<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
RWD TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 7389 52-1552720
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
10480 LITTLE PATUXENT PARKWAY, SUITE 1200
COLUMBIA, MARYLAND 21044-3530
410-730-4377
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RONALD E. HOLTZ
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
RWD TECHNOLOGIES, INC.
10480 LITTLE PATUXENT PARKWAY, SUITE 1200
COLUMBIA, MARYLAND 21044-3530
410-730-4377
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS,
INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO:
RICHARD C. TILGHMAN, JR., ESQUIRE GARY T. JOHNSON, ESQUIRE
PIPER & MARBURY L.L.P. JONES, DAY, REAVIS & POGUE
36 SOUTH CHARLES STREET 77 WEST WACKER DRIVE
BALTIMORE, MARYLAND 21201 CHICAGO, ILLINOIS 60601-1692
410-539-2530 312-782-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_] ___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] ____________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
AMOUNT OF
PROPOSED MAXIMUM REGISTRATION
TITLE OF SHARES TO BE REGISTERED AGGREGATE OFFERING PRICE FEE
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<S> <C> <C>
Common Stock, $.10 par value............. $41,400,000.00(1)(2) $12,546.00
</TABLE>
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(1) Includes 450,000 shares of Common Stock subject to an option granted to
the Underwriters solely to cover over-allotments, if any. See
"Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 1997
PROSPECTUS
3,000,000 SHARES
LOGO
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being sold by
RWD Technologies, Inc. ("RWD" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
anticipated that the initial public offering price will be between $10.00 and
$12.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price. Application has been made
to list the Common Stock on The Nasdaq National Market under the symbol "RWDT."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
</TABLE>
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(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $985,000.
(3) The Company and certain Selling Stockholders of the Company have granted to
the Underwriters a 30-day option to purchase up to an aggregate of 450,000
additional shares of Common Stock solely to cover over-allotments, if any.
If all such shares are purchased, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively. See "Underwriting."
The Common Stock is offered by the several Underwriters when, as and if
delivered to and accepted by them and subject to their right to reject orders
in whole or in part. It is expected that delivery of the certificates for the
Common Stock will be made on or about , 1997.
WILLIAM BLAIR & COMPANY MONTGOMERY SECURITIES
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
FOCUSING ON END-USER PERFORMANCE TO HELP CLIENTS COMPETE IN A GLOBAL ECONOMY
RWD TECHNOLOGIES, INC.
[GRAPHICS TO BE INSERTED]
OUR MISSION IS TO SATISFY OUR CLIENTS BY ASSISTING WITH THE SUCCESSFUL
IMPLEMENTATION AND OPERATION OF HIGH- TECHNOLOGY SYSTEMS AND EQUIPMENT. WE
BRING PEOPLE AND TECHNOLOGY TOGETHER BY FOCUSING ON THE INTEGRATION OF PEOPLE,
ADVANCED TECHNOLOGY, AND SUPPORT SYSTEMS TO HELP END-USERS PERFORM
SUCCESSFULLY IN COMPLEX OPERATIONAL ENVIRONMENTS.
OUR COMMITMENT TO EXCELLENCE IS A FUNDAMENTAL TENET OF OUR MANAGEMENT
PHILOSOPHY AND IS ACHIEVED THROUGH A PROCESS OF CONTINUOUS IMPROVEMENT.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three quarters of each year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus. Unless indicated otherwise, all information contained in this
Prospectus (i) assumes that the Underwriters' over-allotment option is not
exercised, (ii) gives effect to the issuance of 5,926,727 shares upon the
exercise of options concurrently with this offering (the "Concurrent
Exercises") and (iii) reflects a 3-for-1 split of the shares of Common Stock to
be effected prior to this offering. See "Underwriting" and "Description of
Capital Stock."
THE COMPANY
RWD Technologies, Inc. provides a broad range of integrated solutions
designed to improve the productivity and effectiveness of workers in complex
operating environments. As the scope and complexity of technology used by
businesses accelerates and the global business environment becomes more
competitive, companies are increasingly focused on maximizing the return on
their advanced technology investments. To achieve this goal, companies must
ensure their employees receive effective performance support, including the
tools and training to operate these advanced systems effectively. Founded in
1988, the Company initially provided conventional performance support services
such as classroom training and hard copy documentation to plant personnel in
large industrial companies employing complex manufacturing systems and
technologies. In recent years, the Company has expanded its performance support
services to include the design, development and implementation of customized
information technology solutions including Enhanced User Interface ("EUI")
systems, Electronic Performance Support Systems ("EPSS"), Electronic Document
Management Systems ("EDMS"), sales force automation systems and
Internet/Intranet applications. More recently, RWD has expanded its services to
include end-user training and performance support services essential to the
effective implementation of enterprise-wide business process reengineering
efforts (particularly SAP software implementation) and lean manufacturing
consulting. All of the Company's services are designed to improve its clients'
product quality, worker productivity and competitiveness and to ensure an
attractive return on the clients' technology investments. The Company believes
its focus on end-user performance, embedded in all its service offerings,
differentiates it from many of its competitors in the performance support and
information technology services marketplaces. The Company's registered service
mark, "We bring people and technology together,"(R) succinctly describes the
Company's activities.
The Company's clients are primarily Fortune 200 companies having a need for
large, diverse and recurring performance support and information technology
solutions. In 1996, RWD provided services to 83 companies in 23 industries.
Among these clients were seven of the Fortune 10 companies and 20 of the
Fortune 100 companies. The Company's clients include Anheuser-Busch, Bristol-
Myers Squibb, Chevron, Chrysler, Continental Cablevision, Deere & Company,
Detroit Edison, Dow Chemical, Ford, Merck, Procter & Gamble and Steelcase.
Chrysler engagements generated 33.2%, 33.9% and 28.5% of total revenue in 1994,
1995 and 1996, respectively. No other client generated more than 10% of total
revenue in any of these years. Historically, a large percentage of the
Company's revenue has come from follow-on business from its existing clients.
For example, in each of the past three years, more than 80% of the year's total
revenue was generated by clients that had been significant clients in the
previous year; and, in each of these years, aggregate revenue generated by
these repeat clients exceeded the previous year's total revenue by more than
25%. As the scope of the Company's services has become more comprehensive,
average revenue per client has increased from $398,000 in 1994 to $783,000 in
1996, and the number of clients generating individually more than $1.0 million
of annual revenue has grown from seven in 1994 to 19 in 1996.
3
<PAGE>
In 1996, the Company made significant inroads into global markets. The
Company expanded its services to Ford to include the global implementation of
lean manufacturing. To further augment these efforts, the Company expects to
open an office in London in 1997. Moreover, the Company is helping petroleum
companies improve the safety and efficiency of their overseas exploration and
production operations. The Company has begun providing tailored training and
documentation solutions to large companies installing enterprise-wide software
applications in their worldwide operations and has entered into an alliance
with Price Waterhouse to work together to provide implementation services. As a
result of these developments, RWD expects that services to multi-national
clients in their foreign operations will continue to grow.
RWD manages each of its projects using proven state-of-the-art methodologies
and formalized management techniques designed to ensure that each engagement
meets the Company's high standards for quality and client satisfaction as well
as its profitability objectives. The Company believes its structured project
management process, combined with its flexible organizational structure and
substantial commitment to internal training, positions RWD to achieve
sustainable, long-term growth. The Company strives to provide a work
environment and employee reward system that will enable it to attract, develop
and retain highly skilled and motivated professionals. RWD is also committed to
significant and broad-based employee stock ownership, believing this will
maximize employees' dedication to the Company's growth and profitability. In
addition to the co-founders' 56.8% post-offering, fully-diluted equity of the
Company, 452 persons, or 70% of the Company's employees as of December 31,
1996, held options to purchase 18.1% of the post-offering, fully-diluted equity
of the Company.
Total revenue and operating income increased from $12.7 million and $702,000,
respectively, in 1992 to $65.0 million and $8.7 million, respectively, in 1996,
while the number of employees increased from 168 on December 31, 1992 to 648 on
December 31, 1996. The Company believes demand for the types of services RWD
provides has increased rapidly in recent years and will continue to do so as
the gap between technological complexity and unsupported human capability
continues to widen. The Company's growth strategy is designed to enhance its
position as a comprehensive provider of performance support services and
information technology solutions by (i) increasing sales to its existing client
base, (ii) adding new clients and industries, (iii) broadening its range of
service offerings, (iv) expanding the scope of its geographic presence, (v)
maintaining its emphasis on recruiting and employee development and (vi)
exploring complementary acquisitions.
The Company was incorporated in Maryland in January 1988. The Company's
executive offices are located at 10480 Little Patuxent Parkway, Suite 1200,
Columbia, Maryland 21044-3530, and its telephone number is 410-730-4377.
THE OFFERING
<TABLE>
<S> <C>
Shares Offered by the Company....................... 3,000,000 shares
Shares Outstanding Immediately After the Offering... 13,795,367 shares(1)
Use of Proceeds..................................... To repay $3.8 million owed
to two stockholders and for
general corporate purposes,
including working capital
and possible acquisitions
Proposed Nasdaq National Market Symbol.............. RWDT
</TABLE>
- --------
(1) Excludes 3,221,160 shares issuable upon exercise of stock options
outstanding on December 31, 1996, at a weighted average exercise price of
$2.52 per share. See "Capitalization" and "Management--Employee Benefit
Plans."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................ $12,655 $18,418 $29,424 $47,132 $65,006
Operating income............... 702 1,607 4,158 6,651 8,737
Pro Forma Data(1):
Net income.................... $ 217 $ 731 $ 2,384 $ 3,918 $ 5,168
Net income per share.......... $ 0.42
Weighted average shares out-
standing..................... 12,273
OPERATING DATA:
Number of employees (at end of
year)......................... 168 222 332 520 648
Average revenue per client
(000s)........................ na $ 242 $ 398 $ 620 $ 783
<CAPTION>
DECEMBER 31, 1996
-----------------------------
PRO
FORMA
PRO AS
ACTUAL FORMA(2) ADJUSTED(3)
------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities. $ 5,534 $ 2,714 $28,619
Working capital................ 12,053 (2,317) 27,388
Total assets................... 29,858 27,038 52,943
Total debt..................... 3,925 10,925 7,125
Stockholders' equity........... 20,132 5,537 35,242
</TABLE>
--------
(1) For each of the fiscal years presented, the Company was an S
Corporation and, accordingly, was not subject to federal and certain
state corporate income taxes. The pro forma information has been
computed as if the Company were subject to federal and all applicable
state corporate income taxes for each of the periods presented assuming
the tax rate that would have applied had the Company been taxed as a C
Corporation. See "Dividend Policy and Prior S Corporation Status."
(2) Pro forma to give effect to the (i) cash payment of approximately $7.0
million and issuance by the Company of approximately $7.0 million of
non-interest bearing, demand promissory notes (the "S Corporation
Notes") to its stockholders prior to this offering (collectively, the
"S Corporation Distribution"), representing earnings not previously
distributed to the stockholders, (ii) establishment of a $4.8 million
deferred tax liability, calculated as if the Company had converted from
an S Corporation to a C Corporation as of December 31, 1996 and (iii)
$4.2 million of cash proceeds to be received by the Company from the
Concurrent Exercises. See "Dividend Policy and Prior S Corporation
Status" and "Management--Executive Compensation--Option Exercises and
Holdings."
(3) Pro forma as adjusted to give effect to the sale of the 3,000,000
shares of Common Stock offered hereby at an assumed public offering
price of $11.00 per share and application of the net proceeds therefrom
as described in "Use of Proceeds."
The RWD Technologies, Inc. logo and the phrase, "We bring people and
technology together,"(R) are registered service marks of the Company. All
other trademarks or service marks appearing in this Prospectus are
trademarks or registered service marks of the companies that utilize them.
Certain statements contained in "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business," including statements regarding development of the Company's
services, markets and future demand for the Company's services and other
statements herein regarding matters that are not historical facts, are
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). Such forward-looking statements include risks and
uncertainties; consequently, actual results may differ materially from those
expressed or implied thereby. Factors that could cause actual results to
differ materially include, but are not limited to, those discussed under
"Risk Factors."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby.
Reliance on Key Clients; Industry Concentration. The Company has relied in
the past, and expects to continue to rely for the foreseeable future, on a few
key clients for a majority of its revenue. Chrysler, the Company's largest
client, generated 33.2%, 33.9% and 28.5% of total revenue in 1994, 1995 and
1996, respectively. The Company's top five clients in 1994, 1995 and 1996
generated in the aggregate 62.1%, 57.8% and 51.4% of total revenue in 1994,
1995 and 1996, respectively. Automotive industry clients generated 46.9%,
43.5% and 40.6% of total revenue in 1994, 1995 and 1996, respectively. As a
result of a significant contract with Ford Motor Company, RWD anticipates that
its automotive industry concentration may increase in 1997 and that Ford Motor
Company may generate more than 10% of the Company's revenue in 1997. The
automotive industry is subject to cyclical and economic factors beyond the
control of the Company which could negatively affect future demand for the
Company's services from automotive clients. It is also possible that clients
will develop or acquire in-house expertise in services similar to those
provided by the Company, thereby significantly reducing demand for the
Company's services. No assurance can be given that the Company will be able to
maintain its existing client base, maintain or increase the level of revenue
generated by its existing clients or be able to attract new clients. The loss
of one or more of the Company's significant clients, especially Chrysler or
Ford, or a substantial reduction in business from any of its significant
clients, regardless of the reason, is likely to have a materially adverse
effect on the Company. See "Business--Industries and Clients Served."
Fluctuating Results; Project Risks. The Company's operating results have
fluctuated from period to period in the past and may fluctuate significantly
in future periods. These variations result from a number of factors, such as
the number, significance and mix of client projects commenced or completed
during a period and the number of business days in a particular period. It is
difficult to forecast the timing of revenue because project cycles depend on
factors such as the size and scope of assignments and circumstances specific
to particular clients or industries. Third party products and services are
integral to the success of certain of the Company's projects. To the extent
third parties do not deliver effective products and services on a timely
basis, the Company's project results could be negatively impacted.
Additionally, employee utilization rates vary from period to period not only
due to changes in the Company's volume of business but because of the timing
of employee vacations, hiring and training, the amount of time spent by
employees on marketing and project terminations or postponements. Client
engagements are generally terminable with little or no notice or penalty, and
a client's unanticipated decision to terminate or postpone a project may
result in higher than expected numbers of unassigned Company professionals or
severance costs, either of which could materially adversely affect the
Company's results of operations. The Company's most significant expenses
relate to salaries and benefits for its professional staff. Since these
expenses are generally fixed, the Company's results of operations in a
particular period may be materially adversely affected if revenue falls below
expectations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Need to Attract and Retain Professional Employees. The Company's continued
success and future growth will depend upon its ability to attract, develop and
retain a sufficient number of highly skilled, motivated professional
employees. Competition for personnel qualified to deliver most of the
Company's services is intense, and many of the companies with which the
Company competes for qualified professionals have substantially greater
financial and other resources than the Company. Furthermore, competition for
qualified personnel can be expected to increase as competition in the
Company's service offerings increases. There can be no assurance that the
Company will be able to recruit, develop and retain a sufficient number of
highly skilled, motivated professionals to compete successfully. The loss of a
significant number of professional personnel is likely to have a materially
adverse effect on the Company's business prospects and results of operations,
particularly its ability to complete existing projects or secure new projects.
See "Business--Company Organization and Methodologies."
6
<PAGE>
Management of Growth. The Company's rapid growth has placed significant
demands on the Company's management, administrative, operating and financial
resources. The Company's ability to manage future growth will require the
Company to continue to enhance its operating, financial and management
information systems and to expand, develop, motivate and manage effectively a
changing and expanding professional work force. If the Company is unable to
manage growth effectively, the quality of the Company's services, its ability
to retain key personnel and its results of operations are likely to be
materially adversely affected. Should the Company acquire businesses in the
future, there can be no assurance that it will be successful in integrating
the acquired businesses into the Company's infrastructure or retaining their
key professionals. Furthermore, there can be no assurance that the Company's
business will continue to expand. The Company's growth could be adversely
affected by client dissatisfaction with prior Company services, reductions in
clients' spending allocations for services the Company provides, restrictions
placed by clients on services to client competitors, increased competition,
possible pricing or labor cost pressures and general economic trends. Also,
the Company's enterprise-wide reengineering implementation support services
will likely continue to depend, in part, upon its alliance with Price
Waterhouse. Any adverse change in this relationship could materially adversely
affect the Company's ability to generate or increase revenue from these
services. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--RWD Growth Strategy" and "--RWD Services."
Risk of Client Dissatisfaction. The Company is subject to potential claims
by dissatisfied clients that Company services or actions by RWD employees did
not achieve the results expected by those clients or adversely impacted the
clients' operations. Any such claim could have a materially adverse effect on
the Company's results of operations and financial condition. The Company's
failure to meet a client's expectations or the client's belief that RWD may
have contributed to operating downtime could damage its relationship with that
client and could damage the Company's reputation, thereby adversely affecting
its ability to attract new or repeat business. See "Business--Risk
Management."
Dependence on Key Personnel. The success of the Company is highly dependent
upon the efforts and abilities of its co-founders, Dr. Robert W. Deutsch, 73,
and Mr. John H. Beakes, 54, the Chief Executive Officer and the Chief
Operating Officer, respectively, as well as its Group Vice Presidents, Messrs.
John E. Lapolla, 43, Kenneth J. Rebeck, 45, and Jeffrey W. Wendel, 42. Each of
these individuals is party to an employment agreement with the Company
containing customary noncompetition, nondisclosure and nonsolicitation
covenants. There can be no assurance that these agreements will prevent the
loss of any of these individuals or Company business. The loss of the services
of any of these key executives could have a materially adverse effect upon the
Company's business, results of operations and financial condition. See
"Management."
Budget Overruns. The majority of the Company's contracts are on a time and
materials basis, although many of these contracts contain initial "not-to-
exceed" fees and Company performance obligations. The remainder of the
Company's contracts are on a fixed-price basis, particularly those related to
the Company's information technology services. The failure of the Company to
complete a project to the client's satisfaction within the "not-to-exceed" or
fixed fee exposes the Company to unrecoverable budget overruns, which could
have a materially adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Risks of Conducting International Operations. The Company expects that
within the next several years, its international operations may increase
significantly. Generally, the cost of doing business abroad is higher for U.S.
businesses than the cost of doing business domestically. Therefore, the
Company could experience a decline in its operating margins as the
significance of its international operations increases. International
operations and the provision of services in foreign markets are subject to a
number of special risks, including currency exchange rate fluctuations, trade
barriers, exchange controls, national and regional labor strikes, political
risks and risks of increases in duties, taxes and governmental royalties, as
well as changes in laws and policies governing operations of foreign-based
companies. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--RWD Growth Strategy."
7
<PAGE>
Rapid Technological Change; Dependence on New Solutions. The Company's
future success will depend on its ability to gain expertise in technological
advances rapidly as well as to respond quickly to evolving industry trends and
client needs. There can be no assurance that the Company will be successful in
adapting to these advances in technology or in addressing changing client
needs on a timely basis or, if the Company does gain such expertise, that it
will be able to market new services successfully. There can be no assurance
that the Company will satisfactorily complete projects where unproven
technologies or tools are critical to the projects' success. In addition,
there can be no assurance that the services or technologies developed by
others will not significantly reduce demand for the Company's services or
render the Company's services obsolete. See "Business--RWD's Services."
Substantial Competition. The Company's service areas are highly competitive
and are subject to low barriers to entry and rapid change. The Company faces
competition for client assignments from a number of companies having
significantly greater financial, technical and marketing resources and greater
name recognition than the Company. Principal competitors for the Company's
services include the consulting practices of the six largest national
accounting firms as well as professional services groups of many large
technology and management consulting companies. The Company also competes with
smaller service providers whose specific, more narrowly focused service
offerings may be more attractive to potential clients than the Company's
multi-dimensional approach. In addition, clients may elect to use their
internal resources to satisfy their needs for the services the Company
provides. There can be no assurance that the Company will compete successfully
with potential clients' internal resources or with existing or new
competitors. See "Business--Competition."
Limited Protection of Proprietary Expertise, Methodologies and Software. The
Company's success is highly dependent upon its specialized and proprietary
expertise, methodologies and software. To protect proprietary information, the
Company relies only on a combination of trade secret laws, employee
nondisclosure policies and third party confidentiality agreements. There can
be no assurance that the steps taken by the Company to protect its proprietary
rights will be adequate to prevent misappropriation of such rights or that
third parties will not independently develop functionally equivalent or
superior methodologies or software. Additionally, because the Company's
engagements are work-for-hire based, the Company assigns ownership of all
materials the Company develops specifically for its clients to those clients
upon project completion. There can be no assurance, however, that third
parties will not assert infringement claims against the Company in the future
that would result in costly litigation or license arrangements regardless of
the merits of such claims. See "Business--Intellectual Property and Other
Proprietary Rights."
Risks Associated with Acquisition Strategy. One of the elements of the
Company's growth strategy is to pursue acquisitions that could provide well-
trained, high-quality professionals, new service offerings, additional
industry expertise, a broader client base or an expanded geographic presence.
The Company has never made an acquisition, and there can be no assurance that
it will be able to identify acceptable acquisition candidates or complete the
acquisition of any identified candidates. A substantial portion of the
Company's capital resources, including a portion of the net proceeds from this
offering, could be used for these acquisitions. The Company may require
additional debt or equity financings for future acquisitions, which may not be
available on terms favorable to the Company, if at all. There also can be no
assurance that the Company will be able to successfully integrate an
acquisition into the Company's operations or that any acquired business will
be able to be operated profitably by the Company. See "Business--RWD Growth
Strategy."
Control by Principal Stockholder. Dr. Deutsch and members of his family will
beneficially own approximately 72.9% of the shares of Common Stock outstanding
upon completion of this offering. As a result, Dr. Deutsch and his family will
be able to control the outcome of all matters requiring a stockholder vote,
including the election of the entire Board of Directors and the approval of
significant corporate matters such as change of control transactions, thereby
controlling the affairs and management of the Company. See "Principal
Stockholders."
Effect of Anti-Takeover Provisions. The Company's Board of Directors has the
authority to issue preferred stock and to determine the price, rights,
conversion ratios, preferences and privileges of that stock without further
8
<PAGE>
vote or action by the holders of the Common Stock. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the
rights, including economic rights, of the holders of any shares of preferred
stock issued in the future. Any such issuance may discourage third parties
from attempting to acquire control of the Company. Furthermore, the Company is
subject to the anti-takeover provisions of the Maryland General Corporation
Law which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of five years after the date of the
transaction in which the person first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
Company is also subject to the control share acquisition provisions of the
Maryland General Corporation Law, which provide that shares acquired by a
person with certain levels of voting power have no voting rights unless
approved by a stockholder vote of two-thirds of the votes entitled to be cast,
excluding shares owned by the acquiror and by the Company's officers and
employee-directors, and in certain circumstances, such shares may be redeemed
by the Company. The application of these statutes and certain other provisions
of the Company's Charter could have the effect of discouraging, delaying or
preventing a change of control of the Company not approved by the Board of
Directors, which could adversely affect the market price of the Company's
Common Stock. See "Description of Capital Stock."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 13,795,367 shares of Common Stock. Sales of a
substantial number of shares of Common Stock in the public market following
this offering, or the perception that such sales could occur, could adversely
affect the market price for the Company's Common Stock. Substantially all of
the shares to be outstanding upon completion of this offering (other than the
3,000,000 shares being offered hereby) are subject to the lock-up agreements
described below. Of the shares to be outstanding upon completion of this
offering, 10,161,707 shares are "restricted," as that term is defined in the
Securities Act of 1933, as amended (the "Securities Act"). Of these restricted
shares, 4,215,450 have been held for more than two years and, as such, will be
salable upon expiration of the lock-up agreements described below, subject to
certain volume and manner of sale restrictions under Rule 144 of the
Securities Act.
The 3,221,160 shares reserved for issuance upon exercise of options
outstanding on December 31, 1996 and the 818,640 shares reserved for issuance
upon exercise of future grants under the Company's stock option plan will be
registered under the Securities Act 90 days after completion of this offering.
The Company has an additional 175,000 shares of Common Stock reserved for
issuance in connection with its Employee Stock Purchase Plan which the Company
intends to register under the Securities Act no earlier than September 1,
1997. Other than shares subject to the lock-up agreements, shares registered
under the Securities Act will be freely transferable upon issuance unless
acquired by affiliates of the Company. Of the shares subject to outstanding
options, 1,105,320 shares are issuable upon exercise of fully vested options,
with 390,000 of such shares subject to the lock-up agreements described below.
See "Management--Employee Benefit Plans" and "Shares Eligible for Future
Sale."
All directors, executive officers, principal stockholders and certain other
officers of the Company who hold in the aggregate 10,641,227 shares of Common
Stock (plus options to purchase an aggregate of 826,500 shares), and the
Company have agreed not to sell or otherwise dispose of any of their shares or
options for a period of 180 days after the date of this Prospectus without the
prior written consent of William Blair & Company, L.L.C. However, William
Blair & Company, L.L.C., may, in its sole discretion and at any time without
notice, release for public sale all or any portion of these shares subject to
such lock-up agreements. See "Underwriting."
No Prior Market for Common Stock; Possible Volatility of Stock Price. Prior
to this offering, there has been no public market for the Common Stock, and
there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the offering. The initial public offering
price will be determined by negotiations among the Company and the
Representatives of the Underwriters and may not be indicative of market prices
of the Common Stock after this offering. See "Underwriting." The market price
of the Common Stock may be subject to significant fluctuations in response to
variations in quarterly operating results and other events or factors, such as
announcements of new services by the Company or its competitors and changes in
9
<PAGE>
financial estimates by securities analysts. Moreover, the stock market and the
market prices of the shares of many technology companies in recent years have
experienced significant price and volume fluctuations. These fluctuations often
have been unrelated to the operating performance of specific public companies.
Broad market fluctuations, as well as economic conditions generally and in
technology industries specifically, may adversely affect the market price of
the Common Stock. There can be no assurance that the market price of the Common
Stock will not decline below the initial public offering price.
Dividend Policy; S Corporation Distribution. Until March 31, 1997, the
Company will be treated as an S Corporation under the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, the Company has made and, prior to
that date, will make periodic distributions to its stockholders in amounts
sufficient to enable the stockholders to pay income taxes on account of the
Company's earnings. Following consummation of this offering, the Company does
not anticipate paying any further cash dividends for the foreseeable future. As
of March 31, 1997, the Company will convert from S Corporation to C Corporation
status. In connection with this conversion, the Company will effect the S
Corporation Distribution to its stockholders. As a result of the S Corporation
Distribution, consisting of an aggregate of approximately $7.0 million in cash
and $7.0 million of S Corporation Notes, the Company's retained earnings and
stockholders' equity will be significantly reduced. In addition, the Company
will record a one-time, non-cash charge against earnings in the three months
ending March 31, 1997, resulting from a deferred tax liability in connection
with the Company's conversion from S Corporation to C Corporation status. Had
the Company recorded this liability on December 31, 1996, the amount of this
charge would have been approximately $4.8 million. However, the amount to be
recorded upon conversion may be materially higher or lower than $4.8 million,
depending primarily upon the timing of accounts receivable collections through
the date of conversion. This tax liability will become due ratably over the
four years following conversion. See "Dividend Policy and Prior S Corporation
Status," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Dilution. Investors participating in this offering will incur immediate and
substantial dilution in the tangible book value of their shares. To the extent
that currently outstanding options to purchase Common Stock are exercised,
there will be further dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock being offered hereby are estimated to be approximately $29.7
million ($32.8 million if the Underwriters' over-allotment option is exercised
in full), assuming an initial public offering price of $11.00 per share, after
deducting the underwriting discount and estimated offering expenses. The
Company will use $3.8 million of the net proceeds to retire notes issued to the
Company's co-founders to evidence loans made to the Company at various times
from 1988 to 1991, which bear interest at 9% per annum and mature on March 31,
1998 (the "Stockholder Notes"). The Company will use the remaining net proceeds
(plus the $4.2 million of cash proceeds from the Concurrent Exercises) for
working capital to support the planned growth of its business and for other
general corporate purposes, which may include the acquisition of complementary
businesses. From time to time, the Company evaluates possible acquisitions, but
is not currently considering any specific acquisition. The Company intends to
invest the net proceeds from this offering in interest-bearing, investment-
grade obligations pending application thereof in the manner described above.
10
<PAGE>
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
From its inception in January 1988 until March 31, 1997, the Company was
subject to taxation under Subchapter S of the Code. As a result, the net income
of the Company, for federal and certain state income tax purposes, was reported
by and taxable directly to the Company's stockholders during that time rather
than to the Company. Primarily to provide funds for tax obligations payable by
its stockholders on account of the Company's income in 1995 and 1996, the
Company made $691,300 of cash distributions during 1996 to its stockholders. In
connection with its conversion from S Corporation to C Corporation status, the
Company will effect the S Corporation Distribution (consisting of an aggregate
of approximately $7.0 million in cash payments and the issuance of
approximately $7.0 million principal amount of S Corporation Notes) to the
Company's stockholders on March 27, 1997. The S Corporation Distribution
represents the stockholders' proportionate interest in Company earnings which
had not been distributed to the stockholders prior to the conversion date. See
"Certain Transactions."
Following this offering, the Company does not intend to pay cash dividends as
it intends to retain all earnings to support its planned growth. Any future
dividends will depend upon the Company's results of operations, financial
condition, cash requirements and other factors deemed relevant by the Board of
Directors.
11
<PAGE>
CAPITALIZATION
At December 31, 1996, the following table sets forth: (i) the actual total
short-term debt and total capitalization of the Company; (ii) such short-term
debt and capitalization on a pro forma basis to give effect to the S
Corporation Distribution, the Concurrent Exercises and recognition of a
deferred tax liability resulting from conversion to C Corporation status; and
(iii) such pro forma short-term debt and capitalization as adjusted to reflect
the sale of the 3,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $11.00 per share and application of the net
proceeds therefrom (including retirement of the Stockholder Notes), after
deducting the underwriting discount and estimated offering expenses. This
table should be read in conjunction with the Company's Financial Statements
and related Notes thereto and other financial information appearing elsewhere
in this Prospectus. See "Use of Proceeds," "Dividend Policy and Prior S
Corporation Status" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
S Corporation Notes............................ $ -- $ 7,000 $ 7,000
Current portion of capital lease obligation.... 42 42 42
Stockholder Notes.............................. 3,800 3,800 --
------- ------- -------
Total short-term debt........................ $ 3,842 $10,842 $ 7,042
======= ======= =======
Capital lease obligation, net of current portion. $ 83 $ 83 $ 83
------- ------- -------
Stockholders' equity:
Common Stock, $0.10 par value; 50,000,000
shares authorized; 4,859,640 shares issued and
outstanding actual; 10,786,367 shares issued
and outstanding pro forma; 13,786,367 shares
issued and outstanding pro forma as adjust-
ed(1)......................................... 486 1,079 1,379
Additional paid-in capital..................... 2,754 6,341 35,746
Retained earnings (accumulated deficit)........ 16,892 (1,883) (1,883)
------- ------- -------
Total stockholders' equity................... 20,132 5,537 35,242
------- ------- -------
Total capitalization....................... $20,215 $ 5,620 $35,325
======= ======= =======
</TABLE>
- --------
(1) Actual shares outstanding assume the Concurrent Exercises had not
occurred and exclude 9,194,160 shares issuable upon exercise of all
options that were outstanding on December 31, 1996. Pro forma and pro
forma as adjusted information assume the occurrence of the Concurrent
Exercises and exclude the 3,221,160 shares issuable upon exercise of
options outstanding on December 31, 1996, having a weighted average
exercise price of $2.52 per share. All share amounts exclude 818,640
shares reserved for issuance upon exercise of future option grants under
the Company's Amended and Restated Equity Participation Plan and 175,000
shares reserved for issuance in connection with the Company's Employee
Stock Purchase Plan. See "Management--Employee Benefit Plans" and Note 5
of Notes to Financial Statements.
12
<PAGE>
DILUTION
At December 31, 1996, the pro forma net tangible book value of the Company
was $5.5 million, or $0.51 per share of Common Stock after giving effect to
the S Corporation Distribution, recognition of a $4.8 million deferred tax
liability resulting from converting to a C Corporation and the Concurrent
Exercises. Pro forma net tangible book value per share is determined by
dividing the pro forma tangible book value of the Company (total tangible
assets less total liabilities) by the number of outstanding shares of Common
Stock as of that date. After giving effect to the sale by the Company of the
3,000,000 shares of Common Stock offered hereby, assuming an initial public
offering price of $11.00 per share and after deducting the underwriting
discount and estimated offering expenses, the Company's pro forma net tangible
book value as of December 31, 1996 would have been $35.2 million, or $2.56 per
share. This represents an immediate increase in pro forma net tangible book
value to existing stockholders of $2.05 per share and an immediate dilution to
new investors of $8.44 per share. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $ 11.00
Pro forma tangible book value before offering............... $0.51
Increase attributable to new investors...................... 2.05
-----
Pro forma net tangible book value after the offering........ 2.56
-------
Dilution to new investors................................... $ 8.44
=======
</TABLE>
On a pro forma basis after giving effect to the S Corporation Distribution
and the Concurrent Exercises, the following table summarizes, as of December
31, 1996, differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price paid per share, assuming an
initial public offering price of $11.00 per share but before deducting the
underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------ ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 10,786,367 78.2% $ 7,420,000 18.4% $ 0.69
New investors.............. 3,000,000 21.8 33,000,000 81.6 11.00
---------- ------ ----------- ------
Total.................... 13,786,367 100.0% $40,420,000 100.0%
========== ====== =========== ======
</TABLE>
At December 31, 1996, there were also outstanding options to purchase an
additional 3,221,160 shares of Common Stock at a weighted average exercise
price of $2.52 per share. To the extent these options are exercised, there
will be further dilution to new investors in the net tangible book value of
their shares. See "Capitalization," "Management--Employee Benefit Plans" and
Note 5 of Notes to Financial Statements.
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Financial Statements and related Notes thereto and
other financial information included elsewhere in this Prospectus. The balance
sheet and income statement data at and for the years ended December 31, 1993,
1994, 1995 and 1996, are derived from the Company's Financial Statements,
which have been audited by Arthur Andersen LLP, independent public
accountants. The balance sheet and income statement data at and for the year
ended December 31, 1992 have been derived from unaudited financial statements
of the Company which, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial condition and results of operations of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................ $12,655 $18,418 $29,424 $47,132 $ 65,006
Cost of services............... 10,217 14,654 21,751 35,269 48,132
------- ------- ------- ------- --------
Gross profit................... 2,438 3,764 7,673 11,863 16,874
General and administrative ex-
penses........................ 1,736 2,157 3,515 5,212 8,137
------- ------- ------- ------- --------
Operating income............... 702 1,607 4,158 6,651 8,737
Other income (expense), net.... (321) (368) (185) (121) (123)
------- ------- ------- ------- --------
Income before taxes............ 381 1,239 3,973 6,530 8,614
Provision for income taxes..... 34 45 60 168 365
------- ------- ------- ------- --------
Net income..................... $ 347 $ 1,194 $ 3,913 $ 6,362 $ 8,249
======= ======= ======= ======= ========
Pro Forma Data(1):
Provision for income taxes... $ 164 $ 508 $ 1,589 $ 2,612 $ 3,446
Net income................... $ 217 $ 731 $ 2,384 $ 3,918 $ 5,168
======= ======= ======= ======= ========
Net income per share......... $ 0 .42
Weighted average shares
outstanding................. 12,273
BALANCE SHEET DATA (AT YEAR END):
Cash and marketable securities. $ 26 $ 2,292 $ 1,726 $ 2,394 $ 5,534
Working capital................ 1,908 4,600 7,620 11,439 12,053
Total assets................... 4,466 10,171 14,533 23,658 29,858
Total debt..................... 3,952 4,677 4,276 6,500 3,925
Stockholders' equity (deficit). (712) 2,484 6,397 12,758 20,132
</TABLE>
- --------
(1) For each of the fiscal years presented, the Company was an S Corporation
and, accordingly, was not subject to federal and certain state corporate
income taxes. The pro forma information has been computed as if the
Company were subject to federal and all applicable state corporate income
taxes for each of the periods presented assuming the tax rate that would
have applied had the Company been taxed as a C Corporation. See "Dividend
Policy and Prior S Corporation Status" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
RWD provides a broad range of integrated solutions designed to improve the
productivity and effectiveness of workers in complex operating environments.
The Company was founded in 1988 by Dr. Robert W. Deutsch, the Company's Chief
Executive Officer, and Mr. John H. Beakes, the Company's Chief Operating
Officer. Since 1991, its third year of operations, the Company has been
profitable in every quarter. Since inception, the Company has significantly
expanded its client base and the breadth of its service offerings. The Company
manages each project using proven state-of-the-art methodologies and
formalized management techniques designed to ensure that each engagement meets
the Company's high standards for quality and client satisfaction as well as
its profitability objectives. Revenue increased by $17.9 million, or 37.9%,
from $47.1 million in 1995 to $65.0 million in 1996. The Company's operating
income increased by $2.1 million, or 31.4%, from $6.7 million in 1995 to $8.7
million in 1996.
Almost all of RWD's revenue is generated from professional fees. The
majority of the Company's contracts are on a time-and-materials basis,
although many of these contracts contain initial "not-to-exceed" fees and
Company performance obligations. The remainder of the Company's contracts are
on a fixed-price basis, particularly those related to the Company's
information technology services. All revenue is recognized using the
percentage-of-completion method. The Company typically bills all contracts on
a monthly basis, and senior management reviews outstanding accounts receivable
balances weekly to monitor client satisfaction and collections. The Company's
projects are typically completed in as few as one to as many as 24 months.
One of the contributing factors to the Company's revenue growth has been the
increase in the breadth of its service offerings. Prior to 1990, the Company
offered conventional performance support services. Since that time, the
Company has added information technology services, including EPSS in 1990, EUI
systems in 1991 and EDMS in 1992, lean manufacturing consulting services in
1993 and enterprise-wide software implementation support services in 1994. In
1996, RWD provided services to 83 companies in 23 industries. Chrysler
engagements generated 33.2%, 33.9% and 28.5% of total revenue in 1994, 1995
and 1996, respectively. No other client generated more than 10% of total
revenue in any of these years. Automotive industry clients generated 46.9%,
43.5% and 40.6% of total revenue in 1994, 1995 and 1996, respectively. As a
result of a significant contract with Ford Motor Company, RWD anticipates that
its automotive industry concentration may increase in 1997 and that Ford Motor
Company may generate more than 10% of the Company's revenue in 1997.
Historically, a large percentage of the Company's revenue has come from
follow-on business from its existing clients. For example, in each of the past
three years, over 80% of the year's total revenue was generated by clients
that had been significant clients in the previous year; and, in each of those
years, aggregate revenue generated by these repeat clients exceeded the
previous year's total revenue by over 25%. As the scope of the Company's
services has become more comprehensive, average revenue per client has
increased from $398,000 in 1994 to $783,000 in 1996, and the number of clients
generating individually more than $1.0 million of annual revenue increased
from seven in 1994 to 19 in 1996.
