjustment by (B) the Purchase Price in effect immediately prior to the adjustment and (ii) dividing the resulting product by the Purchase Price in effect immediately after the adjustment. However, the Company will not be required to issue a fractional share or to make any payment in lieu of issuing a fractional share. SECTION 3.03. Whenever the Purchase Price or the number of shares or type of securities issuable on exercise of this Warrant is adjusted as provided in this Article III the Company (i) will compute the adjusted Purchase Price and the adjusted number of Warrant Shares and (ii) will prepare a certificate signed by its Chairman, President, Vice President, Treasurer or Secretary setting forth the adjusted Purchase Price and the adjusted number of Warrant Shares and showing in reasonable detail the facts upon which the adjustments were based, and (ii) will mail a copy of that certificate to the Warrant Holder. SECTION 3.04. If at any time when this Warrant is outstanding the Company (a) declares a dividend (or authorizes any other distribution) on its Common Stock payable otherwise than in cash out of its undistributed net income: (b) authorizes the granting to the holders of its Common Stock of rights to subscribe for or purchase any shares of Common Stock, or other equity securities, or other assets: 4 (c) authorizes a reclassification of its Common Stock (other than a subdivision or combination of its outstanding Common Stock), or a consolidation or merger to which the Company is a party, or a sale or transfer of all or substantially all the assets of the Company; or (d) authorizes as voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company will mail to the Warrant Holder at least 20 days (or 10 days in an instance specified in clause (a) or (b)) prior notice of the record date, or other date, for determining the shareholders entitled to receive the dividend, distribution or rights, or the securities or other property deliverable as a result of the reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. SECTION 3.05. The form of this Warrant need not be changed because of any changes in the Purchase Price or in the number of Warrant Shares and Warrants issued after that change may continue to describe the Purchase Price and the number of Warrant Shares which were described in this Warrant as initially issued. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDER SECTION 4.01. If this Warrant is exercised, the Warrant Holder will for all purposes be deemed to become the holder of record of the Common Stock into which this Warrant is exercisable, and the certificate will be dated the date this Warrant is surrendered for exercise, except that if that is a date when the stock transfer books of the Company are closed the Warrant Holder will be deemed to become the record holder of the shares on, and the certificate will be dated, the next succeeding Business Day when the stock transfer books of the Company are open. Until this Warrant is exercised, the Warrant Holder, as such, will not be entitled to any of the rights of a shareholder of the Company, including the right to vote, to receive dividends or other distributions or to exercise preemptive rights (if any), and will not be entitled to receive notice of any proceedings of the Company, except as provided in this Warrant. SECTION 4.02. The Company covenants and agrees that: (1) at all times it will reserve and keep available for the exercise of this Warrant a sufficient number of authorized by unissued shares of Common Stock to permit the exercise in full of this Warrant: (2) all shares of Common Stock issued on exercise of this Warrant will be validly issued, fully paid, nonassessable and free of preemptive rights. 5 SECTION 4.03. Notices to the Warrant Holder relating to this Warrant will be effective on the third business day after mailing and will be sufficiently given or made if personally delivered or if sent by first class mail (which may be certified or registered), postage prepaid, addressed to the Warrant Holder at the address shown on the books of the Company. ARTICLE V TREATMENT OF WARRANT HOLDER SECTION 5.01. Prior to the presentation of this Warrant for registration of transfer, the Company may treat the Warrant Holder for all purposes as the owner of this Warrant and the Company will not be affected by any notice to the contrary. ARTICLE VI COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS SECTION 6.01. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation of them at the principal office of the Company together with a written notice signed by the Warrant Holder, specifying the names and denominations in which new Warrants are to be issued. SECTION 6.02. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification, or, in the case of mutilation, upon surrender of the mutilated Warrant, the Company will execute and deliver a new Warrant bearing the same terms and date as the lost, stolen or destroyed Warrant, which will thereupon become void. ARTICLE VII RESTRICTION ON SALE OR OTHER DISPOSITION OF WARRANT SHARES SECTION 7.01. The Warrant and Warrant Shares may not be sold or otherwise disposed of except in a transaction registered under the Act, or which, in the opinion of counsel to the Warrant Holder, acceptable to the Company, is exempt from the registration requirements of the Act. SECTION 7.02. All certificates evidencing the Warrant Shares shall bear the following legend: 6 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) THE DISPOSITION IS MADE PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR (iii) AN OPINION IS OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT. ARTICLE VIII OTHER MATTERS SECTION 8.01. The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company in respect of the issuance or delivery of Warrant Shares upon the exercise of this Warrant by the Warrant Holder. SECTION 8.02. All the covenants and provisions of this Warrant by or for the benefit of the Company and the Warrant Holder will bind and inure to the benefit of their successors and assigns. SECTION 8.03. All notices and other communications under this Warrant must be in writing. Any notice or communication to the Company will be effective upon the earlier of actual receipt and the third business day after mailing by first-class mail (which may be certified or registered), as postage prepaid, addressed (until another address is designated by the Company) as follows: Data Dimensions, Inc. 24404 S. Vermont Avenue Harbor City, CA 90710 Any notice or demand authorized by this Warrant to be given or made by the Company to or on the Warrant Holder must be given in accordance with Section 4.03. SECTION 8.04. The validity, interpretation and performance of this Warrant will be governed by the laws of the State of California. SECTION 8.05. Nothing in this Warrant will give any person or corporation other than the Company and the Warrant Holder any right or claim under this Warrant, and all agreements in this Warrant will be for the sole benefit of the Company and its 7 successors and assigns and of the Warrant Holder and its respective successors and assigns. SECTION 8.06. The Article headings in this Warrant are for convenience only, are not part of this Warrant, and will not affect the interpretation of its terms. SECTION 8.07. The provisions of this Article VII shall survive the exercise or termination of this Warrant. IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of the 6th day of March, 1991. -- DATA DIMENSIONS, INC. By ------------------------------- Title ---------------------------- 8 EXHIBIT A NOTICE OF EXERCISE OR CONVERSION Date: , 19 ---------------- ----- Data Dimensions, Inc. 24404 S. Vermont Avenue Harbor City, CA 90710 Ladies and Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Data Dimensions, Inc. (the "Company"), dated March 6, 199 (the -- "Warrant") and to purchase thereunder shares of the ---------- Common Stock of the Company (the "Shares") at a purchase price of Dollars ($ ) per Share or an aggregate purchase ------------ ----- price of Dollars ($ ) (the "Purchase Price"). ------------- -------- Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. / / The undersigned hereby elects to convert percent ( %) of ----- ---- the value of the Warrant at a purchase price of Dollars ---------- ($ ) per Share. ---------- Very truly yours, By ---------------------------------- Receipt Acknowledged: DATA DIMENSIONS, INC. By ---------------------------------- Title ------------------------------- Date ------------------------------- EX-10.4 8 EXHIBIT 10.4 Exhibit 10.4 DATA DIMENSIONS, INC. 1988 INCENTIVE STOCK OPTION PLAN AND 1988 NONSTATUTORY STOCK OPTION PLAN ARTICLE I PURPOSE OF PLANS AND PLAN DOCUMENT 1.1 PURPOSE. The purpose of these Plans is to promote the growth and profitability of the Company by providing, through the ownership of Shares, incentives to attract and retain highly talented persons and to motivate such persons to use their best efforts on behalf of the Company and other Participating Companies. 1.2 COMBINED PLAN DOCUMENT. This Plan document is intended to implement and govern the following two separate stock option plans of the Company: (i) 1988 Incentive Stock Option Plan; and (ii) 1988 Nonstatutory Stock Option Plan. Unless specified otherwise, all provisions of this Plan document relate equally to both the 1988 Incentive Stock Option Plan and the Nonstatutory Stock Option Plan, which Plans are condensed into one Plan document solely for purposes of administrative convenience and are not intended to constitute tandem plans. ARTICLE 2 DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings set forth in this Article 2: 2.1 ACCRUED INSTALLMENT. The term "Accrued Installment" shall mean any vested installment of an Option. 2.2 BOARD. The term "Board" shall mean the Board of Directors of the Company. 2.3 COMMITTEE. The term "Committee" shall mean a committee appointed by the Board pursuant to Section 3.4 and constituting not less than three members of the Board. 2.4 COMPANY. The term "Company" shall mean Data Dimensions, Inc., a Delaware corporation, and any Participating Company. 2.5 DIRECTOR. The term "Director" shall mean a member of the Board, or a member of the board of directors of any Participating Company. 2.6 DISINTERESTED PERSON. The term "Disinterested Person" shall mean any person defined as a disinterested person under Rule 16b-3 of the Securities and Exchange Commission as promulgated under the Exchange Act. 2.7 EFFECTIVE DATE. The term "Effective Date" shall mean March 14, 1988. 2.8 ELIGIBLE PERSON. (a) For the purpose of the Incentive Stock Option Plan, the term "Eligible Person" shall mean any key employee of any Participating Company, as determined by the Board or Committee. (b) For the purpose of the Nonstatutory Stock Option Plan, the term "Eligible Person" shall mean any employee or Director of any Participating Company. 2.9 EXCHANGE ACT. The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.10 FAIR MARKET VALUE. The term "Fair Market Value" when used with respect to the determination of the option price of Options, shall mean the fair market value as determined in good faith by the Board as of the date the Option is granted. 2.11 INCENTIVE STOCK OPTION. The term "Incentive Stock Option" shall mean any Option intended to satisfy the requirements under I.R.C. Section 422A as an incentive stock option which qualifies for special tax treatment under I.R.C. Section 421 ET SEQ. 2.12 INCENTIVE STOCK OPTION PLAN. The term "Incentive Stock Option Plan" shall mean the stock option plan of the Company set forth herein and which provides for the granting of Incentive Stock Options. 2.13 I.R.C. The term "I.R.C." shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 2.14 INTERNAL REVENUE CODE OF 1954. The term "Internal Revenue Code of 1954" shall mean the Internal Revenue Code in effect prior to the date of enactment of the Tax Reform Act of 1986. 2.15 NONSTATUTORY STOCK OPTION. The term "Nonstatutory Stock Option" shall mean any Option granted hereunder which is not an Incentive Stock Option. -2- 2.16 NONSTATUTORY STOCK OPTION PLAN. The term "Nonstatutory Stock Option Plan" shall mean the stock option plan of the Company set forth herein and which provides for the granting of Options that do not qualify as Incentive Stock Options. 2.17 OPTION. The term "Option" shall mean an option to acquire Shares granted under the Plans. 2.18 OPTIONEE. The term "Optionee" shall mean an Eligible Person who has been granted Options. 2.19 PARENT CORPORATION. The term "Parent Corporation" shall mean a corporation as defined in I.R.C. Section 425(e). 2.20 PARTICIPATING COMPANY. The term "Participating Company" shall mean the Company and any Parent Corporation or Subsidiary Corporation. 2.21 PLAN. The term "Plan" or "Plans" shall refer collectively to the Incentive Stock Option Plan and the Nonstatutory Stock Option Plan unless a specific reference to either is indicated. 2.22 RESTRICTED SHAREHOLDER. The term "Restricted Shareholder" shall mean an Optionee granted an Incentive Stock Option who, at the time the Incentive Stock Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, with stock ownership determined in light of the attribution rules of I.R.C. Section 425(d). 2.23 SHARES. The term "Shares" shall mean shares of the Company's authorized Common Stock, $.10 par value, and may be unissued shares or treasury shares or shares purchased for the purposes of the Plans. 2.24 SUBSIDIARY CORPORATION. The term "Subsidiary Corporation" shall mean a corporation as defined in I.R.C. Section 425(f). 