<PAGE>
As filed with the Securities and Exchange Commission on October 17, 2000
Registration No. 333-38456
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
---------------
RDA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 7371 51-0307421
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) No.)
1966 Greenspring Drive, Suite 506, Timonium, Maryland 21093, (410) 561-9028
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
R. Donald Awalt
Chairman of the Board and Chief Executive Officer
1966 Greenspring Drive, Suite 506, Timonium, Maryland 21093, (410) 561-9028
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
John B. Watkins, Esq. James E. Showen, Esq.
Wilmer, Cutler & Pickering Hogan & Hartson L.L.P.
100 Light Street 555 Thirteenth Street, N.W.
Baltimore, Maryland 21202 Washington, D.C. 20004-1109
(410) 986-2800 (202) 637-5600
---------------
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, 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, check the following box and
list the Securities Act registration statement number of 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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
<TABLE>
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<CAPTION>
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Offering Registration
Securities to be Registered Price(1) Fee(2)
--------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value......................... $64,400,000 $17,002
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--------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of Regulation C under the Securities Act of 1933.
(2) The Company has previously paid to the Securities and Exchange Commission
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 Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 17, 2000
4,000,000 Shares
[LOGO OF RDA]
RDA Corporation
Common Stock
This is RDA Corporation's initial public offering. We are offering 4,000,000
shares of common stock. We expect the initial public offering price of our
common stock to be between $12.00 and $14.00 per share.
-----------
Prior to this offering, there has been no public market for our common stock.
We have filed an application for our common stock to be quoted on The Nasdaq
National Market under the symbol "RDAC."
-----------
We have granted the underwriters an option to purchase a maximum of 600,000
additional shares of our common stock to cover over-allotments of shares,
exercisable at any time until 30 days after the date of this prospectus.
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.
-----------
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds, Before
Price to Public Commissions Expenses, to RDA
--------------- ------------- ----------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total............................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission, any state securities
commission nor any other regulatory body has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
-----------
First Union Securities, Inc.
Robert W. Baird & Co.
ING Barings
The date of this prospectus is , 2000.
<PAGE>
INSIDE FRONT COVER OF PROSPECTUS
[graphic consisting of RDA logo]
[Custom Software Solutions that Mean Business]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Cautionary Note Regarding Forward-Looking Statements..................... 15
Cautionary Note Regarding Statistical Data............................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis Of Financial Condition and Results
Of Operations........................................................... 20
Business................................................................. 26
Management............................................................... 39
Related Party Transactions............................................... 49
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Where You Can Find More Information...................................... 59
Index to Financial Statements............................................ F-1
</TABLE>
----------------
You may rely on the information contained in this prospectus. Neither we nor
any of the underwriters have authorized anyone to provide information different
from that contained in this prospectus. When you make a decision about whether
to invest in our common stock, you should not rely upon any information other
than the information in this prospectus. Neither the delivery of this
prospectus nor sale of common stock means that information contained in this
prospectus is correct after the date of this prospectus. This prospectus is not
an offer to sell or solicitation of an offer to buy these shares of common
stock in any circumstances under which the offer or solicitation is unlawful.
Dealer Prospectus Delivery Obligations:
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. You should read
carefully this entire prospectus, including the information set forth under
"Risk Factors."
Our Company
RDA is a leading software engineering firm that uses advanced technologies
to build the complex, custom software systems that enable clients to conduct
business electronically. Our secure and reliable systems typically process high
volumes of transactions, manage and distribute large quantities of data
according to complex business requirements and integrate seamlessly with
existing systems. We have used advanced, Internet-based technologies in our
systems, and have completed approximately 255 client engagements, since
November 1994. We deliver virtually all of our systems on an Internet, intranet
or extranet platform. Our revenue and gross profits have increased organically
every year since our founding in 1988. For the year ended December 31, 1999, we
had $30.4 million in revenue, 48.5% gross margins and 12.8% operating margins.
For the six months ended June 30, 2000, we had $23.1 million in revenue, 52.2%
gross margins and 20.3% operating margins.
We focus on continually developing firm-wide expertise in advanced
technologies which we incorporate into complex, custom software systems for our
clients. This focus helps us attract and retain highly skilled software
engineers. As of August 15, 2000, we employed 194 software engineers, averaging
approximately seven years of software engineering experience and five advanced
technical certifications per engineer. Our focus has also helped us
successfully adapt to significant changes in technology while remaining
profitable.
We strive to establish collaborative and long-standing relationships with
our clients. We derived 86.9% of our revenue in 1999 and 85.8% of our revenue
during the six months ended June 30, 2000 from clients for whom we had
completed a project in a prior period, figures that we believe demonstrate a
high level of client satisfaction. In addition, we aggressively seek new
clients in order to increase the number of clients who may develop into large,
long-term accounts. In 1999, 19 of our 49 active clients, or 38.8%, were new
clients, and we added 15 new clients during the six months ended June 30, 2000.
Our current clients include Animal Group of Pfizer Inc., LifeMinders.com, Inc.,
Lynk Systems, Inc., National Association of Securities Dealers, Inc. and its
subsidiaries, or NASD, Sallie Mae Servicing Corporation, or Sallie Mae, and
United Parcel Service of America, Inc. Our industry leadership is reflected in
the quality of our customer base and our high revenue and operating profits per
software engineer as compared to many of our competitors.
Our Market Opportunity
Over the past decade, corporate recognition of the Internet has created a
growing demand for information technology service providers. Today, many
companies are attempting to use information technology to fully automate their
business processes by seamlessly integrating their front-office and back-office
systems and linking all of their internal and external constituents, including
customers, suppliers, partners and employees. To successfully exploit the
capabilities of new and existing systems, businesses need complex, custom
software applications that not only integrate these systems, but also make them
more accessible and user-friendly to the businesses' various constituents.
Many of the initial entrants into the Internet professional services sector
were generalist firms offering strategic consulting, creative design and
technology services to help clients take their first steps toward conducting
business electronically. As more companies build on their initial Internet-
based systems, however, we believe that they will increasingly seek out best-
of-breed service providers to enhance and more fully integrate these systems.
We believe that many generalist firms do not have the skills or experience
necessary to develop technology systems with the required scalability and
performance characteristics, or to effectively integrate these systems into
environments that may combine multiple generations of technologies. Moreover,
although skills set based on Internet standards are currently in the greatest
demand, rapid advancements in
4
<PAGE>
technology will require information technology services firms to efficiently
adapt their capabilities to meet new client demands. Developments like
increases in processing power, the need for more sophisticated security
standards and breakthroughs in mobile computing will require ever more complex
application development to satisfy clients' needs. We believe that technology
advances will continue to provide opportunities to software engineering firms
like ourselves, which continually identify and apply advanced technologies in
their solutions.
The RDA Difference
We are singularly focused on architecting and developing complex, custom
software systems that enable clients to conduct business electronically. Key
elements of the services we offer include our:
. Focus on complex systems requiring advanced technologies. Our core
competency is building complex, custom software systems for our clients
using advanced technologies. Building these systems requires significant
expertise across a variety of existing and emerging technologies. These
systems must be reliable and secure, and accommodate growth without
extensive modification.
. Track record. Our experienced management team and collaborative approach
to working with our clients have enabled us to grow profitably since our
inception. Our growth has been entirely organic, and we have successfully
transitioned through several major advances in the information technology
environment.
. Highly qualified software engineers. We hire highly experienced, highly
skilled engineers to deliver our systems. Our software engineers average
seven years of software engineering experience and five technical
certifications per engineer, and over 80% have technical degrees.
. Middle-market client focus. We deliver our offerings primarily to middle-
market companies, autonomous units of larger companies and smaller, high-
growth companies. We believe these clients are more likely to outsource
their software development needs and develop deeper and longer
relationships with their service providers than Fortune 1000 companies.
. Proven processes with predictable outcomes. Comprehensive, internally
developed processes govern all major aspects of our business. From
software development to recruiting to geographic expansion, we follow
guidelines that have yielded predictable results and have allowed us to
grow profitably.
Our Growth Strategy
Our objective is to continue growing profitably and strengthen our position
as a leading software engineering firm using advanced technologies to build
complex, custom software systems. Key elements of our growth strategy are to:
.attract and retain top talent;
.establish and expand client relationships;
.focus on technology;
.broaden our geographical presence;
.expand our brand recognition; and
.pursue strategic partnerships and alliances.
5
<PAGE>
----------------
We were incorporated in Delaware in February 1988, under the name "RDA
Consultants Limited." In May 2000, we changed our name to "RDA Corporation."
Our principal executive offices are located at 1966 Greenspring Drive, Suite
506, Timonium, Maryland 21093, and our telephone number is (410) 561-9028. Our
web site is located at www.rdacustomsoftware.com. The information on our web
site is not a part of this prospectus.
RDA and RDA Corporation are trademarks or service marks of RDA. Other
trademarks appearing in this prospectus are the property of their respective
owners.
The Offering
<TABLE>
<C> <S>
Common stock offered by RDA......................... 4,000,000 shares
Common stock to be outstanding after this offering.. 13,524,967 shares(1)
Use of proceeds..................................... We will use the proceeds
of this offering for
general corporate
purposes, including
working capital.
Proposed Nasdaq National Market symbol.............. RDAC
</TABLE>
--------
(1) Excludes 8,258,098 shares of common stock reserved for issuance upon
exercise of outstanding options, and 2,618,534 shares of common stock
reserved for issuance under our stock option plans, in each case as of
August 15, 2000. We anticipate that immediately following this offering we
will have approximately 10,654,712 shares of common stock reserved for
issuance upon exercise of outstanding options, and 4,679,410 shares of
common stock reserved for issuance under our stock option plans, our new
equity incentive plan and our new employee stock purchase plan.
----------------
Unless otherwise indicated, all share amounts, financial data and other
information presented in this prospectus assume (a) the underwriters' over-
allotment option is not exercised, and (b) completion of a 2.3547-for-1 stock
split of our common stock.
6
<PAGE>
Summary Financial Information
The following table presents our summary financial information and has been
derived from our audited financial statements for each of the years in the
three-year period ended December 31, 1999 and from our unaudited interim
financial statements for the six-month periods ended June 30, 1999 and 2000.
The as adjusted balance sheet data give effect to our issuance and sale of
4,000,000 shares of common stock in this offering and our receipt of the net
proceeds from the sale of these shares, assuming an initial public offering
price of $13.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. You should read the
following summary financial information along with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
----------------------- ---------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenue............................... $15,708 $22,042 $30,412 $14,176 $23,123
Cost of services...................... 7,875 11,232 15,647 7,305 11,044
------- ------- ------- ------- -------
Gross profit.......................... 7,833 10,810 14,765 6,871 12,079
------- ------- ------- ------- -------
Operating expenses:
General and administrative:
Non-cash stock compensation....... -- 153 167 84 84
Other general and administrative.. 3,863 6,973 9,418 4,164 5,929
Sales and marketing................. 1,205 1,385 1,282 589 1,364
------- ------- ------- ------- -------
Total operating expenses.......... 5,068 8,511 10,867 4,837 7,377
------- ------- ------- ------- -------
Operating income...................... 2,765 2,299 3,898 2,034 4,702
Other income, net..................... 268 190 608 388 712
------- ------- ------- ------- -------
Income before taxes................... 3,033 2,489 4,506 2,422 5,414
Income taxes.......................... 1,193 951 1,792 949 2,168
------- ------- ------- ------- -------
Net income............................ $ 1,840 $ 1,538 $ 2,714 $ 1,473 $ 3,246
======= ======= ======= ======= =======
Weighted average shares outstanding... 9,529 9,525 9,525 9,525 9,525
Weighted average shares and common
stock equivalents.................... 9,529 12,754 12,983 12,980 12,992
Earnings per share:
Basic............................... $ 0.19 $ 0.16 $ 0.28 $ 0.15 $ 0.34
Diluted............................. $ 0.19 $ 0.12 $ 0.21 $ 0.11 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-------------------
Actual As Adjusted
------- -----------
(In thousands)
<S> <C> <C>
Balance Sheet Data
Cash, cash equivalents and investments...................... $ 7,880 $55,290
Working capital............................................. 12,092 59,502
Total assets................................................ 18,177 65,587
Stockholders' equity........................................ 14,559 61,969
</TABLE>
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risks and the other information contained in this prospectus
before you decide to buy any of our common stock. If any of these risks occur,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
Risks Relating to Our Business
If we cannot successfully hire, train and retain skilled professionals, our
ability to grow and serve our clients may suffer.
We need to hire, train and retain skilled software engineers and other
professionals to service our client engagements. Companies in our industry
currently face a shortage of qualified personnel, and we expect this shortage
to continue for the foreseeable future. Competition for these employees is
intense, and we employ most of our current employees on an at-will basis. If we
cannot hire, train and retain a sufficient number of qualified personnel or if
a significant number of our current employees depart, we may be unable to
complete or retain existing projects or bid for new engagements of similar
scope and revenue, which may adversely affect our results of operations. In
addition, our technical employees average approximately seven years of software
engineering experience, and we may experience particular difficulty in
maintaining a sufficient number of personnel with a similar level of
experience. Even if we do hire and retain a sufficient number of employees, the
expense necessary to compensate them and to maintain and further develop their
technical expertise as technology evolves may adversely affect our operating
results.
If we fail to keep pace with the latest technological changes and client
preferences, our current services may become obsolete and unmarketable, and we
may lose clients and revenue.
We have derived and expect to continue to derive a substantial portion of
our revenue from the development of complex, custom software systems that
incorporate the latest technologies and are capable of adapting to emerging
technologies in the future. Our success depends on our ability to offer
services that reflect and respond to the latest changes in technology, industry
standards and client requirements and preferences. We may face technical or
other difficulties that prevent or delay our introduction of services that
address these changes. These difficulties could make our current services
obsolete and unmarketable and may result in the loss of current and potential
clients and revenue. Even if we successfully adapt our services to changing
technologies and client preferences, we may incur substantial costs in doing
so, and our results of operations may suffer.
We depend heavily on a limited number of clients. If we lose or perform fewer
services for a significant client or a significant number of smaller clients
during a period, our operating results could be adversely affected.
We currently derive and expect to continue to derive a significant portion
of our revenue from a limited number of clients. Our operating expenses,
however, and in particular our labor costs, are relatively fixed and are
generally based on our expectation of future revenue. If a significant client
or a significant number of smaller clients use less of our services or
terminate their relationship with us during any fiscal period, our operating
results may suffer if we are unable to quickly redeploy our billable
professionals to other client engagements. In addition, a failure to collect a
large account receivable from any client could significantly reduce our assets
and adversely affect our financial condition. For the six months ended June 30,
2000, our five largest clients, Annual Group of Pfizer Inc., LifeMinders.com,
NASD, Sallie Mae and United Parcel Service of America, Inc., accounted for
65.3% of our revenue, with NASD accounting for 27.1% and Sallie Mae accounting
for 20.4% of our revenue during that period. NASD also accounted for 32.3% of
our revenue during the year ended December 31, 1999. Because our clients
generally retain us on an engagement-by-engagement basis rather than under
long-term contracts, there is a risk that once we complete a client engagement,
that client will not retain us for additional engagements in the future. In
addition, our client contracts generally provide that our clients can reduce
the scope of an existing engagement or terminate our services without penalty
and with little or no notice.
8
<PAGE>
If we do not effectively manage our growth, we may not be able to control our
costs and effectively serve our clients.
From May 1, 1995 through August 15, 2000, we have grown from 50 to 270
employees. We expect to continue growing rapidly to keep pace with anticipated
growth in our client base and market opportunities, although we cannot assure
you that we will continue to grow at a similar pace or at all. Our growth has
placed and will continue to place significant demands on our management and our
operational, financial and other resources, and our personnel, systems and
controls may prove inadequate to support our future operations. If we are
unable to manage our growth effectively, our expenses may increase more quickly
than revenue or our revenue may decline as a result of our failure to
effectively service our client engagements.
A number of factors may cause our revenue and operating results to fluctuate
significantly from quarter to quarter, which could adversely affect our stock
price.
Our revenue and operating results may fluctuate significantly from quarter
to quarter and may fall below the expectations of securities analysts and
investors in future quarters. Any decline in revenue or earnings or failure to
meet the expectations of the market in any quarter could cause the market price
of our common stock to decline. The factors, some of which are outside our
control, that may cause our financial results to vary from quarter to quarter
include:
. the number, size and scope of our client engagements;
. unanticipated delays, deferrals and changes in scope or terminations of
major client engagements;
. the efficiency with which we use our billable professionals;
. our ability to attract and train qualified software engineers in a
timely manner;
. our ability to complete fixed-fee, fixed-timeframe engagements on
budget;
. changes in pricing policies or introduction of new services by us or our
competitors; and
. costs related to our expected geographic expansion.
Due to these factors, we believe that quarter-to-quarter comparisons of our
operating results may not be meaningful, and you should not use them as an
indication of our future performance.
Our failure to meet our clients' expectations could damage our reputation,
adversely affect our operating results and subject us to liability.
As the average size and complexity of our projects have increased, our
software systems have become increasingly critical to our clients' businesses.
Any failure to deliver our services in accordance with our contractual
obligations and our clients' expectations could result in:
. delayed or lost revenue to our clients;
. adverse client reactions, including a failure to pay for our services;
. negative publicity;
. additional expenditures to correct the problem; and
. claims against us.
9
<PAGE>
Although our agreements with clients generally limit our liability for damages
arising from the services we render, we cannot assure you that these provisions
are enforceable in all instances or would necessarily protect us from all
liability. Although we carry general liability insurance coverage, our
insurance may not cover all claims against us or may not adequately protect us
from all liability that we may incur. In addition, our general liability
insurance coverage may not continue to be available on reasonable terms or at
all. Any of the occurrences described above or the success of one or more large
claims against us could materially and adversely affect our business.
If we are unable to expand our brand recognition, we may have difficulty
attracting new business and employees, and our growth may suffer.
Strong name recognition is critical for attracting and retaining clients and
employees in our industry due to the growing number of software engineering
providers. If potential clients and employees are not familiar with us or the
services we provide, we may be unable to attract enough new clients and
employees to grow our business. In addition, our name recognition depends on
the quality of the services we provide. If clients do not consider our services
to be effective or of high quality, our brand name will suffer, and we could
suffer adverse publicity.
If we lose our Chairman of the Board and Chief Executive Officer or any other
executive management personnel or key employees, we would have difficulty
replacing them, and we could also lose client relationships.
Our success depends upon our ability to retain our executive management
personnel and other key employees, including our founder, Chairman of the Board
and Chief Executive Officer, R. Donald Awalt. Mr. Awalt, the other members of
executive management and our other key employees perform crucial roles in
guiding our strategic direction and developing and maintaining our firm
culture. We would have a difficult time replacing any of our executive officers
or other key employees who were unable or unwilling to continue in their
present position with us. In addition, if any of our executive officers or
other key employees joined a competitor or formed a competing business, some of
our clients might choose to use the services of that competitor or new business
instead of our own. We cannot predict whether and to what extent the non-
competition and non-solicitation agreements we have entered into with our
executive officers and other key employees are enforceable. The loss of Mr.
Awalt or any other executive officer or key employee could materially and
adversely affect our business.
If we miscalculate the time and resources necessary to complete fixed-fee,
fixed-timeframe engagements, we may lose money.
We derived 17.8% of our revenue from fixed-fee, fixed-timeframe engagements
during the six months ended June 30, 2000, and we expect to derive an
increasing percentage of our revenue from fixed-fee, fixed-timeframe
engagements in the future. Because of the complexity and compressed timeframes
of many of our client engagements, we cannot always accurately estimate the
cost, scope and duration of a particular engagement. If we miscalculate the
time or resources necessary to complete a fixed-fee, fixed-timeframe
engagement, we may need to devote additional resources to the engagement for
which we will not receive additional compensation, possibly reducing the
profitability of, or resulting in a loss on, the engagement.
Non-competition agreements that we enter into with some of our clients may
constrain our business opportunities and reduce our potential revenue and
profitability.
Many of the services we perform for our clients are competitively sensitive.
We sometimes agree not to perform any services for a client's competitors or in
a particular field for a limited period of time. Even if we are not
contractually prohibited from servicing competitors of our existing clients, we
risk alienating these
10
<PAGE>
clients if we provide services to any of their competitors. Because these
contractual restrictions and other considerations may preclude our access to
potential clients, they could adversely affect our revenue. In addition, if we
agree not to perform services for competitors of a particular client and that
client does not secure a significant share of its market, we are unlikely to
receive significant revenue from that market.
We face intense competition in our industry, and low barriers to entry may
encourage additional competition in the future, which may impair our ability to
grow and maintain profitability.
The market for software engineering services is highly fragmented.
Competition in this market is intense, and we expect it to further intensify as
this market continues to evolve. We could face competition from the following
general categories of companies:
. in-house information technology departments of our current and potential
clients;
. software engineering firms, including Cysive, Inc. and Tanning
Technology Corporation;
. general Internet services firms, including iXL Enterprises, Inc., Lante
Corporation, MarchFirst Inc., Proxicom Inc., Sapient Corporation, Scient
Corporation and Viant Corporation; and
. technology consulting firms and integrators, including Andersen
Consulting, KPMG Consulting, EDS and IBM.
Many of our competitors have larger client bases, longer relationships with
their clients, greater brand or name recognition and significantly larger
professional staffs and financial, technical and marketing resources than we
do. Many of our competitors may be in a position to devote greater resources
than we can to the development, promotion and sale of their services. We also
anticipate additional competition from new entrants into the software
engineering market due to the low barriers to entry. As a result of this
competition, our revenue and growth rate may suffer and we may face reduced
operating margins, loss of market share and diminished brand recognition.
Currently, our business depends on integrating Internet technology into our
clients' information technology systems. If use of the Internet as a means of
commerce grows more slowly than expected or declines, our business could
suffer.
We currently rely on Internet technology in building the software systems we
design for our clients. If use of the Internet as a tool for commerce does not
continue to grow, grows more slowly than expected or declines, the demand for
our software systems may decline and cause our revenue growth to decline.
Critical issues which may affect Internet usage or the adoption of electronic
commerce as a business model include:
. actual or perceived lack of security of information;
. inconsistent quality of service from Internet service providers;
. increased government regulation;
. uncertainty regarding intellectual property ownership; and
. economic viability of electronic business models.
