As filed with the Securities and Exchange Commission on March 6,
2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
BRAUN CONSULTING, INC.
(Exact name of registrant as specified in its
charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
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7379
(Primary Standard Industrial
Classification Code Number)
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36-3702425
(I.R.S. Employer
Identification No.)
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30 West Monroe, Suite 300
Chicago, Illinois 60603
(312) 984-7000
(Address, including zip code, and telephone
number,
including area code, of registrants principal executive
offices)
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Gregory A.
Ostendorf
General Counsel and Secretary
30 West Monroe, Suite 300
Chicago, Illinois 60603
(312) 984-7000
(Name, address, including zip code, and telephone
number,
including area code, of agent for service)
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Copies to:
Marcus A.
Watts
Locke Liddell & Sapp LLP
3400 Chase Tower
Houston, Texas 77002
(713) 226-1200
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Jeffrey A.
Schumacher
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
(312) 207-1000
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
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 the earlier effective
registration statement for the same offering. ¨
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ¨
If 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
Title of Each Class of
Securities to be Registered |
|
Amount
to be
Registered (1) |
|
Proposed Maximum
Offering Price
Per Share (2) |
|
Proposed Maximum
Aggregate
Offering Price (1)(2) |
|
Amount of
Registration
Fee |
|
Common Stock, par value
$0.001 per share |
|
4,600,000 |
|
$57.125 |
|
$262,775,000 |
|
$69,373 |
|
(1)
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Includes 600,000 shares
which the underwriters have the option to purchase to cover
over-allotments of shares. See Underwriting.
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(2)
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Estimated solely for the
purpose of calculating the registration fee in accordance with Rule 457(c)
based on the average high and low sale prices on March 2, 2000 as reported
on the Nasdaq National Market.
|
The
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
SUBJECT TO COMPLETION,
DATED MARCH 6, 2000
PROSPECTUS
4,000,000 Shares
[LOGO OF bRAUN CONSULTING APPEARS HERE]
Common Stock
$ per share
We are
selling 2,400,000 shares of our common stock and the selling stockholders
named in this prospectus are selling 1,600,000 shares. We will not receive
any proceeds from the sale of the shares by the selling stockholders. The
underwriters named in this prospectus may purchase up to 600,000 additional
shares of common stock from us and the selling stockholders to cover
over-allotments.
Our
common stock is quoted on the Nasdaq National Market under the symbol
BRNC. The last reported sale price of our common stock on the
Nasdaq National Market on March 3, 2000, was $59.25 per share.
Investing in our common stock involves certain risks. See
Risk Factors beginning on page 8.
Neither
the Securities and Exchange Commission nor any state securities commission
has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Per Share
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Total
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Public Offering
Price |
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$ |
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$
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Underwriting
Discount |
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$ |
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$
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Proceeds to Braun
Consulting (before expenses) |
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$ |
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$
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Proceeds to Selling
Stockholders (before expenses) |
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$ |
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$
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The
underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
Salomon Smith Barney
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Deutsche Banc Alex.
Brown
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Adams, Harkness &
Hill, Inc.
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,
2000
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 is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
[LOGO OF BRAUN CONSULTING]
Braun
Consulting is a provider of a new category of professional services called
eSolutions. Our eSolutions integrate strategy, customer information and the
Internet to help clients succeed in electronic commerce, enhance
relationships with customers and increase revenues.
You
should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of
this prospectus.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by
forward-looking words such as may, will,
expect, anticipate, believe,
estimate, plan, intend and continue
or similar words. You should read statements that contain these words
carefully because they discuss our future expectations, contain projections
of our future results of operations or of our financial condition or state
other forward-looking information. This prospectus also contains
third-party estimates regarding the size and growth of markets and Internet
usage in general.
You
should not place undue reliance on these forward-looking statements. The
sections captioned Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations,
as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations.
Although
we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus or to conform
these statements to actual results or to changes in our expectations, except
with respect to material developments related to previously disclosed
information.
This
summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please
read this entire prospectus carefully.
OUR
COMPANY
Braun
Consulting is an Internet professional services provider delivering
comprehensive business solutions to clients. Our service approach combines
strategy, advanced Internet application development skills and information
technology. We identify these comprehensive business solutions as
eSolutions. Our eSolutions are designed to help clients enable
electronic commerce, improve customer relationships, drive revenue growth
and provide a measurable return on their investments. Through our
proprietary project management approach, we provide services to our Fortune
500 and middle-market clients to help them achieve competitive advantage in
changing markets.
The rapid
adoption of the Internet is transforming the business marketplace and
accelerating the shift toward electronic commerce, including both
business-to-business and business-to-consumer applications. According to
International Data Corporation, the demand by businesses for
Internet-related professional services will grow to $78.6 billion by 2003.
We help clients identify opportunities and transform their businesses by
combining our skills and expertise in the following areas:
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creating business and
Internet strategies focused on a clients customers to improve
relationships and interactions with a clients most profitable
customers;
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using customer
relationship management and data warehousing capabilities through the
Internet to sustain a clients revenue growth and enhance the
profitability of its products and services; and
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developing Internet,
intranet and extranet applications that enable a clients electronic
commerce and facilitate the broad and immediate distribution of
information.
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Customer
relationship management is the process of capitalizing on information
relative to the preferences, buying patterns and other attributes of our
clients customers. Data warehousing involves the collection and
organization of data from disparate sources and data warehouses make that
data available for reporting and analysis. Customer relationship management
and data warehousing are part of a larger information technology concept
known as business intelligence. Business intelligence is the collection and
analysis of business and customer information through the Internet and from
other sources, which is then used by business managers to make strategic
decisions.
By
integrating our business intelligence experience with our ability to develop
business strategies and Internet applications for our clients, we are well
positioned to provide comprehensive Internet professional services. Since
1993, we have provided services to more than 240 companies, including
Ameren, Ameritech, AT&T, BidBuyBuild.com, Chase, Cintas, Cummins Engine,
Eaton, Eli Lilly, Embratel, General Electric, Motorola, Pharmacia &
Upjohn, Ralston Purina, The CIT Group, Thomson Consumer Electronics, TMP
Worldwide (Monster.com owner) and Xerox.
OUR
BUSINESS
STRATEGY
Turbulence and changes in previously established markets, which can
result from innovation, globalization, deregulation or emerging
technologies, provide tremendous opportunities for organizations that are
insightful and focused on their customers. In the new millennium, businesses
working to attain competitive advantage in changing markets will be forced
to use Web-based business approaches and efficient management of business
and customer information. The Internet combined with strategies focused on
customers and business intelligence will enable a new era of
business.
We
believe clients dependent upon business and customer information and
effective use of the Internet will purchase Internet professional services
from qualified and proven providers. Our services are based on the
integration of the following:
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our Transform
methodology, which is our proprietary project management approach,
specifically designed to deliver comprehensive Internet professional
services;
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experience in working with
business and customer information, with an emphasis on customer
relationship management applications and data warehousing;
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development of
customer-focused and Internet business strategies; and
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development and
integration of Web-based technologies, including Internet, intranet and
extranet applications.
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The
execution of our business strategy subjects us to risk. For example, we
operate in a competitive industry, and many of the larger competitors in our
industry have greater financial resources, larger client bases and greater
brand or name recognition than us. Our success and growth depend on our
ability to increase our client engagements and to continue recruiting and
retaining qualified professionals to meet client demand. Our ability to
retain our senior management team is crucial to our success. Upon completion
of this offering, our directors, executive officers and their affiliates
will beneficially own, in the aggregate, 55.3% of our outstanding common
stock.
OUR
GROWTH
STRATEGY
Our goal
is to continue our growth by capitalizing on our position as a provider of
Internet professional services. Our strategies for achieving this objective
include:
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expanding our existing
client relationships and maintaining a reputation for delivering
innovative Internet professional services and providing client
satisfaction that helps attract new clients;
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maintaining our culture by
attracting qualified professionals and retaining them with our training
curriculum and our focus on leading-edge technologies, professional
development programs, incentive-based compensation and a balanced
lifestyle;
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capitalizing on our
infrastructure, which includes an experienced senior management team, a
business development group and our proprietary Transform
Methodology and database; and
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pursuing strategic
acquisitions, such as the acquisition of Emerging Technologies
Consultants, Inc., known as ETCI, described below, to expand our expertise
in new technologies, gain access to additional talented professionals,
expand our geographic presence and increase our client base.
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THE
OFFERING
Common stock offered by
Braun Consulting |
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2,400,000 shares |
Common stock offered by
the Selling Stockholders |
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1,600,000 shares |
Common stock to be
outstanding after this offering |
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19,530,783 shares (1) |
Use of proceeds |
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The net proceeds from this offering are
estimated to be
approximately $134 million. We will use the net proceeds for: |
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possible strategic acquisitions; and |
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working capital and other general corporate
purposes. |
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Nasdaq National Market
symbol |
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BRNC |
Unless
stated otherwise, the information contained in this prospectus (i) gives
effect to the acquisition of all of the capital stock of ETCI and (ii)
assumes that the underwriters over-allotment option is not
exercised.
(1)
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The number of shares of
common stock to be outstanding is as of December 31, 1999 and excludes (i)
options outstanding as of December 31, 1999 to purchase 2,662,260 shares
of common stock at a weighted average exercise price of $5.75 per share
and (ii) 1,615,759 shares of common stock reserved as of December 31, 1999
for issuance upon exercise of options that may be granted in the future
under our stock plans. See ManagementStock Plans.
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RECENT
DEVELOPMENTS
Since our
initial public offering in August 1999, we have experienced the following
significant developments in our business:
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ETCI. In December 1999,
we acquired Emerging Technologies Consultants, Inc. by exchanging cash and
our common stock with a value of approximately $27.0 million. ETCI
provides specialized customer relationship management consulting services,
and has offices in Mount Laurel, New Jersey and Reston, Virginia. We
accounted for this transaction using the purchase method of
accounting.
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New Senior Vice
President and Vice President. In March 2000, we hired Claudia Imhoff,
Ph.D. as a Senior Vice President. Dr. Imhoff has 13 years of experience in
business intelligence and data warehousing. Dr. Imhoff will focus on the
development of intellectual capital and industry marketing. In January
2000, we hired Lou Rubino as Vice President of Employment. Mr. Rubino has
over 15 years of recruiting management and human resources experience. Mr.
Rubino will focus on continuing to expand our recruiting efforts to
support our growth through the development of new recruiting programs that
attract and retain qualified professionals. In connection with the hiring
of these and other employees in the first quarter of 2000, we expect to
record increased stock compensation expense of approximately $1.0 million
for the quarter.
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Clients. We have added
numerous new clients, including the following:
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BidBuyBuild.com
Charles Schwab
Cintas
Eisai
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General
Electric
General Motors
Omnova
Retail.com
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CORPORATE
INFORMATION
Braun
Consulting, Inc. was incorporated as RNW, Inc. on April 20, 1990. In May
1993, RNW, Inc. changed its name to Shepro Braun Consulting, Inc., and
subsequently changed its name to Braun Consulting, Inc. We reincorporated in
Delaware on August 3, 1999. References in this prospectus to Braun
Consulting, we, our and us refer
to Braun Consulting, Inc., a Delaware corporation, and its subsidiaries and
predecessors. Braun Consultings principal executive offices are
located at 30 West Monroe, Suite 300, Chicago, Illinois, 60603, and our
telephone number is (312) 984-7000. We invite you to visit our Internet site
at www.braunconsult.com. The information contained on our Internet site is
not incorporated in this prospectus.
SUMMARY
CONSOLIDATED
FINANCIAL
DATA
The
following table summarizes the consolidated financial data for our business.
You should read the following summary consolidated financial data together
with Managements Discussion and Analysis of Financial Condition
and Results of Operations and our Consolidated Financial Statements
and the Notes thereto beginning on page F-1 of this prospectus.
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Years Ended December
31,
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1995
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1996
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1997
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1998
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1999
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(In thousands, except
per share data) |
Statement of
Income Data: |
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Total revenues |
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$8,435 |
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$11,272 |
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$19,508 |
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$27,862 |
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$47,304 |
Operating
income |
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712 |
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1,697 |
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1,859 |
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748 |
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3,945 |
Net income |
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647 |
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1,659 |
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1,635 |
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783 |
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3,039 |
Pro forma net income
(1) |
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358 |
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975 |
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1,014 |
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323 |
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2,020 |
Pro forma earnings per
share (2): |
Basic |
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$ 0.14 |
Diluted |
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0.13 |
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As of December
31, 1999
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Actual
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As Adjusted
(3)
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(In
thousands) |
Balance Sheet
Data: |
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Cash, cash equivalents and
marketable securities |
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$ 9,849 |
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$143,839 |
Total assets |
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53,092 |
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187,082 |
Total debt |
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639 |
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639 |
Stockholders
equity |
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47,986 |
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181,976 |
(1)
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For all periods indicated
prior to July 28, 1999, we operated as an S corporation and were not
subject to federal and certain state income taxes. On July 28, 1999, we
terminated our status as an S corporation and became subject to federal
and state income taxes. Pro forma net income for periods prior to July 28,
1999 reflects federal and state income taxes as if we had not elected S
corporation status for income tax purposes. Pro forma net income for the
period beginning on July 28, 1999 reflects federal and state income taxes
on a basis consistent with other periods.
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(2)
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Pro forma net income per
share for the year ended December 31, 1999 is calculated by dividing pro
forma net income by the weighted average number of common shares
outstanding.
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(3)
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As adjusted reflects the
sale of the shares of common stock offered by this prospectus and after
deducting the underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds from
this offering.
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Before
you invest in our common stock, you should understand that such an
investment involves risk. You should carefully consider these risk factors
as well as all of the other information contained in this prospectus before
you decide to purchase shares of our common stock. If any of the following
risks actually occur, our business, financial condition and operating
results could be adversely affected. In such case, the trading price of our
common stock could decline and you may lose all or part of your
investment.
We face risks arising from our business.
We must recruit and retain qualified professionals to succeed in
our labor-intensive business.
Our
future success depends in large part on our ability to recruit and retain
project and engagement managers, strategists, engineers, and other technical
personnel and sales and marketing professionals. Qualified professionals are
in great demand and are likely to remain a limited resource in the
foreseeable future. Competition for qualified professionals is intense, and
the industry turnover rate for them is high. Any inability to recruit and
retain a sufficient number of qualified employees could hinder the growth of
our business. Our retention rate was approximately 90% in 1999.
We depend on our senior management team, and the loss of any
member may adversely affect our business.
We
believe that our success will depend on the continued employment of our
senior management team. This dependence is particularly important to our
business because personal relationships are a critical element of obtaining
and maintaining client engagements. If one or more members of our senior
management team were unable or unwilling to continue in their present
positions, such persons would be difficult to replace and our business could
be seriously harmed. Accordingly, the loss of one or more members of our
senior management team could impact our future revenues. In addition, if any
of these key employees joins a competitor or forms a competing company, some
of our clients might choose to use the services of that competitor or new
company instead of our own. Furthermore, clients or other companies seeking
to develop in-house capabilities may hire away some of our key employees.
Employee defections to clients would not only result in the loss of key
employees but could also result in the loss of a client relationship or a
new business opportunity. Any losses of client relationships could seriously
harm our business.
We may not realize benefits from our acquisitions of Vertex
Partners and ETCI.
We
acquired Vertex Partners on May 4, 1999. Vertex Partners is a professional
services provider that designs and implements strategies focused on its
clients customers. On December 2, 1999, we acquired ETCI. ETCI
provides specialized consulting services for the implementation of customer
relationship management systems. Achieving the expected benefits of our
acquisitions will depend in part on the integration of our technology,
operations and personnel in a timely and efficient manner to minimize the
risk that our acquisitions will result in the loss of clients or key
employees and to minimize the diversion of the attention of management.
Among the challenges involved in this integration is demonstrating to our
clients that our acquisitions will not result in adverse changes in client
service standards or business focus and demonstrating to our personnel that
our business cultures are compatible. There can be no assurance that we can
successfully integrate the businesses of Vertex Partners and ETCI or that
any of the anticipated benefits will be realized, and failure to do so could
seriously harm our business.
Potential future acquisitions could be difficult to integrate and
adversely affect our operating results.
One of
our strategies for growth is the acquisition of businesses. Currently, we do
not have any acquisitions pending. We may not be able to find and consummate
acquisitions on terms and conditions reasonably acceptable to us. The
acquisitions we do undertake may involve a number of special risks,
including:
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diversion of management
s attention;
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potential failure to
retain key acquired personnel;
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assumptions of
unanticipated legal liabilities and other problems;
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difficulties integrating
systems, operations and cultures; and
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amortization of acquired
intangible assets.
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Our
failure to successfully manage future acquisitions could seriously harm our
operating results.
Our expenses may increase more rapidly than our revenues, and we
may incur net losses.
In 1999,
our revenues increased 69.8% and the number of our employees and key
executives increased 51.7%. In 1999, our net income increased to $3.0
million from $783,000 in 1998. If our expenses increase more rapidly than
our revenues, we may incur net losses. In addition, our growth may place a
significant strain on our management and our operating and financial
systems, and our business will be harmed if our management and our systems
cannot manage our growth in a timely manner.
We have relied and expect to continue to rely on a limited number
of clients for a significant portion of our revenues.
We
currently derive and expect to continue to derive a significant portion of
our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship
with us, our revenues could decline substantially. As a result, the loss of
any significant client could seriously harm our business. In 1999, our ten
largest clients generated approximately 56% of our revenues, with Pharmacia
& Upjohn accounting for 24.4% of our revenues. The volume of work that
we perform for a specific client is likely to vary from year to year, and a
significant client in one year may not use our services in a subsequent
year.
Our failure to meet client expectations could result in losses and
negative publicity.
We
create, implement and maintain eSolutions and other applications that are
often critical to our clients businesses. Any defects or errors in our
eSolutions or other applications or failure to meet clients
expectations could result in:
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delayed or lost revenues
due to adverse client reaction;
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requirements to provide
additional services to a client at no charge;
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negative publicity, which
could damage our reputation and adversely affect our ability to attract or
retain clients; and
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claims for substantial
damages against us, regardless of our responsibility for such
failure.
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While
many of our contracts limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients, we cannot be sure that these contractual provisions will protect us
from liability for damages in the event we are sued. Furthermore, our
general liability insurance coverage may not continue to be available on
reasonable terms or in sufficient amounts to cover one or more large claims,
or the insurer may disclaim coverage as to any future claim. The successful
assertion of any large claim against us could seriously harm our business.
Even if not successful, such claims could result in significant legal and
other costs and may be a distraction to management.
Our lack of long-term contracts with clients reduces the
predictability of our revenues.
Our
clients retain us on an engagement-by-engagement basis, rather than under
long-term contracts. Our operating expenses are relatively fixed and cannot
be reduced on short notice to compensate for unanticipated variations in the
number or size of engagements in progress. These factors make it difficult
for us to predict our
revenues and operating results. Our failure to accurately predict our revenues
may seriously harm our financial condition and results of operations because
we incur costs based on our expectations of future revenues. We may be
retained to design or implement discrete segments of an eSolution rather
than the comprehensive eSolution. Because large client projects may involve
multiple engagements or stages, there is a risk that a client may choose not
to retain us for additional stages of a project or that the client will
cancel or delay additional planned projects. Such cancellations or delays
could result from factors unrelated to our work product or the progress of
the project, but could be related to general business or financial
conditions of the client. During 1999, none of our engagements were canceled
or reduced in scope.
A reduction in or the termination of our services could lead to
underutilization of our employees and could harm our operating
results.
Our
existing clients can generally reduce the scope of or cancel their use of
our services without penalty and with little or no notice. If a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, we must be able to rapidly redeploy our
employees to other engagements in order to minimize underutilization of our
employees and the resulting harm to our operating results.