Gross profit margins per project and professional staff utilization rates
are critical to the Company's financial performance. The Company manages these
parameters by carefully establishing and monitoring project budgets and
timetables and by closely tracking staffing requirements for projects in
progress and anticipated projects. The status of all projects in progress and
personnel utilization are reviewed twice per month by project managers, first
line supervisors and senior management to ensure client satisfaction and to
monitor performance relative to internal financial and operating expectations.
The number of professionals assigned to a project varies according to the
size, complexity, duration and demands of the project. Professional staff
utilization rates vary from period to period not only because of variations in
the Company's volume of business but because of the timing of employee
vacations, hiring and training, the amount of time spent by employees on
marketing and project terminations or postponements. Client engagements are
generally terminable with little or no notice or penalty, and a client's
unanticipated decision to terminate or postpone a project may result in higher
than expected unassigned Company professionals or severance expenses.
15
<PAGE>
The principal components of cost of services are compensation and benefits
to the Company's professional staff. Cost of services also includes training
and travel expenses for the Company's professional staff, fees paid to
subcontractors and depreciation of capital equipment provided to the
professional staff. The Company does not maintain a separate marketing or
sales staff, and time devoted by professional personnel to marketing is
included in cost of services as are costs associated with administrative
personnel that directly support the Company's professional staff. General and
administrative expenses are primarily comprised of salaries for corporate,
accounting and other headquarters executive and administrative personnel and
other corporate overhead. During all periods discussed, the Company was an S
Corporation and, accordingly, was not subject to federal or most state
corporate income taxes. Therefore, the provision for income taxes consists
only of state and local income taxes payable directly by the Company,
including a Michigan corporate tax. The pro forma provision for income taxes
assumes the Company was subject to federal, state and local income taxes
applicable to C Corporations and was calculated using effective tax rates of
43.0%, 41.0%, 40.0%, 40.0% and 40.0%, respectively, in each of the five years
ended December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of revenue and the percentage change in such
items versus the prior comparable period.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-------------------------
YEAR ENDED DECEMBER 31, PERCENTAGE INCREASE (DECREASE)
------------------------- ------------------------------------
1994 1995 1996 1994 TO 1995 1995 TO 1996
------- ------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 60.2% 37.9%
Cost of services........ 73.9 74.8 74.0 62.1 36.5
------- ------- -------
Gross profit............ 26.1 25.2 26.0 54.6 42.2
General and administra-
tive expenses.......... 12.0 11.1 12.5 48.3 56.1
------- ------- -------
Operating income........ 14.1 14.1 13.5 59.9 31.4
Other income (expense),
net.................... (0.6) (0.3) (0.2) (35.1) 2.2
------- ------- -------
Income before taxes..... 13.5 13.8 13.3 64.4 31.9
Provision for income
taxes.................. 0.2 0.4 0.6 181.8 116.6
------- ------- -------
Net income.............. 13.3% 13.4% 12.7% 62.6 29.7
======= ======= =======
Pro Forma Data:
Provision for income
taxes................. 5.4% 5.5% 5.3% 64.4 31.9
Net income............. 8.1% 8.3% 8.0% 64.4 31.9
======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Revenue increased by $17.9 million, or 37.9%, from $47.1 million in
1995 to $65.0 million in 1996. The Company experienced growth in each of its
service areas from 1995 to 1996, with enterprise-wide software implementation
support services revenue increasing by 75.8%, from $7.6 million to $13.4
million; lean manufacturing consulting revenue increasing by 99.8%, from $3.8
million to $7.7 million; information technology services revenue increasing by
84.0%, from $9.4 million to $17.2 million; and conventional performance
support services revenue increasing by 1.4%, from $26.3 million to $26.7
million. Conventional performance support services, enterprise-wide software
implementation support services, information technology services and lean
manufacturing consulting services generated 41.0%, 20.7%, 26.5% and 11.8% of
total revenue, respectively, in 1996 compared to 55.8%, 16.2%, 19.9% and 8.1%
of total revenue, respectively, in 1995.
Revenue from the Company's largest client, Chrysler, increased by 16.3%,
from $16.0 million in 1995 to $18.6 million in 1996, primarily as a result of
increases in information technology and lean manufacturing consulting services
provided by the Company.
16
<PAGE>
Gross Profit. Gross profit increased by $5.0 million, or 42.2%, from $11.9
million in 1995 to $16.9 million in 1996 and increased from 25.2% of revenue
in 1995 to 26.0% of revenue in 1996. This increase in the gross margin
resulted from an increase in billing rates charged to clients, partially
offset by a decline in professional staff utilization. In addition,
reimbursable expenses made up a smaller proportion of revenue, increasing the
gross margin because these expenses are reimbursed to the Company generally
without significant mark-up.
General and Administrative Expenses. General and administrative expenses
increased by $2.9 million, or 56.1%, from $5.2 million in 1995 to $8.1 million
in 1996, increasing from 11.1% of revenue in 1995 to 12.5% of revenue in 1996.
This increase in general and administrative expenses as a percentage of
revenue resulted primarily from increased rent associated with expansion of
existing offices and increased depreciation associated with purchases of
furniture, computer and office equipment and leasehold improvements.
Operating Income. As a result of the foregoing, the Company's operating
income increased by $2.1 million, or 31.4%, from $6.7 million in 1995 to $8.7
million in 1996 but declined from 14.1% of revenue in 1995 to 13.5% of revenue
in 1996.
Other Income (Expense). Other expense was $120,500 in 1995 and $123,100 in
1996. In both years, this expense consisted primarily of interest paid on the
Stockholder Notes and the Company's line of credit, partially offset by
interest income from cash balances.
Pro Forma Net Income. Pro forma net income increased by $1.3 million, or
31.9% from $3.9 million in 1995 to $5.2 million in 1996 but declined slightly
from 8.3% of revenue in 1995 to 8.0% of revenue in 1996. Pro forma net income
in 1995 and 1996 assumes the Company was taxed for federal and state income
tax purposes as a C Corporation at an effective rate of 40.0%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased by $17.7 million, or 60.2%, from $29.4 million in
1994 to $47.1 million in 1995. The Company experienced growth in all of its
service areas in 1995 compared to 1994, with enterprise-wide software
implementation support services revenue increasing by 451.8%, from
$1.4 million to $7.6 million; lean manufacturing consulting revenue increasing
by 81.0%, from $2.1 million to $3.8 million; conventional performance support
services revenue increasing by 38.5%, from $19.0 million to $26.3 million; and
information technology services revenue increasing by 35.1%, from $6.9 million
to $9.4 million. Conventional performance support services, enterprise-wide
software implementation support services, information technology services and
lean manufacturing consulting services generated 55.8%, 16.2%, 19.9% and 8.1%
of total revenue, respectively, in 1995, compared to 64.5%, 4.7%, 23.6% and
7.2% of total revenue, respectively, in 1994.
Revenue from the Company's largest client, Chrysler, increased by $6.2
million, or 63.2%, from $9.8 million in 1994 to $16.0 million in 1995,
primarily as a result of increases in conventional performance support
services provided by RWD. The Company also had significant increases in its
information technology services and began providing lean manufacturing
consulting services to Chrysler in 1995, both of which contributed to the
revenue increase.
Gross Profit. Gross profit increased by $4.2 million, or 54.6%, from $7.7
million in 1994 to $11.9 million in 1995 but declined from 26.1% of revenue in
1994 to 25.2% of revenue in 1995. This decline in the gross margin resulted
from increases in training, benefits and other personnel-related costs,
including increased depreciation expense from the purchase of additional
computer equipment for professional staff. The professional staff utilization
rate declined slightly in 1995, which also adversely affected the gross
margin.
17
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased by $1.7 million, or 48.3%, from $3.5 million in 1994 to $5.2 million
in 1995 but declined from 12.0% of revenue in 1994 to 11.1% of revenue in
1995. This decline in general and administrative expenses as a percentage of
revenue resulted primarily from efficiencies achieved in benefits and
professional services expenses, which were offset in part by increased
expenditures to support new services and the opening of additional offices.
Operating Income. As a result of the foregoing, the Company's operating
income increased by $2.5 million, or 59.9%, from $4.2 million in 1994 to $6.7
million in 1995 and remained constant at 14.1% of revenue in both 1994 and
1995.
Other Income (Expense). Other expense decreased from $185,800 in 1994 to
$120,500 in 1995. Interest expense remained relatively constant while the
Company generated more interest income from higher cash balances in 1995.
Pro Forma Net Income. Pro forma net income increased by $1.5 million, or
64.4%, from $2.4 million in 1994 to $3.9 million in 1995 and increased from
8.1% of revenue in 1994 to 8.3% of revenue in 1995. Pro forma net income in
1994 and 1995 assumes the Company was taxed for federal and state income tax
purposes as a C Corporation at an effective rate of 40.0%.
18
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth unaudited income statement data for each of
the eight quarters in the two year period beginning January 1, 1995 and ending
December 31, 1996, as well as the percentage of the Company's revenue
represented by each item. In management's opinion, this unaudited information
has been prepared on a basis consistent with the Company's annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the Financial Statements and
related Notes thereto included elsewhere in this Prospectus. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $10,199 $11,838 $12,562 $12,533 $14,632 $15,999 $16,606 $17,769
Cost of services....... 7,382 8,628 9,543 9,716 10,863 11,717 12,382 13,170
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 2,817 3,210 3,019 2,817 3,769 4,282 4,224 4,599
General and adminis-
trative expenses...... 1,204 1,329 1,269 1,410 1,820 1,938 2,107 2,272
------- ------- ------- ------- ------- ------- ------- -------
Operating income....... 1,613 1,881 1,750 1,407 1,949 2,344 2,117 2,327
Other income (ex-
pense), net........... (48) (30) (19) (24) (61) (48) 4 (18)
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes.... 1,565 1,851 1,731 1,383 1,888 2,296 2,121 2,309
Provision for income
taxes................. 40 48 45 35 70 70 75 150
------- ------- ------- ------- ------- ------- ------- -------
Net income............. $ 1,525 $ 1,803 $ 1,686 $ 1,348 $ 1,818 $ 2,226 $ 2,046 $ 2,159
======= ======= ======= ======= ======= ======= ======= =======
Pro Forma Data (1):
Provision for income
taxes............... $ 626 $ 740 $ 692 $ 554 $ 755 $ 918 $ 848 $ 925
Net income........... $ 939 $ 1,111 $ 1,039 $ 829 $ 1,133 $ 1,378 $ 1,273 $ 1,384
======= ======= ======= ======= ======= ======= ======= =======
Net income per share. $ 0.09 $ 0.11 $ 0.10 $ 0.11
Weighted average
shares outstanding.. 12,273 12,273 12,273 12,273
<CAPTION>
AS A PERCENTAGE OF REVENUE
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services....... 72.4 72.9 76.0 77.5 74.2 73.2 74.6 74.1
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 27.6 27.1 24.0 22.5 25.8 26.8 25.4 25.9
General and adminis-
trative expenses...... 11.8 11.2 10.1 11.3 12.4 12.1 12.7 12.8
------- ------- ------- ------- ------- ------- ------- -------
Operating income....... 15.8 15.9 13.9 11.2 13.3 14.7 12.7 13.1
Other income (ex-
pense), net........... (0.5) (0.3) (0.2) (0.2) (0.4) (0.3) 0.0 (0.1)
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes.... 15.3 15.6 13.8 11.0 12.9 14.3 12.8 13.0
Provision for income
taxes................. 0.4 0.4 0.4 0.3 0.5 0.4 0.5 0.8
------- ------- ------- ------- ------- ------- ------- -------
Net income............. 14.9% 15.2% 13.4% 10.7% 12.4% 13.9% 12.3% 12.2%
======= ======= ======= ======= ======= ======= ======= =======
Pro forma data (1):
Provision for income
taxes............... 6.1% 6.3% 5.5% 4.4% 5.2% 5.7% 5.1% 5.2%
Net income........... 9.2% 9.3% 8.3% 6.6% 7.7% 8.6% 7.7% 7.8%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) For each of the periods presented, the Company was an S Corporation and,
accordingly, was not subject to federal and certain state corporate income
taxes. The pro forma information has been computed as if the Company were
subject to federal and all applicable state corporate income taxes for
each of the periods presented assuming the tax rate that would have
applied had the Company been taxed as a C Corporation. See "Dividend
Policy and Prior S Corporation Status" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital need is for working capital and capital
expenditures necessary to support its growth. Since its inception, the Company
has financed its operations and capital expenditures primarily with cash flow
from operations and approximately $3.8 million in stockholder debt and $3.0
million in equity provided by the Company's co-founders. This stockholder debt
and equity was primarily provided from 1988 through 1991. See "Certain
Transactions."
The Company's cash and marketable securities were $5.5 million at December
31, 1996, compared to $2.4 million at December 31, 1995 and $1.7 million at
December 31, 1994. Increases in cash and marketable securities were
attributable primarily to increases in cash provided by operations, partially
offset by investments in equipment necessary to support the Company's
increasing number of employees. The Company's working capital was $12.1
million at December 31, 1996, $11.4 million at December 31, 1995 and $7.6
million at December 31, 1994.
The Company's operating activities provided cash of $11.9 million in 1996
compared to $3.0 million in 1995 and $459,000 in 1994. These increases in cash
provided by operations resulted from higher net income, depreciation and
accounts payable partially offset in 1995 by increases in contract accounts
receivable balances at year-end.
Investing activities used cash of $5.0 million in 1996, compared to $4.0
million in 1995 and $1.2 million in 1994. Cash used in investing activities
consisted primarily of purchases of computer and office equipment, office
furniture and leasehold improvements.
Financing activities used cash of $3.8 million in 1996, compared to
providing $1.4 million of cash in 1995 and $459,000 in 1994. In all periods,
financing activities consisted primarily of borrowings and repayments under
the Company's line of credit. In 1996, Common Stock was repurchased by the
Company from departing employees for $214,100 pursuant to stock restriction
agreements. In addition, the Company distributed an aggregate of $691,300 to
its stockholders to enable them to pay income taxes on the Company's 1995 S
Corporation earnings.
The Company has a $7.5 million unsecured revolving line of credit with a
commercial bank, which bears interest at the 30-day LIBOR rate, plus 1.75%
(7.44% on December 31, 1996). The Company utilizes this line of credit to
finance a portion of its working capital needs. There was a $476,200
outstanding balance on December 31, 1994, a $2.7 million outstanding balance
on December 31, 1995 and no balance outstanding on December 31, 1996.
In connection with its conversion to C Corporation status to be effected on
March 31, 1997, the Company will make the S Corporation Distribution, of which
approximately $7.0 million will be paid in cash from the Company's working
capital and $7.0 million paid by issuance of the S Corporation Notes. The
Company expects to repay the S Corporation Notes from operating cash flow in
1997. In addition, the Company intends to repay the $3.8 million of
Stockholder Notes from the net proceeds of this offering.
The Company will record a one-time, non-cash charge against earnings in the
first quarter of 1997 resulting from a deferred tax liability in connection
with the Company's conversion from S Corporation to C Corporation status. This
tax liability will become due ratably over the four years beginning in 1997.
If this deferred tax liability had been established on December 31, 1996, the
liability would have been approximately $4.8 million. Since the Company pays
income taxes on a cash basis, the deferred tax liability to be established
upon conversion to C Corporation status may be materially higher or lower than
$4.8 million, depending primarily upon the timing of the Company's accounts
receivable collections through the date of conversion.
During 1997, the Company expects to make between $4.0 million and $5.0
million in capital expenditures, primarily for office furniture, computer and
office equipment and leasehold improvements to support the anticipated growth
in its professional and administrative staff. These capital expenditures
currently are expected to be funded from available cash, although the Company
may consider alternative financing methods, such as equipment leases or asset-
based borrowings.
20
<PAGE>
The Company believes the net proceeds from this offering and the $4.2
million in cash proceeds from the Concurrent Exercises, together with its
current cash balances, cash provided by future operations and its line of
credit, will be sufficient to meet the Company's working capital and cash
needs for at least the next 12 months.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's business during
the past three years. The Company cannot predict what effect, if any,
inflation may have on its future results of operations.
21
<PAGE>
BUSINESS
INTRODUCTION
RWD Technologies, Inc. provides a broad range of integrated solutions
designed to improve the productivity and effectiveness of workers in complex
operating environments. As the scope and complexity of technology used by
businesses accelerates and the global business environment becomes more
competitive, companies are increasingly focused on maximizing the return on
their advanced technology investments. To achieve this goal, companies must
ensure their employees receive effective performance support, including the
tools and training to operate these advanced systems effectively. Founded in
1988, the Company initially provided conventional performance support services
such as classroom training and hard copy documentation to plant personnel in
large industrial companies employing complex manufacturing systems and
technologies. In recent years, the Company has expanded its performance
support services to include the design, development and implementation of
customized information technology solutions including Enhanced User Interface
("EUI") systems, Electronic Performance Support Systems ("EPSS"), Electronic
Document Management Systems ("EDMS"), sales force automation systems and
Internet/Intranet applications. More recently, RWD has expanded its services
to include end-user training and performance support services essential to the
effective implementation of enterprise-wide business process reengineering
efforts (particularly SAP software implementation) and lean manufacturing
consulting. All of the Company's services are designed to improve its clients'
product quality, worker productivity and competitiveness and to ensure an
attractive return on its clients' technology investments. The Company believes
its focus on end-user performance, embedded in all its service offerings,
differentiates the Company from many of its competitors in the performance
support and information technology services marketplaces. The Company's
registered service mark, "We bring people and technology together,"(R)
succinctly describes the Company's activities.
RWD was founded in January 1988 by Dr. Robert W. Deutsch and Mr. John H.
Beakes. For the 21 years prior to founding RWD, Dr. Deutsch was the Chief
Executive Officer of General Physics Corporation ("General Physics"), a
company he founded while a Professor of Nuclear Science and Engineering at The
Catholic University of America in Washington, D.C. During Dr. Deutsch's
tenure, General Physics became a leading provider of plant operator training
services to the nuclear power industry and professional services to the
defense industry. General Physics completed an initial public offering in 1982
and by 1987 had grown to 1,700 employees, with annual revenue of $115 million.
Mr. Beakes is a graduate of the U.S. Naval Academy and served for eight years
in the U.S. Navy's Nuclear Submarine Service. He joined General Physics in
1974 and had advanced to the position of Executive Vice President and Chief
Operating Officer by 1985. A change of control and resulting shift in
operating philosophy precipitated Dr. Deutsch's and Mr. Beakes's decision to
leave General Physics at the end of 1987.
Based on their experience at General Physics, Dr. Deutsch and Mr. Beakes
believed large U.S. industrial companies were making substantial investments
in automation and other advanced operating technologies but achieving
relatively low returns on these investments. They concluded this was the
result of plant workers having inadequate training and performance support
systems. Dr. Deutsch and Mr. Beakes formed RWD with the objective of applying
to large U.S. industrial companies the performance support methodologies
proven to be successful in the nuclear power industry. The Company's first
significant client was Chrysler. The Company's client list has grown to
include other clients in the automotive industry as well as clients in the
chemical, consumer products, pharmaceutical and telecommunications industries,
among others. In 1996, RWD provided services to 83 companies in 23 industries.
Among these clients were seven of the Fortune 10 companies and 20 of the
Fortune 100 companies. The Company's clients include Anheuser-Busch, Bristol-
Myers Squibb, Chevron, Chrysler, Continental Cablevision, Deere & Company,
Detroit Edison, Dow Chemical, Ford, Merck, Procter & Gamble, and Steelcase.
Chrysler engagements generated 33.2%, 33.9% and 28.5% of total revenue in
1994, 1995 and 1996, respectively. No other client generated more than 10% of
total revenue in any of these years.
22
<PAGE>
BUSINESS OPPORTUNITIES
In recent years, the scope and complexity of technology used by businesses
worldwide have grown rapidly, outpacing the typical worker's unsupported
capability to understand and operate this technology. This widening gap
between technological complexity and worker competence significantly limits a
company's ability to realize the full benefits of its technology investments.
RWD believes this trend has accelerated the demand for a variety of
performance support tools. These tools include customized performance-based
training programs, custom-designed job aids and software systems for task
support, all of which accelerate the time to competency for end users.
Workers operating highly complex and expensive equipment are critical to a
company's productivity and competitiveness. Companies are faced with the
challenge of ensuring their work forces have the skills necessary to maximize
productivity. This is typically in an environment of high labor turnover,
constant upgrading of technologies and retirement of senior employees whose
knowledge has been critical to operations. Workers are supported by operating,
maintenance and reference materials and training which often are poorly
designed, contain extraneous information, are difficult to update and modify
and are delivered inefficiently. With rapid advances in software technology,
including the transition from mainframe to distributed client/server
environments and the development of Internet/Intranet technologies, companies
increasingly seek support systems that are user friendly and reduce worker
time to competency while increasing their productivity. Information technology
solutions such as EUI systems, EPSS and EDMS are designed to provide end users
with critical, real-time information, in order to allow them to operate and
maintain equipment employing a wide range of advanced technologies safely and
efficiently.
Rapid technological advancements during the past several years have
contributed to heightened global competition in virtually all industries. This
global competition has provided the impetus for companies to reengineer
business processes, information systems and individual workers' job functions
to improve productivity and responsiveness to market trends. For example, a
growing number of large companies have begun to implement enterprise-wide
software systems such as SAP, a state-of-the-art software system designed to
integrate all of the critical functions of a company's global operations.
These systems involve the redesign of business processes as well as job
functions in long-term implementation processes typically costing millions of
dollars. High-quality training and performance support for workers are
critical to the success of business reengineering and to the effective ongoing
use of enterprise-wide systems.
Increased global competition has also provided the impetus for many
companies to maximize the efficiency of their operations and redesign their
manufacturing functions. When properly implemented, lean manufacturing, a
system developed by the Japanese, has been demonstrated to provide substantial
improvements in cost, quality and productivity compared to traditional mass
production methods. These improvements are achieved through a system of
changes affecting all aspects of production, including inventory controls,
production line operations, equipment configuration and preventive maintenance
and training. Increasingly, large manufacturing enterprises are seeking
specialized expertise to assist them in obtaining the efficiencies available
through the effective implementation of lean manufacturing.
23
<PAGE>
RWD OPERATING STRATEGY
To address these business opportunities, RWD has developed the following
operating strategies:
. Focus on Enhancing End-User Performance. Since its inception, RWD has
focused its efforts on enhancing the performance of end users employing
advanced technologies in complex operating environments. This focus is
based on the Company's belief that end-user performance is the single
most important factor enabling a business enterprise to achieve product
or service quality and profitability. By concentrating its efforts on
the end user, RWD strives to provide services that produce tangible
improvements in its clients' productivity and a high return on their
advanced technology investments.
. Provide Broad Range of Services. The Company's current service offerings
include conventional performance support, information technology
solutions, enterprise-wide software implementation support and lean
manufacturing consulting. The Company intends to adapt and expand its
service offerings in response to emerging needs in the marketplace and
through the application of evolving technologies.
. Build Long-Term Relationships with Large Companies. The Company targets
Fortune 200 companies because these organizations have diverse and
recurring performance support needs and the competitive incentives and
financial resources to justify utilizing RWD's services. RWD believes
there is an economic incentive for these companies to enter into
partnership relationships with RWD covering a wide range of services
which are not part of their core competencies. The Company's ability to
achieve a high degree of understanding of a client's operations and work
force needs enables RWD to provide valuable, as-needed services to the
client on a recurring basis.
. Maintain and Improve Standardized Work Processes. The development and
utilization of structured and standardized work processes have been
integral to the Company's success to date. The Company's internally
developed methods for project management and its standardized tools for
developing performance-based training programs and customized software
and documentation are integral to the Company's ability to deliver
consistent, high-quality solutions and successfully manage its growth.
. Provide Supportive Organizational Structure and Reward System. A
critical element of the Company's success has been its ability to
attract, develop and retain a highly skilled and motivated professional
staff. Extensive technical and management training together with a
project management certification program enable RWD professionals to
expand their skills and attain increasing levels of responsibility. The
Company believes providing employees with a challenging and fulfilling
work environment, a competitive compensation structure and broad-based
equity ownership will continue to maximize their commitment to the
Company's growth and profitability.
RWD GROWTH STRATEGY
The Company's growth strategy is designed to improve its position as a
comprehensive provider of performance support services and information
technology solutions by:
. Increasing Sales to Existing Client Base. The Company believes
significant opportunities exist to provide Company services to
additional divisions within its existing clients and to market other RWD
services to client divisions already served. As the scope of the
Company's services has become more comprehensive, average revenue per
client has increased from $398,000 in 1994 to $783,000 in 1996, and the
number of clients generating individually more than $1.0 million of
revenue grew from seven in 1994 to 19 in 1996. The Company believes
that, by consistently providing high-quality, value-added services, its
revenue from its existing client base will continue to increase.
. Providing Current Service Offerings to New Clients and Industries. RWD
targets industries that employ advanced and rapidly changing
technologies and complex, capital-intensive processes. The Company often
leverages expertise gained in one industry to expand its client base
within that industry and to target clients in other industries.
Currently, the Company is seeking to expand its presence, or establish
new client relationships, with companies in the consumer products,
pharmaceutical, healthcare, semiconductor and airline industries.
24
<PAGE>
. Broadening Range of Services. RWD intends to continue to broaden its
service offerings to meet client demands, thereby further establishing
itself as a leading provider of a comprehensive range of performance
support services. The Company is committed to monitoring emerging
technologies and incorporating appropriate advances into RWD's service
offerings. The Company's New Products and Services Committee manages and
allocates funds for the Company's internal research and development
efforts as well as cultivates relationships with various universities
and their faculties to facilitate expansion of RWD's service offerings.
. Expanding Geographic Presence. The Company currently serves clients
located across the United States and has provided services to European,
Asian and South American operations of several U.S.-based clients. The
Company has expanded the number of its offices from three in 1992 to 10
as of the date of this Prospectus. The Company intends to continue its
"pull" expansion strategy, opening U.S. offices in locations where there
exist significant ongoing client needs. The Company will apply this same
strategy to the pursuit of international engagements with multi-national
clients, establishing overseas offices based upon client requirements.
RWD expects to open its first overseas office in London in 1997.
. Maintaining Emphasis on Recruiting and Employee Development. The ability
to attract, develop and retain a highly skilled professional staff is
critical to the growth and future success of RWD. The Company intends to
continue to expand and refine its recruiting process to attract the best
available work force. RWD has developed a series of rigorous training
programs, in which its professional staff is encouraged to participate.
These programs are designed to teach technical, management and business
skills to both entry level and experienced personnel.
. Exploring Complementary Acquisitions. The Company will evaluate the
acquisition of complementary businesses that could act as a source of well-
trained, high-quality professionals, new service offerings, additional
industry expertise, a broader client base or an expanded geographic
presence.
RWD'S SERVICES
The Company's core services are as follows:
Conventional Performance Support. RWD is a leading provider of conventional
end-user performance support services. These services include designing and
presenting classroom and plant-floor training; developing and managing hard
copy training materials, technical procedures and documentation; designing and
developing customized job aids; and acting as plant-floor consultants to ensure
proper integration of equipment and systems and reduction of plant down-time.
The Company believes it is essential that the delivery systems used to impart
knowledge to workers be cost effective and readily accepted by workers.
Personnel who operate and maintain high technology equipment often have little
experience using computers or other advanced technologies. For these workers,
conventional training is generally preferable to computer-based training, and
hard copy documentation is preferable to on-line documentation. RWD uses a
performance-based approach to training which focuses on streamlining training
content to include only the information required to perform each task
effectively. The Company's training materials make extensive use of graphical
representations of information. The Company believes these "mental models" are
particularly effective in facilitating quick and accurate comprehension and
decreasing training delivery costs.
RWD's documentation services are integral and complementary to its
performance-based training approach. These services include data collection and
the creation, management and distribution of engineering, operating and
technical information. Documentation services also include upgrading existing
documentation and capturing "best operating" practices, which are then
presented concisely in steps that are accurate, user-focused, easy to follow
and error resistant. RWD documentation services make extensive use of graphics
to illustrate how equipment operates and create technical descriptions that
help personnel develop strong cognitive models of the equipment they operate.
RWD's conventional performance support services are delivered primarily to
manufacturing and process industries. A significant portion of these services
is provided to the automotive industry in connection with the
25
<PAGE>
launch of new and redesigned vehicles. In addition, the Company provides
training courses for engineers, operators and maintenance and laboratory
personnel that support new technologies in the petroleum, chemical, consumer
products and other industries. Conventional performance support services are
also provided to assist clients in complying with regulatory requirements such
as OSHA safety regulations in the petroleum and chemical industries and in
obtaining ISO quality certification. RWD has earned a number of distinguished
service awards, including Chrysler's Gold Pentastar award which it received in
the two most recent years awarded, 1994 and 1995. This award is given annually
to fewer than 2% of Chrysler's 2,200 non-production service providers. The
Company believes its expertise in conventional performance support services
provides a foundation for all its other services and serves as an effective
first step in assisting clients in their migration to more advanced
performance support technologies. Conventional performance support services
generated $26.3 million, or 55.8%, and $26.7 million, or 41.0%, of total
revenue in 1995 and 1996, respectively.
The following are examples of the Company's conventional performance support
projects:
. Since 1990, RWD has been a technical training partner with a large U.S.
automobile manufacturer. RWD has provided training to plant-floor
workers in locations worldwide to increase worker competency in
connection with the launch of new and redesigned vehicles. RWD's
customized performance-based training programs have resulted in
significantly reduced classroom time and training costs. RWD instructors
also function as plant-floor consultants, engaging in systems
integration and preparing workers to trouble-shoot malfunctioning
equipment.
. A major oil company engaged RWD to assist it in increasing refinery run
times and reducing the frequency and duration of unit shutdowns. To
accomplish this goal, the Company developed user-friendly, task-oriented
operating manuals, procedures and performance-based training courses.
RWD also helped the client develop a laboratory calibration and
maintenance program.
Information Technology. The Company's information technology services
include the design and implementation of customized Enhanced User Interface
("EUI") systems, Electronic Performance Support Systems ("EPSS") and
Electronic Document Management Systems ("EDMS"), all of which give the end
user easy access to information critical to operating advanced technology
effectively. These information technology solutions and services include
client/server applications development, implementation and support;
Internet/Intranet technology solutions; software development; and systems
integration. The Company's information technology services incorporate
multimedia, detailed graphics and animation to generate intelligent learning
tools and systems to support human performance. RWD provides information
technology services to clients in a number of industries such as automotive,
public utilities, cable television, telecommunications, pharmaceutical, hotel
and financial services. RWD has designed and implemented EUI-based
client/server systems for remote workers in the office furniture,
pharmaceutical, publishing and agricultural machinery industries. RWD is also
working with a number of document management software manufacturers to provide
comprehensive enterprise-wide EDMS solutions. In addition, RWD is involved in
several projects which rely on Internet technology as a platform for
communication and information transfer in a variety of industries. These
projects include developing Intranets, designing remote diagnostic information
systems and related projects. Information technology services generated $9.4
million, or 19.9%, and $17.2 million, or 26.5%, of total revenue in 1995 and
1996, respectively.
The following are examples of the Company's information technology projects:
. An international hotel chain using a text-based, computer reservation
system engaged the Company to design an EUI system to enable the
client's reservations center operators to handle incoming calls more
quickly and to market the chain's services more effectively. RWD
designed an EUI system that was integrated with the client's existing
reservation system, resulting in an intuitive graphical interface. This
replaced the existing system which required the operator to utilize up
to 12,000 different codes. The Company's EUI system significantly
shortened operator training time, time to competency and call handling
time, thereby resulting in increased caller satisfaction and improved
overall sales effectiveness. The chain's 1,800 reservation agents now
use the Company's EUI system to annually log approximately 22 million
calls worldwide.
26
<PAGE>
. A major pulp and paper manufacturer faced with the challenge of
transferring expert-level knowledge from its most experienced operators
to its newer workers selected RWD to design and implement a stand-alone
EPSS. This EPSS is designed to reduce plant down-time and improve
product quality by providing job-related practical knowledge and
structured training information to all operators on the plant floor,
whenever needed. This "just-in-time" information system includes
operating procedures, equipment and process chemistry information,
problem-solving guidance and training. The system uses text, photos,
graphics, animation and video to explain concepts and provide
information.
. A consortium of major oil companies and a foreign government needed to
manage more than 150,000 technical documents to construct and safely
operate a large offshore oil platform. RWD designed an extensive EDMS
that incorporated intuitive navigational strategies so end users could
readily access the required documents. End users accustomed to eight to
ten minute document retrieval times now experience an on-screen document
delivery rate of four seconds, with printouts available in less than one
minute.
Enterprise-Wide Software Implementation Support. Capitalizing on its end-
user focus and performance support expertise, RWD has developed a rapidly
growing service area supporting the implementation of enterprise-wide software
applications. The Company uses its standardized performance-based training
approach to support multi-year, high cost enterprise-wide software
implementation efforts of Fortune 200 companies. This approach is designed to
ensure that system end users have the knowledge and tools necessary to operate
effectively during enterprise-wide software implementations. As with its other
support services, the Company's software implementation support tools include
on-line help systems that provide end users with immediate access to
information specific to their identified tasks.
RWD has entered into a strategic alliance with Price Waterhouse, an
international consulting firm and leading provider of enterprise-wide software
implementation services. Under this arrangement, the Company provides
performance support services in joint software implementation engagements with
Price Waterhouse. The Company believes this arrangement represents a
substantial opportunity to expand its client base in this service area.
Through this relationship, Price Waterhouse and the Company have worked
together to assist two pharmaceutical companies, three high-technology
companies and one consumer products company in their enterprise-wide software
implementation efforts. The Company began 1996 with five significant
enterprise-wide software implementation training and documentation clients and
ended the year with 13 such clients. Enterprise-wide software implementation
support services generated $7.6 million, or 16.2%, and $13.4 million, or
20.7%, of total revenue in 1995 and 1996, respectively.
The following is an example of the Company's enterprise-wide software
implementation training and documentation projects:
. An international chemical company engaged RWD to provide performance
support to the client's employees during its multi-year, global
implementation of SAP enterprise-wide software. RWD prepared and
presented classroom and on-the-job materials and training. Each training
course contained an appropriate level of concepts, a series of job aids
and scenario-based, hands-on exercises that made the SAP software easier
for the employees to understand and use. RWD also designed on-line
support tools that provide users with immediate access to information
specific to their tasks. Deploying RWD training and support materials
has resulted in reduced time spent in training and has improved time to
competency of the client's end users.
Lean Manufacturing Consulting. RWD is a leading provider of lean
manufacturing expertise to U.S. industry. The Company's lean manufacturing
consulting services include developing and deploying entire production systems
as well as designing and presenting specialized lean manufacturing training
workshops to illustrate and teach the benefits of lean manufacturing. The
objective of lean manufacturing is to achieve world-class quality and cost
performance based on continuous improvement and the elimination of waste. The
major components for lean manufacturing, a system developed and refined by the
Japanese, include high machine reliability, level production, just-in-time
material control, "stop-the-line" operating procedures and the human systems
that support this manufacturing philosophy. This system utilizes specific,
simple-to-understand tools,
27
<PAGE>
including mistake-proofing, standardized work procedures and housekeeping
techniques. RWD provides lean manufacturing implementation guidance through a
team of experts who have substantial experience using and deploying this
systems approach to manufacturing. Lean manufacturing consulting services
generated $3.8 million, or 8.1%, and $7.7 million, or 11.8%, of total revenue
in 1995 and 1996, respectively.
The following is an example of the Company's lean manufacturing consulting
projects:
. In planning to manufacture a new engine at its plant in Europe, a large
automobile manufacturer projected initial personnel requirements based
on a traditional mass manufacturing approach. The manufacturer then
asked RWD to work with the manufacturer's managers to assess the changes
in processes that could be made by applying lean manufacturing
principles. The critical issues facing the RWD team were reengineering
the material supply system and eliminating excess labor time within the
production process. RWD placed a team of experienced lean manufacturing
personnel on site to perform the necessary assessments and then to
implement the recommended lean manufacturing approaches on the engine
production line. This initial five month effort resulted in annual
savings to the client of approximately five times the cost of RWD's
services. Based on this early success and other services provided by
RWD, the client has asked RWD to help implement lean manufacturing
concepts in all of its European operations.
INDUSTRIES AND CLIENTS SERVED
The Company has provided services to clients in the following 23 industries:
INDUSTRIES
Agricultural Machinery Entertainment Petroleum
Automotive Manufacturing Financial Services Pharmaceutical
Automotive Components Healthcare Publishing
Chemical Hotel Pulp and Paper
Communications Equipment Insurance Restaurant
Computer Systems Metal Fabrication Software Applications
Consumer Products Office Furniture Telecommunications
Electric Utilities Package Delivery
The following is a list of representative clients served by the Company
during 1996:
CLIENTS
Anheuser-Busch Companies, Inc.
First Data Corporation Kraft Foods, Inc.
Apple Computer, Inc. Ford Motor Company Lyondell Petrochemical
Applebee's International, Inc. Company
Frito-Lay, Inc.
Blandin Paper Company Gannett Media Merck & Co., Inc.
Boston Edison Company Technologies Merrill Lynch, Pierce,
International Fenner & Smith
Bristol-Myers Squibb Company Incorporated
General Motors Corporation
Chevron U.S.A. Products Company
Chrysler Corporation Georgia-Pacific CorporationMobil Oil Corporation
CIGNA Company Hibernia Management and Price Waterhouse, LLP
Development Company The Procter & Gamble
Ltd. Company
Continental Cablevision, Inc.
Deere & Company
The Detroit Edison CompanyHitachi America Ltd Rhone Poulenc-Rorer
The Dow Chemical Company Hoechst Marion Roussel, Southern Natural Gas
Inc. Steelcase, Inc.
Houston Lighting & Power UAW Ford
Company Visa Interactive, Inc.
28
<PAGE>
Chrysler, the Company's largest client, generated 33.2%, 33.9% and 28.5% of
total revenue in 1994, 1995 and 1996, respectively. No other client generated
more than 10% of total revenue in any of these periods. The Company's top five
clients in 1994, 1995 and 1996 generated an aggregate of 62.1%, 57.8% and
51.4% of total revenue, respectively. Automotive industry clients generated
46.9%, 43.5% and 40.6% of total revenue in 1994, 1995 and 1996, respectively.
COMPANY ORGANIZATION AND METHODOLOGIES
Adaptable Organizational Structure. The Company's organizational structure
provides its employees with clearly defined roles and accountability across
all levels of the organization. This well-defined structure is formally
evaluated on a semi-annual basis and modified as necessary to adapt to
changing client demands, introduction of new services and expansion and
diversification of the Company's client base. The Company has a divisional
structure, with each division organized into five tiers: Team Members, Team
Leaders, Managers, Directors and a Vice President. Specifically defined
responsibilities, communicated through formal training programs and review
processes, exist at each level. Each Team Leader, Manager, Director and Vice
President generally has no more than five individuals reporting directly to
him or her. All professionals in each division are involved directly in client
engagements. The Company believes its flexible, adaptable organizational
structure and formal periodic evaluations of this structure are important
elements in successfully managing the rapid growth of its business and its
ability to adapt to changing market demands while maintaining profitability
and high-quality services.