Even if the above concerns and issues were resolved, businesses may choose
not to adopt an Internet-based or electronic commerce-based business model for
other reasons. Companies that have traditionally relied upon alternative means
of commerce and communications may be slow in understanding and accepting
electronic commerce as a new medium of commerce and communication. Companies
that have already invested substantial resources in other means of conducting
commerce and exchanging information may be particularly slow to adopt a new
electronic commerce-based strategy that makes their existing personnel and
infrastructure obsolete.
11
<PAGE>
Our business may suffer if we become involved in disputes over our right to
reuse intellectual property we have developed in client engagements.
Although our clients generally retain ownership of the custom software
systems we develop for them, we typically retain the right to reuse some of the
applications, processes and other intellectual property developed in connection
with client engagements. We may become involved in disputes that could
adversely affect our ability to reuse these applications, processes and other
intellectual property and we may lose valuable intellectual property rights as
a result.
Where we perform work for a client through a third party, either the client or
the third party can terminate our services, and our business may suffer.
Our client contracts can generally be terminated without penalty and with
little or no notice. To the extent we perform work for any of our clients
through a third party, we face the risk that either the third party or our
client may terminate our services. For example, in October 1997, we entered
into a master contract to perform software engineering services from time to
time for NASD and its subsidiaries. NASD subsequently outsourced information
technology work for its regulatory organization, NASD Regulation, Inc., or NASD
Regulation, to Electronic Data Systems Corporation, or EDS. We have remained a
significant provider of services to NASD Regulation through EDS and we continue
to maintain a direct relationship with all of NASD's subsidiaries. Either NASD
or EDS could terminate our services for NASD Regulation.
Potential acquisitions may result in increased expenses, difficulties in
integrating the acquired companies and diversion of management's attention.
We may attempt to grow our business, expand our service offerings and gain
access to new markets through strategic acquisitions and investments. Diversion
of our management's attention during the acquisition process and the costs
incurred in integrating the systems and personnel of the acquired company into
our existing operations may adversely affect our results of operations.
Risks Relating to this Offering
If the market price of our common stock fluctuates significantly, you may not
be able to sell our shares at or above the initial public offering price and
you may lose some or all of the money you pay to acquire our shares.
We will determine the initial public offering price of our common stock
through negotiations with representatives of the underwriters. The initial
public offering price of our common stock may not be representative of the
price of our common stock after this offering. If the trading price for our
shares after the offering is below our initial public offering price, you may
lose some or all of the money you pay to acquire our shares. The equity
securities of many companies, including equity securities of Internet and other
technology companies, have experienced extreme fluctuations in trading price
and volume in recent months. Often, these fluctuations are unrelated to the
companies' operating performance. Although the shares of many companies reach
elevated trading prices, especially following their initial public offering,
these prices may not be sustainable and may not bear any relationship to
operating performances. Our common stock may not trade at the same levels as
other technology stocks, and technology stocks in general may not sustain their
current market prices. Any or all of the following could cause the market price
of our common stock to fluctuate significantly after this offering:
. changes in financial estimates or investment recommendations for us or
our industry by securities analysts;
. quarterly variations in our operating results, especially operating
results which fall short of analysts' or investors' expectations in any
given period;
12
<PAGE>
. market conditions in the technology services market or in the economy as
a whole;
. announcements of technological innovations that affect demand for our
services;
. changes in market valuations of, or earnings and other announcements by,
providers of software engineering and other technology professional
services;
. announcements by us or our competitors of new products, services,
acquisitions or strategic relationships;
. loss of a major client;
. departures of key personnel;
. changes in business or regulatory conditions; and
. the trading volume of our common stock.
If an active trading market for our common stock does not develop after this
offering you may have difficulty selling your shares.
There is currently no public market for our common stock. We cannot assure
you that an active trading market in our shares of common stock will develop or
continue following this offering. If an active public trading market in our
common stock fails to develop or continue following this offering, you may have
difficulty selling your shares.
Our Chairman of the Board and Chief Executive Officer can control matters
requiring stockholder approval because he owns a large percentage of our common
stock, and he may vote his stock in ways with which you disagree.
Immediately following this offering, our Chairman of the Board and Chief
Executive Officer, R. Donald Awalt, will beneficially own approximately 68.8%
of the outstanding shares of our common stock. As a result, he will have the
power to control the election of our directors and many other matters requiring
the approval of our stockholders, including some types of amendments to our
certificate of incorporation, mergers and a sale of all or substantially all of
our assets. In addition, without his consent we cannot enter into transactions
that could be beneficial to us. Furthermore, this concentration of control may
delay or discourage third parties from tendering or bidding for our shares and
may adversely affect the price that investors might be willing to pay for our
common stock in the future.
The sale or availability for sale of substantial amounts of our common stock
could cause our stock price to decline.
Sales of a substantial number of shares of our common stock after this
offering, or the public perception that these sales may occur, could depress
the market price of our common stock and could materially impair our ability to
raise capital through the sale of additional equity securities. Immediately
after this offering, 13,524,967 shares of our common stock will be outstanding,
or 14,124,967 shares if the underwriters exercise their over-allotment option
in full. All of the 4,000,000 shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act of 1933, except for any shares purchased by our "affiliates," as defined in
Rule 144 under the Securities Act. The 9,524,967 shares of common stock
outstanding prior to this offering are "restricted securities" as defined in
Rule 144. These shares may be sold in the future without registration only as
permitted by Rule 144 or Rule 701 under the Securities Act or another exemption
from registration.
In connection with this offering, we, our executive officers, director and
stockholders and substantially all of our option holders have or will have
agreed, with limited exceptions, not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or
13
<PAGE>
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for our common stock for 180 days after this
offering without the consent of First Union Securities, Inc. However, First
Union Securities, Inc. may release these shares from these restrictions at any
time. We cannot predict the effect that public sales of shares held by our
stockholders, or the potential availability for future sale of these shares,
will have on the market price of our common stock.
Following this offering, we may register under the Securities Act up to
15,334,122 shares of our common stock underlying stock options or reserved for
issuance under our stock option plans, equity incentive plan and employee stock
purchase plan. The shares we register may be sold without regard to the
restrictions of Rule 144 or compliance with any other exemption from the
securities laws. Options to purchase approximately 10,654,712 shares of our
common stock will be outstanding immediately following this offering, and
options to purchase approximately 4,269,290 of these shares will be immediately
exercisable following this offering.
Our management has broad discretion over the use of the net proceeds from this
offering, and may allocate these net proceeds in ways with which our
stockholders disagree.
Our management will have significant flexibility in applying the net
proceeds of this offering and they may apply these proceeds in ways with which
you disagree. You cannot determine the propriety of our management's use of
these proceeds because these proceeds are not required to be allocated to any
specific use or transaction. Our management's failure to effectively allocate
these proceeds could adversely affect our liquidity and our ability to
implement our business strategy. See "Use of Proceeds" for a description of how
we intend to apply the net proceeds of this offering.
Investors in this offering will experience immediate and substantial dilution.
If you purchase common stock in this offering, you will pay more for your
shares than existing stockholders paid for their shares. Accordingly, you will
experience immediate dilution of approximately $8.42 per share. This dilution
represents the difference between our book value per share after giving effect
to this offering and the initial public offering price. In addition, you may be
further diluted in the future to the extent that we issue shares of our common
stock upon the exercise of existing or subsequently granted stock options or
under our employee stock purchase plan. Any additional equity financing that we
undertake in the future may also dilute you and will reduce your percentage
ownership of RDA.
14
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that reflect our current
expectations and projections about our future results, performance, prospects
and opportunities. We have tried to identify these forward-looking statements
by using words like "may," "will," "expect," "anticipate," "believe," "intend,"
"estimate," "continue" and similar expressions, although not all forward-
looking statements contain these identifying words. All forward-looking
statements speak only as of the date of this prospectus. These forward-looking
statements are based on information currently available to us and are subject
to a number of risks, uncertainties and other factors that could cause our
actual results, performance, prospects or opportunities to differ materially
from those expressed in, or implied by, these forward-looking statements. The
sections captioned "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as other
cautionary language contained in this prospectus, provide examples of these
risks, uncertainties and other factors. You should not place undue reliance on
any forward-looking statements. Except as otherwise required by federal
securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this
prospectus.
CAUTIONARY NOTE REGARDING STATISTICAL DATA
This prospectus contains statistical data regarding, among other things, the
historical and projected growth of the electronic commerce and Internet
services industry. We have taken this data from sources which specialize in
research relating to this subject matter. This data is by its nature imprecise,
however, and we caution you not to place undue reliance on it.
15
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $13.00 per share, we estimate
that we will receive approximately $47.4 million from this offering, or $54.7
million if the underwriters exercise their over-allotment option in full, in
each case after deducting underwriting discounts and commissions and our
estimated offering expenses.
The primary purposes of this offering are to:
. obtain additional equity capital;
. create a public market for our common stock and facilitate our future
access to public markets;
. increase our visibility in a marketplace in which a number of our
competitors are or will be publicly-held companies; and
. enhance our ability to use our common stock as a means of attracting and
retaining employees.
We expect to use the net proceeds of this offering for general corporate
purposes, including working capital. Until we use the net proceeds of this
offering, we intend to invest these net proceeds in investment grade, interest-
bearing securities.
The amounts we actually spend may vary significantly and will depend on a
number of factors, including our future revenue, cash generated by operations
and the other factors described under "Risk Factors." As a result, we will have
broad discretion in the way we use the net proceeds. See "Risk Factors--Our
management has broad discretion over the use of the net proceeds from this
offering, and may allocate these net proceeds in ways with which our
stockholders disagree" for more information.
DIVIDEND POLICY
We plan to retain all future earnings to finance the development of our
business and for general corporate purposes and do not intend to pay dividends
on our common stock in the foreseeable future. Our board of directors will have
the authority to declare and pay dividends on our common stock at any time as
long as there are funds legally available for that distribution. Any future
determination as to the payment of dividends will be at the discretion of our
board of directors and will depend on our results of operations, financial
condition, capital requirements and other factors our board of directors
considers relevant.
16
<PAGE>
CAPITALIZATION
The table below sets forth, as of June 30, 2000, our (a) actual
capitalization, and (b) as adjusted capitalization after giving effect to our
issuance and sale of 4,000,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and our estimated offering expenses.
This table excludes (a) approximately 8,271,264 shares of common stock
issuable upon exercise of stock options outstanding, as of June 30, 2000, at a
weighted average exercise price of $2.02 per share, and (b) approximately
2,605,367 shares of common stock available for future grant or issuance under
our stock option plans as of June 30, 2000.
<TABLE>
<CAPTION>
As of June 30, 2000
----------------------
Actual As Adjusted
---------- -----------
(In thousands)
<S> <C> <C>
Stockholders' Equity
Preferred stock, par value $.001 per share; no shares
authorized, issued and outstanding, actual; 10,000,000
shares authorized, no shares issued and outstanding, as
adjusted............................................... $ -- $ --
Common stock, par value $.001 per share; 15,500,000
shares authorized, 9,524,967 shares issued and
outstanding, actual; 75,000,000 shares authorized,
13,524,967 shares issued and outstanding, as adjusted.. 10 14
Additional paid-in capital.............................. 1,680 93,366
Deferred stock compensation............................. (1,261) (21,284)
Retained earnings (deficit)............................. 13,906 (10,351)
Accumulated other comprehensive income.................. 224 224
------- --------
Total stockholders' equity............................. 14,559 61,969
------- --------
Total capitalization.................................. $14,559 $ 61,969
======= ========
</TABLE>
17
<PAGE>
DILUTION
Our net tangible book value as of June 30, 2000 was approximately $14.6
million, or $1.53 per share. Net tangible book value per share represents the
amount of stockholders' equity, less intangible assets, divided by the number
of shares of common stock outstanding as of June 30, 2000.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of common stock in this offering and the
net tangible book value per share of common stock immediately after completion
of this offering. After giving effect to the sale by us of 4,000,000 shares of
common stock in this offering, at an assumed initial public offering price of
$13.00 per share and after deducting the underwriting discount and commissions
and estimated offering expenses, our as adjusted net tangible book value as of
June 30, 2000 would have been $62.0 million or $4.58 per share. This amount
represents an immediate increase in net tangible book value of $3.05 per share
to existing stockholders and an immediate dilution in net tangible book value
of $8.42 per share to purchasers of common stock in this offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Net tangible book value per share as of June 30, 2000........... $1.53
Increase per share attributable to new investors................ 3.05
-----
As adjusted net tangible book value per share after this offer-
ing.............................................................. 4.58
------
Net tangible book value dilution per share to new investors....... $ 8.42
======
</TABLE>
To the extent any options are exercised, new investors will incur further
dilution.
The table below summarizes as of June 30, 2000, using the as adjusted
assumptions described above, the total consideration paid and the average price
per share paid by our existing stockholders and by new investors, before
deducting estimated underwriting discounts and commissions and our estimated
offering expenses, at an assumed initial public offering price of $13.00 per
share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 9,524,967 70.43% $ 25,250 .05% $ --
New investors.............. 4,000,000 29.57 52,000,000 99.95 13.00
---------- ----- ----------- -----
Total.................... 13,524,967 100.0% $52,025,250 100.0%
========== ===== =========== =====
</TABLE>
18
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes. We derived the
statement of operations data for each of the years ended December 31, 1997,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 from
the audited financial statements included elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1996 and the
balance sheet data as of December 31, 1996 and 1997 are derived from our
audited financial statements not included in this prospectus. The statement of
operations data for the year ended December 31, 1995 and the balance sheet data
as of December 31, 1995 are derived from our unaudited financial statements.
The statement of operations data for the six months ended June 30, 1999 and
2000 and the balance sheet data as of June 30, 2000 are derived from our
unaudited financial statements that include, in our opinion, all adjustments,
consisting of only normal, recurring adjustments, necessary for a fair
presentation of the information shown in that data. Our results of operations
for the six-month period ended June 30, 2000 are not necessarily indicative of
the results that we may achieve for the entire year.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenue................. $ 7,870 $ 11,305 $ 15,708 $ 22,042 $ 30,412 $ 14,176 $ 23,123
Cost of services........ 3,909 5,790 7,875 11,232 15,647 7,305 11,044
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 3,961 5,515 7,833 10,810 14,765 6,871 12,079
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
General and
administrative:
Non-cash stock
compensation.......... -- -- -- 153 167 84 84
Other general and
administrative........ 1,612 2,509 3,863 6,973 9,418 4,164 5,929
Sales and marketing.... 746 863 1,205 1,385 1,282 589 1,364
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............. 2,358 3,372 5,068 8,511 10,867 4,837 7,377
-------- -------- -------- -------- -------- -------- --------
Operating income........ 1,603 2,143 2,765 2,299 3,898 2,034 4,702
Other income, net....... 122 167 268 190 608 388 712
-------- -------- -------- -------- -------- -------- --------
Income before taxes..... 1,725 2,310 3,033 2,489 4,506 2,422 5,414
Income taxes............ 668 895 1,193 951 1,792 949 2,168
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 1,057 $ 1,415 $ 1,840 $ 1,538 $ 2,714 $ 1,473 $ 3,246
======== ======== ======== ======== ======== ======== ========
Basic weighted average
shares outstanding..... 9,500 9,531 9,529 9,525 9,525 9,525 9,525
Diluted weighted average
shares................. 9,500 9,531 9,529 12,754 12,983 12,980 12,992
Earnings per share:
Basic.................. $ 0.11 $ 0.15 $ 0.19 $ 0.16 $ 0.28 $ 0.15 $ 0.34
Diluted................ $ 0.11 $ 0.15 $ 0.19 $ 0.12 $ 0.21 $ 0.11 $ 0.25
<CAPTION>
December 31,
-------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents
and investments........ $ 2,096 $ 3,037 $ 2,955 $ 3,846 $ 6,747 $ 7,880
Working capital......... 2,572 3,720 5,426 6,604 9,602 12,092
Total assets............ 4,292 5,781 8,178 11,004 14,435 18,177
Stockholders' equity.... 3,198 4,615 6,485 8,494 11,649 14,559
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected Financial
Data" and our financial statements and the related notes included elsewhere in
this prospectus.
Overview
We use advanced technologies to build complex, custom software systems that
enable our clients to conduct business electronically. We have built these
systems since 1988, using the most advanced, reliable technologies available at
the time, including mainframe, client-server, and, most recently, Internet-
based technologies. We have successfully adapted to changing technological
environments while rapidly growing our business since our inception. We have
used Internet-based technologies since November 1994, and virtually all the
systems we build today are delivered on an Internet, intranet or extranet
platform.
Our revenue is comprised of fees generated for professional services. We
provide our services on either a fixed-price, fixed-timeframe or a time and
materials basis, at the election of our clients. We recognize revenue from
professional services based on the nature of the contract. We recognize revenue
from fixed-price, fixed-timeframe contracts using the percentage-of-completion
method, based on the ratio of costs incurred to total estimated costs, and we
bill revenue from fixed-price, fixed-timeframe contracts at predetermined
intervals during the project. We recognize revenue from time and materials
contracts as time is incurred.
In recent years, our revenue growth has resulted from both an increasing
number of clients and an increasing amount of revenue from each client. For the
year ended December 31, 1998, for example, 13 clients comprised 90.8% of our
revenue, with each of these clients on average contributing $1.5 million to
revenue. For the year ended December 31, 1999, 16 clients accounted for 91.0%
of our revenue, with each of these clients on average contributing $1.7 million
to revenue. We performed work for 44 clients during the six months ended June
30, 2000 and our average annualized revenue per client during that period was
approximately $1.1 million.
Our financial results fluctuate from quarter-to-quarter based on various
factors, including the number, complexity, size and scope of our projects. More
specifically, these fluctuations can result from the contractual terms and
degree of completion of projects, delays incurred in connection with projects,
employee utilization rates and general economic conditions. In addition,
revenue from a few large customers may constitute a significant portion of our
total revenue in a particular quarter or year.
Cost of services consists primarily of the compensation and benefits of our
billable project personnel. Cost of services includes the costs of software
engineers who, due to the timing of project starts and finishes, may not have
been assigned to projects for all or some portion of the period. We regularly
review our employee compensation and our overhead costs in an effort to remain
competitive within our industry. Our cost of services may increase over time
due to wage increases and inflation. In addition, the utilization rate of our
project personnel affects our gross margins. We define utilization rate in any
given period as total days billed divided by total weekdays for the weighted
average number of software engineers on staff during the period.
General and administrative expenses consist primarily of compensation and
benefits for our management, finance and administration, non-cash stock
compensation for our executive management, recruiting, research and
development, and information technology personnel. In addition, general and
administrative expenses include depreciation and amortization and general
operating expenses like facilities, telecommunications, travel and
entertainment, training, and fees for outside professional services.
Sales and marketing expenses consist primarily of salaries and commissions
for sales and marketing personnel, outside marketing and communications
professional services, advertising costs and other marketing-related expenses.
20
<PAGE>
Non-cash stock compensation expense consists of the amortization of deferred
stock compensation related to the vesting of options issued with an exercise
price considered to be below fair value at the time of the grants. All of our
outstanding options that have not yet vested will either vest upon or vest
three years after the completion of our initial public offering. Accordingly,
upon completion of this offering, we will recognize non-cash stock compensation
expense at significantly higher levels than in 1998 and 1999. Based on an
assumed offering price of $13.00 per share and the number of options
outstanding as of August 15, 2000, we expect to recognize an estimated $24.2
million of non-cash stock compensation expense upon completion of this offering
and will recognize an additional $7.1 million of non-cash stock compensation
expense annually over the three-year period following this offering.
Results of Operations
The following table shows, as a percentage of revenue, our statements of
operations for the periods indicated.
<TABLE>
<CAPTION>
Six Months
Years Ended Ended
December 31, June 30,
------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services............................. 50.1 51.0 51.5 51.5 47.8
----- ----- ----- ----- -----
Gross profit................................. 49.9 49.0 48.5 48.5 52.2
----- ----- ----- ----- -----
Operating expenses:
General and administrative:
Non-cash stock compensation.............. 0.0 0.7 0.5 0.6 0.4
Other general and administrative......... 24.6 31.6 31.0 29.3 25.6
Sales and marketing........................ 7.7 6.3 4.2 4.2 5.9
----- ----- ----- ----- -----
Total operating expenses............... 32.3 38.6 35.7 34.1 31.9
----- ----- ----- ----- -----
Operating income............................. 17.6 10.4 12.8 14.4 20.3
Other income, net............................ 1.7 0.9 2.0 2.7 3.1
----- ----- ----- ----- -----
Income before taxes.......................... 19.3 11.3 14.8 17.1 23.4
Income taxes................................. 7.6 4.3 5.9 6.7 9.4
----- ----- ----- ----- -----
Net income................................... 11.7% 7.0% 8.9% 10.4% 14.0%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenue. Revenue increased $8.9 million, or 63.1%, to $23.1 million for the
six months ended June 30, 2000 from $14.2 million for the same period in 1999.
This increase is attributable to an increase in both the size and number of
client engagements and an increase in our average billing rates. During the six
months ended June 30, 2000, we provided services for 44 clients as compared to
38 clients in the same period in 1999. Average revenue per client for the six
months ended June 30, 2000 increased by 40.9% as compared to the same period in
1999. Revenue from our five largest clients as a percentage of total revenue
was 65.3% for the six months ended June 30, 2000 and 67.5% for the same period
in 1999. Our number of billable professionals increased to 180 at June 30, 2000
from 132 at June 30, 1999.
Cost of Services. Cost of services increased $3.7 million, or 51.2%, to
$11.0 million for the six months ended June 30, 2000 from $7.3 million for the
same period in 1999. As a percentage of revenue, cost of services decreased to
47.8% for the six months ended June 30, 2000 from 51.5% for the same period in
1999. The increase in costs is primarily attributable to the increase in both
the size and number of client engagements. The decrease in cost of services as
a percentage of revenue is primarily attributed to increased billing rates in
the six months ended June 30, 2000 as compared to the same period in 1999.
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<PAGE>
Other General and Administrative Expenses. Other general and administrative
expenses increased $1.8 million, or 42.4%, to $5.9 million for the six months
ended June 30, 2000 from $4.2 million for the same period in 1999. Other
general and administrative expenses, as a percentage of revenue, decreased to
25.6% for the six months ended June 30, 2000 from 29.3% for the same period in
1999. The increase in other general and administrative expenses is attributable
to an increase in our corporate infrastructure to support our growth. The
decrease in other general and administrative expenses as a percentage of
revenue resulted from our ability to spread these expenses over a larger
revenue base.