We may lose money on fixed-price contracts.
Approximately 43% of our consulting services revenues in 1999 were
derived from fixed-price contracts. If we miscalculate the resources or time
we need to complete fixed-price engagements, our operating results could be
seriously harmed. The risk that such miscalculations will occur is high
because we work with complex technologies in compressed time
frames.
Special risks presented by international factors could negatively
affect our business.
Our
international engagements are subject to a variety of risks that could
seriously harm our financial condition and operating results. These risks
include the following:
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the impact of recessions
in economies outside the United States;
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unexpected changes in
regulatory requirements;
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reduced protection for
intellectual property and proprietary rights in some
countries;
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seasonal reductions in
business activity in certain parts of the world; and
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enforceability and
collectability of contract obligations.
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We may not be able to protect our confidential information and
proprietary rights.
While our
employees execute confidentiality agreements, we cannot guarantee that this
will be adequate to deter misappropriation of our confidential information.
In addition, we may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our rights. If
third parties infringe or misappropriate our copyrights, trademarks or other
proprietary information, our business could be seriously harmed. In
addition, other parties may assert infringement claims against us or claim
that we have violated their intellectual property rights. Such claims, even
if not true, could result in significant legal and other costs and may be a
distraction to management. Our copyright, trademark and proprietary
information rights include our proprietary project management approach which
we call our Transform methodology, our training materials, our name,
our business processes, our personnel information and our business
strategies.
The eSolutions market subjects us to
risks.
Our growth could be impacted by the development of the market for
eSolutions.
We
believe that the market developing for eSolutions is distinct from
traditional information technology and systems integration services markets,
which requires a different set of skills and capabilities. In contrast to
traditional information technology and systems integration services,
eSolutions combine Internet application development skills with business
intelligence and strategy focused on the clients customers. We cannot
be certain that the market for eSolutions will be sustainable. If the market
for our eSolutions is not sustainable, our growth could be negatively
affected. Even if the eSolutions market continues to develop, we may not be
able to differentiate our services from those of our competitors. If we do
not differentiate our services, our revenue growth and operating margins may
decline.
Our business will be harmed if the growth of commerce on the
Internet is slower than expected.
If
commerce on the Internet does not continue to grow, or grows more slowly
than expected, our growth would decline and our business would be harmed.
The widespread acceptance and adoption of the Internet for conducting
business is likely only in the event that the Internet provides businesses
with greater efficiencies and operating improvements.
Competition could result in price reductions, reduced
profitability and loss of market share.
Competition in the eSolutions market and its component markets is
intense. If we fail to compete successfully, our business could be seriously
harmed. Our current competitors include, and may in the future include, the
following:
|
|
emerging Web consulting
firms such as Agency.com, Proxicom, Razorfish, Scient, USWeb/CKS and
Viant, which are focused on Internet-based, electronic business and
digital business solutions;
|
|
|
systems integrators such
as Andersen Consulting, Cambridge Technology Partners, Ernst & Young,
PricewaterhouseCoopers and Sapient;
|
|
|
strategy and management
consulting firms such as Bain, Boston Consulting Group, Diamond Technology
Partners and McKinsey;
|
|
|
regional specialized
information technology firms;
|
|
|
vendor-based services
organizations of companies such as IBM and Oracle; and
|
|
|
internal management and
information technology departments of current and future client
organizations.
|
Many of
our competitors are larger and have greater financial, technical, marketing
and public relations resources, larger client bases and greater brand or
name recognition than us. As a result, our competitors may be better able to
finance acquisitions or internal growth or respond to technological changes
or client needs.
Current
and potential competitors also have established or may establish cooperative
relationships among themselves or with third parties to increase their
ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
Our business will be negatively affected if we do not keep pace
with the latest technological changes and client
preferences.
Our
market and the leading technologies used by our clients are characterized by
rapid technological change. If we are unable to respond successfully to
these technological developments or do not respond in a timely or
cost-effective way, our business and operating results will be seriously
harmed. We have derived a
substantial portion of our revenues from eSolutions based upon the Internet
and other leading information technologies. As a result, our success will
depend, in part, on our ability to offer services that keep pace with
continuing changes in technology, evolving industry standards and changing
client preferences. In addition, we must recruit and retain professionals
who are apprised of technological advances and developments so that they can
fulfill the increasingly sophisticated needs of our clients.
The ownership of our common stock is subject to risks in
connection with this offering.
Our quarterly revenues and operating results could be volatile and
may cause our stock price to fluctuate.
Our
quarterly revenues and operating results may fluctuate significantly in the
future. Our operating results could be volatile and difficult to predict. As
a result, period-to-period comparisons of our operating results may not be a
good indication of our future performance. In addition, operating expenses
may increase in each quarter ending September 30, both on absolute terms and
as a percentage of revenues, due to the potential hiring of large numbers of
recent college graduates each year, which results in increased salary
expenses before these new employees begin to generate substantial
revenues.
A
significant portion of our operating expenses, such as personnel and
facilities costs, are fixed in the short term. We have hired a large number
of personnel in core support services, including technology infrastructure,
recruiting, business development, finance and administration, in order to
support our anticipated growth. Therefore, any failure to generate revenues
according to our expectations in a particular quarter could result in losses
for the quarter. In addition, our future quarterly operating results may not
meet the expectations of securities analysts or investors, which in turn may
have an adverse effect on the market price of our common stock. See
Managements Discussion and Analysis of Financial Condition and
Results of Operations.
Our officers and directors own 55.3% of our stock and could
control matters submitted to stockholders.
Upon
completion of this offering, our directors, executive officers and their
affiliates will beneficially own, in the aggregate, 55.3% of our outstanding
common stock, or 53.4% if the underwriters exercise their over-allotment
option. Steven J. Braun, our President and Chief Executive Officer, will
beneficially own approximately 42.4% of our outstanding common stock, or
40.8% if the underwriters exercise their over-allotment option. As a result,
these stockholders will be able to exercise control over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of Braun Consulting. See Principal and Selling Stockholders.
We have various mechanisms in place that may prevent a change in
control that a stockholder may consider favorable.
Our
certificate of incorporation and bylaws may discourage, delay or prevent a
change in control of Braun Consulting that a stockholder may consider
favorable. Our certificate of incorporation and bylaws:
|
|
authorize the issuance of
blank check preferred stock that could be issued by our board
of directors to increase the number of outstanding shares and thwart a
takeover attempt;
|
|
|
classify the board of
directors with staggered, three-year terms, which may lengthen the time
required to gain control of our board of directors;
|
|
|
prohibit cumulative voting
in the election of directors, which would otherwise allow less than a
majority of stockholders to elect director candidates;
|
|
|
require super-majority
voting to effect amendments to our certificate of incorporation and
bylaws;
|
|
|
limit who may call special
meetings of stockholders;
|
|
|
prohibit stockholder
action by written consent, which requires all actions to be taken at a
meeting of the stockholders;
|
|
|
establish advance notice
requirements for nominating candidates for election to the board of
directors or for proposing matters that can be acted upon by stockholders
at stockholder meetings;
|
|
|
require that vacancies on
the board of directors, including newly-created directorships, be filled
only by a majority of directors then in office; and
|
|
|
provide that directors may
be removed only for cause and only by the affirmative vote of at least
66 2
/3% of the outstanding shares of voting stock voting together as a
single class.
|
In
addition, Section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control of Braun Consulting by
prohibiting a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after
the person becomes an interested stockholder. See Description of
Capital StockDelaware Anti-Takeover Law and Certain Charter Provisions.
Investors will experience immediate and substantial
dilution.
The
public offering price of our common stock is substantially higher than the
book value per share of the outstanding common stock. As a result, if we
were liquidated for book value immediately following this offering, each
stockholder purchasing in this offering would receive $51.24 less than the
price paid for the common stock, based on an assumed public offering price
of $59.25 per share.
Shares becoming available for sale could affect our stock price
and dilute your ownership in us.
Sales of
a substantial number of shares of our common stock, including shares issued
upon the exercise of outstanding options, in the public market after this
offering could cause the market price of our common stock to fall. Such
sales could also impair our ability to raise capital through the sale of
additional equity securities. For a description of the shares of our common
stock that are available for future sale, see Shares Eligible for
Future Sale.
The net
proceeds from the sale of the 2,400,000 shares of common stock offered by us
will be approximately $134 million, based on an assumed public offering
price of $59.25 per share and after deducting the underwriting discounts and
commissions and estimated offering expenses. We will not receive any
proceeds from the sale of common stock by the selling
stockholders.
We expect
to use the net proceeds from this offering for:
|
|
possible strategic
acquisitions; and
|
|
|
working capital and other
general corporate purposes.
|
We
actively seek to acquire businesses. We acquired ETCI on December 2, 1999.
We currently have no other understandings, commitments or agreements to make
any additional acquisitions.
Management will have broad discretion in the allocation of the net
proceeds of this offering. Pending use of the net proceeds of this offering
as described above, we intend to invest the net proceeds in short-term,
investment grade, interest-bearing securities.
We
currently intend to retain our future earnings to finance the operation and
expansion of our business and we do not anticipate paying cash dividends on
our common stock in the foreseeable future. Any future determination as to
the payment of dividends will be at the discretion of our board of
directors.
Prior to
July 28, 1999, we operated as an S corporation and were not subject to
federal and certain state income taxes. As a result, our net income for
federal and state income tax purposes was reported by and taxed directly to
our stockholders. We have made cash distributions to our stockholders in
amounts not exceeding taxes required to be paid on undistributed S
corporation earnings. With the exception of these dividends, we have never
declared or paid any cash dividends on our capital stock.
PRICE RANGE OF COMMON STOCK
Our
common stock has been quoted on the Nasdaq National Market under the symbol
BRNC since our initial public offering on August 10, 1999. Prior to that
time, there had not been a market for our common stock. The following table
shows the high and low per share closing sale prices of our common stock, as
reported on the Nasdaq National Market for the periods
indicated:
1999
|
|
High
|
|
Low
|
Third Quarter (beginning
August 10) |
|
$17.88 |
|
$ 6.63 |
Fourth Quarter |
|
83.50 |
|
13.31 |
|
|
2000
|
First Quarter (through
March 3) |
|
66.50 |
|
35.88 |
On March
3, 2000, the last reported sale price of our common stock on the Nasdaq
National Market was $59.25 As of March 3, 2000, there were approximately 269
holders of record of our common stock.
The
following table presents our cash position and total capitalization as of
December 31, 1999 (i) on an actual basis and (ii) on an as adjusted basis to
reflect the sale of 2,400,000 shares of common stock by us in this offering
at an assumed public offering price of $59.25 per share and the application
of the net proceeds in the manner described in Use of Proceeds.
You should read the following information in connection with our
Consolidated Financial Statements and the Notes thereto beginning on page
F-1 of this prospectus.
|
|
As of
December 31, 1999
|
|
|
Actual
|
|
As
Adjusted
|
|
|
(In thousands, except
share and per share
data) |
Cash, cash equivalents and
marketable securities |
|
$ 9,849 |
|
|
$143,839 |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ 639 |
|
|
$
639 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
Stockholders
equity: |
|
|
|
|
|
|
Preferred stock, $0.001 par value;
10,000,000 shares authorized; none outstanding
(actual and as adjusted) |
|
|
|
|
|
|
Common stock, $0.001 par value;
50,000,000 shares authorized; 17,130,783 shares
outstanding (actual); 19,530,783 shares outstanding (as
adjusted)(1) |
|
$
17 |
|
|
$
20 |
|
Additional paid-in capital |
|
48,041 |
|
|
182,028 |
|
Unearned deferred
compensation |
|
(837 |
) |
|
(837 |
) |
Retained earnings |
|
765 |
|
|
765 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
47,986 |
|
|
181,976 |
|
|
|
|
|
|
|
|
Total capitalization |
|
$47,986 |
|
|
$181,976 |
|
|
|
|
|
|
|
|
(1)
|
The number of shares of
common stock to be outstanding is as of December 31, 1999 and excludes (i)
options outstanding as of December 31, 1999 to purchase 2,662,260 shares
of common stock at a weighted average exercise price of $5.75 per share
and (ii) 1,615,759 shares of common stock reserved as of December 31, 1999
for issuance upon exercise of options that may be granted in the future
under our stock plans. See ManagementStock Plans.
|
As of
December 31, 1999, our net tangible book value (total net tangible assets
less total liabilities) was $22.4 million, or $1.31 per share. Net tangible
book value per share is determined by dividing our net tangible book value
by the number of shares of common stock outstanding. After giving effect to
the sale of the shares of common stock offered in this offering at an
assumed public offering price of $59.25 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses, our
net tangible book value as of December 31, 1999 would have been $156.4
million, or $8.01 per share. This represents an immediate increase in net
tangible book value of $6.70 per share to our stockholders and an immediate
dilution in net tangible book value of $51.24 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
Assumed public offering
price per share |
|
|
|
$59.25 |
|
|
|
|
|
Net tangible book value per share as
of December 31, 1999 |
|
$1.31 |
|
|
Increase in net tangible book value
per share attributable to new stockholders |
|
6.70 |
|
|
|
|
|
|
|
Net tangible book value
per share after this offering |
|
|
|
8.01 |
|
|
|
|
|
Dilution per share to new
stockholders |
|
|
|
$51.24 |
|
|
|
|
|
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
The
following unaudited pro forma consolidated statement of income presents our
consolidated results of operations for the year ended December 31, 1999,
after giving effect to our acquisition of ETCI and the other adjustments
referred to below, in each case as if the transaction had occurred on
January 1, 1999. The pro forma information does not give effect to this
offering. The pro forma information is not necessarily indicative of the
results that would have been achieved, nor is it indicative of our future
results.
|
|
Historical
Braun
Consulting
Year Ended
December 31,
1999
|
|
Historical
ETCI
January 1,
1999 to
November 30,
1999
|
|
Pro Forma
Adjustments
|
|
Pro Forma
Year Ended
December 31,
1999
|
|
|
(In thousands, except
share and per share data) |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
Consulting services |
|
$
44,973 |
|
$ 4,114 |
|
|
|
|
|
$
49,087 |
|
Product sales |
|
2,331 |
|
|
|
|
|
|
|
2,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
47,304 |
|
4,114 |
|
|
|
|
|
51,418 |
|
Cost and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Project personnel and
expenses |
|
24,124 |
|
3,865 |
|
|
$(1,080 |
)(1) |
|
26,909 |
|
Cost of products sold |
|
2,017 |
|
|
|
|
|
|
|
2,017 |
|
Selling and marketing
expenses |
|
3,761 |
|
53 |
|
|
|
|
|
3,814 |
|
General and administrative
expenses |
|
11,948 |
|
790 |
|
|
|
|
|
12,738 |
|
Amortization of intangible
assets |
|
719 |
|
|
|
|
7,909 |
(2) |
|
8,628 |
|
Stock compensation |
|
620 |
|
2,007 |
|
|
(1,620 |
)(1) |
|
1,007 |
|
Merger costs |
|
170 |
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
43,359 |
|
6,715 |
|
|
5,209 |
|
|
55,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss) |
|
3,945 |
|
(2,601 |
) |
|
(5,209 |
) |
|
(3,865 |
) |
Interest income |
|
462 |
|
1 |
|
|
|
|
|
463 |
|
Interest
expense |
|
138 |
|
24 |
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes |
|
4,269 |
|
(2,624 |
) |
|
(5,209 |
) |
|
(3,564 |
) |
Provision for income
taxes |
|
1,230 |
|
|
|
|
|
|
|
1,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$
3,039 |
|
$(2,624 |
) |
|
$(5,209 |
) |
|
$
(4,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma provision
(benefit) for income taxes (3) |
|
2,249 |
|
(1,050 |
) |
|
1,080 |
(1) |
|
2,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
(loss) (3) |
|
$
2,020 |
|
$(1,574 |
) |
|
$(6,289 |
) |
|
$
(5,843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss)
per share (3): |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.14 |
|
|
|
|
|
|
|
$
(0.40 |
) |
Diluted (4) |
|
0.13 |
|
|
|
|
|
|
|
(0.40 |
) |
Weighted average
shares: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
13,979,808 |
|
|
|
|
|
|
|
14,432,030 |
|
Diluted |
|
15,340,809 |
|
|
|
|
|
|
|
15,793,031 |
|
(1)
|
Represents elimination of
a non-recurring compensation charge, and the associated tax effects,
relating to a certain employee arising out of an employment agreement with
ETCI and triggered as a result of the purchase business
combination.
|
(2)
|
Represents 11 months of
amortization expense of the intangible assets resulting from the purchase
business combination of ETCI, at estimated useful lives between 1 and 3
years.
|
(3)
|
For the period indicated
above, ETCI operated as an S corporation and was not subject to federal
and certain state income taxes. Prior to the termination of Braun
Consultings status as an S corporation on July 28, 1999, Braun
Consulting was treated as an S corporation for federal and certain state
income tax purposes. The pro forma information is presented to show what
the significant effects on the historical information might have been had
Braun Consulting and ETCI been treated as a C corporation for tax purposes
throughout the year ended December 31, 1999.
|
(4)
|
The pro forma combined
company is in a net loss position for the period presented. Therefore,
common stock equivalents are not considered in earnings per share-diluted
since their effect is anti-dilutive.
|
SELECTED CONSOLIDATED FINANCIAL DATA
The
following selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto and
Managements Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this prospectus. The
consolidated balance sheet data as of December 31, 1998 and 1999 and the
consolidated statement of income data for the years ended December 31, 1997,
1998 and 1999 have been derived from the Consolidated Financial Statements
included in this prospectus, which have been audited by Deloitte &
Touche LLP, independent auditors. The consolidated balance sheet data as of
December 31, 1997 and the consolidated statement of income data for the year
ended December 31, 1996 have been derived from Consolidated Financial
Statements which are not included in this Prospectus, but have been audited
by Deloitte & Touche LLP, independent auditors. The consolidated balance
sheet data as of December 31, 1995 and 1996 and the consolidated statement
of income data for the year ended December 31, 1995 are derived from the
Consolidated Financial Statements for such years which are unaudited and
which management believes include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation.
|
|
Years Ended December
31,
|
|
|
1995
|
|
1996
|
|
1997
|
|
1998
|
|
1999
|
|
|
(In thousands, except
per share data) |
Statement of Income
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services |
|
$8,341 |
|
$10,840 |
|
$17,444 |
|
|
$26,907 |
|
|
$44,973 |
Product sales |
|
94 |
|
432 |
|
2,064 |
|
|
955 |
|
|
2,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
8,435 |
|
11,272 |
|
19,508 |
|
|
27,862 |
|
|
47,304 |
Costs and
expenses: |
Project personnel and expenses |
|
5,092 |
|
6,346 |
|
10,148 |
|
|
15,879 |
|
|
24,124 |
Cost of products sold |
|
93 |
|
470 |
|
2,032 |
|
|
884 |
|
|
2,017 |
Selling and marketing expenses |
|
201 |
|
275 |
|
1,111 |
|
|
2,303 |
|
|
3,761 |
General and administrative expenses |
|
2,337 |
|
2,484 |
|
4,345 |
|
|
7,777 |
|
|
11,948 |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
719 |
Stock compensation |
|
|
|
|
|
13 |
|
|
271 |
|
|
620 |
Merger costs |
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
7,723 |
|
9,575 |
|
17,649 |
|
|
27,114 |
|
|
43,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
712 |
|
1,697 |
|
1,859 |
|
|
748 |
|
|
3,945 |
Interest income |
|
1 |
|
17 |
|
10 |
|
|
16 |
|
|
461 |
Interest
expense |
|
66 |
|
56 |
|
69 |
|
|
137 |
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
647 |
|
1,658 |
|
1,800 |
|
|
627 |
|
|
4,269 |
Income (loss) from
discontinued operations |
|
|
|
1 |
|
(84 |
) |
|
(101 |
) |
|
|
Gain on sale of
discontinued operations |
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
647 |
|
1,659 |
|
1,716 |
|
|
780 |
|
|
4,269 |
Provision (benefit) for
income taxes |
|
|
|
|
|
81 |
|
|
(3 |
) |
|
1,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ 647 |
|
$ 1,659 |
|
$ 1,635 |
|
|
$ 783 |
|
|
$ 3,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma provision for
income taxes (1) |
|
$ 289 |
|
$ 684 |
|
$ 702 |
|
|
$ 457 |
|
|
$ 2,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
(1) |
|
$ 358 |
|
$ 975 |
|
$ 1,014 |
|
|
$ 323 |
|
|
$ 2,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per
share (2): |
Basic |
|
|
|
|
|
|
|
|
|
|
|
$ 0.14 |
Diluted |
|
|
|
|
|
|
|
|
|
|
|
0.13 |
|
|
|
|
As of December
31,
|
|
|
1995
|
|
1996
|
|
1997
|
|
1998
|
|
1999
|
|
|
(In
thousands) |
Balance Sheet
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents
and marketable securities |
|
$ 75 |
|
$ 121 |
|
$ 953 |
|
|
$ 570 |
|
|
$ 9,849 |
Total assets |
|
2,567 |
|
4,087 |
|
7,351 |
|
|
9,845 |
|
|
53,092 |
Total debt |
|
695 |
|
953 |
|
1,851 |
|
|
2,745 |
|
|
639 |
Stockholders
equity |
|
1,452 |
|
1,824 |
|
2,707 |
|
|
3,627 |
|
|
47,986 |
(1)
|
For all periods indicated
prior to July 28, 1999, we operated as an S corporation and were not
subject to federal and certain state income taxes. On July 28, 1999, we
terminated our status as an S corporation and became subject to federal
and state income taxes. Pro forma net income for periods prior to July
28, 1999 reflects federal and state income taxes as if we had not elected
S corporation status for income tax purposes. Pro forma net income for
the period beginning on July 28, 1999 reflects federal and state income
taxes on a basis consistent with other periods.
|
(2)
|
Pro forma net income per
share for the year ended December 31, 1999 is calculated by dividing pro
forma net income by the weighted average number of common shares
outstanding.
|
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following section should be read in conjunction with the Consolidated
Financial Statements and Notes thereto beginning on page F-1 of this
prospectus. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks,
uncertainties and assumptions which could cause actual results to differ
materially from managements expectations. Factors that could cause
such differences include those discussed in Risk Factors.
