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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 0-4748
DATA DIMENSIONS, INC.
(Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 06-0852458
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2000 SKYLINE TOWER
10900 N.E. 4TH STREET
BELLEVUE, WASHINGTON 98004
(206) 688-1000
(Address and Telephone Number of Principal Executive Offices)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 1996 were
$14,835,000.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of March 5, 1997 was approximately
$160,000,000.
As of March 5, 1997, there were 3,816,740 shares of Common Stock, par
value $.001 per share, outstanding.
The index to exhibits appears on page 34 of this document.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of this Form 10-KSB by
reference portions of the Proxy Statement for its 1997 Annual Meeting of
Shareholders.
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DATA DIMENSIONS, INC.
1996 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
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PART I.
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ITEM 1. DESCRIPTION OF BUSINESS................................................... 3
ITEM 2. DESCRIPTION OF PROPERTY................................................... 9
ITEM 3. LEGAL PROCEEDINGS......................................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................... 9
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................. 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................. 10
ITEM 7. FINANCIAL STATEMENTS...................................................... 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................................. 16
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT....................................................... 16
ITEM 10. EXECUTIVE COMPENSATION.................................................... 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................................ 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.......................................... 17
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - 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 process (the "Millennium Process"). This process consists
of a documented set of procedures for resolving the widespread problems caused
by the inability of certain 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 and governmental organizations. 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 Process,
which enables the Company to develop customized solutions to a client's specific
millennium problems. Through the application of the Millennium Process, 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.
Furthermore, the Company has documented its knowledge base into a series of
proprietary processes and packaged the information in a new media format for
ease of use and distribution. These processes and new media format, designated
as Ardes 2k(TM), provide step-by-step procedures to allow technology specialists
to identify and resolve technology related Year 2000 problems.
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 many companies, including the
following systems:
Software. Software applications that may be 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.
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Hardware. Date-dependent functions are routinely incorporated
into hardware systems. For example, computer chips found in the
operating systems utilized by PCs and mainframes generally 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 world-wide cost of resolving the
millennium problem is estimated to exceed several billion dollars over the next
several years. The millennium consulting market consists of those aspects of the
millennium problem that cannot be resolved by in-house information services
personnel. 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, the Company believes it is
likely that a substantial portion of the millennium update process will be
outsourced to consulting firms such as Data Dimensions.
THE DATA DIMENSIONS APPROACH
As part of Data Dimensions' "total solutions" approach, the Millennium
Process is designed to resolve all aspects of a client's millennium problem. The
Company performs a complete evaluation of the client's entire information
system, including its 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
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:
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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 continue to
open 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 Process. The Company's strategy is to
continuously update and refine the Millennium Process 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 and Domestic Licensees. The Company will
continue to pursue strategic opportunities to expand its global
presence by licensing the Millennium Process to leading computer
consulting firms in specifically targeted markets in North and South
America, Europe and the Pacific Rim. The Company believes that these
licensing arrangements provide potential for growth in new markets,
enable the Company to service multinational clients and increase market
awareness of the Company's services.
Market and Sell Ardes 2k. The Company's strategy is to expand
its leverage by allowing current and future licensees and the Company'
sales staff to sell Ardes 2k directly to end users. The Company
believes that this new offering will support organizations who desire
to perform the Year 2000 work with their internal staff. Furthermore,
Ardes 2k will provide the vehicle for organizations to train millennium
staff quickly and to consistently manage the Year 2000 problem.
Off Site Data Conversion. The Company will continue to expand
the use of its Galway, Ireland facility where code and data conversion
is being completed.
The Company intends to use 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
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. Although the Company
anticipates that substantially all of its resources will be devoted to
millennium consulting services for the next several years, the amount of
resources devoted to non-millennium consulting is expected to increase as the
year 2000 approaches.
COMPANY SERVICES
The Millennium Consulting Service. The Company's millennium consulting
service is based on the Millennium Process, which consists of three separate
phases: planning, preparation 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.
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Planning Phase. Working with a 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.
Preparation 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.
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.
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 while their millennium
problems are being 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, 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.
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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 millennium
consulting industry. To implement this strategy, the Company distributes its
quarterly Millennium Journal to over 11,000 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 and domestic 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
and Ardes 2k. 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, follow up on client referrals and pursue
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.
During 1996, the Company provided services to approximately 85 clients.
During 1996, the Company's largest client, Kaiser Permanente, accounted for
approximately $1,927,000, or 13% of revenue. The Company's three largest clients
in 1996 accounted for approximately 27% of revenue and the Company's ten largest
clients in 1996 accounted for approximately 49% of revenue.
INTELLECTUAL PROPERTY
The Company's intellectual property primarily consists of the
Millennium Process and Ardes 2k. 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 Process. 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 Process or
to obtain and use information that the Company regards as proprietary.
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The Company has licensed the use of the Millennium Process to many
consulting firms located in North America, Europe and the Pacific Rim. 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 Process.
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
Process 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 Process 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.
PRODUCT AND TECHNOLOGY DEVELOPMENT
During the last six months of 1996, the Company invested $1,255,000 in
capitalized product development cost, consisting of personnel and other related
expenses, and $182,000 in computer equipment to develop Ardes 2k. The product
will be sold directly to clients and to third-party providers, including
computer and software companies, systems integrators and consultants.
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., Keane, Inc., Computer Task Group, Inc.,
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 Process.
EMPLOYEES
As of January 31, 1997, the Company employed 215 full-time employees,
including 135 technical consultants, 22 employees in product development, 11
employees in direct sales and 47 employees in
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administration and support. None of the Company's employees are 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its headquarters in a leased facility in
Bellevue, Washington. The lease on this space will expire on November 30, 1999.
In addition, the Company maintains leased office space for regional offices and
direct sales personnel located in Walnut Creek, California; Joliet, Illinois;
Marlboro, Massachusetts; Dallas, Texas; Littleton, Colorado; Beachwood, Ohio;
Montgomery, Alabama; St. Petersburg, Florida; Roswell, Georgia; Reston,
Virginia; and Oxford, United Kingdom. Other than the lease for the Company's
headquarters and two regional offices which have leases expiring on July 31,
1999 and December 1, 1999, none of the Company's leases have terms in excess of
one year. The Company's Irish subsidiary leases space in Galway, Ireland under a
ten year lease which may be terminated after five years. The Company believes
its facilities are in good condition.
ITEM 3. LEGAL PROCEEDINGS
As of March 15, 1997, there were no material pending legal proceedings
to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the quarter ended December 31, 1996.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market
System under the symbol "DDIM." On April 3, 1996, the Company effected a 1:3
reverse split of its Common Stock, and the information presented in this Item 5
has been adjusted to reflect the effect of this reverse split. On February 19,
1997, the Company's Board of Directors approved a 3-for-1 stock split, effected
in the form of a stock dividend, which was paid in shares of the Company's
authorized and unissued Common Stock on March 20, 1997 to holders of record as
of the close of business on March 5, 1997. The information regarding the Common
Stock set forth in this Item 5 has not been adjusted to reflect the effect of
this 1997 stock split.
The stock prices listed below for 1995 and the first quarter of 1996
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.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions. The stock prices for
the second, third and fourth
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quarters of 1996 are the high and low bid prices as quoted on the Nasdaq
National Market System for such periods.
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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........................... 22.31 3.38
Second quarter ended June 30, 1996........................... 55.75 13.88
Third quarter ended September 30, 1996....................... 44.75 17.75
Fourth quarter ended December 31, 1996....................... 41.50 23.50
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On March 5, 1997, the closing price of the Common Stock on the Nasdaq
National Market System was $52.25 per share. As of March 5, 1997, there were
approximately 651 holders of record of the Company's Common Stock.
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 on its
Common Stock in the foreseeable future. There were no sales of unregistered
securities by the Company during the year ended December 31, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS.
This Annual Report on Form 10-KSB 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 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-millennium and post-2000 markets); and (iv) 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.
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 consulting
market; and (v) various competitive factors that may prevent the Company from
competing
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successfully in the marketplace. In view of these risks and uncertainties, there
can be no assurance that the forward-looking statements contained in this Annual
Report on Form 10-KSB will in fact transpire.
OVERVIEW
Data Dimensions provides high quality knowledge-based millennium
consulting services. The Company's millennium consulting services are based on
its proprietary millennium consulting process. This process consists of a
documented set of procedures for resolving the widespread problems caused by the
inability of certain computer systems to properly interpret dates for the year
2000 and beyond. Additionally, the Company during the latter part of 1996 and
early 1997 developed and will launch the sale in 1997 of a CD-ROM/Internet
product, Ardes 2k, that provides step-by-step procedures to allow technology
specialists to identify and resolve computer related Year 2000 problems. This
new offering will support organizations which desire to perform the Year 2000
work with their internal staff. 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 and governmental
organizations.
The Company markets its services domestically through eleven
salespeople and three independent sales representatives. Approximately 65% of
the Company's revenue in 1996 was attributable to direct sales and approximately
35% was attributable to the Company's independent sales representatives. The
Company has leveraged its technology by licensing the right to use its
millennium consulting process to two U.S. computer consulting firms and eleven
foreign computer consulting firms servicing 25 countries located in North
America, Europe and the Pacific Rim. Approximately 7% of the Company's revenue
in 1996 consisted of royalty and license fees pursuant to license agreements
with these consulting firms. The Company intends to pursue the growing
international market by establishing additional licensing relationships and has
an office in the United Kingdom to develop and manage these relationships.
However, the Company's ability to increase its international license
arrangements will depend on the development of, and the amount of competition
in, the international market. In addition, in 1996 and with the support of the
Irish Development Authority, the Company established a subsidiary in Galway,
Ireland where code and data conversion is being processed.
The Company's revenue consists of billable hours for services provided
by its technical consultants multiplied by contract rates and is recognized at
the time services are performed. The Company also receives one time license fees
and royalty income from its licensees. Licensee fees are recognized when the
licensed technology has been delivered to the licensee and royalty income is
recognized as services are provided by the licensee. In 1996, the Company
generated most of its revenue from and devoted substantially all of its
resources to its millennium consulting services. Over the next several years the
Company expects licensing of Ardes 2k to become a larger portion of its revenue
and costs. Although the Company believes that demand for certain millennium
consulting services will continue after the year 2000, this demand is likely to
diminish significantly. Therefore, the Company plans to pursue opportunities in
the computer consulting market that are not related to the millennium problem
and to 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.
Direct costs consist primarily of salaries, benefits, unreimbursed
travel expenses and other costs directly related to consulting services rendered
by the Company and to support its licensees. Additionally, since the sales staff
is compensated solely based on a percentage of revenue, commissions earned are
included in direct costs.
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Gross margin depends primarily on the productivity of the Company's
technical staff. Productivity is based on the number of billable staff and their
billing rate, the number of working days in a period and the number of hours
worked per day. The Company's billable staff are paid salaries; however, clients
are charged a time-based rate. Gross margin also depends on the percentage of
revenue attributable to royalty income and sales of Ardes 2k because the direct
costs associated with royalty income and, commencing in 1997, Ardes 2k sales are
lower than those associated with income for services provided directly by the
Company. Although the Company anticipates that the percentage of revenue
attributable to royalty income will increase, this will primarily depend on the
development of, and the amount of competition in, the new markets where the
Company has entered. Although Ardes 2k sales will have a lower associated direct
cost, the volume of sales is unknown at this time. Finally, gross margin depends
on the percentage of revenue attributable to the various phases of the
millennium conversion process because gross margin for the implementation phase
is generally lower than for the planning phase. The Company expects the
percentage of revenue attributable to the implementation phase to increase as
the year 2000 approaches, which may have a slightly negative impact on gross
margin.
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.
Although the Company expects these expenses to increase in absolute terms as a
result of the Company's growth and normal cost increases, it expects these
expenses to stabilize or gradually decrease as a percentage of revenue. Whether
these expenses will stabilize or decrease as a percentage of revenue will depend
primarily on the extent to which the increase of its administrative, sales, and
support staff will support its future growth.
Other expense and other income consist primarily of finance charges
relating to the Company's factored accounts receivable and income from
investments, respectfully. The Company eliminated its reliance on its factor in
April 1996 with a potion of the proceeds from a secondary public offering.