Sales and Marketing Expenses. Sales and marketing expenses increased
$775,000, or 131.6%, to $1.4 million for the six months ended June 30, 2000
from $589,000 for the same period in 1999. As a percentage of revenue, sales
and marketing expenses increased to 5.9% for the six months ended June 30, 2000
from 4.2% for the same period in 1999. These increases are the result of a
major effort to increase our name recognition and brand awareness through
marketing, and an increase in our direct sales staff by eight employees at June
30, 2000 as compared to June 30, 1999.
Operating Income. Operating income increased $2.7 million, or 131.2%, to
$4.7 million for the six months ended June 30, 2000 from $2.0 million for the
same period in 1999. Operating margin increased to 20.3% for the six months
ended June 30, 2000 from 14.4% in the same period in 1999.
Other Income. Other income increased $324,000, or 83.5%, to $712,000 for the
six months ended June 30, 2000 from $388,000 for the same period in 1999. This
increase is due to the realized gains on the sale of all of the equity
securities held by us in the second quarter of 2000.
Net Income. Net income increased $1.8 million, or 120.4%, to $3.2 million
for the six months ended June 30, 2000 from $1.5 million for the same period in
1999. Net margin increased to 14.0% for the six months ended June 30, 2000 from
10.4% in the same period in 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Revenue increased $8.4 million, or 38.0%, to $30.4 million in 1999
from $22.0 million in 1998. The increase in our revenue is attributable to an
increase in both the size and number of client engagements. During the year
ended 1999, we provided services for 49 clients as compared to 44 clients in
1998. Average revenue per client increased by 23.9% in 1999 as compared to
1998. Revenue from our five largest clients as a percentage of total revenue
was 62.9% in 1999 as compared to 65.2% for 1998. Our number of billable
professionals increased to 153 at December 31, 1999 from 123 at December 31,
1998.
Cost of Services. Cost of services increased $4.4 million, or 39.3%, to
$15.6 million in 1999 from $11.2 million in 1998. As a percentage of revenue,
cost of services increased to 51.5% in 1999 from 51.0% for 1998. The increase
in costs is attributable to the increase in both size and number of client
engagements. The increase in cost of services as a percentage of revenue is
attributable to an increase in labor rates that was slightly higher than our
increase in billing rates in 1999 as compared to 1998.
Other General and Administrative Expenses. Other general and administrative
expenses increased $2.4 million, or 35.1%, to $9.4 million in 1999 from $7.0
million in 1998. Other general and administrative expenses as a percentage of
revenue decreased to 31.0% in 1999 from 31.6% for 1998. The increase in these
expenses is primarily attributable to an increase in our corporate
infrastructure to support our growth and also to an allowance for bad debts
related to the unexpected insolvency of a significant client. The decrease in
other general and administrative expenses as a percentage of revenue resulted
from our ability to spread these costs over a larger revenue base.
Sales and Marketing Expenses. Sales and marketing expenses decreased
$103,000, or 7.4%, to $1.3 million in 1999 from $1.4 million in 1998. As a
percentage of revenue, sales and marketing expenses decreased to 4.2% for year
ended in 1999 from 6.3% for 1998. These decreases are the result of less
marketing activity in 1999 compared to 1998.
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<PAGE>
Operating Income. Operating income increased $1.6 million, or 70.0%, to $3.9
million in 1999 from $2.3 million in 1998. Operating margin increased to 12.8%
in 1999 from 10.4% in 1998. Excluding the allowance for bad debts of $847,000
related primarily to the unexpected insolvency of a significant client,
operating income increased $2.4 million, or 106.4%, to $4.7 million in 1999
from $2.3 million in 1998.
Other Income. Other income increased $418,000, or 220.0%, to $608,000 in
1999 from $190,000 in 1998. This increase was the result of additional
investment income consistent with growth in our cash reserves and sales of
equity investments for a gain in 1999.
Net Income. Net income increased $1.2 million, or 76.5%, to $2.7 million in
1999 from $1.5 million in 1998. Net margin increased to 8.9% in 1999 from 7.0%
in 1998. Excluding the allowance for bad debts, net income increased $2.0
million, or 131.5%, to $3.6 million in 1999 as compared to 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Revenue increased $6.3 million, or 40.3%, to $22.0 million in 1998
from $15.7 million in 1997. The increase in our revenue is primarily
attributable to an increase in the size of our client engagements. Average
revenue per client increased by 59.5% in 1998 as compared to 1997. Revenue from
our five largest clients as a percentage of total net revenue was 65.2% during
1998 as compared to 58.6% for 1997. Our number of billable professionals
increased to 123 at December 31, 1998 from 83 at December 31, 1997.
Cost of Services. Cost of services increased $3.4 million, or 42.6%, to
$11.2 million in 1998 from $7.9 million in 1997. As a percentage of revenue,
cost of services increased to 51.0% in 1998 from 50.1% in 1997. The increase in
costs is primarily attributable to an increase in the size of client
engagements. The increase in cost of services as a percentage of revenue is
attributable to an increase in labor rates that was slightly higher than our
increase in billing rates in 1998 as compared to 1997.
Other General and Administrative Expenses. Other general and administrative
expenses increased $3.1 million, or 80.5%, to $7.0 million in 1998 from $3.9
million in 1997. Other general and administrative expenses as a percentage of
revenue increased to 31.6% in 1998 from 24.6% in 1997. These increases are
attributable to an increase in our corporate infrastructure to support our
growth and the expansion of our operations into two new geographic markets.
Sales and Marketing Expenses. Sales and marketing expenses increased
$180,000, or 14.9%, to $1.4 million in 1998 from $1.2 million in 1997. As a
percentage of revenue, sales and marketing expenses decreased to 6.3% in 1998
from 7.7% in 1997. The increase in expenses is primarily attributable to an
increase in our direct sales staff by three full-time equivalent employees in
1998 as compared to 1997. The decrease in sales and marketing as a percentage
of revenue resulted from our ability to spread these expenses over a larger
revenue base.
Operating Income. Operating income decreased $466,000, or 16.9%, to $2.3
million in 1998 from $2.8 million in 1997. Operating margin decreased to 10.4%
in 1998 from 17.6% in the same period in 1997. The decrease in operating income
is primarily attributable to the increase in other general and administrative
expenses in 1998.
Other Income. Other income decreased $78,000, or 29.1%, to $190,000 in 1998
from $268,000 in 1997. This decrease was the result of a decrease in investment
income consistent with the use of a portion of our cash reserves in funding the
expansion of the business in 1998.
Net Income. Net income decreased $302,000 or 16.4% to $1.5 million in 1998
from $1.8 million in 1997. Net margin decreased to 7.0% in 1998 from 11.7% in
1997.
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Quarterly Results of Operations
The following table presents unaudited quarterly financial data for the
periods indicated. We derived this data from our unaudited financial
statements, and in our opinion, they include all adjustments, which consist
only of normal recurring adjustments, necessary to present fairly the financial
results for the periods. Our quarterly operating results have varied
significantly in the past and we expect that they will continue to do so in the
future due to a number of factors including, but not limited to, changes in
average billing rates, utilization rates and personnel additions, as well as
the timing of expenses. Accordingly, our results for any given quarter or
series of quarters are not necessarily indicative of our results for any future
period. However, our quarterly operating results may represent trends which aid
in understanding our business. Revenue growth and results of operations are
historically stronger in the first quarter of the year as compared to the
preceding fourth quarter. In the first quarter, billing rate increases are
typically enacted and utilization is generally higher due to fewer vacation
days as compared to the preceding fourth quarter. The decrease in operating
income for the quarter ended December 31, 1999 resulted primarily from an
allowance for bad debts related to the unexpected insolvency of a significant
client.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1999 1999 1999 1999 2000 2000
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenue................. $5,371 $5,804 $5,960 $6,715 $7,461 $8,016 $8,220 $10,888 $12,235
Gross profit............ 2,744 2,796 2,785 3,166 3,706 3,925 3,968 5,669 6,410
Operating income........ 712 401 220 849 1,185 1,527 337 2,421 2,281
Net income.............. $ 445 $ 261 $ 193 $ 591 $ 882 $ 935 $ 306 $ 1,569 $ 1,677
====== ====== ====== ====== ====== ====== ====== ======= =======
As a Percentage of
Revenue
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 51.1 48.2 46.7 47.1 49.7 49.0 48.3 52.1 52.4
Operating income........ 13.3 6.9 3.7 12.6 15.9 19.0 4.1 22.2 18.6
Net income.............. 8.3% 4.5% 3.2% 8.8% 11.8% 11.7% 3.7% 14.4% 13.7%
====== ====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
Liquidity and Capital Resources
Net cash used in operating activities was $93,000 in the six months ended
June 30, 1999 and net cash provided by operating activities was $1.8 million in
the six months ended June 30, 2000. The cash provided by operating activities
during the first six months in 2000 is a result of growth in our net income as
compared to the same period in 1999.
Net cash used in operating activities was $168,000 in 1997 and net cash
provided by operating activities was $1.7 million in 1998 and $2.8 million in
1999. The cash provided by operating activities in 1998 and 1999 was primarily
the result of the growth in our net income and improved collections of our
accounts receivable as compared to 1997. At December 31, 1997, our receivables
included significant amounts from two major clients, which were subsequently
collected in early 1998. Our increase in accounts receivable during 1997 was
the primary reason for the net use of cash in operating activities in 1997.
Net cash used in investing activities was $1.2 million in 1997, $1.6 million
in 1998 and $788,000 in 1999. The use of cash in each year was primarily
related to purchases of property and equipment and investment securities.
Fluctuations in cash used for purchases of property and equipment related
primarily to our geographic expansion in 1998 and 1999. Our purchases of
investment securities during 1997, 1998 and 1999 represented the investment of
our surplus cash in securities with the potential for high rates of return.
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<PAGE>
Net cash provided by financing activities was $371,000 in 1997, representing
borrowings under our line of credit. Net cash used in financing activities was
$179,000 in 1998 and $193,000 in 1999, representing repayments of borrowings
under our line of credit.
We have a $2.0 million revolving line of credit with Allfirst Bank. Interest
on amounts outstanding under the line of credit is payable monthly at a rate
equal to, at our election, either (a) the greater of the bank's prime rate and
the average rate for 90-day commercial paper, or (b) one-month LIBOR plus 2.5%.
The line of credit may be renewed each September, and amounts borrowed under
the line of credit are payable on demand. We have no outstanding borrowings
under the line of credit as of the date of this prospectus. Our cash, cash
equivalents and investments, at fair value, were $7.9 million at June 30, 2000.
We currently have no material commitments for capital expenditures. We
anticipate that the net proceeds of this offering, together with existing
sources of liquidity and funds generated from operations, should be adequate to
fund our currently anticipated cash needs for at least the next 18 months.
Disclosure About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
available funds for investment and on the increase or decrease in the amounts
of interest expense we must pay with respect to any outstanding balances on our
revolving line of credit. The risk associated with fluctuating interest expense
is limited, however, to the exposure related to those borrowings under our line
of credit that are tied to variable market rates. Our investment portfolio
currently includes common stocks and mutual funds which are subject to capital
and equity market risks. We plan to divest our portfolio of common stocks prior
to the closing of this offering and reinvest the proceeds in investment grade,
interest-bearing securities and mutual funds. We intend to invest the proceeds
of this offering in investment grade, interest-bearing securities. We believe
this will mitigate default, market and reinvestment risk. We do not plan to use
derivative financial instruments in our investment portfolio.
All of our revenues are realized currently in United States dollars and are
from customers primarily in the United States. Therefore, we do not believe
that we currently have any significant direct foreign currency exchange rate
risk.
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<PAGE>
BUSINESS
Overview
We are a leading software engineering firm that uses advanced technologies
to build complex, custom software systems that enable our clients to conduct
business electronically. These systems are typically critical to our clients'
businesses and must be reliable and secure and accommodate growth without
extensive modification. Since November 1994, we have incorporated Internet-
based technologies into our clients' systems, and virtually all the systems we
build today are delivered on an Internet, intranet or extranet platform.
Since our inception, we have continually identified and incorporated into
our service offerings the most advanced, reliable technologies available. Our
focus on advanced technology has enabled us to increase our revenue and gross
profits every year since we started our business. For the year ended December
31, 1999, we generated $30.4 million in revenue, 48.5% gross margins and 12.8%
operating margins. For the six months ended June 30, 2000, we had $23.1 million
in revenue, 52.2% gross margins and 20.3% operating margins.
We employ over 194 software engineers, averaging approximately seven years
of industry experience. Our software engineers apply our proprietary
methodology, RDA's Object Oriented Process, to all of our client engagements.
Using our software development methodology, we work collaboratively with
clients to develop and deliver complex, custom software systems.
We primarily target middle-market companies, autonomous units of larger
companies and smaller, high growth companies that require advanced technology
systems and are committed to investing in high-impact, Internet-based systems.
Our average, annualized revenue per client during the six months ended June 30,
2000 was approximately $1.1 million. Our current clients include Animal Group
of Pfizer Inc., LifeMinders. com, Inc., Lynk Systems, Inc., NASD, Sallie Mae
and United Parcel Service of America, Inc. Our industry leadership is reflected
in the quality of our customer base and our high revenue and operating profits
per software engineer as compared to many of our competitors.
Industry Background
Over the past decade, corporate recognition of the competitive advantages
offered by information technology and the Internet has created a growing demand
for information technology service providers. Through the mid-1990s, companies
used information technology primarily to streamline their internal business
processes and reduce labor costs. By the late 1990s, many companies were using
Internet-based information technology to communicate and transact business with
existing clients and to attract new clients. Today, many companies are
attempting to use information technology systems to fully automate their
business processes, by seamlessly integrating their front-office and back-
office systems and linking all of their internal and external constituents,
including customers, suppliers, partners and employees. For many companies,
this involves more than simply connecting their existing customer and supplier
systems with their existing internal business systems. These existing systems
were often designed to perform discrete, specific functions and engineered for
use by a specific class of users. Businesses increasingly need complex, custom
software applications that not only integrate their existing systems with new,
Internet-based applications but also improve or re-engineer those systems to
make them more user-friendly to all of the business' constituents. Few
companies have the necessary in-house skills to successfully implement complex,
custom, Internet-based software systems. As a result, the demand for firms who
can provide these systems has increased. International Data Corporation
estimates that the general market for Internet services will grow from $16.5
billion in 1999 to $99.1 billion in 2004.
Many of the initial entrants into the Internet professional services sector
were generalist firms incorporating strategic consulting, creative design and
technology services to help clients take their first steps toward conducting
business electronically. The combination of skills offered by these generalist
firms is useful for companies that have limited Internet capabilities. As more
companies build on their initial Internet-based business offerings, however, we
believe they will increasingly seek out best-of-breed service providers to
enhance and more fully integrate these systems. We believe that many of these
generalist firms do not have the skills or experience necessary to develop
technology systems with the required scalability and performance
characteristics, or to effectively integrate these systems into environments
that may combine multiple generations of technologies.
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<PAGE>
We believe that rapid advancements in technology have created and will
continue to create substantial demand for custom software development. The 1965
prediction, known as Moore's Law, that computer processing power could double
every 18-24 months, has proven true, and we believe that these advances in
microprocessing technology will continue. Advances in processing speed will
lead to more sophisticated networks, more powerful programming languages and
the proliferation of mobile computing devices. We also believe the increasing
reliance of corporations on Internet-standards-based networks will drive the
need for sophisticated security solutions, including public key encryption.
These and other advances will create significant challenges and opportunities
for companies to enhance their business functions. We believe that software
engineering firms like ourselves, which remain focused on identifying and
incorporating advanced technologies into the complex, custom software systems
they build, will continue to be well-positioned for long term success.
The RDA Difference
We are singularly focused on architecting and developing complex, custom
software systems that enable clients to conduct business electronically. Key
elements of the services we offer include our:
Focus on Complex Systems Requiring Advanced Technologies
Our core competency is solving our clients' business challenges by
engineering complex, custom software systems. Our clients typically seek secure
and reliable systems that process high volumes of transactions, manage and
distribute large amounts of data according to complex business requirements and
integrate seamlessly with their existing systems. They also look for systems
that can withstand an environment of continuous technological change and
accommodate growth without extensive modification. We build complex software
systems incorporating both emerging and existing technologies to address these
needs. To ensure that our service offerings continually incorporate new and
emerging technologies like Java, XML, DCOM, EJB and wireless technologies, our
executive management has built a company culture that thrives on change and
requires all software engineers to seek advanced technical training and
certifications. We maintain an active internal research and development team to
monitor technical trends and test emerging technologies. We also actively
solicit feedback from our clients on how emerging technologies can improve
their businesses.
Track Record
We have provided complex, custom software systems since 1988 and five out of
the six members of our executive management team have worked together at RDA
for over seven years. We work on a collaborative basis with our clients in
developing software systems for their business needs, and this approach has
generated many long-term relationships with our clients. Since September 1996,
for example, we have completed ten projects for NASD. We derived 86.9% of our
revenue in 1999 and 85.8% of our revenue in the six months ended June 30, 2000
from clients for whom we had completed a project in a prior period, figures
that we believe demonstrate a high level of client satisfaction. Our stable
executive management team and collaborative approach to client engagements have
helped us increase our revenue and gross profits organically every year since
our founding in 1988.
Highly Qualified Software Engineers
The complex, custom software systems we deliver and our rigorous software
development methodology require us to attract and retain highly qualified and
experienced professionals with proficiency in a broad range of technologies.
The experience, education and certifications of our engineers demonstrate our
expertise across a wide range of emerging and mature technologies. Our staff of
over 194 software engineers averages more than seven years of software
engineering experience and approximately five technical certifications per
engineer. Over 80% of our software engineers have technical degrees. Our
thorough recruiting process attracts professionals with advanced technical
skills and values that fit within our firm's culture. Our hiring process is
highly selective. In 1999, we hired approximately one out of every 15
candidates who passed our preliminary screening interview.
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<PAGE>
Middle-Market Client Focus
We primarily target middle-market companies, autonomous units of larger
companies and smaller, high-growth companies that require advanced technology
systems and are committed to investing in high-impact, Internet-based systems.
We believe that businesses of this size offer a larger overall market for our
software engineering services than Fortune 1000 companies. Compared to Fortune
1000 companies, we believe that the businesses we target generally have fewer
in-house information technology resources, and as a result are more likely to
outsource their software development needs. In addition, we believe that these
businesses have a greater need for software development and less of a need for
strategic consulting and creative design services. We also believe that these
businesses are generally well-suited and receptive to working on a
collaborative basis with their service providers to develop technology
solutions. Executive officers at the businesses we target, for example, are
generally more accessible to us than are their counterparts at Fortune 1000
companies.
Proven Processes With Predictable Outcomes
Our software development methodology and our internal operating procedures
are highly process-oriented. We build our software systems using a proven,
phased, milestone-based methodology that simplifies the software development
process and helps ensure consistency in our solutions. We manage all of our
projects in the same manner, and our confidence in the predictability and
reliability of our software development methodology enables us to offer our
clients the option of fixed-price, fixed-timeframe billing. In the first six
months of 2000, we derived 17.8% of our revenue from fixed-price, fixed-
timeframe projects and we expect the percentage of our revenues derived from
these projects to increase in the future. We have also engineered our
recruiting, sales, geographic expansion and other major operating functions to
apply similar, repeatable processes and yield predictable outcomes. Our
experience in applying these processes has helped us grow our business
consistently and profitably over our 12-year history.
RDA Growth Strategy
Our objective is to continue growing profitably and strengthen our position
as a leading software engineering firm using advanced technologies to build
complex, custom software systems. Key elements of our growth strategy are to:
Attract and Retain Top Talent
We must recruit and retain skilled and experienced software engineers in
order to grow effectively. We have assembled and trained an experienced
internal recruiting staff of 17 personnel to fulfill our recruiting needs. As
part of our growth strategy we intend to continue growing our recruiting staff
to keep pace with our hiring needs. Our recruiting process follows a four-step
methodology that incorporates both technical and personality interviews in an
effort to hire employees who not only meet our stringent professional
standards, but also demonstrate the values that underlie the RDA culture. We
seek engineers with skills in the areas of business analysis, object-oriented
analysis and design, distributed architecture design, and leading web
development technologies and relational database expertise. We believe our
employee retention rates are higher than those of many of our competitors. Our
retention efforts include:
. competitive compensation, including company-wide stock options;
. challenging technical assignments;
. engineering-focused culture;
. ongoing training and education initiatives; and
. internal career development opportunities.
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Establish and Expand Client Relationships
We plan to further penetrate our existing client base and aggressively
develop long-term relationships with new clients. Our proven ability to deliver
complex, custom software systems and our collaborative approach to software
development naturally generate many long-term client relationships. We foster
these relationships by identifying new ways in which we can use advanced
technologies to improve our clients' businesses. At the same time, we seek new
relationships with middle-market companies, autonomous units of larger
companies and smaller, high-growth companies through our marketing initiatives,
direct sales efforts, referral-driven sales and strategic alliances. We are in
the process of launching a service offering which will help us more quickly and
effectively identify and communicate to a client the return on investment,
solution definition, timetable and cost of a proposed project. Our goal is to
become integral to the ongoing development and implementation of our clients'
Internet-based software systems.
Focus on Technology
We plan to continue identifying and delivering a wide range of emerging
technologies that can improve our clients' businesses. Our dedicated research
and development personnel and experienced management team monitor technology
trends and identify tools and architectures that can increase our clients'
productivity. We continually modify the software engineering services we offer
as new technologies emerge. For example, when our research and development team
determined that Java technology was stable enough to support our client
applications, we assembled a team of employees to help us rapidly develop the
ability to deliver Java-based systems. The team consists of management, sales,
recruiting and delivery personnel that have helped us develop the capability to
sell, staff and deliver projects using Java-based technology. Our familiarity
with a broad range of technologies and our status as an independent software
engineering firm also help us recommend software systems on an objective,
vendor-neutral basis. We plan to continue building complex, custom software
systems using whichever technologies we believe are most suited to our clients'
business needs.
Broaden Our Geographic Presence
We plan to continue expanding our geographic presence to gain access to new
markets for customers and software engineers. As part of our growth strategy,
we establish a local presence in our target markets in order to more easily
collaborate with our clients and minimize travel for our engineers and staff.
We identify attractive geographic markets based on the potential client base,
level of demand for our services and recruiting opportunities, and we plan our
staffing, infrastructure and other capital investments accordingly. Our
strategy gives our regional management responsibility for the operations and
profitability and recruiting and sales activities of our branches and
facilitates geographic expansion. We have opened three new offices since 1996,
and the experience has helped us refine our geographic expansion methodology.