2.25 TERMINATING TRANSACTION. The term "Terminating Transaction" shall mean any of the following events: (a) the dissolution or liquidation of the Company; (b) a reorganization, merger or consolidation of the Company with one or more other corporations as a result of which the Company goes out of existence or becomes a subsidiary of another corporation (which shall be deemed to have occurred if another corporation shall own, directly or indirectly, 80% or more of the aggregate voting power of all outstanding equity securities of the Company); (c) a sale of substantially all of the Company's assets; or (d) a sale to one person (or two or more persons acting in concert) of equity securities of the Company representing 80% or more of the aggregate voting power of all outstanding equity securities of the Company. As used herein or elsewhere in this Plan, the word "person" shall mean an individual, corporation, partnerships, association or other person or entity, or any group of two or more of the foregoing that have agreed to act together. -3- 2.26 TERMINATION DATE. The term "Termination Date" shall mean March 14, 1998. 2.27 TOTAL DISABILITY. The term "Total Disability" shall mean a total and permanent disability as that term is defined in I.R.C. Section 105(d)(4). ARTICLE 3 ADMINISTRATION OF PLAN 3.1 ADMINISTRATION BY BOARD. The Plan shall be administered by the Board. The Board shall have full and absolute power and authority in its sole discretion to (i) determine which Eligible persons shall receive Options, (ii) determine the terms and conditions, not inconsistent with the provisions of his Plan, of any Option granted hereunder, (iv) determine the number of Shares which may be issued upon exercise of the Options, and (v) interpret the provisions of this Plan and of any Options granted under this Plan. 3.2 RULES AND REGULATIONS. The Board may adopt such rules and regulations as the Board may deem necessary or appropriate to carry out the purposes of the Plan and shall have authority to do everything necessary or appropriate to administer the Plan. 3.3 BINDING AUTHORITY. All decisions, determinations, interpretations, or other actions by the Board shall be final, conclusive, and binding on all Eligible Persons, Optionees, Participating Companies and any successor-in-interest to such parties. 3.4 ADMINISTRATION BY COMMITTEE. (a) The Board in its sole discretion may from time to time appoint a Committee to administer the Plan and exercise -4- on a nonexclusive basis with the full Board all of the powers, authority and discretion of the Board under this Plan. The board may from time to time remove members from, or add members to, the Committee, and vacancies on the Committee shall be filled by the Board. The Board may abolish the Committee at any time and revest in the Board the exclusive administration of the Plan. (b) In establishing the Committee, the Board may but need not require each member of the Committee to be a Disinterested Person, and the Board may but is not required to take such other actions as are deemed necessary or advisable to conform these Plans to the requirements of Rule 16b-3 as promulgated under the Exchange Act. (c) The Committee shall report to the Board the names of Eligible Persons granted Options, the number of Shares subject to each Option and the terms and conditions of each such Option. ARTICLE 4 NUMBER OF SHARES AVAILABLE FOR GRANT 4.1 MAXIMUM AGGREGATE NUMBER OF SHARES. Subject to the following provisions of this Section 4.1, the maximum aggregate number of Shares which may be optioned and sold under the Plans in the aggregate is 350,000. In the event that Options granted under the Plans shall for any reason terminate, lapse, be forfeited, or expire without being exercised, the Shares subject to such unexercised Options shall again be available for the granting of Options under the Plans. In the event that Shares which were previously issued by the Company upon exercise of an Option are reacquired by the Company as part of the consideration received (in accordance with Section 6.6(b) hereof) upon the subsequent exercise of an Option, such reacquired Shares shall again be available for the granting of Options hereunder. Amended 1989 increased to 700,000 Amended 1992 increased to 1,000,000 Amended 1995 increased to 1,500,000 Amended 1992 -- Revised Limit in Aggregate 4.2 AGGREGATE LIMITATION WITH RESPECT TO THE PARTICIPATION OF DIRECTORS UNDER THE PLANS. Subject to the following provisions of this Section 4.2, the maximum number of Shares which may be optioned and sold to Directors of the Company under the Nonstatutory Stock Option Plan in the aggregate is 50,000. In the event that Options granted under this limitation shall for any reason terminate, lapse, be forfeited, or expire without being exercised, the Shares subject to such unexercised Options shall again be available - 5 - for the granting of Options under the limitations of this Section 4.2. In the event that Shares which were previously issued by the Company upon exercise of an Option granted under the limitation of this Section 4.2 are reacquired by the Company as part of the consideration received (in accordance with Section 6.6(b) hereof) upon the subsequent exercise of an Option, such Shares shall again be available for the granting of Options under the limitation of this Section 4.2. ARTICLE 5 TERMS OF PLANS The Plans shall be effective as of the Effective Date and shall terminate on the Termination Date. No Option may be granted hereunder after the Termination Date. ARTICLE 6 OPTION TERMS 6.1 FORM OF OPTION AGREEMENT. Any Option granted under the Plans shall be evidenced by an agreement ("Option Agreement") in which form as the Board, in its discretion, may from time to time approve. Any Option Agreement shall contain such terms and conditions as the Board may deem necessary or appropriate and which are not inconsistent with the provisions of the Plans. 6.2 GRANT LIMITATIONS ON INCENTIVE STOCK OPTIONS. For options granted under the Incentive Stock Option Plan, the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares for which Incentive Stock Options are exercisable for the first time by an Eligible Person under this Plan and any other plan of any Participating Company shall not exceed $100,000 in any calendar year. 6.3 OPTION EXERCISE PRICE. The option exercise price for Shares to be issued under this Plan shall be determined by the Board in its sole discretion, but in no event shall the option exercise price be less than the Fair Market Value of the Shares. In the case of an Incentive Stock Option, if on the date of the grant of the Option the Optionee is a Restricted Shareholder, the option exercise price shall not be less than 110% of the Fair Market Value of the Shares. The date of grant shall be deemed to be the date on which the Board authorizes the grant of the Option, unless a subsequent date is specified in such authorization. - 6 - 6.4 VESTING AND EXERCISABILITY OF OPTIONS. Subject to the limitations set forth herein and/or in any applicable Option Agreement entered into hereunder, Options granted under the Plan shall vest and be exercisable in accordance with the rules set forth in this Section 6.4: (a) GENERAL. Subject to the other provisions of this Section 6.4, Options shall vest and become exercisable at such times and in such installments as the Board shall provide in each individual Option Agreement. Notwithstanding the foregoing, the Board may in its sole discretion accelerate the time at which an Option or installment thereof may be exercised. Unless otherwise provided in this Section 6.4 or in the Option Agreement pursuant to which an Option is granted, an Option may be exercised when Accrued Installments accrue as provided in such Option Agreement and at any time thereafter until, and including, the day before the Option Termination Date. (b) TERMINATION OF OPTIONS. All installments of an Option shall expire and terminate on such date as the Board shall determine ("Option Termination Date"), which in no event shall be later than 5 years from the date such Option is granted. (c) TERMINATION OF EMPLOYMENT OR DIRECTORSHIP OTHER THAN BY DEATH OR TOTAL DISABILITY. In the event that the employment of an Optionee with a Participating Company is terminated for any reason (other than death or Total Disability), any installments under an Option held by such termination date shall expire and become unexercisable as of the employment termination date or the directorship termination date (whichever may be applicable) shall expire and become unexercisable as of the earlier of (i) three months following the employment of directorship termination date or (ii) the original Option Termination Date. For purposes of these Plans, an Optionee who is an employee or a Director of any Participating Company shall not be deemed to have incurred a termination of his employment or a termination of his directorship (whichever may be applicable) so long as such Optionee is an employee or Director (whichever may be applicable) of any Participating Company. (d) LEAVE OF ABSENCE. In the case of any employee on an approved leave of absence, the Board may make such - 7 - provision respecting continuance of the Option as the Board deems appropriate, except in no event shall an Option be exercisable after the original Option Termination Date. (e) DEATH OR TOTAL DISABILITY OF OPTIONEE WHILE EMPLOYED. In the event that the employment and/or directorship of an Optionee with a Participating Company is terminated by reason of death or Total Disability, any unexercised Accrued Installments of Options granted hereunder to such Optionee shall expire and become unexercisable as of the earlier of: (i) The applicable Option Termination Date, or (ii) The first anniversary of the date of termination of employment and/or directorship of such Optionee by reason of the Optionee's death or Total Disability. Any such Accrued Installments of a deceased Optionee may be exercised prior to their expiration only by the person or persons to whom the Optionee's Option rights pass by will or the laws of descent and distribution. Any Option installments under such a deceased or disabled Optionee's Option that have not accrued as of the date of the employee's termination of employment and/or Director's termination of directorship due to death or Total Disability shall expire and become unexercisable as of the employment and/or directorship termination date. (f) TERMINATION OF AFFILIATION OF PARTICIPATING COMPANY. Notwithstanding the foregoing provisions of this Section 6.4, in the case of an Optionee who is an employee or Director of a Participating Company other than the Company, upon an Affiliation Termination (as defined herein) of such Participating Company such Optionee shall be deemed (for all purposes of these Plans) to have incurred a termination of his employment or directorship (whichever may be applicable) for reasons other than death or Total Disability, with such termination to be deemed effective as of the effective date of said Affiliation Termination. As used herein the term "Affiliation Termination" shall mean, with respect to a Participating Company, the termination of such Participating Company's status as a Participating Company (as defined herein) with respect to the Company. 6.5 EXERCISE OF OPTIONS. An Option may be exercised in accordance with this Section 6.5 as to all or any portion of the Shares covered by an Accrued Installment of the Option from time to time during the applicable option period, except that an Option shall not be exercisable with respect to fractions of - 8 - a Share. Options may be exercised, in whole or in part, by giving written notice of exercise to the Company, which notice shall specify the number of Shares to be purchased and shall be accompanied by payment in full of the purchase price in accordance with Section 6.6. An Option shall be deemed exercised when such written notice of exercise has been received by the Company. No Shares shall be issued until full payment has been made and the Optionee has satisfied such other conditions as may required by this Plan; as may be required by applicable law, rules, or regulations; or as may be adopted or imposed by the Board. Until the issuance of stock certificates, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to optioned Shares notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the date is prior to the date the stock certificate is issued, except as provided in Section 6.9(a). 6.6 PAYMENT OF OPTION EXERCISE PRICE. (a) Except as otherwise provided in Section 6.6(b), the entire option exercise price shall be paid at the time the Option is exercised by cashier's check or such other means as deemed acceptable by the Company. (b) In the discretion of the Board, an Optionee may elect to pay for all or some of the Optionee's Shares with Shares previously acquired and owned at the time of exercise by the Optionee, subject to all restrictions and limitations of applicable laws, rules and regulations and subject to the satisfaction of any conditions the Board may impose, including but not limited to the making of such representations and warranties and the providing of such other assurances that the Board may require with respect to the Optionee's title to the Shares used for payment of the exercise price. Such payment shall be made by delivery of certificates representing Shares, duly endorsed or with duly signed stock power attached, such Shares to be valued on such basis as the Board shall determine. 