Project Management. RWD's project management process is critical to the
Company's ability to satisfy its clients. The Company's project management
process is utilized throughout all phases of an engagement and includes
controls and review processes designed to ensure each project is delivered in
a high-quality, cost-effective and timely manner. The project manager has
primary responsibility for the success of the engagement, including managing
project costs and staff schedules, service quality and the client
relationship. The project manager is supported in these efforts by the project
director, a designated senior individual with extensive project management
experience. The project management process includes processes for identifying
and assessing project risks as well as mechanisms designed to facilitate the
project manager's communication of project difficulties to the project
director and senior management before difficulties escalate. In addition, the
process places significant emphasis on client feedback through regular client
"alignment meetings." These client review meetings are utilized to ensure
continuous agreement on project goals and expectations, leading ultimately to
client satisfaction with the results. Once an engagement is completed, the
Company assesses the extent to which the project team met client expectations,
evaluates the effectiveness of RWD's project management process and uses this
analysis to support the Company's continuous improvement process. Project
managers are certified only after completing a rigorous one year training
process that includes classroom and on-the-job training and an oral
examination before senior management. All RWD engagements are managed by a
certified project manager (or by an in-training project manager working under
the supervision of a certified project manager) and a project director. In
addition, all levels of management maintain technical proficiency to enable
them to direct projects.
Technical and Management Skills and Training. The Company's employees have
diverse educational and employment backgrounds, including engineering,
advanced manufacturing, computer systems analysis and design, technical
writing and editing and graphic arts. Many have advanced degrees in a wide
range of technical disciplines, including chemical, computer systems,
electrical, industrial, mechanical, nuclear and software engineering;
instructional system design; and organizational development. This breadth of
expertise enables the Company's professionals to interact with and understand
the performance challenges encountered by client personnel across a broad
range of industries. The Company employed 648 persons, including a
professional staff of 563 persons, as of December 31, 1996.
The Company's use of internally-developed, standardized tools and
methodologies and its strict adherence to a structured project management
process enable the Company to deliver consistent, high-quality services while
rapidly increasing the size of its work force. The Company places significant
emphasis on training its employees to understand and utilize the Company's
service methodologies and management processes. The Company uses
29
<PAGE>
a combination of internally developed and externally provided courses to
provide this training. Employees are encouraged to become trained in the
Company's proprietary service methodologies. Employees also participate in
internal and external training in specific technologies such as enterprise-
wide software implementation, object oriented design, relational database
design, software configuration management, software programming languages
(e.g., Visual C++, SmallTalk, Visual Basic, MacApp, Java and JavaScript) and
document management software. In addition, employees are encouraged and
provided with financial support to enroll in advanced training and degree
programs to increase their technical and management capabilities.
Recruiting and Employee Retention. RWD places significant emphasis on
attracting, developing and retaining a highly skilled and motivated work
force. The Company recruits personnel through a variety of methods, including
on- campus recruiting, postings at conferences and advertising in newspapers
and technical publications. The Company actively recruits entry-level
personnel at selected college campuses and maintains a web site which includes
information targeted to college recruits. The Company has a policy of
promoting from within whenever appropriate and also actively recruits
employees with in-depth expertise in technical areas in which the Company
currently provides services or expects to provide services in the future. From
time to time, the Company utilizes technical recruiters to fill specific
staffing needs. The Company engages a limited number of technical personnel on
a consulting basis when appropriate to support particular client needs.
The Company's culture, its emphasis on training and the design of its
compensation structure have been coordinated to attract, develop and retain
qualified and motivated professionals. The Company's culture is captured and
communicated through its Mission, Values and Guiding Principles. Senior
management expends significant effort in communicating these principles to new
employees and to incorporating these values into the day-to-day operation of
the Company. The Company believes this effort has played a significant role in
maintaining its culture and guiding the actions of its employees. The Company
also strives to provide a challenging work environment and competitive
employee reward system. Additionally, the Company is committed to significant
and broad-based employee stock ownership, believing this maximizes employees'
dedication to the Company's growth and profitability. In addition to the co-
founders' 56.8% post-offering, fully-diluted equity of the Company, 452
persons, or approximately 70% of the Company's employees as of December 31,
1996, held options to purchase, in aggregate, 18.1% of the post-offering,
fully-diluted equity of the Company.
The Company's turnover rates in 1995 and 1996 were approximately 16.5% and
13.8%, respectively. The Company considers its culture, morale and employee
motivation to be excellent and a key component of its success to date.
Sales and Marketing. All RWD business is developed by senior management and
the technical personnel who manage client relationships and develop solutions
for clients rather than through a dedicated sales force. RWD professionals who
have worked closely with clients to solve complex technical problems are best
able to understand and communicate the Company's skills and services to
existing and prospective clients. This approach also contributes to the
Company's ability to establish and maintain long-term client relationships. In
addition to supporting existing client relationships, RWD's senior management
markets the Company's services at industry trade shows and delivers
presentations and papers at conferences. As a result, potential clients in new
and currently served industries have an opportunity to learn more about
Company services. The Company actively seeks to leverage existing client and
strategic relationships to increase its exposure within and across industries
and ultimately expand its client base. The Company also distributes a
quarterly newsletter which highlights results of RWD projects to approximately
10,000 personnel of existing and potential clients. Finally, RWD works closely
with software vendors to generate engagements in which their software products
are incorporated into RWD solutions.
COMPETITION
The Company's service areas are highly competitive and subject to both low
barriers to entry and rapid change. The Company faces competition for client
assignments from a number of companies having significantly greater financial,
technical and marketing resources and greater name recognition than the
Company. Principal
30
<PAGE>
competitors for the Company's services include consulting practices of the six
largest national accounting firms as well as professional services groups of
many large technology and management consulting companies. The Company also
competes with smaller regional or local service providers whose specific, more
narrowly focused service offerings may be more attractive to potential clients
of the Company. In addition, clients may elect to use internal resources to
satisfy their needs for the services the Company provides. The Company
believes that the principal competitive factors in its industry are quality of
service, breadth of service offerings, reputation of the service provider and
price. The Company believes it competes effectively with respect to each of
these factors.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights. The Company generally enters into confidentiality
agreements with its employees and clients, thereby seeking to limit
distribution of proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able
to detect unauthorized use of and take appropriate steps to enforce its
intellectual property rights.
Software developed and other materials prepared by RWD in connection with
client engagements are usually assigned to the clients. The Company retains
the right to its general know-how and general applications such as software
diagnostic and development tools.
The RWD Technologies, Inc. logo and the phrase, "We bring people and
technology together,"(R) are registered service marks of the Company. Certain
of the Company's methodologies are service marks of the Company. The Company
holds no patents. The Company may file additional copyright applications for
certain software it develops in the future.
FACILITIES
RWD leases approximately 85,000 square feet of space for its executive
offices at 10480 Little Patuxent Parkway, Columbia, Maryland. This lease
expires on December 31, 2003. The Company also leases nine additional offices
covering an aggregate of approximately 51,400 square feet in Atlanta, Georgia;
Auburn Hills, Michigan; Cincinnati, Ohio; Dearborn, Michigan; Houston, Texas;
Huntsville, Alabama; Lexington, Kentucky; Princeton, New Jersey and
Sacramento, California. Each of these offices is located near one or more
significant clients of the Company, and none of these leases expires prior to
December 31, 1997. Aggregate annual rent for the Company's corporate
headquarters and satellite offices is approximately $2.4 million. The
Company's strategy is to locate offices in areas where it has significant
client work. From time to time, the Company uses office space provided at
client sites to facilitate performance of its services and maximize client
contact. The Company expects to open an office in London in 1997. The Company
anticipates that additional office space will be required within the next 12
months and believes appropriate facilities can be leased at locations
convenient to its existing offices and headquarters.
RISK MANAGEMENT
The Company is subject to potential claims by dissatisfied clients that
Company services did not achieve the results expected by those clients or that
errors or omissions by the Company's employees contributed to disruptions in
the clients' operations. To mitigate this risk, RWD seeks to clearly
articulate, prior to commencement of each project, both the scope of services
to be provided and the solution to be achieved. The Company holds regular
progress meetings with each client while services are being provided so that
any problems can be discovered as early in the project as possible and then
corrected. This procedure is intended to allow RWD to regularly ascertain and
meet client expectations during all various phases of each project. In
addition, RWD's standard contract terms limit the Company's liability to the
amount of the fee payable to RWD under the contract. Despite these procedures,
it is possible that the Company may become subject to a claim from a
dissatisfied client although the Company has never been subject to litigation
by a client arising out of RWD's services.
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<PAGE>
The Company carries comprehensive liability and property damage insurance in
amounts it considers sufficient to cover these types of potential losses.
However, the Company is self-insured against any other claims by clients
related to services provided by RWD.
From time to time, the Company is a party to routine litigation in the
ordinary course of business. However, the Company is not currently a party to
any material litigation.
MANAGEMENT
The following table sets forth information regarding the executive officers,
directors and other significant employees of the Company:
<TABLE>
<CAPTION>
AGE POSITION
EXECUTIVE OFFICERS AND DIRECTORS (1): --- --------
<S> <C> <C>
Dr. Robert W. Deutsch... Chairman of the Board of Directors, Chief Executive
73 Officer
John H. Beakes.......... 54 President, Chief Operating Officer, Director
John E. Lapolla......... Group Vice President--Manufacturing Performance Support,
43 Director
Kenneth J. Rebeck....... 45 Group Vice President--Technology Transfer, Director
Jeffrey W. Wendel....... 42 Group Vice President--Information Technology, Director
Ronald E. Holtz......... 39 Vice President, Chief Financial Officer, Director
Dr. David J. Deutsch.... 43 Director
Jerry P. Malec.......... 54 Director-nominee
<CAPTION>
KEY EMPLOYEES:
<S> <C> <C>
Daniel A. Cantwell...... Vice President--Chrysler Training and Performance Support
44 Division
Robert B. Gosline, Jr... 54 Vice President--Chief Information Officer
Wade A. Martin.......... 38 Vice President--Performance Technology Services Division
Vincent Marucci, Jr. ... 39 Vice President--Information Technology Division
R. Butler Newman........ 40 Vice President--Business Development
Deborah T. Ung.......... 34 Vice President--Enterprise-Wide Reengineering Support
Dr. Steven M. Miller.... 41 Chief Technical Officer
James V. Thomas......... 53 Director of Lean Manufacturing
</TABLE>
- --------
(1) The Company is actively engaged in the search for one additional director
who is not affiliated with the Company or any of its directors or
officers. This individual and Mr. Malec will be elected to fill the
vacancies on the Company's Board of Directors and the Audit and
Compensation Committees of the Board within 90 days after this offering.
EXECUTIVE OFFICERS AND DIRECTORS
Dr. Robert W. Deutsch co-founded the Company in January 1988 and has been
Chairman of the Board and Chief Executive Officer since that time. Dr. Deutsch
founded General Physics Corporation in 1966 and was its Chairman, President
and Chief Executive Officer until 1987. From 1963 to 1971, Dr. Deutsch was
Chairman and Professor of Nuclear Science and Engineering at The Catholic
University of America. Dr. Deutsch has a B.S. in Physics from the
Massachusetts Institute of Technology, a Ph.D. in Physics from the University
of California, is a member of the National Academy of Engineering and is a
registered Professional Engineer.
John H. Beakes co-founded the Company with Dr. Deutsch and has been Chief
Operating Officer and a director since January 1988 and President since July
1995. From 1974 to 1988, Mr. Beakes was employed by General Physics, most
recently as Executive Vice President and Chief Operating Officer. Prior to
1974, Mr. Beakes served in the Nuclear Submarine Service of the United States
Navy, most recently as Chief Engineer of the USS George Bancroft. Mr. Beakes
received his B.S. from the U.S. Naval Academy, his M.S. in Environmental
Engineering from The Johns Hopkins University and is a registered Professional
Engineer.
John E. Lapolla joined the Company in 1988, has been Group Vice President of
Manufacturing Performance Support since 1995 and has been a director since
1992. From 1970 until 1988, Mr. Lapolla was employed by General Motors
Corporation, most recently as Divisional New Technology Training Coordinator
responsible for technical training for 35 manufacturing plants. Mr. Lapolla
received his B.S. in Industrial Engineering from the General Motors Institute
and is a Senior Member of the Society of Manufacturing Engineers.
32
<PAGE>
Kenneth J. Rebeck joined the Company in 1988, has been Group Vice President
of Technology Transfer since 1995 and has been a director since 1992.
Previously, he served as the Company's Chief Engineer. From 1978 until 1988,
Mr. Rebeck was employed by General Physics Corporation in a variety of
professional and management capacities, including Project Director for a major
NASA Pressure Vessel Recertification Program and Chief Engineer and Director,
High Technology Activities. Mr. Rebeck received his B.S. in Nuclear
Engineering from the State University of New York at Buffalo, his M.S. in
Nuclear Science and Engineering from Carnegie-Mellon University and is a
registered Professional Engineer.
Jeffrey W. Wendel joined the Company in 1994 and serves as Group Vice
President of the Information Technology Division and a director of the
Company. Prior to joining the Company, Mr. Wendel was the Director of Process
Simulation for S3 Technologies, Inc., where he managed software projects for
the petrochemical, natural gas and nuclear power industries from 1990 to 1994.
From 1989 to 1990, Mr. Wendel was Director of Simulation Technology for that
company. Mr. Wendel received his B.S. in Systems Engineering from the U.S.
Naval Academy and his M.B.A. in management from Loyola College.
Ronald E. Holtz joined the Company in January 1996 and serves as Vice
President, Chief Financial Officer and a director. Prior to joining the
Company, Mr. Holtz was a Manager in Ernst & Young LLP's Financial Advisory
Services group from 1992 to 1995. From 1990 to 1992, Mr. Holtz was employed by
the Michael D. Dingman Center For Enterpreneurship at the University of
Maryland in a variety of project management capacities. Prior to 1990, Mr.
Holtz was a Construction Manager for The Artery Organization Inc., a
commercial real estate development company. Mr. Holtz received his B.A. in
Mathematics from the University of Wisconsin and his M.B.A. in Finance from
the University of Maryland. Mr. Holtz is a certified public accountant.
Dr. David J. Deutsch has been a director since July 1993. He is a Lecturer
in Mathematics at Boston University's Department of Mathematics, and prior
thereto he was a Senior Research Consultant at Boston University's Information
Technology Department where he was engaged in scientific software design and
algorithm development on parallel architecture machines. He received his B.S.
in Mathematics from the University of Maryland and his M.S. and Ph.D in
Applied Mathematics from Boston University.
Jerry P. Malec is a director nominee and will be elected to the Board of
Directors following completion of the offering. Since 1994, Mr. Malec has been
President and Chief Executive Officer of Checkmate Electronics, Inc., a
developer and manufacturer of check and credit card fraud prevention and
verification systems. Mr. Malec received his B.S. degree in Economics from
Wayne State University. Mr. Malec previously held executive positions at Apple
Computers, MICOM Systems and IBM.
KEY EMPLOYEES
Daniel A. Cantwell joined the Company in 1991 and serves as Vice President
of the Chrysler Training and Performance Support Division. Prior to joining
the Company, Mr. Cantwell was employed by Chrysler from 1984 to 1991 as a
Senior Technical Training Specialist. Mr. Cantwell received his B.A.S. in
Robotics and Flexible Automation from Sienna Heights College.
Robert B. Gosline, Jr. joined the Company in 1988 and serves as Vice
President and Chief Information Officer, where he directs activities in
strategic information system planning and implementation. Prior to joining the
Company, Mr. Gosline was employed by General Physics from 1975 to 1988, and
prior thereto served as a nuclear submarine officer in the U.S. Navy. Mr.
Gosline received his B.S. from the U.S. Naval Academy and his M.S. in Computer
Science from The Johns Hopkins University.
Wade A. Martin joined the Company in 1990 and serves as Vice President of
the Performance Technology Services Division. Prior to joining the Company,
Mr. Martin was employed by General Physics from 1983 to 1990 as Supervisor of
Maintenance Engineering. From 1977 to 1983, Mr. Martin served on the USS
Eisenhower. Mr. Martin received his A.S., with a concentration in Engineering
Technology, from the University of the State of New York and is a graduate of
the U.S. Navy Nuclear Power Program.
33
<PAGE>
Vincent Marucci, Jr. joined the Company in 1992 and serves as Vice President
of the Information Technology Division. Prior to joining the Company, Mr.
Marucci served as an active duty U.S. Army officer. His assignments included
information systems design and development for one of the Army's Artificial
Intelligence Centers and as an instructor in Mathematics and Computer Science
at the U.S. Military Academy. Mr. Marucci received an M.S. in Computer Science
and an M.S. in Operations Research from Stanford University and his B.S. from
the U.S. Military Academy.
R. Butler Newman joined the Company in 1988 and serves as Vice President of
Business Development. Prior to joining the Company, Mr. Newman was employed by
General Physics from 1986 to 1988. Mr. Newman received his B.S. from the U.S.
Naval Academy.
Deborah T. Ung joined the Company in 1989 and serves as Vice President of
the Enterprise-Wide Reengineering Support Division. Prior to joining the
Company, Ms. Ung was employed by General Physics in a variety of project
management capacities from 1985 to 1988. Ms. Ung received her B.S. in
Environmental Health from Purdue University.
Dr. Steven M. Miller joined the Company in 1995 and serves as Chief
Technical Officer. Prior to joining the Company, Dr. Miller was employed by
Fujitsu Limited from 1989 to 1995, most recently as Director of Manufacturing
Engineering in Richardson, Texas at Fujitsu's main telecommunications business
unit from 1992 to 1995. Dr. Miller received his B.S. in Systems Science and
Engineering from the University of Pennsylvania and his M.S. in Statistics and
Ph.D in Engineering and Public Policy from the Carnegie-Mellon University.
James V. Thomas joined the Company in January 1996 and serves as the
Director of Lean Manufacturing. Prior to joining the Company, Mr. Thomas was
plant manager or operations manager for Kuhlman Electric Corp., Dannelly Corp.
and Danaher Tool Group where he was responsible for converting certain of
their operations from conventional mass production to lean manufacturing. Mr.
Thomas studied extensively with developers of the Toyota Production System,
the basis of lean manufacturing.
Each director holds office until his successor is duly elected and
qualified, or until his earlier death, resignation or removal. Pursuant to the
Company's Charter and By-Laws, the Board of Directors is classified into three
classes. Dr. Robert W. Deutsch and Messrs. Holtz and Rebeck serve in the class
whose term expires in 1998; Messrs. Beakes and Lapolla serve in the class
whose term expires in 1999; and Dr. David J. Deutsch and Mr. Wendel serve in
the class, the term of which expires in 2000. Upon expiration of the initial
term of each class of directors, directors comprising such class will be
elected to a three-year term at the next succeeding Annual Meeting of
Stockholders. Upon election, Mr. Malec and the other independent director will
serve in the classes whose terms expire in 2000 and 1999, respectively.
Dr. David J. Deutsch is Dr. Robert W. Deutsch's son. There are no other
family relationships among any of the executive officers or directors of the
Company.
DIRECTOR COMPENSATION
Prior to this offering, directors received no compensation for their service
on the Board of Directors. Upon completion of this offering, directors who are
not employees of the Company will receive (i) an annual retainer to be paid at
the beginning of each year in shares of Common Stock having a fair market
value of $10,000 on the date of issuance; (ii) $1,000 in cash for each Board
of Directors and Board Committee meeting attended and (iii) cash reimbursement
for expenses incurred in connection with their service as directors.
Upon their first election to the Board of Directors, each director who is
not an employee of the Company will be granted an option to purchase 12,000
shares of Common Stock under the Company's Amended and Restated Equity
Participation Plan (the "Option Plan"). Options granted to outside directors
will vest ratably over a three year period beginning one year after the date
of grant and will have an exercise price equal to the fair market value of the
Common Stock on the date of grant. Each such non-employee director also will
be eligible to receive additional options at the end of each year of service
based on the financial performance of the Company and the contribution of the
individual director. See "--Employee Benefit Plans."
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<PAGE>
BOARD COMMITTEES
The Board of Directors has established an Audit Committee, a Compensation
Committee and a Technical and Business Review Committee. Effective upon their
election to the Board of Directors, Mr. Malec and the other independent
director will serve as the members of the Audit Committee and the Compensation
Committee. Dr. David J. Deutsch and Messrs. Lapolla, Rebeck and Wendel will
serve as the Technical and Business Review Committee. The Audit Committee's
principal functions will include making recommendations to the Board regarding
the annual selection of independent public accountants, reviewing the proposed
scope of each annual audit and reviewing the recommendations of the
independent public accountants as a result of their audit of the Company's
financial statements. The Compensation Committee's principal function will be
to establish the compensation of officers of the Company and to establish and
administer the Company's compensation programs, including the grant of options
under the Company's Equity Participation Plan. The Technical and Business
Review Committee's principal function will be to evaluate Company performance
in the areas of quality and profitability on major contracts. The Board of
Directors may from time to time establish other committees to facilitate the
management of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to this offering, the Company has had no separate Compensation
Committee or other committee performing equivalent functions. As a result,
compensation matters were performed by the Board of Directors or senior
management. None of the directors expected to serve on the Compensation
Committee is an employee of the Company, and neither the Chief Executive
Officer nor any other executive officer will serve on the Compensation
Committee. No director or executive officer of the Company is a director or
executive officer of any other corporation that has a director or executive
officer who is also a director of the Company.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth information with
respect to the annual and long-term compensation earned in 1996 by the Chief
Executive Officer and the four other executive officers whose annual salary
and bonus exceeded $100,000 in 1996 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
-------------------------- ----------
NUMBER OF
SHARES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER(1) OPTIONS (2)
- --------------------------- -------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Robert W. Deutsch....... $150,000 $250,000 $489,476 -- $17,031
Chief Executive Officer
John H. Beakes.............. 220,000 75,000 21,284 -- 23,402
President and Chief
Operating Officer
John E. Lapolla............. 150,000 30,000 -- 15,000 14,389
Group Vice President
Kenneth J. Rebeck........... 150,000 45,000 -- 15,000 15,143
Group Vice President
Jeffrey W. Wendel........... 100,000 30,000 -- 30,000 11,209
Group Vice President
</TABLE>
- --------
(1) Represents S Corporation distributions made to enable the recipients to
pay Federal income tax on the Company's earnings.
(2) Includes annual car allowances, premiums for life and medical insurance
and contributions by the Company to its 401(k) Plan on behalf of each of
the Named Executive Officers. The life insurance policies upon which the
Company pays the premiums are split-dollar policies.
35
<PAGE>
Employment Agreements. The Company has entered into Employment Agreements
with Dr. Robert W. Deutsch and each of Messrs. Beakes, Lapolla, Rebeck and
Wendel. Each of the Employment Agreements has an initial term of three years
and is automatically renewed thereafter for successive one year terms until
terminated by either the Company or the employee. The employment agreements
provide for initial annual salaries of $150,000, $220,000, $150,000, $150,000
and $150,000 for Dr. Deutsch and Messrs. Beakes, Lapolla, Rebeck and Wendel,
respectively, subject to annual adjustment at the discretion of the Board of
Directors, and provides for annual cash bonuses in amounts determined by the
Board of Directors. The Employment Agreements contain confidentiality
provisions and two year covenants-not-to-compete following termination or
expiration of employment (as defined in the Employment Agreements). In the
event of a "change in control" of the Company (as defined in the Employment
Agreements) followed by the termination of employment of the employee by the
Company or its successor or his termination for "good reason" (as defined in
the Employment Agreements), the affected employee would be entitled to three
times his aggregate average annual compensation for the last three complete
years prior to such change in control.
Option Grants. The following table sets forth information regarding options
to purchase shares of the Common Stock granted to the Named Executive Officers
during 1996.
OPTION GRANTS DURING 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
NUMBER OF
SECURITIES PERCENT OF POTENTIAL REALIZED VALUE AT
UNDERLYING TOTAL OPTIONS EXERCISE ASSUMED ANNUAL RATES OF
OPTIONS GRANTED TO PRICE PER EXPIRATION STOCK PRICE APPRECIATION FOR
NAME GRANTED EMPLOYEES SHARE(1) DATE OPTION TERM(2)
- ---- ---------- ------------- --------- ---------- -----------------------------
5% 10%
-------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Robert W. Deutsch... --
John H. Beakes.......... --
John E. Lapolla......... 15,000 1.4% $6.00 12/31/2007 $ 192,206 $ 380,764
Kenneth J. Rebeck....... 15,000 1.4 6.00 12/31/2007 192,206 380,764
Jeffrey W. Wendel....... 30,000 2.8 6.00 12/31/2007 384,412 761,529
</TABLE>
- --------
(1) The exercise price equaled the fair market value of the Common Stock as
determined by the Board of Directors on the date of grant. The exercise
price is payable in cash or by delivery of shares of Common Stock having a
fair value equal to the exercise price of options exercised.
(2) The assumed annual rates of appreciation of 5% and 10% would result in the
price of the Common Stock increasing to $18.81 and $31.38, respectively,
from an assumed initial public offering price of $11.00 per share during
the 11 year term of the options. The vesting of unvested options may be
accelerated at any time by the Company. The 5% and 10% assumed annual
rates of stock price appreciation used to calculate potential gains to
optionees are mandated by the rules of the U.S. Securities and Exchange
Commission. The potential realizable value does not represent the
Company's prediction of its stock price performance. There can be no
assurance that the stock price will actually appreciate over the 11 year
option term at the assumed 5% and 10% levels or at any other level.
36
<PAGE>
Option Exercises and Holdings. The following table sets forth information
concerning the number and exercise price of the options to purchase Common
Stock exercised by the Named Executive Officers during 1996 and the number and
value of unexercised options to purchase Common Stock held at the end of 1996
by the Named Executive Officers. Concurrently with this offering, Dr. Deutsch
intends to exercise options to purchase 5,370,000 shares of Common Stock, at
an aggregate exercise price of approximately $4.2 million, paid in cash, and
Mr. Beakes intends to exercise options to purchase 603,000 shares of Common
Stock on a cashless basis by surrender to the Company of 46,273 shares of
Common Stock, which shares will have a fair value of $509,000 (assuming an
initial public offering price for the Common Stock of $11.00 per share),
equaling the aggregate exercise price of the options so exercised.
OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
EXERCISABLE/ IN-THE-
SHARES UNEXERCISABLE MONEY
ACQUIRED VALUE OPTIONS AT OPTIONS AT
NAME UPON EXERCISE REALIZED(1) YEAR-END(2) YEAR-END(1)
- ---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Dr. Robert W. -- $ -- 5,370,000(E) $54,890,000(E)
Deutsch(3)............. -- (U) -- (U)
John H. Beakes(3)....... 9,000 93,000 664,800(E) 6,761,300(E)
76,200(U) 782,200(U)
John E. Lapolla......... -- -- 51,900(E) 535,300(E)
98,100(U) 919,700(U)
Kenneth J. Rebeck....... -- -- 52,800(E) 545,200(E)
97,200(U) 910,400(U)
Jeffrey W. Wendel....... -- -- -- (E) -- (E)
39,000(U) 240,000(U)
</TABLE>
- --------
(1) Value equals the assumed per share initial public offering price of $11.00
per share less the per share exercise price.
(2) (E) = Exercisable; (U) = Unexercisable.
(3) Assumes the Concurrent Exercises had not been exercised as of December 31,
1996.
EMPLOYEE BENEFIT PLANS
Amended and Restated 1988 Equity Participation Plan. The Company's Amended
and Restated Employee Equity Participation Plan (the "Plan") was originally
adopted as of January 1, 1989. Under the Plan, the Compensation Committee of
the Board of Directors is authorized to grant options to purchase shares of
Common Stock to any consultant, employee, officer or director of the Company
as compensation for services rendered or contributions made to the Company.
There are an aggregate of 4,065,000 shares reserved for issuance upon exercise
of options granted under the Plan. Employee options vest ratably over a five
year period, generally beginning on the second January 1 after the option is
granted. All options granted to date under the Plan are non-qualified options
(as described below) and expire on December 31st, ten years after the first
vesting date, unless terminated earlier as a result of termination of
employment or, in the case of outside directors, upon their removal for cause
or voluntary resignation from the Board of Directors. As of December 31, 1996,
options to purchase an aggregate of 3,204,000 shares of Common Stock under the
Plan, at a weighted average exercise price of $2.52 per share, were held by
453 employees of the Company. Of this amount, options to purchase 1,097,160
shares will be exercisable as of the date of this Prospectus and options to
purchase an additional 586,140 and 534,450 shares of Common Stock will become
exercisable on January 1, 1998 and January 1, 1999, respectively, assuming the
December 31, 1996 option holders remain employees of the Company. Plan options
to purchase 42,360 shares had been exercised on or before December 31, 1996,
at a weighted average exercise price of $0.68 per share.
37
<PAGE>
Under the Plan, the Compensation Committee has the authority to select the
persons to whom Plan options are granted and to determine the terms of each
Plan option, including (i) the number of shares of Common Stock subject to
such option; (ii) when the option becomes exercisable; (iii) whether the
option is intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code ("incentive stock options") or not ("non-qualified
options"); (iv) the option exercise price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a shareholder owning more than 10% of the Common Stock),
and in the case of non-qualified options, must be at least 85% of the fair
market value of the Common Stock as of the date of the grant; and (v) the
duration of the option, which, in the case of incentive stock options, may not
exceed ten years (five years in the case of incentive stock options granted to
a shareholder owning more than 10% of the Common Stock). The Company does not
intend to grant options under the Plan in the future having exercise prices at
less than fair market value of the shares underlying the options on the date
of grant.
401(k) Savings Plan. The Company maintains the RWD Savings and Investment
Plan, a defined contribution pension plan with a cash or deferred arrangement
as described in Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "401(k) Plan"). The 401(k) Plan is intended to qualify under
Section 401(a) of the Code, so that contributions, and income earned thereon,
are not taxable to employees until withdrawn. All regular full-time Company
employees over the age of 21 are eligible to participate in the 401(k) Plan.
The 401(k) Plan provides that each participant may make elective pre-tax
salary deferrals up to 15% of his or her annual compensation, subject to
statutory limits. The Company also may make discretionary annual matching
contributions in amounts determined by the Board of Directors, subject to
statutory limits. The Company's policy is to base its contributions on Company
profitability. The Trustee of the 401(k) Plan invests each employee's account
at the direction of the employee, who may choose among several investment
alternatives, which do not include shares of the Company's Common Stock. The
Company made aggregate contributions to the 401(k) Plan of $499,000, $1.1
million and $1.1 million on account of 1994, 1995 and 1996, respectively.
Employee Stock Purchase Plan. The Company has adopted an Employee Stock
Purchase Plan (the "Stock Purchase Plan"), subject to stockholder approval.
The Stock Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. All regular full-time employees of the
Company (including officers), and all other employees whose customary
employment is for more than 20 hours per week are eligible to participate in
the Stock Purchase Plan. Directors who are not employees are not eligible. A
maximum of 175,000 shares of the Company's Common Stock are reserved for
issuance under the Stock Purchase Plan and available for purchase thereunder,
subject to anti-dilution adjustments in the event of certain changes in the
capital structure of the Company.
Under the Stock Purchase Plan, offerings will be made at the beginning of
each offering period ("Offer Period") commencing no earlier than September 1,
1997. During each Offer Period, deductions are to be made from the pay of
participants (in accordance with their authorizations) and credited to their
accounts under the Stock Purchase Plan. The price per share at which shares of
Common Stock are to be purchased pursuant to the Stock Purchase Plan for any
Offer Period will be no less than 85% of the fair market value of the Common
Stock.
38
<PAGE>
CERTAIN TRANSACTIONS
At various times from 1988 to 1991, the Company borrowed an aggregate of
$3.6 million from Dr. Robert W. Deutsch, the Company's Chairman of the Board
and Chief Executive Officer, and $200,000 from Mr. Beakes, the Company's
President and Chief Operating Officer, in each case to provide the Company
with working capital (collectively, the "Stockholder Notes"). The Stockholder
Notes mature on March 31, 1998 and bear interest at 9% per annum. In the three
year period ended December 31, 1996, the Company made aggregate interest
payments to Dr. Deutsch and Mr. Beakes of approximately $1.0 million. The
Company intends to use approximately $3.8 million of the net proceeds from
this offering to retire the Stockholder Notes.
From its inception in January 1988 until March 31, 1997, the Company was
subject to taxation under Subchapter S of the Code. As a result, the net
income of the Company, for federal and certain state income tax purposes, was
reported by and taxable directly to the Company's stockholders during that
time rather than to the Company. Primarily to provide funds for tax
obligations payable by its stockholders on account of the Company's income in
1995 and 1996, the Company made $691,300 of cash distributions during 1996 to
its stockholders. In connection with its conversion from S Corporation to C
Corporation status, the Company will effect the S Corporation Distribution
(consisting of an aggregate of approximately $7.0 million in cash payments and
the issuance of approximately $7.0 million principal amount of S Corporation
Notes) to the Company's stockholders on March 27, 1997. The S Corporation
Distribution represents the stockholders' proportionate interest in Company
earnings which had not been distributed to the stockholders prior to the
conversion date. Dr. Robert W. Deutsch, Mr. John H. Beakes, Dr. David J.
Deutsch and Mrs. Jane W. Brown (Dr. Robert W. Deutsch's daughter) received
71.1%, 3.1%, 3.4% and 3.4%, respectively, of the 1996 cash distributions, and
will receive approximately the same percentage of the S Corporation
Distribution. The S Corporation Notes are non-interest bearing, demand notes
which the Company expects to retire during 1997.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of January 31, 1997 with
respect to the beneficial ownership of the Common Stock (including shares
issuable upon the exercise of outstanding options that are exercisable as of
that date or within 60 days thereafter) by (i) each person who owns
beneficially more than 5% of the Common Stock, (ii) each of the directors of
the Company, (iii) the Chief Executive Officer and each of the Named Executive
Officers, and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each named person exercises sole voting and investment
power.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------ ------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Robert W. Deutsch(2)..................... 9,270,000 85.9% 9,270,000 67.2%
John H. Beakes(3)........................ 785,327 7.2 785,327 5.7
David J. Deutsch(4)...................... 615,000 5.7 615,000 4.5
Jane C. Brown(4)......................... 615,000 5.7 615,000 4.5
John E. Lapolla(5)....................... 76,500 * 76,500 *
Kenneth J. Rebeck(5)..................... 76,800 * 76,800 *
Jeffrey W. Wendel(5)..................... 1,800 * 1,800 *
Ronald E. Holtz (5)...................... 600 * 600 *
All directors and officers as a group (6)
(7 persons)............................. 10,826,027 98.2 10,826,027 77.2
</TABLE>
- --------
* Less than 1%.
(1) The address of each stockholder listed in the table is c/o RWD
Technologies, Inc., 10480 Little Patuxent Parkway, Suite 1200, Columbia,
Maryland 21044-3530.
(2) Includes 450,000 shares owned by Mrs. Florence Deutsch, Dr. Robert
Deutsch's wife, as to which Dr. Robert Deutsch disclaims beneficial
ownership.
(3) Includes 78,600 shares issuable upon exercise of currently exercisable
options. Mr. Beakes has granted the Underwriters an option to purchase
150,000 shares of Common Stock to cover over-allotments, if any. See
"Underwriting." To the extent the Underwriters' over-allotment option is
exercised in full, the number of shares of Common Stock and percentage of
total number of outstanding shares of Common Stock beneficially owned by
Mr. Beakes will be reduced to 635,327 and 4.6%, respectively.
(4) Includes an aggregate of 450,000 shares held in trusts for the children of
Mrs. Jane Brown and Dr. David Deutsch, for which Mrs. Jane Brown and Dr.
David Deutsch serve as co-trustees. Mrs. Jane Brown and Dr. David J.
Deutsch are Dr. Robert W. Deutsch's children.
(5) Consists of currently exercisable options.
(6) Excludes an aggregate of approximately 2,727 shares of Common Stock to be
issued to the outside directors upon completion of this offering (assuming
a public offering price of $11.00 per share).
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Charter authorizes the Company to issue up to 50,000,000
shares of Common Stock, $.10 par value per share. As of the date of this
Prospectus, there were 10,795,367 shares of Common Stock outstanding, held of
record by 18 persons. In addition, on December 31, 1996, there were
outstanding options to acquire up to an additional 3,221,160 shares of Common
Stock.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters submitted to the stockholders for a vote. There are no cumulative
voting rights in the election of directors. Subject to the prior rights of any
outstanding preferred stock, the shares of Common Stock are entitled to
receive such dividends as may be declared and paid by the Board of Directors
out of funds legally available therefor and to share, ratably, in the net
assets, if any, of the Company upon liquidation. The stockholders have no
preemptive rights to purchase any shares of the Company's capital stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued and paid for, duly authorized, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors, without further action by the holders of the Common
Stock, is authorized to classify any shares of its authorized but unissued
Common Stock as preferred stock in one or more series, from time to time. With
respect to each series, the Board of Directors determines the number of shares
constituting such series, the dividend rate on the shares of each series,
whether such dividends shall be cumulative and the relation of such dividends
to any dividends payable on any other class of stock, whether the shares of
each series shall be redeemable and the terms thereof, whether the shares
shall be convertible into Common Stock and the terms thereof, the amount per
share payable on each series or other rights of holders of such shares on
liquidation or dissolution of the Company, the voting rights, if any, of
shares of each series and any other rights and privileges not in conflict with
the Company's charter and any qualifications, limitations or restrictions
thereof. There are no shares of preferred stock outstanding, and the Board of
Directors has no present intention to issue any preferred stock.
The availability of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of discouraging takeover proposals, and the issuance of
preferred stock could have the effect of delaying or preventing a change in
control of the Company not approved by the Board of Directors.
ANTI-TAKEOVER PROVISIONS OF CHARTER AND BY-LAWS
The Company's Charter provides for a Board of Directors of three classes,
with the initial classes having one, two and three year terms, respectively,
and thereafter staggered three year terms. Under the Charter, directors may be
removed for cause only upon the affirmative vote of at least 80% of the shares
of capital stock entitled to vote in the election of directors. Under the By-
Laws, the number of directors is currently fixed at nine, which number may be
changed only upon the vote of two-thirds of the directors then in office.
The Company's Charter and By-Laws require that any stockholder proposal
relating to the nomination of a director must be delivered to the Company's
Secretary no more than 90 days nor less than 60 days prior to the Annual
Meeting of Stockholders at which such nominee will be voted upon.
The foregoing provisions of the Charter and all provisions of the By-Laws
may be amended or repealed by the stockholders only upon the affirmative vote
of at least 80% of the shares of capital stock entitled to vote thereon. The
By-Laws also may be amended or repealed by the Board of Directors only upon
the vote of at least two-thirds of the directors then in office. These
provisions of the Charter and By-Laws could have the effect of discouraging
takeover proposals and delaying or preventing a change in control of the
Company not approved by the Board of Directors.
41
<PAGE>
BUSINESS COMBINATIONS
Under Section 3-601, et seq. of the Maryland General Corporation Law (the
"Business Combination Statute"), certain "business combinations" (including
mergers or similar transactions subject to a statutory stockholder vote and
additional transactions involving transfers of assets or securities in
specific amounts) between a Maryland corporation subject to the Business
Combination Statute and any person who beneficially owns 10% or more of the
voting power of the corporation's shares or any affiliate of the corporation
who, at any time within the preceding two years, was the beneficial owner of
10% or more of the voting power of the then-outstanding voting stock of the
corporation (an "Interested Stockholder"), or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder unless an exemption is available.