Overview
We
derive substantially all of our revenues from fees for consulting services,
which are billed on a time-and-materials or fixed-price basis. Invoices are
typically issued bi-weekly to monitor client satisfaction and manage
outstanding accounts receivable balances. Revenues on time-and-materials
contracts are recognized as the services are provided. We recognize revenue
on fixed-price projects as services are performed over the life of the
contract. Losses on contracts, if any, are provided for in full in the
period when determined. Approximately 43% of our consulting services
revenues in 1999 were derived from fixed-price contracts.
We also
realize a limited amount of revenue from product sales as a value-added
reseller of software products. We currently resell software products
primarily as an accommodation to clients who prefer to retain a
single-source provider. In 1999, product sales accounted for 4.9% of
revenues and we do not anticipate that product sales will increase as a
percentage of revenues.
Braun
Consultings historical revenue growth is attributable to various
factors, including an increase in the size and number of projects for
existing and new clients, including international projects. Existing
clients from the previous fiscal year generated approximately 75% of our
revenues in 1999 and approximately 76% of our revenues in 1998. We have
also expanded our geographic presence by opening offices in Cleveland,
Ohio; Dallas, Texas; Denver, Colorado; and Detroit, Michigan in 1998.
Through the acquisitions of Vertex Partners and ETCI in 1999, we acquired
offices in Boston, Massachusetts; Mount Laurel, New Jersey; and Reston,
Virginia. We manage our client development efforts through several
strategic service groups, each having specific geographic responsibility
and focus. As of December 31, 1999, we had 399 employees.
Our most
significant expense is project personnel and expenses, which consists
primarily of project personnel salaries and benefits, and non-reimbursed
direct expenses incurred to complete projects. We have sought to manage our
costs by adding a variable portion of employee compensation payable upon
the achievement of measurable performance goals.
Braun
Consultings project personnel and expenses as a percentage of
revenues are also related to our consultant utilization. We manage
utilization by monitoring project requirements and timetables. The number
of consultants assigned to a project will vary according to the size,
complexity, duration and demands of the project. Project completions and
scheduling delays may result in periods when consultants are not fully
utilized. An unanticipated termination of a significant project could also
cause us to experience lower consultant utilization, resulting in a higher
than expected number of unassigned consultants. In addition, we do not
fully utilize our consulting personnel on billable projects during the
initial months of their employment. During that time they undergo training
and become integrated into our operations.
To
sustain our growth and profitability, we have made and continue to make
substantial investments in infrastructure, including senior management and
other experienced administrative personnel, experienced business
development managers and an advanced management reporting
system.
Selling
and marketing expenses consist primarily of salaries, employee benefits and
travel costs of selling and marketing personnel and promotional costs.
General and administrative expenses consist primarily of costs associated
with our executive management, finance and administrative groups including
personnel devoted to
recruiting, employee retention and training; occupancy costs including
depreciation, amortization and office equipment leases; travel; and all
other branch and corporate costs. We continue to incur increased rent
associated with our growth and the opening of new offices.
Stock
compensation expenses consist of non-cash compensation expenses arising
from option grants. We recorded aggregate unearned stock compensation
totaling $1.5 million in connection with certain stock option grants from
November 1998 through December 31, 1999. This stock compensation expense
will be recognized over a period ending December 31, 2006, which is the end
of the vesting period for the related options.
Prior to
July 28, 1999, Braun Consulting was treated as an S corporation for federal
income tax purposes under the Internal Revenue Code and for certain state
income tax purposes. As a result, substantially all of the income of Braun
Consulting during the period was taxed directly to our stockholders rather
than to Braun Consulting. The statement of income data reflects a pro forma
adjustment for federal and state income taxes for each of the five years in
the period ended December 31, 1999, assuming Braun Consulting had been
operating as a C corporation during such period.
Recent Developments
Since
our initial public offering in August 1999, we have experienced the
following significant developments in our business:
|
|
ETCI. In December
1999, we acquired ETCI by exchanging cash and our common stock with a
value of approximately $27.0 million. ETCI provides specialized customer
relationship management consulting services, and has offices in Mount
Laurel, New Jersey and Reston, Virginia. We accounted for this
transaction using the purchase method of accounting.
|
|
|
New Senior Vice
President and Vice President. In March 2000, we hired Claudia Imhoff,
Ph.D. as a Senior Vice President. Dr. Imhoff has 13 years of experience
in business intelligence and data warehousing. Dr. Imhoff will focus on
the development of intellectual capital and industry marketing. In
January 2000, we hired Lou Rubino as Vice President of Employment. Mr.
Rubino has over 15 years of recruiting management and human resources
experience. Mr. Rubino will focus on continuing to expand our recruiting
efforts to support our growth through the development of new recruiting
programs that attract and retain qualified professionals. In connection
with the hiring of these and other employees in the first quarter of
2000, we expect to record increased stock compensation expense of
approximately $1.0 million for the quarter.
|
|
|
Clients. We have added
numerous new clients, including the following:
|
Results of Operations
The
following table sets forth, for the years indicated, selected statement of
income data as a percentage of total revenues:
|
|
Years Ended
December 31,
|
|
|
1997
|
|
1998
|
|
1999
|
Revenues: |
Consulting services |
|
89.4 |
% |
|
96.6 |
% |
|
95.1 |
% |
Product sales |
|
10.6 |
|
|
3.4 |
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
Costs and
expenses: |
Project personnel and
expenses |
|
52.0 |
|
|
56.9 |
|
|
51.0 |
|
Cost of products sold |
|
10.4 |
|
|
3.2 |
|
|
4.3 |
|
Selling and marketing
expenses |
|
5.7 |
|
|
8.3 |
|
|
7.9 |
|
General and administrative
expenses |
|
22.3 |
|
|
27.9 |
|
|
25.3 |
|
Amortization of intangible
assets |
|
|
|
|
|
|
|
1.5 |
|
Stock compensation |
|
0.1 |
|
|
1.0 |
|
|
1.3 |
|
Merger costs |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
90.5 |
|
|
97.3 |
|
|
91.7 |
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
9.5 |
|
|
2.7 |
|
|
8.3 |
|
Interest
income |
|
0.1 |
|
|
0.1 |
|
|
1.0 |
|
Interest
expense |
|
0.4 |
|
|
0.5 |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
9.2 |
|
|
2.3 |
|
|
9.0 |
|
Loss from discontinued
operations |
|
(0.4 |
) |
|
(0.4 |
) |
|
|
|
Gain on sale of
discontinued operations |
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
8.8 |
|
|
2.8 |
|
|
9.0 |
|
Provision (benefit) for
income taxes |
|
0.4 |
|
|
(0.0 |
) |
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
8.4 |
% |
|
2.8 |
% |
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
Pro forma provision for
income taxes |
|
3.6 |
% |
|
1.6 |
% |
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
Pro forma net
income |
|
5.2 |
% |
|
1.2 |
% |
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 1999 Compared to Year Ended December 31,
1998
Total
Revenues. Total revenues increased 69.8% to $47.3 million in 1999 from
$27.9 million in 1998. Consulting services increased 67.1% to $45.0 million
in 1999 from $26.9 million in 1998. The increase in consulting services
primarily reflected increases in the volume of services provided to
existing and new clients. During 1999, we continued to sell some software
products as an accommodation to clients. As a result, our product sales
increased in 1999 compared to 1998.
Project Personnel and Expenses. Project personnel and expenses
increased 51.9% to $24.1 million in 1999 from $15.9 million in 1998. The
increase in project personnel and expenses for 1999 was due primarily to an
increase in project personnel to 331 at December 31, 1999 from 207 at
December 31, 1998. Project personnel and expenses decreased as a percentage
of consulting services to 53.6% in 1999 from 59.0% in 1998.
Selling and Marketing Expenses. Selling and marketing expenses
increased 63.3% to $3.8 million in 1999 from $2.3 million in 1998. The
increase was due primarily to our decision to expand our selling and
marketing group to 22 employees at December 31, 1999 from 16 employees at
December 31, 1998, and the funding of business development costs to
increase our lead generation activities and broaden our market awareness
and customer base. Selling and marketing expenses decreased as a percentage
of consulting services to 8.4% in 1999 from 8.6% in 1998.
General and Administrative Expenses. General and administrative
expenses increased 53.6% to $11.9 million in 1999 from $7.8 million in
1998. An important part of the increase in general and administrative
expenses for 1999 compared to 1998 was due to an increase in facilities
costs. In 1999, we expanded our offices in Boston, Chicago, Denver and
Indianapolis. In addition, our total general and administrative headcount
increased to 46 employees at December 31, 1999 from 40 employees at
December 31, 1998. General and administrative expenses decreased as a
percentage of consulting services to 26.6% in 1999 from 28.9% in
1998.
Amortization of Intangible Assets. In 1999, amortization of
intangible assets, primarily goodwill, was $719,000 as a result of our
acquisition of ETCI.
Stock
Compensation. Stock compensation expense increased to $620,000 in 1999
from $271,000 in 1998 due to various option grants.
Interest (Income) Expense. Interest income was $461,000 in
1999 compared to $16,000 in 1998. The increase in interest income was due
to the investment of the net proceeds from our initial public offering in
August 1999. Interest expense increased slightly in 1999 versus
1998.
Net
Income. Net income increased to $3.0 million in 1999 from $783,000 in
1998. The increase in net income was due primarily to increased revenue and
decreasing costs as a percentage of total revenue.
Pro
Forma Provision for Income Taxes. The pro forma provision for income
taxes for 1999 was $2.2 million as compared to $457,000 for 1998. The
effective tax rate for 1999 was 52.7% as compared to 58.6% for
1998.
Year Ended December 31, 1998 Compared to Year Ended December 31,
1997
Total
Revenues. Total revenues increased 42.8% to $27.9 million in 1998 from
$19.5 million in 1997. Consulting services increased 54.2% to $26.9 million
in 1998 from $17.4 million in 1997. The increase in consulting services
primarily reflected increases in the volume of services provided to
existing and new clients. Product sales declined resulting from our
increased emphasis on growing consulting services in the period. In 1998,
we decreased our focus on product sales because product sales margins did
not justify the increased effort.
Project Personnel and Expenses. Project personnel and expenses
increased 56.5% to $15.9 million in 1998 from $10.1 million in 1997.
Project personnel and expenses increased as a percentage of consulting
services to 59.0% in 1998 from 58.2% in 1997. The increase in project
personnel and expenses for 1998 was due primarily to an increase in project
personnel to 207 at December 31, 1998 from 133 at December 31,
1997.
Selling and Marketing Expenses. Selling and marketing expenses
increased 107.3% to $2.3 million in 1998 from $1.1 million in 1997. Selling
and marketing expenses increased as a percentage of consulting services to
8.6% in 1998 from 6.4% in 1997. The increase was due primarily to our
decision to expand the selling and marketing group to 16 employees at
December 31, 1998 from 11 employees at December 31, 1997, and the funding
of business development costs to increase our lead generation activities
and broaden our market awareness and customer base.
General and Administrative Expenses. General and
administrative expenses increased 79.0% to $7.8 million in 1998 from $4.3
million in 1997. General and administrative expenses increased as a
percentage of consulting services to 28.9% in 1998 from 24.9% in 1997. The
increase in general and administrative expenses for 1998 compared to 1997
was due primarily to the costs associated with the additional employees
hired during 1998, including experienced personnel in Human Resources,
Finance, Recruiting, Internal Systems and Executive Management. Our total
general and administrative headcount increased to 40 employees at December
31, 1998 from 21 employees at December 31, 1997. Facilities costs also
increased in 1998 due primarily to new offices opened in Cleveland, Dallas,
Denver, Detroit and Grand Rapids and expanded offices in Chicago,
Indianapolis and Minneapolis.
Stock Compensation. Stock compensation expense increased $258,000 in
1998 due to various option grants.
Interest (Income) Expense. Interest income in 1998 increased
slightly as compared to 1997. Interest expense was $137,000 in 1998
compared to $69,000 in 1997. The change was due to increased borrowings
under our line of credit during 1998 to support our growth.
Net
Income. Net income decreased 52.1% to $783,000 in 1998 from $1.6
million in 1997. The decrease was due primarily to expenses associated with
the increase in project personnel, selling and marketing personnel and
general and administrative personnel and to additional funding for
marketing activities and new offices, all as described above.
Pro
Forma Provision for Income Taxes. The pro forma provision for income
taxes for 1998 was $457,000 as compared to $702,000 for 1997. The effective
tax rate for 1998 was 58.6% as compared to 40.9% for 1997.
Quarterly Results of Operations
The
following tables set forth unaudited quarterly financial data for the
periods indicated. We obtained this information from unaudited quarterly
consolidated financial statements and, in the opinion of our management, it
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial results for the periods. Results
of operations for any previous quarters do not necessarily indicate results
for any future period.
|
|
Quarters
Ended
|
|
|
Mar. 31,
1998
|
|
June 30,
1998
|
|
Sept. 30,
1998
|
|
Dec. 31,
1998
|
|
Mar. 31,
1999
|
|
June 30,
1999
|
|
Sept. 30,
1999
|
|
Dec. 31,
1999
|
|
|
(In
thousands) |
Statement of Income
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services |
|
$5,666 |
|
|
$5,718 |
|
|
$7,098 |
|
|
$8,425 |
|
|
$9,632 |
|
|
$10,430 |
|
|
$11,729 |
|
|
$13,182 |
|
Product sales |
|
520 |
|
|
301 |
|
|
97 |
|
|
37 |
|
|
400 |
|
|
57 |
|
|
337 |
|
|
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
6,186 |
|
|
6,019 |
|
|
7,195 |
|
|
8,462 |
|
|
10,032 |
|
|
10,487 |
|
|
12,066 |
|
|
14,719 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel and expenses |
|
3,147 |
|
|
3,855 |
|
|
4,139 |
|
|
4,738 |
|
|
5,450 |
|
|
5,549 |
|
|
6,279 |
|
|
6,846 |
|
Cost of products sold |
|
480 |
|
|
277 |
|
|
94 |
|
|
33 |
|
|
352 |
|
|
49 |
|
|
252 |
|
|
1,364 |
|
Selling and marketing expenses |
|
544 |
|
|
585 |
|
|
564 |
|
|
610 |
|
|
797 |
|
|
1,076 |
|
|
1,069 |
|
|
819 |
|
General and administrative expenses |
|
1,650 |
|
|
1,878 |
|
|
1,912 |
|
|
2,337 |
|
|
2,384 |
|
|
2,465 |
|
|
3,025 |
|
|
4,074 |
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
719 |
|
Stock compensation |
|
156 |
|
|
12 |
|
|
12 |
|
|
91 |
|
|
64 |
|
|
188 |
|
|
188 |
|
|
180 |
|
Merger costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
5,977 |
|
|
6,607 |
|
|
6,721 |
|
|
7,809 |
|
|
9,047 |
|
|
9,497 |
|
|
10,813 |
|
|
14,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss) |
|
209 |
|
|
(588 |
) |
|
474 |
|
|
653 |
|
|
985 |
|
|
990 |
|
|
1,253 |
|
|
717 |
|
Interest
income |
|
|
|
|
|
|
|
|
|
|
16 |
|
|
5 |
|
|
20 |
|
|
135 |
|
|
301 |
|
Interest
expense |
|
22 |
|
|
35 |
|
|
40 |
|
|
40 |
|
|
47 |
|
|
58 |
|
|
24 |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
187 |
|
|
(623 |
) |
|
434 |
|
|
629 |
|
|
943 |
|
|
952 |
|
|
1,364 |
|
|
1,010 |
|
Income (loss) from
discontinued operations |
|
(60 |
) |
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income
taxes |
|
127 |
|
|
(410 |
) |
|
434 |
|
|
629 |
|
|
943 |
|
|
952 |
|
|
1,364 |
|
|
1,010 |
|
Provision (benefit) for
income taxes |
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
438 |
|
|
782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ 130 |
|
|
$ (410 |
) |
|
$ 434 |
|
|
$ 629 |
|
|
$ 943 |
|
|
$ 942 |
|
|
$ 926 |
|
|
$ 228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma provision
(benefit) for income
taxes |
|
$ 66 |
|
|
$ (219 |
) |
|
$ 232 |
|
|
$ 378 |
|
|
$ 398 |
|
|
$ 449 |
|
|
$ 620 |
|
|
$ 782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
(loss) |
|
$ 61 |
|
|
$ (191 |
) |
|
$ 202 |
|
|
$ 251 |
|
|
$ 545 |
|
|
$ 503 |
|
|
$ 744 |
|
|
$ 228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
|
Mar. 31,
1998
|
|
June 30,
1998
|
|
Sept. 30,
1998
|
|
Dec. 31,
1998
|
|
Mar. 31,
1999
|
|
June 30,
1999
|
|
Sept. 30,
1999
|
|
Dec. 31,
1999
|
As a Percentage of
Total Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services |
|
91.6 |
% |
|
95.0 |
% |
|
98.7 |
% |
|
99.6 |
% |
|
96.0 |
% |
|
99.5 |
% |
|
97.2 |
% |
|
89.6 |
% |
Product sales |
|
8.4 |
|
|
5.0 |
|
|
1.3 |
|
|
0.4 |
|
|
4.0 |
|
|
0.5 |
|
|
2.8 |
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel and expenses |
|
50.8 |
|
|
64.0 |
|
|
57.5 |
|
|
56.0 |
|
|
54.3 |
|
|
52.9 |
|
|
52.0 |
|
|
46.5 |
|
Cost of products sold |
|
7.8 |
|
|
4.6 |
|
|
1.3 |
|
|
0.4 |
|
|
3.5 |
|
|
0.5 |
|
|
2.1 |
|
|
9.3 |
|
Selling and marketing expenses |
|
8.8 |
|
|
9.7 |
|
|
7.8 |
|
|
7.2 |
|
|
7.9 |
|
|
10.3 |
|
|
8.9 |
|
|
5.5 |
|
General and administrative expenses |
|
26.7 |
|
|
31.2 |
|
|
26.6 |
|
|
27.6 |
|
|
23.8 |
|
|
23.5 |
|
|
25.0 |
|
|
27.7 |
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9 |
|
Stock compensation |
|
2.5 |
|
|
0.2 |
|
|
0.2 |
|
|
1.1 |
|
|
0.7 |
|
|
1.8 |
|
|
1.6 |
|
|
1.2 |
|
Merger costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
96.6 |
|
|
109.7 |
|
|
93.4 |
|
|
92.3 |
|
|
90.2 |
|
|
90.6 |
|
|
89.6 |
|
|
95.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss) |
|
3.4 |
|
|
(9.7 |
) |
|
6.6 |
|
|
7.7 |
|
|
9.8 |
|
|
9.4 |
|
|
10.4 |
|
|
4.9 |
|
Interest
income |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
0.0 |
|
|
0.2 |
|
|
1.1 |
|
|
2.0 |
|
Interest
expense |
|
0.4 |
|
|
0.6 |
|
|
0.6 |
|
|
0.5 |
|
|
0.4 |
|
|
0.5 |
|
|
0.2 |
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
3.0 |
|
|
(10.3 |
) |
|
6.0 |
|
|
7.4 |
|
|
9.4 |
|
|
9.1 |
|
|
11.3 |
|
|
6.9 |
|
Income (loss) from
discontinued operations |
|
(0.9 |
) |
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income
taxes |
|
2.1 |
|
|
(6.8 |
) |
|
6.0 |
|
|
7.4 |
|
|
9.4 |
|
|
9.1 |
|
|
11.3 |
|
|
6.9 |
|
Provision (benefit) for
income taxes |
|
(0.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
3.6 |
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
2.1 |
% |
|
(6.8 |
)% |
|
6.0 |
% |
|
7.4 |
% |
|
9.4 |
% |
|
9.0 |
% |
|
7.7 |
% |
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma provision
(benefit) for income
taxes |
|
1.1 |
% |
|
(3.6 |
)% |
|
3.2 |
% |
|
4.4 |
% |
|
4.0 |
% |
|
4.3 |
% |
|
5.1 |
% |
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
(loss) |
|
1.0 |
% |
|
(3.2 |
)% |
|
2.8 |
% |
|
3.0 |
% |
|
5.4 |
% |
|
4.8 |
% |
|
6.2 |
% |
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
establishment of new practice areas and the hiring of consultants in peak
hiring periods such as the addition of college recruits, have resulted in
periods of lower consultant utilization and resulting downward pressure on
margins until project volume increases in these areas. In the future, the
establishment of new practice specialties, as well as further geographic
expansion, could from time to time adversely affect utilization. Variations
in consultant utilization would result in quarterly variability of our cost
of services as a percentage of revenues. Our consultants are employed on a
full-time basis, and therefore we will, in the short-term, incur
substantially all of our employee-related costs even during periods of slow
utilization. We believe that period-to-period comparisons of our operating
results are not necessarily meaningful and that you should not rely on
these comparisons as indications of future performance.