6.7 OPTIONS NOT TRANSFERABLE. Options granted under this Plan may not be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred or alienated in any manner, whether voluntarily or involuntarily by operation of law, other than by will or the laws of descent and distribution, and may be exercised during the lifetime of an Optionee only by such Optionee. - 9 - 6.8 RESTRICTIONS ON ISSUANCE OF SHARES (a) No Shares shall be issued or delivered upon exercise of an Option unless and until there shall have been compliance with all applicable requirements of the Securities Act of 1933, as amended, all applicable listing requirements of any national securities exchange on which Shares are then listed, and any other requirement of law or of any regulatory body having jurisdiction over such issuance and delivery. The inability of the Company to obtain any required permits, authorizations, or approvals necessary for the lawful issuance and sale of any Shares hereunder on terms deemed reasonable by the Board shall relieve the Company, the Board, and any Committee of any liability in respect of the nonissuance or sale of such Shares as to which such requisite permits, authorizations, or approvals shall not have been obtained. (b) As a condition to the granting or exercise of any Option, the Board may require the person receiving or exercising such Option to make any representation and/or warranty to the Company as may be required under an applicable law or regulation, including but not limited to a representation that the Option and/or Shares are being acquired only for investment and without any present intention to sell or distribute such Option and/or Shares, if such a representation is required under the Securities Act of 1933, as amended, or any other applicable law, rule, or regulation. (c) The exercise of Options under these Plans is conditioned on approval of the Plans by the vote or written consent of the holders of a majority of the outstanding shares of the Company's Common Stock within twelve months of the adoption of the Plans. In the event such shareholder approval is not obtained within such time period, andy Options granted hereunder shall be void. 6.9 OPTION ADJUSTMENTS. (a) If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, upon authorization of the Board a proportionate adjustment shall be made in the number or kind of shares, and the per share option price thereof, which may be issued in the aggregate and to individual Optionees upon exercise of Options granted under the Plans; provided, however, that no such adjustment need by made if, upon the advice of counsel, the Board determines that such -10- adjustment may result in the receipt of federally taxable income to holders of Options granted hereunder or the holders of Common Stock or other classes of the Company's securities. (b) Upon the occurrence of a Terminating Transaction, as of the effective date of such Terminating Transaction the Plans and any then outstanding Options (whether or not vested) shall terminate unless (i) provision is made in writing in connection with such transaction for the continuance of the Plans and for the assumption of such Options, or for the substitution for such Options of new options covering the securities of any successor or survivor corporation in the Terminating Transaction or any affiliate thereof, with such adjustments as the Board deems appropriate with respect to the number and kind of securities and the per share exercise price under such substituted options, in which event the Plans and such outstanding Options shall continue or be replaced, as the case may be, in the manner and under the terms so provided; or (ii) the Board otherwise shall provide in writing for such adjustments as it deems appropriate in the terms and conditions of the then outstanding Options (whether or not vested), including without limitation (A) accelerating the vesting of outstanding Options, and/or (B) providing for the cancellation of Options and their automatic conversion into the right to receive the securities or other properties which a holder of the Shares underlying such Options would have been entitled to receive upon the consummation of such Terminating Transaction had such Shares been issued and outstanding (net of the appropriate option exercise prices). If, pursuant to the foregoing provisions of this paragraph (b) the Plans and the Options shall terminate by reason of the occurrence of a Terminating Transaction without provision for any of the action(s) described in clause (i) and/or (ii) hereof, then any Optionee holding outstanding Options shall have the right, at such time immediately prior to the consummation of the Terminating Transaction as the Board shall designate, to exercise their options to the full extent not theretofore exercised, including any installments which have not yet become Accrued Installments (subject, however, to the provisions of paragraph (c) below. (c) In the event that (i) pursuant to the provisions of Section 6.9(b) hereof all or any portion of an outstanding Incentive Stock Option (herein an "Accelerated ISO") shall first become exercisable by an Optionee in a calendar year which is earlier than the calendar year as provided under the applicable Option Agreement at the time of the grant of such Option, and (ii) such accelerated exercisability, when considered together with other Incentive Stock Options of such -11- Optionee which are first exercisable during such earlier calendar year, would be prohibited under the provision of Section 6.2 hereof (as interpreted by the Board in light of the requirements of I.R.C. Section 422A(b)(7)), then notwithstanding the provisions of Section 6.9(b) said Accelerated ISO shall be exercisable only to the extent permitted under the provisions of Section 6.2. (d) Except to the extent required in order to retain the qualification of an Option as an Incentive Stock Option under I.R.C. Section 422A, to the maximum extent possible any adjustments authorized under this Section 6.9 with respect to any outstanding Options shall be made by means of appropriate adjustment to the number of shares (or other securities) and the option exercise price therefor under the unexercised portions of such outstanding Options but without changing the aggregate exercise price applicable to said unexercised portions. In all cases, the nature and extent of adjustments under this Section 6.9 shall be determined by the Board in its sole discretion, and any such extent thereof, shall be final and binding. No fractional shares of stock shall be issued under the Plans pursuant to any such adjustment. 6.10 TAXES. The Board shall make such provisions and take such steps as it deems necessary or appropriate for the withholding of any federal, state, local and other tax required by law to be withheld with respect to the grant or exercise of an Option under the Plans, including without limitation, the deduction of the amount of any such withholding tax from any compensation or other amounts payable to an Optionee by any member of the Participating Companies, or requiring an Optionee (or the Optionee's beneficiary or legal representative) as a condition of granting or exercising an Option to pay to any member of the Participating Companies any amount required to be withheld, or to execute such other documents as the Board deems necessary or desirable in connection with the satisfaction of any applicable withholding obligation. 6.11 LEGENDS ON OPTIONS AND STOCK CERTIFICATES. Each Option Agreement and each certificate representing Shares acquired upon exercise of an Option shall be endorsed with all legends, if any, required by applicable federal and state securities laws to be placed on the Option Agreement and/or the certificate. The determination of which legends, if any, shall be placed upon Stock Option Agreements and/or said Shares shall be made by the Board in its sole discretion and such decision shall be final and binding. -12- ARTICLE 7 --------- AMENDMENT OR TERMINATION OF PLAN --------------------------------- 7.1 BOARD AUTHORITY. The Board may amend, alter, and/or terminate the Plans at any time; provided, however, that unless required by applicable law, rule, or regulation the Board shall not amend the Plans in the following respects without the approval of stockholders holding a majority interest in the Company: (i) To increase the maximum number of Shares available for grant under the plan; (ii) To provide for the administration of the Plan other than by the Board or a Committee; (iii) To change the manner of determining the option exercise price; (iv) To change the classes of Eligible Persons or Participating Companies; or (v) To extend the maximum Option Period or the terms of the Plans. 7.2 LIMITATION ON BOARD AUTHORITY. The Board may amend the terms of any Option previously granted, prospectively or retroactively, and may amend the Plan in accordance with the provisions of Section 7.1; provided, however, that unless required by applicable law, rule, or regulation, no amendment of the Plan or of any Option Agreement shall affect in a material and adverse manner Options granted prior to the date of any such amendment without the consent of the Optionee holding any such affected Options. 7.3 SUBSTITUTION OF OPTIONS. In the Board's discretion, the Board may, with an Optionee's consent, substitute Nonstatutory Sock Options for outstanding Incentive Stock Options, and any such substitution shall not constitute a new Option grant for the purposes of this Plan, and shall not require a reevaluation of the Option exercise price for the substituted Option. Any such substitution may be implemented by an amendment to the applicable Option Agreement or in such other manner as the Board in its discretion may determine. -13- ARTICLE 8 --------- GENERAL PROVISIONS -------------------- 8.1 AVAILABILITY OF PLANS. A copy of these Plans shall be delivered to the Secretary of the Company and shall be shown by the Secretary to any Eligible Person making reasonable inquiry concerning the Plans. 8.2 NOTICE. Any notice or other communication required or permitted to be given pursuant to the Plan under any Option Agreement must be in writing and may be registered or certified mail, and if given by registered or certified mail, shall be determined to have been given and received when a registered or certified letter containing such notice, properly addressed with postage prepaid, is deposited in the United State mails; and if given otherwise than by registered or certified mail, it shall be deemed to have been given when delivered to and received by the party to whom addressed. Notice shall be given to Eligible Persons at their most recent addresses shown in the company's records. Notice to the company shall be addressed to the company at the address of the company's principal executive offices, to the attention of the Secretary of the company. 8.3 TITLES AND HEADINGS. Titles and headings of sections of this Plan are for convenience of reference only and shall not affect the construction of any provisions of this Plan. 8.4 GOVERNING LAW. This Plan shall be goverened by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. -14- STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made effective as of this _____ day of __________ 19__ ("Option Grant Date"), by and between Data Dimensions, Inc., a Delaware corporation ("Company"), and _________________ ("Optionee"). STATEMENT OF BACKGROUND FACTS The Board of Directors of the Company has established the Data Dimensions, Inc. 1988 Incentive Stock Option Plan ("Incentive Stock Option Plan") and the Data Dimensions, Inc. 1988 Nonstatutory Stock Option Plan ("Nonstatutory Stock Option Plan") (Collectively, the "Plans"). Pursuant to the provisions of the Plans, the Board of Directors of the Company or a Committee designated by the Board in accordance with the Plans, by action taken on _____________, 19__, granted to the Optionee options ("Options") to purchase shares of the common stock of the Company ("Common Stock") on the terms and conditions set forth herein. In consideration of the foregoing and of the mutual covenants set forth herein and other good and valuable consideration, the parties hereto agree as set forth below. Unless otherwise defined herein, capitalized terms shall have the same meaning as defined in the Plans. 1. THE OPTIONS. The Optionee may, at the Optionee's option and on the terms and conditions set forth herein, purchase: (a) All or any part of an aggregate of _____ shares of Common Stock under the Incentive Stock Option Plan at the price per share set forth in Section 2 below; and/or (b) All or any part of an aggregate of _____ shares of Common Stock under the Nonstatutory Stock Option Plan at the price per share set forth in Section 2 below. 2. OPTION PRICE AND EXERCISE DATES. The Options shall be exercisable at the option price ("Option Price") as to the specified number of shares ("Optioned Shares") on and after the "Start" dates and on or before the "Termination" dates set forth below: -15-
Exercise Dates Number Option --------------------- Plan of Shares Price Start Termination - --------- ----------- --------- ------- -------------