We currently have offices in the metropolitan areas of Atlanta, Baltimore,
Chicago, Philadelphia and Washington, D.C., and we plan to open offices in at
least two more metropolitan areas during the next 18 months.
Expand RDA Brand Recognition
We believe that the number of firms with a proven track record of delivering
complex, custom software systems is small. We plan to continue investing in
marketing and branding initiatives to increase recognition of our complex,
custom software offerings and our track record. We are using various marketing
mediums, including public relations, advertising, participation in technical
seminars and direct mailing, as well as our direct sales force, to publicize
our brand and our business. We direct these marketing efforts at employment
candidates, potential business partners and senior executives in the companies
we target.
Pursue Strategic Partnerships and Alliances
We believe that our focus on advanced technologies and our ability to
deliver complex, custom software systems on a fixed-price, fixed-timeframe
basis makes us an attractive partner for other technology companies
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that do not offer similar services. Through our relationships with Microsoft
and IBM, for example, we have developed software systems that incorporate their
technologies and have used these associations to generate business from new and
existing clients. We have also partnered from time to time, and intend to
continue seeking partnerships, with other best-of-breed Internet-based
professional services firms whose service offerings complement ours.
RDA's Object-Oriented Process
Since 1992, we have used a standardized process for developing our software
systems, known as RDA's Object-Oriented Process. Our methodology divides the
software development process into a series of incremental phases, each of which
produces specified deliverables according to a defined timetable. The diagram
set forth on the inside back cover of this prospectus describes each of the
general phases of our software development process, and identifies the
milestones we must achieve and deliverables we must produce before a phase is
considered complete. By dividing the software development process into
discrete, predictable phases, our methodology helps simplify and manage the
risks involved in the software design process. We invest substantial resources
in the training and certification of our software engineers to ensure that we
apply our software development methodology consistently across all client
projects.
Our software development methodology is based on an object-oriented
approach, which we believe results in more effective and durable software
systems that have a lower risk of becoming obsolete. An object-oriented
approach to software design involves bundling related items of computer code
and data into modular units called "objects," and then combining objects, based
on their relationships with each other, into structured networks to form a
complete software program. In the analysis phase of our methodology, we employ
an object-oriented approach by looking at complex business systems as the sum
of smaller and simpler components. This perspective helps a client better
understand its business systems and the deficiencies in the individual
components of those systems, and helps ensure that we create a solution that
addresses these deficiencies. In the development phase, we build individual
software components and combine those components into complete software
systems. We believe that software systems constructed in this manner have a
lower risk of becoming obsolete and accommodate changes more easily, because
defective or outmoded components can be repaired or upgraded without disturbing
the other components of the system.
We believe our proven software development methodology, built and refined
over the last nine years, differentiates us from our competitors and offers
clients the following benefits:
. Predictability. Our software development process helps us accurately
predict the cost, schedule and functionality needed to achieve the
desired return on investment. This allows us to offer and manage
projects on a fixed-price, fixed-timeframe basis.
. Business-Focused Systems. We begin the software development process by
working with our client's key business and technical executives to
understand their business challenges. Using this information and
business logic techniques, we develop advanced software systems designed
to achieve the client's desired return on investment by increasing
revenue and/or lowering operating costs.
. Consistent Results. Our complex, custom software systems are typically
critical to a client's business operations. Our software development
methodology ensures that active projects undergo regular quality-
assurance reviews by project managers and peer engineers to help ensure
consistent project results that meet the client's objectives. We believe
our high level of repeat business reflects the consistent results of our
software development methodology.
. Scalability. We can adjust our methodology to accommodate engagements of
different sizes and types. Our software development methodology is not
designed for a particular size or type of engagement, and does not lose
its rigor when applied to larger engagements or introduce unnecessary
complexity into smaller engagements.
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. Knowledge Transfer. We share our methodology with our clients, which
transfers to them the underlying knowledge necessary to re-use the
process and continue supporting our software systems going forward.
Unlike many of our competitors, we encourage our clients to adopt and
use our processes.
Case Studies
The following examples illustrate the type of software systems we have
engineered for specific clients.
NASD Regulation
Client description: NASD Regulation is an independent subsidiary of NASD
charged with regulating the securities industry and the
Nasdaq Stock Market. NASD Regulation serves over 5,600
member firms with more than 63,000 branch offices and
over 500,000 securities industry professionals. NASD
Regulation must collect, maintain and disseminate
information regarding the qualification, employment,
and disclosure histories of these professionals for the
use of NASD member firms as well as state, federal and
private regulatory bodies.
Challenge: Build a process more efficient and scalable than NASD
Regulation's existing system, which required management
of considerable amounts of paperwork.
Our delivery: Our team of 30 software engineers delivered our
solution, known as Web Central Registration Depository,
or Web CRD, in August 1999 following a 21-month
development process.
The RDA solution: Web CRD immediately impacted NASD Regulation's filing
procedure. After the first two weeks of operation, NASD
Regulation processed more than 53,000 electronic
filings through Web CRD, a 29% increase over the filing
volume for the comparable period in 1998. After only
seven months in production, the system recorded a
milestone with its one-millionth filing. Substantially
all NASD firms and securities brokers are now
registered in the system. The solution is fully
accessible through the Web and does not require the
end-user to employ any software specific to this
application.
Animal Group of Pfizer Inc.
Client description: The Animal Group of Pfizer Inc. is a branch of Pfizer
Pharmaceuticals, one of the world's largest
pharmaceutical companies. The Animal Group provides
pharmaceutical products to the animal health industry,
including veterinarians, livestock producers, feedlot
providers and others.
Challenge: Create a customer-marketing database fully integrated
with the client's newly-installed order entry system.
The client's new order entry system did not support the
same level of daily reporting and direct sales data on
which users had come to rely for making business
decisions. Pfizer needed to provide the former level of
reporting and establish a customer-marketing database.
Our
delivery: Our team of four software engineers delivered our
solution, known as phases 1 and 2 of the Sales
Information System, by April 2000 after a 15-month
development process.
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The RDA solution: The Internet-based Sales Information System solved the
complex issue of interfacing with the new order entry
system to acquire online sales data, which was then
incorporated into a data warehouse for reporting and
analytical purposes. Pfizer employees in the United
States and Canada can now access the solution to
analyze product sales and implement new sales and
marketing strategies.
Sallie Mae
Client description: For more than 25 years, Sallie Mae has been helping
students obtain higher education by providing funds for
educational loans, primarily federally guaranteed
student loans originated under the Federal Family
Educational Loan Program, or FFELP. The company
currently owns or manages student loans for more than
five million borrowers and is one of the nation's
leading providers of educational loans.
Challenge: Help Sallie Mae to further streamline and improve its
student loan delivery process by enhancing its on-line
loan delivery solution, which serves educational
institutions and 12 million students, to accept private
credit loan applications, FFELP loan applications,
rapidly determine credit worthiness, and transfer
approved loan funding between lenders and educational
institutions.
Our Our team of 26 software engineers, in partnership with
delivery: Sallie Mae's software engineers, delivered our solution
in May 2000 following a nine-month development process.
The RDA solution: We designed our enhancements to:
. reduce the communications time required to transmit
data from Sallie Mae's mainframe system to credit
agencies from two minutes to seconds;
. re-architect the website to exploit strengths of
various legacy systems; and
. solve technology compatibility issues to achieve
better integration between the web technologies and
the database.
As a result, educational institutions and students now
have on-line, real-time access to private credit loan
programs from Sallie Mae to supplement their financial
needs not met by federally guaranteed student loans.
Lynk Systems,
Inc.
Client description: Lynk is a national provider of electronic payment, cash
dispensing and electronic commerce services, serving
more than 50,000 merchants and 8,000 automatic teller
machines nationwide. Lynk processes transactions
initiated by credit and debit cards, checks and
electronic benefits transfer cards from merchant point-
of-sale terminals and via the Internet.
Challenge: Develop a solution to give Lynk's customer service
personnel and clients streamlined access to information
about the clients' customer transactions.
Our Our team of five software engineers delivered our
delivery: solution, known as Customer Self-Service System, in May
2000 after a 12-month development process.
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<PAGE>
The RDA solution: The Customer Self-Service System is designed to lower
Lynk's customer service costs by reducing the volume of
calls to the Lynk customer service center. The Customer
Self-Service System is intended to increase customer
satisfaction by allowing customers to perform self-
service operations via the Internet and giving them
better access to their account information. Lynk
believes that this capability gives it a competitive
advantage over many of its competitors.
Clients
The following is a list of our clients, each of whom accounted for at least
$500,000 of our revenue during the period from January 1, 1999 through June 30,
2000, which we believe is representative of our overall client base:
Animal Group of Pfizer Inc. Medstar Health, Inc.
Annuitynet.com NASD
Automatic Data Processing, Inc. RMC Industries Corporation
E. I. Kane Construction, Inc. Sallie Mae
Everfast, Inc. Snyder Communications LLC
General Electric Capital Mortgage The Union Labor Life Insurance
Services Company
Integrated Health Services, Inc. United Parcel Service of America,
LifeMinders.com, Inc. Inc.
Lynk Systems, Inc. Vertex, Inc.
McKesson HBOC, Inc. Zurich Insurance Company
Our clients generally consist of middle-market companies, autonomous units
of larger companies and smaller, high-growth companies that require advanced
technology skills and are committed to investing in high-impact, Internet-based
systems. We derived 86.9% of our revenue in 1999 and 85.8% of our revenue in
the six months ended June 30, 2000 from clients for whom we had completed a
project in a prior period, a figure we believe demonstrates a high level of
client satisfaction. In 1999, 19 of the 49 clients for whom we performed work,
or 38.8%, were new clients, and we added 15 new clients in the six months ended
June 30, 2000. Our average, annualized revenue per client during the six months
ended June 30, 2000 was approximately $1.1 million. 26 of the 49 clients for
whom we performed services in 1999 engaged us for multiple projects during the
year. The volume of work that we perform for a specific client is likely to
vary from period to period, and a client that uses a substantial amount of our
services in a particular period may use significantly less, or none, of our
services during a subsequent period. The loss of a significant client or a
failure to collect a large account receivable from any of these clients could
adversely affect our results of operations. We expect this high level of client
concentration to continue but not necessarily involve the same clients from
period to period.
For the six months ended June 30, 2000, our five largest clients accounted
for 65.3% of our revenue, with NASD accounting for 27.1% of our revenue and
Sallie Mae accounting for 20.4% of our revenue. For the fiscal year ended
December 31, 1999, our five largest clients accounted for 62.9% of our revenue,
with NASD accounting for 32.3% of our revenue and Automatic Data Processing,
Inc. accounting for 10.1% of our revenue. For the fiscal year ended December
31, 1998, NASD accounted for 38.4% of our revenues, and for the fiscal year
ended December 31, 1997, Sallie Mae accounted for 33.0% of our revenues and
NASD accounted for 11.4% of our revenues.
Advanced Technologies
The regular changes in technology that characterize the software engineering
industry make the incorporation of advanced technologies into our services
critical to our success. Since our software systems rely heavily on advanced
technologies, we must continually revise our expertise and our offerings to
service our clients effectively. Our advanced technologies team has identified
and successfully prepared us for numerous technology waves since 1988,
including PC technology, Windows technology, client-server technology and
Internet-based systems, and continues to evaluate emerging technologies.
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<PAGE>
Our dedicated advanced technologies team consists of three personnel who:
. identify and test emerging technologies that offer the potential to
address our clients' business needs;
. disseminate information about, and help train our engineers in, emerging
technologies; and
. improve the software engineering services we offer.
Our advanced technologies team is currently exploring and testing the
boundaries of various technologies, including wireless communications-based
systems, systems based on the XML data standard and Linux-based systems.
In addition to our full-time advanced technologies team, our management team
and software engineers play a crucial role in identifying, evaluating and
disseminating emerging technologies. Our Chief Executive Officer, Chief
Technology Officer and Chief Information Officer regularly attend seminars,
review technical publications and use their industry contacts to identify new
technology developments. We encourage each of our technical personnel to
identify emerging technologies in similar ways. Through our equipment purchase
program, we allow our technical employees to direct purchases of computer
equipment, which many of them use to investigate and experiment in emerging
technologies. We also encourage our senior engineers to make presentations on
emerging technologies, build sample applications which encourage further
investigation and help our internal information technology department use
emerging technologies to develop software that we use to run our own business.
Knowledge Management
We have built a central database to help collect and disseminate the
proprietary information we have accumulated since 1988. The database includes
information our research and development efforts have generated, project files
containing the proposals, plans, designs and other work product of our client
projects, as well as papers, articles and other technical information. Our
engineers can access the database through a secured corporate intranet from
home, work or at client sites. The database is interactive: our engineers use a
technical assistance forum to distribute technical questions by e-mail to our
entire technical staff, and our research and development team uses the forum to
post information regarding their initiatives in emerging technologies. Through
our knowledge database, our engineers use lessons learned over 12 years of
software development to help them engineer software systems that solve our
clients' business needs.
People and Culture
People
The success of the software systems we deliver depends considerably upon the
experience, skills and values of our staff. Our Chief Executive Officer, Chief
Technology Officer and Chief Information Officer average approximately 26 years
of experience in the software industry. Our staff of more than 194 software
engineers average seven years of software engineering experience, our project
managers 11 years and our principal architects 14 years. Our software engineers
also average more than five technology certifications per engineer. The skills
of our software engineers span the areas of business analysis, object modeling,
web architecture, object-oriented development, database modeling, quality
assurance, testing and integration, and system deployment.
Culture
Our firm culture helps instill and sustain the values we need to effectively
service our clients. We strive to ensure that our employees share a common set
of values that supports our position as a leading provider of
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<PAGE>
complex, custom software systems using advanced technologies. Growing our
business organically has helped us cultivate our firm culture on an
individualized basis. We interview and select our employees with the following
core values in mind:
. intellectual honesty;
. willingness to continue learning emerging technologies that can benefit
our clients;
. willingness to work through obstacles to attain our clients' objectives;
. belief in our processes;
. desire to work collaboratively; and
. strong work ethic.
Training
For us to succeed, our technical employees must continually update their
skills as new technologies emerge. We offer our technical personnel practical
training in new and emerging technologies. Following are some of the ways we
promote training:
. our intranet multimedia training library;
. mandatory training and certification process relating to our software
development methodology;
. informal dinners at which speakers discuss various areas of emerging
technology with our employees;
. RDA-U, which offers technical classes that meet by teleconference; and
. sending our software engineers to national technical conferences.
In addition, our Chief Technical Officer and the technical directors in each
of our branch offices are responsible for the career growth of the software
engineers in their branch, and are required to conduct periodic one-on-one
meetings with each software engineer.
Recruiting
We must recruit and retain skilled and experienced software engineers and
other, non-technical personnel in order to grow effectively. We do not rely on
outside recruiting sources to obtain the people we need. Instead, we have
assembled and trained an experienced internal recruiting staff to fulfill our
recruiting needs. Our Senior Vice President of Recruiting and Retention sets
our general recruiting policies and programs and oversees our recruiting and
retention department. The department consists of 12 recruiters and one
recruitment manager, who fill software engineering, sales, recruiting and
administrative positions in our branch offices, three corporate recruiters who
fill non-billable staff positions and one manager responsible for retention
programs.
We target only engineers who have the requisite technical expertise and
multiple years of project experience. We do not hire independent contractors or
participate in college recruiting and we do not rely significantly on software
engineers working under H-1B visas. We seek candidates who demonstrate the
values that underlie our firm culture and possess a combination of the
following technical skills: business analysis, object-oriented analysis and
design, distributed architecture design, and leading web development
technologies and relational database experience.
A time-proven, four-step process governs our recruitment efforts. Initially,
one of our recruiters conducts a preliminary screening interview with those
candidates whose technical skills and background fit a general profile. One of
our software engineers follows this preliminary interview with a more in-depth
phone interview designed to evaluate the candidate's technical skills. A
candidate who progresses to the next phase interviews with a panel of two
software engineers and a project manager, who assess the candidate's
understanding of leading software tools and technologies and ability to follow
a rigorous development methodology. Our branch
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<PAGE>
management personnel conduct the final interview stage to further validate the
candidate's technical ability and ensure a cultural fit. In 1999, we conducted
934 technical telephone interviews, 476 panel interviews and 205 final
interviews. We offered employment to 86 candidates and hired 63 software
engineers for an acceptance rate of 73.3%. In 1999, we hired approximately one
out of every 15 candidates who passed our preliminary screening interview.
Our candidate tracking system and potential hires report help us track the
number of potential hires at each stage of the interview process at any given
time, and help our management allocate our recruiting resources to yield the
maximum results from our pipeline of potential hires. We utilize a variety of
sources to attract talent, including:
. the Internet;
. traditional advertising mediums;
. career fairs;
. referrals from our employees;
. targeted cold calling and call-backs;
. technical conferences; and
. our website.
Sales and Marketing
Our sales and marketing efforts target middle-market companies, autonomous
units of larger companies and smaller high-growth companies that require
advanced technology skills and are committed to investing in high-impact,
Internet-based systems. We aim our efforts at senior executives in an attempt
to ensure that our Internet-based business systems achieve the business and
technology requirements of our clients. Our dedicated sales force consists of
17 full-time personnel, including 12 account executives, four sales associates
and one sales manager. Our account executives, each of whom has prior
experience selling technology services, are assigned to specific accounts and
geographical areas and are required to satisfy specific sales quotas. Their
compensation is highly incentive-driven, based on the number of sales they make
and the extent to which they help us achieve our business plan in a given year.
Our sales associates are internal personnel devoted to telesales on a full-time
basis. Their prospecting activity is designed to consistently funnel leads to
our account executives. Our sales managers direct our sales personnel and
oversee and develop our pipeline of client prospects. In addition, our four
managing directors, each of whom oversees the activities of one of our
geographical business units, and our Senior Vice President of Business
Development are each heavily involved in our sales efforts. We also draw widely
on our other personnel and resources in our sales efforts. We often form ad hoc
pursuit teams, which may consist of account executives, project managers,
technical managers, managing directors, software engineers, and/or members of
executive management in order to determine the specific needs of a particular
client, offer responsive solutions, and most effectively present the advantages
of working with RDA. Although we enjoy a very high percentage of repeat
business, we aggressively seek new clients in order to increase the number of
clients who may develop into large, long-term accounts. In 1999, 19 of our 49
active clients, or 38.8%, were new clients, and we added 15 new clients during
the six months ended June 30, 2000.
We follow a time-tested and consultative sales process. In the early phases,
we use our sales process to analyze the prospective client's business,
financial and technical qualifications to reduce the time spent on
opportunities which we are unlikely to pursue. We involve the client in the
creation and validation of the solution before making a formal proposal, to
help ensure that our proposal meets our requirements and those of the client.
Our managing directors and sales personnel meet on a weekly basis to track the
status of sales prospects in our pipeline and ensure that we take the actions
necessary to capitalize on our sales opportunities. Every member of our sales
teams can access our business prospect tracking system, to encourage
collaboration and sharing of useful information among our sales force.
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We are in the process of substantially enhancing our marketing capabilities
to increase awareness of our branding message among our existing and
prospective customers and employees, generate leads for our sales force and
differentiate us in the information technology services marketplace. Our
marketing team consists of our Senior Vice President of Business Development,
our marketing communications director, our marketing associate and an outside
marketing communications firm. In collaboration with our marketing
communications firm, we have recently completed extensive research designed to
clarify our brand identity, including conducting focus groups with employees,
clients, and potential clients. To communicate our branding message to
prospective clients and employees, we employ:
. a public relations program;
. our website;
. marketing materials;
. direct mail; and
. seminars.
Competition
The market for software engineering services is highly fragmented.
Competition in this market is intense and we expect it to further intensify as
this market continues to evolve. We could face competition from the following
general categories of companies:
. in-house information technology departments of our current and potential
clients;
. software engineering firms, including Cysive, Inc. and Tanning
Technology Corporation;
. general Internet services firms, including iXL Enterprises, Inc., Lante
Corporation, MarchFirst Inc., Proxicom Inc., Sapient Corporation, Scient
Corporation and Viant Corporation; and
. technology consulting firms and integrators, including Andersen
Consulting, KPMG Consulting, EDS and IBM.
Many of our competitors have larger client bases, longer relationships with
their clients, greater brand or name recognition and significantly greater
professional staffs and financial, technical and marketing resources than we
do. Many of our competitors are in a position to devote greater resources than
we can to the development, promotion and sale of their services. As a result of
this competition, our growth rate may suffer and we may face reduced operating
margins, loss of market share and diminished brand recognition. We also
anticipate additional competition from new entrants into the software
engineering market due to the low barriers to entry.
Employees
As of August 15, 2000, we had 270 employees, which included 194 software
engineers, 22 support staff, 19 marketing and sales personnel, 17 recruiting
and retention personnel and 18 management personnel. None of our employees is
represented by a labor union. We believe our relationship with our employees is
good.
Intellectual Property
Our software development methodology, our proprietary knowledge database and
other intellectual property rights that we develop for our clients are an
important part of our business. Our clients generally retain ownership of
custom work product, but we often retain a royalty-free license to use some or
all of the applications, processes and intellectual property for internal
training purposes and for storing and using in our knowledge database. We rely
on a combination of trade secret, trademark and copyright laws and
confidentiality, nondisclosure and other contractual agreements to protect our
proprietary rights. Existing trade
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<PAGE>
secret, trademark and copyright laws provide us only limited protection. We
generally enter into confidentiality agreements with our employees and clients
and limit access to and distribution of our proprietary information. The
information in our knowledge database, for example, is available to our
employees through a secure, corporate intranet system. We cannot assure you
that the steps we have taken to protect our proprietary information will be
adequate, that we will be able to identify misappropriation of our proprietary
rights, or that we will be able to take appropriate steps to enforce our
rights.
Facilities
Our headquarters are located in approximately 13,970 square feet of office
space located in Timonium, Maryland, under a lease which expires in February
2003. We also lease office space in the metropolitan areas of Atlanta, Chicago,
Philadelphia and Washington, D.C. We do not own any real estate. We do not
consider any specific leased location to be material to our operations, and we
believe that equally suitable alternative locations are available in all areas
where we currently do business.