Liquidity and Capital Resources
In
August 1999, Braun Consulting sold 4,000,000 shares of common stock in its
initial public offering. Of the net proceeds of approximately $24.5
million, we distributed approximately $3.8 million to stockholders as
previously taxed but undistributed S corporation income and retired
approximately $3.0 million of existing indebtedness. We used the remainder
of the net proceeds, plus cash generated from operations, to invest in
cash, cash equivalents and marketable securities with a value of
approximately $9.8 million at December 31, 1999. We used approximately $9.5
million of the net proceeds to finance the cash consideration and the
transaction costs associated with the acquisition of ETCI.
As of
December 31, 1999, we maintained lines of credit providing for borrowings
of up to $5.75 million. Our line of credit for $5.0 million is with LaSalle
Bank National Association, bears interest at the banks prime rate and
expires on June 30, 2000. The line of credit for $750,000 was with
Sovereign Bank and bore interest at the banks prime rate plus 0.25%.
This line of credit has been repaid and cancelled. The terms of our
LaSalle Bank National Association line of credit include financial
covenants covering the relationships of borrowings to accounts receivable
and to tangible net worth, and the relationship of total liabilities to
tangible net worth. We expect to renew this line of credit upon its
expiration. In addition, we have a $100,000 term loan from Sovereign Bank.
The term loan bears interest at 7.25% and matures February 1, 2002. As of
December 31, 1999, we had no bank borrowings outstanding under our $5.0
million line of credit, approximately $480,000 of bank borrowings
outstanding under the $750,000 line of credit and approximately $74,000 of
bank borrowings outstanding under the $100,000 term loan. Capital
expenditures of approximately $2.6 million, $1.5 million and $697,000 for
1999, 1998 and 1997, respectively, were used primarily for computers,
office equipment and leasehold improvements related to our
growth.
Inflation did not have a material impact on Braun Consultings
revenues or income from operations in 1999, 1998 or 1997.
As of
December 31, 1999, we had cash, cash equivalents and marketable securities
of approximately $9.8 million, and we believe that the net proceeds from
the sale of the common stock offered hereby, together with cash provided
from operations, borrowings available under our credit facilities and
existing cash, cash equivalents and marketable securities will be
sufficient to meet working capital and capital expenditure requirements for
at least the next 24 months.
Year 2000 Readiness
Many
computer systems and software products could fail or malfunction because
they may not be able to distinguish 21st century dates from 20th century
dates. As a result, computer systems and software used by many companies,
including us, our clients and our potential clients, may need to be
upgraded to comply with such Year 2000
requirements.
We
believe that our principal internal systems, including our hardware and
software, are Year 2000 compliant. We have reviewed Year 2000 issues with
the suppliers of our principal internal systems. Our review of our Year
2000 readiness programs, including our assessment of our internal systems
as well as those of third
parties with whom we have material interactions, is complete. We have
experienced no Year 2000 compliance problems in the brief period since
January 1, 2000.
We have
funded our Year 2000 plan from operating cash flows and have not separately
accounted for these costs in the past. To date, these costs have not been
material.
The Year
2000 problem may also affect software or code that we develop or
third-party software products that are incorporated into the eSolutions we
create for our clients. Our clients license software directly from third
parties and we do not guarantee that the software licensed from these
suppliers is Year 2000 compliant. To date, we are not aware of any Year
2000 compliance problems with software or code that we have developed or
third-party software incorporated into our eSolutions and we have not had
to correct any deficiencies. However, any failure on our part to provide
Year 2000 compliant eSolutions to our clients could result in financial
loss, harm to our reputation and liability to others and could seriously
harm our business.
We do
not currently have any information concerning the general Year 2000
compliance status of our clients, nor do we intend to examine our clients
for general Year 2000 compliance. If our clients are not Year 2000
compliant, they may experience material costs to remedy problems, or they
may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential clients could have for
purchases of our services. In addition, we anticipate that many of our
clients may limit eSolutions spending as they attend to Year 2000 issues.
As a result, our business, financial condition and operating results could
be harmed.
Although
we are not aware of any material Year 2000 compliance problems with our
clients, the most reasonably likely worst case scenario for Year 2000
problems for us would be the system failure at a significant client or
clients, which interrupts our project work for an indefinite period of
time. The failure of any significant client to remedy the situation and
renew our project work could negatively impact our operating
results.
Our Year
2000 contingency plan to address the most reasonably likely worst case
scenario is to maintain a significant number of projects so the potential
loss of a significant client has a minimal effect on our
business.
Quantitative and Qualitative Disclosure About Market
Risk
We may
be exposed to market risk related to changes in interest rates. Our
borrowing arrangements and short-term investments are based on variable
rates of varying maturities. We do not have any agreements to protect us
from the risk presented by a change in our interest rates. If interest
rates on our borrowings were to increase immediately and uniformly by 10%
from levels as of December 31, 1999 from 8.50% to 9.35%, our net income
would decrease by $4,080, which is equal to the product of the 10% increase
in the interest rate multiplied by the approximately $480,000 of bank
borrowings outstanding as of December 31, 1999. If interest rates on our
investments were to decrease immediately and uniformly by 10% from levels
at December 31, 1999 from approximately 5.50% to 4.95%, our net income
would decrease by $49,500, which is equal to the product of the 10%
decrease in the interest rate multiplied by the approximately $9 million of
short-term investments in cash equivalents and marketable securities as of
December 31, 1999.
Recent Accounting Pronouncements
In June
1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000, which will be January 1, 2001 for us. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, collectively
referred to as derivatives, and for hedging activities. SFAS No. 133
requires the recognition of all derivatives as either assets or liabilities
in the statement of financial position and the measurement of those
instruments at fair value. We have no derivative exposure and expect that
the adoption of SFAS No. 133 will not have a material impact on our
financial position or results of operations.
Overview
Braun
Consulting delivers Internet professional services to our clients by
combining strategy, business and customer information and advanced Internet
application development skills. We call these services eSolutions. Since
1993, we have provided services to more than 240 companies, primarily
Fortune 500 and middle-market clients.
Industry Background
Business
and culture are changing due to advancements in the Internet and the use of
information. Access to information is increasing, data sources are growing
exponentially, people are interacting online, and business and customer
information have emerged as a primary resource for competitive advantage.
Organizations in virtually every industry are seeking to improve the
ability of business professionals to make timely, fact-based business
decisions.
Industry
leaders are increasingly dependent upon business information to create
markets, identify new customers, segment product lines, drive profitability
and retain repeat purchasers. In Post-Capitalist Society, management
expert Peter Drucker predicted the growing importance of knowledge assets
and stated, Increasingly, there is less and less return on the
traditional resources: labor, land and (money) capital. The main producers
of wealth have become information and knowledge.
The
Internet is expanding access to information and transforming the way
business is conducted with customers, partners, suppliers and other
businesses. Large-scale intranet systems within organizations enable new
levels of managing, creating and sharing information. Web-based
applications and business solutions enable electronic commerce, drive new
information creation and increase the need to effectively access, utilize,
manage and store business and customer information. Business-to-business
extranet applications connecting partners and separate companies create new
relationships, growth opportunities and revenue streams.
International Data Corporation expects Internet users worldwide to
surpass 500 million by 2003 from approximately 142 million in 1998.
Concurrent with the rapid growth in Internet use, companies are realizing
the potential of Web-based commerce, including both business-to-business
and business-to-consumer applications. International Data Corporation
expects Web-based commerce to exceed $1 trillion worldwide by 2003. This
explosive growth is driving demand by businesses for Web-related services,
which International Data Corporation predicts will grow to $78.6 billion by
2003 from a base of $7.8 billion in 1998.
Organizations spend considerable effort and resources to gather and
organize data. Many have been unable to effectively achieve their goals
without the benefit of customer-focused business strategies using business
intelligence and leading information technologies such as the Internet. By
focusing on the design and development of business strategies, companies
can respond to changing markets and competitive pressures by taking
advantage of the investments they have made in information technology. As
companies move beyond urgent operational issues addressed by basic
enterprise resource planning applications and year 2000 remediation
projects, focus is shifting to more important strategic investments in
business intelligence. A June 1998 Information Week survey of 250
information technology executives indicated that data warehousing, a core
element of business intelligence, is their top post-millennium technology
priority.
Many
companies have failed to organize, manage and disseminate business data in
an accessible, intuitive manner. Companies use this information to create
value by better tailoring products and services, identifying business
opportunities and improving operational efficiencies. For instance, in
electronic commerce, companies can use this information to better manage
customer relationships by analyzing past purchases, service history,
product usage and demographics. Consumer product companies and retailers
use customer information to determine which products to promote in specific
markets and channels. Companies engaged in supply chain
management use customer and business information to more efficiently manage
product and material order flow among distribution facilities, multiple
plants and suppliers.
The
effective allocation and use of information in business strategies focused
on customers depends on an organizations capabilities in business
intelligence, which includes data warehousing, customer relationship
management and applications used to analyze data. Business intelligence
solutions are part of the fundamental infrastructure systems businesses
need to succeed in a competitive marketplace. International Data
Corporation projects that data warehousing spending worldwide will grow to
$29.2 billion in 2002 from $11.5 billion in 1997. International Data
Corporation also projects that the worldwide customer relationship
management service market will grow to $89.7 billion in 2003 from
approximately $33.2 billion in 1998 and that global investments in
applications used to analyze data will grow to $5.2 billion in 2003 from
only $1.5 billion in 1998.
Turbulence and changes in previously established markets provide
tremendous opportunities for organizations that are insightful and focused
on their customers. In the new millennium, businesses working to attain
competitive advantage in changing markets will be compelled to use
Web-based business approaches and efficiently manage business and customer
information. The Internet combined with strategies focused on customers and
business intelligence will enable a new era of business.
The Braun Consulting Advantage
We
believe clients that are dependent upon business and customer information
and effective use of the Internet will purchase Internet professional
services from qualified and proven providers. Braun Consulting is well
positioned to deliver these services. Our eSolutions are designed to
provide a measurable return on a clients investment by driving its
revenue growth. We believe the following key attributes differentiate us
from the competition:
Comprehensive eSolutions Through Our
Transform Methodology
Our
Transform methodology is a proprietary project management process we
use to deliver Internet professional services to clients. Through the
Transform methodology, we deliver solutions that integrate strategy
and customer and business information with the Internet. We provide
comprehensive business solutions through cross-functional project teams to
Fortune 500 and middle-market companies. Our Transform methodology
begins with a customer-focused strategy and, with our full range of
business intelligence skill sets, continues through the implementation of
leading technologies including the Internet. Our methodology is designed to
provide completed work to the client approximately every 90
days.
Business Intelligence
Our
founders have been working for more than 15 years advising clients about
technologies and methods that have developed over that time to collect and
analyze business and customer information. Our success has been built upon
services that effectively incorporate customer relationship management,
data warehousing and applications for data analysis. Our business
intelligence services assist our clients in collecting, retrieving,
organizing and managing business and customer information in order
to:
|
|
facilitate information
sharing;
|
|
|
analyze information and
identify, predict and respond to customer and market trends;
and
|
|
|
make timely, fact-based
business decisions.
|
Customer-Focused and Internet Business
Strategies
We have
experience in designing customer-focused strategies that drive revenue
growth. Our objective is to assist clients in recognizing, pursuing and
realizing value from emerging customer and marketplace opportunities,
including the use of the Internet. This approach to business strategy,
combined with our customer
relationship management services, can enable clients to more effectively
manage customers as key assets, thereby:
|
|
improving existing
customer relationships;
|
|
|
maximizing revenue per
customer; and
|
|
|
identifying potential new
customers.
|
Internet and Information
Technology
Braun
Consulting helps its clients develop and integrate Web-based technologies,
including Internet, intranet and extranet applications. We are also
experienced at building the systems that facilitate our clients
electronic business activities. Our experience with various Internet
technologies allows us to recommend unbiased Internet technology solutions
for our clients. We continue to enhance our skills utilizing our three
training and technology centers located in Chicago, Indianapolis and St.
Louis. These centers are used to provide technology training to both our
staff and our clients.
Growth Strategy
Braun
Consultings objective is to continue our growth by capitalizing on
our position as an Internet professional services provider. Our strategies
for achieving this objective include:
Expanding and Developing Our Client
Base
Since
1993, we have provided services to more than 240 middle market and Fortune
500 companies. We believe there is significant potential to expand our
relationships with these companies. We will continue to target new clients
in industries and emerging markets where success requires strategies
focused on customers, business information and Internet
capabilities.
Recruiting and Retaining Qualified
Professionals
Our
growth will be fueled by continuously attracting qualified professionals
from industry, other consulting organizations and selected colleges and
universities. Our recruiting model and training curriculum allow us to
prepare recently hired employees to perform services under the guidance of
experienced management. Our training curriculum includes training to
understand our clients business needs and the technologies to provide
solutions for those needs. Braun Consultings culture includes a focus
on leading edge technologies, professional development programs,
incentive-based compensation and a balanced lifestyle. We believe our
culture has resulted in a manageable employee turnover rate of
approximately 10% in 1999 and 12% in 1998.
Capitalizing on Our Existing
Infrastructure
Braun
Consulting has developed the infrastructure to support our future growth,
which includes the following:
|
|
our senior management
team averages more than 17 years experience in providing professional
services, including customer-focused strategy services, financial
services and advising clients about technologies and methods that have
developed over time to collect and analyze business and customer
information;
|
|
|
our team of experienced
business development managers focuses on expanding our business through
increased sales and marketing efforts;
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our management reporting
systems enable us to efficiently track and deploy firm resources;
and
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our Transform
methodology incorporates a proprietary database that stores knowledge
gained in previous engagements, allowing us to capture and develop
firm-wide best practices in our areas of expertise.
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Pursuing Selected
Acquisitions
Braun
Consulting has senior management personnel focused on identifying and
evaluating potential acquisitions in order to:
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expand our expertise in
new technologies;
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gain access to additional
talented professionals;
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expand our geographic
presence; and
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increase our client
base.
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In 1999
we acquired Vertex Partners and ETCI. We have established integration teams
emphasizing communication to enhance rapid and successful integration of
our acquisitions. Integration teams, comprised of employees from Braun
Consulting and the acquired company, are established for the following
areas: people and culture, operations, delivery of services, and sales and
marketing. These teams establish objectives and time lines for completion
of integration tasks and report to our senior management.
eSolutions Services
Braun
Consulting delivers comprehensive eSolutions which combine our experience
in customer-focused strategy, information collection and analysis and Web
integration.
Customer and Internet Business
Strategy
Braun
Consultings customer and Internet business strategy services focus on
helping clients achieve sustainable, profitable growth by recognizing and
realizing value from their customer base, customer trends and the Internet.
We understand that strategy and implementation are inseparable and that
performance improvement for any client is based on insightful assessment,
analysis and hands-on implementation. Our experienced consultants work with
clients senior management teams in a collaborative approach that is
built upon joint accountability, effective project management and
interactive working relationships. Our strategy services
include:
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Customer-Focused
Strategy. We help our clients develop growth-oriented strategies that
enable them to more effectively manage customers as key assets and focus
on improving customer relationships, maximizing revenue per customer and
identifying potential new customers.
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Internet Business
Strategy. We help clients design and implement Internet-driven market
approaches designed to drive revenue growth and improve profitability
through electronic commerce, sales force automation and interactive
customer relationships.
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Business Intelligence
Our
business intelligence services assist our clients in collecting,
organizing, retrieving and managing business and customer information.
Using Web-enabled technologies, this information can be collected and
distributed using the Internet. Our experience in business intelligence
services consists of:
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Data Warehousing. We
build and deploy large-scale, complex data warehouses. Data warehouses
collect and organize data from disparate sources, and make that data
available for reporting and analysis. Effective data warehousing
overcomes issues presented by incompatible databases, geographic
separation and incompatible technologies.
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Customer Relationship
Management. We help clients to better understand their customers
needs through effectively combining data warehousing and applications for
data analysis with new marketing approaches. Our customer relationship
management expertise enables better assessment of customer value,
prospective customer opportunities and customer preferences for new
products and services.
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Applications for Data
Analysis. Our expertise in deploying and integrating applications for
data analysis allows clients to deliver information to the desktops of
managers. The information provided allows for analyses and decision
making relative to such items as market opportunity identification,
customer trends, budgeting and forecasting, product profitability and
financial consolidation.