Optionee acknowledges that Optionee has no right whatsoever to exercise the Options granted hereunder with respect to any Optioned Shares covered by any installment until such installment accrues as provided above. Optionee further understands that the Options granted hereunder shall expire and become unexercisable as provided in the Plans. 3. GOVERNING PLANS. A copy of the document evidencing the Plans has been delivered to Optionee on or before the date of execution of this Agreement, and receipt of such copy is hereby expressly acknowledged by Optionee. This Agreement hereby incorporates by reference the Plan document and all of the terms and conditions of the Plans as the same may be amended from time to time hereafter in accordance with the terms thereof. The terms of this Agreement shall in no manner limit or modify the controlling provisions of the Plans, and in the case of any conflict between the provisions of the Plans and this Agreement, the provisions of the Plans shall be controlling and binding upon the parties hereto. 4. CERTAIN REPRESENTATIONS AND WARRANTIES. Optionee expressly acknowledges, represents and agrees: (i) that Optionee has read and understands the terms and provisions of the Plans, and hereby accepts this Agreement subject to all the terms and provisions of the Plans, including without limitation the provisions of Articles 6 and 7 of the Plans. (ii) that Optionee shall accept as binding, conclusive and final all decisions or interpretations of the Board or of the Committee upon any questions arising under the Plans. (iii) that Optionee understands that the existence of the Plans and execution of this Agreement are not sufficient by themselves to cause any exercise of any Incentive Stock Options granted under the Incentive Stock Stock Option Plan and this Agreement to qualify for favorable tax treatment through the application of IRC Section 422A(a); and that Optionee must, in order to so qualify, individually meet -16- by the Optionee's own action all applicable requirements of Section 422A, including without limitation that no disposition of an Optioned Share may be made by Optionee within two (2) years from the date of the granting of the Options nor within one (1) year after the transfer of such Optioned Share to the Optionee. (iv) that if use of Common Stock to pay the exercise price of the Options is authorized by the Board pursuant to the discretion granted to the Board under the Plans, Optionee has been advised to consult with a competent tax advisor regarding the applicable tax consequences prior to utilizing Common Stock to exercise an Option. (v) that if Optionee is a person subject to the provisions of Section 16 of the Securities Exchange Act of 1934, Optionee has been advised to consult with a competent federal securities law advisor as to the reporting obligations and potential liability for profits under said Section 16 with respect to the granting and exercise of the Options. 5. NO EMPLOYMENT RIGHTS. (a) Nothing in the Plans or in this Option Agreement shall be construed to create any contract of employment between any of the Participating Companies and the Optionee or confer upon the Optionee any right to continue in the employ of any of the Participating Companies. The Participating Companies shall have the right to deal with the Optionee in the same manner as if the Plans and this Option Agreement did not exist, including, without limitation, with respect to all matters related to the hiring, discharge, compensation and conditions of employment of Optionee. Unless otherwise expressly set forth in a separate employment agreement between a Participating Company and Optionee, the employment by such Participating Company is at-will, and the Participating Company may terminate Optionee's employment by such Participating Company at any time for any reason deemed sufficient by said Participating Company. (b) Any question(s) as to whether and when there has been a termination of Optionee's employment, the reason for such termination, and/or consequences thereof under the terms of the Plans shall be determined by the Board in its sole discretion, and the Board's determination thereof shall be final and binding. 6. GOVERNING LAW. This Plan shall be governed by, interpreted under, and construed and enforced in accordance -17- with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. 7. AGREEMENT BINDING ON SUCCESSORS. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors, transferees and assignees of the Optionee. 8. COSTS OF LITIGATION. In any action at law or in equity to enforce any of the provisions or rights under this Agreement or the Plans, the unsuccessful party to such litigation as determined by the court in a final judgment or decree, shall pay the successful party or parties all costs, expenses and reasonable attorneys' fees incurred by the successful party or parties (including without limitation costs, expenses and fees on any appeals), and if the successful party recovers judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included as part of the judgment. 9. NECESSARY ACTS. The Optionee shall perform all acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement, including by not limited to all acts and documents related to compliance with federal and/or state securities and/or tax laws. 10. COUNTERPARTS. For convenience, this Agreement may be executed in any number of identical counterparts, each of which shall be deemed a complete original in itself, and may be introduced in evidence or used for any other purpose without the production of any other counterparts. 11. INVALID PROVISIONS. In the event that any provision of this Agreement is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid and unenforceable provision was not contained herein. -18- IN WITNESS WHEREOF, the Company and the Optionee have executed this Agreement effective as of the date first written above. DATA DIMENSIONS, INC. OPTIONEE By: __________________________ _________________________ Signature __________________________ _________________________ Printed Name Printed Name __________________________ _________________________ Title Street Address _________________________ City and State _________________________ Social Security Number -19- By his or her signature below, the spouse of the Optionee, if such Optionee is legally married as of the date of Optionee's execution of this Agreement, acknowledges that he or she has read this Agreement and the Plans and is familiar with the terms and provisions thereof, and agrees to be bound by all the terms and conditions of said Agreement and said Plans. __________________________ Spouse's Signature __________________________ Printed Name Dated: ___________________ By his or her signature below, the Optionee represents that he or she is not legally married as of the date of execution of this Agreement. __________________________ Optionee's Signature Dated: ___________________ 1481W -20- EX-10.5 9 EXHIBIT 10.5 LEASE AGREEMENT SECURITY PACIFIC PLAZA THIS LEASE made this 7TH day of JUNE ,1994 ------------ --------------------------- between RAINIER PLAZA LIMITED PARTNERSHIP, a Washington limited partnership ("Landlord"), and DATA DIMENSIONS, INC., a Delaware corporation ("Tenant"). --------------------------------------------- As parties hereto, Landlord and Tenant agree: 1. LEASE DATA AND EXHIBITS: The following terms as used herein shall have the meanings provided in this Section 1, unless otherwise specifically modified by provisions of this Lease: (a) BUILDING: Known as Security Pacific Plaza, Bellevue, Washington, or such other name as Landlord may designate from time to time, situated on a portion of the real property more particularly described in Section 2 hereof, with an adress of 777 - 108th Avenue N.E., Bellevue, Washington 98004. (b) PREMISES: Consisting of the floor area on the twentieth (20th) ---------------- floor(s) of the Building, as outlined on the floor plan(s) attached hereto as Exhibit A, including tenant improvements, if any, as described in Exhibit B. (c) RENTABLE AREA OF PREMISES: 2,371 net rentable square feet. ------ (d) TENANT'S PERCENTAGE OF THE BUILDING: .59 %, calculated by dividing ------- the net rentable area of the Premises by the net rentable area of the Building ( 404,154 net rentable square feet). In the event the net ----------- rentable area of the Premises or the net rentable area of the Building is altered, Landlord may adjust "Tenant's Percentage of the Building" to properly reflect such event. (e) BASIC PLANS DELIVERY DATE: N/A . ---------------- FINAL PLANS DELIVERY DATE: N/A . ---------------- (f) COMMENCEMENT DATE: March 1, 1996 or such earlier or later date ------------------- as provided in Section 3 hereof. (g) EXPIRATION DATE: June 30, 1997 . ------------------------- (h) RENT: The amount(s) specified in Paragraph 1 of Exhibit C hereto ----- in accordance with Section 5 hereof. (i) SECURITY DEPOSIT: $ N/A . ------------- (j) PARKING: Tenant shall have the right to lease parking spaces in or near the Building in accordance with the terms of Paragraph 2 of Exhibit C ---- hereto. (k) NOTICE ADDRESSES: Landlord: Rainier Plaza Limited Partnership 777 108th Avenue Northeast Suite 2050 Bellevue, Washington 98004-5118 Tenant: Data Dimensions, Inc. ---------------------------------- 777 108th Avenue N.E., Suite 2070 ---------------------------------- Bellevue, Wa 98004 ---------------------------------- EXHIBIT C Addendum to Lease between RAINIER PLAZA LIMITED PARTNERSHIP (LANDLORD) and DATA DIMENSIONS, INC. (TENANT) ADDITIONAL LEASE TERMS 1. RENT. The base rental rate for the Premises shall be Twenty-One Dollars ($21.00) per net rentable square foot per annum. Rent shall commence on the Commencement Date specified in Section 1(f) of the Lease hereto. The total annual base rent (base rental rate per net rentable square foot per year multiplied by net rentable area of the Premises) shall be paid in 12 equal monthly payments and shall be payable in accordance with Section 5 of this Lease. Rent shall be adjusted from time to time pursuant to the terms of Sections 8 and 9 of this Lease. 2. PARKING. Tenant shall have the right to lease up to five (5) unassigned parking spaces in the Building garage during the initial Lease term at the market rate, which rate is subject to change from time to time as determined by Landlord. Initally, the rate shall be Eighty Dollars ($80.00) per month per space plus applicable sales tax. In accordance with the City of Bellevue's policy to minimize the use of single occupant vehicles and to generally reduce parking requirements in the Central Business District, Tenant will participate in Landlord's transportation management program. Parking is leased subject to the rules of Landlord, garage operator and the City of Bellevue. 3. BROKERAGE COMMISSION. Landlord shall pay Kidder Mathews & Segner, Inc. a broker's fee equal to 5% of the lease revenue during the sixteen-month term of the Lease, but not to exceed $4.00 per rentable square foot. Such Commission shall be paid on the Commencement Date of the Lease. 4. CONTINGENCY. Full execution and ratification of this Lease is contingent upon full ratification and execution of a lease termination agreement dated on or before February 29, 1996 between Rainier Plaza Limited Partnership and IDS Finanacial Services, Inc. EX-10.6 10 EXHIBIT 10.6 LEASE AGREEMENT SECURITY PACIFIC PLAZA THIS LEASE made this 14th day of December , 1994 between WRIGHT -------- ------------ RUNSTAD PROPERTIES L.P., a Delaware limited partnership ("Landlord"), and DATA DIMENSIONS, INC., a Delaware corporation ("Tenant"). - ----------------------------------------------------------- As parties hereto, Landlord and Tenant agree: 1. LEASE DATA AND EXHIBITS: The following terms as used herein shall have the meanings provided in this Section 1, unless otherwise specifically modified by provisions of this Lease: (a) BUILDING: Known as Security Pacific Plaza, Bellevue, Washington, or such other name as Landlord may designate from time to time, situated on a portion of the real property more particularly described in Section 2 hereof, with an address of 777 - 108th Avenue N.E., Bellevue, Washington 98004. (b) PREMISES: Consisting of the floor area on the twentieth (20th) floor(s) of the Building, as outlined on the floor plan(s) attached hereto as Exhibit A, including tenant improvements, if any, as described in Exhibit B. (c) RENTABLE AREA OF PREMISES: 841 net rentable square feet. --------- (d) TENANT'S PERCENTAGE OF THE BUILDING: .21 %, calculated by --------- dividing the net rentable area of the Premises by the net rentable area of the Building( 404,154 net rentable square feet). In the event the net -------------- rentable area of the Premisies or the net rentable area of the Building is altered, Landlord may adjust "Tenant's Percentage of the Building" to properly reflect such event. (e) BASIC PLANS DELIVERY DATE: Completed . ------------------ FINAL PLANS DELIVERY DATE: Completed . ------------------ (f) COMMENCEMENT DATE: February 1, 1995 or such earlier or later -------------------------- date as provided in Section 3 hereof. (g) EXPIRATION DATE: June 30, 1997 . ------------------------- (h) RENT: The amount(s) specified in Paragraph 1 of Exhibit C hereto ------- in accordance with Section 5 hereof. (i) SECURITY DEPOSIT: $ N/A . -------------- (j) PARKING: Tenant shall have the right to lease parking spaces in or near the Building in accordance with the terms of Paragraph 2 of Exhibit C ----- hereto. (k) NOTICE ADDRESSES: Landlord: Wright Runstad Properties L.P. 777 108th Avenue Northeast Suite 2050 Bellevue, Washington 98004-5118 Tenant: Data Dimensions, Inc. ---------------------------------- 777 108th Avenue N.E., Suite 2070 ---------------------------------- Bellevue, Wa 98004 ---------------------------------- EXHIBIT C Addendum to Lease between Wright Runstad Properties L.P. (Landlord) and Data Dimensions, Inc. (Tenant) ADDITIONAL LEASE TERMS 1. RENT. The base rental for the Premises shall be Twenty-One Dollars ($21.00) per net rentable square foot per annum. Rent shall commence on the Commencement Date specified in Section 1(f) of the Lease hereto. The total annual base rent (base rental rate per net rentable square foot per year multiplied by net rentable area of the Premises) shall be paid in 12 equal monthly payments and shall be payable in accordance with Section 5 of this Lease. Rent shall be adjusted from time to time pursuant to the terms of Sections 8 and 9 of this Lease. 2. PARKING. Tenant shall have the right to lease one (1) unassigned parking space in the Building garage during the initial Lease term at the market rate, which rate is subject to change from time to time as determined by Landlord. Initially, the rate shall be Eighty Dollars ($80.00) per month per month per space plus applicable sales tax. In accordance with the City of Bellevue's policy to minimize the use of single occupant vehicles and to generally reduce parking requirements in the Central Business District, Tenant will participate in Landlord's transportion management program. Parking is leased subject to the rules of Landlord, garage operator and the City of Bellevue. 