Legal Proceedings
From time to time, we may be involved in litigation incidental to the
conduct of our business. We are not currently a party to any material pending
legal proceedings.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table contains information with respect to our executive
officers, directors and director nominees as of August 15, 2000:
<TABLE>
<CAPTION>
Name Age Position
------------------------ --- --------------------------------------------------------------------
<S> <C> <C>
R. Donald Awalt......... 46 Chairman of the Board, Chief Executive Officer and Director
William E. Ambrose(1)... 53 Senior Vice President of Recruitment and Retention and Director
Jay M. Basen............ 44 Chief Technology Officer
Paul J. Bielski......... 52 Chief Information Officer
Francis A. Contino(1)... 54 Director
William C. Hawk(1)...... 48 Director
Stephen F. Kupres(1).... 30 Chief Financial Officer, Senior Vice President of Finance, Assistant
Treasurer and Director
Steven N. Landsman(1)... 55 Senior Vice President of Business Development and Director
Mel Ray(1).............. 64 Director
</TABLE>
--------
(1) Election to the board of directors will be effective as of the closing of
this offering.
R. Donald Awalt has served as our Chairman of the Board, Chief Executive
Officer and sole director since he founded RDA in February 1988. From 1985 to
1988, Mr. Awalt was Director of Management Information Services for a division
of Texas Instruments, where he managed all internal information technology
initiatives for a division that developed industrial automation systems. From
1983 to 1985, he served as Vice President of Development at Muse Software,
where he managed the development of education and entertainment software. From
1974 to 1983, Mr. Awalt was a programming manager for a division of General
Instrument Corporation, where he helped develop transactional systems for the
retail point-of-sale and wagering industries. Mr. Awalt also served as
Assistant Professor of Computer Science at Loyola College from 1976 to 1978.
William E. Ambrose will become a director effective upon the closing of this
offering and has served as our Senior Vice President of Recruitment and
Retention since January 2000. From October 1998 to December 1999, Mr. Ambrose
served as our Vice President of Recruitment, from October 1993 until October
1998 as our Vice President of Operations and from October 1992 until October
1993 he served as our Director of Operations. Prior to joining us, Mr. Ambrose
owned and operated RSI, a computer services staffing firm, from 1987 to 1992.
Jay M. Basen has served as our Chief Technology Officer since January 2000.
From March 1997 to January 2000, Mr. Basen served as our Vice President of
Technical Services with responsibility for our delivery organization and our
information technology department. From March 1993 to March 1997, he served as
our Technical Director and from June 1990 to March 1993, as an RDA consultant.
Prior to joining us, Mr. Basen worked from 1988 to 1990 as a lead software
engineer for Becton Dickinson Corporation, a manufacturer of diagnostic systems
for the health care industry, where he worked on the design and development of
new blood culturing instruments.
Paul J. Bielski has served as our Chief Information Officer since January
2000. From February 1998 to January 2000, Mr. Bielski served as Chief
Information Officer, as well as Vice President and General Manager of the IT
Service Division, of EA Engineering, Science and Technology, a global
consulting firm specializing in matters related to energy, the environment and
health and safety. At EA Engineering, Mr. Bielski designed and managed the
modernization of the company's technological assets. From August 1996 to
September 1997, Mr. Bielski served as the Vice President of Information
Technology for RJO Enterprises, Inc., a provider of advanced, software-based
information technology services and products. From April 1989 to August 1996,
Mr. Bielski served as President and founder of the Service Management Group,
Inc., a high technology services company that provided support services
internationally.
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<PAGE>
Francis A. Contino will become a director effective upon the closing of this
offering. Mr. Contino has served as Executive Vice President, Chief Financial
Officer and director of McCormick & Company, Inc., a diversified specialty food
company which manufactures, markets and distributes spices, herbs, seasonings,
flavorings and other specialty food products to the food industry, since June
1998. From 1968 until June 1998, Mr. Contino worked at Ernst & Young LLP,
leaving as managing partner of the firm's Baltimore office and Leader of the
Consumer Products Industry for the Mid-Atlantic Area. At Ernst & Young, Mr.
Contino consulted with clients on a variety of business issues, including
acquisitions, divestitures, reorganizations and the development of growth
strategies.
William C. Hawk will become a director effective upon the closing of this
offering. Mr. Hawk has served as Chairman of the Board, Chief Executive Officer
and founder of Severn Healthcare, Inc., a company which manages and provides
specialized healthcare services, since December 1996. From March 1994 to
December 1996, Mr. Hawk served as a consultant to Beacon Healthcare Group
Incorporated, which provides strategic healthcare consulting. From October 1991
to March 1994, Mr. Hawk served as Vice President for Medical Care America, an
ambulatory surgery and home infusion therapy company, where he oversaw managed
care strategies and network development acquisitions. From January 1983 to
October 1991, Mr. Hawk served as President, Chief Executive Officer, and
founder of TeamCare, Inc., a regional home infusion therapy company.
Stephen F. Kupres will become a director effective upon the closing of this
offering and has served as our Chief Financial Officer and Senior Vice
President of Finance since December 1999 and as our Assistant Treasurer since
May 1998. Mr. Kupres is responsible for our finance, accounting and
administrative activities. From May 1996 until May 1998, he served as our
Controller and from January 1994 to May 1996 as our Manager of Finance and
Administration. Mr. Kupres joined us in January 1990 as our Accounting
Supervisor.
Steven N. Landsman will become a director effective upon the closing of this
offering and has served as our Senior Vice President, Business Development
since December 1999. Mr. Landsman served as Vice President of Sales and
Marketing from March 1994 to December 1999 and as Director of Sales from March
1993 until March 1994. From 1986 until 1993, Mr. Landsman served as Vice
President, National Accounts at Cap Gemini America, where he personally handled
the firm's largest customer and served on the firm's Operating Committee as it
initiated a program for managing the company's national accounts.
Mel Ray will become a director effective upon the closing of this offering
and has been retired from employment since March 2000. Mr. Ray served as
Chairman of the Board, Chief Executive Officer and President of FIData, Inc.,
which provides Internet financial services and software for the credit union
industry, from January 1998 through March 2000. Mr. Ray was retired from
employment from February 1997 through January 1998. From November 1994 through
February 1997, Mr. Ray served as President and co-founder of Affinity
Technology, Limited, which provides automated loan software and kiosks for the
banking industry.
Board of Directors
As of the closing of this offering, our bylaws will provide that the number
of directors on our board must be not less than four and not more than 15. Our
board of directors will consist of seven directors as of the closing of this
offering. Our certificate of incorporation will provide that, upon completion
of this offering, the terms of office of the members of our board of directors
will be divided into three classes: Class I, whose term will expire at the
annual meeting of stockholders to be held in 2001; Class II, whose term will
expire at the annual meeting of stockholders to be held in 2002; and Class III,
whose term will expire at the annual meeting of stockholders to be held in
2003. The Class I directors will be Messrs. Kupres and Contino, the Class II
directors will be Messrs. Hawk and Landsman, and the Class III directors will
be Messrs. Ambrose, Awalt and Ray. At each annual meeting of stockholders after
the initial classification, the successors to directors whose term will expire
at that meeting will be elected to serve three-year terms. Our bylaws will
provide that the authorized number of directors may be changed only by
resolution of our board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors. This classification of the board of directors
may have the effect of delaying or preventing changes in control or management
of RDA.
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<PAGE>
Committees of the Board of Directors
Our board of directors intends to establish an audit committee as of the
closing of the offering, which will consist solely of outside directors. The
responsibilities of the audit committee will include recommending the
independent public accountants to conduct the annual audit of our books and
records, reviewing the plan, scope and results of our annual audit, and
reviewing our internal controls and financial management policies with the
independent public accountants and our financial and accounting staff. We
anticipate that Messrs. Contino, Hawk and Ray will be members of the audit
committee as of the closing of this offering.
Our board of directors also intends to establish a compensation committee as
of the closing of the offering, which will consist solely of non-employee
directors. The responsibilities of our compensation committee will include
establishing guidelines and standards for determining the compensation of our
executive officers, reviewing our executive compensation policies and
recommending to our board of directors compensation for our executive officers.
Our compensation committee will also administer our stock option plans, equity
incentive plan and employee stock purchase plan and determine the number of
shares underlying, and terms of, options to be granted to our executive
officers and other employees pursuant to these plans. Prior to the anticipated
formation of the compensation committee upon the closing of this offering, our
board of directors as a whole makes all decisions relating to compensation of
our executive officers. We anticipate that Messrs. Contino, Hawk and Ray will
be members of the compensation committee as of the closing of this offering.
Director Compensation
Directors who are also our employees will not receive additional
compensation for serving as directors. Each person who has agreed to serve as a
non-employee director as of the closing of this offering will be granted, as of
the effectiveness of the registration statement to which this prospectus
relates, an option to purchase approximately 35,320 shares of our common stock
for that person's service from the closing of this offering until the first
annual meeting of our stockholders following this offering. We will grant these
options under our 2000 equity incentive plan and they will be exercisable at
the initial public offering price. Fifty percent of these options will become
exercisable 180 days after the closing of this offering, with the balance
becoming exercisable three years after the closing of this offering. Our non-
employee directors will also be eligible for additional option grants in the
future under our 2000 equity incentive plan. Any future grants of options to
our non-employee directors will be at the discretion of our board. We will also
reimburse each director for out-of-pocket expenses incurred in attending
meetings of our board of directors or committees of the board of directors, in
their capacity as directors.
Compensation Committee Interlocks and Insider Participation
No person who is expected to be appointed to the compensation committee as
of the closing of this offering has served as an officer or employee of ours at
any time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has, or as of the
closing of this offering will have, one or more executive officers serving as a
member of our board of directors or compensation committee. There are no family
relationships among any of our directors, director nominees or executive
officers.
Executive Compensation
The following table contains information in summary form concerning the
compensation paid to our Chief Executive Officer and each of our four other
most highly compensated executive officers whose total salary, bonus and other
compensation for services rendered in all capacities for the fiscal year ended
December 31, 1999 exceeded $100,000. In accordance with the rules of the
Securities and Exchange Commission, the compensation described in this table
does not include perquisites and other personal benefits received by an
executive officer named in the table which in the aggregate do not equal or
exceed the lesser of $50,000 or 10% of the total salary and bonus reported for
that officer.
41
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term and Other
Compensation Compensation
-------------------- -------------------------------
Securities
Underlying All Other
Name Salary($) Bonus($) Options/SARs(#) Compensation($)
------------------------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
R. Donald Awalt.......... 259,261 100,000 -- 26,400(1)
Chairman of the Board of
Directors and Chief
Executive Officer
William E. Ambrose....... 221,975(2) 67,625 -- 16,400(3)
Senior Vice President of
Recruitment and
Retention
Jay M. Basen............. 191,573 68,275 -- 16,400(4)
Chief Technology Officer
Stephen F. Kupres........ 85,035 67,700 -- 16,147(5)
Chief Financial Officer,
Senior Vice President of
Finance and Assistant
Treasurer
Steven N. Landsman....... 306,187(6) 62,575 -- 16,400(7)
Senior Vice President of
Business Development
</TABLE>
--------
(1) Includes $6,400 in contributions made by us under our profit-sharing plan
and $20,000 in premiums paid by us with respect to life insurance for the
benefit of Mr. Awalt.
(2) Includes profitability commission of $53,975.
(3) Includes $6,400 in contributions made by us under our profit-sharing plan
and $10,000 in premiums paid by us with respect to life insurance for the
benefit of Mr. Ambrose.
(4) Includes $6,400 in contributions made by us under our profit-sharing plan
and $10,000 in premiums paid by us with respect to life insurance for the
benefit of Mr. Basen.
(5) Includes $6,147 in contributions made by us under our profit-sharing plan
and $10,000 in premiums paid by us with respect to life insurance for the
benefit of Mr. Kupres.
(6) Includes sales commission of $146,508.
(7) Includes $6,400 in contributions made by us under our profit-sharing plan
and $10,000 in premiums paid by us with respect to life insurance for the
benefit of Mr. Landsman.
Option Grants in 1999
No options were granted to any of the executive officers listed in the
summary compensation table during 1999.
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<PAGE>
1999 Option Values
The following table contains information regarding exercisable and
unexercisable options held at December 31, 1999 by the executive officers
listed in the summary compensation table. The value of unexercised, "in-the-
money" options represents the difference between the exercise price of an
option and the fair market value of our common stock as of December 31, 1999,
which, solely for purposes of this calculation, we estimate to have been the
assumed initial offering price of $13.00 per share, multiplied by the number of
shares underlying those options. No options were exercised in 1999 by any of
the executive officers listed in the summary compensation table.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-money
Options/SARs at Options/SARs at
December 31, 1999(#) December 31, 1999($)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---------------------------- ------------------------- -------------------------
<S> <C> <C>
R. Donald Awalt............. 0/ 12,719 0/ 151,621
William E. Ambrose.......... 104,285/951,296 1,159,524/10,587,340
Jay M. Basen................ 104,285/951,296 1,159,524/10,587,340
Stephen F. Kupres........... 104,285/951,296 1,159,524/10,587,340
Steven N. Landsman.......... 104,285/951,296 1,159,524/10,587,340
</TABLE>
Employment Agreements
We have entered into an employment agreement with Mr. Awalt to continue
serving as our Chief Executive Officer. The agreement runs through October 1,
2003, with automatic one-year extensions absent notice to the contrary by
either side at least two years in advance of the end of the term. Mr. Awalt or
we could end the agreement earlier with 90 days' advance notice. The agreement
continues his base salary of $300,000 per year and provides for bonus payments
that could be up to 150% of his base salary (unless our compensation committee
authorizes higher payments). It provides that we can terminate his employment
for "cause" related to criminal activity or because of his gross negligence or
acting with willful disregard for our best interests. It gives him "good
reason" to resign if, among other things, (i) we materially breach his
agreement, (ii) we assign him duties inconsistent with or substantially
diminish his position or relocate him, (iii) we remove him from our Board of
Directors (or he fails to be reelected to the Board), or (iv) he reaches age
60. If we terminate his employment without "cause" or he resigns for "good
reason," he will receive severance of up to three years' salary and bonus and
all of his outstanding options will become fully exercisable (for their normal
exercise period), and we will also pay certain split dollar life insurance
premiums (of up to $20,000 per year) and pay for his medical coverage under
COBRA. The agreement also provides that we will indemnify Mr. Awalt, and it
provides for dispute resolution using mediation and, if necessary, binding
arbitration.
We have also entered into employment agreements with each of Messrs.
Ambrose, Basen, Kupres and Landsman, under which each officer has agreed to
devote his full time and effort to our business. Under each of these
agreements, either party may terminate the agreement at any time for any reason
upon at least ten (10) days prior written notice to the other party. Mr.
Ambrose is currently receiving an annual base salary of $200,000 per year, Mr.
Basen is currently receiving an annual base salary of $210,000 per year, Mr.
Kupres is currently receiving an annual base salary of $160,000 per year and
Mr. Landsman is currently receiving an annual base salary of $190,000 per year.
Mr. Landsman is also entitled to receive commission payments of up to $126,500
depending on the levels of revenue we achieve during 2000, and additional
bonuses of up to $33,000 depending on our success in implementing specified
strategic programs in 2000. Each of Messrs. Ambrose, Basen, Kupres and Landsman
is also eligible to receive an annual bonus at the discretion of our board of
directors, and each of Messrs. Ambrose, Basen, Kupres and Landsman is eligible
to receive an incentive bonus of up to $5,000 per quarter based on achievement
of particular quarterly objectives as set by us.
Under the terms of each of the employment agreements mentioned above, each
of these officers has agreed to preserve the confidentiality of all information
relating to our business during and after the term of their
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<PAGE>
employment. In addition, each of these officers has agreed to non-competition
and non-solicitation provisions which remain in effect during the term of the
employment agreement and for the two-year period following termination. Each of
these officers has also agreed that all work product relating to our business
and discovered or developed by the officer during the term of his employment
with us belongs to us.
Our Current Stock Option Plans
We adopted our first stock option plan in 1994 and adopted a second stock
option plan in 1998 because of the importance we ascribe to incentivizing our
employees and making it easy for them to become owners in our company. Under
these plans, we have granted both incentive stock options and nonqualified
stock options exercisable for a total of up to 8,258,098 shares as of August
15, 2000. Options with respect to 4,269,290 of these shares will be immediately
exercisable upon the closing of this offering. We will not grant any more
options under either of these plans after our initial public offering.
Our board has administered these stock option plans and has granted the
options under these plans. Under specified circumstances, we may repurchase
shares of stock purchased under options granted under these plans but this
repurchase right and our rights to buy these shares of stock before a third
party does will both expire upon our initial public offering.
2000 Equity Incentive Plan
Before the effectiveness of the registration statement to which this
prospectus relates, we will adopt a new equity incentive plan to promote our
long-term growth and profitability, improve stockholder value and attract,
retain, and reward highly motivated and qualified employees and directors. The
compensation committee of our board will administer the equity incentive plan
unless the board specifies another committee of the board or chooses to act
itself as administrator. The board may delegate option-granting authority to a
single director, including a director who is also an executive officer.
Under the equity incentive plan, we will be able to grant options for an
amount equal to 30% of our outstanding common stock from time to time, plus
shares ungranted or unused under our 1998 option plan. The options can either
be "nonqualified" stock options or "incentive" stock options. We will be able
to grant options to employees in the form of incentive stock options for up to
4,000,000 shares but may choose not to do so. Any options we grant that are not
incentive stock options will be nonqualified stock options. We will also
provide that participants can receive direct shares of stock to satisfy our
obligations under deferred compensation arrangements or under the senior bonus
plan described below. We expect to grant to certain of our directors, officers
and employees, as of the effectiveness of the registration statement to which
this prospectus relates, options to purchase a total of approximately 2,396,614
shares of common stock under our new equity incentive plan, exercisable at the
initial public offering price. Fifty percent of these options will become
exercisable 180 days after the closing of this offering, and the balance will
become exercisable three years after the closing of this offering. Following
this grant and as of immediately after the closing of this offering, we will be
able to grant options for approximately 4,279,410 shares of common stock under
our new equity incentive plan.
We expect that all of our employees and directors will be potentially
eligible to receive options under the equity incentive plan. We will provide
that directors may receive discretionary grants. For tax reasons, the equity
incentive plan will limit the number of shares covered by the options that an
individual can receive in a calendar year to 1,000,000. The administrator will
determine the prices, exercise schedules, expiration dates, and other material
conditions under which optionees may exercise their options.
Optionees may pay for the stock with cash or check or, in some
circumstances, with previously owned shares or cashless exercises through a
broker. We may also lend optionees the funds for the exercise on a recourse or
nonrecourse basis.
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<PAGE>
The plan provides rules under which the administrator may allocate or cash
out options or require their assumption in certain changes of control.
The equity incentive plan will limit the time during which an optionee can
exercise an option to no more than ten years. In addition, an optionee who
leaves service with us will generally have no more than 90 days to exercise an
option, reduced to no days after employment in terminations for cause, and with
additional rules applying to death and disability. The plan's administrator
may, however, override the plan's rules, other than the ten year limit. We will
not be able to grant additional options under the equity incentive plan after
the tenth anniversary of our board's initial approval of the plan.
We expect to have this plan approved by our shareholders before the
effective date of this offering. We will be able to amend or terminate the
plan, once adopted, without stockholder consent, except as the tax laws require
otherwise.
Employee Stock Purchase Plan
We will adopt an employee stock purchase plan before the effective date of
this offering and reserve shares for issuance under that plan. Immediately
following the closing of this offering, we expect to have reserved 400,000
shares of common stock for issuance under this plan. This number will
automatically increase by 300,000 shares on December 31, 2001 and each
following December 31 during the term of the plan. The employee stock purchase
plan will provide our employees with an opportunity to become owners of our
common stock through a convenient arrangement for purchasing shares of common
stock with after-tax payroll withholdings.
All of our employees will be eligible to participate in the employee stock
purchase plan except (1) employees who have not satisfied whatever waiting
period the compensation committee sets at the beginning of the payroll
deduction period and (2) employees who hold more than 5% of our common stock.
Our board can choose to exclude subsidiaries. Employees' benefits will vary
depending upon their election as to level of participation. No non-employee
directors will be eligible to participate in the employee stock purchase plan.
As of June 30, 2000, there were approximately 251 employees who would be
eligible to participate in the employee stock purchase plan if it had then been
in effect, and if the compensation committee did not require any waiting
period.
The compensation committee will administer the employee stock purchase plan
but may delegate this authority. The compensation committee will have the
authority and discretion to specify the terms and conditions of stock purchases
by employees under the employee stock purchase plan, within the limitations of
the plan, and to otherwise interpret and construe the terms of the plan and any
related agreements. Under the employee stock purchase plan, the compensation
committee or our board can lengthen or shorten the payroll deduction periods,
increase the purchase price for shares, or make other administrative
adjustments.
On the first day of each payroll deduction period, a participating employee
will automatically receive purchase rights, effectively options, to purchase a
number of shares of our common stock with money that is withheld from his or
her paycheck. The number of shares available to the participating employee will
be determined at the end of the payroll deduction period by dividing (1) the
total amount of money withheld during the payroll deduction period by (2) the
exercise price of the purchase rights, as described below. Purchase rights
granted under the employee stock purchase plan to employees will be
automatically exercised to purchase shares on the last day of the payroll
deduction period, unless the participating employee has, at least thirty days
earlier or by any other deadline the compensation committee sets, requested
that his or her payroll contributions stop. The compensation committee will
determine the treatment of fractional shares. Any cash accumulated in an
employee's account for a period in which an employee elects not to participate
will be distributed to the employee.
The initial exercise price for options under the employee stock purchase
plan is expected to be 85% of the lesser of the fair market value of the common
stock as of the first day of the payroll deduction period and as of the last
day of that period. The compensation committee may increase the exercise price
before a payroll
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<PAGE>
deduction period begins. No participant can purchase more than $25,000 worth of
our common stock in all payroll deduction periods ending during the same
calendar year. The employee stock purchase plan will start at some future
undetermined date.
If an employee's employment ends for any reason, including death, the
employee stock purchase plan will provide that any cash accumulated in the
employee's account will be distributed, and the employee will immediately cease
to participate in the plan, unless the compensation committee specifies some
other treatment.
Our board may amend or terminate the employee stock purchase plan at any
time and from time to time. Stockholder approval is required for any changes if
this approval is required to preserve the plan's status as a plan under Section
423 of the Internal Revenue Code of 1986. Absent extension by the board with
stockholder approval, no payroll deduction period will end after August 21,
2010.