Management anticipates sufficient taxable income to utilize a
substantial portion of its net operating loss carryforwards and thus realize its
recorded deferred tax assets. In 1996, the Company decreased its deferred tax
asset valuation allowance by $450,000 due to Management's belief that it is more
likely than not that the related deferred tax assets will be realized. At
December 31, 1996, the Company had federal and state net operating loss
carryforwards available for utilization of approximately $1,700,000 with
expiration dates through 2008. Limitations on utilization may significantly
diminish net operating loss carryforwards available to offset future taxable
income.
12
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue............................................... 100.0% 100.0% 100.0%
Direct costs.......................................... 58.9 55.9 55.2
----- ----- -----
Gross margin.......................................... 41.1 44.1 44.8
General, administrative and selling expenses.......... 33.0 35.9 42.2
----- ----- -----
Income from operations................................ 8.1 8.2 2.6
Other income (expenses)............................... (4.3) (3.3) 3.3
----- ----- ----
Income before income tax benefit...................... 3.8 4.9 5.9
Deferred income tax benefit 0.0 7.2 .5
----- ----- -----
Net income............................................ 3.8% 12.1% 6.4%
===== ===== =====
</TABLE>
Comparison of Years Ended December 31, 1996 and 1995
Revenue for the year ended December 31, 1996 was $14,835,000, compared
to $6,232,000 in 1995, an increase of $8,603,000, or 138%. The increase was
primarily attributable to an increase in the general awareness of the millennium
problem and demand for millennium consulting services and the Company's
expanding marketing efforts. As a result of these factors, the Company's client
millennium services base grew from approximately 50 clients in 1995 to
approximately 105 clients in 1996 In addition, the increase in licensee service
providers has grown from 4 in 1995 to 13 in 1996. Licensee fees and royalty
revenue in 1996 were approximately $1,050,000 as compared to approximately
$400,000 in 1995.
Gross margin for the year ended December 31, 1996 was $6,644,000,
compared to $2,747,000 in 1995, an increase of $3,897,000, or 142%. Gross margin
as a percentage of revenue was 45% in 1996, compared to 44% in 1995. The
increase in gross margin was the result of an increase in technical billable
staff which grew from approximately 60 in 1995 to 130 in 1996.
General, administrative and selling expenses for the year ended
December 31, 1996 were $6,259,000, compared to $2,236,000 in 1995, an increase
of $4,023,000, or 180%. This increase was primarily attributable to the
Company's rapid growth and normal cost increases. General, administrative and
selling expenses as a percentage of revenue increased from 36% in 1995 to 42% in
1996. This percentage increase was primarily the result of adding a chief
operating officer in the fourth quarter and increase in administrative, sales
and other support staff in order to support the continuous rapid growth of the
Company. Because of increased competition and to obtain more market share the
Company increased its marketing activities and increased its direct sales staff
from 4 in 1995 to 11 in 1996. The Company believes that with its release of
Ardes 2k in 1997 and the increase in demand for millennium services, further
increase in support and sales staff will be required in 1997. As a result of the
Company's secondary public offering in April 1996, additional costs were
required to respond to and service an increased level of investor communications
activities. The Company expects general, administrative and selling expenses to
increase in absolute terms as a result of future growth and normal cost
increases, but it expects these expenses to decrease gradually as a percentage
of revenue over the next two years.
13
<PAGE> 14
Other income for the year ended December 31, 1996 was $492,000 compared
to other expense of $207,000 in 1995. The other income for the year 1996 was
attributable to investment income during the last nine months of 1996 of
$583,000 offset primarily by finance costs of $86,000 related to accounts
receivable factored during the first quarter of 1996. The other expense for the
year 1995 was all attributable to accounts receivable factored and related
finance charges for the year.
Net income for the year ended December 31, 1996 was $947,000 compared
to net income of $754,000 in 1995, an increase of $193,000.
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 86%. This increase was
primarily attributable to an increase in the general awareness of the millennium
problem and demand for millennium consulting services and the Company's expanded
marketing efforts. As a result of these factors, the Company's client base grew
from approximately 19 clients to approximately 50 clients in 1995. In addition,
while the Company received no royalty income in 1994, the Company received
royalty income of approximately $400,000 in 1995.
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%. Gross margin
as a percentage of revenue was 44% in 1995 compared to 41% in 1994. This
increase in percentage was primarily a result of an increase in the amount of
royalty income as a percentage of revenue (from 0% in 1994 to 6% in 1995) and an
increase in technical staff productivity. Additionally, during 1995, the number
of clients in the planning phase increased over 1994, further positively
impacting gross margin.
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%. General, administrative and selling expenses as a
percentage of revenue increased from 33% in 1994 to 36% in 1995. This percentage
increase was primarily the result of additions to the Company's administrative
and support staff and the reorganization of its domestic operations. Related to
this reorganization, travel, promotion and recruiting expenses increased by
approximately $410,000. In the second and third quarters of 1995, the Company
hired a chief financial officer and a vice president of technical services,
which resulted in an increase in salaries and benefits of approximately
$245,000. In the third quarter of 1995, the Company reorganized its domestic
operations into three regions, which resulted in additional personnel, lease and
other office expenses of approximately $200,000.
Other expense for the year ended December 31, 1995 was $207,000,
compared to $146,000 in 1994, an increase of $61,000 or 42%. The increase was
attributable to the increase in the volume of accounts receivable factored and
the related finance charges.
Net income for the year ended December 31, 1995 was $754,000, compared
to $127,000 in 1994, an increase of $627,000, or 493%.
Liquidity and Capital Resources
The Company has experienced significant growth since 1993, with its
revenue growing from $1,687,000 in 1993 to $14,835,000 in 1996. During this
period and up to April 1996, the Company has financed its cash
14
<PAGE> 15
requirements primarily through factoring its accounts receivable and obtaining
advance payments for services to be rendered to certain clients. In April 1996,
the Company generated approximately $16,000,000 additional cash through proceeds
from an underwritten public offering of Common Stock. The Company used a portion
of the proceeds to eliminate reliance on advances from its accounts receivable
factor. The Company is using the balance for additional working capital needs,
business development and general corporate purposes.
At December 31, 1996, the Company had working capital of $14,207,000 as
compared to a deficit of $194,000 at December 31, 1995, representing an increase
in the Company's working capital of $14,401,000. This increase was primarily the
result of proceeds to the Company from the Company's Common Stock offering.
During the last six months of 1996, the Company invested $1,255,000 in
capitalized product development cost, consisting of personnel and other related
expenses, and $182,000 in computer equipment to develop an advanced Year 2000
product based upon its current proprietary Year 2000 process. The product, named
Ardes 2k, will be sold directly to clients and to third-party providers,
including computer and software companies, systems integrators and consultants.
The Company expects commercial release of the product during the first quarter
of 1997.
Other than the costs to complete the initial release of Ardes 2k during
the first quarter of 1997, the Company has no significant commitments for
capital expenditures.
The Company believes that based upon its current operating plan, cash
generated from operations and its cash and investments will be adequate to
finance its current working capital requirements.
Comparison of Years Ended December 31, 1996 and 1995
Net cash used in operating activities was $2,308,000 in 1996 and
$357,000 in 1995, an increase of $1,951,000. Cash provided by net income and
increases in current liabilities were more than offset by the increase in
accounts and notes receivable which accounted for most of the use of cash by
operating activities.
Net cash used in investing activities was $10,669,000 in 1996 and
$160,000 in 1995. The decrease in cash during 1996 was due to an increase in
purchases of investment securities available for sale, investment in product
development and purchases of equipment and furniture.
The cash provided by financing activities was $15,528,000 in 1996 and
$540,000 in 1995. The increase in cash provided by financing activities in 1996
was due primarily to net proceeds from issuance of common stock. The increase
was partially offset by a decrease in advances from factor resulting from the
repayment of such borrowings.
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.
15
<PAGE> 16
Net cash provided by (used in) investing activities was $540,600 in
1995 and $(63,100) in 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.
ITEM 7. FINANCIAL STATEMENTS
See "Financial Statements and Notes to Financial Statements" set forth
on pages F-1 through F-15 of this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
The Company will file a definitive proxy statement (the "Proxy
Statement") relating to its 1997 Annual Meeting of Stockholders pursuant to and
in accordance with Section 240.14a-101 within 120 days after the end of the
fiscal year covered by this Form. The information required by this item is
incorporated by reference to the Proxy Statement under the headings "Management"
and "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Voting Securities and Principal Holders
Thereof."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Related Party Transactions."
16
<PAGE> 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
NO. Description
--- -----------
<S> <C>
3.1* Certificate of Incorporation and all amendments thereto
3.2 Second 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 Second Amended and Restated Bylaws of the Company
defining the rights of the holders of Common Stock
10.1* 1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock Option
Plan
10.2 1997 Stock Option Plan
10.3 Lease Agreement For Registrant's Facilities in Bellevue, Washington
21.1 Subsidiaries
23.1 Consent of Independent Certified Public Accountants
24.1 Power of Attorney of Thomas W. Fife
24.2 Power of Attorney of Robert T. Knight
</TABLE>
- ------------------------------------
* Incorporated by reference to the Registration Statement on Form SB-2
(Reg. No. 333-841) filed by the Company on February 9, 1996.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1996.
17
<PAGE> 18
DATA DIMENSIONS, INC.
FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants.................... F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Operations................................. F-4
Consolidated Statement of Stockholders' Equity (Deficit).............. F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Data Dimensions, Inc.
We have audited the accompanying consolidated balance sheets of Data Dimensions,
Inc. and its subsidiary as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. 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. and its
subsidiary as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Seattle, Washington
February 12, 1997
F-2
<PAGE> 20
DATA DIMENSIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 65 $ 2,616
Investment securities available for sale (Note 2) - 7,684
Accounts receivable, less $2 allowance for doubtful accounts 1,448 4,604
Notes and other receivables - 699
Prepaid and other current assets 224 917
Deferred income taxes (Note 5) 450 550
-------- ----------
Total current assets 2,187 17,070
Equipment and furniture, net 166 824
Investment securities available for sale (Note 2) - 993
Investment in product development - 1,255
Other assets - 62
-------- ----------
$ 2,353 $ 20,204
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Advance billings $ 655 $ 990
Accounts payable 211 677
Accrued compensation 343 519
Accrued commissions 241 434
Advances from factor (Note 4) 824 -
Other accrued liabilities 107 243
-------- ----------
Total current liabilities 2,381 2,863
-------- ----------
Stockholders' equity (deficit)
Common stock; $.001 par value; 20,000 shares authorized;
2,304 and 3,791 shares issued and outstanding in 1995 and 1996 69 4
Capital in excess of par value 1,457 18,027
Treasury stock, at cost; 2 shares in 1996 - (83)
Accumulated deficit (1,554) (607)
-------- ----------
Total stockholders' equity (deficit) (28) 17,341
-------- ----------
$ 2,353 $ 20,204
======= ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 21
DATA DIMENSIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue $ 3,360 $ 6,232 $ 14,835
Direct costs 1,980 3,485 8,191
-------- -------- --------
Gross margin 1,380 2,747 6,644
General, administrative and selling expenses 1,107 2,236 6,259
-------- -------- --------
Income from operations 273 511 385
-------- -------- --------
Other income (expense)
Interest expense (153) (206) (86)
Interest income -- -- 583
Other 7 (1) (5)
-------- -------- --------
Total other income (expense) (146) (207) 492
-------- -------- --------
Income before income tax 127 304 877
Income tax benefit (Note 5) -- 450 70
-------- -------- --------
Net income $ 127 $ 754 $ 947
======== ======== ========
Net income per share $ .06 $ .30 $ .27
======== ======== ========
Weighted average shares outstanding 2,299 2,517 3,563
======== ======== ========
Pro forma for stock split - unaudited (Note 11)
Net income per share $ .02 $ .10 $ .09
======== ======== ========
Shares used in computation of pro forma
Net income per share 6,897 7,551 10,689
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 22
DATA DIMENSIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
PREFERRED COMMON STOCK EXCESS OF TREASURY ACCUMULATED
STOCK SHARES $ PAR VALUE STOCK DEFICIT TOTAL
--------- ------------ ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 28 1,238 $ 37 $ 1,115 $ -- $ (2,435) $ (1,255)
Conversion of preferred to (28) 933 28 -- -- -- --
common
Issuance of common stock -- 1 -- 1 -- -- 1
Net income -- -- -- -- -- 127 127
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1994 -- 2,172 65 1,116 -- (2,308) (1,127)
Issuance of common stock -- 132 4 341 -- -- 345
Net income -- -- -- -- -- 754 754
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 -- 2,304 69 1,457 -- (1,554) (28)
Reverse stock split -- -- (66) 66 -- -- --
Issuance of common stock:
Exercise of warrants -- 46 -- -- -- -- --
Public offering -- 1,331 1 18,642 -- -- 18,643
Exercise of options -- 110 -- 220 -- -- 220
Stock issue costs -- -- -- (2,358) -- -- (2,358)
Acquisition of Treasury Stock in
connection with exercise of
options -- -- -- -- (83) -- (83)
Net income -- -- -- -- -- 947 947
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996 $ -- 3,791 $ 4 $ 18,027 $ (83) $ (607) $ 17,341
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 23
DATA DIMENSIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 127 $ 754 $ 947
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 16 33 126
Deferred income taxes -- (450) (70)
Changes in operating assets and liabilities:
Increase in accounts receivable (169) (754) (3,156)
Increase in notes and other receivables -- -- (699)
Increase in prepaid and other current assets (39) (153) (693)
Increase (decrease) in advance billings 430 (174) 335
Increase (decrease) in accounts payable (56) 154 466
Increase (decrease) in accrued compensation and related (128) 58 176
Increase in accrued commissions 80 161 292
Other (9) 14 (32)
-------- -------- --------
Net cash provided (used) by operating activities 252 (357) (2,308)
-------- -------- --------
Cash flows from investing activities
Purchase of investment securities available for sale -- -- (9,424)
Proceeds from sale of investment securities available for sale -- -- 752
Purchases of equipment and furniture (64) (125) (777)
Investment in product development -- -- (1,255)
Advances to officer (124) (35) 35
-------- -------- --------
Net cash used by investing activities (188) (160) (10,669)
-------- -------- --------
Cash flows from financing activities
Repayment of notes payable to officers (236) (111) --
Proceeds from notes and other payables to officers 32 -- --
Increase (decrease) in advances from factor 140 313 (824)
Payment of accrued preferred stock dividends -- -- (70)
Net proceeds from issuance of common stock 1 338 16,422
-------- -------- --------
Net cash provided (used) by financing activities (63) 540 15,528
-------- -------- --------
Net increase in cash and cash equivalents 1 23 2,551
Cash and cash equivalents, beginning of year 41 42 65
-------- -------- --------
Cash and cash equivalents, end of year $ 42 $ 65 $ 2,616
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 24
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Data Dimensions, Inc. (the "Company")
provides millennium conversion computer consulting services to customers located
throughout North America and Europe. Additionally, the Company licenses its
millennium conversion methodology throughout the world to computer consulting
firms located in more than 20 countries. The Company is incorporated in the
state of Delaware.