3. PAYMENT OF TENANT IMPROVEMENTS. Pursuant to Exhibit B, Section II of this Lease, Tenant shall be liable for the payment of all costs for the improvements made in the Premises in accordance with the space plan prepared by Connell Design Group dated December 5, 1994. Tenant shall also be liable for the payment of additional costs incurred for the improvements, including change orders. Landlord hereby acknowledges that it has received payment in the amount of $7,000.00 to be applied to such improvement costs. Tenant shall pay Landlord the outstanding balance according to the following schedule: Payment Date Payment Amount ------------ -------------- January 19, 1995 $7,000.00 February 1, 1995 Balance due Upon Landlord's receipt of final costs of the improvements, Landlord shall send to Tenant a statement of such final costs and shall adjust the final payment accordingly. Wright Runstad & Company Lease Summary SECURITY PACIFIC PLAZA Date: 13-Jan-95 TENANT: Data Dimensions Phone: 688-1000 -------------------------------- --------- Contact:Larry Martin Fax: -------------------------------- --------- Address:777 108th Avenue NE, Suite 2070 Type of Business: -------------------------------- --------- Bellevue, WA 98004 Check One: New Tenant X -------------------------------- --------- Renewal --------- Add'l Space --------- Option: --------- Other: --------- SPACE: Floor: 20 Total Building SF: 404,154 ----------- --------- SF/NRA: 841 Percentage of Building: 0.21% ----------- --------- SF/NUA: 743 ----------- LEASE TERM: 29 months Commencement Date 2/1/95 ----------- -------- Rent Commencement Date: 2/1/95 -------- Expiration Date: 6/30/97 -------- RATE PER SQFT: $21.00 Security Deposit: $0.00 ----------- -------- Advance Rent Payment: N/A -------- Base Year: 1996 -------- LEASE COSTS TENANT IMPROVEMENTS: +/-$22,000 = $29.61 +/- $22,000 ---------- ----------- -------------- $/USF Tenant Payment LEASE ASSUMPTION: N/A = ( divided by divided by ) ---------- ------- -------- -------- Total Cost Rate/SF # months Total SF remaining on lease LEASE COMMISSION: $1,280.42 = 3% Paid to: WRALP ---------- ---------- -------- Total Cost $/SF or % PARKING: 1 0 Market Rate --------------- ---------------- ----------- # garage spaces # surface spaces SPECIAL PROVISIONS: (Option to Extend, Expand, Cancel, etc.) Expansion: N/A Terminate: N/A Renewal: N/A Prepared by Christopher Bothun EX-10.7 11 EXHIBIT 10.7 SILICON VALLEY FINANCIAL SERVICES A Division of Silicon Valley Bank 2880 Lakeside Drive, Suite 205 (408) 980-6300 - Fax (408) 980-6410 FACTORING AGREEMENT This Factoring Agreement (the "Agreement") is made on this Thirteenth day of June, 1995, by and between Silicon Valley Financial Services (a division of Silicon Valley Bank) ("Buyer") having a place of business at the address specified above and Data Dimensions, Inc., a Delaware corporation, ("Seller") having its principal place of business and chief executive office at Street Address: 777 108th Avenue, Suite 2070 City: Bellevue County: State: Washington Zip code: 98004 Fax: 206/688-1000 1. DEFINITIONS. When used herein, the following terms shall have the following meanings. 1.1. "Account Balance" shall mean, on any given day, the gross amount of all Purchased Receivables unpaid on that day. 1.2. "Account Debtor" shall have the meaning set forth in the California Uniform Commercial Code and shall include any person liable on any Purchased Receivable, including without limitation, any guarantor of the Purchased Receivable and any issuer of a letter of credit or banker's acceptance. 1.3. "Adjustments" shall mean all discounts, allowances, returns, disputes, counterclaims, offsets, defenses, rights of recoupment, rights of return, warranty claims, or short payments, asserted by or on behalf of any Account Debtor with respect to any Purchased Receivable. 1.4. "Administrative Fee" shall have the meaning as set forth in Section 3.3 hereof. 1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof. 1.6. "Collateral" shall have the meaning set forth in Section 8 hereof. 1.7. "Collections" shall mean all good funds received by Buyer from or on behalf of an Account Debtor with respect to Purchased Receivables. 1.8. "Compliance Certificate" shall mean a certificate, in a form provided by Buyer to Seller, which contains the certification of the chief financial officer of Seller that, among other things, the representations and warranties set forth in this Agreement are true and correct as of the date such certificate is delivered. 1.9. "Event of Default" shall have the meaning set forth in Section 9 hereof. 1.10. "Finance Charges" shall have the meaning set forth in Section 3.2 hereof. 1.11. "Invoice Transmittal" shall mean a writing signed by an authorized representative of Seller which accurately identifies the receivables which Buyer, at its election, may purchase, and includes for each such receivable the correct amount owed by the Account Debtor, the name and address of the Account Debtor, the invoice number, the invoice date and the account code. 1.12. "Obligations" shall mean all advances, financial accommodations, liabilities, obligations, covenants and duties owing, arising, due or payable by Seller to Buyer of any kind or nature, present or future, arising under or in connection with this Agreement or under any other document, instrument or agreement, whether or not evidenced by any note, guarantee or other instrument, whether arising on account or by overdraft, whether direct or indirect (including those acquired by assignment) absolute or contingent, primary or secondary, due or to become due, now owing or hereafter arising, and however acquired; including, without limitation, all Advances, Finance Charges, Administrative Fees, interest, Repurchase Amounts, fees, expenses, professional fees and attorneys' fees and any other sums chargeable to Seller hereunder or otherwise. 1.13. "Purchased Receivables" shall mean all those accounts, receivables, chattel paper, instruments, contract rights, documents, general intangibles, letter of credit, drafts, bankers acceptances, and right to payment, and all proceeds thereof (all of the foregoing being referred to as "receivables"), arising out of the invoices and other agreements identified on or delivered with any Invoice Transmittal delivered by Seller to Buyer which Buyer elects to purchase and for which Buyer makes an Advance. 1.14. "Refund" shall have the meaning set forth in Section 3.5 hereof. 1.15. "Reserve" shall have the meaning set forth in Section 2.4 hereof. 1.16. "Repurchase Amount" shall have the meaning set forth in Section 4.2 hereof. 1.17. "Reconciliation Date" shall mean the last calendar day of each Reconciliation Period. 1.18. "Reconciliation Period" shall mean each calendar month of every year. 2. PURCHASE AND SALE OF RECEIVABLES. 2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided that there does not then exist any Event of Default or any event that with notice, lapse of time or otherwise would constitute an Event of Default, Seller may request that Buyer purchase receivables and Buyer may, in its sole discretion, elect to purchase receivables. Seller shall deliver to Buyer an invoice Transmittal with respect to any receivable for which a request for purchase is made. An authorized representative of Seller shall sign each Invoice Transmittal delivered to Buyer. Buyer shall be entitled to rely on all the information provided by Seller to Buyer on or with the Invoice Transmittal and to rely on the signature on any Invoice Transmittal as an authorized signature of Seller. 2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to purchase any receivable listed on an Invoice Transmittal. Buyer may exercise its sole discretion in approving the credit of each Account Debtor before buying any receivable. Upon acceptance by Buyer of all or any of the receivables described on any Invoice Transmittal, Buyer shall pay to Seller 90.0(%) percent of the face amount of each receivable Buyer desires to purchase. Such payment shall be the "Advance" with respect to such receivable. Buyer may, from time to time, in its sole discretion, change the percentage of the Advance. Upon Buyer's acceptance of the receivable and payment to Seller of the Advance, the receivable shall become a "Purchased Receivable." It shall be a condition to each Advance that (i) all of the representations and warranties set forth in Section 6 of this Agreement be true and correct on and as of the date of the related Invoice Transmittal and on and as of the date of such Advance as though made at and as of each such date, and (ii) no Event of Default or any event or condition that with notice, lapse of time or otherwise would constitute an Event of Default shall have occurred and be continuing, or would result from such Advance. Notwithstanding the foregoing, in no event shall the aggregate amount of all Purchased Receivables outstanding at any time exceed One Million Two Hundred Fifty Thousand and No/100 **** Dollars (1,250,000). Page 1 of 6 2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment of an Advance, and for and in consideration therefor and in consideration of the covenants of this Agreement, Seller hereby absolutely sells, transfers and assigns to Buyer, all of Seller's right, title and interest in and to each Purchased Receivable and all monies due or which may become due on or with respect to such Purchased Receivable. Buyer shall be the absolute owner of each Purchased Receivable. Buyer shall have, with respect to any goods related to the Purchased Receivable, all the rights and remedies of an unpaid seller under the California Uniform Commercial Code and other applicable law, including the rights of replevin, claim and delivery, reclamation and stoppage in transit. 2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the amount by which the face amount of the Purchased Receivable exceeds the Advance on that Purchased Receivable (the "Reserve"); provided, the Reserve with respect to all Purchased Receivables outstanding at any one time shall be an amount not less than 10.0(%) percent of the Account Balance at that time and may be set at a higher percentage at Buyer's sole discretion. The reserve shall be a book balance maintained on the records of Buyer and shall not be a segregated fund. 3. COLLECTIONS, CHARGES AND REMITTANCES. 3.1. COLLECTIONS. Upon receipt by Buyer of Collections, Buyer shall promptly credit such Collections to Seller's Account Balance on a daily basis; provided, that if Seller is in default under this Agreement, Buyer shall apply all Collections to Seller's Obligations hereunder in such order and manner as Buyer may determine. If an item of collection is not honored or Buyer does not receive good funds for any reason, the amount shall be included in the Account Balance as if the Collections had not been received and Finance Charges under Section 3.2 accrue thereon. 3.2. FINANCE CHARGES. On each Reconciliation Date Seller shall pay to Buyer a finance charge in an amount equal to 2.0(%) percent per month of the average daily Account Balance outstanding during the applicable Reconciliation Period (the "Finance Charges"). Buyer shall deduct the accrued Finance Charges from the Reserve as set forth in Section 3.5 below. *SEE ADDENDUM TO FACTORING AGREEMENT. 3.3. ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay to Buyer an Administrative Fee equal to 0(%) percent of the face amount of each Purchased Receivable first purchased during that Reconciliation Period (the "Administrative Fee"). Buyer shall deduct the Administrative Fee from the Reserve as set forth in Section 3.5 below. 3.4 ACCOUNTING. Buyer shall prepare and send to Seller after the close of business for each Reconciliation Period, an accounting of the transactions for that Reconciliation Period, including the amount of all Purchased Receivables, all Collections, Adjustments, Finance Charges, and the Administrative Fee. The accounting shall be deemed correct and conclusive unless Seller makes written objection to Buyer within thirty (30) days after the Buyer mails the accounting to Seller. 3.5. REFUND TO SELLER. Provided that there does not then exist an Event of Default or any event or condition that with notice, lapse of time or otherwise would constitute an Event of Default, Buyer shall refund to Seller by check after the Reconciliation Date, the amount, if any, which Buyer owes to Seller at the end of the Reconciliation Period according to the accounting prepared by Buyer for that Reconciliation Period (the "Refund"). The Refund shall be an amount equal to: (A)(1) The Reserve as of the beginning of that Reconciliation Period, plus (2) Reserve created for each Purchased Receivable purchased during that Reconciliation Period, minus (B) The Total for that Reconciliation Period of: (1) the Administrative Fee; (2) Finance Charges; (3) Adjustments; (4) Repurchase Amounts, to the extent Buyer has agreed to accept payment thereof by deduction from the Refund; (5) the Reserve for the Account Balance as of the first day of the following Reconciliation Period in the minimum percentage set forth in Section 2.4 hereof; and (6) all amounts due, including professional fees and expenses, as set forth in Section 12 for which oral or written demand has been made by Buyer to Seller during that Reconciliation Period to the extent Buyer has agreed to accept payment by deduction from the refund. In the event the formula set forth in this Section 3.5 results in an amount due to Buyer from Seller, Seller shall make such payment in the same manner as set forth in Section 4.3 hereof for repurchases. If the formula set forth in this Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make such payment by check, subject to Buyer's rights under Section 4.3 and Buyers's rights of offset and recoupment. 4. RECOURSE AND REPURCHASE OBLIGATIONS. 4.1. RECOURSE. Buyer's acquisition of Purchased Receivables from Seller shall be with full recourse against Seller. In the event the Obligations exceed the amount of Purchased Receivables and Collateral, Seller shall be liable for any deficiency. 