Thereafter, any such business combination must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at least:
(i) 80% of the votes entitled to be cast by all holders of outstanding voting
shares of the corporation; and (ii) two-thirds of the votes entitled to be
cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination
is to be effected, unless the corporation's stockholders receive a minimum
price (as described in the Business Combination Statute) for their shares and
the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. The Business Combination Statute
does not apply, however, to business combinations that are (a) exempted in the
corporation's charter prior to the time the corporation became subject to the
Business Combination Statute or (b) approved or exempted by the board of
directors prior to the time that the Interested Stockholder becomes an
Interested Stockholder. After a corporation becomes subject to the Business
Combination Statute, in order to amend the corporation's charter to elect not
to be subject to the foregoing requirements with respect to one or more
Interested Stockholders, the affirmative vote of at least 80% of the votes
entitled to be cast by all holders of outstanding shares of voting stock and
two-thirds of the votes entitled to be cast by holders of outstanding shares
of voting stock who are not Interested Stockholders is required.
Generally the Company is subject to the provisions of the Business
Combination Statute; however, the Company's Charter exempts from the Business
Combination Statute any future "business combinations" between the Company and
Dr. Robert W. Deutsch or members of his immediate family.
CONTROL SHARE ACQUISITIONS
Section 3-701 et seq. of the Maryland General Corporation Law provides that
"control shares" of a Maryland Corporation acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter, excluding shares of
stock owned by the acquiror or by officers or directors who are employees of
the corporation. "Control shares" are voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct
the exercise of voting power except solely by virtue of a revocable proxy,
would entitle the acquiror to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third; (ii) one-third or more but less than a majority or (iii)
a majority of all voting power. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses
and delivery of an "acquiring person statement"), may compel the corporation's
board of directors to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the shares. If no request
for a meeting is made, the corporation may itself present the question at any
stockholders meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an
acquiring person statement within 10 days following a control share
42
<PAGE>
acquisition then, subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for
which voting rights have previously been approved) for fair value determined,
without regard to the absence of voting rights for the control shares, as of
the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. Moreover, unless the articles or bylaws provide otherwise, if voting
rights for control shares are approved at a stockholders' meeting and the
acquiror becomes entitled to exercise or direct the exercise of a majority or
more of all voting power, other stockholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal
rights may not be less than the highest price per share paid by the acquiror
in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation. The Company's Charter exempts the applicability of the
control share acquisitions made by Dr. Robert W. Deutsch and members of his
immediate family.
The Business Combination Statute and the control share acquisition statute
could have the effect of discouraging takeover proposals and delaying or
preventing a change of control of the Company not approved by its Board of
Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
13,795,367 shares of Common Stock. Sales of a substantial number of shares of
Common Stock in the public market following this offering, or the perception
that such sales could occur, could adversely affect the market price for the
Company's Common Stock. Substantially all of the shares to be outstanding upon
completion of this offering (other than the 3,000,000 shares being offered
hereby) are subject to the lock-up agreements described below. Of the shares
to be outstanding upon completion of this offering, 10,161,707 shares are
"restricted," as that term is defined in the Securities Act of 1933, as
amended (the "Securities Act"). Of these restricted shares, 4,215,450 have
been held for more than two years and, as such, will be salable upon
expiration of the lock-up agreements described below, subject to certain
volume and manner of sale restrictions under Rule 144 of the Securities Act.
The 3,221,160 shares reserved for issuance upon exercise of options
outstanding on December 31, 1996 and the 818,640 shares reserved for issuance
upon exercise of future grants under the Company's stock option plan will be
registered under the Securities Act 90 days after completion of this offering.
The Company has an additional 175,000 shares of Common Stock reserved for
issuance in connection with its Employee Stock Purchase Plan which the Company
intends to register under the Securities Act no earlier than September 1,
1997. Other than shares subject to the lock-up agreements, shares registered
under the Securities Act will be freely transferable upon issuance unless
acquired by affiliates of the Company. Of the shares subject to outstanding
options, 1,105,320 shares are issuable upon exercise of fully vested options,
with 390,000 of such shares subject to the lock-up agreements described below.
See "Management--Employee Benefit Plans."
All directors, executive officers, principal stockholders and certain other
officers of the Company who hold in the aggregate 10,641,227 shares of Common
Stock (plus options to purchase an aggregate of 826,500 shares), and the
Company have agreed not to sell or otherwise dispose of any of their shares or
options for a period of 180 days after the date of this Prospectus without the
prior written consent of William Blair & Company, L.L.C. However, William
Blair & Company, L.L.C., may, in its sole discretion and at any time without
notice, release for public sale all or any portion of these shares subject to
such lock-up agreements. See "Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell restricted shares if at least
two years have passed since the later of the time such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however,
that within any three-month period such person may only sell up to the greater
of: (i) 1% of the then outstanding shares of the Common Stock (approximately
138,000 shares immediately following this offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain manner-of-sale provisions and
notice requirements and to the availability of current public information
about the Company. All shares held by persons who are deemed to be affiliates
of the Company are subject to the volume limitations and other requirements of
Rule 144 regardless of how long the shares have been owned or how they were
acquired. Restricted shares held by non-affiliates of the Company for more
than three years can be sold without limitation under Rule 144.
Prior to the offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of shares of Common Stock for future sale
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock following this offering, or
the perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock and could impair the Company's ability to
raise capital through an offering of its equity securities.
44
<PAGE>
UNDERWRITING
The several Underwriters named below (the "Underwriters"), for which William
Blair & Company, L.L.C. and Montgomery Securities are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company and the Underwriters (the "Underwriting Agreement"), to purchase from
the Company, and the Company has agreed to sell to each of the Underwriters,
the respective number of shares of Common Stock set forth opposite each
Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
William Blair & Company, L.L.C. ......................................
Montgomery Securities.................................................
---------
Total............................................................. 3,000,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
being sold pursuant to the Underwriting Agreement if any of the Common Stock
being sold pursuant to the Underwriting Agreement (excluding shares covered by
the over-allotment option granted therein) is purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of the non-defaulting
Underwriters shall be increased or the Underwriting Agreement may be
terminated.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public initially at the public offering price
set forth on the cover page of this Prospectus and to selected dealers at such
price less a concession of not more than $ per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share to certain other dealers. After commencement of the initial public
offering, the public offering price and other selling terms may be changed by
the Representatives.
The Company and two stockholders (the "Selling Stockholders") have granted
to the Underwriters an option, exercisable within 30 days after the date of
this Prospectus, to purchase up to an aggregate of 282,000 and 168,000
additional shares of Common Stock, respectively, to cover over-allotments, at
the same price per share to be paid by the Underwriters for the other shares
offered hereby. If the Underwriters purchase any such additional shares
pursuant to this option, each of the Underwriters will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the table above. If less than all of such additional shares are
purchased, the Underwriters will purchase such shares first from the Selling
Stockholders, pro rata, and then from the Company. The Underwriters may
exercise the option only for the purpose of covering over-allotments, if any,
made in connection with the distribution of the Common Stock offered hereby.
The directors, executive and certain other officers and principal
stockholders of the Company who hold in the aggregate 10,641,227 shares of
Common Stock (plus options to purchase an additional 826,500 shares of Common
Stock) and the Company have agreed that for a period of 180 days after the
date of this Prospectus,
45
<PAGE>
RWD TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Balance Sheets as of December 31, 1995 and 1996............................ F-3
Statements of Income for the years ended December 31, 1994, 1995 and 1996.. F-4
Statements of Changes in Stockholders' Equity for the years ended December
31, 1994, 1995 and 1996................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996...................................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
After the stock split discussed in Note 1 to RWD Technologies, Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.
Arthur Andersen LLP
January 31, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors ofRWD Technologies, Inc.:
We have audited the accompanying balance sheets of RWD Technologies, Inc. (a
Maryland corporation) as of December 31, 1995 and 1996, and the related
statements of income, changes in stockholders' equity 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 RWD Technologies, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Baltimore, Maryland
F-2
<PAGE>
RWD TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 390,900 $ 3,530,600
Investments, held-to-maturity...................... 2,003,100 1,502,300
Investments, available-for-sale.................... -- 500,600
Contract accounts receivable, net of allowance for
doubtful accounts of $412,300 and $383,700, re-
spectively........................................ 11,448,800 11,981,600
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... 3,839,800 3,331,400
Prepaid expenses and other......................... 856,900 849,500
----------- -----------
Total Current Assets............................. 18,539,500 21,696,000
----------- -----------
FIXED ASSETS:
Furniture and fixtures............................. 2,627,900 4,826,300
Office equipment................................... 835,500 1,448,300
Computer equipment................................. 3,940,300 5,594,400
Leasehold improvements............................. 280,400 725,900
----------- -----------
Total Fixed Assets............................... 7,684,100 12,594,900
Less-Accumulated depreciation and amortization..... (2,638,600) (4,718,000)
----------- -----------
Net Fixed Assets................................. 5,045,500 7,876,900
----------- -----------
OTHER ASSETS......................................... 73,100 285,500
----------- -----------
Total Assets................................... $23,658,100 $29,858,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 254,000 $ 652,800
Accrued payroll and other.......................... 1,675,500 1,641,500
Accrued vacation payable........................... 610,400 817,400
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... 1,860,500 2,689,300
Borrowings under line of credit.................... 2,700,000 --
Current portion of capital lease obligation........ -- 41,600
Related party debt................................. -- 3,800,000
----------- -----------
Total Current Liabilities........................ 7,100,400 9,642,600
NONCURRENT LIABILITIES:
Long-term related party debt....................... 3,800,000 --
Capital lease obligation, net of current portion... -- 83,400
----------- -----------
Total Liabilities................................ 10,900,400 9,726,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized--
50,000,000 shares; issued and outstanding--
4,849,110, and 4,859,640, respectively............ 484,900 486,000
Additional paid-in capital......................... 2,747,900 2,753,800
Retained earnings.................................. 9,524,900 16,892,600
----------- -----------
Total Stockholders' Equity....................... 12,757,700 20,132,400
----------- -----------
Total Liabilities and Stockholders' Equity..... $23,658,100 $29,858,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
RWD TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue................................. $29,423,900 $47,131,600 $65,005,500
Cost of services........................ 21,750,800 35,268,900 48,131,300
----------- ----------- -----------
Gross profit............................ 7,673,100 11,862,700 16,874,200
General and administrative expenses..... 3,514,700 5,212,100 8,137,500
----------- ----------- -----------
Operating income........................ 4,158,400 6,650,600 8,736,700
Interest expense........................ (339,900) (342,800) (388,600)
Interest and other income............... 154,100 222,300 265,500
----------- ----------- -----------
Income before taxes..................... 3,972,600 6,530,100 8,613,600
Provision for income taxes.............. 59,800 168,500 364,900
----------- ----------- -----------
Net income............................ $ 3,912,800 $ 6,361,600 $ 8,248,700
=========== =========== ===========
Pro Forma Information (unaudited):
Income before taxes, as reported...... $ 3,972,600 $ 6,530,100 $ 8,613,600
Pro forma income tax provision to
recognize C Corporation provision for
income taxes ........................ 1,589,000 2,612,000 3,445,500
----------- ----------- -----------
Pro forma net income................ $ 2,383,600 $ 3,918,100 $ 5,168,100
=========== =========== ===========
Pro forma net income per share........ $ 0.19 $ 0.32 $ 0.42
=========== =========== ===========
Weighted average shares outstanding... 12,273,300 12,273,100 12,273,100
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
RWD TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT)
-------- ---------- ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.................. $484,900 $2,748,500 $ (749,500)
Stock options exercised................... -- 400 --
Common stock repurchased.................. -- (300) --
Net income................................ -- -- 3,912,800
-------- ---------- -----------
BALANCE, DECEMBER 31, 1994.................. 484,900 2,748,600 3,163,300
Stock options exercised................... -- 300 --
Common stock repurchased.................. -- (1,000) --
Net income................................ -- -- 6,361,600
-------- ---------- -----------
BALANCE, DECEMBER 31, 1995.................. 484,900 2,747,900 9,524,900
Stock options exercised................... 4,600 26,800 --
Common stock repurchased.................. (3,500) (20,900) (189,700)
Stockholder distributions................. -- -- (691,300)
Net income................................ -- -- 8,248,700
-------- ---------- -----------
BALANCE, DECEMBER 31, 1996.................. $486,000 $2,753,800 $16,892,600
======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
RWD TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 3,912,800 $ 6,361,600 $ 8,248,700
Adjustments to reconcile net income to
net cash from operating activities--
Depreciation and amortization....... 568,500 1,179,800 2,232,400
(Gain) loss on sale of fixed assets. (1,700) 6,000 31,600
Increase in contract accounts re-
ceivable, net...................... (2,922,900) (3,652,900) (532,800)
(Increase) decrease in costs and es-
timated earnings in excess of bill-
ings on uncompleted contracts...... (885,600) (1,826,200) 508,400
(Increase) decrease in prepaid ex-
penses and other................... (202,900) (436,500) 7,400
Increase in payables and accrued ex-
penses............................. 193,800 806,000 571,800
(Decrease) increase in billings in
excess of costs and estimated
earnings on uncompleted contracts.. (203,000) 593,800 828,800
----------- ----------- -----------
Net cash from operating activi-
ties............................. 459,000 3,031,600 11,896,300
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments............... (6,501,800) (2,272,200) (2,002,900)
Proceeds from maturities of invest-
ments................................ 6,739,300 1,995,300 2,003,100
Purchase of fixed assets.............. (1,433,000) (3,738,100) (4,961,300)
(Increase) decrease in other assets... (37,600) 3,400 (50,000)
Proceeds from sale of fixed assets.... 10,900 7,300 8,400
----------- ----------- -----------
Net cash from investing activities.. (1,222,200) (4,004,300) (5,002,700)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft. 859,500 (859,500) --
Net (payments) borrowings under line
of credit............................ (400,700) 2,223,800 (2,700,000)
Principal portion paid on capital
lease obligation..................... -- -- (17,500)
Shareholder distributions............. -- -- (691,300)
Issuance of common stock.............. 400 300 31,400
Purchase of common stock.............. (300) (1,000) (214,100)
Public offering issuance costs........ -- -- (162,400)
----------- ----------- -----------
Net cash from financing activities.. 458,900 1,363,600 (3,753,900)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH......... (304,300) 390,900 3,139,700
CASH, beginning of year................. 304,300 -- 390,900
----------- ----------- -----------
CASH, end of year....................... $ -- $ 390,900 $ 3,530,600
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid..................... $ -- $ 270,400 $ 334,600
=========== =========== ===========
Interest expense paid................. $ 339,900 $ 342,800 $ 388,600
=========== =========== ===========
</TABLE>
In 1996, the Company entered into a $142,500 capital lease.
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
RWD Technologies, Inc. (the "Company") was incorporated on January 22, 1988,
in the State of Maryland. The Company provides a broad range of integrated
solutions designed to improve the productivity and effectiveness of workers in
complex operating environments.
The Company's operations depend, among other things, upon the Company's
ability to attract, develop and retain a sufficient number of highly skilled
professional employees. In addition, the Company's revenue is generated from a
limited number of clients in specific industries. Future operations may be
affected by its ability to retain these clients, and cyclical and economic
factors that could impact those industries. An evaluation of the Company's
operations should also include consideration of the "Risk Factors" described
in the Prospectus related to the Company's contemplated public offering.
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. 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 as of the date of the financial statements
and the reported amounts of total revenue and expenses during the reporting
period. While actual results could differ from those estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying financial statements.
Contemplated Initial Public Offering (IPO)
The Company is currently contemplating an IPO. Prior to the IPO, the Company
will make a $14,000,000 S Corporation distribution representing earnings not
previously distributed to the stockholders. The proceeds of the IPO will be
used to retire the $3,800,000 of stockholder notes, and the Company will use
the remaining proceeds for working capital to support the planned growth of
its business and for other general corporate purposes.
Investments
Investments as of December 31, 1995 and 1996 consist of U.S. government
securities of $2,003,100 and $2,002,900, respectively. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," all investments are
classified as held-for-maturity except for $500,600 as of December 31, 1996,
which is classified as available-for-sale. Investments classified as held-to-
maturity are recorded at amortized cost and investments classified as
available-for-sale are recorded at market value. The amortized cost
approximated market value for all investments as of December 31, 1995 and
1996.
Financial Instruments
Financial instruments as of December 31, 1995 and 1996, consist of cash,
investments, receivables, accounts payable, borrowings under line of credit,
related party debt and a capital lease obligation, all of which the carrying
amounts approximate market.
F-7
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization is computed
using the straight-line method based on the estimated useful lives, as
follows:
<TABLE>
<S> <C>
Furniture and fixtures....................................... 7 years
Office equipment............................................. 5 years
Computer equipment........................................... 3-5 years
Leasehold improvements....................................... 7-10 years
</TABLE>
The depreciation and amortization expenses for the years ended December 31,
1994, 1995 and 1996, were $568,500, $1,179,800 and $2,232,400, respectively.
Revenue Recognition
Almost all of RWD's revenue is generated from professional fees. The
majority of the Company's contracts are on a time-and-materials basis,
although many of the contracts contain initial "not-to-exceed" fees and
Company performance obligations. The remainder of the Company's contracts are
on a fixed-bid basis. Revenue is recognized using the percentage of completion
method. The Company's contracts generally vary in length from one to 24
months.
Earned revenue is based on the percentage that direct labor and other
contract costs incurred to date bear to total estimated costs, after giving
effect to the most recent estimates of total cost. The cumulative impact of
revisions in total cost estimates during the progress of work is reflected in
the year in which these changes become known. Earned revenue reflects the
original contract price adjusted for agreed-upon claim and change order
revenue, if any. Losses expected to be incurred on jobs in process, after
consideration of estimated minimum recoveries from claims and change orders,
are charged to income as soon as such losses are known.
Significant Clients
Automobile industry clients generated 46.9%, 43.5% and 40.6% of the
Company's revenue in 1994, 1995 and 1996, respectively. During the years ended
December 31, 1994, 1995 and 1996, sales to one client were approximately
33.2%, 33.9% and 28.5%, respectively, of total revenue for that year. No other
client represented more than 10% of the Company's revenue in any of these
years.
Segment Information
The Company operates within one industry segment.
Income Taxes
Historically, the Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code which provide that, in lieu of
corporate, federal and some state income taxes, the stockholders are taxed on
their proportionate share of the Company's taxable income. In connection with
the IPO of the Company's common stock, the Company will be taxed as a C
Corporation. As a result of the Company's Subchapter S election, the
accompanying statements of income do not include an income tax provision for
federal and most state income taxes; however, pro forma adjustments to reflect
a total provision for income taxes have been made. The pro forma adjustments
have been made in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", at an effective rate of 40.0% for the
years ended December 31, 1994, 1995 and 1996, which is the tax rate which
would have been in effect had the Company been taxed as a C Corporation.
F-8
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Earnings Per Share
Pro forma earnings per share are based on the weighted average number of
common and dilutive common equivalent shares for stock options outstanding
during the period the calculation is made. Dilutive common equivalent shares
consist of shares issuable upon the exercise of stock options, using the
treasury stock method and the estimated IPO price of $11.00 per share. The
options outstanding as of December 31, 1996 were assumed to be outstanding for
all of 1995 and 1996. The majority stockholder plans to exercise options to
acquire 5,370,000 shares concurrent with the completion of the IPO. The
majority stockholder's options are included in the weighted average shares
outstanding as if the 5,370,000 shares were outstanding for all periods
presented. The weighted average shares outstanding is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Common stock............................. $4,850,500 $4,850,300 $4,850,300
Dilutive effect of majority stockholder
options to be exercised................. 5,370,000 5,370,0000 5,370,000
---------- ---------- ----------
Dilutive effect of remaining common
equivalent shares....................... $2,052,800 $2,052,800 $2,052,800
========== ========== ==========
Weighted average shares outstanding...... 12,273,300 12,273,100 12,273,100
========== ========== ==========
</TABLE>
Stock Split
The Company intends to effect a three for one stock split prior to the IPO.
All share data included in the accompanying financial statements and notes
thereto are as if the stock split had occurred.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for financial statements with fiscal years beginning after December 15, 1995.
The adoption of SFAS No. 121 as of January 1, 1996 had no impact on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No.
25 ("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation expense or to adopt the fair value based method prescribed by
SFAS No. 123. If APB No. 25's method is continued, pro forma disclosures are
required as if SFAS No. 123 accounting provisions were followed. Management
has elected to continue to measure compensation expense under APB No. 25, with
pro forma footnote disclosures of the expense under the SFAS No. 123 method.
(See Note 5).
F-9
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Cost incurred and estimated earnings on
uncompleted contracts............................ $39,721,500 $59,311,700
Less: Billings to date on uncompleted contracts... 37,742,200 58,669,600
----------- -----------
Net unbilled revenue............................ $ 1,979,300 $ 642,100
=========== ===========
Included in the accompanying balance sheets under
the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. $ 3,839,800 $ 3,331,400
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. 1,860,500 2,689,300
----------- -----------
$ 1,979,300 $ 642,100
=========== ===========
</TABLE>
Generally, contracts provide for the billing of costs incurred and estimated
fees on primarily a monthly basis. Amounts incurred in "costs and estimated
earnings in excess of billings on uncompleted contracts" in the accompanying
financial statements will be billed within twelve months of the balance sheet
date.
3. DEBT:
Debt consists of the following as of December 31, 1995 and 1996:
<TABLE>
<S> <C>
Note payable--9.0%, due March 31, 1998, unsecured.............. $ 200,000
Note payable--9.0%, due March 31, 1998, unsecured.............. 3,600,000
----------
Total........................................................ $3,800,000
==========
</TABLE>
The notes payable listed above are payable to two officers of the Company
who are principal stockholders of the Company. Interest expense during the
years ended December 31, 1994, 1995 and 1996 on these loans from stockholders
was $338,600, $342,000 and $342,000, respectively. The Company intends to
retire the existing notes payable concurrent with the proposed IPO.
The Company has a line of credit agreement with a bank which extends to
working capital (Facility A) and vehicle and equipment purchases or leases
(Facility B). Facility A is an unsecured line of $7,500,000. Facility B is
secured by the specific vehicles or equipment being leased or purchased and
advances under this $250,000 line are limited to 80% of the cost of assets
purchased or 100% of the cost of assets leased. Interest under this agreement
is at the 30-day LIBOR rate, plus 1.75%. During the years ended December 31,
1994, 1995 and 1996, the average outstanding balance, the highest balance
outstanding, the weighted average interest rates and the interest rate at end
of year were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Average month-end outstanding balance... $ 66,900 $ 225,000 $ 58,300
Highest balance outstanding............. $476,200 $2,700,000 $2,700,000
Weighted average interest rates......... 6.4% 7.8% 7.2%
Interest rate at end of year............ 7.9% 7.7% 7.4%
</TABLE>
F-10
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
Commitments
The Company leases its office facilities under various operating leases
which expire through December 31, 2003. The leases require the Company to pay
for a portion of common area maintenance expenses and real estate taxes. Rent
expense for the years ended December 31, 1994, 1995 and 1996 was $660,200,
$1,265,800 and $2,016,000, respectively. During 1996, the Company entered into
a capital lease obligation for a copy machine. Future minimum payments under
these operating and capital leases, as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASE OPERATING LEASES
------------------------ ------------- ----------------
<S> <C> <C>
1997...................................... $66,300 $ 2,256,200
1998...................................... 66,300 2,346,400
1999...................................... 33,100 2,199,100
2000...................................... -- 1,970,500
2001...................................... -- 1,500,400
2002 and thereafter....................... -- 2,718,800
------- -----------
Total minimum lease payments............ 165,700 $12,991,400
===========
Less: Amounts representing imputed interest... 40,700
-------
Present value of net minimum payments... 125,000
Less: Current portion......................... 41,600
-------
$83,400
=======
</TABLE>
The Company has entered into employment agreements with certain key
employees with initial terms of three years, subject to successive one year
renewals.
Litigation
The Company is party to various litigation arising in the ordinary course of
its business. It is management's opinion, after consultation with its legal
counsel, that none of the outcomes of these claims, whether individually or in
the aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
5. STOCK OPTION AND PURCHASE AGREEMENTS:
The Company has entered into various stock option agreements with key
employees. The options granted under these agreements expire at the earlier of
termination of employment or ten years from the date of grant.
The Company has also instituted a stock option plan whereby the Board of
Directors, at its discretion, can award employees and outside directors
options to purchase shares of the Company's common stock. Options for
4,065,000 shares are authorized under the plan. The options granted to
employees under this plan vest over five years at a rate of 20% per year and
expire at the earlier of termination of employment or December 31, ten years
after the first vesting date. The options granted to outside directors will
vest ratably over a three year period, beginning one year after grant, and
will expire at the earlier of termination or ten years after the first vesting
date.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity
instrument. This statement allows an entity to continue to measure
compensation cost for those
F-11
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
plans using the method of accounting prescribed by the Accounting Principles
Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB No. 25 must
make pro forma footnote disclosures of net income and earnings per share, as
if the fair value based method of accounting defined in this Statement had
been applied.
The Company has elected to account for its stock-based compensation plans in
accordance with APB No. 25, under which no compensation cost has been
recognized. The Company has computed for pro forma disclosure purposes the
value of all compensatory options granted during 1995 and 1996, using the
Black-Scholes option pricing model as prescribed by SFAS No. 123. During 1995,
the Company issued noncompensatory stock options to its founding stockholders.
The following assumptions were used for grants:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Risk-free interest rate (range)........................ 5.4%-7.8% 6.2%-6.7%
Expected dividend yield................................ 0.0% 0.0%
Expected lives......................................... 5 years 5 years
Expected volatility.................................... 42.0% 42.0%
</TABLE>
Options were assumed to be exercised upon vesting for the purposes of this
valuation. Adjustments are made for options forfeited prior to vesting. Had
compensation costs for compensatory options been determined consistent with
SFAS No. 123, the Company's pro forma net income and earnings per share
information reflected on the accompanying statements of income would have been
reduced to the following "as adjusted" amounts:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net Income:
As reported in pro forma information............... $3,918,100 $5,168,100
As adjusted........................................ $3,881,700 $5,038,800
Earnings Per Share:
As reported in pro forma information............... $0.32 $0.42
As adjusted........................................ $0.32 $0.41
</TABLE>
The Company's stock did not actively trade during 1995 or 1996.
The following table summarizes all stock option and purchase right activity
for the three years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
KEY PARTY OPTION
AGREEMENTS EMPLOYEE PLAN EXERCISE PRICE
NUMBER OF SHARES NUMBER OF SHARES PER SHARE
---------------- ---------------- --------------
<S> <C> <C> <C>
Outstanding as of December
31, 1993................. 3,912,000 728,100 $ 0.67
Granted................. -- 557,100 0.67
Exercised............... -- (660) 0.67
Terminated.............. -- (147,000) 0.67
--------- ---------
Outstanding as of December
31, 1994................. 3,912,000 1,137,540 0.67
Granted................. 2,125,740 1,464,750 0.67-1.00
Exercised............... -- (450) 0.67
Terminated.............. (37,500) (298,590) 0.67-1.00
--------- ---------
Outstanding as of December
31, 1995................. 6,000,240 2,303,250 0.67-1.00
Granted................. -- 1,069,350 6.00
Exercised............... (10,080) (36,150) 0.67-1.00
Terminated.............. -- (132,450) 0.67-1.00
--------- ---------
Outstanding as of December
31, 1996................. 5,990,160 3,204,000 0.67-6.00
========= =========
</TABLE>
F-12
<PAGE>
RWD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Weighted average fair value of options granted for the years ended December
31, 1995 and 1996 was $0.43 and $2.78, respectively.
In connection with the proposed IPO, certain stockholders intend to exercise
outstanding options held.
The Company adopted an Employee Stock Purchase Plan (the "Stock Purchase
Plan"), subject to stockholder approval. The Stock Purchase Plan is intended
to qualify as an "employee stock purchase plan" under Section 423 of the Code.
All regular full-time employees of the Company (including officers), and all
other employees whose customary employment is for more than 20 hours per week
are eligible to participate in the Stock Purchase Plan. Directors who are not
employees are not eligible. A maximum of 175,000 shares of the Company's
Common Stock are reserved for issuance under the Stock Purchase Plan and
available for purchase thereunder, subject to anti-dilution adjustments in the
event of certain changes in the capital structure of the Company.
6. RETIREMENT SAVINGS PLAN:
The Company has a Retirement Savings Plan (401(k) plan) whereby employees
may contribute up to the limits established by the Internal Revenue Service.
The Company, at the discretion of the Board of Directors, will match employee
contributions up to 15%. The Company contributed $498,800, $1,100,900 and
$1,102,400 to the plan during the years ended December 31, 1994, 1995 and
1996, respectively.
7. INCOME TAXES:
In connection with the Company's change in tax election, the Company will
record a deferred income tax liability and corresponding income tax expense
arising from a change in the Company's tax status and a change from the cash
basis to the accrual basis of accounting for tax purposes. Beginning with this
change, the Company will provide for deferred income taxes under the asset and
liability method of accounting. This method requires the recognition of
deferred income taxes based upon the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statements carrying amounts and the
tax basis of existing assets and liabilities.
A reconciliation of the statutory tax to the effective tax for the years
ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax (at 34%
rate).................... $ 1,350,700 $ 2,220,200 $ 2,928,600
State taxes, net of fed-
eral benefit............. 210,500 346,100 456,500
Effect of S corporation
income taxes............. (1,539,300) (2,455,100) (3,092,200)
Other..................... 37,900 57,300 72,000
----------- ----------- -----------
Provision for income
taxes.................. $ 59,800 $ 168,500 $ 364,900
=========== =========== ===========
</TABLE>
F-13
<PAGE>
Dedicated to Helping Clients Compete
by Focusing on End-User Performance
[PHOTO APPEARS HERE] Plant Floor Training
RWD provides performance-based training programs for
plant-floor workers at a large U.S. automobile
manufacturer. As a result, worker competency has
increased while classroom time and training costs
have dramatically decreased.
[PHOTO APPEARS HERE] Custom Information Systems Embedded for
"Just-In-Time" Access
RWD developed and deployed a "just-in-time"
information system for a major pulp and paper
manufacturer, designed to capture and share expert-
level knowledge with new plant-floor workers. This
Embedded Performance Support System (EPSS) is
designed to reduce plant downtime and improve overall
product quality.
[PHOTO APPEARS HERE] Enterprise Wide Software Implementations
An international chemical company engaged RWD to
develop an on-line reference system, training and
documentation materials, and job aids for users of
their SAP software, worldwide. These tools greatly
increased end-user productivity, reduced classroom
training time, and decreased time-to-competence.
[PHOTO APPEARS HERE] Global Lean Manufacturing
A large automobile manufacturer asked RWD to apply
lean manufacturing principles to their European
engine production line to reduce supply system and
labor inefficiencies. This resulted in annual cost
savings to the client of five times the cost of RWD's
services.
[PHOTO APPEARS HERE] Call Center Systems
RWD developed and deployed an easy-to-use room
reservation system for an international hotel chain
that annually answers 22 million calls for properties
worldwide. The new system significantly reduced
operator training time, time-to-competency, and
overall call handling time.
[PHOTO APPEARS HERE] Workflow Process Redesign and Training
A major oil company asked RWD to help redesign its
refinery work-flow and to develop task-oriented
operating manuals, procedures, and performance-based
training courses. These process improvements resulted
in increased refinery run times and decreased the
frequency and duration of unit shutdowns.
[PHOTO APPEARS HERE] Operation and Safety Document Management
RWD developed a sophisticated Electronic Document
Management System (EDMS) to help a consortium of
major oil companies and a foreign government manage
more than 150,000 operation and safety documents.
Document retrieval times were reduced from
approximately 10 minutes to four seconds.
[LOGO OF RWD TECHNOLOGIES APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SHARES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAK-
ING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
Dividend Policy and Prior S Corporation Status............................ 11
Capitalization............................................................ 12
Dilution.................................................................. 13
Selected Financial Data................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 22
Management................................................................ 32
Certain Transactions...................................................... 39
Principal Stockholders.................................................... 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Additional Information.................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF RWD TECHNOLOGIES, INC. APPEARS HERE]
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the offering. All
of such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission, NASD and Nasdaq.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee...................... $ 12,546
NASD Filing Fee.................................................... 4,640
Nasdaq Listing Fee................................................. 50,000
Printing Fees and Expenses......................................... *
Legal Fees and Expenses............................................ *
Directors' and Officers' Insurance Premium......................... *
Accounting Fees and Expenses....................................... *
Blue Sky Fees and Expenses......................................... *
Miscellaneous...................................................... *
--------
TOTAL............................................................ $985,000
========
</TABLE>
- --------
* To be completed in an amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Charter provides that, to the fullest extent that limitations
on the liability of directors and officers are permitted by the Maryland
General Corporation Law, no director or officer of the Company shall have any
liability to the Company or its stockholders for monetary damages. The
Maryland General Corporation Law provides that a corporation's charter may
include a provision which restricts or limits the liability of its directors
or officers to the corporation or its stockholders for money damages except:
(1) to the extent that it is provided that the person actually received an
improper benefit or profit in money, property or services, for the amount of
the benefit or profit in money, property or services actually received, or (2)
to the extent that a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding in the proceeding that
the person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The Company's Charter and By-Laws provide that the Company
shall indemnify and advance expenses to its currently acting and its former
directors to the fullest extent permitted by the Maryland General Corporation
Law and that the Company shall indemnify and advance expenses to its officers
to the same extent as its directors and to such further extent as is
consistent with law.
The Charter and By-Laws provides that the Company will indemnify its
directors and officers and may indemnify employees or agents of the Company to
the fullest extent permitted by law against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Company. In addition, the Company's Charter provides that its
directors and officers will not be liable to stockholders for money damages,
except in limited instances. However, nothing in the Charter or By-Laws of the
Company protects or indemnifies a director, officer, employee or agent against
any liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the Maryland General Corporation Law
provides that he shall be indemnified against reasonable expenses incurred in
connection therewith.
The form of underwriting agreement, filed as Exhibit 1.1 hereto, contains
provisions by which the Underwriters agree to indemnify the Registrant and
each officer, director and controlling person of the Registrant against
certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Company has issued shares of Common Stock in the following transactions, each
of which was intended to be exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereunder. No
underwriters were involved in connection with the sales of these securities.
From January 1, 1994 to the present, the Company has granted options to
purchase a total of 11,191,440 shares of Common Stock at exercise prices
ranging from $.67 per share to $6.00 per share.
From January 1, 1994 to the present, 11 employees of the Company have
exercised stock options for 107,310 shares of Common Stock for aggregate cash
payments of $75,415. In addition, the Company will issue 5,926,727 shares of
Common Stock to the Company's founding stockholders upon the Concurrent
Exercises for an aggregate cash payment of approximately $4.2 million.
ITEM 16. EXHIBITS
(a)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.01 Form of Underwriting Agreement*
3.01 Amended and Restated Charter*
3.02 Amended and Restated By-Laws*
4.01 Specimen Common Stock Certificate*
5.01 Opinion of Piper & Marbury L.L.P.
10.01 Maryland Full-Service Office Lease between the Company and
Columbia Management, Inc., dated as of January 1, 1994, as
amended
10.02 Chrysler Corporation General Terms & Conditions/Clause Manual--
Facilities and Material Purchasing--General Terms and Conditions
10.03 Letter Agreement from First National Bank of Maryland to the
Company, dated February 27, 1996 regarding $7.5 million
unsecured line of credit
10.04 Amended and Restated Equity Participation Plan*
10.05 Employee Stock Purchase Plan*
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.01)
23.03 Consent of Jerry P. Malec
24.01 Power of Attorney (included on signature pages hereto)
27.01 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION PAGE NO.
- -------- ----------- --------
<S> <C> <C>
II Valuation and Qualifying Accounts S-2
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN COLUMBIA, MARYLAND ON
THIS 13TH DAY OF FEBRUARY, 1997.
RWD Technologies, Inc.
/s/ Dr. Robert W. Deutsch
By __________________________________
DR. ROBERT W. DEUTSCH, CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Dr. R. W. Deutsch and J. H. Beakes (with full
power to each of them to act alone) as his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place and
stead in any and all capacities to sign any or all amendments or post-effective
amendments to this Registration Statement, including amendments made pursuant
to Rule 462 under the Securities Act of 1933, as amended, and to file the same
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, to sign any and all applications,
registration statements, notices or other document necessary or advisable to
comply with the applicable state securities laws, and to file the same,
together with all other documents in connection therewith, with the appropriate
state securities authorities, granting unto said attorneys-in-fact and agents
or any of them, or their or his substitute or substitutes, full power and
authority to do and perform each and every act 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, thereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT OR AMENDMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Dr. Robert W. Deutsch Chief Executive February 13,
- ------------------------------------- Officer and 1997
DR. ROBERT W. DEUTSCH Chairman of the
Board of Directors
(Principal
Executive Officer)
/s/ John H. Beakes President, Chief February 13,
- ------------------------------------- Operating Officer 1997
JOHN H. BEAKES and Director
/s/ Ronald E. Holtz Vice President, February 13,
- ------------------------------------- Chief Financial 1997
RONALD E. HOLTZ Officer and
Director (Principal
Financial and
Accounting Officer)
II-4
<PAGE>
SIGNATURE TITLE DATE
/s/ John E. Lapolla Director February 13,
- ------------------------------------- 1997
JOHN E. LAPOLLA
/s/ Kenneth J. Rebeck Director February 13,
- ------------------------------------- 1997
KENNETH J. REBECK
/s/ Jeffrey W. Wendel Director February 13,
- ------------------------------------- 1997
JEFFREY W. WENDEL
/s/ David J. Deutsch Director February 13,
- ------------------------------------- 1997
DAVID J. DEUTSCH
II-5
<PAGE>
After the stock split discussed in Note 1 to RWD Technologies, Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.
Arthur Andersen LLP
January 31, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of RWD Technologies, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of RWD Technologies, Inc., a Maryland corporation,
included in this registration statement and have issued our report thereon
dated January 31, 1997. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
listed in the accompanying index is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Baltimore, Maryland
S-1
<PAGE>
RWD TECHNOLOGIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF YEAR EXPENSE DEDUCTIONS YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994....... $140,300 $163,300 $ -- $303,600
Year ended December 31, 1995....... 303,600 108,700 -- 412,300
Year ended December 31, 1996....... 412,300 -- 28,600 383,700
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO DESCRIPTION NUMBERED PAGE
---------- ----------- -------------
<C> <S> <C>
1.01 Form of Underwriting Agreement*
3.01 Amended and Restated Charter*
3.02 Amended and Restated Bylaws*
4.01 Specimen Common Stock Certificate*
5.01 Opinion of Piper & Marbury L.L.P.
10.01 Maryland Full-Service Office Lease between the
Company and Columbia Management, Inc., dated as of
January 1, 1994, as amended
10.02 Chrysler Corporation General Terms &
Conditions/Clause Manual--Facilities and Material
Purchasing--General Terms and Conditions
10.03 Letter Agreement from First National Bank of
Maryland to the Company, dated February 27, 1996
regarding $7.5 million unsecured line of credit
10.04 Amended and Restated Equity Participation Plan*
10.05 Employee Stock Purchase Plan*
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Piper & Marbury L.L.P. (included in
Exhibit 5.01)
23.03 Consent of Jerry P. Malec
24.01 Power of Attorney (included on signature pages
hereto)
27.01 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 5.01
------------
PIPER & MARBURY
L.L.P.