Significant customers - Revenues from major customers exceeding 10% of
total revenue included three customers accounting for 10%, 11% and 49% of 1994
revenue, one customer accounting for 28% of 1995 revenue, and one customer
accounting for 13% of 1996 revenue.
International operations - During 1996, the Company, through its
wholly-owned subsidiary, Data Dimensions Ireland Limited, commenced operations
in Ireland. Data Dimensions Ireland Limited comprises less than 3% of the
Company's consolidated assets, revenues and gross margin.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk include primarily cash and
cash equivalents, investment securities, accounts receivable and notes
receivable. The Company places its cash deposits and certain short-term
investments in bank deposits and money market funds with high credit quality
financial institutions; at times deposits exceed federally-insured limits. The
Company places its cash equivalents and investments in investment grade,
short-term debt instruments and limits the amount of credit exposure to any one
issuer. Accounts and notes receivable consist of account balances due from
several relatively large companies dispersed primarily across the United States,
with no significant geographic concentration, and industry concentrations in
financial institutions and healthcare. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers.
Principles of Consolidation - The financial statements include the
accounts of the Company and its wholly-owned subsidiary. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Fair value disclosures - Recorded amounts of cash and cash equivalents,
investment securities, receivables, prepaid and other current assets, accounts
payable and amounts included in current liabilities meeting the definition of
financial instruments approximate fair value.
F-7
<PAGE> 25
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Cash and Cash Equivalents - Cash and cash equivalents represent funds
on deposit with banks or invested in a variety of highly liquid short-term
instruments with original maturities of less than three months. The carrying
value of these instruments approximates fair value.
Investment Securities - All investment securities are classified as
available-for-sale and are available to support current operations or to take
advantage of other investment opportunities. These securities are stated at
estimated fair value. Realized and unrealized gains and losses have been
insignificant.
Equipment and Furniture - Equipment and furniture are stated at cost
and are depreciated utilizing straight-line methods over estimated useful lives
of 4 to 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.
Investment in Product Development - Costs related to conceptual
formulation and design of Company products are expensed as incurred. Costs
incurred subsequent to establishment of technological feasibility, but prior to
the product being available for sale, are capitalized and will be amortized
(beginning in 1997) over estimated productive lives, expected to range from
three to four years.
Revenue Recognition - Revenue consists of billable hours for services
provided by the Company's technical consultants valued at contract rates, and is
recognized as services are performed. License fees earned under technology
license agreements are generally recognized when the technology has been
delivered and there are no significant obligations remaining. The Company also
receives royalty revenue from licensees, which is recognized as services are
provided by the licensee. Advance billings are provided for by certain contracts
and are recognized as revenue when the related services are performed.
Grant Accounting - The Company's subsidiary in Ireland has received an
employment grant from the Industrial Development Authority of the Republic of
Ireland. Employment grants, which relate to employee hiring and training, are
recognized as a reduction of expense during the period in which the related
expenditures are incurred by the Company.
Income Taxes - Deferred taxes are provided for temporary differences in
the basis of assets and liabilities for financial reporting and tax purposes. To
the extent that it is not considered to be more likely than not that all of the
Company's deferred tax assets will be realized, a valuation allowance is
recorded to reduce the deferred tax asset to its estimated net realizable value.
F-8
<PAGE> 26
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Stock-Based Compensation - Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") encourages, but
does not require companies to record compensation cost for stock-based employee
compensation. The Company has chosen to continue to account for stock-based
compensation utilizing the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.
Net Income Per Share - Net income per share is computed by dividing net
income by the weighted average number of common shares outstanding. 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. In March 1996, the
Company effected a one for three reverse stock split. All share and share data
presented in these financial statements has been restated for such reverse stock
split.
On a supplemental basis, giving effect to the repayment of debt with a
portion of the Company's April 1996 stock issuance as if such repayment had
occurred at the beginning of the year, earnings per share would have
approximated $.29 for the year ended December 31, 1996.
Reclassifications - Certain amounts have been reclassified in prior
year financial statements to conform with the current year presentation.
NOTE 2 - INVESTMENT SECURITIES AVAILABLE FOR SALE
The Company's investment securities are diversified among high credit
quality, investment grade debt instruments in accordance with the Company's
investment policy. Investment securities classified as current assets are due in
one year or less. Investment securities classified as non-current assets are due
in one to three years. Following is a summary of investment securities at
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
CURRENT NON CURRENT
------- -----------
<S> <C> <C>
U.S. Corporate debt securities $5,935 $993
U.S. Treasury and agency securities 1,749 -
------ ----
$7,684 $993
====== ====
</TABLE>
F-9
<PAGE> 27
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - EQUIPMENT AND FURNITURE
Equipment and furniture consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Computers and equipment $ 222 $ 875
Furniture and fixtures 16 140
Leasehold improvements 22 4
----- ------
260 1,019
Accumulated depreciation (94) (195)
----- ------
Equipment and furniture, net $ 166 $ 824
===== ======
</TABLE>
NOTE 4 - ADVANCES FROM FACTOR
Prior to April 1996, the Company factored its accounts receivable with
a bank on a full recourse basis. The bank advanced 90% of the value of factored
receivables and charged a financing fee of 2% per month on the outstanding
balance. Advances under the factoring agreement, which expired in June 1996,
approximated $824,000 at December 31, 1995, were limited to the lesser of
eligible receivables or $1.25 million, and were collateralized by substantially
all Company assets. The weighted average interest rate during 1994, 1995 and
1996 approximated 34%, 27% and 27%, respectively. The Company paid cash interest
of $152,000, $206,000 and $86,000 during 1994, 1995 and 1996, respectively.
NOTE 5 - INCOME TAXES
Deferred income tax assets are comprised of the following at December
31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Operating loss carryforwards $ 965 $575
Other 15 55
----- ----
980 630
Valuation allowance (530) (80)
----- ----
$ 450 $550
===== ====
</TABLE>
F-10
<PAGE> 28
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
The deferred benefit relates to utilization of net operating loss
carryforwards and the related decrease in the deferred tax asset valuation
allowance. The income tax provision (benefit) consists of the following for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current Provision
Federal $ 21 $ 105 $ 315
State 9 13 65
----- ----- ----
30 118 380
Deferred Benefit (30) (568) (450)
----- ----- ----
Income Tax Benefit $ - $(450) $ (70)
===== ===== =====
</TABLE>
The income tax provision (benefit) for the years ended December 31
differed from amounts computed by applying the U.S. federal income tax rate to
pretax income as a result of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. federal income tax rate $ 43 $ 103 $ 298
Effect of graduated rates (22) -- --
State income tax 9 13 65
Effect of net operating loss
and valuation allowance (30) (568) (450)
Other 2 17
----- ----- -----
Income Tax Benefit $ -- $(450) $ (70)
===== ===== =====
</TABLE>
Utilization of operating loss carryforwards following certain changes
in ownership is subject to limitations. At December 31, 1996, the Company has
net operating loss carryforwards available for utilization of approximately $1.7
million with expiration dates through 2008. Limitations on utilization may
significantly diminish net operating loss carryforwards available to offset
future taxable income.
NOTE 6 - RELATED-PARTY TRANSACTIONS
During January 1995, the Company satisfied its note payable due to its
President of approximately $132,000 through the offset of a $124,000 note
receivable and the issuance of 16,300 shares of Company common stock. Interest
expense and income related to the notes for the year December 31, 1994
approximated $21,000 and $9,000, respectively. At December 31, 1995 the Company
had an unsecured, non-interest bearing receivable due from its President for
$35,000; such receivable was repaid in 1996.
F-11
<PAGE> 29
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - OPERATING LEASES
The Company leases its facilities and certain of its equipment in the
United States and Ireland under operating leases, some of which contain renewal
options. Future annual minimum rental commitments under operating leases having
noncancelable terms in excess of one year are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 395
1998 360
1999 371
2000 51
2001 17
------
$1,194
======
</TABLE>
Rent expense was $37,000, $40,000 and $258,000 in 1994, 1995 and 1996,
respectively.
NOTE 8 - EMPLOYEE BENEFIT PLAN
The Company has a 401(k) employee benefit plan for those employees who
meet eligibility requirements. Eligible employees may contribute up to 15% of
their compensation. The Company's contribution to the plan is discretionary as
determined by the Board of Directors. The Company has made no contributions to
the plan.
NOTE 9 - STOCKHOLDERS' EQUITY, STOCK OPTIONS AND WARRANTS
During 1994, pursuant to terms of the preferred stock agreement, all of
the issued and outstanding shares of Series A preferred stock were converted
into 933,000 shares of the Company's common stock. During 1996, accrued
preferred stock dividends of $70,000 were paid and subsequently, the Company's
authorization for issue of preferred stock was eliminated.
In March 1991, in connection with promissory note agreements, the
Company issued warrants to certain shareholders, exercisable until March 1996
for 50,000 shares of common stock at $.72 per share. During 1996, the warrants
were exercised, pursuant to which 45,839 shares of common stock were issued, the
proceeds from exercise being paid in the form of a reduction in the number of
shares received.
In connection with the Company's stock offering in April 1996, the
Company issued to the representative of the underwriters of the offering a
warrant (the "Warrant") to purchase 120,000 shares of Company common stock at an
exercise price of $23.10 (165% of the public offering price). The Warrant is
exercisable for a period of four years beginning one year from the issuance.