4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer on demand, the full face amount, or any unpaid portion, of any Purchased Receivable: (A) which remains unpaid ninety (90) calendar days after the invoice date; or (B) which is owed by any Account Debtor who has filed, or has had filed against it, any bankruptcy case, assignment for the benefit of creditors, receivership, or insolvency proceeding or who has become insolvent (as defined in the United States Bankruptcy Code) or who is generally not paying its debts as such debts become due; or (C) with respect to which there has been any breach of warranty or representation set forth in Section 6 hereof or any breach of any covenant contained in this Agreement; or (D) with respect to which the Account Debtor asserts any discount, allowance, return, dispute, counterclaim, offset, defense, right of recoupment, right of return, warranty claim, or short payment; together with all reasonable attorneys' and professional fees and expenses and all court costs incurred by Buyer in collecting such Purchased Receivable and/or enforcing its rights under, or collecting amounts owed by Seller in connection with, this Agreement (collectively, the "Repurchase Amount"). 4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE BUYER. When any Repurchase Amount or other amount owing to Buyer becomes due, Buyer shall inform Seller of the manner of payment which may be any one or more of the following in Buyer's sole discretion: (a) in cash immediately upon demand therefor; (b) by delivery of substitute invoices and an Invoice Transmittal acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by adjustment to the Reserve pursuant to Section 3.5 hereof; (d) by deduction from or offset against the Refund that would otherwise be due Page 2 of 6 and payable to Seller; (e) by deduction from or offset against the amount that otherwise would be forwarded to Seller in respect of any further Advances that may be made by Buyer; or (f) by any combination of the foregoing as Buyer may from time to time choose. 4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon and after the occurrence of an Event of Default, Seller shall, upon Buyer's demand (or, in the case of an Event of Default under Section 9(B), immediately without notice or demand from Buyer) repurchase all the Purchased Receivables then outstanding, or such portion thereof as Buyer may demand. Such demand may, at Buyer's option, include and Seller shall pay to Buyer immediately upon demand, cash in an amount equal to the Advance with respect to each Purchased Receivable then outstanding together with all accrued Finance Charges. Adjustments, Administrative Fees, attorneys' and professional fees, court costs and expenses as provided for herein, and any other Obligations. Upon receipt of payment in full of the Obligations, Buyer shall immediately instruct Account Debtors to pay Seller directly, and return to Seller any Refund due to Seller. For the purpose of calculating any Refund due under this Section only, the Reconciliation Date shall be deemed to be the date Buyer receives payment in good funds of all the Obligations as provided in this Section 4.4. 5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its successors and assigns as Seller's true and lawful attorney in fact, and hereby authorizes Buyer, regardless of whether there has been an Event of Default, (a) to sell, assign, transfer, pledge, compromise, or discharge the whole or any part of the Purchased Receivables; (b) to demand, collect, receive, sue, and give releases to any Account Debtor for the monies due or which may become due upon or with respect to the Purchased Receivables and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Purchased Receivables, including the filing of a claim or the voting of such claims in any bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose; (c) to prepare, file and sign Seller's name on any notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics' lien or similar document with respect to Purchased Receivables; (d) to notify all Account Debtors with respect to the Purchased Receivables to pay Buyer directly; (e) to receive, open, and dispose of all mail addressed to Seller for the purpose of collecting the Purchased Receivables; (f) to endorse Seller's name an any checks or other forms of payment on the Purchased Receivables; (g) to execute on behalf of Seller any and all instruments, documents, financing statements and the like to perfect Buyer's interests in the Purchased Receivables and Collateral; and (h) to do all acts and things necessary or expedient, in furtherance of any such purposes. If Buyers receives a check or item which is payment for both a Purchased Receivable and another receivable, the funds shall first be applied to the Purchased Receivable and, so long as there does not exist an Event of Default or an event that with notice, lapse of time or otherwise would constitute an Event of Default, the excess shall be remitted to Seller. Upon the occurrence and continuation of an Event of Default, all of the power of attorney rights granted by Seller to Buyer hereunder shall be applicable with respect to all Purchased Receivables and all Collateral. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS. 6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce Buyer to buy receivables and to render its services to Seller, and with full knowledge that the truth and accuracy of the following are being relied upon by the Buyer in determining whether to accept receivables as Purchased Receivables, Seller represents, warrants, covenants and agrees, with respect to each Invoice Transmittal delivered to Buyer and each receivable described therein, that: (A) Seller is the absolute owner of each receivable set forth in the Invoice Transmittal and has full legal right to sell, transfer and assign such receivables; (B) The correct amount of each receivable is as set forth in the Invoice Transmittal and is not in dispute; (C) The payment of each receivable is not contingent upon the fulfillment of any obligation or contract, past or future and any and all obligations required of the Seller have been fulfilled as of the date of the Invoice Transmittal; (D) Each receivable set forth on the Invoice Transmittal is based on an actual sale and delivery of goods and/or services actually rendered, is presently due and owing to Seller, is not past due or in default, has not been previously sold, assigned, transferred, or pledged, and is free of any and all liens, security interests and encumbrances other than liens, security interests or encumbrances in favor of Buyer or any other division or affiliate of Silicon Valley Bank; (E) There are no defenses, offsets, or counterclaims against any of the receivables, and no agreement has been made under which the Account Debtor may claim any deduction or discount, except as otherwise stated in the Invoice Transmittal; (F) Each Purchased Receivable shall be the property of the Buyer and shall be collected by Buyer, but if for any reason it should be paid to Seller, Seller shall promptly notify Buyer of such payment, shall hold any checks, drafts, or monies so received in trust for the benefit of Buyer, and shall promptly transfer and deliver the same to the Buyer; (G) Buyer shall have the right of endorsement, and also the right to require endorsement by Seller, on all payments received in connection with each Purchased Receivable and any proceeds of Collateral; (H) Seller, and to Seller's best knowledge, each Account Debtor set forth in the Invoice Transmittal, are and shall remain solvent as that term in defined in the United States Bankruptcy Code and the California Uniform Commercial Code, and no such Account Debtor has filed or had filed against it a voluntary or involuntary petition for relief under the United States Bankruptcy Code; (I) Each Account Debtor named on the Invoice Transmittal will not object to the payment for, or the quality or the quantity of the subject matter of, the receivable and is liable for the amount set forth on the Invoice Transmittal; (J) Each Account Debtor shall promptly be notified, after acceptance by Buyer, that the Purchased Receivable has been transferred to and is payable to Buyer, and Seller shall not take or permit any action to countermand such notification; and (K) All receivables forwarded to and accepted by Buyer after the date hereof, and thereby becoming Purchased Receivables, shall comply with each and every one of the foregoing representations, warranties, covenants and agreements referred to above in this Section 6.1. 6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition to the foregoing warranties, representations and covenants, to induce Buyer to buy receivables and to render its services to Seller, Seller hereby represents, warrants, covenants and agrees that: (A) Seller will not assign, transfer, sell, or grant, or permit any lien or security interest in any Purchased Receivables or Collateral to or in favor of any other party, without Buyer's prior written consent; (B) The Seller's name, form of organization, chief executive office, and the place where the records concerning all Purchased Receivables and Collateral are kept is set forth at the beginning of this Agreement, Collateral is located only at the location set forth in the beginning of this Agreement, or, if located at any addition location, as set forth on a schedule attached to this Agreement, and Seller will give Buyer at least thirty (30) days prior written notice if such name, organization, chief executive office or other locations of Collateral or records concerning Purchased Receivables or Collateral is changed or added and shall execute any documents necessary to perfect Buyer's interest in the Purchased Receivables and the Collateral; (C) Seller shall (i) pay all of its normal gross payroll for employees, and all federal and state taxes, as and when due, including without limitation all payroll and withholding taxes and state sales taxes; (ii) deliver at any time and from Page 3 of 6 time to time at Buyer's request, evidence satisfactory to Buyer that all such amounts have been paid to the proper taxing authorities; and (iii) if requested by Buyer, pay its payroll and related taxes through a bank or an independent payroll service acceptable to buyer. (D) Seller has not, as of the time Seller delivers to Buyer an Invoice Transmittal, or as of the time Seller accepts any Advance from Buyer, filed a voluntary petition for relief under the United States Bankruptcy Code or had filed against it an involuntary petition for relief; (E) If Seller owns, holds or has any interest in, any copyrights (whether registered, or unregistered), patents or trademarks, and licenses of any of the foregoing, such interest has been disclosed to Buyer and is specifically listed and identified on a schedule to this Agreement, and Seller shall immediately notify Buyer if Seller hereafter obtains any interest in any additional copyrights, patents, trademarks or licenses that are significant in value or are material to the conduct of its business; and (F) Seller shall provide buyer with a Compliance Certificate (i) on a quarterly basis to be received by Buyer no later than the fifth calendar day following each calendar quarter, and; (ii) on a more frequent or other basis if and as requested by Buyer. 7. ADJUSTMENTS. In the event of a breach of any of the representations, warranties, or covenants set forth in Section 6.1, or in the event any Adjustment or dispute is asserted buy any Account Debtor, Seller shall promptly advise Buyer and shall, subject to the Buyer's approval, resolve such disputes and advise Buyer of any adjustments. Unless the disputed Purchased Receivable is repurchased by Seller and the full Repurchase Amount is paid, Buyer shall remain the absolute owner of any Purchased Receivable which is subject to Adjustment or repurchase under Section 4.2 hereof, and any rejected, returned, or recovered personal property, with the right to take possession thereof at any time. If such possession is not taken by Buyer, Seller is to resell it for Buyer's account at Seller's expense with the proceeds made payable to Buyer. While Seller retains possession of said returned goods, Seller shall segregate said goods and mark them "property of Silicon Valley Financial Services." 8. SECURITY INTEREST. To secure the prompt payment and performance to Buyer of all of the Obligations, Seller hereby grants to Buyer a continuing lien upon and security interest in all of seller's now existing or hereafter arising rights and interest in the following, whether now owned or existing or hereafter created, acquired, or arising, and wherever located (collectively, the "Collateral"): (A) All accounts, receivables, contract rights, chattel paper, instruments, documents, letters of credit, bankers acceptances, drafts, checks, cash, securities, and general intangibles (including, without limitation, all claims, causes of action, deposit accounts, guaranties, rights in and claims under insurance policies (including rights to premium refunds), rights to tax refunds, copyrights, patents, trademarks, rights in and under license agreements, and all other intellectual property); (B) All inventory, including Seller's rights to any returned or rejected goods, with respect to which Buyer shall have all the rights of any unpaid seller, including the rights of replevin, claim and delivery, reclamation, and stopage in transit; (C) All monies, refunds and other amounts due Seller, including, without limitation, amounts due Seller under this Agreement (including Seller's right of offset and recoupment); (D) All equipment, machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles; (E) All farm products, crops, timber, minerals and the like (including oil and gas); (F) All accessions to, substitutions for, and replacements of, all of the foregoing; (G) All books and records pertaining to all of the foregoing; and (H) All proceeds of the foregoing, whether due to voluntary or involuntary disposition, including insurance proceeds. Seller is not authorized to sell, assign, transfer or otherwise convey any collateral without Buyer's prior written consent, except for the sale of finished inventory in the Seller's usual course of business. Seller agrees to sign UCC financing statements, in a form acceptable to Buyer, and any other instruments and documents requested by Buyer to evidence, perfect, or protect the interests of Buyer in the collateral. Seller agrees to deliver to Buyer the originals of all instruments, chattel paper and documents evidencing or related to Purchased Receivables and Collateral. 