CHARLES CENTER SOUTH WASHINGTON
36 SOUTH CHARLES STREET NEW YORK
BALTIMORE, MARYLAND 21201-3018 PHILADELPHIA
410-539-2530 EASTON
FAX: 410-539-0489 LONDON
February 14, 1997
RWD Technologies, Inc.
10480 Little Patuxent Parkway, Suite 1200
Columbia, Maryland 21044-3530
RE: Registration Statement on Form S-1
----------------------------------
Dear Sirs:
We have acted as counsel to RWD Technologies, Inc., a Maryland
corporation (the "Company"), in connection with the Company's Registration
Statement on Form S-1 (the "Registration Statement") filed on the date hereof
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). The Registration Statement
relates to up to 3,450,000 shares of the Company's Common Stock, par value
$.01 per share, up to 3,282,000 of which will be newly issued by the Company
(the "Company Shares") and up to 168,000 of which were previously issued by the
Company and are being sold for the account of the holders, thereof (the
"Stockholder Shares" and, together with the Company Shares, the "Shares").
In this capacity, we have examined the Company's Charter and By-Laws, the
proceedings of the Board of Directors of the Company relating to the issuance of
the Company Shares and the Stockholder Shares and such other documents,
instruments and matters of law as we have deemed necessary to the rendering of
this opinion. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion and advise you that (i)
each of the Company Shares described in the Registration Statement has been duly
authorized and, upon sale of such Company Shares as contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable;
and (ii) Each of the Stockholder Shares described in the Registration Statement
has been duly authorized and is validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the Rules and Regulations of the Commission thereunder.
Very truly yours,
PIPER & MARBURY L.L.P.
<PAGE>
EXHIBIT 10.01
MARYLAND FULL-SERVICE OFFICE LEASE
PARK VIEW BUILDING
by and between
PARKVIEW OFFICE BUILDING LIMITED PARTNERSHIP, Landlord
by COLUMBIA MANAGEMENT, INC., Managing Agent,
and
RWD TECHNOLOGIES, INC., Tenant
<PAGE>
TABLE 0F CONTENTS
-----------------
<TABLE>
<C> <S> <C>
1. SUMMARY OF TERMS................................................. 1
----------------
2. DEFINITIONS...................................................... 3
-----------
3. LEASED PREMISES; MEASUREMENT: EXPANSION; DOWNSIZING.............. 4
---------------------------------------------------
4. TERM AND COMMENCEMENT OF TERM.................................... 7
-----------------------------
5. ACCEPTANCE OF PREMISES AND TENANT IMPROVEMENTS................... 8
----------------------------------------------
6. RENT............................................................. 9
----
7. OPERATING COST ESCALATIONS....................................... 10
--------------------------
8. USE, CARE AND REPAIR 0F PREMISES BY TENANT....................... 14
------------------------------------------
9. RULES AND REGULATIONS............................................ 15
---------------------
10. COMMON AREA...................................................... 15
-----------
11. SERVICES AND UTILITIES........................................... 16
----------------------
12. ELECTRIC CURRENT................................................. 17
----------------
13. LOSS, DAMAGE AND INJURY.......................................... 17
-----------------------
14. REPAIRS BY LANDLORD.............................................. 17
-------------------
15. ALTERATIONS, TITLE AND PERSONAL PROPERTY......................... 18
----------------------------------------
16. INSURANCE........................................................ 19
---------
17. DAMAGE AND DESTRUCTION........................................... 21
----------------------
18. CONDEMNATION..................................................... 22
------------
19. BANKRUPTCY....................................................... 22
----------
20. DEFAULT PROVISIONS AND REMEDIES.................................. 23
-------------------------------
21. LANDLORD'S LIEN.................................................. 27
---------------
22. INDEMNITY........................................................ 27
---------
23. LIMITATION ON LANDLORD LIABILITY................................. 27
--------------------------------
24. LANDLORD OBLIGATIONS............................................. 27
--------------------
25. ASSIGNMENT AND SUBLETTING........................................ 28
-------------------------
26. HOLDING OVER..................................................... 29
------------
27. SUBORDINATION AND ATTORNMENT..................................... 29
----------------------------
28. ESTOPPEL CERTIFICATES............................................ 30
---------------------
29. PEACEFUL AND QUIET POSSESSION.................................... 31
-----------------------------
30. LANDLORD'S ACCESS TO PREMISES.................................... 31
-----------------------------
31. RELOCATION....................................................... 31
----------
32. BROKERS, COMMISSIONS. ETC........................................ 31
-------------------------
33. RECORDATION...................................................... 31
-----------
34. MISCELLANEOUS.................................................... 32
-------------
</TABLE>
SCHEDULES
- ---------
A - Plat showing location of the Premises
B - Intentionally omitted
C - Rules and Regulations
X - Method of Floor Measurement
<PAGE>
MARYLAND FULL-SERVICE OFFICE LEASE
PARK VIEW BUILDING
THIS LEASE is made and entered into as of 1st the day of January, 1994, by
and between PARKVIEW OFFICE BUILDING LIMITED PARTNERSHIP, a Maryland limited
partnership ("Landlord") by COLUMBIA MANAGEMENT, INC., Managing Agent, and RWD
TECHNOLOGIES, INC., a Maryland corporation ("Tenant").
In consideration of the rents hereinafter reserved and the agreements
hereinafter set forth, Landlord and Tenant mutually agree as follows:
1. SUMMARY OF TERMS.
----------------
The following is a summary of the principal terms of the Lease. Any
capitalized term set forth below shall, for the purposes of this Lease, have the
meaning ascribed to it in this Section 1.
A. Description of Premises
-----------------------
(1) Building: The building known as Park View Building and
--------
located at 10480 Little Patuxent Parkway, Columbia, Maryland 21044.
(2) Business Community: Columbia Town Center.
------------------
(3) Premises; Approximately 24,483 square feet of Rental Area on
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the tenth, eleventh and twelfth floors of the Building as shown on Schedule A.
----------
The tenth floor space is comprised of approximately 3,052 square feet of Rental
Area ("Suite 1000") and approximately 1,980 square feet of Rental Area ("Suite
1020") including a 12% Common Area Factor ("CAF"); the eleventh floor ("Suite
1150") is comprised of approximately 7,105 square feet of Rental Area including
a 12% CAF; and the twelfth floor ("Suite 1200") is comprised of approximately
12,346 square feet of Rental Area including a 4% CAF.
B. Rent
----
(1) Annual Basic Rent:
-----------------
<TABLE>
<CAPTION>
Monthly Square
Term Annual Basic Rent Installment Foot Rate
---- ------------------ ----------- ---------
<S> <C> <C> <C>
1/1/94-12/31/97 $385,607.25 $32,133.94 $15.75
1/1/98-12/31/99 422,331.75 35,194.31 17.25
l/1/00-12/31/03 452,935.50 37,744.63 18.50
</TABLE>
<PAGE>
(2) Advance Rent: None.
------------
(3) Security Deposit: None.
----------------
C. Adjustments.
-----------
(1) Base Operating Costs: The Base Operating Costs for the
--------------------
Premises shall be the Operating Costs for the Operating Year which commenced
January 1, 1994, multiplied by Tenant's Fractional Share.
(2) Adjustment Period Consumer Price Index. Intentionally omitted
--------------------------------------
D. Term
----
(1) Term: Ten (10) years and zero (0) months.
-----
(2) Lease Commencement Date: January 1, 1994.
-----------------------
(3) Termination Date: December 31, 2003.
-------------
E. Notice and Payment
------------------
(1) Tenant Notice
Address: RWD Technologies, Inc.
Park View #1200
10480 Little Patuxent Parkway
Columbia, MD 21044
Attn: James B. Sinclair
Director, Business Operations
With a copy to: Lee A. Sheller, Esquire
Piper & Marbury
36 South Charles Street
Baltimore, MD 21201
(2) Landlord Notice
Address: Columbia Management, Inc.
10420 Little Patuxent Parkway
Suite 100
Columbia, Maryland 21044
with a copy to: Columbia Management, Inc.
c/o The Rouse Company
10275 Little Patuxent Pkwy
Columbia, Maryland 21044
Attention: General Counsel
2
<PAGE>
(3) Landlord Payment
Address: Columbia Management, Inc.
P.O. Box 64385
Baltimore, Maryland 21264-4385
F. Broker Mr. Robert Oare
------ Manekin Corporation
7165 Columbia Gateway Drive
Columbia, MD 21046
2. DEFINITIONS.
-----------
For purposes of this Lease, the Schedules attached and made a part hereof
and all agreements supplemental to this Lease, the following terms shall have
the respective meanings as set forth in the following Section, subsection,
paragraph and Schedule references:
Reference
Additional Rent...................................................... 6.3
Additional Premises..................................................... 3
Alterations.......................................................... 15.1
Annual Basic Rent................................................. 1.B.(1)
Bankruptcy Code...................................................... 19.1
Base Operating Cost............................................... 1.C.(2)
Building.......................................................... 1.A.(1)
Casualty............................................................. 17.1
Common Area.......................................................... 10.1
Default Rate.......................................................... 6.5
Event of Default..................................................... 20.1
Event of Tenant's Bankruptcy......................................... 19.1
Expansion Space....................................................... 3.2
Fractional Share...................................................... 7.1
Insolvency Laws...................................................... 19.1
Landlord Notice Address.............................................. 1.E.
Landlord Payment Address............................................. 1.E.
Lease Commencement Date........................................... 1.D.(2)
Mortgage............................................................... 27
Mortgagee.............................................................. 27
Operating Costs....................................................... 7.1
Operating Costs Statement............................................. 7.2
Operating Year........................................................ 7.1
Premises.......................................................... 1.A.(3)
Prevailing Market Rate (Renewal Term)................................. 4,3
Prior Lease..........................................................34.21
Property.............................................................. 7.1
Public Areas................................................... Schedule C
Reduction Fee......................................................... 3.5
Renewal Term.......................................................... 4.3
Rental Area............................................................. 3
Rental Year........................................................... 6.1
3
<PAGE>
Rules and Regulations................................................... 9
Security Deposit.................................................. 1.B.(3)
Surrendered Premises.................................................. 3.5
Tenant Notice Address................................................ 1.E.
Tenant's Share of Increased Operating Costs........................... 7.2
Tenant's Personal Property........................................... 15.3
Term.................................................................. 4.1
Termination Date.................................................. 1.D.(3)
Transfer............................................................... 25
3. LEASED PREMISES; MEASUREMENT EXPANSION; DOWNSIZING.
--------------------------------------------------
3.1. Leased Premises; Measurement. Landlord hereby leases to Tenant, and
----------------------------
Tenant hereby leases from Landlord, the Premises as shown on the plan attached
hereto as Schedule A, together with the right to use, in common with others, the
----------
Common Area. The rental area of the Premises ("Rental Area") has been computed
in accordance with the applicable formula set forth in Schedule X attached
----------
hereto and made a part hereof.
3.2. Right to Expand. Landlord acknowledges that Tenant will have a need
---------------
to periodically expand into additional or larger space ("Expansion Space")
during the Term. Subject to the terms and conditions set forth below, Landlord
shall accommodate Tenant's expansion needs for expansion of the Premises. Tenant
acknowledges that the Expansion Space does not have to be contiguous to any of
the existing Premises. Any costs associated with making such Expansion Space
available for lease by Tenant shall be borne by Landlord, except as provided
below.
A. Procedure.
Tenant shall notify Landlord in writing of its desire to exercise
its right to expand and the approximate amount of space it desires. Landlord
shall notify Tenant, within ten (10) days of receiving Tenant's notice, as to
what space is or will be available. Tenant shall have ten (10) days from
Landlord's notice to identify the space it desires to lease in the Building and
in any other Columbia Corporate Center building in Town Center.
If, and only if, (i) Tenant either (a) requires more than 5,000
square feet during any given eighteen month period or (b) requests to lease
space which is occupied when other space is or will be vacant in the Building or
(c) Tenant occupies a total of more than 60,000 square feet (inclusive of the
current Premises defined in 1.A.[3]) and (ii) Landlord must relocate such
occupants to accommodate Tenant, then Tenant shall bear all costs incurred by
Landlord to relocate such occupants (including, without limitation, costs for
improving the new space for relocated occupants, moving and reprinting
stationery, and installation and hook-up of computer and telephone equipment),
which costs shall be included in Annual Basic Rent for the Expansion Space and
amortized over the remaining initial Term of the Lease. Landlord shall make
reasonable efforts to minimize the costs of relocation. Where Tenant has
requested a portion of an occupied space, Tenant shall not be required to lease
all of such space but shall be required to pay all costs for relocating the
occupants thereof.
Landlord shall have at least three (3) months from the date the
Expansion Space is identified by Tenant to make the space available for lease by
Tenant. If Tenant is to expand into occupied space, the amount of time that
Landlord has to provide such space to Tenant shall be increased to the same
length of time that Landlord is required to give an occupant notice that it will
be relocated
4
<PAGE>
but in no event less than thirty (30) days nor more than ninety (90) days
provided Landlord is not required to give an occupant more than ninety (90) days
notice under the terms of such occupant's lease.
If, after reasonable efforts, Landlord cannot provide Tenant with
Expansion Space in the Building, it shall have the right to satisfy Tenant's
expansion requirement in any other Columbia Corporate Center building in Town
Center.
If Landlord is not able to satisfy Tenant's expansion requirements
in accordance with the above, Landlord shall not be subject to any liability
therefor, and this Lease shall remain unchanged and continue in full force and
effect for the balance of the Term, however, Tenant may enter into a lease with
another landlord for such expansion space.
If Tenant exercises its right to downsize the Premises pursuant to
Section 3.5, any and all costs to Landlord associated with any subsequent
expansion by Tenant shall be borne by Tenant in the form of an adjustment to the
Annual Basic Rent for such Expansion Space to reflect the amortization of such
expansion costs over the remainder of the initial Term.
B. Rent for Expansion Space.
Subject to the provisions of Section 3.4, the Annual Basic Rent for
the Expansion Space shall be the rental rate set forth in Section 1.B. which
rate includes the cost to repaint and professionally clean the carpet in the
Expansion Space and an amount equal to 25% of the commission due to a broker, if
any, for Tenant leasing the Expansion Space; (a) improvements to the Expansion
Space shall be subject to the terms and conditions set forth in the next
paragraph; (b) there shall not then exist an uncured Event of Default of the
Lease and Tenant shall be in possession of the Premises at the time Tenant
exercises this right to expand; and (c) Tenant shall execute documents in the
form and substance reasonably required by Landlord to reflect the expansion of
the Premises.
C. Improvements to Expansion Space.
Tenant agrees to lease any Expansion Space "as is" except that,
prior to Tenant's occupancy of any Expansion Space, Landlord shall paint such
Expansion Space in a building standard color selected by Tenant and
professionally clean the carpet. To the extent Tenant requires additional
improvements or alterations to any Expansion Space, such improvements or
alterations shall be subject to the provisions of Sections 3.4 and 15.1 of this
Lease and "Unavoidable Delays" as hereinafter defined. If, in Landlord's best
reasonable judgment, additional time is needed to substantially complete any
extensive or special improvements 10 the Expansion Space, the date that Landlord
must deliver such Expansion Space to Tenant for occupancy shall be extended
beyond the original required date, as necessary. "Unavoidable Delays" as used
herein shall mean delays caused by acts of God, strikes, civil commotion, riot,
wars, governmental regulations, adverse weather conditions or any other
circumstances beyond the reasonable control of Landlord
3.3. Right of First Offer. Landlord and Tenant agree that commencing
--------------------
with the Lease Commencement Date and continuing throughout the Term, provided
Tenant is in possession of the Premises and there shall not then exist an
uncured Event of Default of this Lease and subject to the superior rights of
third parties, Tenant shall have the right of first offer to lease from Landlord
all space in the Building to which a lease expires without a pre-existing right
of renewal or extension during the initial Term ("Additional Premises"). For the
purpose of helping Tenant to plan for expansions under this Section, upon
reasonable written notice to Landlord, Landlord shall provide Tenant with a
schedule of possible Additional Premises which schedule shall indicate the
location, square footage, date the lease
5
<PAGE>
for the location expires, any option(s) to renew and other right(s) under the
lease and the date(s) such option(s) to renew and right(s) must exercised for
any possible Additional Premises. Tenant agrees to keep confidential any
information provided on such schedules.
If and as Additional Premises become available, Landlord shall so notify
Tenant in writing. The Annual Basic Rent shall be at the rental rate set forth
in Section 1.B.(1), plus the cost of any improvements.
Upon receipt of Landlord's notice, Tenant shall have ten (10) business days
after the date of such notice to accept or reject Landlord's proposal in
writing. If Tenant rejects Landlord's proposal, Tenant's right of first offer
for the then-available and offered Additional Premises shall terminate and be of
no further force and effect. Tenant's declination of any of the then-available
and offered Additional Premises shall not affect its right to this space in the
future under Tenant's Right to Expand, nor other space which may become
available pursuant to the terms hereof.
The foregoing right of first offer shall not be severed from this Lease or
separately sold, assigned or transferred and shall be subject to the following
additional conditions, namely: (a) that the Annual Basic Rent for any Additional
Premises shall be at the rental rate set forth in Section 1.B.(l); (b) that the
lease term for any Additional Premises shall run concurrently with this Lease;
(c) that the square footage of the Additional Premises shall be credited towards
the 5,000 square feet of expansion space that Landlord is required to make
available during any l8-month period during the initial Term and (d) that Tenant
shall enter into an amendment to this Lease to incorporate the Additional
Premises and make corresponding modifications to the provisions of this Lease.
3.4. Cost of Improvements for Additional Premises and Expansion Space. In
----------------------------------------------------------------
the event Tenant requests that Landlord perform building improvements to the
Additional Premises or Expansion Space, the costs for such building improvements
shall be amortized over the remaining initial Term of the Lease, without
interest, using the following formula, namely: (a) for any building improvements
to the Additional Premises or Expansion Space made between January 1, 1994
through December 31, 1998, 50% of the total cost of the improvements shall be
amortized over the remainder of the initial Term; (b) for any standard
improvements to the Additional Premises or Expansion Space made between January
1, 1999 through December 31, 2000, 75% of the total cost of the improvements
shall amortized over the remainder of the initial Term; and (c) for any
building improvements to the Additional Premises or Expansion Space made between
January 1, 2001 through December 31, 2003, 100% of the total cost of the
improvements shall be amortized over the remainder of the initial Term. Any
improvements requested by Tenant which are in excess of building standard
improvements shall be paid by Tenant promptly upon billing by Landlord and no
portion thereof shall be paid by Landlord or amortized. As used herein "building
--------
standard improvements" shall mean the level and quality of improvements
- ---------------------
existing on the eleventh floor of the Premises as of the commencement date of
--------------------------------------------------------------------
the Lease.
- ---------
In each instance that Landlord is to perform additional improvements to the
Additional Premises or Expansion Space, Landlord shall provide Tenant with a
good faith estimate of any costs (relocation costs, construction costs,
commissions, etc.) which are to be charged to Tenant and amortized over the
Term. Tenant shall have the right to elect not to expand or require
improvements if, in Tenant's judgment, the costs are too high. If Tenant elects
not to expand or require improvements, Tenant shall reimburse Landlord, as
Additional Rent, for all the planning costs it incurred for all of the offered
space or spaces.
If Landlord offers Tenant more than one location for Expansion Space at any
one time, and Tenant elects not to take ail of the locations offered, Tenant
shall reimburse Landlord, as Additional Rent, for all of the locations offered
using the following formula:
6
<PAGE>
Total Planning Costs less a value of ten cents ($0.10) per square
foot multiplied by the amount of square footage selected for leasing.
If, after approving the estimated planning costs, Tenant elects to proceed
with the expansion of the Premises, Landlord shall act in a reasonable manner
with respect to relocation or construction in order to keep the costs as close
as practicable to the estimate. All improvements shall be made in accordance
with plans and specifications mutually approved by Landlord and Tenant.
In addition to the aforesaid improvements costs, any commissions to be paid
to a broker due to Tenant's expansion, shall be amortized over the remainder of
the initial Term using the following formula, namely: (a) for any commissions
due between January 1, 1994 through December 31, 2000, 75% of the commission
shall be amortized over the remainder of the initial Term and (b) for any
commissions due between January 1, 2001 through December 31, 2003, 100% of the
commission shall be amortized over the remainder of the initial Term.
3.5. Right to Surrender Additional Premises and Expansion Space. Tenant
----------------------------------------------------------
covenants and agrees that it shall continue to lease the original 24,483 square
feet of Rental Area throughout the initial Term, however, subject to the terms
and conditions set forth hereinafter, Tenant shall have the right to surrender
up to 50% of the total Additional Premises and Expansion Space leased by Tenant
(the "Surrendered Premises").
With regard to downsizing the Premises, Tenant acknowledges and agrees
that: (a) Tenant shall notify Landlord in writing of its desire to surrender a
portion of the Additional Premises or Expansion Premises not less than six (6)
full months prior to the intended date of downsizing; (b) Tenant shall pay
Landlord a fee for downsizing the Premises ("Reduction Fee") equal to the sum
of:
(i) the unamortized improvement costs, if any, associated with initial
construction of the Surrendered Premises including, without limitation, all
costs Landlord incurred, if any, to relocate previous occupants in order
to accommodate Tenant's expansion requirements; plus
(ii) unamortized Broker commissions, if any, previously paid by Landlord
for the Surrendered Premises; plus
(iii) the difference between the average annual rental rate paid to date
and the average annual rental rate to be paid over the initial Term
multiplied by the square footage of the Surrendered Premises, multiplied by
the number of years Tenant occupied the Surrendered Premises; plus
(iv) the greater of four (4) months rent or rent due through the end of the
calendar year in which the right is exercised for the Surrendered Premises
but in no event more than six (6) months rent
(c) the Surrendered Premises cannot be in such a configuration that it is
unleaseable, as reasonably determined by Landlord; and (d) this right to
downsize is not exercisable in order to relocate to space elsewhere in Howard
County, unless Tenant is relocating to another property in the real estate
portfolio of Landlord or a subsidiary or affiliate of Landlord. The Reduction
Fee shall be paid within thirty (30) days of Landlord's notification to Tenant
as to the amount of the Reduction Fee and the basis of the calculation.
4. TERM AND COMMENCEMENT OF TERM.
-----------------------------
4.1. Term. The term of this Lease (the "Term") shall commence on the Lease
-----
Commencement Date and shall be for the period of time specified in Section
1.D.(l).
7
<PAGE>
4.2. Option to Renew. Provided Tenant is in possession of the Premises and
---------------
there shall not then exist an uncured Event of Default of this Lease, Tenant
shall have one (1) option to renew the Term of this Lease for one (1) additional
period of five (5) years ("Renewal Term") to commence immediately upon the
expiration of the initial Term, upon the same terms, covenants and conditions
as contained in this Lease, except that:
(i) the Annual Basic Rent during said Renewal Term shall be at ninety-five
percent (95%) of the "Prevailing Market Rate" as defined hereinafter,
(ii) there shall be no further option to renew except as specifically
provided herein,
(iii) the Annual Basic Rent during the Renewal Term shall include a
refurbishment allowance of Five Dollars ($5.00) per square foot of Rental Area
("Refurbishment Allowance") for any portion of the Premises occupied by Tenant
continuously for more than a full five (5) year period, except, however, that
any part of the Premises subject to the "Full Floor Allowance" set forth in
Section 5.3 herein shall not be subject to the Refurbishment Allowance and
(iv) Tenant's right to expand shall not be subject to the provisions of
Section 3.2 but shall be mutually determined at the time the need arises.
"Prevailing Market Rate" shall mean the current market rental rate for the
Premises as determined by Landlord but shall not be more than the rate at which
Landlord would offer such space or space of approximately the same size and
location to a third party. In no event, however, shall the Annual Basic Rent
during the Renewal Term be less than the Annual Basic Rent reserved under this
Lease for the Rental Year immediately preceding the Renewal Term for which the
determination is being made.
In order to exercise the option granted herein, Tenant shall notify
Landlord, in writing, not less than nine (9) months prior to the expiration of
the initial Term that it is considering exercising its option to renew the Term.
On receipt of such notice, Landlord will, in writing, not later than thirty (30)
days after receipt of the notice from Tenant, quote to Tenant what the new
Annual Basic Rent will be for the ensuing Renewal Term. Tenant shall then notify
Landlord, in writing, not later than fifteen (15) days after notice received of
such Annual Basic Rent, as to whether or not it will exercise the option herein
granted and if no such notice of exercise of the option is received, the option
shall be deemed waived. In the event Tenant exercises the option, Landlord and
Tenant shall execute a modification to this Lease acknowledging such renewal and
setting forth the new Annual Basic Rent
If Tenant notifies Landlord, within the aforesaid fifteen-day period, that
Tenant disputes the Prevailing Market Rate quoted by Landlord, the parties
shall, during the following thirty (30) days, negotiate in good faith to
determine the Annual Basic Rent for the renewal Term. If within said thirty-day
period the parties are unable to agree on the Annual Basic Rent, then within ten
(10) days thereafter, each party shall select a qualified appraiser experienced
in appraising commercial rental properties in the vicinity of the Building, who
shall submit appraisals for the Premises within thirty (30) days of their
appointment. If the difference between the appraisals is five percent (5%) or
less, the Prevailing Market Rate shall be determined to be the average of the
two appraisals. If the difference is greater than five percent (5%), then the
two appraisers shall select a third qualified appraiser who shall submit an
appraisal within thirty (30) days following the submission of the first
appraisals. The Prevailing Market Rate shall then be the average of the two (2)
closest appraisals. The fees of each appraiser shall be paid by the party
appointing the appraiser and the fees of the third appraiser, if any, shall be
shared equally by the parties.
8
<PAGE>
The option shall be void if, at the time of exercise of such option, Tenant
is not in possession of the Premises or is in default under this Lease or if
Tenant fails to deliver the requisite notice thereof within the time period
specified above. The option granted herein shall not be severed from this Lease,
separately sold, assigned or transferred.
4.3. Early Termination of Lease. Subject to the provisions of Section 11,
--------------------------
provided there shall not then exist an uncured Event of Default of any term,
covenant or condition of this Lease, Tenant shall have the right to terminate
this Lease if essential services for the Building are interrupted and Landlord
cannot restore the same within six (6) months after the date of the interruption
to reasonably the same conditions that existed before the interruption. Tenant
shall exercise the right granted herein by delivering written notice to Landlord
of its intention to terminate within thirty (30) days before the expiration of
the six month period for Landlord to restore services. Failure by Tenant to
deliver such written notice within the time period stipulated herein shall
constitute a waiver of Tenant's right of termination.
If Tenant elects to terminate this Lease as provided herein, Landlord shall
pay Tenant for the reasonable costs incurred by Tenant to physically relocate to
another location which cost shall include the cost for reprinting its
stationery. Such payment shall be made to Tenant within thirty (30) days after
Tenant delivers to Landlord documentation of costs incurred for such relocation.
If this Lease is terminated as provided herein, the parties agree to
execute an instrument which confirms and effects a release and surrender of all
right, title and interest in and to the Premises pursuant to the terms of this
Lease and otherwise.
5. ACCEPTANCE OF PREMISES AND TENANT IMPROVEMENTS.
----------------------------------------------
5.1. Acceptance of Premises. Tenant acknowledges and agrees that Tenant
----------------------
has been in occupancy of the Premises pursuant to the Prior Lease and,
therefore, Tenant has (a) accepted the Premises in their present condition,
(b) acknowledged that the Premises are suitable for Tenant's intended use, and
(c) agreed that Landlord shall not be required to make any improvements to the
Premises except as set forth below.
5.2. Tenant Improvements/Improvement Allowance. During calendar year 1994
-----------------------------------------
or 1995, upon Tenant's written request, Landlord shall, in a manner reasonably
determined by Landlord in its sole discretion, perform improvements to the
Premises in accordance with plans and specifications (the "Plans") prepared by
Landlord and mutually approved by Landlord and Tenant (the "Improvements").
Landlord shall bear the cost of the Improvements in an amount not to exceed
Sixty-one Thousand Seven Hundred Thirty Dollars ($61,730.00) ("Improvement
Allowance"). The Tenant Allowance may be used by Tenant in a lump sum or in
increments during calendar years 1994 and 1995. All materials shall be building-
standard materials unless otherwise specified in the Plans. Cost incurred by
Landlord to perform the Improvements shall include Landlord's standard
construction management fee of fifteen percent (15%) computed on the total cost
of construction, including but not limited to the cost of developing, preparing
and modifying the Plans.
Any other improvements to the Premises not shown on the Plans are subject
to Landlord's prior written approval and such improvements shall be performed by
Landlord, the cost thereof together with any costs incurred by Landlord in
excess of the Improvement Allowance shall be paid by Tenant to Landlord within
thirty (30) days following receipt of Landlord's invoice for same. Landlord
shall provide Tenant with a good faith estimate of such costs and shall act in a
reasonable manner so as to keep such costs as close as practicable to the
estimate.
9
<PAGE>
Landlord shall have the right to enter the Premises to construct the
Improvements, and such entry and work by Landlord, its agents, servants,
employees or contractors for such purpose shall not constitute an actual or
constructive eviction, in whole or in part, entitle Tenant to any abatement or
diminution of rent, relieve Tenant of any of its obligations under this Lease,
be deemed an interference with Tenant's right to peaceful and quiet enjoyment of
the Premises, or impose any liability upon Landlord or its agents, employees or
contractors except for damage caused by its negligence or willful misconduct.
Landlord shall use reasonable efforts to perform the work on the Improvements in
such a fashion as to minimize the disruption to Tenant's business.
5.3. Full Floor Allowance. Except for space on the eleventh floor of the
--------------------
Building, after Tenant shall have occupied any full floor of the Building
continuously for a full five (5) year period, Landlord shall provide Tenant with
an allowance equal to One Dollar ($1.00) per square foot of Premises for said
floor for each full year remaining under the initial Term of the Lease ("Full
Floor Allowance"). The Full Floor Allowance shall be used by Tenant to renovate
that portion of the Premises where the Full Floor Allowance is earned and must
be used by Tenant in a lump sum within one (1) year after the date it is
accrued. Tenant acknowledges and agrees that the Full Floor Allowance shall not
apply to any Renewal Term. During the sixth Rental Year of the initial Term,
Landlord shall provide Tenant with an allowance equal to five dollars ($5.00)
per square foot of Premises for all space on the eleventh floor of the Building
that Tenant occupies continuously for the first five (5) rental Years of the
initial Term.
6. RENT
----
6.1. Annual Basic Rent. Tenant shall pay to Landlord during each Rental
-----------------
Year of the Term fixed rent equal to the Annual Basic Rent as set forth in
Section 1.B.(1) Annual Basic Rent shall be payable in advance on the first day
of each month of the Term in equal monthly installments, without notice, demand,
abatement (except as otherwise specifically provided in this Lease), deduction
or set-off. If the Term of this Lease shall commence on a day other than the
first day of a month, the first payment shall include any prorated Annual Basic
Rent for the period from the Lease Commencement Date to the first day of the
first full calendar month of the Term.
"Rental Year" shall mean each successive twelve (12) calendar month period
occurring during the Term of this Lease, or portion of such a period, with the
first Rental Year commencing as of the Lease Commencement Date and ending on the
last day of the twelfth full calendar month thereafter and the last Rental Year
ending on the Termination Date. For any Rental Year of less or more than twelve
full months, Annual Basic Rent shall be adjusted accordingly. All Annual Basic
Rent and Additional Rent shall be paid to Landlord at the Landlord Payment
Address.
6.2. Intentionally omitted.
6.3. Additional Rent. Tenant shall pay to Landlord as additional rent
---------------
("Additional Rent") all other sums of money which shall become due and payable
hereunder, including but not limited to the payment of Tenant's Share of
Increased Operating Costs. Unless a date for payment is otherwise specified
herein, all Additional Rent shall be due and payable within thirty (30) days of
invoicing by Landlord
6.4. Intentionally omitted.
6.5. Late Charge. If Tenant fails to make any payment of Annual Basic
-----------
Rent, Additional Rent, or other sums required to be paid hereunder on or before
the date when payment is due, Tenant shall pay to Landlord, as Additional Rent,
a late charge to cover extra administrative costs and loss of use of funds
10
<PAGE>
equal to (a) six percent (6%) of the amount due for the first month or portion
thereof that such amount is past due plus (b) interest on the amount remaining
unpaid thereafter at the rate of eighteen percent (18%) per annum; provided,
however, that should such late charge at any time violate any applicable law,
the late charge shall be reduced to the highest rate permitted by law (the
foregoing rate being herein referred to as the "Default Rate"). Landlord's
acceptance of any rent after it has become due and payable shall not excuse any
delays with respect to future rental payments or constitute a waiver of any of
Landlord's rights under this Lease.
Notwithstanding the above, the late charges set forth above shall be waived
up to two (2) times in any twelve (12) month period, provided that Tenant pays
the above described sums when due.
7. OPERATING COST ESCALATIONS.
--------------------------
7.1. Definitions. For purposes of this Lease, the following definitions
-----------
shall apply:
a. "Operating Year" means each respective calendar year or part
thereof during the Term of this Lease or any renewal thereof, or at the option
of Landlord, any other twelve month period or part thereof designated by
Landlord during the Term of this Lease or any renewal thereof.
b. "Property" means the Building, the land upon which the Building
is situated, the Common Area, and such additional facilities in subsequent years
as may be determined by Landlord to be reasonably necessary or desirable for the
management, maintenance or operation of the Building.
c. "Operating Costs" means all expenses and costs (but not
specific costs which are allocated or separately billed to and paid by specific
tenants) of every kind and nature which Landlord shall pay or become obligated
to pay because of or in connection with owning, operating, managing, painting,
repairing, insuring and cleaning the Property, including, but not limited to,
the following:
(i) cost of all supplies and materials used, and labor
charges incurred, in the operation, maintenance, decoration, repairing and
cleaning of the Property, including janitorial service for all floor area leased
to tenants;
(ii) cost of all equipment purchased or rented which is
utilized in the performance of Landlord's obligations hereunder, and the cost of
maintenance and operation of any such equipment;
(iii) cost of all maintenance and service agreements for the
Property and the equipment therein, including, without limitation, alarm
service, security service, window cleaning, and elevator maintenance;
(iv) accounting costs, including the cost of audits by
certified public accountants, outside legal and engineering fees and expenses
incurred in connection with the operation and management of the Property:
(v) wages, salaries and related expenses of all on-site and
off-site agents or employees engaged in the operation, maintenance, security and
management of the Property; provided, however, the wages, salaries and related
expenses of any agents or employees not exclusively engaged in the operation,
maintenance, security and management of the Property shall be apportioned as
deemed appropriate by Landlord;
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(vi) cost of all insurance coverage for the Property from time to
time maintained by Landlord, including but not limited to the costs of premiums
for insurance with respect to personal injury, bodily injury, including death,
property damage, business interruption, workmen's compensation insurance
covering personnel and such other insurance as Landlord shall deem necessary,
which insurance Landlord may maintain under policies covering other properties
owned by Landlord in which event the premium shall be reasonably allocable, the
wages, etc. of employees not exclusively engaged in the Building should be
apportioned in accordance with their work actually performed for the Building;
(vii) cost of repairs, replacements and general maintenance to the
Property, including without limitation the mechanical, electrical and heating,
ventilating and air-conditioning equipment and/or systems (excluding alterations
attributable solely to tenants, capital improvements unless they are included
under c(xi), and repairs and general maintenance paid by proceeds of insurance
or by tenants or other third parties);
(viii) any and all Common Area maintenance, repair or redecoration
(including repainting) and exterior and interior landscaping;
(ix) cost of removal of trash, rubbish, garbage and other refuse
from the Property as well as removal of ice and snow from the sidewalks on or
adjacent to the Property;
(x) all charges for electricity, gas, water, sewerage service,
heating, ventilation and air-conditioning and other utilities furnished to the
Property (including legal, architectural and engineering fees incurred in
connection therewith);
(xi) amortization of capital improvements made to the Building after
the year of substantial completion of the Building, which improvements were
undertaken by Landlord with the reasonable expectation that the same would
result in more efficient operation of the Building or are made by Landlord
pursuant to any governmental law, regulation or action not applicable to the
Building at commencement of construction of the Building; provided that the cost
of each such capital improvement, together with any financing charges incurred
in connection therewith, shall be amortized over the useful life thereof and
only that portion attributable to each Operating Year shall be included herein
for such Operating Year;
(xii) a management fee for the operation and management of the
Property which is currently six percent (6%) of gross revenues;
(xiii) costs and expenses incurred in order to comply with covenants
and conditions contained in liens, encumbrances and other matters of public
record affecting the Property; and
(xiv) all real estate taxes, assessments (special or otherwise),
levies, ad valorem charges, benefit charges, water and sewer rents, rates and
charges, privilege permits and any other governmental liens, impositions or
charges of a similar or dissimilar nature, and any payments in lieu of such
charges, regardless of whether any such items shall be extraordinary or
ordinary, general or special, foreseen or unforeseen, levied, assessed, or
imposed on or with respect to all or any part of the Property or upon the rent
due and payable hereunder by any governmental authority (all of the aforesaid
being hereinafter referred to as "Taxes"); provided, however, that if at any
time during the Term or any extension thereof the method of taxation prevailing
at the commencement of the Term shall be altered or eliminated so as to cause
the whole or any part of the above items which would otherwise be included in
Taxes to be replaced by a levy, assessment or imposition, which is (A) a tax
assessment, levy, imposition or charge based on the rents received from the
Property whether or not wholly or partially
12
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a capital levy or otherwise, or (B) a tax, assessment, levy, imposition or
charge measured by or based in whole or in part upon all or any portion of the
Property and imposed on Landlord, or (C) a license fee measured by the rent
payable by Tenant to Landlord, or (D) any other tax, levy, imposition, charge or
license fee, however described or imposed, then such levy, assessment or
imposition shall be included in Taxes; provided, however, in no event shall
Tenant be required to pay any inheritance, estate, succession, income, profits
or franchise taxes unless they are in lieu of or in substitution for any of the
above items which would otherwise be included in Taxes; any substitution taxes
shall be included only to the extent that they are in substitution for
ad valorem taxes;
- -- -------
Any of the foregoing costs which under generally accepted accounting
principles would be considered capital expenditures shall be amortized in
accordance with generally accepted accounting principles.
Notwithstanding the above, Operating Costs shall not include
(a) payments of principal and interest on any mortgages, deeds of trust or other
financing instruments relating to the financing of the Property, (b) leasing
commissions or brokerage fees, (c) costs associated with preparing, improving or
altering for space for any leasing or releasing of any space within the
Building, (d) the costs incurred by Landlord to implement changes to the Common
Area and the Building to comply with the requirements of The Americans With
Disabilities Act of 1990, subject, however, to the provisions of Section 15.1 of
this Lease; (e) all payments under capital leases and the capital cost
components of operating lease payments which contain capital cost components,
(f) all expenses of any nature with respect to which Landlord receives
reimbursement from Tenant or any other tenant pursuant to any other provisions
of a lease, (g) marketing cost (as well as leasing commissions and brokerage
fees) and (1) all other costs related to Landlord as an entity, including, but
not limited to, legal, accounting and other fees for the preparation of tax
returns or financial statements or the valuation of the Building for any purpose
other than contesting real estate taxes.