F-12
<PAGE> 30
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has an incentive stock option plan pursuant to 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 the options vest. Options vest ratably over four or five
year periods as provided for in each employee's option agreement. At December
31, 1996, there were 24,000 shares reserved for options to be granted under the
plans. The following summarizes stock options and warrants transactions (in
thousands of shares):
<TABLE>
<CAPTION>
WEIGHTED
SHARES PRICE PER SHARE AVERAGE
------ --------------- EXERCISE PRICE
--------------
<S> <C> <C> <C>
Outstanding at January 1, 1994 308 $ 0.72 to $ 1.26 $ 0.97
Granted 12 $ 0.75 to $ 3.00 2.50
Expired (3) to $ 0.75 0.75
----
Outstanding at December 31, 1994 317 1.03
Granted 161 $ 2.61 to $ 6.00 3.95
Exercised (32) $ 0.75 to $ 3.00 1.39
Expired (2) $ 0.75 to $ 3.00 1.69
----
Outstanding at December 31, 1995 444 2.06
Granted 177 $ 4.87 to $40.50 24.38
Exercised (158) $ 0.72 to $15.75 1.62
Expired (12) $ 2.61 to $ 4.50 2.66
----
Outstanding at December 31, 1996 451 $ 0.75 to $40.50 $10.98
====
</TABLE>
Information relating to stock options and warrants at December 31, 1996
summarized by exercise price are as follows (thousands of shares):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- -----------------------------
WEIGHTED AVERAGE
EXERCISE PRICE ----------------------------- WEIGHTED AVERAGE
PER SHARE SHARES LIFE (YEAR) EXERCISE PRICE SHARES EXERCISE PRICE
-------------- ------ ----------- -------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$ 0.75 to $ 1.26 164 2.0 $ 1.00 154 $ 1.01
2.61 to 3.00 43 6.2 2.62 3 2.64
4.10 to 5.63 62 6.2 5.18 14 5.57
6.10 to 7.13 10 6.0 6.19 4 6.10
15.75 to 16.62 3 6.4 16.23 - -
22.75 to 29.75 158 5.2 24.21 8 27.70
34.00 to 40.50 11 6.6 38.15 2 38.15
--- ---
451 185
=== ===
</TABLE>
F-13
<PAGE> 31
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY, STOCK OPTIONS AND WARRANTS (CONTINUED)
All stock options issued to employees have an exercise price not less
than the fair market value of the Company's common stock on the date of grant,
and in accordance with accounting for such options utilizing the intrinsic value
method there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair value at the grant dates consistent with the method
of SFAS 123, the Company's net income and earnings per share for the years ended
December 31, would have been reduced to the pro forma amounts presented below
(in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net income
As reported $ 754 $947
Pro forma 742 890
Earnings per share
As reported $ .30 $.27
Pro forma .29 .25
</TABLE>
The fair value of option grants is estimated on the date of grant
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1995 and 1996: expected life of options of 5
years, risk-free interest rate of approximately 6.2%, a 0% dividend yield, and
expected volativity of 21% and 37%, respectively. The weighted average fair
value at date of grant for options granted during 1995 and 1996 approximated
$1.41 and $11.55 per option, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company is from time to time involved in various claims and legal
proceedings of a nature considered by Company management to be routine and
incidental to its business. In the opinion of Company management, after
consultation with outside legal counsel, the ultimate disposition of such
matters is not expected to have a materially adverse effect on the Company's
financial position, results of operations or liquidity.
During 1996, the Company's subsidiary in Ireland entered into a grant
agreement with Ireland's Industrial Development Authority pursuant to which the
Company will receive grant monies of up to 1.1 million Irish Pounds
(approximately $1.8 million at December 31, 1996). Through December 31, 1996,
the Company has recognized grant monies of approximately $138,000. Pursuant to
terms of the grant, the Company could have an obligation to repay grant funds
received in the unlikely event that the Company should discontinue its Irish
operations prior to the commitment period provided for in the grant agreement
which expires in 2001.
F-14
<PAGE> 32
DATA DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - EVENT (UNAUDITED) SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
On February 19, 1997, the Company's Board of Directors declared a
three-for-one stock split in the form of a stock dividend, to be effective March
20, 1997, payable to holders of record on March 5, 1997. Pro forma net income
per share and the number of shares used in the computation of such per share
amounts are set forth in the accompanying statements of operations.
F-15
<PAGE> 33
SIGNATURES
In accordance with the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 27th day of March, 1997.
DATA DIMENSIONS, INC.
(Registrant)
By /s/ Larry W. Martin
-----------------------------------
Larry W. Martin
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Larry W. Martin Chief Executive Officer March 27, 1997
- ---------------------------------- and Director (principal
Larry W. Martin executive officer)
/s/ William H. Parsons Chief Financial Officer March 27, 1997
- ---------------------------------- and Director
William H. Parsons (principal financial officer)
*/s/ Thomas W. Fife Director March 27, 1997
- ---------------------------------
Thomas W. Fife
*/s/ Robert T. Knight Director March 27, 1997
- ----------------------------------
Robert T. Knight
*By /s/ William H. Parsons
------------------------------
William H. Parsons,
Attorney-in-fact
</TABLE>
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE NO.
--- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation and all amendments thereto*
3.2 Second 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 Second Amended and Restated Bylaws of the Company defining the rights
of the holders of Common Stock
10.1 1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock Option Plan*
10.2 1997 Stock Option Plan
10.3 Lease Agreement For Registrant's Facilities in Bellevue, Washington
21.1 Subsidiaries
23.1 Consent of Independent Certified Public Accountants
24.1 Power of Attorney of Thomas W. Fife
24.2 Power of Attorney of Robert T. Knight
</TABLE>
- ------------------------------------
* Incorporated by reference to the Registration Statement on Form SB-2
(Reg. No. 333-841) filed by the Company on February 9, 1996.
<PAGE> 1
EXHIBIT 3.2
DATA DIMENSIONS, INC.
SECOND AMENDED AND RESTATED
BYLAWS
<PAGE> 2
DATA DIMENSIONS, INC.
A DELAWARE CORPORATION
SECOND AMENDED AND RESTATED
BYLAWS
ARTICLE I.
OFFICES
Section 1. The Corporation shall have a registered office in the State
of Delaware. The corporation may have such other offices at such places within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II.
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
1
<PAGE> 3
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.
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. In addition to any other
applicable requirements, for business to be properly brought before any
shareholder meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than [75] days nor more
than [90] days prior to the meeting; provided, however, that in
2
<PAGE> 4
the event less than [90] days' notice or prior public disclosure of the date of
the meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 15th day
following the day on which such notice of meeting was mailed or such public
disclosure made, whichever first occurs. Such shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the meeting: (i) a brief description of the business desired to be
brought before the meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the number of shares of stock of the Corporation
beneficially owned by the shareholder, and (iv) any material interest of the
shareholder in such business.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accord with the provisions of this Section 6, and if he or she should so
determine and declare, 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 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, excepting where otherwise required by law, may be by voice
vote except elections for directors shall be by written ballot. 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,
3
<PAGE> 5
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 any 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.
Section 9.1 Record Date for Action by Written Consent. In order that
the Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date (unless a record date has
previously been fixed by the Board of Directors pursuant to the first sentence
of this Section 9.1). If no record date has been fixed by the Board of Directors
pursuant to the first sentence of this Section 9.1 or otherwise within ten (10)
days of the date on which such a request is received, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or to any officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by he Board of Directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of directors adopts the resolution taking such prior action.
Section 9.2 Inspectors of Written Consent. In the event of the
delivery, in the manner provided by Section 9.1, to the Corporation of the
requisite written consent or consents to take corporate action and/or any
related revocation or revocations, the Corporation shall engage independent
inspectors of elections for the purpose of performing promptly a ministerial
review of the validity of the consents and revocations. For the purpose of
permitting the inspectors to perform such review, no action by written consent
without a meeting shall be effective until such date as the independent
inspectors certify to the Corporation that the consents delivered to the
Corporation in accordance with Section 9.1 represent at least the minimum number
of votes that would be necessary to take the corporate
4
<PAGE> 6
action. Nothing contained in this Section 9.2 shall in any way be construed to
suggest or imply that the Board of Directors or any stockholder shall not be
entitled to contest the validity of any consent or revocation thereof, whether
before or after such certification by the independent inspectors, or to take any
action (including, without limitation, the commencement, prosecution, or defense
of any litigation with respect thereto, and the seeking of injunctive relief in
such litigation).
Section 9.3 Effectiveness of Written Consent. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated written consent
received in accordance with Section 9.1, a written consent or consents signed by
a sufficient number of holders to take such action are delivered to the
Corporation in the manner prescribed in Section 9.1.
ARTICLE III.
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 subject to the Certificate of
Incorporation. 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
5
<PAGE> 7
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 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 to 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;
6
<PAGE> 8
(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;
(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 to 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 in accordance with the procedures
set forth below.
Nominations by shareholders shall comply with the notice procedures set
forth in this section. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than [75] days nor more than [90] days prior
to the meeting; provided, however, that in the event less than [90] days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 15th day following the day on which such
notice of meeting was mailed or such public disclosure made, whichever first
occurs. Such shareholder's notice to the Secretary shall set forth (a) as to
each person which the shareholder proposes to nominate for election or
re-election as director: (i) name, age, business address and residence address
of the person, (ii) principal occupation or employment of the person, (iii)
number of shares
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of stock of the Corporation beneficially owned by the person, and (iv) any other
information relating to the person required to be disclosed in solicitations for
proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934 as amended; and (b) as to the shareholder giving notice:
(i) name and record address of the shareholder, (ii) number of shares of stock
of the Corporation beneficially owned by the shareholder. Such notice shall be
accompanied by the executed consent of each nominee to serve as director, if so
elected. The Corporation may require any proposed nominee to furnish such other
information as may be reasonably required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accord with the
foregoing procedures, and if he or she should so determine and declare, the
defective nomination shall be disregarded.
ARTICLE IV.
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.
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.
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ARTICLE V.
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 he
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 him 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.
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. Secretly. 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.
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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 VI.
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 VI of these bylaws, 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.
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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 VII.
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 as the same appears on the books of the
Corporation. 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.
ARTICLE VIII.
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
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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 IX.
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
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 IX, the
Corporation shall indemnity 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
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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 IX 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 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 IX.
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
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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 IX 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.
ARTICLE X.
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.
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EXHIBIT 10.2
DATA DIMENSIONS, INC.
1997 STOCK OPTION PLAN
<PAGE> 2
DATA DIMENSIONS, INC.
1997 STOCK OPTION PLAN
1. STATEMENT OF PURPOSE.
The principal purposes of this Stock Option Plan ("Plan") are to secure
to Data Dimensions, Inc. (the "Company") the advantages of the incentive
inherent in stock ownership on the part of employees, officers, directors, and
consultants responsible for the continued success of the Company and to create
in such individuals a proprietary interest in, and a greater concern for, the
welfare of the Company through the grant of options to acquire shares of the
common stock of the Company ("Common Stock"). Each incentive stock option
("ISO") granted hereunder is intended to constitute an "incentive stock option,"
as such term is defined in Section 422 of the Internal Revenue Code of 1986, as
the same may be amended from time to time (the "Code"), and this Plan and each
such ISO is intended to comply with all of the requirements of said Section 422
and of all other provisions of the Code applicable to incentive stock options
and to plans issuing the same. Each nonstatutory stock option ("Non-ISO")
granted hereunder is intended to constitute a nonstatutory stock option that
does not comply with the requirements of Section 422 of the Code. ISO's and
Non-ISO's shall sometimes hereinafter be referred to collectively as "Options".
This Plan is expected to benefit shareholders by enabling the Company to attract
and retain personnel of the highest caliber by offering to them an opportunity
to share in any increase in the value of the Common Stock to which such
personnel have contributed.
2. ADMINISTRATION.
2.1 The Plan shall be administered by the Board of Directors
of the Company ("Board") or a committee or committees (which term includes
subcommittees) appointed by, and consisting of two or more members of, the Board
(hereinafter, "Plan Administrator"). If and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), the Board shall consider in selecting the Plan
Administrator and the membership of any committee acting as Plan Administrator
of the Plan with respect to any persons subject or likely to become subject to
Section 16 under the Exchange Act the provisions regarding (a) "outside
directors," as contemplated by Section 162(m) of the Code, and (b) "nonemployee
directors," as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees, subject to such
limitations as the Board deems appropriate. Committee members shall serve for
such term as the Board may determine, subject to removal by the Board at any
time.
2.2 Except for the terms and conditions explicitly set forth
in the Plan, the Plan Administrator shall have exclusive authority, in its
discretion, to determine all matters relating to awards under the Plan,
including the selection of individuals to be granted awards of options, the type
of options, the number of shares of Common Stock subject to an Option, all
terms, conditions, restrictions and limitations, if any, of an Option, and the
terms of any instrument that evidences the Option. The Plan Administrator shall
also have exclusive authority to interpret the Plan and may from time to time
adopt, and change, rules and
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regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
3. ELIGIBILITY.
3.1 ISO's may be granted to any employee of the Company or of
an Affiliate of the Company, as defined in Section 3.2 below. Non-ISO's may be
granted to any employee, officer or director (whether or not also an employee),
or consultant of the Company or of an Affiliate of the Company. Each employee,
officer, director, or consultant selected by the Plan Administrator to receive
an Option shall sometimes hereinafter be referred to as an "Optionee".