9. DEFAULT. The occurrence of any one or more of the following shall constitute an Event of Default hereunder. (A) Seller fails to pay any amount owed to Buyer as and when due; (B) There shall be commenced by or against Seller any voluntary or involuntary case under the United States Bankruptcy Code, or any assignment for the benefit of creditors, or appointment of a receiver or custodian for any of its assets; (C) Seller shall become insolvent in that its debts are greater than the fair value of its assets, or Seller is generally not paying its debts as they become due or is left with unreasonably small capital; (D) Any involuntary lien, garnishment, attachment or the like is issued against or attaches to the Purchased Receivables or any Collateral; (E) Seller shall breach any covenant, agreement, warranty, or representation set forth herein, and the same is not cured by Buyer's satisfaction within ten (10) days after Buyer has given Seller oral or written notice thereof; provided, that if such breach is incapable of being cured it shall constitute an immediate default hereunder; (F) seller is not in compliance with, or otherwise is in default under, any term of any document, instrument or agreement evidencing a debt, obligation or liability of any kind or character of Seller, now or hereafter existing, in favor of Buyer or any division or affiliate of Silcon Valley Bank, regardless of whether such debt, obligation or liability is direct or indirect, primary or secondary, joint, several or joint and several, or fixed or contingent, together with any and all renewals and extensions of such debts, obligations and liabilities, or any part thereof; (G) An event of default shall occur under any guaranty executed by any guarantor of the Obligations of Seller to Buyer under this Agreement, or any material provision of any such guaranty shall for any reason cease to be valid or enforceable or any such guaranty shall be repudiated or terminated, including by operation of law; (H) A default or event of default shall occur under any agreement between Seller and any creditor of Seller that has entered into a subordination agreement with Buyer; or (I) Any creditor that has entered into a subordination agreement with Buyer shall breach any of the terms of or not comply with such subordination agreement. 10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1) without implying any obligation to buy receivables, Buyer may cease buying receivables or extending any financial accommodations to Seller; (2) all or a portion of the Obligations shall be, at the option of and upon demand by Buyer, or with respect to an Event of Default described in Section 9(B), automatically and without notice or demand, due and payable in full; and (3) Buyer shall have and may exercise all the rights and remedies under this Agreement and under applicable law, including the rights and remedies of a secured party under the California Uniform Commercial Code, all the power of attorney rights described in Section 5 with respect to all Collateral, and the right to collect, dispose of, sell, lease, use, and realize upon all Purchased Receivables and all Collateral in any commercial reasonable manner. Seller and Buyer agree that any notice of sale required to be given to Seller shall be deemed to be reasonable if given five (5) days prior to the date on or after which the sale may be held. In the event that the Obligations are accelerated hereunder, Seller shall repurchase all of the Purchased Receivables as set forth in Section 4.4. Page 4 of 6 11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid when due, including, without limitation, amounts due under Section 3.5, Repurchase Amounts, amounts due under Section 12, and any other Obligations, such amounts shall bear interest at a per annum rate equal to the per annum rate of the Finance Charges until the earlier of (i) payments in good funds or (ii) entry of a final thereof, at which time the principal amount of any money judgment remaining unsatisfied shall accrue interest at the highest rate allowed by applicable law. 12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to Buyer immediately upon demand all fees, costs and expenses (including fees of attorneys and professionals and their costs and expenses) that Buyer incurs or may from time to time impose in connection with any of the following: (a) preparing, negotiating, administering, and enforcing this Agreement or any other agreement executed in connection herewith, including any amendments, waivers or consents in connection with any of the foregoing, (b) any litigation or dispute (whether instituted by Buyer, Seller or any other person) in any way relating to the Purchased Receivables, the Collateral, this Agreement or any other agreement executed in connection herewith or therewith, (d) enforcing any rights against Seller or any guarantor, or any Account Debtor, (e) protecting or enforcing its interest in the Purchased Receivables or the Collateral, (f) collecting the Purchased Receivables and the Obligations, and (g) the representation of Buyer in connection with any bankruptcy case or insolvency proceeding involving Seller, any Purchased Receivable, the Collateral, any Account Debtor, or any guarantor. Seller shall indemnify and hold Buyer harmless from and against any and all claims, actions, damages, costs, expenses, and liabilities of any nature whatsoever arising in connection with any of the foregoing. 13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any provision of this Agreement is deemed invalid by reason of law, this Agreement will be construed as not containing such provision and the remainder of the Agreement shall remain in full force and effect. Buyer retains all of its rights, even if it makes an Advance after a default. If Buyer waives a default, it may enforce a later default. Any consent or waiver under, or amendment of, this Agreement must be in writing. Nothing contained herein, or any action taken or not taken by Buyer at any time, shall be construed at any time to be indicative of any obligation or willingness on the part of Buyer to amend this Agreement or to grant to Seller any waivers or consents. This Agreement has been transmitted by Seller to Buyer at Buyer's office in the State of California and has been executed and accepted by Buyer in the State of California. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of California. 14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or prefer that all of Seller's receivables be paid to the same address and/or party, or Seller and Buyer may agree that all receivables with respect to certain Account Debtors be paid to one party. In such event Buyer and Seller may agree that Buyer shall collect all receivables whether owned by Seller or Buyer and (provided that there does not then exist an Event of Default or event that with notice, lapse or time or otherwise would constitute an Event of Default, and subject to Buyer's rights in the Collateral) Buyer agrees to remit to Seller the amount of the receivables collections it receives with respect to receivables other than Purchased Receivables. It is understood and agreed by Seller that this Section does not impose any affirmative duty on Buyer to do any act other than to turn over such amounts. All such receivables and collections are Collateral and in the event of Seller's default hereunder, Buyer shall have no duty to remit collections of Collateral and may apply such collections to the obligations hereunder and Buyer shall have the rights of a secured party under the California Uniform Commercial Code. 15. NOTICES. All notices shall be given to Buyer and Seller at the addresses or faxes set forth on the first page of this Agreement and shall be deemed to have been delivered and received: (a) if mailed, three (3) calendar days after deposited in the United States mail, first class, postage pre-paid, (b) one (1) calendar day after deposit with an overnight mail or messenger service; or (c) on the same date of confirmed transmission if sent by hand delivery, telecopy, telefax or telex. 16. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT; AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL. 17. TERM AND TERMINATION. The term of this Agreement shall be for one (1) year from the date hereof, and from year to year thereafter unless terminated in writing by Buyer or Seller. Seller and Buyer shall each have the right to terminate this Agreement at any time. Notwithstanding the foregoing, any termination of this Agreement shall not affect Buyer's security interest in the Collateral and Buyer's ownership of the Purchased Receivables, and this Agreement shall continue to be effective, and Buyer's rights and remedies hereunder shall survive such termination, until all transactions entered into and Obligations incurred hereunder or in connection herewith have been completed and satisfied in full. 18. TITLES AND SECTION HEADINGS. The titles and section headings used herein are for convenience only and shall not be used in interpreting this Agreement. 19. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not adversely affect the rights of Buyer or any other division or affiliate of Silicon Valley Bank under any other document, instrument or agreement. The terms of such other documents, instruments and agreements shall remain in full force and effect notwithstanding the execution of this Agreement. In the event of a conflict between any provision of this Agreement and any provision of any other document, instrument or agreement between Seller on the one hand, and Buyer or any other division or affiliate of Silicon Valley Bank on the other hand, Buyer shall determine in its sole discretion which provision shall apply. Seller acknowledges specifically that any security agreements, liens and/or security interests currently securing payment of any obligations of Seller owing to Buyer or any other division or affiliate of Silicon Valley Bank also secure Seller's obligations under this Agreement, and are valid and subsisting and are not adversely affected by execution of this Agreement. Seller further acknowledges that (a) any collateral under other outstanding security agreements or other documents between Seller and Buyer or any other division or affiliate of Silicon Valley Bank secures the obligations of Seller under this Agreement and (b) a default by Seller under this Agreement constitutes a default under other outstanding agreements between Seller and Buyer or any other division or affiliate of Silicon Valley Bank. IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the day and year above written. SELLER: DATA DIMENSIONS, INC. By /s/ [add signature] -------------------------------- Title Executive VP/CFO -------------------------------- [add name] BUYER: SILICON VALLEY FINANCIAL SERVICES A division of Silicon Valley Bank By ------------------------------------ Title ---------------------------------- ADDENDUM TO FACTORING AGREEMENT This Addendum to Factoring Agreement (the "Addendum") is dated as of June 13, 1995, by and between Silicon Valley Financial Services, a division of Silicon Valley Bank ("Buyer") and Data Dimensions, Inc. ("Seller"), and supplements and amends that certain Factoring Agreement dated concurrently herewith between Buyer and Seller (the "Factoring Agreement"). Now, THEREFORE, in consideration of the foregoing and for other valuable consideration the receipt and sufficiency of which is hereby acknowledged, Buyer and Seller hereby agree as follows: 1. The following is added as additional phrase under Subsection 3.2 of the Financial Charges: "Buyer shall reduce the Finance Charge by a quarter of a percent (.25%) to 1.75% on the average daily balance per month, if and when Seller reduces the Accounts Receivable turnover rate to below 45 days for three (3) consecutive months. Said turnover rate will be as computed by Buyer's automated accounting system" 2. This Addendum is incorporated into the Factoring Agreement and made part of the Factoring Agreement. Except as set forth in this Addendum, the Factoring Agreement remains unchanged and in full force and effect. IN WITNESS WHEREOF, Seller and Buyer have executed this Addendum on the day and year written above. "Seller" Data Dimensions, Inc. By: /s/ [add signature] ----------------------------------- Title: Executive VP/CFO [add name] "Buyer" Silicon Valley Financial Services, a division of Silicon Valley Bank By: ---------------------------------- Title: ------------------------------- EX-10.8 12 EXHIBIT 10.8 EXHIBIT 10.8 PROMISSORY NOTE $65,000.00 February 28, 1994 Bellevue, Washington Larry W. Martin ("Borrower"), promises to pay to the order of Data Dimensions, Inc., a Delaware corporation, ("Lender"), upon demand at such place as the holder hereof may designate, in lawful money of the United States of America, the principal sum of Sixty Five Thousand and 00/XXX Dollars ($65,000.00) plus interest on the aggregate unpaid principal amount. Interest shall accrue at 11% per annum and shall be paid no later than the time the principal is paid. Borrower may prepay all or any part of the amount due hereunder without premium or penalty. The only collateral for this note is the note payable due Larry W. Martin by Data Dimensions, Inc. This Note shall be deemed to be made under and shall be construed in accordance with, and governed by, the laws of the State of Washington. DATA DIMENSIONS, INC. BY: /s/ Larry W. Martin ------------------------------ Larry W. Martin TITLE: President EX-10.9 13 EXHIBIT 10.9 EXHIBIT 10.9 PROMISSORY NOTE $50,000.00 August 31, 1994 Bellevue, Washington Larry W. Martin ("Borrower"), promises to pay to the order of Data Dimensions, Inc., a Delaware corporation, ("Lender"), upon demand at such place as the holder hereof may designate, in lawful money of the United States of America, the principal sum of Fifty Thousand and 00/XXX Dollars ($50,000.00) plus interest on the aggregate unpaid principal amount. Interest shall accrue at 11% per annum and shall be paid no later than the time the principal is paid. Borrower may prepay all or any part of the amount due hereunder without premium or penalty. The only collateral for this note is the note payable due Larry W. Martin by Data Dimensions, Inc. This Note shall be deemed to be made under and shall be construed in accordance with, and governed by, the laws of the State of Washington. DATA DIMENSIONS, INC. BY: /s/ Larry W. Martin ---------------------------- Larry W. Martin TITLE: President EX-10.10 14 EXHIBIT 10.10 EXHIBIT 10.10 DATA DIMENSIONS, INC. ----------------------------------- 777-108th Avenue NE, Suite 2070 Bellevue, WA 98004 Tel.