For any Operating Year during which less than ninety-five percent
(95%) of the Rental Area of the Building is occupied, the calculation of that
portion of Operating Costs which vary with occupancy shall be adjusted to equal
the Operating Costs which Landlord reasonably projects would have been incurred
had the Building been ninety-five percent occupied during such Operating Year.
d. "Fractional Share" shall mean a fraction, the numerator of which is
the Rental Area of the Premises and the denominator of which is the total Rental
Area of all rental space in the Building. For the purposes of this subparagraph,
the Rental Area of all rental space in the Building shall mean the sum of the
rental Area of all office space in all floors of the Building as determined by
Landlord. The sum of the Operating Costs passed through to all tenants shall not
exceed one hundred percent (100%) of the actual Operating Costs.
7.2. Payment of Operating Cost Escalation. For each Operating Year from
------------------------------------
and after January 1, 1995, Tenant shall pay to Landlord, in the manner provided
herein, Tenant's Share of Increased Operating Costs which shall be computed by
multiplying the Operating Costs for the Operating Year by Tenant's Fractional
Share and subtracting the Base Operating Costs from the result obtained;
provided, however, that for the Operating Years during which the Term begins and
ends, Tenant's Share of Increased Operating Costs shall be prorated based upon
the actual number of days Tenant occupied, or could have occupied, the Premises
during each such Operating Year.
Notwithstanding the foregoing, Tenant's Share of Increased Operating Costs
(excluding taxes, insurance and utilities) for the Operating Year commencing
from and after January 1, 1995, shall not exceed six percent (6%) of the Base
Operating Costs (excluding taxes, insurance and utilities). For each
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<PAGE>
Operating Year thereafter occurring during each of the second through fifth
Rental Years of the Term, Tenant's Share of Increased Operating Costs (excluding
taxes, insurance and utilities) shall not exceed one hundred six percent (106%)
of Tenant's Share of Increased Operating Costs (excluding taxes, insurance and
utilities) for the previous Operating Year. For each Operating Year occurring
during each of the sixth through tenth Rental Years of the Term, Tenant's Share
of Increased Operating Costs (excluding taxes, insurance and utilities) shall
not exceed one hundred eight percent (108%) of Tenant's Share of Increased
Operating Costs (excluding taxes, insurance and utilities) for the previous
Operating Year.
Tenant's Share of Increased Operating Costs shall be paid, in advance,
without notice, demand, abatement (except as otherwise specifically provided in
this Lease), deduction or set-off, on the first day of each calendar month
during the Term, said monthly amounts to be determined on the basis of estimates
prepared by Landlord on an annual basis and delivered to Tenant prior to the
commencement of each Operating Year. If, however, Landlord fails to furnish any
such estimate prior to the commencement of an Operating Year, then (a) until the
first day of the month following the month in which such estimate is furnished
to Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to the monthly sum payable by Tenant to Landlord under this subsection 7.2
in respect of the last month of the preceding Operating Year; (b) promptly after
such estimate is furnished to Tenant, Landlord shall give notice to Tenant
whether the installments of Tenant's Share of Increased Operating Costs paid by
Tenant for the current Operating Year have resulted in a deficiency or
overpayment compared to payments which would have been paid under such estimate,
and Tenant, within ten (10) days after receipt of such estimate, shall pay any
deficiency to Landlord and any overpayment shall be credited against future
payments required by Tenant under such estimate; and (c) on the first day of the
month following the month in which such estimate is furnished to Tenant and
monthly thereafter throughout the remainder of the Operating Year, Tenant shall
pay to Landlord the monthly payment shown on such estimate. Landlord may at any
time or from time to time furnish to Tenant a revised estimate of Tenant's Share
of Increased Operating Costs for such Operating Year, and in such case,
Tenant's monthly payments shall be adjusted and paid or credited, as the case
may be, substantially in the same manner as provided in the preceding sentence.
After the end of each Operating Year commencing from and after January 1,
1995, Landlord shall determine actual Operating Costs for such Operating Year
and shall provide to Tenant an "Operating Costs Statement" setting forth the
actual Tenant's Share of Increased Operating Costs for such Operating Year.
Within thirty (30) days after delivery of the Operating Costs Statement, Tenant
shall pay Landlord any deficiency between the amount shown as Tenant's Share of
Increased Operating Costs in the Operating Costs Statement and the total of the
estimated payments made by Tenant during the Operating Year. In the event of
overpayment, such amount shall be credited against future payments required on
account of Tenant's Share of Increased Operating Costs, or if the Term has
expired, Landlord shall refund to Tenant the amount of any overpayment.
Each Operating Costs Statement provided by Landlord shall be conclusive and
binding upon Tenant unless within thirty (30) days after receipt thereof, Tenant
notifies Landlord that it disputes the correctness thereof, specifying those
respects in which it claims the Operating Costs Statement to be incorrect.
Unless resolved by the parties, such dispute shall be determined by arbitration
in accordance with the then prevailing rules of the American Arbitration
Association. If the arbitration proceedings result in a determination that the
Operating Costs Statement contained an aggregate discrepancy of less than five
percent (5%), Tenant shall bear all costs in connection with such arbitration.
Pending determination of the dispute, Tenant shall pay any amounts due from
Tenant in accordance with the Operating Costs Statement, but such payment shall
be without prejudice to Tenant's claims Tenant, for a period of thirty (30) days
after delivery of the Operating Costs Statement in each Operating Year and
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<PAGE>
upon at least ten (10) days written notice to Landlord, shall have reasonable
access during normal business hours to the books and records of Landlord
relating to Operating Costs for the purpose of verifying the Operating Costs
Statement, Tenant to bear all costs relating to such inspection. Tenant shall
reimburse Landlord for any cost for photocopying that it desires.
Notwithstanding the foregoing, upon Tenant's written request, Landlord will
provide Tenant with a detailed breakdown of expense accounts for Tenant's review
and Tenant shall have one (1) year after receipt of the Operating Cost Statement
to notify Landlord in writing of its intention to dispute the correctness of the
Operating Cost Statement;
8. USE, CARE AND REPAIR OF PREMISES BY TENANT.
------------------------------------------
8.1. Permitted Uses. Tenant shall use and occupy the Premises solely for
--------------
general office purposes in accordance with applicable zoning regulations and for
no other purpose. Tenant shall not do anything or permit anything to be done in
or on the Premises, or bring or keep anything therein which will, in any way,
obstruct, injure, annoy or interfere with the rights of Landlord or other
tenants, or subject Landlord to any liability for injury to persons or damage to
property, or interfere with the good order of the Building, or conflict with the
laws, rules or regulations of any Federal, state or city authority.
8.2. Care of Premises. Tenant shall, at its sole expense, keep the
----------------
Premises and the improvements and appurtenances therein in good order and
condition consistent with the operation of a first-class office building, and at
the expiration of the Term, or at the sooner termination of this Lease as herein
provided, deliver up the same broom clean and in as good order and condition as
at the beginning of the Term, ordinary wear and tear and damage by fire or other
casualty excepted. Tenant, at its sole expense, shall promptly replace damaged
or broken doors and glass in and about the interior of the Premises and shall be
responsible for the repair and maintenance of all Tenant Improvements and
Alterations, including, without limitation, the repair and replacement of
appliances and equipment installed specifically for Tenant such as
refrigerators, disposals, computer room air conditioning, sinks and special
plumbing, special light fixtures and bulbs for those fixtures, non-standard
outlets and plug-in strips, and special cabinetry. Consistent with the
provisions of Section 22, Tenant shall pay for all damage to the Property and
any fixtures and appurtenances related thereto, as well as for all property
damage sustained by other tenants or occupants of the Building, due to any
waste, misuse or neglect of the Premises and any fixtures and appurtenances
related thereto or due to any breach of this Lease by Tenant, its employees,
agents, representatives or invitees.
8.3. Hazardous Substances. Tenant covenants and agrees that, other than the
--------------------
use and storage of ordinary business office supplies (such as copier toner) in
small quantities, it will not use or allow the Premises to be used for the
storage, use, treatment or disposal of any "hazardous substance," as defined
under either the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. (S)9601 et. seq., as amended) and similar state
-------
and local statutes.
Tenant shall indemnify and hold harmless Landlord and its agents from and
against any damages, claims, judgments, fines, penalties, costs, liabilities
(including sums paid in settlement of claims) or loss including reasonable
attorneys' fees, reasonable consultants' fees, and reasonable expert fees
(collectively "Damage") incurred as a direct result of Tenant's use, handling,
generation, treatment, storage, disposal, other management or release of any
hazardous substance at or from the Premises, whether or not Tenant has acted
negligently with respect to such hazardous substance. This indemnity shall
survive the expiration or earlier termination of this Lease.
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<PAGE>
Landlord warrants and represents to Tenant that to Landlord's actual
knowledge, there are no Hazardous Substances in violation of any Environmental
Regulations in the Property of which the Premises are a part.
From and after the date of execution of this Lease, Landlord will not use
or allow the Property to be used for the storage, use, treatment or disposal of
any Hazardous Substance, in violation of any Environmental Regulations. Landlord
shall promptly contain and remediate any release of a Hazardous Substance on the
Property to the extent such release arises directly from the actions of
Landlord, its agents, servants and employees, and not solely from Landlord's
position as an owner or operator of the Property.
Landlord shall indemnify, hold harmless and defend Tenant, its agents,
servants and employees, from and against all claims, actions, losses and
expenses made or incurred by third parties (including attorneys' and other
professional fees), arising from any conduct, activity, act, omission, or
operation involving the use, handling, generation, treatment, storage, disposal,
or release of any Hazardous Substance in, from, or to the Property, to the
extent caused directly by the actions of Landlord, its agents, servants, and
employees, and not arising solely out of Landlord's position as an owner or
operator of the Property. This indemnity shall survive the expiration or earlier
termination of this Lease.
8.4. Compliance with Laws.
--------------------
Tenant, at its sole cost and expense, shall conform to and comply with and
shall cause the Premises to conform to and comply with all federal, state,
county, municipal and other governmental statutes, laws, rules, orders,
regulations, and ordinances applicable to Tenant or resulting from Tenant's use
or occupancy of the Premises or the Property or any part thereof.
9. RULES AND REGULATIONS.
---------------------
Tenant and its agents and invitees shall abide by and observe the rules and
regulations attached hereto as Schedule C for the operation and maintenance of
----------
the Building or any new rules and regulations which may from time to time be
issued by Landlord ("Rules and Regulations"), provided that any new rules or
regulations are not inconsistent with the provisions of this Lease. Nothing in
this Lease shall be interpreted to impose upon Landlord any duty or obligation
to enforce any such rules and regulations against any other tenant in the
Building, and Landlord shall not be liable to Tenant for any violation of these
rules and regulations by any other tenant or its agents or invitees.
All rules and regulations promulgated by Landlord shall be reasonable,
shall not materially alter the terms of this Lease and any enforcement shall be
uniform with respect to all tenants' use and occupancy of the Building and
Common Area.
10. COMMON AREA.
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10.1. Definition of Common Area. As used herein, "Common Area" mean those
-------------------------
areas and facilities which may be furnished by Landlord on or near the Property,
as designated by Landlord from time to time, intended for the general common use
and benefit of all tenants of the Building and their agents, representatives,
licensees, employees and invitees, including, without limitation, any and all
stairs, landings, roofs, utility and mechanical rooms and equipment, service
closets, corridors, elevators, lobbies, lavatories and other public areas of the
Building and all parking areas, access roads, pedestrian walkways, plazas and
landscaped areas.
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10.2. Use of Common Area. Tenant shall have the non-exclusive right to use
------------------
the Common Area in common with Landlord, other tenants in the Building, and
others entitled to the use thereof, subject to such reasonable rules and
regulations governing the use of the Common Area as Landlord may from time to
time prescribe and subject to such easements therein as Landlord may from time
to time grant to others. Tenant shall not obstruct in any way any portion of the
Common Area or in any way interfere with the rights of other persons entitled to
use the Common Area and shall not, without the prior written consent of
Landlord, use the Common Area in any manner, directly or indirectly, for the
location or display of any merchandise or property belonging to Tenant or for
the location of signs relating to Tenant's operations in the Premises. The
Common Area shall at all times be subject to the exclusive control and
management of Landlord.
10.3. Alterations to the Common Area. Landlord reserves the right at any
------------------------------
time and from time to time (i) to change or alter the location, layout, nature
or arrangement of the Common Area or any portion thereof, including but not
limited to the arrangement and/or location of entrances, passageways, doors,
corridors, stairs, lavatories, elevators, parking areas, and other public areas
of the building, and (ii) to construct additional improvements on the Property
and make alterations thereof or additions thereto and build additional stories
on or in any such buildings or build adjoining same; provided, however, that no
such change or alteration shall deprive Tenant of access to the Premises or
reduce the Rental Area of the Premises, unless such reduction is required by
Federal, State or local laws or regulations, in which event, a reduction in the
Premises shall be permitted with a commensurate reduction in rent. Landlord
shall have the right to close temporarily all or any portion of the Common Area
to such extent as may, in the reasonable opinion of Landlord, be necessary to
prevent a dedication thereof to the public, provided that Tenant is not thereby
denied access to the Premises, or for repairs, replacements or maintenance to
the Common Area, provided such repairs, replacements or maintenance are
performed expeditiously and in such a manner as not to deprive Tenant of access
to the Premises.
10.4. Maintenance. Landlord covenants to keep, maintain, manage and operate
-----------
the Common Area in a manner consistent with the operation of a first class
office building and to keep the sidewalks and driveways, if any, constituting a
portion of the Common Area clean and reasonably clear of snow and ice. Landlord
reserves the right of access to the Common Area through the Premises for the
purposes of operation, decoration, cleaning, maintenance, safety, security,
alterations and repairs.
11. SERVICES AND UTILITIES.
----------------------
So long as Tenant is not in an uncured Event of Default under this Lease,
Landlord shall provide the following facilities and services to Tenant as part
of Landlord's Operating Costs (except as otherwise provided herein):
a. At least one elevator (if the building contains an elevator) subject to
call at all times, including Sundays and holidays.
b. During "normal business hours" as hereinafter defined, central heating
and air conditioning during the seasons of the year when these services are
normally and usually furnished, and within the temperature ranges and in such
amounts normally or usually furnished in comparable office buildings in the
immediate vicinity. For the purposes of this paragraph b, the term "normal
business hours" shall mean the periods from 8:00 a.m. until 6:00 p.m. on
business days and from 8:00 a.m. until 12:00 p.m. on Saturdays. Landlord shall
provide the aforesaid services at other times, at Tenant's expense, provided
Tenant gives Landlord notice by 1:00 p.m. on weekdays for after-hour service on
the next weekday, by 1:00 p.m. the day before a holiday for service on a
holiday, and by 1:00 p.m. on Friday for after-hour service on Saturday or
service on Sunday. Such after-hour, holiday or special weekend service shall be
17
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charged to Tenant at rates to be calculated by Landlord based on Landlord's
costs, which rates shall be given to Tenant on request. Landlord reserves the
right to adjust, from time to time, the rate at which such services shall be
provided corresponding to adjustments in Landlord's marginal costs. Tenant shall
pay for such service, as Additional Rent, promptly upon receipt of an invoice
with respect thereto.
c. Reasonable amounts of electric current for lighting and normal and
customary items of office equipment (subject to the provisions of Section 12
below).
d. Cleaning in Landlord's standard manner in accordance with Schedule D
attached hereto.
e. Replacement of light tubes or bulbs for building standard lighting
fixtures. All light tube or bulb replacements for special non-standard lighting
fixtures shall be furnished and installed by Landlord at Tenant's expense.
f. Rest room facilities and necessary lavatory supplies, including hot and
cold running water at the points of supply, as provided for general use of all
tenants in the Building and routine maintenance, painting, and electric lighting
service for all public areas of the Building in such manner as Landlord deems
reasonable.
Any failure by Landlord to furnish the foregoing services, resulting from
circumstances beyond Landlord's reasonable control or from interruption of such
services due to repairs or maintenance, shall not render Landlord liable in any
respect for damages to either person or property, nor be construed as an
eviction of Tenant, nor cause an abatement of rent hereunder, nor relieve Tenant
from any of its obligations hereunder. If any public utility or governmental
body shall require Landlord or Tenant to restrict the consumption of any utility
or reduce any service for the Premises or the Building, Landlord and Tenant
shall comply with such requirements, whether or not the utilities and services
referred to in this Section 11 are thereby reduced or otherwise affected,
without any liability on the part of Landlord to Tenant or any other person or
any reduction or adjustment in rent payable hereunder. Landlord and its agents
shall be permitted reasonable access to the Premises for the purpose of
installing and servicing systems within the Premises deemed necessary by
Landlord to provide the services and utilities referred to in this Section 11 to
Tenant and other tenants in the Building.
In the event any failure to supply services continues uninterrupted for a
period of greater than fourteen (14) consecutive calendar days and thereby
renders the Premises wholly or partially untenantable, the rent shall be abated
to the extent of such untenantability. The abatement shall begin on the
fifteenth (15th) consecutive business day of the interruption and end when the
services are restored.
Landlord reserves the right to charge Tenant the reasonable cost, based on
usage, of the removal of all trash and the reasonable cost of water/sewerage or
electric service to the extent Tenant's trash disposal, water/sewerage and/or
electrical usage exceeds, in Landlord's reasonable opinion, normal usage for an
office tenant.
12. ELECTRIC CURRENT.
----------------
Landlord shall be under no obligation to furnish electrical energy to
Tenant in amounts greater than needed for lighting and normal and customary
items of equipment for general office purposes, and Tenant shall not install or
use on the Premises any electrical equipment, appliance or machine which shall
require amounts of electrical energy exceeding the standard wattage provided for
the Building, unless the installation and use of such additional electrical
equipment, appliance, or machine has been approved by Landlord pursuant to terms
and conditions set forth in a separate agreement, which approval may be
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conditioned upon the payment by Tenant, as Additional Rent, of the cost of the
additional electrical energy and modifications to the Building's electrical
system required for the operation of such electrical equipment, appliance, or
machine.
13. LOSS, DAMAGE AND INJURY.
-----------------------
To the maximum extent permitted by law, Tenant shall occupy and use the
Premises, the Building and the Common Area at Tenant's own risk. Consistent with
the provisions of subsection 16.4, Tenant's Personal Property and the property
of those claiming by, through or under Tenant, located in or on the Premises or
the Building, shall be and remain at the sole risk of Tenant or such other
person except for damage or loss caused by the gross negligence or willful
misconduct of the Landlord and not covered or required to be covered by Tenant's
insurance as provided under Section 16.1 hereof.
No representation, guaranty, assurance, or warranty is made or given by
Landlord that the communications or security systems, devices or procedures
used, if any, will be effective to prevent injury to Tenant or any other person
or damage to, or loss (by theft or otherwise) of any of Tenant's Personal
Property or of the property of any other person, and Landlord reserves the right
to discontinue or modify at any time such communications or security systems,
devices, or procedures without liability to Tenant.
14. REPAIRS BY LANDLORD.
-------------------
Landlord shall keep the Premises and all portions of the Building covered
by Landlord's insurance and all machinery, equipment, fixtures and systems of
every kind attached to, or used in connection with the operation of, the
Building, including all electrical, heating, mechanical, sanitary, sprinkler,
utility, power, plumbing, cleaning, refrigeration, ventilating, air conditioning
and elevator systems and equipment (excluding, however, lines, improvements,
systems and machinery for water, gas, steam and electricity owned and maintained
by any public utility company or governmental agency or body) in good order and
repair consistent with the operation of the Building as a first-class office
building. Landlord, at its expense (subject to reimbursement by Tenant pursuant
to Section 7), shall make all repairs and replacements necessary to comply with
its obligations set forth in the immediately preceding sentence, except for
(a) repairs required to be made by Tenant pursuant to Section 8 and (b)
notwithstanding the provisions of Section 16.4, repairs caused by the negligence
or willful misconduct of Tenant, its agents, employees, invitees and guests,
which repairs shall be made by Landlord at the cost of Tenant, and for which
Tenant shall pay promptly, as Additional Rent, upon receipt of an invoice
setting forth the cost of such repairs. There shall be no abatement in rents due
and payable hereunder and no liability on the part of Landlord by reason of any
inconvenience or annoyance arising from Landlord's making repairs, additions or
improvements to the Building in accordance with its obligations hereunder.
15. ALTERATIONS, TITLE AND PERSONAL PROPERTY.
----------------------------------------
15.1. Alterations. Tenant shall in no event make or permit to be made any
-----------
alteration, modification, substitution or other change of any nature to the
mechanical, electrical, plumbing, HVAC and sprinkler systems within or serving
the Premises. After completion of Tenant's Improvements within the Premises,
Tenant shall not make or permit any other improvements, alterations, fixed
decorations, substitutions or modifications, structural or otherwise, to the
Premises or the Building ("Alterations") without the prior written approval of
Landlord. Landlord shall not unreasonably withhold or delay its consent to
Alterations which do not affect the structural, mechanical, plumbing or
electrical elements or systems of the Building and which are not visible from
outside the Premises, provided such work conforms, with the design criteria,
standards and architectural guidelines for the Building. Landlord's
19
<PAGE>
approval shall include the conditions under which acceptable Alterations may be
made. Alterations shall include, but not be limited to, the installation or
modification of carpeting, walls, partitions, counters, doors, shelves, lighting
fixtures, hardware, locks, ceiling, window and wall coverings; but shall not
include the initial Tenant's Improvements placed within the Premises pursuant to
Section 5.1. All Alterations shall be based on complete plans and
specifications prepared and submitted by Tenant to Landlord for approval, except
in the instance of cosmetic changes, such as painting and carpeting, in which
case Tenant shall provide Landlord with samples showing colors, styles, etc. All
Alterations shall be made by Landlord at Tenant's sole cost, payable by Tenant,
as Additional Rent, within thirty (30) days after receipt of an invoice for same
from Landlord, which cost shall include Landlord's standard construction
management fee. Tenant shall be responsible for the cost of any additional
improvements within the Premises or the Common Area required by The Americans
with Disabilities Act of 1990 as a result of Tenant's Alterations.
If Tenant makes any Alterations without the prior consent of Landlord,
then, in addition to Landlord's other remedies, Landlord may correct or remove
such Alterations and Tenant shall pay the cost thereof, as Additional Rent, on
demand.
15.2. Title. The Tenant Improvements, all Alterations and all equipment,
-----
machinery, furniture, furnishings, and other property or improvements installed
or located in the Premises by or on behalf of Landlord or Tenant, other than
Tenant's Personal Property, (a) shall immediately become the property of
Landlord and (b) shall remain upon and be surrendered to Landlord with the
Premises as a part thereof at the end of the Term. Notwithstanding the
foregoing, Landlord may, upon notice to Tenant at the time Alterations are made,
elect that any Alterations be removed at the end of the Term, and thereupon,
Landlord shall at Tenant's sole expense, cause such Alterations to be removed
and restore the Premises to its condition prior to the making of such
Alterations, reasonable wear and tear excepted. Tenant shall promptly reimburse
Landlord, as Additional Rent, for the cost of such work, which reimbursement
obligation shall survive termination of the Lease.
15.3. Tenant's Personal Property. Tenant's Personal Property" means all
--------------------------
equipment, machinery, furniture, furnishings and/or other property now or
hereafter installed or placed in or on the Premises by and at the sole expense
of Tenant with respect to which Tenant has not been granted any credit or
allowance by Landlord and which (a) is not used, or was not procured for use, in
connection with the operation, maintenance or protection of the Premises or the
Building; (b) is removable without damage to the Premises or the Building; and
(c) is not a replacement of any property of Landlord, whether such replacement
is made at Tenant's expense or otherwise. Notwithstanding any other provision of
this Lease, Tenant's Personal Property shall not include any Alterations or any
improvements or other property installed or placed in or on the Premises as part
of Tenant's Improvements, whether or not installed at Tenant's expense. Tenant
shall promptly pay all personal property taxes on Tenant's Personal Property, as
applicable. Provided that Tenant is not then in default of any of its
obligations under this Lease, Tenant may remove all Tenant's Personal Property
from the Premises at the termination of this Lease. Any property belonging to
Tenant or any other person which is left in the Premises after the date the
Lease is terminated for any reason shall be deemed to have been abandoned. In
such event, Landlord shall have the right to declare itself the owner of such
property and to dispose of it in whatever manner Landlord considers appropriate
without waiving its right to claim from Tenant all expenses and damages caused
by Tenant's failure to remove such property, and Tenant shall not have any right
to compensation or claim against Landlord as a result.
20
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16. INSURANCE.
---------
16.1. Tenant's Insurance. Tenant, at its expense, shall obtain and
------------------
maintain in effect as long as this Lease remains in effect and during such other
time as Tenant occupies the Premises or any part thereof insurance policies in
accordance with the following provisions.
A. Coverage.
--------
(i) commercial general liability insurance policy, including
insurance against assumed or contractual liability under this Lease, with
respect to the Property, to afford protection with limits, per occurrence, of
not less than Two Million Dollars ($2,000,000), combined single limit, with
respect to personal injury, bodily injury, including death, and property damage
and Four Million Dollars ($4,000,000) aggregate (occurrence form), such
insurance to provide for no deductible;
(ii) all-risk property insurance policy, including theft, written at
replacement cost value and with replacement cost endorsement, covering all of
Tenant's Personal Property in the Premises, and covering loss of income
resulting from casualty, such insurance to provide for no deductible greater
than Five Thousand Dollars ($5,000).
(iii) worker's compensation or similar insurance policy offering
statutory coverage and containing statutory limits, which policy shall also
provide Employer's Liability Coverage of not less than Five Hundred Thousand
Dollars ($500,000) per occurrence.
(iv) Tenant shall require any construction contractor retained by it
to perform work on the Premises to carry and maintain, at no expense to
Landlord, during such times as contractor is working in the Premises, a non-
deductible (a) commercial general liability insurance policy, including, but not
limited to, contractor's liability coverage, contractual liability coverage,
completed operations coverage, broad form property damage endorsement and
contractor's protective liability coverage, to afford protection with limits per
person and for each occurrence, of not less than Two Million Dollars
($2,000,000), combined single limit, and with respect to personal injury and
death and property damage, Four Million Dollars (54,000,000) aggregate
(occurrence form) and Two Million Dollars (52,000,000) aggregate completed
operations; (b) automobile liability insurance in the amount of One Million
Dollars ($i,000,000) combined single limit for bodily injury and property
damage: (c) worker's compensation insurance or similar insurance in form and
amounts as required by law; and (d) any other insurance reasonably required of
Tenant by Landlord or any Mortgagee.
(v) Notwithstanding anything set forth above in this subsection 16.1
to the contrary, all dollar limits specified herein shall be increased from time
to time as reasonably necessary to effect economically equivalent insurance
coverage, or coverage deemed adequate in light of then existing circumstances.
B. Policies.
--------
Such policies shall be maintained with companies licensed to do business in
the State where the Premises are located and in form reasonably acceptable to
Landlord and will be written as primary policy coverage and not contributing
with, or in excess of, any coverage which Landlord shall carry. Such policies
shall be provided on an occurrence form basis unless otherwise approved by
Landlord and shall include Landlord and its managing agent as additional insured
as to coverage under paragraphs 16.1 .A.(i) and 16.1.A.(iv). Such policies shall
also contain a waiver of subrogation provision and a provision stating that such
policy or policies shall not be canceled, non-renewed, reduced in coverage or
materially
21
<PAGE>
altered except after thirty (30) day's written notice, said notice to be given
in the manner required by this Lease to Landlord, Attention: Risk Management
Department. All such policies of insurance shall be effective as of the date
Tenant occupies the Premises and shall be maintained in force at all times
during the Term of this Lease and all other times during which Tenant shall
occupy the Premises. Tenant shall deposit the policy or policies of such
required insurance or certificates thereof with Landlord prior to the Lease
Commencement Date.
16.2. Tenant's Failure to Insure. If Tenant shall fail to obtain insurance
--------------------------
as required under this Section 16, Landlord may, but shall not be obligated to,
obtain such insurance, and in such event, Tenant shall pay, as Additional Rent,
the premium for such insurance upon demand by Landlord.
16.3. Compliance with Policies. Tenant shall not do or allow to be done, or
------------------------
keep, or allow to be kept, anything in, upon or about the Premises which will
contravene Landlord's policies insuring against loss or damage by fire, other
casualty, or any other cause, including without limitation, public liability, or
which will prevent Landlord from procuring such policies in companies acceptable
to Landlord. If any act or failure to act by Tenant in and about the Building
and the Premises shall cause the rates with respect to Landlord's insurance
policies to be increased beyond those rates that would normally be applicable
for such limits of coverage, Tenant shall pay, as Additional Rent, the amount of
any such increases upon demand by Landlord.
16.4. Waiver of Right of Recovery. Neither party, including Landlord's
---------------------------
managing agent, shall be liable to the other party, including Landlord's
managing agent, or to any insurance company (by way of subrogation or otherwise)
insuring the other party, for any loss or damage to any building, Structure or
other tangible property, or loss of income resulting therefrom, or losses under
worker's compensation laws and benefits even though such loss or damage might
have been occasioned by the negligence of such party, its agents or employees,
if, and to the extent, such loss or damage is covered by the insurance
benefiting the party suffering such loss or damage or is required to be covered
by insurance pursuant to subsections 16.1 or 16.5.
16.5. Landlord's Insurance. Landlord shall carry comprehensive general
--------------------
liability insurance with regard to the Property, to afford protection with
limits, per occurrence, of not less than Two Million Dollars ($2,000,000),
combined single limit, with respect to personal injury, bodily injury, including
death, and property damage and Four Million Dollars ($4,000,000) aggregate
(occurrence form), and all-risk property insurance on the Property written at
replacement cost value, including Tenant Improvements and Alterations but
excluding Tenant's Personal Property.
Landlord shall not be obligated to repair any damage to Tenant's Personal
Property or replace the same unless caused by Landlord's negligence or willful
misconduct and not covered by Tenant's insurance as required in this subsection
16.1. Landlord shall not be responsible for any loss or damage falling under any
deductible applicable to Tenant's insurance coverage.
17. DAMAGE AND DESTRUCTION.
----------------------
17.1. Landlord's Obligation to Repair and Reconstruct. If, as the result
-----------------------------------------------
of fire, the elements, accident or other casualty (any of such causes being
referred to herein as a "Casualty"), the Premises shall be rendered wholly or
partially untenantable (damaged to such an extent as to preclude Tenant's use of
the Premises for the purposes originally intended), then, subject to the
provisions of subsection 17.2, Landlord shall cause such damage to be repaired,
including Tenant Improvements and Alterations, to the extent insurance proceeds
are paid to Landlord, and the Annual Basic Rent and Additional Rent (but not any
Additional Rent due Landlord either by reason of Tenant's failure to perform any
of its obligations
22
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hereunder or by reason of Landlord's having provided Tenant with additional
services hereunder) shall be abated proportionately as to the portion of the
Premises rendered untenantable during the period of such untenantability. All
such repairs shall be made at the expense of Landlord, subject to the
availability of insurance proceeds and Tenant's responsibilities set forth
herein. Landlord shall not be liable for interruption to Tenant's business or
for damage to or replacement or repair of Tenant's Personal Property, all of
which replacement or repair shall be undertaken and completed by Tenant, at
Tenant's expense.
If the Premises shall be damaged by Casualty, but the Premises shall not be
---
thereby rendered wholly or partially untenantable, Landlord shall promptly cause
such damage to be repaired and there shall be no abatement of rent reserved
hereunder.
17.2. Termination of Lease. If the Premises are (a) rendered wholly
--------------------
untenantable, or (b) damaged as a result of any cause which is not covered by
Landlord's insurance, or if the Building is damaged to the extent of fifty
percent (50%) or more of the gross leasable area thereof, or if, for reasons
beyond Landlord's control or by virtue of the terms of any financing of the
Building, sufficient insurance proceeds are not available for the reconstruction
or restoration of the Building or Premises, then, in any of such events,
Landlord may elect to terminate this Lease by giving to Tenant notice of such
election within ninety (90) days after the occurrence of such event, or after
the insufficiency of such proceeds becomes known to Landlord, whichever is
applicable. If such notice is given, the rights and obligations of the parties
shall cease as of the date set forth in such notice, and the Annual Basic Rent
and Additional Rent (but not any Additional Rent due Landlord either by reason
of Tenant's failure to perform any of its obligations hereunder or by reason of
Landlord's having provided Tenant with additional services hereunder) shall be
adjusted as of the date set forth in such notice, or, if the Premises were
rendered untenantable, as of the date of the Casualty.
Within ninety (90) days following a Casualty, Landlord shall notify Tenant
in writing of the date on which Landlord, in its best professional judgment,
estimates restoration will be substantially completed. If restoration is
expected to exceed one hundred eighty (180) days after the date of Landlord's
notice, then Tenant shall have the right to terminate this Lease on written
notice to Landlord within fifteen (15) days after receipt of Landlord's notice
unless Landlord, at its sole expense, temporarily relocates Tenant to comparable
office space within another building in the Business Community for the duration
of the restoration. In the event of such a relocation, the rent per square foot
payable by Tenant for the temporary space shall equal the lesser of (i) the
rents per square foot reserved under this Lease for the Premises or (ii) the
current market rental rate for the temporary space as determined by Landlord,
which shall not be more than the rate at which Landlord would offer such space
to any other third party.
17.3. Demolition of the Building. If the Building shall be so
--------------------------
substantially damaged that it is reasonably necessary, in Landlord's judgment,
to demolish the Building for the purpose of reconstruction, Landlord may
demolish the same, in which event the Annual Basic Rent and Additional Rent (but
not any Additional Rent due Landlord either by reason of Tenant's failure to
perform any of its obligations hereunder or by reason of Landlord's having
provided Tenant with additional services hereunder) shall be abated to the same
extent as if the Premises were rendered wholly untenantable by a Casualty.
17.4. Insurance Proceeds. If the Lease is not terminated pursuant to
------------------
subsection 17.2, Landlord shall, subject to the terms of any Mortgage, disburse
and apply any insurance proceeds received by Landlord to the restoration and
rebuilding of the Building in accordance with subsection 17.1 hereof. All
insurance proceeds payable with respect to the Premises and the Building shall
belong to and shall be payable to Landlord.
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18. CONDEMNATION.
------------
18.1. Termination. If either the entire Premises or the Building shall be
-----------
acquired or condemned by any governmental authority under its power of eminent
domain for any public or quasi-public use or purpose, this Lease shall terminate
as of the date of vesting or acquisition of title in the condemning authority
and the rents hereunder shall be abated on that date. If less than the whole but
more than fifty percent (50%) of the Rental Area of the Premises or more than
twenty-five percent (25%) of the total area of the Building (even if the
Premises are unaffected) or such portion of the Common Area as shall render the
Premises or the Building untenantable should be so acquired or condemned,
Landlord and Tenant shall each have the option to terminate this Lease by notice
given to the other within ninety (90) days of such taking. In the event that
such a notice of termination is given, this Lease shall terminate as of the date
of vesting or acquisition of title in the condemning authority and the Annual
Basic Rent and Additional Rent (but not any Additional Rent due Landlord either
by reason of Tenant's failure to perform any of its obligations hereunder, or by
reason of Landlord's having provided Tenant with additional services hereunder)
shall be adjusted as of such date.
If (a) neither Landlord nor Tenant shall exercise their respective options
to terminate this Lease, as hereinabove set forth, or (b) some lesser portion of
the Premises or the Building or Common Area, which does not give rise to a right
to terminate pursuant to this subsection 18.1, is taken by the condemning
authority, this Lease shall continue in force and effect, but from and after the
date of the vesting of title in the condemning authority, die Annual Basic Rent
payable hereunder during the unexpired portion of the Term shall be reduced in
proportion to the reduction in the total Rental Area of the Premises, and any
Additional Rent (but not any Additional Rent due Landlord either by reason of
Tenant's failure to perform any of its obligations hereunder, or by reason of
Landlord's having provided Tenant with additional services hereunder) payable
pursuant to the terms hereof shall be adjusted to reflect the diminution of the
Premises and/or the Building, as the case may be.
18.2. Rights to Award. Tenant shall have no claim against Landlord arising
---------------
out of the taking or condemnation, or arising out of the cancellation of this
Lease as a result of any such taking or condemnation, or for any portion of the
amount that may be awarded as damages as a result of any taking or condemnation,
or for the value of any unexpired portion of the Term, or for any property lost
through condemnation, and Tenant hereby assigns to Landlord all its right, title
and interest in and to any such award with regard to the Premises: provided,
however, that, in the event of a total taking, Tenant may assert any claim it
may have against the condemning authority for compensation for Tenant's Personal
Property lost thereby, loss of income, and for any relocation expenses
compensable by statute and receive such awards therefor as may be allowed in the
condemnation proceedings provided that such awards shall be made in addition to,
and stated separately from, the award made for the Building, the underlying land
and the Premises. Landlord shall have no obligation to contest any taking or
condemnation.
19. BANKRUPTCY.
----------
19.1. Event of Bankruptcy. For purposes of this Lease, each of the
-------------------
following shall be deemed an "Event of Tenant's Bankruptcy":
(a) the commencement of any action or proceeding for the
dissolution or liquidation of Tenant or for the appointment of
a receiver or trustee of the property of Tenant, whether
instituted by or against Tenant. if not bonded or discharged
within thirty (30) days of the date of the commencement of
such proceeding or action;
24
<PAGE>
(b) if Tenant files a voluntary petition under the Bankruptcy Code
or Insolvency Laws;
(c) if there is filed an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency laws,
which is not dismissed within sixty (60) days of filing, or
results in issuance of an order for relief against the debtor;
and
(d) if Tenant makes or consents to an assignment of its assets, in
whole or in part, for the benefit of creditors, or to a common
law composition of creditors.
As used herein, (i) "Bankruptcy Code" means title 11 of the United States
Code, 11 U.S.C. Section 101 et. seq. as amended or any successor statute and
(ii) Insolvency Laws means the insolvency laws of any state or territory of the
United States.
19.2. Assumption by Trustee. If Tenant becomes the subject debtor in a
---------------------
case pending under the Bankruptcy Code, Landlord's right to terminate this Lease
under Section 20 hereof shall be subject to the applicable rights (if any) of
the Trustee in Bankruptcy to assume or assign this Lease as then provided for in
the Bankruptcy Code. However, the Trustee in Bankruptcy must give to Landlord
and Landlord must receive proper written notice of the Trustee's assumption or
rejection of this Lease, within sixty (60) days (or such other applicable period
as is provided for in the Bankruptcy Code) after the date of the Trustee's
appointment. The failure of the Trustee to give notice of the assumption within
the period shall conclusively and irrevocably constitute the Trustee's rejection
of this Lease and waiver of any rights of the Trustee to assume or assign this
Lease. The Trustee shall not have the right to assume or assign this Lease
unless the Trustee (i) promptly and fully cures all defaults under this Lease,
(ii) promptly and fully compensates Landlord for all monetary damages incurred
as a result of such default, and (iii) provides to Landlord adequate assurance
of future performance. In the event Tenant is unable to: (i) cure its defaults,
(ii) reimburse Landlord for its monetary damages, or (iii) pay the Rent due
under this Lease on time, then Tenant hereby agrees in advance that it has not
met its burden to provide adequate assurance of future performance, and this
Lease may be terminated by Landlord in accordance with Section 20.