3.2 As used in this Plan, an "Affiliate" of a corporation
shall refer to a "parent corporation" of such corporation as described in
Section 424(e) of the Code or a "subsidiary corporation" of such corporation as
described in Section 424(f) of the Code.
3.3 An Optionee who is not an employee of the Company or of an
Affiliate of the Company shall not be eligible to receive an ISO hereunder and
no ISO's shall be granted to any such non-employee Optionee.
3.4 No Option shall be granted hereunder to any Optionee
unless the Plan Administrator shall have determined, based on the advice of
counsel, that the grant of such option (and the exercise thereof by the
Optionee) will not violate the securities law of the state where the Optionee
resides.
4. SHARES SUBJECT TO THE PLAN.
4.1 The Plan Administrator, from time to time, may provide for
the option and sale in the aggregate of up to One Million (1,000,000) shares of
Common Stock. The number of such shares shall be adjusted to take account of the
events referred to in Section 10 hereof.
4.2 Upon exercise of an Option, the number of shares of Common
Stock thereafter available hereunder and under the Option shall decrease by the
number of shares of Common Stock as to which such Option was exercised; provided
that if such shares are pledged to secure a promissory note given in payment of
the Option Price for such shares and, as a result of a default on such note, the
pledged shares are returned to the Company, then such shares shall again be
available for the purposes of this Plan.
4.3 If any Option granted hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for the purposes of this Plan.
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4.4 The Company shall at all times during the term of this
Plan reserve and keep available such number of shares as shall be sufficient to
satisfy the requirements of the Plan.
4.5 Subject to any adjustment as provided in Section 10, if
and so long as the Common Stock is registered under Section 12 of the Exchange
Act, not more than One Hundred Thousand (100,000) shares of Common Stock
may be made subject to grants under the Plan to any one individual in the
aggregate in any one fiscal year of the Company, except the Company may make
additional one-time grants of up to Fifty Thousand (50,000) shares to a
newly hired individual, such limitation to be applied in a manner consistent
with the requirements of, and only to the extent required for compliance with,
the exclusion from the limitation on deductibility of compensation under
Section 162(m) of the Code.
5. OPTION TERMS.
5.1 The Plan Administrator shall specify the following terms
to be contained in each Option granted to an Optionee hereunder, which Option
shall be executed by the Company and such Optionee:
5.1.1 Whether such Option is an ISO or a Non-ISO;
5.1.2 The number of shares of Common Stock subject to
purchase pursuant to such Option;
5.1.3 The date on which the grant of such Option shall be
effective (the "Date of Grant");
5.1.4 The period of time during which such Option shall be
exercisable, which shall in no event be more than ten (10) years following its
Date of Grant for ISO's; provided, however, that if an ISO is granted to an
Optionee who on the Date of Grant owns, either directly or indirectly within the
meaning of Section 424(d) of the Code, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or an Affiliate of
the Company, the period of time during which such Option shall be exercisable
shall in no event be more than five (5) years following its Date of Grant;
5.1.5 The price at which such Option shall be exercisable
by the Optionee (the "Option Price"); provided, however, that the Option Price
shall in no event be less than the fair market value, as defined in Section 5.2
below, on the Date of Grant, of the shares of Common Stock subject thereto; and
provided further that, if such Option is granted to an Optionee who on the Date
of Grant owns, either directly or indirectly within the meaning of Section
424(d) of the Code, more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an Affiliate of the Company,
then the Option Price specified in such Option shall be at least one hundred ten
percent (110%) of the fair market value, on the Date of Grant, of the Common
Stock subject thereto;
5.1.6 Any vesting schedule upon which the exercise of an
Option is contingent; provided that the Plan Administrator shall have complete
discretion with respect
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to the terms of any vesting schedule upon which the exercise of an Option is
contingent, including, without limitation, discretion (a) to allow full and
immediate vesting upon grant of such Option, (b) to permit partial vesting in
stated percentage amounts based on the length of the holding period of such
Option, or (c) to permit full vesting after a stated holding period has passed;
and
5.1.7 Such other terms and conditions as the Plan
Administrator deems advisable and as are consistent with the purpose of this
Plan.
5.2 Fair market value shall be determined as follows:
5.2.1 If the Company's Common Stock is publicly traded at
the time an Option is granted hereunder, fair market value shall be determined
as of the last business day for which the prices or quotes discussed in this
Section 5.2.1 are available prior to the date such Option is granted and shall
mean:
(a) The average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or
(b) The last reported sale price (on that date) of
the Common Stock on the NASDAQ National Market System, if the Common Stock is
not then traded on a national securities exchange; or
(c) The closing bid price (or average of bid prices)
last quoted on such date by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market System.
5.2.2 If the Common Stock is not publicly traded at the
time an Option is granted hereunder, fair market value shall be deemed to be the
fair value of the Common Stock as determined by the Plan Administrator after
taking into consideration all factors that it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
5.3 No Option shall be granted hereunder during the suspension
of this Plan or after the termination of this Plan pursuant to Section 11.2.
Except as expressly provided herein, nothing contained in this Plan shall
require that the terms and conditions of Options granted hereunder be uniform.
5.4 Notwithstanding anything in the Plan to the contrary, the
Plan Administrator may grant Options under the Plan in substitution for options
issued under other plans, or assume under the Plan awards issued under other
plans, if the other plans are or were plans of other acquired entities
("Acquired Entities") (or the parent of the Acquired Entity) and the new Option
is substituted, or the old option is assumed, by reason of a merger,
consolidation, acquisition of property or of stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is approved
by the Board and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding awards of the
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<PAGE> 6
Acquired Entity, said terms and conditions shall be deemed to be the action of
the Plan Administrator without any further action by the Plan Administrator, and
the persons holding such Options shall be deemed to be Optionees.
6. LIMITATION ON GRANTS OF ISO'S.
In the event that the aggregate fair market value of Common Stock and
other stock with respect to which ISO's granted to an Optionee hereunder or
incentive stock options granted to such Optionee under any other plan of the
Company or any of its Affiliates are exercisable for the first time during any
calendar year, exceeds the maximum permitted under Section 422(d) of the Code,
then to the extent of such excess, such ISO's shall be treated as Non-ISO's.
7. EXERCISE OF OPTION.
7.1 Subject to any limitations or conditions imposed upon an
Option pursuant to Section 5 above, an Optionee may exercise an Option or any
part thereof (unless partial exercise is specifically prohibited by the terms of
the Option), by giving written notice thereof to the Company at its principal
place of business accompanied by payment as described in Section 7.2.
7.2 The exercise price for shares purchased under an Option
shall be paid in full to the Company by delivery of consideration equal to the
Option Price for the whole number of shares as to which it is exercised. Such
consideration must be paid in cash or by check, or, in the Plan Administrator's
discretion, a combination of cash and/or check and/or one or both of the
following alternative forms: (a) tendering (either actually or, if and so long
as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange
Act, by attestation) Common Stock already owned by the Optionee for at least six
(6) months (or any shorter period necessary to avoid a charge to the Company's
earnings for financial reporting purposes) having a fair market value on the day
prior to the exercise date equal to the aggregate Option Price or (b) if and so
long as the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, delivery of a properly executed exercise notice, together with
irrevocable instructions, to (i) a brokerage firm, that may from time to time be
designated by the Company in its discretion, to deliver to the Company the
aggregate amount of sale or loan proceeds to pay the Option Price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company, to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, the exercise price for shares purchased under an
Option may be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 7.2, by (y) a promissory
note; or (z) such other consideration as the Plan Administrator may permit. Any
promissory note delivered in connection with exercise of an Option shall bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions) for federal income tax purposes.
7.3 As soon as practicable after exercise of an option in
accordance with Sections 7.1 and 7.2 above, the Company shall issue a stock
certificate evidencing the Common Stock with respect to which the Option has
been exercised. Until the issuance (as
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<PAGE> 7
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of such stock certificate, no right to
vote or receive dividends or any other rights as a shareholder shall exist with
respect to such Common Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 below.
7.4 The amount to be paid by the Optionee upon exercise shall
be the full Option Price together with the amount of any taxes required to be
withheld with respect to the grant or exercise of the Option. Subject to the
Plan and to applicable law, the Plan Administrator, in its sole discretion, may
permit such withholding obligations to be paid, in whole or in part, by electing
to have the Company withhold shares of Common Stock or by transferring shares of
Common Stock to the Company, in such amounts as are equivalent to the fair
market value of the withholding obligation.
8. TRANSFERABILITY AND POST-TERMINATION EXERCISES.
8.1 Except as provided otherwise in this Section 8, no Option
shall be transferable or exercisable by any person other than the Optionee to
whom such Option was originally granted.
8.2 The Plan Administrator shall establish and set forth in
each instrument that evidences an Option whether the Option will continue to be
exercisable and the terms and conditions of such exercise, if the Optionee
ceases to be employed by or provide services to the Company or its Affiliates,
which may be waived or modified by the Plan Administrator. If not so established
and subject to Section 8.3, the Option will be exercisable in accordance with
the following terms, which may be waived or modified by the Plan Administrator:
8.2.1 In case of termination of Optionee's employment or
services other than by reason of death, the Option shall be exercisable, to the
extent of the number of shares purchasable at the date of termination, only:
(a) Except as set forth in Section 8.3 with regard
to ISO's, within one year if termination is coincident with normal retirement
(as defined by the Plan Administrator), early retirement at the Company's
request, or disability; or
(b) Within three months after the date the Optionee
ceases to be an employee or consultant of the Company or Affiliate, if
termination is for reason other than as specified in (a), but, in either case,
no later than the remaining term of the Option.
8.2.2 Any Option exercisable at the time of the Optionee's
death may be exercised to the extent of the number of shares purchasable at the
date of death, by the personal representative of the Optionee's estate or the
person(s) to whom the Optionee's rights under the Option have passed by will or
applicable laws of descent and distribution at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option.
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<PAGE> 8
8.2.3 Any portion of an Option not exercisable on the date
of termination of the Optionee's employment or services shall terminate on such
date, unless the Plan Administrator determines otherwise.
8.2.4 Subject to Section 8.3, the effect of a
Company-approved leave of absence on terms and conditions of an Option shall be
determined by the Plan Administrator in its sole discretion. A transfer of
services or employment between or among the Company and subsidiaries shall not
be considered a termination of employment or services.
8.3 To the extent required by Section 422 of the Code, ISO's
shall be subject to the following additional terms and conditions: To qualify
for ISO tax treatment, an Option designated as an ISO must be exercised within
three months after termination of employment for reasons other than death,
except that in the case of termination of employment due to total disability,
such Option must be exercised within one year after such termination. Employment
shall not be deemed to continue beyond the first 90 days of a leave of absence
unless the Optionee's reemployment rights are guaranteed by statute or contract.
For purposes of this Section 8.3, "total disability" shall mean a mental or
physical impairment expected to result in death or that has lasted or is
expected to last for a continuous period of 12 months or more and that causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and two independent physicians
furnish their opinion of total disability to the Plan Administrator.
8.4 In the event that a qualified domestic relations order, as
defined by Section 414(p) of the Code or Title I of the Employee Retirement
Income Security Act or the rules thereunder, mandates the transfer of any Option
that could have been exercised immediately prior to the issuance of such order,
such Option shall pass to the person or persons entitled thereto pursuant to the
order and shall be exercisable by such person or persons in accordance with the
terms thereof. In addition, a Non-ISO may be exercised during the Optionee's
lifetime, by the Optionee's guardian or legal representative.
8.5 The Plan Administrator may, in its discretion, authorize
all or a portion of the Non-ISO's granted to an Optionee to be on terms which
permit transfer by such Optionee to (i) the spouse, children or grandchildren of
the Optionee ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii) a partnership in
which such Immediate Family Members are the only partners, provided that (x)
there may be no consideration for any such transfer, (y) the stock option
agreement pursuant to which such Options are granted must be approved by the
Plan Administrator and must expressly provide for transferability in a manner
consistent with this Section, and (z) subsequent transfers of transferred
Options are prohibited except those in accordance with Section 8 of the Plan.