Senior Bonus Plan
We will adopt a senior bonus plan before the effectiveness of the
registration statement to which this prospectus relates. Section 162(m) of the
Internal Revenue Code of 1986, as amended, limits the compensation that we can
deduct for payments to our chief executive officer and the four other most
highly compensated executive officers to $1 million per officer per year.
Bonuses granted under the senior bonus plan are intended to qualify as
performance-based compensation that is excluded from each executive's deduction
limit. We may choose to use the senior bonus plan, or we may pay bonuses under
some other future plan to which the tax deduction limits will apply, as long as
we do not use the other payments to make up bonuses a participant loses under
the senior bonus plan.
Unless our board selects another committee, the compensation committee will
administer the senior bonus plan and select participants from our key
employees, although we expect that most participants will be executive
officers. When we refer to the "compensation committee" in discussing the
senior bonus plan, we also mean any other committee that administers this plan.
Only "outside directors" under the tax rules can determine the participants,
set the performance goals and certify that we or the participants have met
those goals. The compensation committee has broad administrative authority to,
among other things, designate participants, establish performance goals and
performance periods, determine the effect of participant termination of
employment and "change in control" transactions before paying an award, and
generally interpret and administer the senior bonus plan. Neither we nor the
board has designated any participants or established any performance goals
under the proposed senior bonus plan.
The compensation committee will select participants for any given time
period based primarily on its judgment as to which executive officers are
likely to be named in our proxy statement as the chief executive officer or one
of our other four most highly compensated executive officers as of the end of
the performance period and that the compensation committee reasonably expects
to have compensation in excess of $1 million. None of our employees exceeded
that limit in 1999, nor do we anticipate that any of our executives will exceed
that limit this year.
In setting performance goals, the compensation committee will specify the
applicable performance criteria and targets it will use for the performance
period, which may vary from participant to participant. The performance
criteria and targets will measure one or more of the following company,
subsidiary, operating unit or division financial performance measures, together
with others we may specify before the closing of this offering:
. pre-tax or after-tax net income or earnings;
. earnings before interest expense, taxes, depreciation and amortization;
. operating income or gross revenue;
. profit or operating margin;
. earnings per share;
46
<PAGE>
. stock price;
. cash flows;
. total stockholder return;
. total stockholder return as compared to total return, on a comparable
basis, of a publicly available index like the Standard & Poor's 500
Stock Index;
. return on equity, on capital or on investment;
. ratio of debt to stockholders' equity;
. customer growth;
. working capital;
. staff size; or
. strategic business criteria consisting of one or more objectives based
upon meeting specified revenue, market penetration, geographic business
expansion goals, cost targets and goals relating to acquisitions or
divestitures.
The compensation committee may set these goals on an absolute stand-alone
basis, or on a relative basis in comparison to others, based on:
. internal targets;
. comparison with prior performance;
. comparison to capital, shareholders' equity, shares outstanding, assets,
or net assets; and/or
. comparison to the performance of other companies.
For example, the compensation committee could express an income-based
performance measure in a number of ways, including net earnings per share, or
return on equity or with reference to meeting or exceeding a specific target,
or with reference to growth above a specified level, like a prior year's
performance or peer group performance. The compensation committee can also
ignore unusual or nonrecurring accounting effects. The senior bonus plan
provides that achieving these goals must be substantially uncertain at the time
the goals are established and are subject to the committee's right to reduce
the amount of any award payable as a result of the performance as discussed
below.
The compensation committee may set a participant's target bonus, that is,
the amount the participant will receive if the targets are met, as a dollar
amount or in a formula, for example as a percentage share of a bonus pool,
provided that, if the committee uses a pool approach, the total bonus
opportunity for all participants who are part of the pool may not total more
than 100% of the pool. The committee has the sole discretion to reduce, but not
increase, the actual bonus awarded under the plan. The committee must determine
the extent to which the performance goals are met and the participant becomes
entitled to a bonus.
The maximum bonus payable under the senior bonus plan to any one individual
in any one calendar year is $3,000,000, although we have no plans or
expectations at this time to pay bonuses of that size.
Our board or the committee may at any time amend the senior bonus plan, and
our board may terminate the plan. However, without a participant's written
consent, no amendment or termination may materially adversely affect the annual
bonus rights, if any, of any already designated participant for a given
performance period after the participants and targets are set. Our board may
make any amendments necessary to comply with applicable regulatory
requirements, including the tax deduction limit for senior executives. If
necessary to preserve the intended tax treatment, the board may submit future
amendments of the senior bonus plan to our shareholders for approval.
Limitation of Liability and Indemnification Matters
As of the closing of this offering, our certificate of incorporation will
eliminate the personal liability of our directors to us or our stockholders for
monetary damages for breach of fiduciary duty to the fullest extent
47
<PAGE>
permitted by the Delaware General Corporation Law, except for liability for any
of the following:
. any breach of their duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. liability under Section 174 of the Delaware General Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
These provisions do not affect a director's responsibilities under any other
laws, including the federal securities laws or state or federal environmental
laws. Our bylaws will also contain provisions as of the closing of this
offering that require us to indemnify our directors and officers, as well as
other persons who were serving at our request as a director, officer, employee,
partner or agent of another entity, to the fullest extent authorized by the
Delaware General Corporation Law, and permit us to indemnify other persons to
the same extent. We are not obligated to indemnify any of these persons,
however, with respect to any proceeding, claim or action which was initiated by
the person and was not authorized by our board of directors. Our bylaws also
permit us to obtain insurance on behalf of any of our directors, officers,
employees or agents arising out of his or her actions in that capacity,
regardless of whether we would have the power to indemnify that person under
applicable law. As of the closing of this offering we will have obtained
directors' and officers' liability insurance.
48
<PAGE>
RELATED PARTY TRANSACTIONS
On May 6, 1998, we paid $110,000 for R. Donald Awalt, our Chief Executive
Officer and Chairman of the Board, to purchase a country club membership. Under
the terms of an agreement dated December 22, 1998 by and between Mr. Awalt and
us, Mr. Awalt transferred and assigned to us the membership and all rights to
receive any funds upon termination of the membership, and agreed to use the
membership only for RDA business purposes. The agreement also gives Mr. Awalt
an option to purchase the membership from us for $110,000 at any time he ceases
to be our Chief Executive Officer.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of August 15, 2000, and as adjusted to reflect the sale
of our common stock in this offering, by:
. each person or group of affiliated persons known by us to beneficially
own more than 5% of the outstanding shares of our common stock;
. each of our directors and director nominees;
. each executive officer listed in the summary compensation table; and
. all of our directors, director nominees and executive officers as a
group.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. In determining the number of shares
beneficially owned by a person and the percentage ownership of that person, we
include shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days after August 15, 2000, as
disclosed in the "Shares Issuable Upon Exercise of Options and Included in
Beneficial Ownership" column. We do not consider these shares outstanding in
computing the percentage ownership of any other person, however. To our
knowledge, the persons named in the table below have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them, subject to community property laws where applicable and except as
otherwise indicated below.
The number of shares of common stock owned by Mr. Awalt includes 275,499
shares owned by Mr. Awalt's wife, Katherine J. Awalt, and 8,749,229 shares
owned jointly by Mr. Awalt and his wife as tenants by the entirety. Mr. Awalt
disclaims beneficial ownership of the 275,499 shares of common stock owned
solely by his wife. With respect to the shares underlying options which are
included in Mr. Awalt's beneficial ownership, all of the options relating to
these shares will become exercisable upon the closing of this offering.
With respect to the 534,150 shares underlying options which are included in
the beneficial ownership of each of Messrs. Ambrose, Basen, Kupres and
Landsman, for each officer, options with respect to 208,573 of these shares are
currently exercisable, and options with respect to 325,577 of these shares will
become exercisable upon the closing of this offering.
The percentages set forth under the "Percentage Ownership" column below are
based on 9,524,967 shares of common stock outstanding prior to this offering,
and 13,524,967 shares of common stock outstanding immediately after this
offering, assuming no exercise of the underwriters' over-allotment option.
The address of each greater-than-5% stockholder is c/o RDA Corporation, 1966
Greenspring Drive, Suite 506, Timonium, Maryland 21093.
<TABLE>
<CAPTION>
Shares Issuable
Number of Shares Percentage Upon Exercise
of Common Stock Ownership of Options and
Beneficially Owned ----------------- Included
Prior to and After Prior to After in Beneficial
Name this Offering Offering Offering Ownership
-------------------------- ------------------ -------- -------- ---------------
<S> <C> <C> <C> <C>
R. Donald Awalt........... 9,312,946 97.6% 68.8% 12,719
William E. Ambrose........ 587,769 5.8 4.2 534,150
Jay M. Basen.............. 600,952 6.0 4.3 534,150
Francis A. Contino........ -- -- -- --
William C. Hawk........... -- -- -- --
Stephen F. Kupres......... 555,273 5.5 3.9 534,150
Steven N. Landsman........ 565,934 5.6 4.0 534,150
Mel Ray................... -- -- -- --
All executive officers,
directors and director
nominees as a group (9
persons)................. 11,622,874 99.6 74.1 2,149,319
</TABLE>
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following summary description of our capital stock is based on the
provisions of Delaware General Corporate Law and the certificate of
incorporation and bylaws that we will adopt when this offering closes. We will
file these organizational documents as exhibits to the registration statement
of which this prospectus is a part and this description is qualified in its
entirety by these documents and by applicable law.
Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $.001 per share, and 10,000,000 shares of preferred stock, par value
$.001 per share. As of August 15, 2000, we had 9,524,967 shares of our common
stock outstanding, held by nine holders of record, and no shares of preferred
stock outstanding. Following the closing of this offering, we will have
outstanding 13,524,967 common stock and no shares of preferred stock. As of
August 15, 2000, we also had 8,258,098 shares of common stock reserved for
issuance upon exercise of outstanding options, and 2,618,534 shares of common
stock reserved for issuance under our stock option plans. We anticipate that
immediately following this offering we will have approximately 10,654,712
shares of common stock reserved for issuance upon exercise of outstanding
options, and 4,679,410 shares of common stock reserved for issuance under our
stock option plans, our new equity incentive plan and our new employee stock
purchase plan.
Common Stock
Each stockholder of record of our common stock is entitled to one vote for
each share held on every matter properly submitted to the stockholders for
their vote. Holders of our common stock do not have cumulative voting rights.
As a result, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. After satisfaction of the dividend rights of holders of preferred
stock, holders of common stock are entitled ratably to any dividend declared by
the board of directors out of funds legally available for this purpose. Upon
our liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available, if any, after the payment
of all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no redemption or
conversion rights and no preemptive right to subscribe for or purchase
additional shares of any class of our capital stock. The outstanding shares of
our common stock are, and the shares offered in this offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.
Preferred Stock
Our board of directors, without stockholder approval, may issue up to
10,000,000 shares of preferred stock in one or more series from time to time
and fix or alter the designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions of the shares of each series, to
the extent that those are not fixed in our certificate of incorporation. The
rights, priorities, preferences, qualifications, limitations and restrictions
of different series of preferred stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions and other matters. Our board may
authorize the issuance of preferred stock which ranks senior to our common
stock with respect to the payment of dividends and the distribution of assets
on liquidation.
Our issuance of preferred stock pursuant to our board's authority may
adversely affect the rights of the holders of our common stock. These adverse
effects may include the following:
. if we have not paid dividends on our preferred stock, we may be
restricted from paying dividends on our common stock;
. if holders of preferred stock are entitled to preferred dividends or
liquidation preferences, the amount of earnings and assets available for
distribution to holders of common stock may be reduced;
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<PAGE>
. to the extent holders of preferred stock are entitled to voting rights,
the voting rights of holders of common stock will be diluted; and
. the issuance of preferred stock could cause the market price of our
common stock to fall.
Our board's ability to authorize the issuance of undesignated preferred
stock also enables it to render more difficult or discourage an attempt to
obtain control of us by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of our management. As a
result, the issuance of shares of preferred stock may discourage bids for our
common stock. We have no present intention to issue shares of preferred stock.
Delaware Anti-Takeover Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this section prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
. prior to the date at which the stockholder became an interested
stockholder the board of directors approved either the business
combination or the transaction in which the person became an interested
stockholder;
. the stockholder acquires more than 85% of the outstanding voting stock
of the corporation, excluding shares held by directors who are officers
or held in particular employee stock plans, upon consummation of the
transaction in which the stockholder becomes an interested stockholder;
or
. the business combination is approved by the board of directors and by
two-thirds of the outstanding voting stock of the corporation, excluding
shares held by the interested stockholder, at a meeting of the
stockholders, and not by written consent, held on or subsequent to the
date of the business combination.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or at any time within the prior three years
did own, 15% or more of the corporation's voting stock. A "business combination
" includes, without limitation, mergers, consolidations, stock sales and asset-
based transactions and other transactions resulting in a financial benefit to
the interested stockholder. Section 203 of the Delaware General Corporation Law
could have the effect of delaying, deferring or preventing a change of control
of RDA or reducing the price that investors might be willing to pay in the
future for shares of our common stock.
Anti-Takeover Effects of Charter and Bylaw Provisions
Our certificate of incorporation and bylaws contain a number of provisions
that are intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. These provisions may be deemed to have a potential "anti-
takeover" effect in that these provisions may delay, defer or prevent a change
in control of us. These provisions include:
Classified Board. Our certificate of incorporation divides our board of
directors into three classes of directors serving staggered, three-year terms.
Our certificate of incorporation further requires the approval of holders of at
least 66 2/3% of the shares entitled to vote to alter, amend or repeal or adopt
any provision inconsistent with the sections of our certificate of
incorporation relating to the election, classification and removal of our board
of directors, alteration, amendment or repeal of our bylaws, prohibition on
stockholder action by written consent, limitation of director liability and the
voting requirements for amendments to these sections of our certificate of
incorporation. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management.
52
<PAGE>
Removal and Replacement of Directors. Under our certificate of
incorporation, our directors may only be removed for cause and by the
affirmative vote holders of 66 2/3% of the outstanding voting stock. In
addition, vacancies and newly-created directorships resulting from any increase
in the size of our board must be filled by our board, even if the directors
then on the board do not constitute a quorum or only one director is left in
office. These provisions could prevent stockholders, including parties who want
to take us over or acquire us, from removing incumbent directors without cause
and filling the resulting vacancies with their own nominees.
Advance Notice Provisions for Stockholder Proposals and Stockholders
Nominations of Directors. Our bylaws establish an advance notice procedure
regarding stockholder proposals and nominations for director. The advance
notice procedure does not apply to proposals by our board of directors or
management. Any stockholder wishing to make a proposal, or nominate a director
for election, at an annual meeting must deliver us notice of the proposal or
the nomination not less than 60 days nor more than 90 days before the first
anniversary of the preceding year's annual meeting. The stockholder must put
information in the notice regarding:
. the stockholder and its holdings;
. the background of any nominee for director;
. any business desired to be brought before the meeting;
. the reasons for conducting the business at the meeting; and
. any material interest of the stockholder in the business proposed.
Special Meetings of Stockholders. Under our bylaws, only our Chief Executive
Officer, President, Chairman of the Board or a majority of our board of
directors may call special meetings of the stockholders. This provision may
make it more difficult for stockholders to take actions opposed by our board of
directors.
Authorized but Unissued Shares. Without further stockholder approval, our
board can issue shares of common stock and preferred stock up to the number of
shares authorized for issuance in our certificate of incorporation, except as
limited by Nasdaq rules. We could use these additional shares for a variety of
corporate purposes. These purposes include future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. Our
ability to issue these shares of common stock and preferred stock could have
the effect of delaying, deferring or preventing a change of control of RDA or
reducing the price that investors might be willing to pay in the future for
shares of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is First Union
National Bank.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect the prevailing market price for our common stock. Upon
completion of this offering, 13,524,967 shares of our common stock will be
outstanding, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, all of the 4,000,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless the shares are purchased
by "affiliates" of ours as that term is defined in Rule 144 under the
Securities Act.
The remaining 9,524,967 outstanding shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. These shares have not been registered under the
Securities Act and may not be sold unless registered under the Securities Act
or unless they qualify for an exemption from registration, including the
exemptions provided under Securities Act Rules 144 and 701. We summarize the
provisions of Rules 144 and 701 below.
Lock-Up Agreements
In connection with this offering, we, our directors, executive officers and
stockholders and substantially all of our option holders have or will have
agreed, with limited exceptions, not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for our common stock
for a period of 180 days following the date of this prospectus, without the
consent of First Union Securities, Inc. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements will not become eligible for resale until these
agreements expire or are waived by First Union Securities, Inc.
Rule 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a stockholder or stockholders whose shares are aggregated, who has
beneficially owned "restricted shares" for at least one year, including a
person who may be deemed our "affiliate," would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, or
approximately 135,250 shares immediately after this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. We cannot estimate accurately the number of restricted shares that will be
sold under Rule 144 because this will depend in part on the market price of our
common stock, the personal circumstances of our stockholders and other factors.
Rule 144(k)
Under Rule 144(k), a person who is not currently an affiliate of ours and
has not been an affiliate of ours at any time during the 90 days preceding the
sale, and who has beneficially owned for at least two years the shares proposed
to be sold, may sell those shares under Rule 144(k) without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Subject to the lock-up agreements, 31,040 "144(k) shares" may be sold
upon completion of this offering.
54
<PAGE>
Rule 701
As of August 15, 2000, a total of 8,258,098 shares of common stock were
issuable upon the exercise of outstanding options and immediately following the
closing of this offering, we expect that approximately 10,654,712 shares of
common stock will be issuable upon the exercise of outstanding options. Options
with respect to 4,269,290 shares of common stock will be immediately
exercisable upon the closing of this offering. A significant number of the
shares underlying options will be eligible for sale in reliance on Rule 701
under the Securities Act beginning 90 days after the closing of this offering,
subject to the lock-up agreements. In general, Rule 701 as currently in effect
permits resales of shares issued under the terms of particular compensatory
benefit plans and contracts beginning 90 days after the issuer becomes subject
to the reporting requirements of the Securities Exchange Act of 1934 in
reliance on Rule 144, but without having to comply with the public information,
holding period, volume limitation and notice provisions in Rule 144.
Registration Statements on Form S-8
Following this offering, we intend to file under the Securities Act one or
more registration statements on Form S-8 to register up to 15,334,122 shares of
our common stock:
. issuable upon exercise of outstanding options granted pursuant to our
stock option plans and our equity incentive plan;
. reserved for future option grants pursuant to individual option
agreements or our equity incentive plan; and
. that we intend to offer for sale to our employees pursuant to our
employee stock purchase plan.
We expect these registration statements to become effective upon their
filing with the Securities and Exchange Commission. Shares covered by these
registration statements will be eligible for sale in the public market
immediately after the effective dates of these registration statements, subject
to vesting provisions and, in the case of our affiliates, to the restrictions
of Rule 144 other than the holding period requirement. These shares will also
be subject to expiration of the lock-up agreements with the underwriters.
55
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives, First
Union Securities, Inc., Robert W. Baird & Co. Incorporated and ING Barings LLC,
have severally agreed with us to purchase the number of shares of common stock
listed opposite their names below. The underwriters are committed to purchase
and pay for all of these shares, if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
--------------------------------------------------------------- ---------
<S> <C>
First Union Securities, Inc. ..................................
Robert W. Baird & Co. Incorporated.............................
ING Barings LLC ...............................................
---------
Total........................................................ 4,000,000
=========
</TABLE>
The underwriters' representatives have advised us that they propose to offer
the shares of common stock to the public at the offering price given on the
cover page of this prospectus and to some dealers at that price less a
concession of not more than $ per share, of which $ may be reallowed to
other dealers. After completion of this offering, the public offering price and
concession and reallowance to dealers may be reduced by the representatives.
We have granted the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 600,000 shares of
common stock at the initial public offering price solely to cover over-
allotments, if any. To the extent that the underwriters exercise the over-
allotment option, each of them will have a firm commitment to purchase
approximately the same percentage of these additional shares that the number of
shares of common stock to be purchased by it shown in the above table
represents as a percentage of the 4,000,000 shares offered by this prospectus.
If purchased, the underwriters will sell those additional shares on the same
terms as those on which the 4,000,000 shares are being sold.
We estimate that we will pay total offering costs, excluding underwriting
discounts and commissions, of approximately $ . The following table
summarizes the discount to be paid by us to the underwriters in connection with
the offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
Per No Full
Share Exercise Exercise
----- -------- --------
<S> <C> <C> <C>
Underwriting discounts............................. $ $ $
</TABLE>
The underwriting agreement contains covenants of indemnity among the
underwriters and us against some civil liabilities, including liabilities under
the Securities Act of 1933 and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Each of our executive officers, directors and stockholders and substantially
all of our option holders have or will have agreed with the underwriters'
representatives not to offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for our common stock for a
period of 180 days following the date of this prospectus, without the prior
written consent of First Union Securities, Inc. First Union Securities, Inc. in
its sole discretion, at any time or from time to time, without notice, may
release all or any portion of the securities subject to the lock-up agreements.
As of August 15, 2000, approximately 17,783,065 of these shares will be
eligible for immediate public sale following expiration of the lock-up period,
subject to any applicable vesting provisions and to the provisions of Rule 144,
including the volume restrictions. See "Shares Eligible For Future Sale."
56
<PAGE>
The underwriters' representatives have advised us that, under the rules
promulgated by the Securities and Exchange Commission, some persons
participating in the offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids, which
may have the effect of stabilizing or maintaining the market price of the
common stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of the common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. Short
sales involve the sale by the underwriters of a greater number of shares than
they are required to purchase in the offering. "Covered" short sales are sales
made in an amount not greater than the underwriters' option to purchase
additional shares from us in the offering. The underwriters may close out any
covered short position by either exercising their over-allotment option or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the over-
allotment option. "Naked" short sales are any sales in excess of the over-
allotment option. The underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is more likely to
be created if the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market after pricing that
could adversely affect investors who purchase in the offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by the
underwriter or syndicate member is repurchased by the representatives in
syndicate covering transactions, in stabilizing transactions or otherwise. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if begun, may be discontinued at any
time.
At our request, the underwriters reserved approximately shares of our
common stock for sale, at the initial public offering price through a directed
share program, to our directors, officers and employees and to other persons
designated by us. There can be no assurance that any of the reserved shares
will be so purchased. The number of shares of common stock available for sale
to the general public in the public offering will be reduced to the extent
these persons purchase these reserved shares. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered in this offering.
The underwriters have informed us that they do not expect to make sales to
any accounts over which they exercise discretionary authority.