(206)688-1000, Fax(206)688-1099 IMPLEMENTATION OF MEDICAL RECORD NUMBER AND CENTURY EXPANSION PROJECT 1996 CLIENT SERVICES AGREEMENT AND FINANCIAL SCHEDULE CLIENT SERVICES AGREEMENT Data Dimensions, Inc. (hereinafter called "DDI") and the Kaiser Permanente (hereinafter called "Kaiser") do hereby agree to the non-cancelable terms and conditions stated herein. 1. SCOPE OF SERVICE, COST AND PAYMENT DDI shall provide KAISER the services listed in the attached Schedule for the fee(s) as listed. Payment(s) shall be made as specified therein. 2. TERM OF AGREEMENT This agreement shall become effective on the date of execution and continue in full force and effect until terminated as provided herein. Either party may terminate this Agreement upon thirty (30) days written notice to the other party, setting forth the effective date of such termination. The termination of this Agreement shall not affect the obligations of either party pursuant to any schedules previously executed hereunder, and the terms and conditions of the agreement shall continue to apply to such Schedules previously executed hereunder as if this Agreement had not been terminated. 3. INVOICES Each invoice rendered hereunder shall describe the products and services and show the Schedule number and charges. Payment terms are fifteen (15) days net. If KAISER disputes any invoice rendered or amount paid, KAISER will notify DDI, and the parties will use their best efforts to resolve such disputes expeditiously. 4. INFORMATION In performance of its obligations under this Agreement, KAISER, or DDI may receive or have access to information owned or controlled by the other party ("Owner") which is proprietary or confidential. Accordingly, both parties agree: a) software developed by DDI during this agreement for Kaiser is Kaiser's property; b) that all such information shall be and shall remain Owner's exclusive property; c) to limit access to such information to only its authorized employees who have need to know such information in the performance of their work; d) to inform all of its employees and agents engaged in handling such information of the confidential character of such information; e) to keep, and have its employees and agents keep, such information confidential; f) not to copy, publish, or disclose such information to others or authorize others to copy, publish, or disclose such information without Owner's written approval; Page 2 g) to return promptly any copies of such information in written, graphic or other tangible form to Owner at Owner's request; and h) to use such information only for the purposes of fulfilling work or services performed hereunder and for other purposes only upon such terms as may be agreed upon between the Owners in writing. 5) SOFTWARE In performance of its obligations under this Agreement, KAISER or DDI may receive or have access to software owned or controlled by the other party ("Owner") which is proprietary or confidential. Accordingly, both parties agree: a) software developed by DDI during this agreement for Kaiser is Kaiser's property; b) that all such information shall be and shall remain Owner's exclusive property; c) not to copy, publish, or disclose such information to others or authorize others to copy, publish or disclose such information without Owner's written approval; d) to return promptly any copies of such information in written, graphic or other tangible form to Owner at Owner's request; and e) to use such information only for the purposes of fulfilling work or services performed hereunder and for other purposes only upon such terms and compensation as may be agreed upon between the Owners in writing. 6) ASSIGNMENT This Agreement and each Schedule shall inure to the benefit of and be binding upon the respective successors and assigns, if any, of the parties hereto. Neither party shall assign its rights under this Agreement or any Schedule hereunder without the prior written consent of the other party, which shall not be unreasonably withheld. 7) NOTICES Either party may change its address or communications by giving written notice to the other party. Except as otherwise specified in the Agreement, all notices or other communications hereunder shall be deemed to have been duly given when made in writing and delivered in person or deposited in the United States mail and addresses as follows: Page 3 To: Data Dimensions, Inc. To: Kaiser Permanente 777-108th Ave. NE, Suite 2070 25 North Via Monte Bellevue, WA 98004 Walnut Creek, CA 94598-2510 Attn.: Mr. Larry W. Martin, Attn.: Mr. Rick Hunter, President Project Manager 8) WARRANTY DDI warrants that it will render the services under the Agreement in accordance with its professional standards. 9) GENERAL Neither party shall be liable or deemed to be in default for any delay or failure in performance under this Agreement or interruption of service resulting directly or indirectly from Acts of God, civil or military authority, acts of public enemy, war riots, civil disturbances, insurrections, accidents, fire, explosions, earthquakes, floods, the elements, strikes, labor disputes, or any other cause beyond the reasonable control of such party. DDI shall not be liable to KAISER or to any third party for consequential damages, lost profits, or the like under any circumstances, even if DDI has been advised of the possibility of such damages or losses. This Agreement shall be interpreted in accordance with the law of the State of Washington. The failure of either party to insist, in any or more instances, upon performance of the terms, covenants, or conditions of the Agreement, or to exercise any right hereunder, shall not be construed as a waiver or relinquishment of the future performance of any rights, and the obligations of the other party with respect to such future performance shall continue in force and effect. THE RELATIONSHIP OF DDI AND KAISER SHALL BE THAT OF AN INDEPENDENT CONTRACTOR. NOTHING IN THIS AGREEMENT SHALL MAKE EITHER PARTY THE EMPLOYEE OR AGENT OF THE OTHER. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersedes all previous proposals, both oral and written, negotiations, representations, commitments, writings, agreements and all other communications between the parties. It may not be released, discharged, changed or modified except by an instrument in writing signed by a duly authorized representative of each party. Page 4 DATA DIMENSIONS, INC. KAISER PERMANENTE /s/ William H. Parsons /s/ Michael Fedor - ------------------------- --------------------------------- William H. Parsons Michael Fedor, Health Plan Systems Executive Vice President/CFO Practice Leader 9/26/95 9/27/95 - ------------------ ----------------- (Date) (Date) Page 5 FINANCIAL INFORMATION SCHEDULE A TO CLIENT SERVICES AGREEMENT --------------------------------------- KAISER PERMANENTE - INFORMATION SERVICES ---------------------------------------- SERVICES TO BE PROVIDED: This schedule is to provide Kaiser Permanente Information Technology Services (ITS) with the services of DDI Consultants to assist ITS in the conversion of the application systems designated in the implementation plan by Kaiser and agreed upon by DDI. The services of DDI will be to provide the level of effort for conversion capacity to perform the implementation plan for 1996. The specific activities of the DDI consulting team will be: 1. Joint project management with Kaiser for the MRN/Century Expansion Project 2. Applications conversion planning. 3. Applications analyses. 4. Architectural design for data conversion. 5. Application conversion of COBOL code, JCL, Procs and Parms for on-line and batch systems. 6. Unit and string testing of converted modules. 7. Cross application process design and programming. The consulting team will be supported by a DDI Managing Consultant whose responsibility will be to provide project review, ensure quality of the services provided, and provide project management. DDI Consultants will work with ITS personnel to accomplish the conversion activities in the Project Schedule (below). PROJECT SCHEDULE The following estimated work plan is based upon a normal work schedule (5 days/week) working in conjunction with ITS resources, from January through December, 1996 as indicated in the appendix: DDI Personnel: 1 - Managing Consultant 253 Days 5 - Senior Consultant 1265 Days 9 - Consultant 2277 Days 1 - Associate Consultant 253 Days 1 - Project Support 253 Days If project acceleration is required, additional staff will be added and a revision to the contract project schedule and cost structure will be made. Page 6 Requirements To execute the above tasks defined, the DDI Consultants will require desks, telephones and workspaces and access to mainframe(s) and PC's as required in the performance of their duties. Cost Structure Cost: Managing Consultant (1) Activity 253 Days Estimated Cost $ 316,250. Senior Consultant (5) Activity 1,265 Days Estimated Cost $ 759,000. Consultants (9) Activity 2,277 Days Estimated Cost $ 967,725. Associate Consultant (1) Activity 253 Days Estimated Cost $ 60,720. Project Support (1) Activity 253 Days Estimated Cost $ 40,480. TOTAL COST $2,139,615. Rates: Managing Consultant $ 1250.00/day $ 156.25/hr. Senior Consultants $ 600.00/day $75./hr. Consultants $ 425.00/day $53./hr. Associate Consultant $ 240.00/day $30./hr. Project Support $ 160.00/day $20./hr. (Per day rates, inclusive of travel and expenses). Terms: As per DDI Client Services Agreement and attached Financial Schedule. Page 7 FINANCIAL SCHEDULE Data Dimensions, Inc. commits to providing the aforementioned staffing for a fee of $2,139,615.00. The initial monthly payment schedule has been adjusted based on estimated staffing levels and vacation schedules. The new adjusted fee is $2,028,160.00. The monthly payment schedule will continuously be reviewed and adjusted after each month of the month's actual staffing level. Data Dimensions overbilled Kaiser in 1995 by $408,000.00. Data Dimensions agreed to reduce the monthly billing by $50,000 per invoice until this amount was met. This tentative 1996 monthly payment schedule accounts for this reduction of the remaining $207,172.50 which will be completed by the service month of May, 1996 (Invoice month of Feb. 1996). The final adjusted fee is $1,820,987.50. The tentative monthly payment schedule, including adjustments for vacations, sicktime and overpayment is as follows:
Adjustments Service Month Amount (over payment) Adjusted Amount - ------------- ------ -------------- --------------- January 1, 1996 $180,720.00 ($50,000) $130,720.00 February 1, 1996 $166,420.00 ($50,000) $116,420.00 March 1, 1996 $170,705.00 ($50,000) $120,705.00 April 1, 1996 $179,180.00 ($50,000) $129,180.00 May 1, 1996 $179,180.00 ($7,172.50) $172,007.50 June 1, 1996 $162,170.00 (0) $162,170.00 July 1, 1996 $168,705.00 (0) $168,705.00 August 1, 1996 $168,705.00 (0) $168,705.00 September 1, 1996 $162,230.00 (0) $162,230.00 October 1, 1996 $187,655.00 (0) $187,655.00 November 1, 1996 $149,195.00 (0) $149,195.00 December 1, 1996 $153,295.00 (0) $153,295.00 Total: $2,028,160.00 ($207,172.50) $1,820,987.50
DATA DIMENSIONS, INC. KAISER PERMANENTE /s/ William H. Parsons /s/ Michael Fedor - -------------------------------- --------------------------------- William H. Parsons Michael Fedor, Health Plan Systems Executive Vice President/CFO Practice Leader 9/26/95 9/22/95 - -------------------------------- ---------------------------------- (Date) (Date) Page 8 EX-23.1 15 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Data Dimensions, Inc. Bellevue, Washington We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated January 22, 1996 relating to the financial statements of Data Dimensions, Inc. which are contained in that Propectus. We also consent to the reference to us under the captions "Selected Financial Data" and "Experts." BDO SEIDMAN, LLP Seattle, Washington February 8, 1996 EX-27.1 16 FDS EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF DATA DIMENSIONS, INC. FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 64,800 0 1,451,100 (2,500) 0 1,638,000 259,600 (93,300) 1,804,300 2,282,300 0 0 0 69,200 (547,200) 1,804,300 6,231,600 6,231,600 3,484,700 3,484,700 2,235,800 0 206,800 304,300 0 304,300 0 0 0 304,300 .12 .12 Represents finance charges incurred under a factoring agreement.
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