The Plan Administrator may, in its discretion, in permitting transferability,
impose additional conditions in the Option Agreement consistent with this
section, including without limitation imposition of a post-exercise holding
period on transferees. Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer; provided, the events of termination of employment of Sections 8 and 9
hereof shall continue to be applied with
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<PAGE> 9
respect to the original Optionee, following which the Options shall be
exercisable by the transferee only to the extent and for the periods specified.
The Company disclaims any obligation to provide notice to a transferee of early
termination of the Option due to termination of employment or otherwise.
Notwithstanding a transfer pursuant to the foregoing, the original Optionee will
remain subject to applicable withholding taxes upon exercise. No transfer will
be effective until written notice of transfer is delivered to the Company. The
Company reserves the right to approve transfers hereunder.
9. TERMINATION OF OPTIONS.
To the extent not earlier exercised, an Option shall terminate at the
earliest of the following dates:
9.1 The termination date specified for such Option in the
respective Option Agreement;
9.2 As specified in Section 8 above:
9.3 The date of any sale, transfer, or hypothecation, or any
attempted sale, transfer or hypothecation, of such Option in violation of
Section 8 above; or
9.4 The date specified in Section 10.2 below for such
termination in the event of a Terminating Event.
10. ADJUSTMENTS TO OPTIONS.
10.1 In the event of a material alteration in the capital
structure of the Company on account of a recapitalization, stock split, reverse
stock split, stock dividend, or otherwise, then the Plan Administrator shall
make such adjustments to this Plan and to the Options then outstanding and
thereafter granted hereunder as the Plan Administrator determines to be
appropriate and equitable under the circumstances, so that the proportionate
interest of each holder of any such Option shall, to the extent practicable, be
maintained as before the occurrence of such event. Such adjustments may include,
without limitation (a) a change in the number or kind of shares of stock of the
Company covered by such Options, and (b) a change in the Option Price payable
per share; provided, however, that the aggregate Option Price applicable to the
unexercised portion of existing Options shall not be altered, it being intended
that any adjustments made with respect to such Options shall apply only to the
price per share and the number of shares subject thereto. For purposes of this
Section 10.1, neither (i) the issuance of additional shares of stock of the
Company in exchange for adequate consideration (including services), nor (ii)
the conversion of outstanding preferred shares of the Company into Common Stock
shall be deemed material alterations of the capital structure of the Company. In
the event the Plan Administrator shall determine that the nature of a material
alteration in the capital structure of the Company is such that it is not
practical or feasible to make appropriate adjustments to this Plan or to the
Options granted hereunder, such event shall be deemed a Terminating Event as
defined in Section 10.2 below.
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<PAGE> 10
10.2 Subject to Section 10.3, all Options granted hereunder
shall terminate upon the occurrence of any of the following events ("Terminating
Events"): (a) the dissolution or liquidation of the Company; or (b) a material
change in the capital structure of the Company that is subject to this Section
10.2 by virtue of the last sentence of Section 10.1 above.
10.3 The Plan Administrator shall give notice to Optionees not
less than thirty (30) days prior to the consummation of (a) a Terminating Event
as defined in Section 10.2 above; (b) a merger or consolidation of the Company
with one or more corporations as a result of which, immediately following such
merger or consolidation, the shareholders of the Company as a group will hold
less than a majority of the outstanding capital stock of the surviving
corporation; or (c) the sale or other disposition of all or substantially all of
the assets of the Company. Upon the giving of such notice, all Options granted
hereunder shall become immediately exercisable, without regard to any contingent
vesting provision to which such Options may have otherwise been subject.
10.4 All Options granted hereunder shall become immediately
exercisable, without regard to any contingent vesting provision to which such
Options may have otherwise been subject, upon the occurrence of an event whereby
any person or entity, including any "person" as such term is used in Section
13(d)(3) of the Exchange Act, becomes the "beneficial owner", as defined in the
Exchange Act, of Common Stock representing fifty percent (50%) or more of the
combined voting power of the voting securities of the Company.
10.5 In the event of a reorganization as defined in this
Section 10.5 in which the Company is not the surviving or acquiring company, or
in which the Company is or becomes a wholly-owned subsidiary of another company
after the effective date of the reorganization, then the plan or agreement
respecting the reorganization shall include appropriate terms providing for the
assumption of each Option granted hereunder, or the substitution of an option
therefor, such that no "modification" of any such Option occurs under Section
424 of the Code. For purposes of this Section 10.5, reorganization shall mean
any statutory merger, statutory consolidation, sale of all or substantially all
of the assets of the Company, or sale, pursuant to an agreement with the
Company, of securities of the Company pursuant to which the Company is or
becomes a wholly-owned subsidiary of another corporation after the effective
date of the reorganization.
10.6 The Plan Administrator shall have the right to accelerate
the date of exercise of any installment of any option; provided, however, that,
without the consent of the Optionee with respect to any Option, the Plan
Administrator shall not accelerate the date of any installment of any Option
granted to an employee as an ISO (and not previously converted into a Non-ISO
pursuant to Section 12 below) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
Section 6 above.
10.7 Adjustments and determinations under this Section 10
shall be made by the Plan Administrator (upon the advice of counsel), whose
decisions as to what adjustments or determination shall be made, and the extent
thereof, shall be final, binding, and conclusive.
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<PAGE> 11
11. TERMINATION AND AMENDMENT OF PLAN.
11.1 The Plan may be amended only by the Board as it shall
deem advisable; however, to the extent required for compliance with Section 422
of the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.
11.2 The Company's shareholders or the Board may suspend or
terminate the Plan at any time. The Plan will have no fixed expiration date;
provided, however, that no ISO may be granted more than ten (10) years after the
earlier of the Plan's adoption by the Board and approval by the shareholders.
11.3 The amendment or termination of the Plan shall not,
without the consent of the Optionee under the Plan, impair or diminish any
rights or obligations under any Option theretofore granted under the Plan. Any
change or adjustment to an outstanding ISO shall not, without the consent of the
holder, be made in a manner so as to constitute a "modification" that would
cause such ISO to fail to continue to qualify as an incentive stock option.
12. CONVERSION OF ISO'S INTO NON-ISO'S.
At the written request of any ISO Optionee, the Plan Administrator may
in its discretion take such actions as may be necessary to convert such
Optionee's ISO's (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-ISO's at any time
prior to the expiration of such ISO's, regardless of whether the Optionee is an
employee of the Company or of an Affiliate of the Company at the time of such
conversion. Such actions may include, but shall not be limited to, extending the
exercise period or reducing the exercise price of the appropriate installments
of such ISO's. At the time of such conversion, the Plan Administrator, with the
consent of the Optionee, may impose such conditions on the exercise of the
resulting Non-ISO's as the Plan Administrator in its discretion may determine,
provided that such conditions shall not be inconsistent with this Plan. Nothing
in this Plan shall be deemed to give any Optionee the right to have such
Optionee's ISO's converted into Non-ISO's, and no such conversion shall occur
until and unless the Plan Administrator takes appropriate action. The Plan
Administrator, with the consent of the Optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such conversion.
13. CONDITIONS UPON ISSUANCE OF SHARES.
13.1 Shares shall not be issued pursuant to the exercise of
any Option unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended
("Securities Act"), the Exchange Act, any applicable state securities law, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed or otherwise traded, and such
compliance has been confirmed by counsel for the Company. The Company shall be
under no obligation
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<PAGE> 12
to any participants to register for offering or resale or to qualify for an
exemption under the Securities Act, or to register or qualify under state
securities laws, any shares of Company's stock issued under the Plan or to
continue in effect any registrations or qualifications if made. The Company may
issue certificates for shares with such legends and subject to such restrictions
on transfer as counsel for the Company deems necessary or desirable for
compliance with federal and state securities laws.
13.2 As a condition to the exercise of any Option, the Company
may require the participant exercising such Option to represent and warrant at
the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such representations and
warranties are required by any relevant provision of law.
13.3 The Company's inability to obtain authority from any
regulatory body having jurisdiction, which authority the Company's counsel has
determined to be necessary to the lawful issuance and sale of any shares
hereunder, shall relieve the Company of any liability with respect to the
failure to issue or sell such shares.
14. USE OF PROCEEDS.
Proceeds from the sale of Common Stock pursuant to the exercise of
Options granted hereunder shall constitute general funds of the Company and
shall be used for general corporate purposes.
15. NOTICES.
All notices, requests, demands and other communications required or
permitted to be given under this Plan and the Options granted hereunder shall be
in writing and shall be either served personally on the party to whom notice is
to be given (in which case notice shall be deemed to have been duly given on the
date of such service), or mailed to the party to whom notice is to be given, by
first class mail, registered or certified, return receipt requested, postage
prepaid, and addressed to the party at his or its most recent known address, in
which case such notice shall be deemed to have been duly given on the third
(3rd) postal delivery day following the date of such mailing.
16. MISCELLANEOUS PROVISIONS.
16.1 Optionees shall be under no obligation to exercise
Options granted hereunder.
16.2 Nothing contained in this Plan shall obligate the Company
to retain an Optionee as an employee, officer, director, or consultant for any
period, nor shall this Plan interfere in any way with the right of the Company
to reduce such Optionee's compensation.
16.3 The provisions of this Plan and each Option issued to an
Optionee hereunder shall be binding upon such Optionee, the Qualified Successor
or Guardian of such Optionee, and the heirs, successors, and assigns of such
Optionee.
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16.4 This Plan is intended to constitute an "unfunded" plan
and nothing herein shall require the Company to segregate any monies or other
property or shares of Common Stock or create any trusts or deposits, and no
Optionee shall have rights greater than a general unsecured creditor of the
Company.
16.5 It is the Company's intention that, if and so long as any
of the Company's equity securities are registered pursuant to Section 12(b) or
12(g) of the Exchange Act, the Plan shall comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not to be in
compliance with such Rule 16b-3, the provision shall be deemed null and void,
and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
contrary, the Board, in its sole discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to Optionees
who are officers or directors subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning the Plan with respect to other
Optionees. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an ISO pursuant to the Plan shall, to be extent
permitted by law, be construed as an "incentive stock option" within the meaning
of Section 422 of the Code.
16.6 Where the context so requires, references herein to the
singular shall include the plural, and vice versa, and references to a
particular gender shall include either or both genders.
17. EFFECTIVE DATE OF PLAN AND AMENDMENTS.
This Plan was initially adopted by the Board of Directors on March 25,
1997 and approved by the shareholders on _______________.
12
<PAGE> 1
EXHIBIT 10.3
DATA DIMENSIONS, INC.
LEASE AGREEMENT FOR REGISTRANT'S FACILITIES
IN BELLEVUE, WASHINGTON
<PAGE> 2
SUBLEASE
This Sublease is made and entered into this 18th day of October, 1996
between Williams, Kastner & Gibbs LLP, a Washington limited liability
partnership ("Sublessor"), and Data Dimensions, Inc., a Delaware corporation
("Sublessee").
1. MASTER LEASE. Sublessor is the lessee under a written lease
dated September 14, 1984, as amended (the "Master Lease"), wherein The
Prudential Insurance Company of America, a New Jersey corporation, leased to
Williams, Lanza, Kastner & Gibbs, a Washington general partnership, the real
property located in the City of Bellevue, County of King, State of Washington,
described as the entire 20th floor of the Skyline Tower consisting of a
Rentable Area of 16,989 square feet of space ("Master Premises"). The Trustees
under the Will and of the Estate of James Campbell, Deceased ("Landlord"), are
the successor-in-interest to The Prudential Insurance Company of America, a New
Jersey corporation, and Sublessor is the successor-in-interest to Williams,
Lanza, Kastner & Gibbs, a Washington general partnership. The Master Lease is
attached hereto as Exhibit "A".
2. PREMISES. Sublessor hereby subleases to Sublessee on the terms and
conditions set forth in this Sublease the following portion of the Master
Premises ("Premises"):
The portion of the Master Premises outlined in black on the attached
Exhibit "B" consisting of a Rentable Area of 13,589 square feet of
space.
3. WARRANTY BY SUBLESSOR. Sublessor warrants and represents to
Sublessee that the Master Lease has not been amended or modified except as
expressly set forth herein, that Sublessor is not now, and as of the
commencement of the Term hereof will not be, in default or breach of any of the
provisions of the Master Lease, and that Sublessor has no knowledge of any
claim by Landlord that Sublessor is in default or breach of any of the
provisions of the Master Lease.