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Web Integration
Our Web
integration services help clients to effectively manage the interaction
between their company and its customers, suppliers and employees. The Web
integration services we provide include:
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Electronic Commerce.
Electronic commerce includes both business-to-business and
business-to-consumer applications. Our expertise with leading business
applications helps clients build and deploy systems that allow online
transactions with customers, suppliers and partners.
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Internet, Intranet and
Extranet. We have expertise in building Web-based applications that span
Internet-based interfaces, large-scale internal intranets that connect
departments and divisions within a company and extranet systems that
allow secured electronic access to proprietary systems for authorized
customers and partners. We provide Web-based solutions using NT and Unix
platforms.
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Front Office
Automation. We help clients build and implement Web integration systems
that enable the effective information exchange among geographically
dispersed sales representatives, customer service representatives and
customers. We also have expertise in helping clients effectively capture,
store and utilize volumes of data gathered through large-scale call
center solutions.
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Supply Chain
Management. Our expertise in supply chain management applications
provides our clients with leading-edge manufacturing process capabilities
that are increasingly tied to customer relationship management
programs.
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Core and Extended
Enterprise Applications. We bring Web integration expertise and insights
to enterprise resource planning projects and offer experience in
extending the functionality through data warehousing, reporting
interfaces and customer relationship management. We help clients achieve
greater returns on their significant enterprise applications
investments.
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Transform Methodology
Braun
Consulting delivers Internet professional services for clients through the
effective use of our proprietary project management approach, Transform
methodology. Our approach is designed to provide completed work
approximately every 90 days. We believe our methodology creates selling
advantages when competing for work with other consulting firms.
Our
approach capitalizes on both the client assurances associated with
fixed-price work and the flexibility inherent in ongoing billable
relationships. Transforms continuous 90-day review process
enables controlled growth of the overall project through the addition of
mutually identified and agreed upon incremental phases of work.
Our
Transform methodology is designed to assure that the clients
strategic business objectives are achieved, particularly when we engage in
large-scale projects. Our approach requires us to work closely with clients
to achieve the desired business objectives. Our methodology
includes:
Scope. We identify and work with clients to deliver a clear
definition of the objectives for the project. We create an overall project
plan, which includes business objectives, duties, desired results, timeline
and resource allocation. Management approvals and project checkpoints are
defined as part of the project plan. The emphasis of the planning stage is
on establishing objectives and timetables.
Strategy. Through tailored customer and competitive analyses,
we work with clients to agree upon the goals of the project. We emphasize
the development and alignment of customer-focused, Internet, general
business and information technology strategies. When appropriate, a prototype
solution is developed for the clients review.
Design. Business and technology specifications identified in
the strategy phase drive the project design. In designing a multi-phase
solution, we define business processes, Internet applications and
information technology needs. Our approach allows for continuous review for
each successive phase. Our approach allows us to work on multiple ongoing
projects for a single client at the same time.
Build. We construct and integrate components of Internet
applications and information technology systems. These components are
implemented over 90-day intervals and are continuously reviewed for quality
assurance.
Integration. Our integration approach addresses both
organizational and systems needs. Key activities in this stage often
include changes in business processes, system conversions, training and
documentation. This phase also includes quality assurance and client
review.
Support. During the support stage, we continue to provide
assistance to clients. These services may include business process change,
information technology and Internet application support. Our support
services foster ongoing client relationships that can lead to additional
project work. Another key element of our support services is the technical
training of client personnel on the use of our solutions. Our services also
include customized training, classroom instruction, manuals and
documentation.
Representative eSolutions
Developing a New Customer and Market
Approach in Telecommunications
Challenge: Navigate a deregulating telecommunications
environment, migrate to Web-based information access, build closer
relationships with target customers and bring innovative new products and
services to market.
eSolution: Braun Consulting is working with a
telecommunications provider to introduce customer relationship management
strategies, build critical business intelligence capabilities and enhance
information technology systems. In the first phase of the project, we
conducted an extensive interview process with the leadership team that
identified needs in marketing strategy, organizational structure, business
processes, data management and systems requirements. From this phase we
delivered an executive report that outlined recommendations for strategy
and development of a marketing database that will be accessible through the
Internet and intranet when complete. In the second phase, we designed and
implemented a new marketing system that defined optimal organization and
business processes.
Results: Our eSolution is designed to handle 21 million
current and prospective customers and 1 billion customer transactions per
month. Currently, in the third phase of the project, we are designing and
implementing enhancements to the Web-enabled, customer-focused marketing
data warehouse. Significant enhancements include customer care information
from the front-office system, additional marketing campaign channels, and
current customer demographics from a new billing system.
Business-to-Business Digital Exchange
for the Construction Industry
Challenge: Build a dot.com startup to take advantage of the
highly fragmented distribution channels in the commercial construction
industry.
eSolution: Braun Consulting is working with BidBuyBuild.com to
build an Internet-based digital exchange to enable contractors and
suppliers to interact in a more direct and efficient manner. The automated
process involves the creation of contractor driven auctions, request for
quotes and facilitation of the bidding process. The site will allow
contractors to create and monitor auctions, automate bidding workflow
procedures for suppliers, simplify the communication and information
sharing process for both contractors and suppliers, and
build a commerce-enabled community for these constituents. Our eSolution is
implemented with leading-edge Internet auction software as its core
technology, which we extend with advanced Internet custom application
development. In addition, the exchange uses Web-enabled database
technology.
Results: BidBuyBuild.com is utilizing our program that
provides full-featured implementation services including strategic
guidance, technical implementation and creative integration. The work is
being done within our Chicago technology center. We have successfully
launched BidBuyBuild.coms demo site. The full production site is
currently scheduled to go live early in the second quarter, with phase two
extending the reach and capability of the system to other construction
industry segments and international markets.
Maximizing Revenues Through Customer
Relationship Management
Challenge: Increase national service firms revenues from
their current customer base and grow the profitability of their catalog
business.
eSolution: Braun Consulting worked with the client to create a
state of the art customer relationship management system, from development
of a customer-focused strategy through technology implementation. Our
eSolution integrates the clients multiple customer service, billing,
and order entry information technology systems. Customer information is
collected and analyzed to define customer profiles and develop meaningful
customer segmentation. The system is designed to be a marketing portal that
executes marketing programs using campaign management tools. The campaigns
use newly developed metrics to target promotional activities to the most
receptive customers. In addition, our eSolution also ranks catalog
customers by profitability, allowing for more finely tuned marketing to
relevant clientele. Our deployment of leading-edge technologies in database
development, data quality, and campaign management were essential for the
success of the project.
Results: Improved understanding of customer information allows
our client to grow revenues through cross selling to the existing client
base. In addition, the catalog business increases profits by focusing
marketing efforts on the most profitable customers.
Intranet-driven Products and
Services
Challenge: Increase Fortune 100 clients effectiveness in
sales and marketing through the use of an intranet.
eSolution: Braun Consulting worked with a Fortune 100
manufacturer of electronics equipment to rethink how to more effectively
market an expansive collection of product and service offerings. Working
with the client, we built and deployed a Web-based solution that
effectively integrated dispersed business locations and hundreds of product
and service offerings. We utilized database technology for efficient
information storage and leading server products to manage and distribute
information. Our approach included using the latest in browser technology
to deploy a Web-based application across dozens of office locations. Our
eSolution made the complex system user-friendly. The system is now able to
calculate product and service offering charges and improve inventory
management.
Results: The client is now better equipped to compete in
highly competitive markets and improve customer satisfaction by identifying
and tailoring product and service offerings that best meet customers
needs. Through intranet-based access to information, this Fortune 100
client is capitalizing on business and customer information to more
effectively target and deliver hundreds of products and services. Taking
advantage of its new business capability, the client is now able to better
focus on increasing revenues and profits by optimizing its pricing
strategies.
Clients
We work
with Fortune 500 and middle market companies across a wide variety of
industries, including telecommunications, healthcare, consumer packaged
goods, manufacturing and financial services. In 1999 our ten largest
clients generated approximately 56% of our revenues, with Pharmacia &
Upjohn accounting for 24.4% of our revenues. The services provided to this
client were divided among a number of divisions and subsidiaries in
multiple client locations. Most of our large clients have retained us for
multiple projects on an ongoing basis. Existing clients from the previous
fiscal year generated approximately 75% of our revenues in 1999 and
approximately 76% of our revenues in 1998. The volume of work performed for
specific clients is likely to vary from year to year, and a significant
client in one year may not use our services in a subsequent year. Since the
beginning of 1997, our clients have included:
Telecommunications
Ameritech
AT&T
Embratel
MCI WorldCom
MediaOne
Qwest
Healthcare
American Home Products
Aventis
Clinical Reference Laboratory
Eisai
Eli Lilly
Medtronic
Novartis
Pharmacia & Upjohn
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Consumer Packaged
Goods
Kraft
Quaker Oats
Ralston Purina
S.C. Johnson
Manufacturing
Cummins Engine
Eaton
General Electric
General Motors
Honeywell
Motorola
Steelcase
Thomson Consumer
Electronics
Trane
Ty Inc.
Xerox
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Financial
Services
Blue Cross/Blue Shield
Chase
CNA Insurance
Coregis
Employers Reinsurance
Kemper Insurance
MasterCard
The CIT Group
Other
Ameren
BidBuyBuild.com
BP Amoco
Cintas
Marathon Oil
MatchLogic
New Century Energies
TMP Worldwide
(Monster.com owner)
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Sales and Marketing
Braun
Consulting has made significant investments in sales and marketing
initiatives, and believes strongly that these business functions will be
important to our future growth and success. We have a dedicated team of
experienced business development managers who are focused on securing new
opportunities and maximizing client satisfaction.
Our
marketing team is engaged in a strategic initiative to develop brand and
image recognition. We have invested in our corporate identity and continue
to engage in activities designed to build awareness. For example, current
programs include promotional material and brochures, Web page development,
lead generation and executive seminars, market research and trade shows. We
utilize public relations, online marketing efforts and industry events to
brand Braun Consulting as an Internet professional services provider. In
addition, we participate in speaking, publishing and presentation
opportunities to generate awareness in our target markets and among our
target clients.
Culture, People and Recruiting
Braun
Consultings employees and culture are the cornerstone of our success.
Through our balanced work philosophy and our aggressive recruiting efforts,
we have been able to attract and retain qualified
professionals.
Culture
Our
demanding, engaging and rewarding environment is combined with a culture
that also supports family time, community service and outside personal
interests. We strive to achieve a balanced approach to work and personal
life and believe that this component of our culture is significant to
recruiting and retaining quality professionals. We attribute our manageable
turnover rate to our quality professional opportunities and the strong
balance between work and personal life that is a fundamental component of
our culture.
People
We
employ professionals from industry, consulting organizations and selective
colleges and universities. Our people at all levels understand the
importance of quality work and client satisfaction. Working in teams,
consultants are rewarded for contributions and accountability. Our
compensation program offers every full-time employee incentive-based
opportunities to participate in our stock option plans.
We
contribute to the success of our people through ongoing professional
development and training. New employees typically receive professional
training and attend a team orientation. New hires who are recent graduates
receive four weeks of training in our culture, business, specific
technologies and our Transform methodology. We offer computer-based
training through the Internet to enhance our ongoing education commitment
to employees.
As of
December 31, 1999, we had 399 employees. Of these, 331 were project
personnel, 22 were selling and marketing personnel, and 46 were general and
administrative personnel. None of our employees are represented by a labor
union, and we consider our employee relations to be good.
Recruiting
To
support continued growth, we have built a recruiting organization. To
recruit quality people, we use full-time recruiters, external recruiting
resources, the Internet, employee referrals and campus recruiting events.
Our campus recruiting program has earned brand name recognition among
students on campuses of leading educational institutions.
Diversity in experience is one of our strengths. In 1999,
approximately 63% of our new hires were experienced professionals and
approximately 37% were recent college and university graduates. Our new
hires include industry managers, consulting leaders, technology
specialists, CPAs and graduates with Ph.D., M.B.A., liberal arts and
engineering degrees.
Operations
Braun
Consulting is continuously enhancing operational infrastructure to support
and sustain our growth. Our management team focuses on business operations
through key proprietary internal systems and reporting capabilities that
have been developed in several areas, including:
Business Development/Sales Pipeline. Opportunities are
monitored by business development managers and practice leaders. Reviewed
weekly, opportunities are discussed by client, line of service, total
revenues, likelihood of selling a project, date of closing an agreement and
work start date.
Forecast Report. Resources management is reviewed for optimal
staffing, revenue forecasting and demand-based allocation of available
consultants. Our forecasts are based on 90-day projections derived from
signed client agreements. The forecast report covers projected billable
hours by practice, average billing rates, utilization and comparison to
planned budget. Practice leaders, finance personnel, human resources and
senior management review reports semi-monthly.
Time & Expense Reports and Billing. Time and expense reports are
generally available online within 12 hours of semi-monthly period closing.
This system allows for timely revenue information and detailed management
reporting. The system allows invoicing of clients within two days of period
closing.
Flash
Report. Performance is monitored by practice area in semi-monthly,
month-to-date and year-to-date reports. Flash reports compare actual
results to budget and contain information on revenues generated, hours
worked, total headcount, new hires, utilization rates and average billing
rates.
Hiring Pipeline Report. Budgeted hiring is tracked by practice
area and the various stages of individual candidates. Individuals in
process are tracked through resume review, interview process, offer status
and acceptance or rejection of employment. The hiring pipeline report is
designed to optimize resources and is integrated with the business
development and forecast reports.
Competition
Competition in the Internet professional services marketplace is
strong. Our current and anticipated competitors include:
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emerging Web consulting
firms such as Agency.com, Proxicom, Razorfish, Scient, USWeb/CKS and
Viant, which are focused on Internet-based, electronic business and
digital business solutions;
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systems integrators such
as Andersen Consulting, Cambridge Technology Partners, Ernst & Young,
PricewaterhouseCoopers and Sapient;
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strategy and management
consulting firms such as Bain, Boston Consulting Group, Diamond
Technology Partners and McKinsey;
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regional specialized
information technology firms;
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vendor-based services
organizations of companies such as IBM and Oracle; and
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internal management and
information technology departments of current and future client
organizations.
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The
market for our services is subject to rapid technological change and
increased competition from large existing players, new entrants and
internal information technology groups. We believe the principal
competitive factors in our market include Internet expertise and talent,
client references, integrated strategy, business intelligence and data
warehousing capabilities, quality, executive management, consulting skills,
pricing and speed of service delivery, and industry-specific knowledge. We
believe the market will continue to offer significant opportunity for
multiple players. We believe we compete favorably with respect to these
factors. See Risk FactorsThe eSolutions market subjects us to
risks.
Facilities
Our
headquarters are located in Chicago, Illinois. Our principal
administrative, finance, sales and marketing operations are located in
Chicago, Illinois and Boston, Massachusetts. Our facilities in Chicago are
located in approximately 17,200 square feet of leased office space and our
facilities in Boston are located in approximately 24,500 square feet of
leased office space. We also serve clients out of our leased office space
in Cleveland, Ohio; Dallas, Texas; Denver, Colorado; Detroit, Michigan;
Indianapolis, Indiana; Minneapolis, Minnesota; Mount Laurel, New Jersey;
Reston, Virginia; and St. Louis, Missouri. We expect that we will need
additional space as we expand our business and believe that we will be able
to obtain suitable space as needed.
Legal Proceedings
Braun
Consulting is not involved in any material legal proceedings.
Directors and Executive Officers
The
following table sets forth the names, ages and positions of our directors
and executive officers as of December 31, 1999:
Name
|
|
Age
|
|
Position
|
Steven J.
Braun |
|
40 |
|
President, Chief Executive Officer and
Chairman of the Board of Directors |
|
Thomas J.
Duvall |
|
49 |
|
Chief Operating Officer, Executive
Vice President and Director |
|
John C. Burke |
|
61 |
|
Chief Financial Officer and
Treasurer |
|
Michael J.
Evanisko |
|
50 |
|
Executive Vice President and
Director |
|
James M.
Kalustian |
|
39 |
|
Executive Vice President and
Director |
|
Stephen J.
Miller |
|
49 |
|
Executive Vice President and
Director |
|
Paul J.
Bascobert |
|
35 |
|
Senior Vice President |
|
David R.
Fenner |
|
41 |
|
Senior Vice President |
|
Curt S. Sellke |
|
41 |
|
Senior Vice President |
|
Thomas A.
Schuler |
|
38 |
|
Vice President of Corporate
Development |
|
Gregory A.
Ostendorf |
|
44 |
|
General Counsel and Secretary |
|
Norman R.
Bobins |
|
57 |
|
Director (1 |
) |
William M.
Conroy |
|
40 |
|
Director |
|
William H.
Inmon |
|
54 |
|
Director |
|
Eric V.
Schultz |
|
38 |
|
Director (1 |
) |
(1) Member of Audit Committee and Compensation
Committee.
Steven J. Braun. Mr. Braun founded Braun Consulting in 1990
and has served as President, Chief Executive Officer and Chairman of the
Board of Directors since our inception. Mr. Braun began his entrepreneurial
activities in 1985 when he co-founded Shepro Braun Consulting, a
professional services practice dedicated to business and information
technology solutions. Mr. Braun joined Price Waterhouse LLP in 1982 as a
consultant after he earned an A.B. from Harvard College.
Thomas J. Duvall. Mr. Duvall has served as Chief Operating
Officer, an Executive Vice President and a director since November 1998.
Prior to joining us, Mr. Duvall was a Management Consulting Partner at
PricewaterhouseCoopers LLP where he was responsible for the Chicago office
consulting practice and for PricewaterhouseCoopers LLPs nationwide
Chemical Industry consulting practice. Mr. Duvall spent more than 23 years
at PricewaterhouseCoopers LLP, including the last 12 years as a Partner of
the firm. Mr. Duvall has a B.S. from Indiana Central College and an M.B.A.
from State University of New York at Buffalo.
John
C. Burke. Mr. Burke has served as Chief Financial Officer and Treasurer
since May 1996. Prior to joining us, Mr. Burke was with the public
accounting firm of Grant Thornton LLP for 30 years. Mr. Burke served as a
member of senior management of Grant Thornton LLP for 20 years and held the
positions of Chairman of the firm and Chicago Area Managing Partner. Mr.
Burke is a C.P.A. and has a B.S. from the University of Notre
Dame.
Michael J. Evanisko. Mr. Evanisko has served as an Executive
Vice President and a director since May 1999. Mr. Evanisko was a founder
and President of Vertex Partners. Prior to co-founding Vertex Partners in
1994, Mr. Evanisko was a founder and Vice President in Corporate Decisions,
Inc., a strategic consulting firm, from 1983 to 1993. Mr. Evanisko was a
consultant and manager at Bain & Co. from 1980 to 1983. In addition to
his consulting career, Mr. Evanisko served as Chairman of Digitrace Care
Services, Inc. from 1990 to 1996 and Elensys, Inc. from 1993 to present.
Mr. Evanisko also serves as President of The Partnership for Organ
Donation, Inc. Mr. Evanisko has a B.A. and an M.P.A. from Pennsylvania
State University and an M.A. and an M.Phil. from Yale
University.
James M. Kalustian. Mr. Kalustian has served as an Executive Vice
President and a director since May 1999. Mr. Kalustian was a founder and
Vice President of Vertex Partners. Prior to co-founding Vertex Partners in
1994, Mr. Kalustian was a Manager at Corporate Decisions, Inc. from 1989 to
1994. Mr. Kalustian served in various marketing positions from 1982 to 1989
for Raytheon Company, W.R. Grace & Co. and Canada Dry. Mr. Kalustian
has an A.B. from Harvard College and an M.B.A. from Northwestern
University.