19.3. Tenant's Guarantor's Bankruptcy. Notwithstanding any of the other
-------------------------------
provisions of this Lease, in the event Tenant's obligations under this Lease are
guaranteed by a guarantor, and said guarantor shall voluntarily or involuntarily
come under the jurisdiction of the Bankruptcy Code, and thereafter said
guarantor or its trustee in bankruptcy, under the authority of and pursuant to
applicable provisions thereof, shall determine to assign the guarantee
obligations of said guarantor hereunder, Tenant and its said guarantor agree
that (a) said guarantor or its trustee will provide Landlord sufficient
information enabling it to independently determine whether Landlord will incur
actual and substantial detriment by reason of such assignment, and (b) "adequate
assurance of future performance." in regard to such guarantee obligations of
said guarantor, as that term is generally defined under the Bankruptcy Code,
will be provided to Landlord by said guarantor or its trustee and its assignee
as a condition of said assignment.
20. DEFAULT PROVISIONS AND REMEDIES.
-------------------------------
20.1. Events of Default. Each of the following shall be deemed an Event of
-----------------
Default by Tenant under this Lease:
a. failure of Tenant to pay Annual Basic Rent, Additional Rent, or
any other sum required to be paid under the terms of this Lease, including late
charges, within five (5) days after written notice of such failure to pay;
25
<PAGE>
b. failure by Tenant to perform or observe any other term, covenant,
agreement or condition of this Lease, on the part of Tenant to be performed
(other than those obligations of Tenant set forth in subsection 16.2 for which
Tenant shall be entitled to receive no prior notice, and other than the
conditions set forth in paragraphs 20.1 .a, c, d, e, f and g, which shall be
governed solely by the provisions set forth herein), within ten (10) days after
notice thereof from the Landlord, unless such performance shall reasonably
require a longer period, in which case Tenant shall not be deemed in default if
Tenant commences the required performance promptly and thereafter pursues and
completes such action diligently and expeditiously and in any event within not
more than ninety (90) days;
c. Intentionally Omitted.
d. abandonment of the Premises by Tenant;
e. an Event of Tenant's Bankruptcy;
f. the sale of Tenant's interest in the Premises under attachment,
execution or similar legal process; and
g. the failure of Tenant to vacate the Premises upon the expiration
of the Term, or the earlier termination thereof pursuant to the other provisions
hereof.
20.2. Remedies. Upon the occurrence of an Event of Default, Landlord,
--------
without notice to Tenant in any instance (except where expressly provided for
below or by applicable law) may do any one or more of the following:
(a) Intentionally Omitted;
(b) perform, on behalf and at the expense of Tenant, any
obligation of Tenant under this Lease which Tenant has
failed to perform and of which Landlord shall have given
Tenant notice, the cost of which performance by
Landlord, together with interest thereon at the Default
Rate from the date of such expenditure, shall be payable
by Tenant to Landlord, as Additional Rent, upon demand.
Notwithstanding the provisions of this clause (b) and
regardless of whether an Event of Default shall have
occurred, Landlord may exercise the remedy described in
clause (b) without any notice to Tenant if Landlord, in
its reasonable good faith judgment, believes it would be
materially injured by failure to take rapid action or if
the unperformed obligation of Tenant constitutes an
emergency;
(c) elect to terminate this Lease and the tenancy created
hereby by giving notice of such election to Tenant, and
reenter the Premises, by summary proceedings or
otherwise, and remove Tenant and all other persons and
property from the Premises, and store such property in a
public warehouse or elsewhere at the cost of and for the
account of Tenant without resort to legal process and
without Landlord being deemed guilty of trespass or
becoming liable for any loss or damage occasioned
thereby;
26
<PAGE>
(d) declare any option which Tenant may have to renew the Term
or expand the Premises to be null and void and of no further
force and effect; or
(e) exercise any other legal or equitable right or remedy which
it may have.
Any costs and expenses incurred by Landlord (including, without limitation,
reasonable attorneys' fees) in enforcing any of its rights or remedies under
this Lease shall be paid to Landlord by Tenant, as Additional Rent, upon demand.
20.3. Damages. If this Lease is terminated by Landlord pursuant to Section
-------
20.2.(c), Tenant nevertheless shall remain liable for (a) any Annual Basic Rent,
Additional Rent, and damages which may be due or sustained prior to such
termination, and (b) all reasonable costs, fees and expenses including, but not
limited to, attorneys' fees, costs and expenses incurred by Landlord in pursuit
of its remedies hereunder or in renting the Premises to others from time to
time. In addition, Landlord may recover from Tenant additional damages to
compensate Landlord for loss of rent resulting from termination of the Lease,
which, at the election of Landlord, shall be either:
(i) An amount equal to the rent which, but for termination of
this Lease, would have become due during the remainder of
the Term, less the amount of rent, if any, which Landlord
shall receive during such period from others to whom the
Premises may be rented (other than any Additional Rent
received by Landlord as a result of any failure of such
other person to perform any of its obligations to Landlord),
in which case such damages shall be computed and payable in
monthly installments, in advance, on the first day of each
calendar month following termination of the Lease and
continuing until the date on which the Term would have
expired but for such termination; any suit or action brought
to collect any such damages for any month shall not in any
manner prejudice the right of Landlord to collect any
damages for any subsequent month by a similar proceeding; or
(ii) an amount equal to the present worth (as of the date of such
termination) of rent which, but for termination of this
Lease, would have become due during the remainder of the
Term less the fair market rental value of the Premises in
its then existing condition, in which case such damages
shall be payable to Landlord in one lump sum on demand and
shall bear interest at the Default Rate until paid. For
purposes of this clause (ii), "present worth" shall be
computed by discounting such amount to present worth at a
discount rate equal to one percentage point above the
discount rate then in effect at the Federal Reserve Bank
nearest to the location of the Property.
Damages shall be due and payable immediately upon demand by Landlord
following any termination of this Lease pursuant to Section 20.2.
If this Lease is terminated pursuant to Section 20.2., Landlord may re-
lease the Premises or any part thereof, alone or together with other premises,
for such term(s) (which may be greater or less than the period which otherwise
would have constituted the balance of the Term) and on such terms and conditions
(which may include concessions or free rent and alterations of the Premises) as
Landlord, in
27
<PAGE>
its sole discretion, may determine. The failure or refusal of Landlord to re-
lease the Premises or any part or parts thereof shall not release or affect
Tenant's liability for damages.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain in proceedings for the termination of this Lease by
reason of bankruptcy or insolvency, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater, equal to, or less than the amount of the loss or damages referred to
above.
20.4. No Waiver. No act or omission by Landlord shall be deemed to be an
---------
acceptance of a surrender of the Premises or a termination of Tenant's
liabilities hereunder, unless Landlord shall execute a written release of
Tenant. Tenant's liability hereunder shall not be terminated by the execution by
Landlord of any new lease for all or any portion of the Premises or the
acceptance of rent from any assignee or subtenant.
20.5. Remedies Not Exclusive. All rights and remedies of Landlord set
----------------------
forth in this Lease shall be cumulative, and none shall exclude any other right
or remedy, now or hereafter allowed by or available under any statute,
ordinance, rule of court, or the common law, either at law or in equity, or
both. For the purposes of any suit brought or based hereon, this Lease shall be
construed to be a divisible contract, to the end that successive actions may be
maintained on this Lease as successive periodic sums shall mature hereunder. The
failure of Landlord to insist, in any one or more instances, upon a strict
performance of any of the covenants, terms and conditions of this Lease or to
exercise any right or option herein contained shall not be construed as a waiver
or a relinquishment for the future, of such covenant, term, condition, right or
option, but the same shall continue and remain in full force and effect unless
the contrary is expressed by Landlord in writing. The receipt by Landlord of
rents hereunder, with knowledge of the breach of any covenant hereof or the
receipt by Landlord of less than the full rent due hereunder, shall not be
deemed a waiver of such breach or of Landlord's right to receive the full rents
hereunder, and no waiver by Landlord of any provision hereof shall be deemed to
have been made unless expressed in writing and signed by Landlord.
20.6. Persistent Failure to Pay Rent. In addition to any other remedies
------------------------------
available to Landlord pursuant to this Lease or by law, Landlord may, at any
time throughout the Term of this Lease, terminate this Lease upon Tenant's
default on three (3) separate occasions during any twelve (12) month period
under subsection 20.1.a, regardless of whether or not such prior defaults have
been cured. Termination, pursuant to this subsection 20.6. shall be effective
upon Landlord's delivery to Tenant of a notice of termination.
21. Intentionally Omitted.
---------------------
22. INDEMNITY.
---------
To the maximum extent permitted by law, Tenant shall indemnify, hold
harmless and (at Landlord's option) defend Landlord, its agents, servants and
employees from and against all claims, actions, losses, costs and expenses
(including attorneys' and other professional fees), judgments, settlement
payments, and, whether or not reduced to final judgment, all liabilities,
damages, or fines paid, incurred or suffered by any third parties to the extent
arising directly or indirectly from (a) any default by Tenant under the terms of
this Lease, (b) the use or occupancy of the Property by Tenant or any person
claiming through or under Tenant, and/or (c) any acts or omissions of Tenant or
any contractor, agent, employee, invitee or licensee of Tenant in or about the
Property. The foregoing indemnity is in addition to, and not in substitution
for, any indemnity given by Tenant to Landlord under Section 8.3.
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Except as provided in Section 8.4, to the maximum extent permitted by law,
Landlord shall indemnify, hold harmless and defend Tenant, its agents, servants
and employees from and against all claims, actions, losses, costs and expenses
(including attorneys' and other professional fees), judgments, settlement
payments, and, whether or not reduced to final judgment, all liabilities,
damages, or fines paid, incurred or suffered by said third parties to the extent
arising directly or indirectly from (a) any default by Landlord under the terms
of this Lease, (b) the use or occupancy of the Common Area by Landlord or its
contractors, agents, or employees, and/or (c) any acts or omissions of Landlord
or any contractor, agent, or employee of Landlord in or about the Common Area.
23. LIMITATION ON LANDLORD LIABILITY.
--------------------------------
The term "Landlord" as used in this Lease shall mean only the owner or the
Mortgagee or its trustees, as the case may be, then in possession of the
Property so that in the event of any transfer by Landlord of its interest in the
Property, the Landlord in possession immediately prior to such transfer shall
be, and hereby is, entirely released and discharged from all covenants,
obligations and liabilities of Landlord under this Lease accruing after such
transfer provided the transferee assumes all of the liabilities and obligations
of Landlord In consideration of the benefits accruing hereunder, Tenant, for
itself, its successors and assigns, covenants and agrees that, in the event of
any actual or alleged failure, breach or default hereunder by the Landlord and
notwithstanding anything to the contrary contained elsewhere in this Lease, the
remedies of Tenant under this Lease shall be solely and exclusively limited to
Landlord's interest in the Property.
24. LANDLORD OBLIGATIONS.
--------------------
Landlord agrees to perform all of its obligations under this Lease in a
first class manner consistent with the standards applicable to similar buildings
in the vicinity of the Building. Landlord shall be excused for the period of any
delay in the performance of any of its obligations when the delay is due to any
cause or causes beyond Landlord's reasonable control which include, without
limitation, acts of God, all labor disputes, governmental regulations or
controls, civil unrest, war, adverse weather condition, fire or other casualty,
inability to obtain any material, services, or financing unless otherwise
provided for in this Lease. Except where specifically set forth in this Lease,
there shall be no abatement, set-off or deduction of Annual Basic Rent or
Additional Rent due under this Lease.
25. ASSIGNMENT AND SUBLETTING.
-------------------------
25.1. Prohibited Without Landlord's Consent. Tenant agrees for itself and
-------------------------------------
its permitted successors and assigns in interest hereunder that it will not
(a) assign or otherwise transfer, mortgage or otherwise encumber this Lease or
any of its rights hereunder; (b) sublet the Premises or any part thereof or
permit the occupancy or use of the Premises or any part thereof by any person
other than Tenant; and/or (c) permit the assignment or other transfer of this
Lease or any of Tenant's rights hereunder by operation of law (each of the
events referred to in the foregoing clauses (a), (b) and (c) being hereinafter
referred to as a "Transfer"), without the prior written consent of Landlord in
each instance first obtained, which consent may be given or withheld in
Landlord's sole and absolute subjective discretion, and any consent given shall
not constitute a consent to any subsequent Transfer. Any attempted Transfer
without Landlord's consent shall be null and void and shall not confer any
rights upon any purported transferee, assignee, mortgagee, sublessee, or
occupant. No Transfer, regardless of whether Landlord's consent has been granted
or withheld, shall be deemed to release Tenant from any of its obligations
hereunder or to alter, impair or release the obligations of any person
guaranteeing the obligations of Tenant hereunder. Tenant hereby indemnifies
Landlord against liability resulting from any claim made against Landlord by any
assignee or subtenant or by any broker claiming a commission in connection with
the proposed
29
<PAGE>
Transfer. In the event Landlord shall consent to a Transfer of this Lease, any
option which Tenant may have to renew the Term shall be null and void.
Notwithstanding the foregoing, Landlord shall not unreasonably
withhold its consent to a sublet or assignment of this Lease by Tenant provided
that: (a) the proposed transferee bas a financial capacity and net worth
sufficient to fulfill the terms of this Lease, as determined by Landlord based
on financial information about such transferee provided by Tenant or such
transferee; (b) the proposed use of the Premises by the proposed transferee is
permitted by this Lease and is compatible with the operation of the Building;
(c) the proposed transferee is not an existing tenant in the Building or was not
a prospect for the Building within six (6) months prior to the proposed
Transfer, and (d) an uncured Event of Default does not exist under this Lease.
25.2. Stock Transfer. If Tenant or any Guarantor is a privately-held
--------------
corporation, then each of the following events shall be deemed a prohibited
Transfer under this Section 25 if such event results in a change in control of
Tenant or Guarantor: any transfer of Tenant's or Guarantor's issued and
outstanding capital stock; any issuance of additional capital stock; or the
redemption of any issued and outstanding stock. If Tenant or any Guarantor is a
partnership, any Transfer of any interest in the partnership or any other change
in the composition of the partnership, which results in a change in management
of Tenant or Guarantor from the person or persons managing the partnership as of
the date hereof, shall be deemed a prohibited Transfer under this Section 25.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold its
consent to a transfer or change of ownership of the voting corporate stock of
Tenant which results in a change in control of Tenant, provided that (a) the net
assets of the Tenant are not substantially decreased by the change in the
corporate stock ownership: (b) Tenant, on demand from Landlord, properly
documents any changes in the net as sets of Tenant caused by the change in
control of Tenant, so that Landlord can make an accurate judgment as to (a)
hereof; and (c) Tenant, after the change in control continues to use the
Premises for uses permitted under this Lease and operates its business in a
manner which is consistent with the standards of operation of this Building. The
foregoing does not constitute a waiver of the right of Landlord to consent to
any subletting or any assignment. The provisions of this Paragraph 25 shall not
apply to a Transfer resulting from a public offering of stock done in accordance
with the regulations of any nationally regulated stock exchange, or the NASDAQ.
25.3. Rents from Transfer. in the event Landlord shall consent to a
-------------------
Transfer of this Lease and the amount of the rents (or other compensation) to be
paid to Tenant by any such transferee is greater than the rents required to be
paid by Tenant to Landlord pursuant to this Lease or a premium is to be paid to
Tenant for an assignment of this Lease, Tenant shall pay to Landlord any such
excess or any such premium, as the case may be, upon receipt thereof by Tenant
from such transferee.
25.4. Procedure for Obtaining Landlord's Consent.
------------------------------------------
A. In the event that, at any time or from time to time prior to or during
the Term, Tenant desires to Transfer this Lease in whole or in part, whether by
operation of law or otherwise, Tenant shall submit to Landlord for its
consideration (a) in writing, the name and address of the proposed subtenant or
assignee, a reasonably detailed statement of the proposed subtenant's or
assignee's business and reasonably detailed financial references and information
concerning the financial condition of the proposed subtenant or assignee, (b) a
disclosure of the rents to be paid by any subtenant in excess of the rents
reserved hereunder or the premium to be paid for the assignment, and (c) if a
subletting, a description of the area of the Premises to be sublet. Tenant
agrees to pay Landlord, as Additional Rent, all reasonable costs incurred by
Landlord in connection with any actual or proposed Transfer, including,
30
<PAGE>
without limitation, the costs of making investigations as to the acceptability
of a proposed subtenant or assignee and legal costs incurred in connection with
any requested consent.
B. Landlord's consent to an assignment of this Lease shall be effective
upon the execution by Tenant, the assignee, and Landlord of an assignment
document prepared by Landlord in which the assignee shall agree to assume,
observe, perform, and be bound by, all of Tenant's obligations under this Lease
and Tenant shall agree to remain primarily liable for such obligations.
Any consent by Landlord to a subletting of all or a portion of the Premises
shall be deemed to have been given only upon the delivery by Landlord to Tenant
of a consent document prepared and executed by Landlord expressly consenting to
such subletting.
26. HOLDING OVER.
------------
Tenant agrees to vacate the Premises at the end of the Term or any Renewal
Term, and Landlord shall be entitled to the benefit of all summary proceedings
to recover possession of the Premises at the end of the Term. If Tenant remains
in possession of the Premises after the expiration of the Term, such action
shall not renew this Lease by operation of law and nothing herein shall be
deemed as a consent by Landlord to Tenant's remaining in the Premises unless
(a) Landlord and Tenant are negotiating in good faith to renew the Term, or
(b) six (6) months prior to the expiration of the Term, Tenant has requested
the right to remain in the Premises for a specified period of time and Landlord
has approved such request. If the provisions of subclause (a) or (b) apply,
Landlord shall consider Tenant a "Tenant-at-Will" (i.e. month-to-month tenant)
liable for the payment of rent equal to 150% of the then market rate as
determined by Landlord If Tenant fails to otherwise vacate the Premises as
required, Landlord shall consider Tenant as a "Tenant-Holding Over" liable for
an amount equal to the actual damages incurred by Landlord as a result of
Tenant's holding over, including, without limitation, all incidental,
prospective and consequential damages and attorney's fees, but in no event shall
such amount be less than an amount equal to twice the Annual Basic Rent, and
Additional Rent, reserved hereunder applicable to the period of the holdover. In
either event, all other covenants of this Lease shall remain-in full force and
effect.
27. SUBORDINATION AND ATTORNMENT.
----------------------------
This Lease is subject and subordinate to the liens of all mortgages, deeds
of trust and other security instruments now or hereafter placed upon the
Building or the Property or any portion thereof and all ground and other
underlying leases from which Landlord's interest is derived (said mortgages,
deeds of trust, other security instruments, and ground leases being hereinafter
referred to as "Mortgages" and the mortgagees, beneficiaries, secured parties,
and ground lessors thereunder from time to time being hereinafter called
"Mortgagees"), and to any and all renewals, extensions, modifications, or
refinancings thereof, without any further act of the Tenant. If requested by
Landlord, however, Tenant shall promptly execute any certificate or other
document confirming such subordination. Tenant agrees that, if any proceedings
are brought for the foreclosure of any of the Mortgages, Tenant, if requested to
do so by the purchaser at the foreclosure sale, shall attorn to the purchaser,
recognize the purchaser as the landlord under this Lease, and make all payments
required hereunder to such new landlord without any deduction or set-off of any
kind whatsoever. Tenant waives the provisions of any Law or regulation, now or
hereafter in effect, which may give, or purport to give, Tenant any right to
terminate this Lease or to alter the obligations of Tenant hereunder in the
event that any such foreclosure or termination or other proceeding is prosecuted
or completed.
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<PAGE>
Notwithstanding anything contained herein to the contrary, any Mortgagee
may at any time subordinate the lien of its Mortgages to the operation and
effect of this Lease without obtaining the Tenant's consent thereto, by giving
the Tenant written notice thereof, in which event this Lease shall be deemed to
be senior to such Mortgages without regard to the respective dates of execution
and/or recordation of such Mortgages and this Lease and thereafter such
Mortgagee shall have the same rights as to this Lease as it would have had were
this Lease executed and delivered before the execution of such Mortgages.
If, in connection with obtaining financing for the Building, a Mortgagee
shall request reasonable modifications in this Lease as a condition to such
financing, Tenant will not unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not materially adversely increase
the obligations of Tenant hereunder, or materially adversely affect the
leasehold interest hereby created or Tenant's use and enjoyment of the Premises,
or increase the amount of Annual Basic Rent or Additional Rent payable hereunder
or require Tenant to relocate.
28. ESTOPPEL CERTIFICATES.
---------------------
Tenant shall, without charge, at any time and from time-to-time, within
fifteen (15) days after receipt of request therefor by Landlord, execute,
acknowledge and deliver to Landlord a written estoppel certificate, in such form
as may be determined by Landlord, certifying to Landlord, Landlord's Mortgagee,
any purchaser of Landlord's interest in the Building, or any other person
designated by Landlord, as of the date of such estoppel certificate, the
following, without limitation: (a) whether Tenant is in possession of the
Premises: (b) whether this Lease is in full force and effect; (c) whether there
have been any amendments to this Lease, and if so, specifying such amendments;
(d) whether there are then existing any set-offs or defenses against the
enforcement of any rights hereunder, and if so, specifying such matters in
detail: (e) the dates, if any, to which any rent or other charges have been paid
in advance and the amount of any Security Deposit held by Landlord; (f) that
Tenant has no knowledge of any then existing defaults of Landlord under this
Lease, or if there are such defaults, specifying them in detail; (g) that Tenant
has no knowledge of any event having occurred that authorizes the termination of
this Lease by Tenant, or if such event has occurred, specifying it in detail;
and (h) the address to which notices to Tenant under this Lease should be sent.
Any such certificate may be relied upon by the person or entity to whom it is
directed or by any other person or entity who could reasonably be expected to
rely on it in the normal course of business. The failure of Tenant to execute,
acknowledge and deliver such a certificate in accordance with this Section 28
within fifteen (15) days after a request therefor by Landlord shall constitute
an acknowledgment by Tenant, which may be relied on by any person who would be
entitled to rely upon any such certificate, that such certificate as submitted
by Landlord to Tenant is true and correct.
29. PEACEFUL AND QUIET POSSESSION.
-----------------------------
Tenant, if and so long as it pays all rents due hereunder and performs and
observes the other terms and covenants to be performed and kept by it as
provided in this Lease, shall have the peaceable and quiet possession of the
Premises during the Term free of any claims of Landlord or anyone lawfully
claiming by, through or under Landlord, subject, however, to the terms of this
Lease and to matters of public record existing as of the date of this Lease.
Landlord warrants and represents that none of the matters of public record of
the date hereof shall prohibit Tenant from conducting its business as presently
conducted in the Premises.
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30. LANDLORD'S ACCESS TO PREMISES.
-----------------------------
Landlord and its agents may at any reasonable time and without incurring
any liability to Tenant, other than liability for personal injuries and damages
resulting solely from the negligence of Landlord or its agents, enter the
Premises to inspect them or to make alterations or repairs or for any purpose
which Landlord considers necessary for the repair, operation, or maintenance of
the Building; provided, however, that in the case of an emergency, Landlord may
enter the Premises at any time. Tenant shall allow the Premises to be exhibited
by Landlord (a) at any time to any representative of a lender or to any
prospective purchaser of the Building or Landlord's interest therein or (b)
within six (6) months of the end of the Term to any persons who may be
interested in leasing the Premises.
31. Intentionally Omitted.
---------------------
32. BROKERS, COMMISSIONS, ETC.
-------------------------
Landlord and Tenant acknowledge, represent and warrant each to the other
that, except as listed in Section 1.F., no broker or real estate agent brought
about or was involved in the making of this Lease and that no brokerage fee or
commission is due to any other party as a result of the execution of this Lease.
Each of the parties hereto agrees to indemnify and hold harmless the other
against any claim by any broker, agent or finder based upon the execution of
this Lease and predicated upon a breach of the above representation and
warranty.
33. RECORDATION.
-----------
Neither Landlord nor Tenant shall record this Lease, any amendment to this
Lease or any other memorandum of this Lease without the prior written consent of
the other party, which consent may be withheld in the sole discretion of either
party and, in the event such consent is given, the party requesting such consent
and recording shall pay all transfer taxes, recording fees and other charges in
connection with such recording. Notwithstanding the above, Tenant covenants that
if at any time any mortgagee or ground lessor relating to the financing of the
Property shall require the recordation of this Lease, or if the recordation of
this Lease shall be required by any valid governmental order, or if any
governmental authority having jurisdiction in the matter shall assess and be
entitled to collect transfer taxes, documentary stamp taxes, or both, on this
Lease, Tenant, upon the request of Landlord, shall execute such instruments,
including a Memorandum of this Lease, as may be necessary to record this Lease,
and shall pay all recording fees, transfer taxes and documentary stamp taxes,
payable on, or in connection with, this Lease or such recordation.
34. MISCELLANEOUS.
-------------
34.1. Separability. If any term or provision of this Lease or the
------------
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
34.2. Applicable Law. This Lease shall be given effect and construed by
--------------
application of the laws of the state where the Property is located, and any
action or proceeding arising hereunder shall be brought in the courts of the
State where the Premises are located.
33
<PAGE>
34.3. Authority. If Tenant is a corporation or partnership, the person
---------
executing this Lease on behalf of Tenant represents and warrants that Tenant is
duly organized and validly existing; that this Lease has been authorized by
all necessary parties, is validly executed by an authorized officer or agent of
Tenant and is binding upon and enforceable against Tenant in accordance with
its terms.
The undersigned agent of Landlord represents and warrants that it is
authorized and empowered to enter into this Lease Agreement on behalf of the
Landlord.
34.4. Intentionally Omitted.
---------------------
34.5. Integration of Agreements. This writing is intended by the parties
-------------------------
as a final expression of their agreement and is a complete and exclusive
statement of its terms, and all negotiations, considerations and
representations between the parties hereto are incorporated herein. No course
of prior dealings between the parties or their agents shall be relevant or
admissible to supplement, explain, or vary any of the terms of this Lease.
Acceptance of, or acquiescence to, a course of performance rendered under this
Lease or any prior agreement between the parties or their agents shall not be
relevant or admissible to determine the meaning of any of the terms or
covenants of this Lease. Other than as specifically set forth in this Lease, no
representations, understandings or agreements have been made or relied upon in
the making of this Lease. This Lease can only be modified by a writing signed
by each of the parties hereto.
34.6. Third Party Beneficiary. Except as expressly provided elsewhere in
-----------------------
this Lease, nothing contained in this Lease shall be construed so as to confer
upon any other party the rights of a third party beneficiary.
34.7. Captions; Gender. The captions used in this Lease are for
----------------
convenience only and do not in any way limit or amplify the terms and
provisions hereof. As used in this Lease and where the context so requires, the
singular shall be deemed to include the plural and the masculine shall be
deemed to include the feminine and neuter, and vice versa.
34.8. Successors and Assigns. Subject to the express provisions of this
----------------------
Lease to the contrary (e.g., Section 25), the terms, provisions and covenants
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
34.9. Waiver of Jury Trial. Landlord and Tenant hereby expressly waive
--------------------
trial by jury in any action or proceeding or counterclaim brought by either
party hereto against the other party on any and every matter, directly or
indirectly arising out of or with respect to this Lease, including, without
limitation, the relationship of Landlord and Tenant, the use and occupancy by
Tenant of the Premises, any statutory remedy and/or claim of injury or damage
regarding this Lease.
34.10. Joint and Several Liability. In the event that two (2) or more
---------------------------
persons (i.e., natural persons, corporations, partnerships, associations and
other legal entities) shall sign this Lease as Tenant, the liability of each
such party to pay all rents due hereunder and perform all the other covenants
of this Lease shall be joint and several. In the event Tenant is a general
partnership or a limited partnership with two or more general partners, the
liability of each partner, or general partner, under this Lease shall be joint
and several.
34.11. Notices. All notices, demands and requests required under this
-------
Lease shall be in writing. All such notices, demands and requests shall be
deemed to have been properly given if sent by United
34
<PAGE>
States certified mail, return receipt requested, postage prepaid, or hand
delivered, or overnight delivery, addressed to Landlord or Tenant, at the
Landlord Notice Address and Tenant Notice Address, respectively. Either party
may designate a change of address by written notice to the other party, in the
manner set forth above. Notice, demand and requests which shall be served by
certified mail in the manner aforesaid, shall be deemed to have been given
three (3) days after mailing. Notices sent by overnight delivery shall be deemed
to have been given the day after sending. Without intending to limit the
generality of the foregoing requirement that all notices, demands and requests
be in writing, there are certain provisions in this Lease where, for emphasis
alone, such requirement is reiterated.
34.12. Effective Date of this Lease. Unless otherwise expressly provided,
----------------------------
all terms, conditions and covenants by Tenant contained in this Lease shall be
effective as of the date first above written.
34.13. Mechanics' Liens. In the event that any mechanics' or materialmen's
----------------
liens shall at any time be filed against the Premises purporting to be for work,
labor, services or materials performed or furnished to Tenant or anyone holding
the Premises through or under Tenant, Tenant shall cause the same to be
discharged of record or bonded within thirty (30) days after the filing thereof.
If Tenant shall fail to cause such lien to be discharged within thirty (30) days
after the filing thereof, then, in addition to any other right or remedy of
Landlord, Landlord may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due; and the amount so paid by Landlord, and all
costs and expenses, including reasonable attorneys' fees incurred by Landlord in
procuring the discharge of such lien, shall be due and payable by Tenant to
Landlord as Additional Rent, on the first day of the next succeeding month.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished to Tenant upon credit and that no mechanics', materialmen's
or other liens for any such labor or materials shall attach to or affect the
estate or interest of Landlord in and to the land and improvements of which the
Premises are a part.
34.14. Waiver of Right of Redemption. Tenant hereby expressly waives (to
-----------------------------
the extent legally permissible) for itself and all persons claiming by, through
or under it, any right of redemption or right to restore the operation of this
Lease under any present or future law in the event Tenant is dispossessed for
any proper cause, or in the event Landlord shall obtain possession of the
Premises pursuant to the terms of this Lease. Tenant understands that the
Premises are leased exclusively for business, commercial and mercantile purposes
and therefore shall not be redeemable under any provision of law.
34.15. Mortgagee's Performance. If requested by any Mortgagee, Tenant
-----------------------
shall give such Mortgagee written notice of any default by Landlord under this
Lease and a reasonable opportunity to cure such default. Tenant shall accept
performance of any of Landlord's obligations hereunder by any ground lessor or
mortgagee relating to the financing of the Property.
34.16. Mortgagee's Liability. No mortgagee or ground lessor relating to
---------------------
the financing of the Property, not in possession of the Premises or the
Building, shall have any liability whatsoever hereunder.
34.17. Schedules. Each writing or plat referred to herein as being
---------
attached hereto as a schedule or exhibit is hereby made a part hereof, with the
same full force and effect as if such writing or plat were set forth in the body
of this Lease.
34.18. Time of Essence. Time shall be of the essence of this Lease with
---------------
respect to the performance by Tenant of its obligations hereunder.
34.19. Amendment. This Lease may be amended by and only by an instrument
---------
executed and delivered by each party hereto. No amendments of this Lease entered
into by Landlord and Tenant, as
35
<PAGE>
aforesaid, shall impair or otherwise affect the obligations of any guarantor of
Tenant's obligations hereunder, all of which obligations shall remain in full
force and effect and pertain equally to any such amendments, with the same full
force and effect as if the substance of such amendments was set forth in the
body of this Lease.
34.20. Signage. Within six (6) months after the Lease Commencement Date,
-------
Landlord shall, at its sole expense, install an exterior sign on the Building
comprised of the letters "RWD," which sign shall be consistent with the
existing Business Community signage system, and shall be approved in advance of
installation by Landlord and by the architectural review committee for the
Business Community ("ARC"). The sign location, materials, construction,
dimensions, colors, message content and other standards shall conform to the
architectural guidelines for signage established by the ARC or by Landlord
Tenant shall have the right to request that the ARC approve adding the word
"Technologies" to the exterior sign. If approved, such additional installation
shall be at the sole expense of Tenant.
34.21. Termination of Prior Lease. Landlord and Tenant agree that this
--------------------------
Lease and the terms, covenants and provisions contained herein are intended to
supersede and replace all of the terms, covenants and provisions of that
certain Lease between Landlord or its affiliate and Tenant dated March 31,
1988, as amended ("Prior Lease") and that the Prior Lease shall automatically
terminate upon the Lease Commencement Date of this Lease. The execution of this
Lease by Landlord does not constitute a waiver of any claim that Landlord may
have against Tenant, including, but not limited to, claims for indemnification
or contribution, as a result of any claim asserted against Landlord by any
third-party relating to Tenant's use and occupancy of the Premises during the
term of the Prior Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease under
their respective seals as of the day and year first above written.
ATTEST: LANDLORD:
PARKVIEW OFFICE BUILDING LIMITED
PARTNERSHIP
By: COLUMBIA MANAGEMENT, INC.,
Managing Agent
[SIGNATURE APPEARS HERE] By:[SIGNATURE APPEARS HERE](SEAL)
- -------------------------------- ------------------------
Assistant Secretary Vice President
ATTEST: TENANT:
RWD TECHNOLOGIES, INC.
[SIGNATURE APPEARS HERE] By:[SIGNATURE APPEARS HERE](SEAL)
- -------------------------------- ------------------------
Secretary of Corporation President
36
<PAGE>
SCHEDULE C
----------
RULES AND REGULATIONS
---------------------
1. Tenant shall not obstruct or encumber the Common Area, and the
sidewalks, driveways, and other public portions of the Property (herein "Public
Areas") and such Public Areas shall not be used for any purpose other than
ingress and egress to and from its Premises. Tenant shall not permit any of its
employees, agents, licensees or invitees to congregate or loiter in any of the
Public Areas. Tenant shall not invite to, or permit to visit, its Premises
persons in such numbers or under such conditions as may interfere with the use
and enjoyment by others of the Public Areas. Fire exits and stairways are for
emergency use only, and they shall not be used for any other purpose. Landlord
reserves the right to control, operate, restrict and regulate the use of the
Common Areas, public facilities, and any facilities furnished for the common use
of the tenants in such manner as it deems best for the benefit of the tenants,
including but not limited to the allocation of elevators for delivery service,
and the right to designate which Building entrances shall be used for
deliveries. No doormat of any kind whatsoever shall be placed or left in any
public hall or outside any entry door of the Premises.
2. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens shall be attached to,
hung in, or used in connection with any window or door of its Premises, without
the consent of Landlord. Such window or door coverings must be of a quality,
type, design and color approved by Landlord and further they must be installed
in a manner approved by Landlord. In order that the Building can and will
maintain a uniform appearance to those persons outside of the Building, each
tenant occupying the perimeter areas of the Building shall (a) use only
building-standard lighting in areas where lighting is visible from the outside
of the Building and (b) use only building-standard blinds in window areas which
are visible from the outside of the Building.
3. Except as otherwise provided in the Lease, no sign, insignia,
advertisement, lettering, notice or other object shall be exhibited, inscribed,
painted or affixed by Tenant on any part of the exterior or interior of the
Premises or the Building or on doors, corridor walls, the Building directory or
in the elevator cabs without the prior approval of Landlord. Landlord shall
review the size, color, style, content and location of any proposed signage.
Landlord shall have the right to prohibit any advertising or identifying sign by
Tenant which, in the sole judgment of Landlord, impairs the appearance,
reputation, or the desirability of the Building as a first-class office
building. Upon Landlord's approval, Tenant shall obtain all necessary approvals
and permits from governmental or quasi-governmental authorities in connection
with such signs. Further, approved signs shall be inscribed, painted or affixed
by signmakers approved by Landlord at Tenant's sole cost. In the event of a
violation of the foregoing by Tenant, upon written notice from Landlord, Tenant
shall refrain from and discontinue such advertising or identifying sign. In the
event that Tenant does not promptly correct said violation, Landlord may remove
such signs without any liability, and may charge the expense incurred in such
removal to the Tenant violating this Rule and Tenant hereby agrees to pay
Landlord, as Additional Rent, any such expense promptly upon demand.
4. No bicycles, vehicles, animals (except seeing eye dogs), fish or birds
of any kind shall be brought into or kept in or about the Premises.
5. Nothing shall be done or permitted by Tenant which would impair or
interfere with the use or enjoyment by any other occupant of the Building,
including the playing of music.
<PAGE>
6. Nothing shall be done or permitted in the Premises and nothing shall be
brought into, installed or kept in or about the Premises, which would impair or
interfere with any of the HVAC, plumbing, electrical, structural components of
the Building or the services of the Building or the proper and economic heating,
cleaning or other services of the Building or the Premises. Tenant nor its
employees, agents, licensees or invitees shall at any time bring or keep upon
the Premises any flammable, combustible or explosive fluid, chemical or
substance.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in locks or the
mechanism thereof. Duplicate keys for the Premises and restrooms shall be
procured only from Landlord and Landlord may make a reasonable charge therefor.
Tenant shall, upon the termination of the Lease, turn over to Landlord all keys
to stores, offices and restrooms. In the event of the loss of any keys furnished
by Landlord, Tenant shall pay to Landlord the cost of replacement locks and
Tenant hereby agrees to pay said cost to Landlord, as Additional Rent, promptly
upon demand.
8. Any delivery or moving of any safes, freight, furniture, packages,
boxes, crates or any other such object shall take place at such time and in such
manner so as not to interfere with other occupants of the Building. Tenant
hereby acknowledges that this may involve overtime work for Landlord's
employees. Further, Tenant hereby agrees to reimburse Landlord for extra costs
incurred by Landlord including, but not limited to, Landlord's right to inspect
all objects to be brought into the Building and to exclude from the Building any
objects which may in Landlord's sole discretion violate the Lease and/or any of
these Rules and Regulations. Tenant hereby agrees to pay any such costs to
Landlord, as Additional Rent, promptly upon demand.
No hand trucks shall be used for such moving activities except for those
equipped with rubber tires, side guards and such other safeguards as Landlord
shall require.
Landlord may require any person leaving the Building with any package or
other object to submit a statement indicating the tenant from whose premises the
package or object is being removed, however, Landlord and Tenant hereby
acknowledge that the establishment and enforcement of such requirement does not
impose any responsibility on Landlord for the protection of Tenant against the
removal of property from the Premises of Tenant. Landlord shall in no way be
liable to Tenant for damages or loss arising from the admission, exclusion or
ejection of any person to or from the Premises or the Building under the
provisions of this Rule.
9. Tenant shall not use or occupy its Premises, or permit any portion
thereof to be used or occupied for telephone or secretarial service, messenger
service, wholesale or discount shop for sale of merchandise, retail service
shop, labor union, classroom, company engaged in the business of renting office
or desk space, a hiring or employment agency, or for any use which constitutes a
nuisance, or is hazardous, or, in Landlord's opinion, likely to injure the
reputation of a first-class office building. No tenant shall engage or pay any
employee on its Premises, except those actually employed by such tenant, nor
advertise for laborers giving an address at the Building. Except as specifically
approved by Landlord in writing, no tenant shall use or permit the use of its
Premises or any part thereof as a restaurant, shop, booth or other stand, or for
the conduct of any business or occupation which predominantly involves direct
patronage of the general public, manufacturing, or the sale at auction of
merchandise, goods or property of any kind.
10. Tenant, before closing and leaving its Premises at any time, shall see
that all lights, typewriters, copying machines and other electrical equipment
are turned off. All entrance doors in
2
<PAGE>
Tenant's Premises shall be kept locked when not in use. Entrance doors shall not
be left open at any time.