4. TERM. The Term of this Sublease shall commence on January 1,
1997 (the "Commencement Date") and end on November 30, 1999 (the "Termination
Date"), unless otherwise sooner terminated in accordance with the provisions of
this Sublease. Possession of the Premises ("Possession") shall be delivered to
Sublessee on the Commencement Date. If for any reason Sublessor does not
deliver Possession to Sublessee on the Commencement Date, Sublessor shall not
be subject to any liability for such failure, the Termination Date shall not be
extended by the delay, and the validity of this Sublease shall not be impaired,
but rent shall abate until delivery of Possession. Notwithstanding the
foregoing, if Sublessor has not delivered Possession to Sublessee within thirty
(30) days after the Commencement Date, then at any time thereafter and before
delivery of Possession, Sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notices shall set forth
an effective date for such cancellation which shall be at least ten (10) days
after delivery of said notice to Sublessor. If
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<PAGE> 3
Sublessor delivers Possession to Sublessee on or before such effective date,
this Sublease shall remain in full force and effect. If Sublessor fails to
deliver Possession to Sublessee on or before such effective date, this Sublease
shall be cancelled, in which case all consideration previously paid by
Sublessee to Sublessor on account of this Sublease shall be returned to
Sublessee, this Sublease shall thereafter be of no further force or effect, and
Sublessor shall have no further liability to Sublessee on account of such delay
or cancellation. If Sublessor permits Sublessee to take Possession prior to
the commencement of the Term for the purpose of occupying the Premises and if
Sublessee elects to take Possession prior to the commencement of the Term for
such purpose, such early Possession shall not advance the Commencement Date or
the Termination Date and shall be subject to the provisions of this Sublease,
including without limitation, the payment of rent, provided, however, that
Sublessee may have access to the Premises no later than December 1, 1996 for
the limited purposes of utilization of up to ten perimeter offices, space
planning, planning of Sublessee's move to the Premises, and installation of
Sublessee's fixtures, furnishings and equipment without payment of rent. The
Tenant Improvements shall be completed no later than December 15, 1996.
5. RENT.
(a) MINIMUM MONTHLY RENT. Sublessee shall pay to Sublessor as
minimum monthly rent, without deduction, setoff, notice, or demand, at Williams,
Kastner & Gibbs LLP, 601 Union Street, Suite 4100, Seattle, Washington 98101,
Attn: Executive Director, or at such other place as Sublessor shall designate
from time to time by notice to Sublessee, the following sums during the
following periods during the Term:
PERIOD MINIMUM MONTHLY RENT
January 1, 1997 - June 30, 1997 Twelve Thousand Four and No/100
Dollars ($12,004.00) per month
July 1, 1997 - December 31, 1998 Twenty-one Thousand Five Hundred
Fifteen and 92/100 Dollars
($21,515,92) per month
January 1, 1999 - November 30, 1999 Twenty-four Thousand Nine
Hundred Thirteen and 17/100
Dollars ($24,913.17) per month
Such Minimum Monthly Rent shall be payable in advance on the first (1st) day of
each month of the Term. Sublessee shall pay to Sublessor upon execution of
this Sublease the sum of Twelve Thousand Four and No/100 Dollars ($12,004.00)
as rent for the month of January, 1997. If the Term begins or ends on a day
other than the first or last day of the month, the Minimum Monthly Rent for the
partial months shall be prorated on a per diem basis.
(b) OPERATING COSTS. The Master Lease is a "net lease" which
requires Sublessor to pay to Landlord Sublessor's proportionate share of all
Property Taxes (as defined in the Master
2
<PAGE> 4
Lease) and Operating Expenses (as defined in the Master Lease) incurred by
Landlord in the operation of the Building during the term of the Lease. This
Sublease is a "gross lease" which requires Sublessee to pay to Sublessor
Sublessee's proportionate share of increases in Property Taxes (as defined in
the Master Lease) and Operating Expenses (as defined in the Master Lease)
during the Term. The Building Area is 390,160 square feet, the Premises Area is
13,589 square feet and Sublessee's proportionate share is, accordingly, three
and 38/100 percent (3.48%). Sublessee shall pay to Sublessor as additional rent
in equal monthly installments, in advance, three and 38/100 percent (3.48%) of
the increase, if any, in Property Taxes (as defined in the Master Lease) and
Operating Expenses (as defined in the Master Lease) incurred by Landlord in the
operation of the Building during each year of the Term over the Property Taxes
(as defined in the Master Lease) and Operating Expenses (as defined in the
Master Lease) incurred by Landlord in the operation of the Building during the
calendar year 1997 (the "Base Year"), as reasonably estimated by Sublessor. The
Master Lease provides for the payment by Sublessor or Property Taxes (as
defined in the Master Lease) and Operating Expenses (as defined in the Master
Lease) in equal monthly installments, in advance, on the basis of an estimate
thereof by Landlord and adjustments to such estimates within ninety (90) days
after the end of each calendar year. Sublessor's estimate shall be based on
Landlord's estimate. Sublessee shall have the same right to dispute Sublessor's
estimate and Sublessor's statement as Sublessor has to dispute Landlord's
estimate and Landlord's statement pursuant to Section 3.b. of the Master Lease.
Sublessor's estimate shall be adjusted as and when adjustments between
estimated and actual Property Taxes (as defined in the Master Lease) and
Operating Expenses (as defined in the Master Lease) incurred by Landlord in the
operation of the Building are made under the Master Lease. If any such
adjustment shall occur after the expiration or earlier termination of the Term,
then the obligations of Sublessor and Sublessee under this Section 5(b) shall
survive such expiration or termination. Sublessor shall furnish to Sublessee
copies of all statements submitted by Landlord to Sublessor of actual or
estimated Property Taxes (as defined in the Master Lease) and Operating
Expenses (as defined in the Master Lease) during the Term.
6. SECURITY DEPOSIT. Sublessee shall not be required to pay a
Security Deposit.
7. USE OF PREMISES. The Premises shall be used and occupied only for
general office purposes in accordance with the Master Lease, and for no other
use or purpose without the prior written consent of Landlord in accordance with
the Master Lease and the prior written consent of Sublessor, which consent
shall not be unreasonably withheld.
8. ASSIGNMENT AND SUBLETTING. Sublessee shall not assign this
Sublease or further sublet all or any part of the Premises without the prior
written consent of Landlord in accordance with the Master Lease and the prior
written consent of Sublessor, which consent shall not be unreasonably withheld.
9. OTHER PROVISIONS OF SUBLEASE. All applicable terms and conditions
of the Master Lease are incorporated into and made a part of this Sublease as
if Sublessor were the lessor thereunder, Sublessee the lessee thereunder, and
the Premises the Master Premises, except for the
3
<PAGE> 5
following: Paragraph 43-3 captioned "Right of First Refusal/Option on
Additional Space", Paragraph 43-4 captioned "Option to Extend the Lease Term",
Paragraph 43-6 captioned "Death or Retirement of Tenant's Partners", and
Exhibit C Tenant Workletter, all as set forth in the Skyline Tower Lease
Agreement dated September 14, 1984 and the addendums and exhibits thereto, and
Paragraph 3 captioned "Space Pocket", Paragraph 6 captioned "Rental Abatement",
Paragraph 7 captioned "Tenant Improvements", Paragraph 8 captioned "Right of
First Refusal; Expansion Options", Paragraph 11 captioned "Rental Adjustment
for Weatherly Space" and Paragraph 12 captioned "No Further Renewal Rights",
all as set forth in the Lease Extension and Modification Agreement dated
October 2, 1989. Notwithstanding anything to the contrary in the Master Lease,
Sublessor shall not have any obligation to make tenant improvements to the
Premises, except as expressly set forth in this Sublease, and Sublessee shall
not have any right to expand the Premises or extend the Term. Sublessee assumes
and agrees to perform the lessee's obligations under the Master Lease during
the Term to the extent that such obligations are applicable to the Premises,
except that the obligation to pay rent to Landlord under the Master Lease shall
be considered performed by Sublessee to the extent and in the amount rent is
paid to Sublessor in accordance with Section 5 of this Sublease. Sublessee
shall not commit or suffer any act or omission that will violate any of the
provisions of the Master Lease. Sublessor shall exercise due diligence in
attempting to cause Landlord to perform its obligations under the Master Lease
for the benefit of Sublessee. If the Master Lease terminates, this Sublease
shall terminate and the parties shall be relieved of any further liability or
obligation under this Sublease, provided however, that if the Master Lease
terminates as a result of a default or breach by Sublessor or Sublessee under
this Sublease and/or the Master Lease, then the defaulting party shall be
liable to the nondefaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives Sublessor
any right to terminate the Master Lease in the event of the partial or total
damage, destruction, or condemnation of the Master Premises or the building or
project of which the Master Premises are a part, the exercise of such right by
Sublessor shall not constitute a default or breach hereunder.
10. TENANT IMPROVEMENTS. The Premises shall be subleased in "AS IS"
condition except for the following work (the "Tenant Improvements") which is
described with reference to Exhibit "C" attached hereto:
(a) Sublessor shall move the interior partition separating
offices 5 and 6 one mullion to the east to create a larger office 6 and a
smaller office 5. Sublessor shall replace and/or repair carpet as needed and
relocate doors and relites as part of this modification. Sublessor shall
properly patch and paint the remaining walls that are affected by this
relocation.
(b) Sublessor shall remove all bookshelves from the Library;
replace and/or repair carpet as needed and properly patch and paint the walls.
(c) Sublessor shall remove all file cabinets and shelves in
the Central File Room. Sublessor shall repair floor with standard floor
covering on affected area.
4
<PAGE> 6
(d) Sublessor shall remove the bookshelves in the Tax
Library/Conference Room; replace and/or repair carpet as needed and properly
patch and paint the walls.
(e) Sublessor shall clean and replace and/or repair carpet as
necessary to bring the carpet into good and clean condition, ordinary wear and
tear excepted. This work shall be performed after vacation of the Premises by
Sublessor and prior to the Commencement Date.
(f) Sublessor shall repair and touch-up paint, after Sublessor
vacates the Premises, all walls and doors needing repair, ordinary wear and
tear excepted.
11. FURNITURE AND EQUIPMENT. Sublessor shall sell and transfer to
Sublessee as part of this transaction and at no additional cost, the telephone
system currently serving the Premises (exclusive of the voice mail system which
shall be retained by Sublessor) and the furniture set forth on Exhibit "D".
Such telephone system and furniture shall be sold in "AS IS" condition without
warranty, express or implied, except as to title.
12. PARKING. Sublessor has the right to use thirty-three (33) parking
stalls in the Building's parking garage. Sublessee shall have the right to use
twenty-six (26) of such thirty-three (33) parking stalls. Sublessee shall pay
the current market rate for such parking stalls as established by Landlord from
time to time.
13. SIGNAGE. Sublessor shall provide Sublessee with building standard
signage on the Building Directory and shall install Sublessee's sign with
dimensions of approximately 1.5 feet by 4 feet at the entrance to the Premises
at Sublessor's cost.
14. ATTORNEY'S FEES. If Sublessor or Sublessee shall commence an
action against the other arising out of or in connection with this Sublease,
the prevailing party shall be entitled to recover its costs of suit
and reasonable attorney's fees.
15. BROKERS. Sublessor and Sublessee each warrant that they have dealt
with no other real estate broker in connection with this transaction except
Sublessor's broker CB Commercial Real Estate Group, Inc., a Delaware
corporation, and Sublessee's broker Colliers MacAuley Nicolls International, a
Washington corporation. The commission of such brokers, if any, shall be paid
by Sublessor pursuant to a separate agreement. Each party agrees to indemnify
and hold the other party harmless from and against any and all liability,
costs, damages, causes of action or other proceedings instituted by any broker,
agent or finder, licensed or otherwise, claiming through, under or by reason of
the conduct of the indemnifying party in the purchase and sale of the Property
or in any manner whatsoever in connection with this transaction.
5
<PAGE> 7
16. NOTICES. All notices or requests required or permitted under this
Sublease shall be in writing; shall be delivered personally or by a reputable
express delivery service or sent by certified mail, return receipt requested,
postage prepaid; shall be deemed given when so delivered or three (3) days after
so mailed, irrespective of whether such notice or request is actually received
by the addressee, and shall be sent to the parties at the following addresses:
If to Sublessor: Williams, Kastner & Gibbs LLP
601 Union Street, Suite 4100
Seattle, Washington 98101
Attn: Executive Director
and
Williams, Kastner & Gibbs LLP
601 Union Street, Suite 4100
Seattle, Washington 98101
Attn: Managing Partner
If to Sublessee: Data Dimensions, Inc.