Stephen J. Miller. Mr. Miller has served as an Executive Vice
President and a director since May 1999. Mr. Miller was a founding member
of Braun Consulting and has been part of the senior management team since
1993. Mr. Miller has worked in the information technology consulting
marketplace for the past 20 years, specializing in database management and
business intelligence. Mr. Miller has a B.A. from The Johns Hopkins
University and an M.S. from the University of Illinois.
Paul
J. Bascobert. Mr. Bascobert has served as a Senior Vice President since
May 1999. Mr. Bascobert was a Vice President and founding member of Vertex
Partners. Prior to joining Vertex Partners in 1994,
Mr. Bascobert was with Corporate Decisions, Inc. from 1992 to 1994. Mr.
Bascobert held the position of systems engineer for General Motors and
Whirlpool Corporation from 1982 to 1990. Mr. Bascobert has a B.S.E.E. from
Kettering University and an M.B.A. from the University of
Pennsylvania.
David
R. Fenner. Mr. Fenner is a Senior Vice President and has been with us
since November 1994.
Mr. Fenner has 15 years of information systems experience. Prior to joining
us, Mr. Fenner was employed by Oracle Corporation from 1990 to 1994 and
American Management Systems from 1986 to 1990. Mr. Fenner has a B.A. from
Pace University and an M.B.A. from the University of Chicago.
Curt
S. Sellke. Mr. Sellke is a Senior Vice President and has been with us
since May 1994. Prior to joining us, Mr. Sellke was the District Manager
for Professional Services at Sybase from 1991 to 1994. Mr. Sellke has 19
years of information systems experience and has worked in a similar
capacity for Oracle Corporation, Bricker & Associates, The Whitewater
Group and Baxter Healthcare. Mr. Sellke has a B.B. from Western Illinois
University and an M.S. in Computer Science from DePaul
University.
Thomas A. Schuler. Mr. Schuler has served as Vice President of
Corporate Development since November 1998. Prior to joining us, Mr. Schuler
was Vice President of Development for Professional Dental Associates from
1997 to 1998. Prior to joining Professional Dental Associates, Mr. Schuler
was employed by Oxford Resources as Senior Vice President of Funding, from
1995 to 1996. From 1984 to 1995, Mr. Schuler held various investment
banking positions for State Street Bank, Blalack-Loop and Lehman Brothers.
Mr. Schuler has an A.B. from Harvard College and an M.B.A. from the
University of California at Los Angeles.
Gregory A. Ostendorf. Mr. Ostendorf has served as General
Counsel since August 1996 and Secretary since October 1996. Prior to
joining us, Mr. Ostendorf was a partner in the law firm of Cage, Hill &
Niehaus from 1988 to 1996. Mr. Ostendorf has a B.S. from Western Kentucky
University and a J.D. from Indiana University.
Norman R. Bobins. Mr. Bobins was appointed as an independent
director of Braun Consulting in August 1999. Mr. Bobins is currently
serving as President and CEO of LaSalle Bank National Association, and has
served in various capacities at LaSalle Bank National Association or its
predecessors since April 1981. Mr. Bobins also currently serves as a
director of ABN AMRO Bank Canada, CenterPoint Properties Trust, Chicago
Title & Trust Co., Federal Home Loan Bank of Chicago, RREEF America
REIT II, Inc. and Transco, Inc.
William M. Conroy. Mr. Conroy was appointed as an independent
director of Braun Consulting in August 1999. Mr. Conroy is currently
serving as Executive Vice President and COO of TenFold Corporation, and has
been with TenFold Corporation since November 1997. Prior to joining TenFold
Corporation, Mr. Conroy served in various capacities at Oracle Corporation
from 1986 to 1997. Mr. Conroy was Area Vice President of Oracle Corporation
from 1990 to 1995, and was Group Vice President from 1996 to 1997. Mr.
Conroy also currently serves as a director of TenFold Energy, Inc., TenFold
Insurance, Inc. and TenFold Healthcare, Inc.
William H. Inmon. Mr. Inmon was appointed as an independent director
of Braun Consulting in August 1999. Mr. Inmon is currently serving as Chief
Technology Officer and Chairman of the Board of Pine Cone Systems, Inc.,
and has been with Pine Cone Systems, Inc. since 1995. From 1990 to 1996,
Mr. Inmon served as Executive Vice President and as a director of Prism
Solutions, Inc. Mr. Inmon also currently serves as a director of Pine Cone
Systems, Inc.
Eric
V. Schultz. Mr. Schultz was appointed as an independent director of
Braun Consulting in August 1999. Mr. Schultz is currently serving as
Chairman and CEO of Wireless Knowledge, a joint venture between Microsoft
Corporation and Qualcomm, and has been with Wireless Knowledge since
December 1999. Prior to joining Wireless Knowledge, Mr. Schultz served as
Director of Wireless Strategy and Sales in the Commerce and Consumer Group
of Microsoft Corporation from 1998 to 1999. From 1989 to 1998, Mr. Schultz
served as CEO and a director of The MESA Group, Inc.
Except
for Messrs. Duvall, Evanisko, Kalustian and Bascobert, each of whom has an
employment agreement, our executive officers are appointed annually by, and
serve at the discretion of, the board of directors. Mr. Ostendorf is the
brother-in-law of Mr. Braun. There are no other family relationships
between any of our directors or executive officers. See
Employment Agreements.
Board of Directors
Our
board consists of nine directors divided into three classes, denominated
Class I, Class II and Class III. Four of our directors are independent
directors. Members of each class hold office for three-year terms which are
staggered. At each annual meeting of our stockholders starting with the
meeting in 2000, the successors to the directors whose terms expire at that
meeting will be elected to serve for a three-year period following their
election or until a successor has been duly elected and qualified. Messrs.
Bobins, Conroy and Inmon are Class I directors whose terms expire at the
2000 annual meeting of stockholders. Messrs. Duvall, Kalustian and Schultz
are Class II directors whose terms expire at the 2001 annual meeting of
stockholders. Messrs. Braun, Miller and Evanisko are Class III directors
whose terms expire at the 2002 annual meeting of stockholders. The
expiration of a directors term is subject in all cases to the
election and qualification of his successor or his earlier death, removal
or resignation. Each of Messrs. Duvall, Evanisko and Kalustian have
employment agreements providing for their nomination as our directors. See
Employment Agreements.
Committees of the Board of Directors
We have
an audit committee and a compensation committee. The audit committee
consists of Messrs. Bobins and Schultz. The audit committee recommends the
annual appointment of our auditors, with whom the audit committee reviews
the scope of audit and non-audit assignments and related fees, accounting
principles used in financial reporting, internal auditing procedures and
the adequacy of our internal control procedures. The compensation committee
consists of Messrs. Bobins and Schultz. The compensation committee makes
recommendations to the board regarding compensation for our executive
officers. The compensation committee also administers the 1998 Employee
Long Term Stock Investment Plan, the 1998 Executive Long Term Stock
Investment Plan and the 1995 Director Stock Option Plan.
Compensation of Directors
Directors who are also our employees receive no additional
compensation for their services as directors. Directors who are not our
employees will receive a $1,000 fee for attendance in person at meetings of
the board or committees of the board and will be reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with their
attendance at such meetings. Non-employee directors receive stock options
as an additional component of compensation pursuant to the 1999 Independent
Director Long Term Stock Investment Plan. Directors who are our employees
are eligible to participate in our 1998 Employee Long Term Stock Investment
Plan, 1998 Executive Long Term Stock Investment Plan and 1995 Director
Stock Option Plan.
Compensation Committee Interlocks and Insider
Participation
Mr.
Braun served as the sole member of the compensation committee during 1999
until the completion of our initial public offering in August 1999. Messrs.
Bobins and Schultz now serve as the members of the compensation committee.
Neither of these two directors have at any time been officers or employees
of Braun Consulting and neither of these two directors serves as a member
of the board of directors or compensation committee of any entity that has
one or more executive officers serving as a member of our board of
directors or compensation committee.
Executive Compensation
The
following table sets forth certain summary information concerning the
compensation earned during 1998 and 1999 by our President and Chief
Executive Officer and the four other most highly compensated officers. We
use the term named executive officers to refer to these people
in this prospectus. The table excludes certain perquisites and other
personal benefits received by a named executive officer that do not exceed
the lesser of $50,000 or 10% of any such officers salary and bonus
disclosed in the table.
Summary Compensation Table
Name and Principal
Position
|
|
Year
|
|
Annual
Compensation
|
|
Long-Term
Compensation
Awards
|
|
All Other
Compensation(1)
|
|
|
Salary
|
|
Bonus
|
|
Securities
Underlying Options
|
Steven J. Braun
President and Chief Executive Officer |
|
1999
1998 |
|
$333,333
333,333 |
|
$ 65,000 |
|
|
|
$2,400
2,000 |
|
Thomas J. Duvall
Chief Operating Officer and
Executive Vice President |
|
1999
1998 |
|
315,000
50,000 |
|
57,250
|
|
3,500
333,330 |
|
2,297
|
|
Michael J. Evanisko
Executive Vice President |
|
1999
1998 |
|
278,333
220,000 |
|
150,000
44,200 |
|
62,899
49,314 |
|
1,159 |
(2)
1,600 |
Stephen J. Miller
Executive Vice President |
|
1999
1998 |
|
250,000
200,000 |
|
43,650
69,244 |
|
|
|
3,322
2,083 |
|
James M. Kalustian
Executive Vice President |
|
1999
1998 |
|
231,667
180,000 |
|
100,000
20,104 |
|
45,374
|
|
1,600
1,518 |
|
(1)
|
Represents 401(k)
matching contributions by us.
|
(2)
|
Amount was reduced by
$441 to reflect an overpayment in 1998.
|
The
following table sets forth information on grants of stock options during
1999 to the named executive officers.
Option Grants in 1999
|
|
Individual
Grants
|
Name
|
|
Number of
Securities
Underlying
Options
Granted in
1999
|
|
Percent of
Total
Options
Granted to
Employees
in 1999
|
|
Exercise Price
(per share)(1)
|
|
Expiration
Date
|
|
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term(2)
|
|
|
|
|
|
5%
|
|
10%
|
Steven J.
Braun |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J.
Duvall |
|
3,500 |
|
0.2 |
% |
|
$ 7.00 |
|
8/2006 |
|
$ 9,974 |
|
$ 23,244 |
Michael J.
Evanisko |
|
62,899 |
|
3.9 |
|
|
7.00 |
|
8/2006 |
|
179,243 |
|
417,713 |
Stephen J.
Miller |
|
|
|
|
|
|
|
|
|
|
|
|
|
James M.
Kalustian |
|
45,374 |
|
2.8 |
|
|
7.00 |
|
8/2006 |
|
129,302 |
|
301,330 |
(1)
|
The exercise price equals
the fair market value of the common stock as of the grant date as
determined by the board of directors.
|
(2)
|
The potential realizable
value is calculated based on the term of the option at the time of grant
(7 years). Assumed stock price appreciation of 5% and 10% is based on the
fair value at the time of the grant.
|
The
following table sets forth information with respect to exercises of options
by the named executive officers during 1999 pursuant to the 1998 Employee
Long Term Stock Investment Plan, the 1998 Executive Long Term Stock
Investment Plan and the 1995 Director Stock Option Plan, and information
with respect to unexercised options to purchase common stock held by them
at December 31, 1999.
Aggregated Option Exercises in 1999 and Year-End 1999 Option
Values
Name
|
|
Number
of Shares
Acquired
on
Exercise
|
|
Value
Realized
|
|
Number of Securities
Underlying Unexercised
Options Held at
December 31, 1999
|
|
Value of Unexercised
In-the-Money Options at
December 31, 1999(1)
|
|
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Steven J.
Braun |
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J.
Duvall |
|
66,666 |
|
$1,791,649 |
|
|
|
270,164 |
|
|
|
$18,506,234 |
Michael J.
Evanisko |
|
|
|
|
|
15,299 |
|
45,900 |
|
$1,033,447 |
|
3,100,545 |
|
|
|
|
|
|
|
|
1,700 |
|
|
|
109,650 |
Stephen J.
Miller |
|
|
|
|
|
|
|
|
|
|
|
|
James M.
Kalustian |
|
|
|
|
|
10,918 |
|
32,756 |
|
737,511 |
|
2,212,668 |
|
|
|
|
|
|
|
|
1,700 |
|
|
|
109,650 |
(1)
|
Calculated based on the
fair market value of the common stock at December 31, 1999 of $71.50,
minus the per share exercise price, multiplied by the number of shares of
common stock underlying the options.
|
Employment Agreements
Braun
Consulting has entered into employment agreements with Messrs. Duvall,
Evanisko, Kalustian and Bascobert. Mr. Duvalls agreement has a
five-year term, expiring on October 31, 2003. Each of the agreements for
Messrs. Evanisko, Kalustian and Bascobert has a three-year term, expiring
on April 30, 2002.
Pursuant
to their employment agreements, Mr. Duvall serves as Chief Operating
Officer and Executive Vice President, Messrs. Evanisko and Kalustian serve
as Executive Vice Presidents and Mr. Bascobert serves as Senior Vice
President. In addition, the agreements for Messrs. Duvall, Evanisko and
Kalustian provide for their nomination as our directors.
As of
December 31, 1999, pursuant to their employment agreements, the base salary
for Mr. Duvall was $315,000, for Mr. Evanisko was $300,000, for Mr.
Kalustian was $250,000 and for Mr. Bascobert was $225,000. Each of their
base salaries increase annually by the greater of five percent or the
consumer price index. Each of them is eligible to receive an annual bonus
targeted to be 20% of their respective base salaries. In addition, Mr.
Duvall is entitled to receive a quarterly bonus of $15,000, increasing each
year by the greater of five percent or the consumer price
index.
Pursuant
to their respective employment agreements and subject to vesting schedules,
each of Messrs. Evanisko, Kalustian and Bascobert was granted an option to
purchase shares of common stock under the 1998 Employee Long Term Stock
Investment Plan, and Mr. Duvall was granted an option to purchase shares of
common stock under the 1998 Executive Long Term Stock Investment Plan. See
Stock Plans.
Braun
Consulting can terminate any of the employment agreements (1) for cause,
(2) on the executives death or (3) on the executives permanent
disability. All of the agreements define cause as the executives
material gross negligence or willful misconduct, final conviction of a
felony, involvement in a conflict of interest or material breach of the
material provisions of the agreements. In addition, the agreements with
Messrs. Evanisko, Kalustian and Bascobert define cause to include the
executives knowing violations of Braun Consultings policies or
standards of conduct. Braun Consulting also can terminate the agreements
with Messrs. Evanisko, Kalustian and Bascobert without cause on 60 days
prior written notice. Each of Messrs. Evanisko, Kalustian and Bascobert can
terminate his agreement for good reason or on 60 days prior written notice.
Their agreements define good reason as a material breach of the agreements
by Braun Consulting or a material change in the location of employment, the
executives reporting relationship or the nature or scope of the
executives duties. Either Braun Consulting or Mr. Duvall can
terminate his agreement for any reason on 90 days prior written
notice.
Under
the agreements with Messrs. Evanisko, Kalustian and Bascobert, in the case
of an involuntary termination, the executive continues to receive his base
salary for one to two years depending on the remaining term under his
agreement and how long he has worked for us. However, if the involuntary
termination occurs after a change of control of Braun Consulting, the
executive shall receive his base salary for the remainder of the
term.
Under
the agreements for Messrs. Evanisko, Kalustian and Bascobert, in the event
of a termination of employment by us or by the executive for good reason,
75% of the unvested portion of the executives options vest
immediately, and any remaining unexercised options terminate on the date of
termination of employment. In the event of a termination of employment on
any other terms, the unexercised portion of the options terminates on the
date of the termination of employment.
Under
Mr. Duvalls agreement, if he is terminated for cause, the unvested
portion of his options terminates on the date of the termination of his
employment. If he is terminated other than for cause, or in the event of a
change of control, a portion of his unvested options vests immediately.
Within 90 days of a change of control or his termination for cause, Mr.
Duvall may elect to sell to us a portion or all of the shares of common
stock acquired upon exercise of his options, at a price equal to $6.00 per
share, payable in annual installments not to exceed $480,000 per
installment. In the event of an involuntary termination, Mr. Duvall may
elect to have a portion or all of his vested but unexercised options
terminated and receive special severance compensation equal to
the number of shares subject to the terminated options, multiplied by
$3.00. This amount is payable to Mr. Duvall in annual installments not to
exceed $240,000 per installment.
All of
the agreements define involuntary termination as the termination of
employment by Braun Consulting, prior to the expiration of the term and on
the required prior written notice, for any reason other than for cause, the
executives death or permanent disability. The agreements also state
that a change of control occurs when (1) Braun Consulting merges with
another entity and is not the surviving entity, sells all or substantially
all of its assets or is dissolved, (2) a person other than Steven J. Braun
or his family becomes the beneficial owner of at least 51% of the voting
stock of Braun Consulting or (3) the members of the board of directors of
Braun Consulting on the date that Braun Consulting becomes a public
company, or those new directors approved by the vote of at least 80% of
such incumbent directors, cease to constitute at least a majority of the
board.
The
agreements for Messrs. Evanisko, Kalustian and Bascobert contain standard
provisions regarding confidentiality, non-solicitation, non-competition and
Braun Consultings ownership of works of authorship prepared in the
scope of the executives employment with us. Braun Consulting and Mr.
Duvall have entered into a separate agreement containing similar
confidentiality, non-solicitation, non-competition and ownership
provisions.
Stock Plans
1998 Employee Long Term Stock Investment
Plan
The
Employee Plan, which is administered by the compensation committee,
provides for the grant of incentive stock options and non-qualified stock
options to purchase common stock. All our employees and persons with
written consulting agreements with Braun Consulting are eligible to
participate in the Employee Plan. The purpose of the Employee Plan is to
provide participants an opportunity to own common stock and to advance our
interests by providing an additional incentive by increasing proprietary
interest in our success.
The
maximum number of shares of common stock for which options may be granted
under the Employee Plan is the greater of (a) 2,000,000 or (b) 20% of the
number of issued and outstanding shares of common stock. The price of any
stock purchased pursuant to an option may not be less than the fair market
value of the stock. Options are exercisable for ten years after the grant
date, and options may not be exercised until at least two months from the
grant date. Options granted under the Employee Plan generally are not
transferable by the optionee and terminate upon severance of
employment.
As of
December 31, 1999, there were options outstanding under the Employee Plan
to purchase 2,077,547 shares of common stock at a weighted average price of
$6.66 per share, of which 325,340 were exercisable as of December 31,
1999.
1998 Executive Long Term Stock Investment
Plan
The
Executive Plan, which is also administered by the compensation committee,
provides for the grant of incentive stock options and non-qualified stock
options to purchase common stock, and is substantially the same as the
Employee Plan, except as described below. The maximum number of shares of
common stock for which options may be granted under the Executive Plan is
600,000. Options granted under the Executive Plan terminate 30 days after
the severance of employment.
As of
December 31, 1999, there were options outstanding under the Executive Plan
to purchase 377,709 shares of common stock at a weighted average price of
$3.00 per share, of which 48,547 were exercisable as of December 31,
1999.
1995 Director Stock Option
Plan
The
Director Plan, which is also administered by the compensation committee,
provides for the grant of options to purchase common stock to all practice
area directors that are our employees. The purpose of the Director Plan is
to induce certain practice area directors to remain employed by us and to
encourage practice area directors to secure or increase their ownership in
us, thereby promoting continuity of management and increased incentive and
personal interest in us by those responsible for securing our continued
growth and success.
The
maximum number of shares of common stock for which options may be granted
under the Director Plan is 2,047,550. Options are not exercisable after
eight years after the date they are granted. Options granted under the
Director Plan generally are not transferable and generally terminate upon
severance of employment.