11. If Tenant shall request Landlord to perform any work on the Premises
or Property, Tenant shall make such request at the management office for the
Building. Tenant shall not request employees of Landlord to perform any work or
do anything outside of their regular duties, unless under special instructions
from Landlord.
12. Canvassing, soliciting and peddling in the Building are prohibited and
Tenant shall cooperate to prevent the same.
13. Tenant shall not cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its Premises
which would annoy other tenants or create a public or private nuisance. No
cooking shall be done in Tenant's Premises, except for a household microwave
oven or as is expressly permitted in the Lease, or otherwise consented to in
writing by the Landlord.
14. All paneling, doors, trim or other wood products not considered
furniture shall be treated with fire-retardant materials. Before installation of
any such materials, certification of the materials' fire-retardant
characteristics shall be submitted to and approved by Landlord, and all such
materials shall be installed in a manner approved by Landlord.
15. Whenever Tenant submits any plan, agreement or other document for the
consent or approval of Landlord, Landlord may charge, on demand, a reasonable
processing fee for the review thereof, which shall include the cost of any
services of an architect, engineer or attorney employed by Landlord to review
such plan, agreement or document. Tenant hereby agrees to pay any such
processing fee to Landlord, as Additional Rent, promptly upon demand.
16. No contract of any kind with any supplier of towels, water, ice,
toilet articles, waxing, rug shampooing, venetian blind washing, furniture
polishing, lamp servicing, cleaning of electrical fixtures, removal of waste
papers, rubbish or garbage, or any other cleaning, janitorial or like service
shall be entered into by Tenant without the prior written consent of Landlord.
Further, no vending machine of any kind shall be installed in the Building or on
or about the Property without the prior written consent of Landlord.
Landlord shall not be responsible to Tenant for any loss of property from
its Premises however occurring, or for any damage done to the effects of Tenant
by Landlord's janitors or any of its employees, or by any other person or any
other cause. The janitor's service furnished by Landlord does not include the
beating or cleaning of carpets or rugs.
17. When electric wiring of any kind is introduced, it must be connected
as directed by Landlord, and no stringing or cutting of wires will be allowed,
except with the prior written consent of Landlord, and shall be done only by
contractors approved by Landlord. The number and locations of telephones,
telegraph instruments, electric appliances, call boxes, etc., shall be subject
to Landlord's approval. Tenant shall not lay linoleum or other similar floor
covering so that the same shall be in direct contact with the floor of the
Premises; and if linoleum or other similar floor covering is desired to be used,
an interlining of builder's deadening felt shall be first affixed to the floor
by a paste or other material, the use of cement or other similar adhesive
material being expressly prohibited.
3
<PAGE>
18. Landlord hereby reserves to itself any and all rights not granted to
Tenant hereunder, including, but not limited to, the following rights which are
reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to use of the name of the Building for all
purposes, except that Tenant may use the name as its business address
and for no other purpose;
(b) the right to change the name or address of the Building, without
incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the exterior of
the Building;
(d) the exclusive right to use or dispose of the use of the roof of the
Building;
(e) the right to limit the space on the directory of the Building to be
allotted to Tenant; and
(f) the right to grant anyone the right to conduct any particular business
or undertaking in the Building.
19. Tenant and its employees shall park their cars only in those portions
of the parking area designated by Landlord.
20. Tenant shall not permit undue accumulations of garbage, trash, rubbish
or any other refuse, and will keep such refuse in proper containers in the
interior of the Tenant's Premises or other places designated by the Landlord.
21. Tenant shall not conduct or permit any bankruptcy sales, unless
directed by order of a court of competent jurisdiction, or any fictitious fire
or going out of business sale.
22. Landlord shall have the right to close and securely lock the Building
during generally accepted holidays and during such other times as Landlord may,
in its sole discretion, deem advisable for the security of the Building and its
tenants. Landlord shall give Tenant twenty-four (24) hours notice before so
closing and securely locking the Building except in an emergency.
23. Landlord reserves the right to rescind, alter, waive or add any rule
or regulation at any time prescribed for the Building when Landlord deems it
necessary or desirable for the reputation, safety, character, security, care,
appearance or interests of the Building, the preservation of good order therein,
the operation or maintenance of the Building or the equipment thereof, or the
comfort of tenants or others in the Building. No rescission, alteration, waiver
or addition of any rule or regulation with respect to one tenant shall operate
as a rescission, alteration or waiver in respect of any other tenant.
4
<PAGE>
SCHEDULE X
----------
METHOD OF BUILDING MEASUREMENT FOR OFFICE SPACE
I. SINGLE-TENANCY FLOORS
The Rental Area of a single-tenancy floor shall be the area within the
outside walls computed by measuring from the inside surface of the window glass
to the inside surface of the opposite window glass including columns and
projections necessary to the building as well as accessory areas within and
exclusively serving only that floor, with their enclosing walls, toilets,
janitors closets, electrical closets, air-conditioning rooms and fan rooms and
telephone closets, together with four percent (4%) of the sum so determined as a
"Common Area Factor". Rental Area will not include penetrations made by public
stairs, fire towers, public elevator shafts, flues, vents, stacks, pipe shafts
and vertical ducts.
II. DIVIDED FLOORS
The Rental Area of an individual office or a portion of a divided floor
shall be the area computed by measuring from the inside surface of the window
glass to the finished surface of the corridor side of corridor partitions and
from center to center of the partitions that separate the Premises from
adjoining Rental Areas including columns and projections necessary to the
Building together with 12 percent (12%) of the sum so determined as a "Common
Area Factor".
<PAGE>
COLUMBIA MANAGEMENT, INC.
JANITORIAL SPECIFICATIONS
Schedule D (Continued)
Columbia Management, Inc. maintains a prestigious and reputable business
operations standard. The following list of services is representative of the
type of work expected for our office buildings. In performance of these tasks
your staff should be trained to provide this standard of excellence at all
times. Maintaining that image should be the focus of the contractor's
management team. Columbia Management will evaluate performance based on
adherence to these specifications Non performance will be subject to deductions
of monies from your invoices.
I CLEANING
--------
1. Tenant Areas
------------
A. Nightly
-------
1. Empty and clean all waste receptacles, wash inside and outside
when necessary, and change liners. Liners to be installed with
minimal overhang.
2. Empty and damp wipe all ash trays and receptacles.
3. Hand dust with treated cloths and wipe clean all furniture,
fixtures, and exposed desk and file cabinet areas.
4. Vacuum all rugs and carpeted areas, moving light furniture and
spot cleaning when necessary.
5. Sweep and damp mop all vinyl tile floors.
6. Remove all gum and foreign matter from all floor
areas.
7. Remove all fingerprints, smudges, and other marks from
partitions, glass, doors, and other surfaces.
8. Thoroughly wash, clean and sanitize all water coolers, coffee and
food area, and vending machines.
9. Clean glass entrance doors and windows where applicable to tenant
spaces.
10. Wash and disinfect all telephone receivers.
(1)
<PAGE>
B. Weekly (See Section 4, Item 2)
------
1. Detail dust and damp wipe all shelving, window sills, telephones,
moldings, chair rails, baseboards, picture frames, and trim.
2. Detail vacuum all corners and edges.
C. Monthly (See Section 4, Item 2)
-------
1. Vacuum all upholstered furniture.
2. Spray buff and wax all tile areas.
3. Dust and wipe clean all lighting fixtures.
4. Dust and wipe clean all HVAC vents.
5. Hand-vacuum all corners of ceilings and walls.
D. Quarterly (See Section 4, Item 2)
---------
1. Strip and refinish all vinyl tile areas or as needed.
2. Dust and wipe clean all light lenses.
3. Dust and wipe clean all window blinds.
2. Common Areas:
-------------
A. Nightly
-------
1. Empty and wipe clean all ash and trash receptacles.
2. Clean, sanitize and polish all tops and sides of all water
fountains.
3. Vacuum all carpeted areas of corridors, elevator mats, and
entrance mats. Spot clean when necessary.
4. Sweep, damp mop lobby. Buff lobby where applicable.
5. Detail clean all fingerprints, smudges, etc. on doors, walls,
light covers, and other surface areas.
(2)
<PAGE>
6. Dust and wipe clean all window sills, heaters, baseboards,
telephones, and chrome work.
7. Wipe clean and polish elevator tracks, doors, panel signs, and
buttons. Check light cove and remove trash.
8. Sweep down stairwells and spot mopping where necessary.
9. Spot clean walls and doors throughout corridors and stairwells.
Clean wallpapered walls with CMI approved cleaner.
10. Wash clean all glass entrance doors and windows. Wipe chrome clean
of finger prints.
11. Wipe clean all suite doors and frames, service corridor doors
(both sides), restroom doors, and door signs.
B. Weekly
------
1. Wet mop stairwells.
2. Detail vacuum all corners and edges. Check along ceilings for
cobwebs.
3. Dust and wipe clean all tenant directories.
4. Dust and wipe clean all fire extinguishers and cabinets.
C. Monthly
-------
1. Hand-vacuum all corners of ceiling and walls.
2. Dust and wipe clean all HVAC vents, light lenses and plumbing
pipes.
3. Building entrances chrome work to be polished.
4. All vinyl tile flooring (Service Corridors) to be stripped and
waxed, with attention paid to cove base. Wood floors to be waxed
or as needed.
D. Quarterly
---------
1. Stairwells and landings to be stripped and waxed where applicable
with special attention paid to cove base.
(3)
<PAGE>
[FLOOR PLAN OF PARKVIEW TENTH FLOOR APPEARS HERE]
<PAGE>
[FLOOR PLAN OF PARKVIEW ELEVENTH FLOOR APPEARS HERE]
<PAGE>
[FLOOR PLAN OF PARKVIEW TWELFTH FLOOR APPEARS HERE]
<PAGE>
FIFTH AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS FIFTH AMENDMENT TO LEASE AGREEMENT, made as of the 1st day of
June, 1996, by and between PARKVIEW OFFICE BUILDING LIMITED PARTNERSHIP, a
Maryland limited partnership ("Landlord") by COLUMBIA MANAGEMENT, INC., Managing
Agent, and RWD TECHNOLOGIES, INC., a Maryland corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant have heretofore entered into that certain
Lease Agreement dated January 1, 1994, as amended by First Amendment to Lease
Agreement dated August 22, 1994, Second Amendment to Lease Agreement dated as of
October 15, 1994, Third Amendment to Lease Agreement dated April 1, 1995 and
Fourth Amendment to Lease Agreement dated November 18, 1995 (collectively the
"Lease") by the terms of which Landlord leased to Tenant and Tenant rented from
Landlord premises containing approximately 56,522 square feet of Rental Area, on
the eighth, ninth, tenth, eleventh & twelfth floors of the Building known as the
RWD Building (formerly the Park View Building), located at 10480 Little Patuxent
Parkway, Columbia, Maryland, 21044 ("Premises") for a term which expires on
December 31, 2003 ("Term"); and
WHEREAS, Landlord and Tenant mutually desire to amend the Lease to
increase the size of the Premises and to modify certain other particulars of the
Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00),
paid by Landlord and Tenant, each to the other, and the mutual covenants and
conditions hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree as follows:
1. Definitions. Unless otherwise set forth in this Fifth Amendment To
-----------
Lease Agreement, all capitalized terms shall have the same meaning as set forth
in the Lease.
2. Rent. Based on Tenant's expansion onto the eighth floor, effective as
----
of June 1, 1996, the Annual Basic Rent payable by Tenant as set forth in Section
1.B.(1) of the Lease shall be deleted in its entirety and the Annual Basic Rent
for the Premises shall be as set forth in Part 7 of Schedule D attached hereto
----------
and incorporated herein by reference. The amended Annual Basic Rent set forth in
Part 7 of Schedule D includes the following cost:
----------
Twenty-Six Cents ($0.26) per square foot per year for the amortization
of Tenant Improvements Costs for the eighth floor space calculated as follows:
fifty percent (50%) of Tenant Improvement Costs ($110,760.21) divided by the
total number of square feet contained in the
<PAGE>
Premises (56,522) equals One Dollar and Ninety-Six Cents ($1.96). One Dollar and
Ninety-Six Cents ($1.96) divided by the remaining Lease Term (7.58 years)
results in Twenty-Six Cents ($0.26) per square foot per year in additional rent.
3. Expansion of Premises. Effective as of the Effective Date, as
---------------------
hereinafter defined, the Premises shall be expanded by the addition of an area
containing approximately 12,455 square feet of Rental Area located on the fifth
floor ("Suite 500") of the Building as identified on Schedule A-10 attached
-------------
hereto and made a part hereof, effecting, therefore, a total Rental Area of
68,977 square feet ("Premises"). The Effective Date shall be the date on which
the present tenant vacates Suite 500 but in no event earlier than October 1,
1996. As of the Effective Date, Schedule A-10 shall be added to Schedule A-9 and
------------- ------------
shall thereafter refer to the Premises as hereby increased in size and
identified above.
As of the Effective Date, Section 1.A.(3) of the Lease as previously
amended, is deleted in its entirety and the following inserted in lieu thereof:
"1.A.(3) Premises: Approximately 68,977 square feet of Rental Area on the
---------
fifth, eighth, ninth, tenth, eleventh and twelfth floors of the Building as
shown on Schedules A-9 & A-10 The fifth floor (Suite 500) is comprised of 12,455
--------------------
square feet of Rental Areas including a four percent (4%) CAF; the eighth floor
(Suite 800) is comprised of 12,431 square feet of Rental Area including a four
percent (4%) CAF; the ninth floor (Suite 900) is comprised of 12,431 square feet
of Rental Area including a 4% CAF; the tenth floor (Suite 1000) is comprised of
approximately 12,432 square feet of Rental Area including a four percent (4%)
CAF; the eleventh floor (Suite 1150) is comprised of approximately 7,056 square
feet of Rental Area including a twelve percent (12%) CAF; and the twelfth floor
(Suite 1200) is comprised of approximately 12,172 square feet of Rental Area
including a four percent (4%) CAF."
4. Rent after Fifth Floor Expansion. As of the Effective Date, the Annual
--------------------------------
Basic Rent payable by Tenant as set forth in Section 1.B.(1) of the Lease shall
be deleted in its entirety and the Annual Basic Rent for the Premises shall be
as set forth in Part 8 of Schedule D, attached hereto and incorporated herein by
----------
reference.
5. Tenant Improvements to Suite 500. On the Effective Date, Landlord
--------------------------------
shall commence construction of certain improvements to Suite 500 based upon the
plans and specifications mutually approved by Landlord and Tenant. Landlord
shall use all reasonable efforts to complete such improvements within forty-five
(45) days after the effective date provided final architectural drawings are
completed and approved by Landlord and Tenant. All plans associated with such
improvements shall be submitted to Tenant for approval no later than September
1, 1996. Tenant shall therafter have no more than 5 business days to notify
Landlord of its acceptance. Tenant shall reimburse Landlord for the costs of
such improvements in accordance with the terms and provisions of Section 3.4. of
the Lease.
6. Full Force and Effect. All other terms, covenants and conditions of
----------------------
the Lease shall remain the same and continue in full force and effect and shall
be deemed unchanged, except as such terms, covenants and conditions of the Lease
have been amended or modified by this Fifth Amendment To Lease Agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Fifth Amendment
To Lease Agreement under their respective seals as of the day and year first
above written.
ATTEST: LANDLORD:
PARKVIEW OFFICE BUILDING UNITED,
PARTNERSHIP
By: COLUMBIA MANAGEMENT, INC.,
Managing Agent
[SIGNATURE APPEARS HERE] By [SIGNATURE APPEARS HERE] (SEAL)
- --------------------------- -----------------------------
Assistant Secretary Vice-President
ATTEST: TENANT:
RWD TECHNOLOGIES, INC.
[SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE] (SEAL)
- --------------------------- ----------------------------
Secretary of Corporation President
-3-
<PAGE>
<TABLE>
<CAPTION>
PART 7
=========================================================================================================
SQUARE ANNUAL MONTHLY RATE PER
TERM SUITE # FOOT BASIC RENT INSTALLMENT CAF SQUARE FOOT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/1/96-12/31/97 200* $ 1,326.80 $ 110.57 N/A $ .62
800 12,431 203,371.16 16,947.60 4% 16.36
900** 1,585.34 132.11 N/A .62
900 12,431 203,371.16 16,947.59 4% 16.36
1000 12,432 211,095.36 17,591.28 4% 16.98
1150 7,056 119,810.88 9,984.24 12% 16.98
1200 12,172 206,680.56 17,223.38 4% 16.98
------ ------------- ----------
TOTAL: 56,522 $ 947,241.26 $78,936.77
- ---------------------------------------------------------------------------------------------------------
01/01/98-12/31/99 200* $ 1,326.80 $ 110.57 NA $ .62
800 12,431 222,017.66 18,501.47 4% 17.86
900** 1,585.34 132.11 N/A .62
900 12,431 222,017.66 18,501.47 4% 17.86
1000 12,432 229,743.36 19,145.28 4% 18.48
1150 7,056 130,394.88 10,866.24 12% 18.48
1200 12,172 224,938.56 18,744.88 4% 18.48
------ ------------- ----------
TOTAL: 56,522 $1,032,024.26 $86,002.02
- ---------------------------------------------------------------------------------------------------------
01/01/00-12/31/03 200* $ 1,326.80 $ 110.57 N/A $ .62
800 12,431 237,556.41 19,796.37 4% 19.11
900** 1,585.34 132.11 N/A .62
900 12,431 237,556.41 19,796.37 4% 19.11
1000 12,432 245,283.36 20,440.28 4% 19.73
1150 7,056 139,214.88 11,601.24 12% 19.73
1200 12,172 240,153.56 20,012.79 4% 19.73
------ ----------- ----------
TOTAL: 56,522 $1,102,676.76 $91,889.73
=========================================================================================================
</TABLE>
* Unamortized Tenant Improvements Costs and Broker Commissions payable
throughout Term for Suite 200 as set forth in Second Amendment to Lease.
** Unamortized Tenant Improvements Costs and Broker Commissions payable
throughout Term for the ninth floor.
<PAGE>
<TABLE>
<CAPTION>
PART 8
==========================================================================================================================
SQUARE ANNUAL MONTHLY RATE PER
TERM SUITE # FOOT BASIC RENT INSTALLMENT CAF SQUARE FOOT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/1/96-12/31/97 200* $ 1,326.80 $ 110.57 N/A $ .62
500 12,455 196,166.25 16,347.18 15.75
800 12,431 203,371.16 16,947.60 4% 16.36
900** 1,585.34 132.11 N/A .62
900 12,431 203,371.16 16,947.60 4% 16.36
1000 12,432 211,095.36 17,591.28 4% 16.98
1150 7,056 119,810.88 9,984.24 12% 16.98
TOTAL: 1200 12,172 206,680.56 17,223.38 4% 16.98
------ -------------- -------------
68,977 $ 1,143,407.51 $ 95,285.96
- --------------------------------------------------------------------------------------------------------------------------
01/01/98-12/31/99 200* $ 1,326.80 $ 110.57 N/A $ .62
500 12,455 214,848.75 17,904.06 17.25
800 12,431 222,017.66 18,501.47 4% 17.86
900** 1,585.34 132.11 N/A .62
900 12,431 222,017.66 18,501.47 4% 17.86
1000 12,432 229,743.36 19,145.28 4% 18.48
1150 7,056 130,394.88 10,866.24 12% 18.48
TOTAL: 1200 12,172 224,938.56 18,744.88 4% 18.48
------ -------------- -------------
68,977 $ 1,246,873.01 $ 103,906.08
- --------------------------------------------------------------------------------------------------------------------------
01/01/00-12/31/03 200* $ 1,326.80 $ 110.57 N/A $ .62
500 12,455 230,417.50 19,201.46 18.50
800 12,431 237,556.41 19,796.36 4% 19.11
900** 1,585.34 132.11 N/A .62
900 12,431 237,556.41 19,796.36 4% 19.11
1000 12,432 245,283.36 20,440.28 4% 19.73
1150 7,056 139,214.88 11,601.24 12% 19.73
TOTAL: 1200 12,172 240,153.56 20,012.80 4% 19.73
------ -------------- -------------
68,977 $1 ,333,094.26 $ 111,091 .18
==========================================================================================================================
</TABLE>
* Unamortized Tenant Improvements Costs and Broker Commissions payable
throughout Term for Suite 200 as set forth in Second Amendment to Lease.
** Unamortized Tenant Improvements Costs and Broker Commissions payable
throughout Term for the ninth floor.
<PAGE>
[FLOOR PLAN OF PARKVIEW FOURTH FLOOR APPEARS HERE]
<PAGE>
EXHIBIT 10.02
FACILITIES & MATERIALS PURCHASING
GENERAL TERMS AND CONDITIONS
1. AGREEMENT. Seller agrees to sell and deliver the goods or services
specified in Chrysler's order in ACCORDANCE WITH THE TERMS AND CONDITIONS
CONTAINED IN THE ORDER, INCLUDING THE CLAUSES REFERENCED IN THE ORDER, THE TERMS
OF THIS FORM AND ANY SIGNED DOCUMENTS REFERENCED IN THE ORDER, all of which
constitute the entire and final agreement of the parties and cancels and
supersedes any prior or contemporaneous negotiation or agreements. The Chrysler
clauses referenced are in Booklet 84-806-1824 (10/94), the receipt of which
Seller hereby acknowledges by acceptance of Chrysler's order. CHRYSLER'S ORDER
EXPRESSLY LIMITS ACCEPTANCE TO THE TERMS OF THE ORDER AND ANY ADDITIONAL OR
DIFFERENT TERMS, WHETHER CONTAINED IN SELLER'S FORMS OR OTHERWISE PRESENTED BY
SELLER ARE REJECTED UNLESS EXPRESSLY AGREED TO AND SELLER SPECIFICALLY WAIVES
ITS SIGNED ACCEPTANCE OF THIS ORDER BY CHRYSLER. "Order" means a purchase order
transmitted to Seller via Chrysler's Electronic Data Interchange System or
delivered to Seller in a paper format.
2. ACCEPTANCE. This order constitutes Chrysler's offer to Seller and is not
binding on Chrysler until accepted by Seller and Seller specifically waives its
signed acceptance of this order or by a delivery of the goods, rendering of
services, or the commencement of work on goods to be specially manufactured for
Chrysler pursuant to this order.
3. DELIVERY. Time is of the essence. Delivery must be effected within the
time specified on the face of this order. If Seller fails to make deliveries or
perform services at the agreed time, all damages suffered by Chrysler and any
premium transportation or other costs required to meet the specified delivery
schedule will be at the expense of Seller.
4. PACKING, MARKING AND SHIPMENT. Seller will pack and mark goods in
accordance with Chrysler's instructions, secure the lowest transportation rates,
meet carrier requirements and assure delivery free of damage and deterioration.
Seller is responsible for the goods until delivery at the designated FOB point.
Prices specified include all charges and expenses for containers, packing and
crating, and transportation to the FOB point. All containers, packing and
crating material will become the property of Chrysler on delivery. Chrysler may
specify the carrier and/or method of transportation and Seller will process
shipping documents and route shipment of the goods from the FOB point
accordingly.
5. RELEASE AUTHORIZATION. When deliveries are specified to be in accordance
with Chrysler's written releases, Seller will not fabricate or assemble any
goods, nor procure required materials, nor ship any supplies, except to the
extent authorized by such written releases or provisions of this order
specifying minimum fabrication or delivery quantities.
1
<PAGE>
FACILITIES & MATERIALS PURCHASING
GENERAL TERMS AND CONDITIONS
6. INSPECTION AND REJECTIONS. Chrysler may inspect and evaluate all goods
(including all tooling and material used in their manufacture), and all services
at times and places designated by Chrysler. Seller will perform its inspections
as designated by Chrysler and Seller will make inspection systems, procedures
and records available to Chrysler upon request. Notwithstanding payment or any
prior inspection, Chrysler may reject, require correction, or return the goods
to the Seller (at Seller's expense and risk of loss) any goods delivered or
services rendered that do not conform to applicable requirements. Without
limiting its remedies, after notice to Seller, Chrysler may either (I) replace
or correct any nonconforming goods or services and charge Seller the cost os
such replacement or correction, or (ii) cancel the order for default under
Clause 20 hereof.
7. LABOR DISPUTES. Seller will notify Chrysler immediately of any actual or
potential labor dispute delaying or threatening to delay timely performance of
this order, and will include all relevant information to Chrysler. Seller will
notify Chrysler in writing six (6) months in advance of the expiration of any
current labor contract(s). If requested by Chrysler, Seller will deliver a
supply of finished goods at least thirty (30) days prior to the expiration of
any such labor contract, in quantities and for storage at any place or places
designated by Chrysler.
8. GENERAL WARRANTY. Seller warrants that the goods or services will (I)
comply with all specifications, drawings, descriptions or samples furnished
and/or specified by Chrysler, (ii) be merchantable, and (iii) be free from
defects in material and workmanship. Seller further warrants that all goods not
designed by Chrysler will be fit and sufficient for the purposes intended.
Seller further warrants that on delivery Chrysler will receive good title to the
goods and services will be free from any actual or claimed patent, copyright or
trademark infringement. These warranties are in addition to any warranties
implied by law or otherwise made by Seller and will survive acceptance and
payment by are in addition to any warranties implied by law or otherwise made by
Seller and will survive acceptance and payment by Chrysler.
9. PROPERTY AND SPECIAL TOOLING. Unless otherwise provided in this order,
property of every description including all tools, equipment, material,
drawings, manufacturing aids and replacements of the foregoing furnished by
Chrysler, either directly or indirectly, or as acquired or manufactured by
Seller for use in the performance of this order, for which Seller has been
reimbursed by Chrysler, will be (I) the property of Chrysler, (ii) plainly
marked or otherwise adequately identified by Seller as the property of Chrysler,
and (iii) safely stored separate and apart from Seller's property. Seller will
retain and not use or rework tooling or property of Chrysler except for
performance of work herunder or as authorized in writing by Chrysler. Seller
will keep such tooling or property in its possession and/or control in good
condition, fully covered by insurance, free of liens and encumbrances and will
replace such tooling or property when lost, damaged or destroyed. All Chrysler
tooling or property will be transferred as Chrysler may direct at any time.
2
<PAGE>
FACILITIES & MATERIALS PURCHASING
GENERAL TERMS AND CONDITIONS
10. INSURANCE AND INDEMNIFICATION. (a) Insurance. Seller will provide workers
compensation, comprehensive general liability, automobile, public liability, and
property damage insurance in amounts and coverage's sufficient to cover all
claims hereunder. Such policies will name Chrysler as an additional insured
thereunder and shall contain endorsements stating that the policies are primary
and not excess over or contributory with any other valid, applicable, and
collectible insurance in force for Chrysler. Chrysler may require Seller to
furnish evidence of the foregoing insurance but failure to comply with these
insurance requirements will not relieve Seller of its liability and obligations
under this clause. Chrysler's action or inaction will not act as a waiver of
any of Chrysler's rights described in this clause.
(b) Indemnification. Seller will defend, indemnify, and hold Chrysler
harmless against all claims, liabilities, losses, damages, and settlement
expenses in connection with any breach by Seller of these general conditions or
for injury or death of any person and damage or loss of any property allegedly
or actually resulting from or arising out of any act, omission or negligent work
of Seller or its employees, agents, or subcontractors in connection with
performing this order, either on Chrysler's property or in the source of their
employment.
11. CHANGES. Chrysler may, at any time, make changes in this order. Any claim
by Seller for a change in price adjustment must be asserted in writing within
thirty (300 days from date or receipt by Seller of Chrysler's notification of
any change. Chrysler will have the right to verify all claims hereunder by
auditing relevant records, facilities, work or materials of Seller. Seller
agrees to proceed with the order as changed under this Clause 12.
12. CLAIMS ADJUSTMENT. Chrysler may at any time and without notice deduct or
set-of Sellers claims for money due or to become due from Chrysler against any
claims that Chrysler has or may have arising out of this or any other
transaction between Chrysler has or may have arising out of this or any other
transaction between Chrysler and Seller.
13. DUTY DRAWBACK RIGHTS. This order includes all related customs duty and
import drawback rights, if any (including rights developed by substitution and
rights which may be acquired from Seller's suppliers), which Seller can transfer
to Chrysler. Seller will inform Chrysler promptly of any such rights and will
supply documents as may be required to obtain such drawback.
14. USE OF CHRYSLER'S NAME. Seller will not, without the prior written consent
of Chrysler, in any manner publish the fact that Seller has furnished or
contracted to furnish Chrysler goods and/or services, or use the name or
trademarks of Chrysler, its products, or any of its associated companies in
Seller's advertising or other publication. If Seller places on the goods a
Chrysler trademark and/or identifying mark, as specified by Chrysler, or it
goods specified in this order are peculiar to Chrysler's design, they will
3
<PAGE>
FACILITIES & MATERIALS PURCHASING
GENERAL TERMS AND CONDITIONS
not bear the trademark or other designation of the maker or Seller and similar
goods will not be sold to anyone other than Chrysler.
15. INFORMATION DISCLOSED. The specifications, drawings, design, manufacturing
data and other information transmitted to Seller by Chrysler in connection with
the performance of this order are the property of Chrysler and may be covered by
one or more Chrysler patents, patent applications or copyrights. Seller will
handle all of this information in such a manner to insure that it is not used
for any purpose detrimental to the interests of Chrysler. Unless expressly
provided in this order or otherwise agreed to in writing by Chrysler, Seller's
disclosure rights regarding products or services to this order, and information
relating thereto shall be limited to any valid copyright thereon or patent
Seller may hold covering the manufacture, use and sale of the products or
services.
16. PATENTS. No rights are granted to Seller under any Chrysler patents except
as may be necessary to fulfill Seller's obligations under this order. Seller
agrees to defend all suits, actions or proceedings which may be brought against
Chrysler, any of its associated companies or its customers for alleged
infringement of any proprietary interest resulting from the use or sale of the
goods or services provided hereunder and to pay all expense and fees of counsel
which may be incurred in defending, and all costs, damages, or other recoveries
in every such suit.
17. ASSIGNMENT. This order will not be assigned or delegated, in whole or in
part without Chrysler's prior written consent.
18. TERMINATION AT CHRYSLER'S OPTION. Chrysler may terminate this order at any
time without cause in whole or in part by written notice, whereupon Seller will
stop work on the date and to the extent specified in such notice and terminate
all orders and subcontracts that relate to the terminated order. Within thirty
(30) days after receipt of termination notice, Seller will submit all claims
resulting from such termination. Chrysler will have the right to verify such
claims by auditing the relevant records, facilities, work or materials of Seller
and/or its subcontractors. Chrysler will pay Seller for finished work accepted
by Chrysler as well as for the documented cost to Seller of work in process and
raw material allocable to the terminated work which is not in excess of any
prior Chrysler authorization. Payment made under this Clause 19 will constitute
Chrysler's only liability for termination herunder with title and right of
possession to all delivered goods and services vesting in Chrysler immediately
on Chrysler's tender of such payment. The provision of this Clause 19 will not
apply to any cancellation by Chrysler for default by Seller or for any other
causes recognized by law or specified by this order.
19. CANCELLATION FOR DEFAULT. If Seller (i) fails to deliver goods or perform
services at the time specified herein, or (ii) fails to perform any other
provisions hereof and does not cure such failure within a period of ten (10)
days after receipt of written notice form Chrysler specifying such failure, or
(iii) becomes insolvent, makes an
4
<PAGE>
FACILITIES & MATERIALS PURCHASING
GENERAL TERMS AND CONDITIONS
assignment in favor of creditors, or enters bankruptcy pr dissolution
procedures, or (iv) is merged into another company and/or is expropriated or
nationalized, Chrysler may cancel the whole or any part of this order without
any liability, except for payment due to goods and services delivered and
accepted. Upon such termination Chrysler will have the right, and on notice to
Seller, to take title to and possession of all or any part of such work
performed by Seller under this order.
20. REMEDIES. The rights and remedies herein reserved to Chrysler are
cumulative and in addition to any other or further rights and remedies available
at law or in equity. No waiver of any breach of any provision of this order
will constitute a waiver of any other breach or a waiver of such provision.
21. REQUIRED COMPLIANCE. In providing goods or services hereunder, Seller will
comply with any and all applicable Federal, State and Local laws (including
Canadian or other foreign laws), and regulation promulgated thereunder. Seller
will defend, indemnity and hold Chrysler harmless from and against any and all
claims, losses, damages, costs and expenses resulting from or arising out of any
failure of Seller or Seller's employees, agents and subcontractors to comply
with any applicable governmental regulations and/or statutes.
22. GOVERNING LAW. This order and all transactions between Chrysler and Seller
will be governed by and construed in accordance with the laws of Michigan as if
entirely performed therein. In the case of Chrysler Canada Ltd., this order
between Chrysler Canada Ltd. and Seller will be governed by and construed in
accordance with the laws of the province of Ontario, Canada as if entirely
performed therein. the 1980 United Nations Convention on Contracts for the
International Sale of Goods, to the extent it may be deemed to apply, shall not,
pursuant to Article 6 thereof, apply to this order or any transactions pursuant
hereto.
5
<PAGE>
EXHIBIT 10.03
243-014
410-964-6817
February 27, 1996
Dr. Robert W. Deutsch
Chief Executive Officer
RWD Technologies, Inc.
10480 Little Patuxent Parkway - Suite 1200
Columbia, Maryland 21044-3530
Dear Dr. Deutsch:
I am pleased to advise you that the First National Bank of Maryland
("Bank") has approved the following credit facilities for RWD Technologies, Inc.
("Borrower"):
Facility A: A $7,500,000 line of credit ("Loan") for short
---------- term working capital needs and letters of credit.
Facility B: A $250,000 line of credit for vehicle/equipment
---------- purchases or leases.
These credit facilities are subject to the following terms and
conditions:
1. Periodic Review: These commitments are based upon the present
---------------
and continuing financial and operating condition of the
Borrower and are, of course, subject to our periodic review.
2. Term: Facility A shall be due and payable on the demand of the
----
Bank. Notes under Facility B will have terms up to five years.
3. Advances: Facility A will be advanced as requested, but shall
--------
not exceed in the aggregate at any one time outstanding the
maximum principal amount of the Loan. Borrower may borrow,
repay, and reborrow funds under the Loan subject to the limits
described herein and in accordance with the terms and
conditions of the Loan documents.
Advances under Facility B will not exceed 80% of the cost of
the equipment or vehicles being purchased or 100% of the cost
of equipment or vehicles being leased.
4. Rate: Facility A: The interest rate will be a daily adjusted
---- ----------
rate of interest equal to the one (1) month London Interbank
Offered Rate as
<PAGE>
Dr. Robert W. Deutsch
February 27, 1996
Page 2
quoted by the Bank two (2) business days prior to the date
such rate is to be effective, adjusted for any Federal Reserve
Board reserve requirements imposed upon the Bank from time to
time and FDIC insurance (if any), plus one hundred seventy-
five (175) basis points. Interest will be computed based upon
a 360 day year.
Facility B: The Borrower will have the option to choose a
----------
floating or fixed rate for purchases of equipment/vehicles.
The floating rate will be the Bank's prime rate. The fixed
rate will be equal to that rate obtained by adding two and one
half percentage points to Bank's "Fixed Rate Index." Bank's
"Fixed Rate Index" is the annual interest rate determined from
time-to-time by the Bank's Investment Division to be the fixed
rate index for commercial loans with maturities equivalent to
the remaining term of the Loan, adjusted for any applicable
reserve requirements and federal deposit insurance premiums.
The determination of the "Fixed Rate Index" shall be made by
the Bank in its sole discretion. If the Bank from time-to-time
refers to the "Fixed Rate Index" as a "cost of funds" index or
similar term, such reference shall be for convenience only and
does not imply any representation, warranty or other
obligation on the part of the Bank to determine the interest
rate with reference to any rate at which the Bank may borrower
funds from any Federal Reserve Bank, interest paid on
deposits, or any other cost incurred by the Bank in borrowing
funds.
5. Collateral: Facility A will be extended on an unsecured basis
----------
and as such, the Borrower shall conform to the Bank's policy
of a 30 consecutive day payout during each calendar year.
Notes under Facility B will be secured by the specific
equipment or vehicles being purchased or leased.
6. Financial Information Requirement: Borrower shall provide
---------------------------------
audited financial statements within 90 days of the Borrower's
fiscal year end, prepared in accordance with generally
accepted accounting principles and certified by an independent
public accountant satisfactory to the Bank. The Borrower shall
submit quarterly financial statements as required by the Bank.
7. Financial Covenant: The Borrower shall maintain a minimum
------------------
tangible net worth of $16,000,000 at all times. This covenant
will be tested semi-annually. Tangible net worth is defined as
the aggregate assets of
<PAGE>
Dr. Robert W. Deutsch
February 27, 1996
Page 3
the Borrower excluding all intangible assets, less
liabilities, all determined in accordance with generally
accepted accounting principles. For the purpose of the Bank's
calculation, subordinated shareholder debt will not be
included in the definition of liabilities.
8. Deposit Accounts: Borrower shall maintain its primary deposit
----------------
accounts with the First National Bank of Maryland.
9. Subordination: The loans owed by the Borrower to Dr. Robert W.
-------------
Deutsch will be formally subordinated to any obligations of
the Borrower to the Bank. This subordination will be evidenced
by the Bank's standard subordination agreement executed by the
Borrower and Dr. Robert W. Deutsch.
10. Borrower's Cost: All costs in connection with Facility B,
---------------
including but not limited to document preparation, filing, and
recordation will be paid by Borrower.
11. Documentation Approval: All documents shall be prepared by the
----------------------
Bank or Bank's counsel and be in form and substance
satisfactory in all respects to the Bank.
12. Survival: The terms and conditions of this commitment letter
--------
shall survive closing of the contemplated transactions;
provided, however, that if the terms and conditions of this
commitment letter shall conflict with any of the terms and
conditions of the loan documents, the terms and conditions of
the loan documents shall prevail.
This commitment will be withdrawn unless accepted by 3/11/96. You may
indicate your acceptance by signing the original of this commitment and
returning it to my attention, keeping the copy for your files.
We are pleased to expand our relationship with RWD Technologies, Inc.
and look forward to participating in the company's continued growth and
profitability.
Very truly yours,
THE FIRST NATIONAL BANK OF MARYLAND
Kari L. Staddon
<PAGE>
Dr. Robert W. Deutsch
February 27, 1996
Page 4
Vice President
KLS/jjf
CC: James B. Sinclair
Attachment
<PAGE>
Dr. Robert W. Deutsch
February 27, 1996
Page 5
ACCEPTANCE
----------
Understood and agreed to this ___ day of ________________, 1996.
WITNESS/ATTEST: BORROWER:
- -------------- --------
RWD TECHNOLOGIES, INC.
By:
- ------------------------- ----------------------------------------
Dr. Robert W. Deutsch, Chief Executive Officer
<PAGE>
EXHIBIT 23.01
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Baltimore, MD
February 13, 1997
<PAGE>
EXHIBIT 23.03
CONSENT OF JERRY P. MALEC
I hereby consent to references to Jerry P. Malec contained in the "Management"
section of the Prospectus which forms a part of the Registration Statement on
Form S-1 filed by RWD Technologies, Inc. on February 14, 1997, as the same may
be amended from time to time.
JERRY P. MALEC
Columbia, Maryland
February 13, 1997