Pricing of Common Stock
Before this offering, no public market for our securities has existed. The
initial public offering price of the common stock has been determined by
negotiation among us and the underwriters' representatives. In determining the
initial public offering price, we considered a number of factors in addition to
prevailing market conditions, including:
. the results of our operations in recent periods;
. market valuations of publicly traded companies that we and the
representatives believe to be comparable to us;
. estimates of our business potential;
. the present state of our development;
. the current state of the industry and the economy as a whole; and
. trends in our operations and in our industry.
57
<PAGE>
LEGAL MATTERS
Wilmer, Cutler & Pickering, Baltimore, Maryland, will pass upon the validity
of this offering of common stock for RDA. Hogan & Hartson L.L.P., Washington,
D.C., has represented the underwriters in this offering.
EXPERTS
The financial statements and schedule of RDA Corporation as of December 31,
1998 and 1999, and for each of the years in the three-year period ended
December 31, 1999, have been included herein and in the registration statement
in reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
58
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-1 we filed
with the Securities and Exchange Commission. This prospectus does not contain
all of the information contained in the registration statement and all of its
exhibits and schedules. For further information about us, our common stock and
this offering, including the full texts of the exhibits, please refer to the
complete registration statement. Summaries of agreements or other documents in
this prospectus are not necessarily complete. Please refer to the exhibits to
the registration statement for complete copies of these documents. The
registration statement and all of its exhibits and schedules are available for
inspection and copying at the following public reference rooms of the
Securities and Exchange Commission:
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison
Room 1024 New York, NY 10048 Street
Washington, D.C. 20549 Suite 1400
Chicago, IL 60661
You may obtain information on the operation of the Securities and Exchange
Commission public reference room in Washington, D.C. by calling the Securities
and Exchange Commission at 1 (800) SEC-0330. The registration statement is also
available from the Securities and Exchange Commission's web site at
http://www.sec.gov, which contains reports, proxy and information statements
and other information regarding issuers that file electronically.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants.
59
<PAGE>
RDA CORPORATION
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Financial Statements:
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' Equity and Comprehensive Income.............. F-5
Statements of Cash Flows................................................. F-7
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
When the stock split referred to in note 9(a) of the Notes to Financial
Statements of RDA Corporation has been consummated, we will be in a position to
render the following report.
KPMG LLP
The Board of Directors
RDA Corporation:
We have audited the accompanying balance sheets of RDA Corporation as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity and comprehensive income and cash flows for each of the
years in the three-year period ended December 31, 1999. 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 RDA Corporation as of
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
Baltimore, Maryland
March 3, 2000, except as to
note 9(a) which is as of October , 2000
F-2
<PAGE>
RDA CORPORATION
Balance Sheets
December 31, 1998 and 1999 and June 30, 2000 (unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30,
1998 1999 2000
------- ------ -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 682 2,486 3,634
Investments (note 2)............................ 3,164 4,261 4,246
Accounts receivable, net of allowance for
uncollectible accounts of $847 and $929 at
December 31, 1999 and June 30, 2000 (note
1(j)).......................................... 4,621 5,118 6,661
Income taxes receivable......................... 196 20 --
Prepaid expenses and other current assets....... 451 503 885
Deferred income taxes (note 8).................. -- -- 284
------- ------ ------
Total current assets.......................... 9,114 12,388 15,710
Property and equipment, net (note 3).............. 1,245 1,335 1,665
Other assets...................................... 626 669 731
Deferred income taxes (note 8).................... 19 43 71
------- ------ ------
$11,004 14,435 18,177
======= ====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable--bank (note 5)..................... $ 193 -- --
Trade accounts payable.......................... 269 38 248
Deferred revenue................................ 501 629 143
Accrued expenses (note 4)....................... 1,413 2,048 3,073
Income taxes payable............................ -- -- 154
Deferred income taxes (note 8).................. 134 71 --
------- ------ ------
Total current liabilities..................... 2,510 2,786 3,618
------- ------ ------
Commitments (note 7 and 12)
Stockholders' equity (note 9):
Common stock $.001 par value, 15,500,000
shares authorized; 9,524,967 shares issued
and outstanding................................ 10 10 10
Additional paid-in capital...................... 1,680 1,680 1,680
Deferred stock compensation..................... (1,512) (1,345) (1,261)
Retained earnings............................... 7,946 10,660 13,906
Accumulated other comprehensive income.......... 370 644 224
------- ------ ------
Total stockholders' equity.................... 8,494 11,649 14,559
------- ------ ------
$11,004 14,435 18,177
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
RDA CORPORATION
Statements of Operations
Years ended December 31, 1997, 1998 and 1999 and
Six Months ended June 30, 1999 and 2000 (unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------
1997 1998 1999 1999 2000
------- ------ ------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue....................... $15,708 22,042 30,412 14,176 23,123
Cost of services.............. 7,875 11,232 15,647 7,305 11,044
Operating expenses:
General and administrative:
Non-cash stock
compensation............. -- 153 167 84 84
Other general and
administrative........... 3,863 6,973 9,418 4,164 5,929
Selling and marketing....... 1,205 1,385 1,282 589 1,364
------- ------ ------ ------ ------
Income from operations.. 2,765 2,299 3,898 2,034 4,702
------- ------ ------ ------ ------
Other income (expense):
Interest and dividend
income..................... 126 118 114 55 120
Net realized gains on sales
of securities,
net (note 2)............... 145 93 505 341 599
Interest expense (note 5)... (3) (21) (11) (8) (7)
------- ------ ------ ------ ------
268 190 608 388 712
------- ------ ------ ------ ------
Income before income
taxes.................. 3,033 2,489 4,506 2,422 5,414
Income tax provision
(note 8)..................... 1,193 951 1,792 949 2,168
------- ------ ------ ------ ------
Net income.............. $ 1,840 1,538 2,714 1,473 3,246
======= ====== ====== ====== ======
Basic net income per common
share........................ $ 0.19 0.16 0.28 0.15 0.34
Diluted net income per common
share........................ 0.19 0.12 0.21 0.11 0.25
======= ====== ====== ====== ======
Basic common shares
outstanding.................. 9,529 9,525 9,525 9,525 9,525
Diluted common shares......... 9,529 12,754 12,983 12,980 12,992
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
RDA CORPORATION
Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1997, 1998 and 1999 and
Six Months ended June 30, 1999 and 2000 (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated Total
Additional Deferred other stock-
Common paid-in stock Retained comprehensive Comprehensive holders'
stock capital compensation earnings income income equity
------ ---------- ------------ -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996 (note 9).......... $ 11 15 -- 4,568 21 4,615
Purchase of 6,040 shares
of common stock........ (1) -- -- -- -- -- (1)
Net income.............. -- -- -- 1,840 -- 1,840 1,840
Net unrealized gain in
investment securities,
net of income taxes of
$20 and
reclassification
adjustment-- other
comprehensive income... -- -- -- -- 31 31 31
-----
Comprehensive income.... -- -- -- -- -- 1,871 --
---- ----- ------ ------ --- ===== ------
Balance, December 31,
1997................... 10 15 -- 6,408 52 6,485
Net income.............. -- -- -- 1,538 -- 1,538 1,538
Issuance of compensatory
stock options.......... -- 1,665 (1,665) -- -- -- --
Deferred stock
compensation........... -- -- 153 -- -- -- 153
Net unrealized gain in
investment securities,
net of income taxes of
$200 and
reclassification
adjustment-- other
comprehensive income... -- -- -- -- 318 318 318
-----
Comprehensive income.... -- -- -- -- -- 1,856 --
---- ----- ------ ------ --- ===== ------
Balance, December 31,
1998................... 10 1,680 (1,512) 7,946 370 8,494
Net income.............. -- -- -- 2,714 -- 2,714 2,714
Deferred stock
compensation........... -- -- 167 -- -- -- 167
Net unrealized gain in
investment securities,
net of income taxes of
$175 and
reclassification
adjustment-- other
comprehensive income... -- -- -- -- 274 274 274
-----
Comprehensive income.... -- -- -- -- -- 2,988 --
---- ----- ------ ------ --- ===== ------
Balance, December 31,
1999................... $ 10 1,680 (1,345) 10,660 644 11,649
==== ===== ====== ====== === ======
</TABLE>
(Continued)
F-5
<PAGE>
RDA CORPORATION
Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1997, 1998 and 1999 and
Six Months ended June 30, 1999 and 2000 (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated Total
Additional Deferred other stock-
Common paid-in stock Retained comprehensive Comprehensive holders'
stock capital compensation earnings income income equity
------ ---------- ------------ -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1999................... $ 10 1,680 (1,512) 7,946 370 8,494
Net income (unaudited).. -- -- -- 1,473 -- 1,473 1,473
Deferred stock
compensation
(unaudited)............ -- -- 84 -- -- -- 84
Net unrealized gains in
investment securities,
net of income tax
benefit of $2 and
reclassification
adjustment -- other
comprehensive income
(unaudited)............ -- -- -- -- (3) (3) (3)
-----
Comprehensive income
(unaudited)............ -- -- -- -- -- 1,470 --
---- ----- ------ ------ ---- ===== ------
Balance, June 30, 1999
(unaudited)............ $ 10 1,680 (1,428) 9,419 367 10,048
==== ===== ====== ====== ==== ======
Balance, January 1,
2000................... $ 10 1,680 (1,345) 10,660 644 11,649
Net income (unaudited).. -- -- -- 3,246 -- 3,246 3,246
Deferred stock
compensation
(unaudited)............ -- -- 84 -- -- -- 84
Net unrealized loss in
investment securities,
net of income tax
benefit of $188 and
reclassification
adjustment-- other
comprehensive income
(unaudited)............ -- -- -- -- (420) (420) (420)
-----
Comprehensive income
(unaudited)............ -- -- -- -- -- 2,826 --
---- ----- ------ ------ ---- ===== ------
Balance, June 30, 2000
(unaudited)............ $ 10 1,680 (1,261) 13,906 224 14,559
==== ===== ====== ====== ==== ======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
RDA CORPORATION
Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999 and
Six Months ended June 30, 1999 and 2000 (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------
1997 1998 1999 1999 2000
------- ------ ----- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 1,840 1,538 2,714 1,473 3,246
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization................ 298 410 512 260 278
Non-cash stock compensation.. -- 153 167 84 84
Gain on sale of securities... (145) (93) (505) (341) (599)
Deferred income taxes........ (8) (73) (262) (62) (195)
Changes in current assets and
liabilities:
(Increase) decrease in:
Accounts receivable........ (2,231) (614) (497) (1,791) (1,543)
Prepaid expenses and other
current assets............ (53) (334) (52) 55 (382)
Income taxes
receivable/payable........ (282) (144) 176 168 174
Increase (decrease) in:
Accounts payable........... 115 85 (231) (247) 210
Deferred revenue........... 12 406 128 (18) (486)
Accrued expenses........... 286 360 635 326 1,025
------- ------ ----- ------- -------
Net cash provided by (used
in) operating activities... (168) 1,694 2,785 (93) 1,812
------- ------ ----- ------- -------
Cash flow from investing
activities:
Purchase of property and
equipment.................... (401) (1,009) (602) (284) (608)
Purchase of investments....... (1,902) (1,198) (855) (474) (1,523)
Proceeds from sale of
investments.................. 1,191 879 712 741 1,529
Increase in other assets...... (80) (223) (43) (50) (62)
------- ------ ----- ------- -------
Net cash used in investing
activities................. (1,192) (1,551) (788) (67) (664)
------- ------ ----- ------- -------
Cash flows from financing
activities:
Proceeds from (repayments of)
note payable--bank........... 372 (179) (193) (193) --
Repurchase of common stock.... (1) -- -- -- --
------- ------ ----- ------- -------
Net cash provided by (used
in) financing activities... 371 (179) (193) (193) --
------- ------ ----- ------- -------
Net increase (decrease) in
cash and cash equivalents.. (989) (36) 1,804 (353) 1,148
Cash and cash equivalents at
beginning of period........... 1,707 718 682 682 2,486
------- ------ ----- ------- -------
Cash and cash equivalents at
end of period................. $ 718 682 2,486 329 3,634
======= ====== ===== ======= =======
Supplemental cash flow
information:
Interest paid................. $ 3 21 11 8 7
Income taxes paid............. 1,483 1,120 1,861 741 1,992
======= ====== ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
RDA CORPORATION
Notes to Financial Statements
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(1) Summary of Significant Accounting Policies
RDA Corporation (the Company) is a provider of complex information
technology solutions to sub Fortune 1000 companies. The Company's information
technology solutions include internet-based custom software and business to
business solutions. The Company, a Delaware corporation, was founded in 1988
and operates in one business segment in five metropolitan areas in the United
States.
In May 2000, the Company changed its name from RDA Consultants Limited to
RDA Corporation.
(a) Revenue Recognition
Revenue from consulting services is recognized based on the nature of the
contract. Revenue from fixed-price contracts is recognized using the
percentage-of-completion method based on the ratio of costs incurred to total
estimated costs. Revenue from time-and-materials contracts is recognized as
time is incurred. Net revenue excludes reimbursable expenses charged to
clients.
The Company periodically evaluates cost and revenue assumptions in fixed-
price contracts. Provisions for estimated losses on uncompleted contracts are
made on a contract by contract basis and are recognized in the period in which
such losses are determined. Most time-and-materials contracts are cancelable by
either the Company or the customer upon 30 days notice, with payment due for
services completed through the date of termination.
Deferred revenue is recorded on contracts to reflect billings in excess of
revenue recognized. Unbilled services on contracts are comprised of costs plus
earnings in excess of contractual billings on such contracts and unbilled
amounts earned on time-and-materials contracts. Unbilled accounts receivable
were approximately $164,000, $1,546,000, and $758,000 December 31, 1998 and
1999 and June 30, 2000, respectively.
(b) Unaudited Interim Financial Statements
The unaudited balance sheet as of June 30, 2000, the unaudited statements of
operations, changes in stockholders' equity and comprehensive income and cash
flows for the six months ended June 30, 1999 and 2000 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year.
(c) Cash Equivalents
Highly liquid investments having original maturities of 90 days or less at
the date of acquisition are classified as cash equivalents. The carrying values
of cash equivalents approximate fair value.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
related assets ranging from three to five years. Leasehold
F-8
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
improvements are amortized on a straight-line method over the shorter of the
improvements' estimated useful lives or related remaining lease terms. Long-
lived assets held and used by the Company are reviewed for impairment whenever
changes in circumstances indicate the carrying value of an asset may not be
recoverable.
(e) Investments
Investment securities at December 31, 1998 and 1999, and June 30, 2000
consist of mutual funds investing in U.S. government and government-backed
securities or equity securities and common stocks. The Company classifies its
mutual fund investments and equity securities as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses, net of the related income taxes, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of other comprehensive income until realized. Realized gains and losses from
the sale of available-for-sale securities are determined on an average cost
basis.
A decline in the market value of any available-for-sale security to below
cost that is deemed to be other than temporary is charged to earnings and a new
cost basis for the security is established. Premiums and discounts are
amortized or accreted over the life of the related available-for-sale security
as an adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, in accounting for
its stock-based compensation plans. As such, compensation expense would be
recorded only if the current fair value of the underlying stock exceeded the
exercise price on the date of grant. Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure requirements of SFAS
No. 123.
F-9
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(h) Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses approximates fair value
because of the short-term nature of these instruments. The fair value of
investments is estimated based on quoted market prices for these or similar
investments.
(i) Concentration of Credit Risk
For the year ended December 31, 1997, two customers individually represented
33.0% and 11.4% of the Company's revenues. For the year ended December 31,
1998, one customer individually represented 38.4% of the Company's revenue. For
the year ended December 31, 1999, two customers individually represented 32.3%
and 10.1% of the Company's revenue. For the six months ended June 30, 1999, two
customers individually represented 33.4% and 11.0% of the Company's revenue.
For the six months ended June 30, 2000, two customers individually represented
27.1% and 20.4% of the Company's revenue.
At December 31, 1998, one customer individually represented 44.4% of the
Company's accounts receivable. At December 31, 1999, one customer individually
represented 34.4% of the Company's accounts receivable. At June 30, 2000, two
customers individually represented 24.6% and 20.5% of the Company's accounts
receivable.
The Company performs initial credit evaluations of its new customers and
generally does not require collateral from its customers. The Company maintains
an allowance for potential losses when identified. In the year ended December
31, 1999, the Company specifically provided an allowance of approximately
$713,000 representing the outstanding receivable balance due from a significant
customer which declared bankruptcy in February 2000.
(j) Net Income Per Share
Basic net income per common share is based on the weighted average number of
shares of common stock outstanding during each year. Diluted net income per
common share is based on the weighted average number of shares of common stock
outstanding during each year, adjusted for the effect of common stock
equivalents arising from the assumed exercise of stock options, if dilutive
(see note 10).
(k) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
F-10
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(2) Investments
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value of available-for-sale securities by underlying major
security type at December 31, 1998 and 1999 and June 30, 2000 were as follows
(in thousands):
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
At December 31, 1998
--------------------
Common stocks and mutual funds
holding primarily equity
securities....................... $1,590 579 -- 2,169
Mutual funds holding U.S.
government and government-backed
securities....................... 972 23 -- 995
------ ----- --- -----
$2,562 602 -- 3,164
====== ===== === =====
At December 31, 1999
--------------------
Common stocks and mutual funds
holding primarily equity
securities....................... $1,903 1,147 -- 3,050
Mutual funds holding U.S.
government and government-backed
securities....................... 1,315 -- 104 1,211
------ ----- --- -----
$3,218 1,147 104 4,261
====== ===== === =====
At June 30, 2000
----------------
Common stocks and mutual funds
holding primarily equity
securities....................... $2,528 464 -- 2,992
Mutual funds holding U.S.
government and government-backed
securities....................... 1,350 -- 96 1,254
------ ----- --- -----
$3,878 464 96 4,246
====== ===== === =====
</TABLE>
Proceeds from the sale of investment securities available for sale were
approximately $1,191,000, $879,000 and $712,000 in 1997, 1998 and 1999,
respectively, and $1,529,000 for the six months ended June 30, 2000. Related
realized gains included in income in 1997, 1998 and 1999, and in the six months
ended June 30, 2000 were $145,000, $93,000, $505,000, and $599,000
respectively.
(3) Property and Equipment
Property and equipment at December 31, 1998 and 1999 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -----
<S> <C> <C>
Computer hardware.............................................. $1,056 1,448
Computer software.............................................. 125 197
Furniture and fixtures......................................... 378 408
Office equipment............................................... 249 288
Leasehold improvements......................................... 95 164
------ -----
1,903 2,505
Less accumulated depreciation and amortization................. 658 1,170
------ -----
Net property and equipment................................... $1,245 1,335
====== =====
</TABLE>
F-11
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(4) Accrued Expenses
Accrued expenses at December 31, 1998 and 1999 and June 30, 2000, consists
of the following (in thousands):
<TABLE>
<CAPTION>
December 31
------------ June 30
1998 1999 2000
------ ----- -------
<S> <C> <C> <C>
Accrued payroll............................................ $ 622 735 1,088
Accrued vacation........................................... 333 494 818
Accrued retirement contribution............................ 336 488 357
Other...................................................... 122 331 810
------ ----- -----
$1,413 2,048 3,073
====== ===== =====
</TABLE>
(5) Note Payable--Bank
At December 31, 1999, the Company had a $2.0 million revolving line of
credit with a bank. Interest is payable monthly at a rate equal to, at the
Company's election, either (a) the greater of the bank's prime rate and the
average rate for ninety-day commercial paper, or (b) the one month London
Interbank Offered Rate plus 2.5% (8.32% at December 31, 1999). The line of
credit is subject to renewal each September and amounts borrowed under the line
of credit are payable on demand. $193,000 of borrowings were outstanding at
December 31, 1998 and no borrowings were outstanding under the line of credit
as of December 31, 1999. There are no commitment fees under this line of
credit.
Interest expense was approximately $3,000, $21,000, and $11,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
(6) Retirement Plan
The Company's defined contribution retirement plan covers substantially all
employees and qualifies under Section 401(k) of the Internal Revenue Code.
Eligible employees may defer up to fifteen percent of their compensation
subject to applicable limits. Participants are fully vested in their
contributions to the plan.
The Company, at its discretion, is permitted to make profit sharing
contributions and employer matching contributions up to six percent of employee
compensation.
After becoming eligible for the Plan, employer-matching contributions are
vested as follows:
<TABLE>
<CAPTION>
Years of Percent
service vested
-------- -------
<S> <C>
2................................................................... 20%
3................................................................... 40%
4................................................................... 60%
5................................................................... 80%
6................................................................... 100%
</TABLE>
Company contributions to the Plan for the years ended December 31, 1997,
1998 and 1999 were approximately $356,000, $341,000 and $493,000 respectively.
F-12
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(7) Lease Commitments
The Company rents office facilities under operating leases, the last of
which expires in August 2003. These leases require the Company to pay a pro-
rata share of increases in real estate taxes and other building expenses in
excess of the base years' expenses.
Future minimum lease payments as of December 31, 1999 are as follows (in
thousands):
<TABLE>
<S> <C>
2000.................................................................. $ 390
2001.................................................................. 277
2002.................................................................. 244
2003.................................................................. 129
------
$1,040
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $215,000, $341,000 and $557,000, respectively.
(8) Income Taxes
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ----- -----
<S> <C> <C> <C>
Current taxes:
Federal.............................................. $ 988 843 1,665
State................................................ 213 181 389
------ ----- -----
Total current income tax provision................. 1,201 1,024 2,054
------ ----- -----
Deferred taxes:
Federal.............................................. (6) (61) (218)
State................................................ (2) (12) (44)
------ ----- -----
Total deferred income tax benefit.................. (8) (73) (262)
------ ----- -----
Total provision for income taxes................... $1,193 951 1,792
====== ===== =====
</TABLE>
The reconciliation of the Company's income tax provision to the federal
statutory tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ---- -----
<S> <C> <C> <C>
Income tax provision at federal statutory tax rate of
35%................................................. $1,062 871 1,577
State income taxes, net.............................. 145 126 226
Benefit of graduated rates........................... (11) (9) (49)
Nondeductible items and other........................ (3) (37) 38
------ --- -----
Income tax provision............................... $1,193 951 1,792
====== === =====
</TABLE>
F-13
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
Deferred tax assets (liabilities) were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
----- ----
<S> <C> <C>
Assets:
Vacation accrual............................................. $ 129 196
Bad debt expense............................................. -- 139
Other accrued expenses....................................... 3 4
Stock compensation........................................... 30 62
----- ----
Total gross deferred tax assets............................ 162 401
----- ----
Liabilities:
Depreciation................................................. (11) (19)
Unbilled service revenue..................................... (30) --
Prepaid expenses and other................................... (4) (3)
Unrealized appreciation on available for sale securities..... (232) (407)
----- ----
Total gross deferred tax liabilities....................... (277) (429)
----- ----
Net deferred tax liability................................. $(115) (28)
===== ====
</TABLE>
The amount of deferred tax benefit of $73,000 and $262,000 at December 31,
1998 and 1999, respectively, differs from the change in deferred tax
liabilities of $(127,000) and $87,000 by $200,000 and $175,000, respectively,
due to the taxes recorded in other comprehensive income (note 11).