As of
December 31, 1999, there were options outstanding under the Director Plan
to purchase 175,594 shares of common stock at a weighted average price of
$0.30 per share, of which 3,664 were exercisable as of December 31,
1999.
1999 Independent Director Long Term Stock
Investment Plan
The
Independent Director Plan, which is administered by the board of directors,
provides for the grant of options to purchase common stock to all of our
directors who are not and have never been our employees and who do not
receive compensation from us other than as a director. The purpose of the
Independent Director Plan is to provide our independent directors
additional compensation for their services as directors and incentive,
through options to acquire our common stock, to increase the value of our
common stock.
The
maximum number of shares of common stock for which options may be granted
under the Independent Director Plan is 100,000. The price of any stock
purchased pursuant to an option may not be less than the fair market value
of the stock. Options granted under the Independent Director Plan generally
are not transferrable.
As of
December 31, 1999, there were options outstanding under the Independent
Director Plan to purchase 16,000 shares of common stock at a weighted
average price of $7.38 per share, of which 4,000 were exercisable as of
December 31, 1999.
Non Qualified Stock Option Plan of
ETCI
We
assumed the Non Qualified Plan as a result of our acquisition of ETCI in
December 1999. ETCIs board administered the Non Qualified Plan prior
to our acquisition of ETCI and our board has administered the Non Qualified
Plan since the acquisition. The Non Qualified Plan provides for the grant
of options to purchase common stock to all employees of ETCI who had been
employed by ETCI prior to our acquisition of ETCI. The purpose of the Non
Qualified Plan, as adopted by ETCI, was to enhance ETCIs ability to attract
and retain key employees in a position to contribute to the future growth
and success of ETCI.
All
options granted under the Non Qualified Plan must be exercised, if at all,
upon the earlier of the termination of the optionees employment or
the fifth anniversary of the beginning of the optionees employment
with ETCI. Options granted under the Non Qualified Plan generally are not
transferable.
As of
December 31, 1999, there were options outstanding under the Non Qualified
Plan to purchase an aggregate of 15,410 shares of our common stock at a
weighted average price of $11.23 per share, of which 175 were exercisable
as of December 31, 1999. No further grants will be made under the Non
Qualified Plan.
Limitations of Liability and Indemnification of Directors and
Officers
To the
extent permitted by Delaware General Corporation Law, we have included in
our certificate of incorporation a provision to eliminate the personal
liability of directors for monetary damages due to their breach or alleged
breach of their fiduciary duties. Our charter does not, however, provide
for indemnification for liability due to a directors breach of his or
her duty of loyalty to us or our stockholders, for acts involving bad faith
or intentional misconduct or violations of law, or for any transaction from
which the director received an improper personal benefit. In addition, our
bylaws require us to indemnify our officers and directors under certain
circumstances, and we are required to advance to our officers and directors
certain of their expenses incurred in connection with the proceeding
against them. We intend to obtain directors and officers
liability insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Vertex Registration Rights Agreement
In
connection with the acquisition of Vertex Partners in May 1999, Braun
Consulting entered into a registration rights agreement with Messrs.
Evanisko, Kalustian and Bascobert, who are collectively referred to as the
Holders. Under the terms of the registration rights agreement, the Holders
are entitled to piggyback registration rights with respect to the shares of
common stock owned by them. Each time we propose to register any of our
securities under the Securities Act, whether for our own account or for
other stockholders, the Holders are entitled to have their shares of common
stock registered by us as well, unless we are registering our securities on
Form S-4 or Form S-8. These registration rights are subject to conditions
and limitations, including the right of underwriters of an offering to
limit the number of shares included in the registration. We must pay
expenses related to the registration and distribution of the shares of
common stock held by the Holders under the registration rights
agreement.
ETCI Registration Rights Agreement
In
connection with the acquisition of ETCI in December 1999, Braun Consulting
entered into a registration rights agreement with Helene O. Amster, John D.
Vairo and Randy Dieterle, who are collectively referred to as the Holders.
Under the terms of the registration rights agreement, the Holders are
entitled to demand and piggyback registration rights with respect to the
shares of common stock owned by them. Each time we propose to register any
of our securities under the Securities Act, whether for our own account or
for other stockholders, the Holders are entitled to have their shares of
common stock registered by us as well, unless we are registering our
securities on Form S-4 or Form S-8. These registration rights are subject
to conditions and limitations, including the right of underwriters of an
offering to limit the number of shares included in the registration. We
must pay expenses related to the registration and distribution of the
shares of common stock held by the Holders under the registration rights
agreement.
Stockholders Agreement
Mr.
Braun and Mr. Miller are parties to an agreement providing that if Mr.
Braun sells any of his shares of our common stock to a third party during
the term of the agreement, then Mr. Miller has the option to sell the same
percentage of his shares to the same purchaser for the same price per share
and on the same terms as Mr. Brauns sale. In addition, the agreement
permits Mr. Miller to participate on the same terms as Mr. Braun in any
sale of our common stock registered under the Securities Act. The agreement
terminates upon the termination of Mr. Millers employment with
us.
Other Transactions
In
November 1998, Braun Consulting made an unsecured loan to Mr. Miller in the
amount of $29,128, with interest accruing at an annual interest rate of
7.75%, in connection with the exercise of stock options. The note matured
upon the completion of our initial public offering in August 1999. In
January 1999, Braun Consulting made an unsecured, interest-free loan to Mr.
Miller in the amount of $180,594 to fund the withholding of taxes due in
connection with the exercise of stock options. This loan matured upon the
completion of our initial public offering in August 1999. Mr. Miller used a
portion of the proceeds from his sale of shares of our common stock in our
initial public offering to repay the notes in August 1999.
In
January 1999, Braun Consulting made an unsecured loan to Mr. Sellke in the
amount of $67,800 to fund the withholding of taxes due in connection with
the exercise of stock options. In April 1999, Braun Consulting made an
unsecured loan to Mr. Sellke in the amount of $65,595, to fund the
withholding of taxes due in connection with the exercise of stock options.
The loans bear interest at 8.0%, are payable on demand and mature on
December 31, 1999. In September 1999, Mr. Sellke used a portion of the
proceeds from his sale of shares of our common stock in our initial public
offering to repay the entire January 1999 note and $35,595 of the April
1999 note. Mr. Sellke repaid an additional $24,848 of the April 1999 note
in December 1999 and repaid the remaining portion of the April 1999 note in
February 2000.
In
January 1999, Braun Consulting made an unsecured loan to Mr. Fenner in the
amount of $36,855 to fund the withholding of taxes due in connection with
the exercise of stock options. In April 1999, Braun Consulting made an
unsecured loan to Mr. Fenner in the amount of $227,736 to fund the
withholding of taxes due in connection with the exercise of stock options.
The loans bear interest at 8.0%, are payable on demand and mature on
December 31, 1999. Mr. Fenner used a portion of the proceeds from his sale
of shares of our common stock in our initial public offering to repay the
notes in September 1999.
In
December 1998, we executed a short-term demand note in favor of Mr. Braun
in the amount of $150,000 at an interest rate of 8.0%. This note was repaid
in January 1999.
PRINCIPAL AND SELLING STOCKHOLDERS
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1999 and immediately
following this offering by:
|
|
each person who
beneficially owns 5% or more of a class of capital stock;
|
|
|
each of the named
executive officers;
|
|
|
all of our directors and
executive officers as a group; and
|
|
|
all other selling
stockholders.
|
Unless
otherwise noted (i) each of the persons listed below has sole voting and
investment power with respect to the shares beneficially owned by him as
set forth opposite his name and (ii) the address for each of the persons
listed below is: c/o Braun Consulting, Inc., 30 West Monroe, Suite 300,
Chicago, Illinois 60603.
|
|
Beneficial Ownership
Prior to Offering (1)(2)(3)
|
|
Number
of
Shares
Offered
|
|
Beneficial Ownership
After Offering (1)(2)(3)
|
Name
|
|
Total
Number
|
|
Outstanding
Options
|
|
Percent
|
|
|
Total
Number
|
|
Outstanding
Options
|
|
Percent
|
Steven J. Braun
(4) |
|
9,168,876 |
|
|
|
53.5 |
% |
|
887,000 |
|
8,281,876 |
|
|
|
42.4 |
% |
Thomas J. Duvall
(5) |
|
100,874 |
|
34,208 |
|
* |
|
|
34,000 |
|
66,874 |
|
34,208 |
|
* |
|
John C. Burke
(6) |
|
73,135 |
|
38,135 |
|
* |
|
|
20,000 |
|
53,135 |
|
38,135 |
|
* |
|
Michael J. Evanisko
(7) |
|
653,705 |
|
15,724 |
|
3.8 |
|
|
100,000 |
|
553,705 |
|
15,724 |
|
2.8 |
|
James M. Kalustian
(8) |
|
480,850 |
|
11,343 |
|
2.8 |
|
|
77,307 |
|
403,543 |
|
11,343 |
|
2.1 |
|
Stephen J. Miller
(9) |
|
926,023 |
|
|
|
5.4 |
|
|
138,903 |
|
787,120 |
|
|
|
4.0 |
|
Paul J. Bascobert
(10) |
|
328,567 |
|
425 |
|
1.9 |
|
|
51,771 |
|
276,796 |
|
425 |
|
1.4 |
|
David R.
Fenner |
|
239,234 |
|
|
|
1.4 |
|
|
45,000 |
|
194,234 |
|
|
|
1.0 |
|
Curt S. Sellke
(11) |
|
317,572 |
|
97,094 |
|
1.8 |
|
|
62,220 |
|
255,352 |
|
97,094 |
|
1.3 |
|
Thomas A. Schuler
(12) |
|
28,879 |
|
14,377 |
|
* |
|
|
12,420 |
|
16,459 |
|
14,377 |
|
* |
|
Gregory A. Ostendorf
(13) |
|
21,635 |
|
9,135 |
|
* |
|
|
8,025 |
|
13,610 |
|
9,135 |
|
* |
|
Norman R. Bobins
(14) |
|
2,000 |
|
2,000 |
|
* |
|
|
|
|
2,000 |
|
2,000 |
|
* |
|
William M. Conroy
(15) |
|
2,000 |
|
2,000 |
|
* |
|
|
|
|
2,000 |
|
2,000 |
|
* |
|
William H. Inmon
(16) |
|
2,000 |
|
2,000 |
|
* |
|
|
|
|
2,000 |
|
2,000 |
|
* |
|
Eric V. Schultz
(17) |
|
14,000 |
|
2,000 |
|
* |
|
|
|
|
14,000 |
|
2,000 |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All executive officers
and directors as a
group (15 persons) |
|
12,359,350 |
|
228,441 |
|
71.2 |
|
|
1,436,646 |
|
10,922,704 |
|
228,441 |
|
55.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up to 30 additional
selling stockholders,
none of whom owns more than 1% of
our outstanding common stock |
|
747,503 |
|
56,408 |
|
4.4 |
|
|
163,354 |
|
584,149 |
|
56,408 |
|
3.0 |
|
Putnam Investments, Inc.
(18)
One Post Office Square
Boston, Massachusetts 02109 |
|
1,003,200 |
|
|
|
5.9 |
|
|
|
|
1,003,200 |
|
|
|
5.1 |
|
*
|
Represents less than one
percent of the total.
|
(1)
|
Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities, subject to community property laws, where applicable. The
amount of shares set forth in the Total Number column
includes the amount of shares set forth in the Outstanding Options
column.
|
(2)
|
The calculations in this
table of the percentage of outstanding shares are based on 17,130,783
shares of our common stock outstanding as of December 31, 1999 and
19,530,783 shares outstanding immediately following the completion of
this offering and assumes no exercise of the underwriters
over-allotment option. Shares of our common stock subject to options that
are presently exercisable or exercisable within 60 days of December 31,
1999 are deemed to be outstanding and beneficially owned by the person
holding such options for the purpose of computing the percentage of
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage of any other person.
|
(3)
|
Assumes no exercise of
the underwriters over-allotment option to purchase up to an
aggregate of 600,000 shares of common stock from us (487,000 shares) and
Steven J. Braun (113,000 shares). If the underwriters
over-allotment option is exercised in full, upon completion of this
offering Mr. Braun would beneficially own 8,168,876 shares of common
stock, representing 40.8% of the outstanding common stock.
|
(4)
|
Includes an aggregate of
40,000 shares subject to a voting trust, of which Steven J. Braun serves
as trustee, and an aggregate of 233,330 shares held in trust for Mr. Braun
s children.
|
(5)
|
Includes 34,208 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(6)
|
Includes 38,135 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(7)
|
Includes 15,724 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(8)
|
Includes 150,000 shares
held by a family limited partnership of which Mr. Kalustian is the
general partner and 11,343 shares of common stock issuable upon exercise
of outstanding stock options that will become exercisable within 60 days
of December 31, 1999.
|
(9)
|
Includes 6,000 shares
held in trust for Mr. Millers children.
|
(10)
|
Includes 425 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(11)
|
Includes 15,000 shares
held in trust for Mr. Sellkes children and 97,094 shares of common
stock issuable upon exercise of outstanding stock options that will
become exercisable within 60 days of December 31, 1999.
|
(12)
|
Includes 14,377 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(13)
|
Includes 9,135 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(14)
|
Includes 2,000 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(15)
|
Includes 2,000 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(16)
|
Includes 2,000 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(17)
|
Includes 2,000 shares of
common stock issuable upon exercise of outstanding stock options that
will become exercisable within 60 days of December 31, 1999.
|
(18)
|
Putnam Investments, Inc.,
which is a wholly-owned subsidiary of Marsh & McLennan Companies,
Inc., wholly owns two registered investment advisers: Putnam Investment
Management, Inc., which is the investment adviser to the Putnam family of
mutual funds and The Putnam Advisory Company, Inc., which is the
investment adviser to Putnams institutional clients. According to a
Schedule 13G filed by Putnam Investments, Inc., it has, with its
affiliates, beneficial ownership of 1,003,200 shares.
|
DESCRIPTION OF CAPITAL STOCK
This
summary contains a description of all of the material terms of our capital
stock. However, it does not describe every term of the capital stock
contained in our certificate of incorporation. We refer you to the
provisions of Delaware corporate law and our certificate of incorporation
and bylaws, which you can access through EDGAR at
www.sec.gov/edgarhp.htm.
Authorized and Outstanding Capital Stock
Our
certificate of incorporation authorizes us to issue 50,000,000 shares of
common stock, $0.001 par value per share, and 10,000,000 shares of
preferred stock, $0.001 par value per share. The preferred stock is
issuable in series. As of March 3, 2000, there were 17,398,907 shares of
Braun Consulting common stock outstanding that were held of record by 269
stockholders, and there were no shares of preferred stock
outstanding.
Common Stock
Voting Rights. Holders of our common stock are entitled to one
vote per share on all matters to be voted upon by the stockholders. The
holders of common stock are not entitled to cumulative voting rights with
respect to the election of directors, and as a result, minority
stockholders will not be able to elect directors on the basis of their
votes alone.
Dividend Rights. Subject to preferences that may be applicable
to any then outstanding shares of preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the
board out of funds legally available therefor. See Dividend Policy.
Liquidation Rights. In the event of our liquidation,
dissolution or winding up, holders of the common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding preferred stock. Holders of
common stock have no preemptive, conversion or other rights to subscribe
for additional securities of Braun Consulting. No redemption or sinking
fund provisions apply to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion
of the offering will be, validly issued, fully paid and
nonassessable.
Preferred Stock
Our
board has the authority, without further action by the stockholders, to
issue up to 10,000,000 shares of preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series. The
issuance of preferred stock could adversely affect the voting power of
holders of our common stock and could decrease the likelihood that such
holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change of
control of Braun Consulting. Accordingly, the issuance of shares of
preferred stock may discourage offers for our common stock or may otherwise
adversely affect the market price of our common stock. We have no present
plan to issue any shares of preferred stock.
Registration Rights
Braun
Consulting is a party to a registration rights agreement with Messrs.
Evanisko, Kalustian and Bascobert and a registration rights agreement with
Ms. Amster and Messrs. Vairo and Dieterle. Under the terms of the first
registration rights agreement, the Holders are entitled to piggyback
registration rights with respect to the shares of common stock owned by
them. Under the terms of the second registration rights agreement, the
Holders are entitled to demand and piggyback registration rights with
respect to the shares of common stock owned by them. See Certain
Relationships and Related TransactionsVertex Registration Rights
Agreement and Certain Relationships and Related Transactions
ETCI Registration Rights Agreement.
Stockholders Agreement
Mr.
Braun and Mr. Miller are parties to an agreement providing that if Mr.
Braun sells any of his shares of common stock to a third party during the
term of the agreement, then Mr. Miller has the option to sell the same
percentage of his shares to the same purchaser on the same terms as Mr.
Brauns sale. In addition, the agreement provides Mr. Miller with
certain registration rights. See Certain Relationships and Related
TransactionsStockholders Agreement.
Delaware Anti-Takeover Law and Certain Charter
Provisions
Delaware Anti-Takeover Statute. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Subject to certain exceptions, the statute prohibits a
publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became
an interested stockholder, unless:
|
|
prior to such date, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
|
|
|
upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer;
or
|
|
|
on or subsequent to such
date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66
2
/3% of the outstanding voting stock which is not owned by the
interested stockholder.
|
For
purposes of Section 203, a business combination includes a
merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and an interested stockholder is a
person who, together with affiliates and associates, owns (or within three
years prior to the date of determination whether the person is an
interested stockholder, did own) 15% or more of the corporation
s voting stock. Section 203 could prohibit or delay mergers or other
changes in control with respect to Braun Consulting and, accordingly, may
discourage attempts to acquire us. See Risk FactorsWe have
various mechanisms in place that may prevent a change in control that a
stockholder may consider favorable.
Certificate of Incorporation. Our certificate of incorporation
contains the following provisions which are intended to enhance the
likelihood of continuity and stability in the composition of the board and
in the policies formulated by the board and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Braun Consulting. These provisions provide:
|
|
for the authorization of
the board to issue, without further action by the stockholders, up to
10,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof;
|
|
|
that any action required
or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be
effected by a consent in writing;
|
|
|
that special meetings of
our stockholders may be called only by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or the
board;
|
|
|
for the division of the
board into three classes, with each class serving for a staggered term of
three years;
|
|
|
that vacancies on the
board, including newly created directorships, can be filled only by a
majority of the directors then in office;
|
|
|
that our directors may be
removed only for cause and only by the affirmative vote of holders of at
least 66 2
/3% of the outstanding shares of voting stock, voting together as a
single class;
|
|
|
that cumulative voting is
expressly prohibited;
|
|
|
that certain provisions
of the certificate of incorporation may be amended only by a vote of
66 2
/3% of the stockholders entitled to vote; and
|
|
|
that stockholders wishing
to nominate directors and propose other business to be conducted at
stockholder meetings must meet certain advance notice
requirements.
|
These
provisions are designed to reduce our vulnerability to an unsolicited
proposal for a takeover that does not contemplate the acquisition of all of
our outstanding shares, or an unsolicited proposal for the restructuring or
sale of all or part of Braun Consulting. Such provisions, however, could
discourage potential acquisition proposals and could delay or prevent a
change of control of Braun Consulting. Such provisions may also have the
effect of preventing changes in our management. See Risk Factors
We have various mechanisms in place that may prevent a change in
control that a stockholder may consider favorable.
Transfer Agent and Registrar
The
transfer agent and registrar for the common stock is LaSalle Bank National
Association, and its address is 135 South LaSalle Street, Chicago, Illinois
60603.
SHARES ELIGIBLE FOR FUTURE SALE
Upon
completion of this offering and assuming no exercise of the underwriters
over-allotment option and no exercise of outstanding stock options,
an aggregate of 19,530,783 shares of our common stock will be outstanding.