777 - 108th Avenue NE, Suite 2070
Bellevue, Washington 98004
Attn: Larry Martin, President
and
Data Dimensions, Inc.
777 - 108th Avenue NE, Suite 2070
Bellevue, Washington 98004
Attn: William H. Parsons, Executive Vice-President
Either party may change the address to which notices shall be sent by notice to
the other party.
6
<PAGE> 8
17. CONSENT BY LANDLORD. THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT
UNLESS CONSENTED TO BY LANDLORD WITHIN TWENTY (20) DAYS AFTER EXECUTION HEREOF
BY BOTH SUBLESSOR AND SUBLESSEE.
DATED the date first above written.
Sublessor:
Williams, Kastner & Gibbs LLP
By [SIG]
----------------------------
Its: Partner
----------------------------
Sublessee:
Data Dimensions, Inc.
By /s/ WILLIAM H. PARSONS
----------------------------
William H. Parsons
Its: Executive Vice President
----------------------------
[NOTARY ATTACHED]
7
<PAGE> 9
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me Richard D. Thaler, to me
known to be the Partner of Williams, Kastner & Gibbs LLP, a Washington limited
liability partnership, the limited liability partnership that executed the
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said limited liability partnership, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to
execute the same instrument.
GIVEN under my hand and official seal this 18th day of October, 1996.
/s/ VICKIE L. HULTSMAN
-------------------------------------
Vickie L. Hultsman
[NOTARY SEAL] -------------------------------------
(print notary's name)
Notary Public in and for the State of
Washington, residing at Woodenville, WA.
My commission expires: 4-11-99.
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me William H. Parsons, to me
known to be the Executive Vice President of Data Dimensions, Inc., a Delaware
corporation, the corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute the same instrument.
GIVEN under my hand and official seal this 18 day of October, 1996.
/s/ CAROL SAGE STOCKTON
-------------------------------------
Carol Sage Stockton
-------------------------------------
(print notary's name)
Notary Public in and for the State of
WA, residing at Bellevue.
My commission expires: 12/19/97.
8
<PAGE> 10
LANDLORD'S CONSENT AND AGREEMENT TO SUBLEASE
THIS CONSENT AND AGREEMENT is made and entered into this ____ day of
October, 1996, by and between The Trustees under the Will and of the Estate of
James Campbell, Deceased ("Landlord"), Williams, Kastner & Gibbs LLP, a
Washington limited liability partnership ("Sublessor"), and Data Dimensions,
Inc., a Delaware corporation ("Sublessee").
RECITALS: Sublessor and Sublessee have requested Landlord's consent to
a sublease of part or all of the premises covered by that certain lease dated
September 14, 1984, between The Prudential Insurance Company of America, a New
Jersey corporation ("Prudential"), as landlord, and Williams, Lanza, Kastner &
Gibbs, a Washington general partnership ("W,L,K & G"), as tenant, as amended
(the "Master Lease"). Landlord is the successor-in-interest to Prudential and
Sublessor is the successor-in-interest to W,L,K & G. Landlord is willing to
consent to such sublease subject to certain terms and conditions.
NOW, THEREFORE, Landlord, Sublessor and Sublessee agree as follows:
1. Landlord hereby consents to the attached sublease (the "Sublease")
between Sublessor and Sublessee on the condition that both Sublessor and
Sublessee agree to all of the terms and conditions set forth in this Consent
and Agreement (execution of this Consent and Agreement by the Sublessor and
Sublessee will constitute such agreement by the respective entities). Landlord
also hereby consents to the installation of the Tenant Improvements set forth
in the Sublease. The capitalized terms used in this Consent and Agreement and
not defined herein shall have the meaning given to such terms in the Sublease.
2. Neither the Sublease nor this Consent and Agreement shall be
construed to relieve Sublessor of any liabilities or obligations whatsoever
under the Master Lease. Sublessor shall continue to be fully and primarily
liable for the full performance of all obligations of the tenant under the
Master Lease.
3. If Sublessor is in default under the terms of the Master Lease,
Landlord shall have the right to take all actions available to Landlord under
the Master Lease by law, including without limitation, the right to commence an
unlawful detainer action against Sublessor and Sublessee.
4. All improvements to be made to the subleased premises ("Subleased
Premises") pursuant to the Sublease are subject to Landlord's consent and
approval as provided in the Master Lease.
5. Whenever the Master Lease gives Landlord a right of involvement,
such as a right to approve, consent, cooperate or decide, Landlord shall have
and keep that right with respect to
1
<PAGE> 11
both Sublessor under the Master Lease and Sublessee under the Sublease. If
Landlord and Sublessor disagree over any decision, Landlord's decision shall
control. If, for example, the Master Lease requires Landlord's prior consent to
any alterations or additions to the Sublease Premises and if Sublessee desires
to make alterations or additions to the Sublease Premises, it must obtain the
prior consent of both Landlord and Sublessor.
6. If the Master Lease terminates or is terminated prior to the
expiration of the term of the Sublease, the Sublease also shall terminate,
except as otherwise provided below. Neither Sublessor nor Sublessee shall have
any claim or cause of action against Landlord as a result of such termination
of the Sublease. Landlord, at its sole option, to be exercised by written
notice to Sublessee, may elect to keep the Sublease in effect even though the
Master Lease is terminated. If Landlord so elects to keep the Sublease in
effect, the Sublease shall continue in full force and effect as a direct lease
between Landlord and Sublessee on the terms and conditions contained therein.
In such event, Sublessee agrees to recognize Landlord as the sublessor under
the Sublease.
7. Sublessor will pay Landlord's reasonable attorneys' fees in
reviewing the Sublease and preparing this Consent and Agreement. Landlord also
shall be reimbursed by either Sublessor or Sublessee (as they shall agree
between them) for the cost of a new suite plaque for the Subleased Premises,
new signage in the Building directory and rekeying the Subleased Premises;
provided Sublessor and Sublessee shall be jointly and severally obligated to
Landlord for such costs until they are paid.
8. The indemnity and other agreements contained in the Sublease and in
the Master Lease shall apply with equal force and effect between Sublessee and
Landlord (with Sublessee indemnifying Landlord in accordance with the terms of
the Sublease and the Master Lease) and Landlord shall be named as an additional
insured on any insurance required to be maintained by Sublessee under the
Sublease.
9. This Consent and Agreement shall not relieve Sublessor of its
obligation to obtain Landlord's consent to (a) any further sublease of all or
part of the Subleased Premises (or any additional premises leased to Sublessor
pursuant to the Master Lease and not covered by the Sublease), or (b) any
assignment of the Master Lease. Neither the Sublease nor this Consent and
Agreement shall confer upon the Sublessee any right to further sublease the
Subleased Premises or assign its rights under the Sublease in either case
without Landlord's consent.
10. A failure by Sublessor or Sublessee to comply with any of the
terms or conditions of this Consent and Agreement shall constitute a default
under the Master Lease. If any party to this Consent and Agreement commences an
action or other legal proceeding to enforce performance of any of the terms or
provisions hereof or of the Master Lease or to secure damages for or an
injunction against the breach thereof (including assertion of any counterclaim,
cross-
2
<PAGE> 12
claim or cross-complaint or claim in a proceeding in bankruptcy, receivership
or other proceeding instituted by a party hereto or by others), the prevailing
party in such action or proceeding shall, in addition to such other relief as
it may obtain, be entitled to recover from the other party all of its costs
incurred, including reasonable attorneys' fees, in any such action or
proceeding or any appeal from any order, award or judgment therein.
11. Any options to extend the Master Lease, rights of first offer,
rights of first refusal or other rights to lease additional space or rights to
expand the premises may not be exercised by or for the benefit of Sublessee. *
12. Sublessor and Sublessee shall not amend or modify the Sublease
without Landlord's prior written consent.
13. This Consent and Agreement shall not be effective until and unless
an original executed by Sublessor and Sublessee has been delivered to Landlord.
Dated as of the day and year first above written.
LANDLORD:
The Trustees under the Will and of the
Estate of James Campbell, Deceased
* Landlord and Sublessor hereby
agree that 43-3 of the Lease
(as modified by the Lease
Extension and Modification
Agreement dated October 2, By /s/ ROY S. ROBINS
1989) and 43-4 of the Lease ------------------------------------
are now null and void and of Roy S. Robins
no further force or effect. Its: Director of Mainland Properties
By /s/ DOUGLAS C. MORRIS
-----------------------------------
Douglas C. Morris
Its: Senior Asset Manager
3
<PAGE> 13
SUBLESSOR:
Williams, Kastner & Gibbs LLP
By /s/ RICHARD D. THALER
------------------------------------
Its: Partner
----------------------------------
SUBLESSEE:
Data Dimensions, Inc.
By /s/ WILLIAM H. PARSONS
------------------------------------
William H. Parsons
Its: Executive Vice President
----------------------------------
[NOTARIES ATTACHED]
4
<PAGE> 14
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
STATE OF CALIFORNIA }
County of San Francisco }
On this 30th day of October 1996, before me, Beth Amber Wise, Notary Public,
personally appeared Doug Morris and Roy S. Robins, personally known to me to be
the persons whose names are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized capacities,
and that by their signatures on the instrument the persons or the entity upon
behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY SEAL] /s/ BETH AMBER WISE
----------------------------------------
Beth Amber Wise
Notary Public in and for the State of
California, residing in San Francisco
- --------------------------------------------------------------------------------
DESCRIPTION OF ATTACHED DOCUMENT
Title and Type: Landlord's Consent and Agreement to Sublease between the
Trustees under the Will and of the Estate of James Campbell
and Williams, Kastner & Gibbs LLP.
Date: 10/18/96
Signer(s) Other than Named Above: None.
<PAGE> 15
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me Richard D. Thaler, to me
known to be the Partner of Williams, Kastner & Gibbs LLP, a Washington limited
liability partnership, the limited liability partnership that executed the
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said limited liability partnership, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to
execute the same instrument.
GIVEN under my hand and official seal this 18th day of October, 1996.
/s/ VICKIE L. HULTSMAN
-------------------------------------
Vickie L. Hultsman
[NOTARY SEAL] -------------------------------------
(print notary's name)
Notary Public in and for the State of
Washington, residing at Woodenville, WA.
My commission expires: 4-11-99.
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me William H. Parsons, to me
known to be the Executive Vice President of Data Dimensions, Inc., a Delaware
corporation, the corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute the same instrument.
GIVEN under my hand and official seal this 18th day of October, 1996.
/s/ CAROL SAGE STOCKTON
-------------------------------------
Carol Sage Stockton
-------------------------------------
(print notary's name)
Notary Public in and for the State of
WA, residing at Bellevue.
My commission expires: 12/19/97.
6
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Data Dimensions Ireland Limited, formed under the laws of the Republic of
Ireland.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-97556) of Data Dimensions, Inc. of our report
dated February 12, 1997, appearing on page F-2 of Data Dimensions, Inc. Annual
Report on Form 10-KSB for the year ended December 31, 1996.
BDO SEIDMAN, LLP
Seattle, Washington
March 25, 1997
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Thomas W. Fife,
hereby constitutes and appoints William H. Parsons his true and lawful
attorney-in-fact and agent, for him and his name, place and stead, in any and
all capacities, to sign the Form 10-KSB of Data Dimensions, Inc., a Delaware
corporation, for the fiscal year ended March 31, 1996, and any amendments or
supplements thereto, and to file this Power of Attorney and the Form 10-KSB,
with all exhibits thereto, and other documents in connection therewith the
Securities and Exchange Commission and the Nasdaq National Market System,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every each and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, may do or cause to be done by virtue hereof.
Dated this 25th day of March, 1997.
Signature:
/s/ THOMAS W. FIFE
- -----------------------
Thomas W. Fife
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Robert T. Knight,
hereby constitutes and appoints William H. Parsons his true and lawful
attorney-in-fact and agent, for him and his name, place and stead, in any and
all capacities, to sign the Form 10-KSB of Data Dimensions, Inc., a Delaware
corporation, for the fiscal year ended March 31, 1996, and any amendments or
supplements thereto, and to file this Power of Attorney and the Form 10-KSB,
with all exhibits thereto, and other documents in connection therewith the
Securities and Exchange Commission and the Nasdaq National Market System,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every each and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, may do or cause to be done by virtue hereof.
Dated this 25th day of March, 1997.
Signature:
/s/ ROBERT T. KNIGHT
- -----------------------
Robert T. Knight