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
(9) Stockholders' Equity
(a) Proposed Capital Amendment
On June 2, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of shares of
its common stock. In connection with the planned initial public offering, the
Company intends to effect a 2.3547-for-1 stock split of its common stock. All
references to common shares in the accompanying financial statements and notes
thereto reflect the Company's anticipated stock split, retroactively applied to
all periods presented.
(b) Capital Amendment
In January 1998, the Company established a par value for its common stock of
$.001 per share, and issued the additional shares necessary to effect a 7,750-
for-1 stock split. All references to common stock and stock options in these
financial statements have been adjusted to reflect the 7,750-for-1 stock split
preceeding the proposed stock split discussion in note 9(a).
F-14
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(c) Stock Options
In 1994, the Company adopted a stock option plan (the "1994 Plan") pursuant
to which the Company's Board of Directors granted stock options to officers and
key employees. No additional options will be granted under the 1994 plan. Stock
options issued under the 1994 plan were granted with an exercise price equal to
fair value of the common stock at the date of the grant. The options will cliff
vest at the later of (i) five years from the date of the grant, or (ii) upon
the occurrence of an initial public offering of the Company's stock.
Accordingly, options granted under the 1994 Plan will only be exercisable if an
initial public offering occurs.
In January 1998, the Company adopted a second stock option plan (the "1998
Plan") pursuant to which the Company's Board of Directors may grant stock
options to employees and executive management. The 1998 Plan authorized grants
of options to purchase up to 10,596,150 shares of authorized but unissued
common stock. The 1998 Plan contains an employee component and an executive
management component. The components have the same terms except for the vesting
periods, as follows:
Employee--Fifty percent of the options granted under the Plan will vest
on the date the Company completes a public offering, if prior to December
5, 2007. The remaining fifty percent will vest three years after the date
of the initial public offering. If no initial public offering occurs before
December 5, 2007, the options will expire.
Executive management--Options vest 10% per year from the date of grant.
In the event of an initial public offering, executive management
immediately vests in 50% of its outstanding options. Any remaining unvested
options shall vest three years from the date the Company completes the
initial public offering.
All options expire on February 5, 2008, regardless of whether they have
vested. The options are subject to termination 90 days, after the date of
termination of the employee for any reason other than death or disability,
unless the termination is for cause in which case the options terminate
immediately. No options have been exercised on the 1998 Plan.
In January 1998, the Company issued options to purchase 4,171,455 shares to
certain members of its executive management at an exercise price of $1.88 per
share, which was considered to be below fair value at the time of the grants.
In 1998 and 1999, the Company recorded $153,000 and $167,000, respectively, to
recognize stock compensation expense over the period in which the employees are
providing the related services. At December 31, 1999, there were 3,325,173
options available for grant under the 1998 Plan.
Non-cash stock compensation expense consists of the amortization of deferred
stock compensation related to the vesting of options issued with an exercise
price considered to be below fair value at the time of the grants. All of the
options under the above plans that have not yet vested, will either vest upon
or vest three years after the completion of our initial public offering.
Accordingly, upon completion of the offering contemplated by the prospectus in
which these financial statements are included, the Company expects it would
recognize non-cash stock compensation expense of $24.2 million based on an
assumed offering price of $13.00 per share and the number of options
outstanding as of August 15, 2000 and would recognize an additional $7.1
million of non-cash stock compensation expense annually over the three-year
period following such offering.
F-15
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, compensation cost has been recognized for its stock options in the
financial statements only when the exercise price of the option granted is less
than the fair market value of the Company's common stock on the measurement
date. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SAFS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ----- -----
<S> <C> <C> <C>
Net income:
As reported............................................. $1,840 1,538 2,714
Pro forma............................................... 1,840 1,323 2,433
====== ===== =====
</TABLE>
The per share weighted-average fair value of stock options granted during
1998 under the 1998 Plan was $0.92 on the date of the grant using the Black-
Scholes options-pricing model (excluding a volatility assumption) with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Expected dividend yield.......................................... -- --
Risk free interest rate.......................................... 4.70% 6.55%
Expected life.................................................... 7 7
==== ====
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Number of Weighted-
options-- options-- average
1994 plan 1998 plan Total exercise price
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.. 202,598 -- 202,598 $0.73
Granted................... 126,193 -- 126,193 1.37
Cancellations............. (38,179) -- (38,179) 0.92
------- --------- ---------
Balance at December 31,
1997....................... 290,612 -- 290,612 0.98
Granted................... -- 6,228,207 6,228,207 1.88
Cancellations............. (10,130) (294,392) (304,522) 1.86
------- --------- ---------
Balance at December 31,
1998....................... 280,482 5,933,815 6,214,297 1.84
Granted................... -- 1,917,957 1,917,957 2.36
Cancellations............. -- (580,796) (580,796) 2.20
------- --------- ---------
Balance at December 31,
1999....................... 280,482 7,270,976 7,551,458 1.94
Granted (unaudited)....... -- 859,223 859,223 2.77
Cancellations
(unaudited).............. -- (139,417) (139,417) 2.44
------- --------- ---------
Balance at June 30, 2000
(unaudited)................ 280,482 7,990,782 8,271,264 $2.02
======= ========= ========= =====
Exercisable at December 31,
1999....................... -- 417,145 417,145 $1.88
======= ========= ========= =====
Exercisable at June 30, 2000
(unaudited)................ -- 834,289 834,289 $1.88
======= ========= ========= =====
</TABLE>
F-16
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
The following summarizes information about stock options as of December 31,
1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------- --------------------------------
Number
outstanding Number
at Weighted-average exercisable
Exercise December 31, remaining December 31, Weighted-average
price 1999 contractual life 1999 exercise price
-------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
$.60 76,537 * -- $ --
.82 99,161 * -- --
1.37 104,784 * -- --
1.88 5,740,963 7.08 417,145 1.88
2.36 1,530,013 7.08 -- --
==== --------- ---- ------- -----
7,551,458 7.08 417,145 $1.88
========= ==== ======= =====
</TABLE>
--------
* Options will expire ten years after the Company completes an initial
offering, unless earlier terminated pursuant to the 1994 Plan.
(10) Basic and Diluted Earnings Per Common Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per common share computation for net income:
Basic Net Income Per Common Share
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Six months ended
Year ended June 30,
-------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net income available to common
stockholders........................ $1,840 1,538 2,714 1,473 3,246
====== ====== ====== ======== ========
Basic weighted average shares of
common stock outstanding............ 9,529 9,525 9,525 9,525 9,525
====== ====== ====== ======== ========
Basic net income per common share.... $ 0.19 $ 0.16 $ 0.28 $ 0.15 $ 0.34
====== ====== ====== ======== ========
Diluted Net Income Per Common Share
<CAPTION>
Six months ended
Year ended June 30,
-------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net income available to common
stockholders........................ $1,840 1,538 2,714 1,473 3,246
====== ====== ====== ======== ========
Adjustment of shares outstanding:
Basic weighted average shares of
common stock outstanding............ 9,529 9,525 9,525 9,525 9,525
Incremental shares for options
assumed exercised under common stock
option plans........................ -- 3,229 3,458 3,455 3,467
------ ------ ------ -------- --------
Diluted weighted average shares of
common stock ....................... 9,529 12,754 12,983 12,980 12,992
====== ====== ====== ======== ========
Diluted net income per common share.. $ 0.19 $ 0.12 $ 0.21 $ 0.11 $ 0.25
====== ====== ====== ======== ========
</TABLE>
F-17
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
(11) Comprehensive Income
Components of other comprehensive income for the years ended December 31,
1997, 1998 and 1999 and the six months ended June 30, 1999 and 2000 are as
follows (in thousands):
<TABLE>
<CAPTION>
Tax
Before-tax (expense) Net-of-tax
amount or benefit amount
---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1997
----------------------------
Unrealized holding gains arising during
the period................................ $ 196 (76) 120
Reclassification adjustment for gains re-
alized in net
income.................................... (145) 56 (89)
----- ---- ----
Other comprehensive income.............. $ 51 (20) 31
===== ==== ====
Year ended December 31, 1998
----------------------------
Unrealized holding gains arising during
the period................................ $ 611 (235) 376
Reclassification adjustment for gains re-
alized in net
income.................................... (93) 35 (58)
----- ---- ----
Other comprehensive income.............. $ 518 (200) 318
===== ==== ====
Year ended December 31, 1999
----------------------------
Unrealized holding gains arising during
the period................................ $ 954 (372) 582
Reclassification adjustment for gains re-
alized in net
income.................................... (505) 197 (308)
----- ---- ----
Other comprehensive income.............. $ 449 (175) 274
===== ==== ====
Six months ended June 30, 1999
------------------------------
Unrealized holding gains arising during
the period................................ $ 336 (132) 204
Reclassification adjustment for gains re-
alized in net
income.................................... (341) 134 (207)
----- ---- ----
Other comprehensive income (loss)....... $ (5) 2 (3)
===== ==== ====
Six months ended June 30, 2000
------------------------------
Unrealized holding losses arising during
the period................................ $ (9) 4 (5)
Reclassification adjustment for gains re-
alized in net
income.................................... (599) 184 (415)
----- ---- ----
Other comprehensive income (loss)....... $(608) 188 (420)
===== ==== ====
</TABLE>
(12) Subsequent Events
2000 Equity Incentive Plan
Before the closing of the Company's initial public offering, the Company
plans to adopt a new equity incentive plan ("2000 Equity Incentive Plan").
Under the 2000 Equity Incentive Plan, the Company may grant options for an
amount equal to 30% of our outstanding common stock from time to time, plus
shares ungranted or unused under the Company's 1998 option plan. The options
can either be "nonqualified" stock options or "incentive" stock options. A
provision may allow participants to receive direct shares of stock to satisfy
the
F-18
<PAGE>
RDA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(Information as to June 30, 1999 and 2000 is unaudited)
Company's obligations under deferred compensation arrangements or under senior
bonus plans. The Company expects all of its employees and directors to be
potentially eligible to receive options under the 2000 Equity Incentive Plan.
The Company is able to amend or terminate the 2000 Equity Incentive Plan, once
adopted, without stockholder consent, except as the tax laws require otherwise.
Employee Stock Purchase Plan
Before the closing of the Company's initial public offering, the Company
plans to adopt a new employee stock purchase plan. All of the Company's
employees will be eligible to participate in the employee stock purchase plan
subject to waiting period and employee ownership holdings. Employees' benefits
will vary depending upon level of participation. The initial exercise price for
options under the employee stock purchase plan is expected to be 85% of the
lesser of the fair market value of the common stock as of the first day and
last day of the payroll deduction period. The Board of Directors may amend or
terminate the employee stock purchase plan at any time, subject to stockholder
approval.
F-19
<PAGE>
INSIDE BACK COVER OF PROSPECTUS
[graphic consisting of RDA Logo]
[Custom Software Solutions that Mean Business]
[Within the circle diagram depicting RDA's phases appears the following text
identifying each phase:]
Idea/Need
Analysis
Design
Construction
Quality Assurance
Deployment
[Outside the circle diagram appears the following text identifying work
products that signify the completion of each phase:]
Vision/Scope
System Specification
Architecture Defined
Code Complete
System Verified
Release
[Pointing to each phase in the circle diagram appear block diagrams containing
text detailing actions performed in each phase:]
[For Idea/Need, the following text:]
Understand business problem
Define client's business objectives
Justify project
Identify constraints on project
Identify and mitigate risks
Form project team
[For Analysis, the following text:]
Determine the solution
o Define current business processes
o Design new and improved processes
o Describe user interaction
with system
o Avoid surprises when system is deployed
Define approach for testing and user education
Identify and mitigate risks
Define detailed steps for project team
Project a deployment date
Estimate and budget resources
[For Design, the following text:]
Design the structure of the system
o Design the system components
o Select third-party products
Validate the architecture of the system
Design the user education
Identify and mitigate risks
Prepare for construction
[For Construction, the following text:]
Build system
o Try to reduce maintenance costs
Develop system tests
Develop user education
Identify and mitigate risks
Prepare for system tests
[For Quality Assurance, the following text:]
Verify that system:
o solves the business problem
o performs as specified
o will perform in production environment
Package the system
Identify and mitigate risks
Prepare for deployment
[For Deployment, the following text:]
Install system in the production environment
o Bring new system to operational level
Educate and train users
Transition users to new system
Identify and mitigate risks
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the approximate amount of fees and expenses,
other than the underwriting discounts and commissions, payable by the
Registrant in connection with the issuance and distribution of the common stock
pursuant to the prospectus contained in this registration statement. All
amounts shown are estimates, except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee. Registrant will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 17,002
NASD filing fee.................................................. 6,940
Nasdaq National Market listing fee............................... 87,000
Accountants' fees and expenses................................... 230,000
Legal fees and expenses.......................................... 240,000
Blue Sky Fees and Expenses....................................... 15,000
Transfer agent and registrar fees and expenses................... 12,000
Printing and engraving expenses.................................. 250,000
Miscellaneous expenses........................................... 92,058
--------
Total.......................................................... $950,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
As of the closing of this offering, the Registrant's bylaws will provide
that the Registrant shall indemnify its directors and officers, as well as
other persons who were serving at the Registrant's request as a director,
officer, employee, partner or agent of another entity, to the fullest extent
authorized by the Delaware General Corporation Law and may indemnify other
persons to the same extent, except that the Registrant shall not be obligated
to indemnify any such person with respect to any proceedings, claims or actions
(or parts thereof) which were initiated or brought voluntarily by any such
person and were not authorized by the Registrant's Board of Directors. The
indemnification provided under the Registrant's bylaws shall also include the
right to be paid by the Registrant the expenses (including attorneys' fees) in
advance of any proceeding for which indemnification may be had in advance of
its final disposition, provided that the payment of such expenses (including
attorneys' fees) incurred by a director or officer in advance of the final
disposition of a proceeding, if and to the extent required under the Delaware
General Corporation Law, may be made only upon delivery to the Registrant of an
undertaking by or on behalf of the director or officer to repay all amounts so
paid in advance if it is ultimately determined that the director or officer is
not entitled to be indemnified. Pursuant to the Registrant's bylaws, if a claim
for indemnification is not paid by the Registrant within 60 days after a
written claim has been received by the Registrant, the claimant may at any time
thereafter bring an action against the Registrant to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant will be
entitled to be paid also the expense of prosecuting the action.
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation will as of the closing of this offering provide
that directors of the Registrant shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Registrant or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, as the same
exists or may hereafter be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. As a result of this provision,
the Registrant and its stockholders may be unable to obtain monetary damages
from a director for breach of his or her duty of care.
II-1
<PAGE>
As of the closing of this offering, the Registrant will have the power
under its bylaws to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Registrant, or is
or was serving at the request of the Registrant as a director, officer,
employee, partner (limited or general), manager, trustee or agent of another
corporation or of a partnership, joint venture, limited liability company,
trust or other enterprise, against any liability asserted against the person
or incurred by the person in any such capacity, or arising out of the person's
status as such, and related expenses, whether or not the Registrant would have
the power to indemnify the person against such liability under the provisions
of the Delaware General Corporation Law. The Registrant intends to purchase
director and officer liability insurance on behalf of its directors and
officers as of the closing of this offering.
Reference is made to Section 145 of the Delaware General Corporation Law
which provides for indemnification of directors and officers in certain
circumstances.
The Underwriting Agreement provides that the underwriters are obligated,
under specified circumstances, to indemnify directors, officers and
controlling persons of the Registrant against specified liabilities, including
liabilities under the Securities Act of 1933, as amended. Reference is made to
the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities.
The Registrant has issued and sold the following unregistered securities
during the last three fiscal years:
The Registrant, from time to time, has granted options to acquire common
stock of the Registrant to employees and members of its board of directors.
The following table sets forth certain information regarding such grants
(assuming completion of the Company's proposed 2.3547-for-1 split of its
common stock):
<TABLE>
<CAPTION>
Range of
Exercise
Number of Shares Prices
---------------- --------
<S> <C> <C>
1997............................................. 126,193 $1.37
1998............................................. 6,228,207 $1.88
1999............................................. 1,917,957 $2.36
</TABLE>
The sale and issuance of securities in the transactions described above
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act, Rule 701 or Regulation D promulgated thereunder.
No underwriters were employed in the above transactions.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed upon or prior to the closing of this offering
3.2** Form of Amended Bylaws of the Registrant to be effective upon or prior
to the closing of this offering
4.1** Specimen stock certificate representing Common Stock
5.1* Opinion of Wilmer, Cutler & Pickering as to the legality of the
securities being registered (including consent)
10.1** Employment agreement by and between RDA Corporation and R. Donald
Awalt, dated August 21, 2000.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2** Employment agreement by and between RDA Consultants Limited and
William E. Ambrose, dated January 21, 1998.
10.3** Employment agreement by and between RDA Consultants Limited and Jay M.
Basen, dated January 21, 1998.
10.4** Employment agreement by and between RDA Consultants Limited and
Stephen F. Kupres, dated January 21, 1998.
10.5** Employment agreement by and between RDA Consultants Limited and Steven
N. Landsman, dated January 21, 1998.
10.6** Employment agreement by and between RDA Consultants Limited and Paul
J. Bielski, dated December 30, 1999.
10.7** 1994 RDA Consultants Limited Stock Option Plan and Agreement
10.8** 1998 RDA Consultants Limited Stock Option Plan
10.9** Form of RDA Corporation 2000 Equity Incentive Plan
10.10** Form of RDA Corporation 2000 Employee Stock Purchase Plan
10.11** Form of RDA Corporation Senior Bonus Plan
10.12** Letter agreement by and between R. Donald Awalt and RDA Consultants
Limited, dated December 22, 1998
23.1 Consent of KPMG LLP
23.2* Consent of Wilmer, Cutler & Pickering (contained in its opinion filed
as Exhibit 5.1 hereto)
23.3** Consent of William E. Ambrose to be named as director
23.4** Consent of William C. Hawk to be named as director
23.5** Consent of Stephen F. Kupres to be named as director
23.6** Consent of Steven N. Landsman to be named as director
23.7** Consent of Mel Ray to be named as director
23.8 Consent of Francis A. Contino to be named as a director
27.1** Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules.
Independent Auditor's Report
When the stock split referred to in note 9(a) of the notes to financial
statements of RDA Corporation has been consummated, we will be in a position to
render the following report.
KPMG LLP
The Board of Directors
RDA Corporation:
Under date March 3, 2000 except for note 9(a) which is as of September,
2000, we reported on the balance sheets of RDA Corporation as of December
31,1998 and 1999, and the related statements of operations, stockholders'
equity and comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 1999, which are included in the
prospectus. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule in the
registration statement. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
Baltimore, Maryland
March 3, 2000
Schedule II.
RDA CORPORATION
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Balance At Charged to Balance at
Beginning Costs and End of
of Year Expenses Deductions Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
Allowance for doubtful
accounts $-- -- -- --
1998
Allowance for doubtful
accounts -- -- -- --
1999
Allowance for doubtful
accounts $-- 847 -- 847
=== === === ===
</TABLE>
II-4
<PAGE>
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(2) 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 foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act:
(i) 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 Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(ii) 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre- Effective Amendment No. 2 to the registration
statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Timonium, and State of Maryland on the 17th day
of October, 2000.
RDA Corporation
/s/ R. Donald Awalt
By: _________________________________
Name: R. Donald Awalt
Title: Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 17, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ R. Donald Awalt Chairman of the Board, Chief Executive
______________________________________ Officer and Director (Principal Executive Officer)
R. Donald Awalt
/s/ Stephen F. Kupres Chief Financial Officer, Senior Vice President of
______________________________________ Finance and Assistant Treasurer
Stephen F. Kupres (Principal Financial Officer and Principal Accounting
Officer)
</TABLE>
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed upon or prior to the closing of this offering
3.2** Form of Amended Bylaws of the Registrant to be effective upon or prior
to the closing of this offering
4.1** Specimen stock certificate representing Common Stock
5.1* Opinion of Wilmer, Cutler & Pickering as to the legality of the
securities being registered (including consent)
10.1** Employment agreement by and between RDA Corporation and R. Donald
Awalt, dated August 21, 2000.
10.2** Employment agreement by and between RDA Consultants Limited and
William E. Ambrose, dated January 21, 1998.
10.3** Employment agreement by and between RDA Consultants Limited and Jay M.
Basen, dated January 21, 1998.
10.4** Employment agreement by and between RDA Consultants Limited and
Stephen F. Kupres, dated January 21, 1998.
10.5** Employment agreement by and between RDA Consultants Limited and Steven
N. Landsman, dated January 21, 1998.
10.6** Employment agreement by and between RDA Consultants Limited and Paul
J. Bielski, dated December 30, 1999.
10.7** 1994 RDA Consultants Limited Stock Option Plan and Agreement
10.8** 1998 RDA Consultants Limited Stock Option Plan
10.9** Form of RDA Corporation 2000 Equity Incentive Plan
10.10** Form of RDA Corporation 2000 Employee Stock Purchase Plan
10.11** Form of RDA Corporation Senior Bonus Plan
10.12** Letter agreement by and between R. Donald Awalt and RDA Consultants
Limited, dated December 22, 1998
23.1 Consent of KPMG LLP
23.2* Consent of Wilmer, Cutler & Pickering (contained in its opinion filed
as Exhibit 5.1 hereto)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.3** Consent of William E. Ambrose to be named as director
23.4** Consent of William C. Hawk to be named as director
23.5** Consent of Stephen F. Kupres to be named as director
23.6** Consent of Steven N. Landsman to be named as director
23.7** Consent of Mel Ray to be named as director
23.8 Consent of Francis A. Contino to be named as director
27.1** Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