All of the shares sold in this offering, as well as the 4,182,300 shares
sold in our initial public offering, will be freely transferable without
restriction or limitation under the Securities Act of 1933 unless purchased
by our affiliates, as defined in Rule 144 under the Securities
Act. The number of shares which become eligible for sale at various dates
are subject in most cases to the limitations of Rule 144 under the
Securities Act.
Our
directors, executive officers, selling stockholders and some other
stockholders, who together in the aggregate will hold approximately 11
million shares of our common stock after the offering, and some option
holders have agreed not to sell, offer for sale, or otherwise dispose of
any of our common stock for a period of 90 days from the date of this
prospectus without the prior written consent of Salomon Smith Barney Inc.
The following table summarizes when our shares will be eligible for
sale:
Date
|
|
Approximate
Shares Eligible
for Future Sale
|
|
Comment
|
August 10,
1999 |
|
4,000,000 |
|
Initial public offering |
|
|
August 27,
1999 |
|
182,300 |
|
Partial exercise of over-allotment in
connection
with initial public offering |
|
|
Upon
effectiveness |
|
4,000,000 |
|
Shares sold in this offering |
|
|
90 days after
effective date and thereafter |
|
11,000,000 |
|
All shares subject to lock-up
released |
In
general, under Rule 144 as currently in effect, after the expiration of the
lock-up agreements, a person who has beneficially owned shares of common
stock for at least one year would be entitled to sell within any
three-month period the number of shares of common stock that does not
exceed the greater of:
|
|
1% of the number of then
outstanding shares; or
|
|
|
the average weekly
reported trading volume during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to that sale.
|
Sales
under Rule 144 are also subject to certain notice and manner of sale
requirements and to the availability of current public information about us
and must be made in unsolicited brokers transactions or to a market
maker. A person who is not our affiliate under the Securities
Act during the three months preceding a sale and who has beneficially owned
shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume, notice, information and manner of sale
provisions. Our affiliates must comply with the restrictions and
requirements of Rule 144 when transferring restricted shares even after the
two-year holding period has expired and must comply with the restrictions
and requirements of Rule 144 other than the one-year holding period in
order to sell unrestricted shares. Rule 144 allows persons to include the
holding period of the transferor under certain circumstances.
Any of
our employees, officers, directors or consultants who purchased or were
awarded shares or options to purchase shares prior to this offering are
generally entitled to rely on the resale provisions of Rule 701 under the
Securities Act, which permit affiliates and non-affiliates to sell such
shares without having to comply with the holding period restrictions of
Rule 144, in each case commencing 90 days after the effective date of our
initial public offering. In addition, non-affiliates may sell such shares
without complying with the public information, volume and notice provisions
of Rule 144.
Messrs.
Evanisko, Kalustian, Bascobert, Vairo and Dieterle and Ms. Amster have
certain rights to register in the future under the Securities Act the
shares of our common stock owned by them. See Certain Relationships
and Related TransactionsVertex Registration Rights Agreement
and Certain Relationships and Related TransactionsETCI
Registration Rights Agreement.
On
February 18, 2000, we filed a registration statement on Form S-8 to
register all of the shares of common stock which could be purchased upon
the exercise of stock options outstanding on that date and all of the
shares of common stock reserved for issuance pursuant to the 1998 Employee
Long Term Stock Investment Plan, the 1998 Executive Long Term Stock
Investment Plan, the 1995 Director Stock Option Plan, the 1999 Independent
Director Long Term Stock Investment Plan and the Non Qualified Stock Option
Plan of ETCI. Accordingly, shares issued upon exercise of such options are
freely tradeable by holders who are not our affiliates and, subject to the
volume and other limitations of Rule 144, by holders who are
affiliates.
Subject
to the terms and conditions stated in the underwriting agreement dated the
date hereof, each underwriter named below has severally agreed to purchase,
and we and the selling stockholders have agreed to sell to each
underwriter, the number of shares set forth opposite the name of each
underwriter.
Name
|
|
Number
of Shares
|
Salomon Smith Barney Inc.
|
|
|
Deutsche Bank Securities,
Inc. |
|
|
Adams, Harkness &
Hill, Inc. |
|
|
ING Barings
LLC |
|
|
PaineWebber
Incorporated |
|
|
SG Cowen Securities
Corporation |
|
|
|
|
|
Total |
|
4,000,000 |
|
|
|
The
underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject
to approval of legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any
of the shares.
The
underwriters, for whom Salomon Smith Barney Inc., Deutsche Bank Securities,
Inc., Adams, Harkness & Hill, Inc., ING Barings LLC, PaineWebber
Incorporated and SG Cowen Securities Corporation are acting as
representatives, propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus
and some of the shares to dealers at the public offering price less a
concession not in excess of $
per share. The underwriters may allow, and
the dealers may reallow, a concession not in excess of $
per share on sales to other dealers. If all
of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms.
We and
the selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to
600,000 additional shares of common stock at the public offering price less
the underwriting discount. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, in connection with
this offering. To the extent the underwriters exercise this option, each
underwriter will be obligated, subject to various conditions, to purchase a
number of additional shares approximately proportionate to that underwriter
s initial purchase commitment.
We, our
officers and directors, the selling stockholders and some of the option
holders have agreed that, for a period of 90 days from the date of this
prospectus, they will not, without the prior written consent of Salomon
Smith Barney Inc., dispose of or hedge any shares of our common stock or
any securities convertible into or exchangeable for common stock. Salomon
Smith Barney Inc. in its sole discretion may release any of the securities
subject to these lock-up agreements at any time without notice.
Our
common stock is quoted on the Nasdaq National Market under the symbol
BRNC.
The
following table shows the underwriting discounts and commissions to be paid
to the underwriters by us and the selling stockholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters option to purchase additional shares of
our common stock.
|
|
Paid by Braun
Consulting
|
|
Paid by
Selling Stockholders
|
|
|
No Exercise
|
|
Full Exercise
|
|
No Exercise
|
|
Full Exercise
|
Per share |
|
$
|
|
$
|
|
$
|
|
$
|
Total |
|
$
|
|
$
|
|
$
|
|
$
|
In
connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include:
|
|
over-allotment, which
involves syndicate sales of our common stock in excess of the number of
shares to be purchased by the underwriters in the offering, which creates
a syndicate short position;
|
|
|
syndicate covering
transactions, which involve purchases of our common stock in the open
market after the distribution has been completed in order to cover
syndicate short positions; and
|
|
|
stabilizing transactions,
which consist of bids or purchases of our common stock made for the
purpose of preventing or retarding a decline in the market price of our
common stock while the offering is in progress.
|
The
underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of
these activities may cause the price of our common stock to be higher than
the price that otherwise would exist in the open market in the absence of
these transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In
addition, in connection with this offering, some of the underwriters may
engage in passive market making transactions in the common stock on the
Nasdaq National Market, prior to the pricing and completion of the
offering. Passive market making consists of displaying bids on the Nasdaq
National Market no higher than the bid prices of independent market makers
and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker
on each day are limited to a specified percentage of the passive market
makers average daily trading volume in the common stock during a
specified period and must be discontinued when that limit is reached.
Passive market making may cause the price of the common stock to be higher
than the price that otherwise would exist in the open market in the absence
of such transactions. If the underwriters commence passive market making,
they may discontinue at any time.
We
estimate that the total expenses of this offering payable by us, excluding
underwriting discounts and commissions, will be approximately
$1,100,000.
Salomon
Smith Barney Inc. performed various investment banking and advisory
services for ETCI in connection with the acquisition of ETCI by Braun
Consulting, for which Salomon Smith Barney Inc. received customary fees and
expenses paid by Braun Consulting. In addition, Salomon Smith Barney Inc.
and Adams, Harkness & Hill, Inc. acted as underwriters of our initial
public offering in August 1999. The representatives may, from time to time,
engage in transactions with and perform services for us in the ordinary
course of their business.
We and
the selling stockholders have agreed to indemnify the underwriters against
various liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make
in respect of any of those liabilities.
The
validity of the issuance of the common stock offered by this prospectus
will be passed upon for Braun Consulting by Locke Liddell & Sapp LLP,
Houston, Texas. The underwriters have been represented by Sachnoff &
Weaver, Ltd., Chicago, Illinois.
The
consolidated financial statements of Braun Consulting, Inc. and its
subsidiaries as of
December 31, 1998 and 1999 and for each of the three years in the period
ended December 31, 1999 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and
auditing.
The
financial statements of Emerging Technologies Consultants, Inc. as of
December 31, 1998 and September 30, 1999 and for the year ended December
31, 1998 and the nine months ended September 30, 1999 included in this
prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so
included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have
filed with the Securities and Exchange Commission a registration statement
on Form S-1 with respect to the common stock being sold in this offering.
This prospectus constitutes a part of that registration statement. This
prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules to the registration
statement, because some parts have been omitted in accordance with the
rules and regulations of the Commission. For further information with
respect to us and our common stock being sold in this offering, you should
refer to the registration statement and the exhibits and schedules filed as
part of the registration statement. Statements contained in this prospectus
regarding the contents of any agreement, contract or other document
referred to are not necessarily complete; reference is made in each case to
the copy of the contract or document filed as an exhibit to the
registration statement. Each statement is qualified in all respects by
reference to the exhibit. You may inspect a copy of the registration
statement without charge at the Commissions principal office in
Washington, D.C. and obtain copies of all or any part thereof, upon payment
of certain fees, from the Commissions Public Reference Room at the
Commissions principal office, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the Commissions regional offices in New York,
located at 7 World Trade Center, Suite 1300, New York, New York 10048, or
in Chicago, located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may obtain information regarding the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the Commission. The Commissions World Wide
Web address is www.sec.gov.
We are
subject to the information and reporting requirements of the Securities and
Exchange Act of 1934 and we file annual and quarterly reports, proxy
statements and other information with the Commission. These reports, proxy
statements and other information are available for inspection and copying
at the Commissions public reference rooms and the Commissions
website referred to above.
BRAUN CONSULTING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
Braun Consulting, Inc.
and Subsidiaries: |
|
|
|
|
Independent Auditors
Report |
|
F-2 |
|
|
Consolidated Financial
Statements as of December 31, 1998 and 1999 and for Each of the Three
Years
in the Period Ended December 31,
1999: |
|
|
|
|
Consolidated Balance
Sheets |
|
F-3 |
|
|
Consolidated Statements of Income
|
|
F-4 |
|
|
Consolidated Statements of
Stockholders Equity |
|
F-5 |
|
|
Consolidated Statements of Cash Flows
|
|
F-6 |
|
|
Notes to Consolidated Financial
Statements |
|
F-7 |
|
|
Emerging Technologies
Consultants, Inc.: |
|
|
|
|
Independent Auditors
Report |
|
F-17 |
|
|
Financial Statements as
of December 31, 1998 and September 30, 1999 and for the Year Ended
December 31, 1998 and the Nine Months Ended
September 30, 1999: |
|
|
|
|
Balance Sheets |
|
F-18 |
|
|
Statements of Income |
|
F-19 |
|
|
Statements of Stockholders
Equity |
|
F-20 |
|
|
Statements of Cash Flows |
|
F-21 |
|
|
Notes to Financial
Statements |
|
F-22 |
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders of
Braun Consulting, Inc.:
We have
audited the accompanying consolidated balance sheets of Braun Consulting,
Inc. and subsidiaries (the Company) as of December 31, 1998 and
1999 and the related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Companys 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Braun Consulting, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ DELOITTE &
TOUCHE
LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 21, 2000
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
As of December
31,
|
|
|
1998
|
|
1999
|
ASSETS
|
|
|
(In thousands,
except share and
per share data) |
|
|
Current
assets: |
Cash and cash equivalents |
|
$ 570 |
|
|
$ 5,947 |
|
Marketable securities |
|
|
|
|
3,902 |
|
Accounts receivable (net of
allowance: $90 in 1998; $100 in 1999) |
|
6,548 |
|
|
12,251 |
|
Accounts receivable
employees |
|
357 |
|
|
73 |
|
Receivable from Wincitecurrent
portion (Note 5) |
|
114 |
|
|
114 |
|
Income taxes receivable |
|
|
|
|
609 |
|
Prepaid expenses and other current
assets |
|
251 |
|
|
948 |
|
|
|
|
|
|
|
|
Total current assets |
|
7,840 |
|
|
23,844 |
|
|
|
Receivable from Wincite
(Note 5) |
|
95 |
|
|
|
|
Equipment, furniture and
softwarenet (Note 6) |
|
1,831 |
|
|
3,703 |
|
Intangible assets (net of
accumulated amortization: $71 in 1998; $840 in 1999) (Note 7) |
|
79 |
|
|
25,545 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$9,845 |
|
|
$53,092 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
Current
liabilities: |
Notes payable (Note 8) |
|
$2,745 |
|
|
$ 639 |
|
Accounts payable |
|
1,124 |
|
|
1,648 |
|
Accrued offering expenses |
|
|
|
|
366 |
|
Accrued compensation |
|
871 |
|
|
741 |
|
Accrued merger costs |
|
|
|
|
325 |
|
Other accrued liabilities |
|
145 |
|
|
389 |
|
Unearned revenue |
|
270 |
|
|
414 |
|
Current deferred income taxes (Note
11) |
|
61 |
|
|
159 |
|
Distributions payable to
stockholders |
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
6,218 |
|
|
4,681 |
|
|
|
Deferred income taxes
(Note 11) |
|
|
|
|
425 |
|
|
|
Stockholders
equity: |
|
|
|
|
|
|
Common stock, no par value at
December 31, 1998; $0.001 par value at
December 31, 1999; authorized 100,000,000 shares at
December 31, 1998 and
50,000,000 at December 31, 1999; issued and outstanding
shares 11,964,002 at
December 31, 1998 and 17,130,783 shares at December 31,
1999 |
|
804 |
|
|
17 |
|
Additional paid-in capital |
|
|
|
|
48,041 |
|
Notes receivable from
stockholders |
|
(38 |
) |
|
|
|
Unearned deferred compensation (Note
13) |
|
(320 |
) |
|
(837 |
) |
Retained earnings |
|
3,181 |
|
|
765 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
3,627 |
|
|
47,986 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity |
|
$9,845 |
|
|
$53,092 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
Years Ended December
31,
|
|
|
1997
|
|
1998
|
|
1999
|
|
|
(In thousands, except
share
and per share data) |
Revenues: |
|
|
|
|
|
|
|
|
Consulting services |
|
$17,444 |
|
|
$26,907 |
|
|
$44,973 |
Product sales |
|
2,064 |
|
|
955 |
|
|
2,331 |
|
|
|
|
|
|
|
|
|
Total revenues |
|
19,508 |
|
|
27,862 |
|
|
47,304 |
Costs and
expenses: |
|
|
|
|
|
|
|
|
Project personnel and
expenses |
|
10,148 |
|
|
15,879 |
|
|
24,124 |
Cost of products sold |
|
2,032 |
|
|
884 |
|
|
2,017 |
Selling and marketing
expenses |
|
1,111 |
|
|
2,303 |
|
|
3,761 |
General and administrative
expenses |
|
4,345 |
|
|
7,777 |
|
|
11,948 |
Amortization of intangible
assets |
|
|
|
|
|
|
|
719 |
Stock compensation |
|
13 |
|
|
271 |
|
|
620 |
Merger costs |
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
17,649 |
|
|
27,114 |
|
|
43,359 |
|
|
|
|
|
|
|
|
|
Operating
income |
|
1,859 |
|
|
748 |
|
|
3,945 |
Interest
income |
|
10 |
|
|
16 |
|
|
461 |
Interest
expense |
|
69 |
|
|
137 |
|
|
137 |
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
1,800 |
|
|
627 |
|
|
4,269 |
Loss from discontinued
operations (Note 5) |
|
(84 |
) |
|
(101 |
) |
|
|
Gain on sale of
discontinued operations (Note 5) |
|
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
1,716 |
|
|
780 |
|
|
4,269 |
Provision (benefit) for
income taxes |
|
81 |
|
|
(3 |
) |
|
1,230 |
|
|
|
|
|
|
|
|
|
Net income |
|
$ 1,635 |
|
|
$ 783 |
|
|
$ 3,039 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma (Unaudited
Note 4): |
|
|
|
|
|
|
|
|
Income before provision for income
taxes |
|
$ 1,716 |
|
|
$ 780 |
|
|
$ 4,269 |
Pro forma provision for income
taxes |
|
702 |
|
|
457 |
|
|
2,249 |
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ 1,014 |
|
|
$ 323 |
|
|
$ 2,020 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
basic: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ 0.17 |
|
|
$ 0.05 |
|
|
$ 0.31 |
Discontinued operations |
|
(0.01 |
) |
|
0.01 |
|
|
|
Pro forma net income (Unaudited
Note 4) |
|
|
|
|
|
|
|
0.14 |
Earnings (loss) per share
diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ 0.15 |
|
|
$ 0.05 |
|
|
$ 0.28 |
Discontinued operations |
|
(0.01 |
) |
|
0.01 |
|
|
|
Pro forma net income (Unaudited
Note 4) |
|
|
|
|
|
|
|
0.13 |
Weighted average
shares: |
|
|
|
|
|
|
|
|
Basic |
|
10,843,584 |
|
11,572,451 |
|
13,979,808 |
Diluted |
|
12,077,775 |
|
12,570,533 |
|
15,340,809 |
See notes to consolidated financial statements.
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|
|
Shares
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Notes
Receivable
from
Stockholders
|
|
Unearned
Deferred
Compensation
|
|
Retained
Earnings
|
|
Total
|
|
|
(In thousands, except
share data) |
BALANCE, JANUARY 1,
1997 |
|
10,843,584 |
|
$ 132 |
|
|
|
|
|
|
|
|
|
|
$1,692 |
|
|
$ 1,824 |
|
Distributions to stockholders
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(752 |
) |
|
(752 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,635 |
|
|
1,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31,
1997 |
|
10,843,584 |
|
132 |
|
|
|
|
|
|
|
|
|
|
2,575 |
|
|
2,707 |
|
Exercise of stock options |
|
1,120,418 |
|
81 |
|
|
|
|
$(38 |
) |
|
|
|
|
|
|
|
43 |
|
Issuance of stock options |
|
|
|
591 |
|
|
|
|
|
|
|
$ (591 |
) |
|
|
|
|
|
|
Amortization of deferred
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
271 |
|
|
|
|
|
271 |
|
Distributions to stockholders
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
(177 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783 |
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31,
1998 |
|
11,964,002 |
|
804 |
|
|
|
|
(38 |
) |
|
(320 |
) |
|
3,181 |
|
|
3,627 |
|
Exercise of stock options |
|
673,448 |
|
30 |
|
|
$ 790 |
|
|
|
|
|
|
|
|
|
|
820 |
|
Income tax benefit from
disqualifying dispositions |
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
100 |
|
Issuance of stock options |
|
|
|
743 |
|
|
394 |
|
|
|
|
(1,137 |
) |
|
|
|
|
|
|
Amortization of deferred
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
620 |
|
|
|
|
|
620 |
|
Collection of notes receivable
from stockholders |
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
38 |
|
Conversion to C corp status and
par
value stock |
|
|
|
(1,565 |
) |
|
3,769 |
|
|
|
|
|
|
|
(2,641 |
) |
|
(437 |
) |
Distributions to stockholders
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,814 |
) |
|
(2,814 |
) |
Proceeds from initial public
offering |
|
4,000,000 |
|
4 |
|
|
24,489 |
|
|
|
|
|
|
|
|
|
|
24,493 |
|
Issuance of common stock for
acquired business |
|
493,333 |
|
1 |
|
|
18,499 |
|
|
|
|
|
|
|
|
|
|
18,500 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,039 |
|
|
3,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31,
1999 |
|
17,130,783 |
|
$
17 |
|
|
$48,041 |
|
|
|
|
$ (837 |
) |
|
$ 765 |
|
|
$47,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Years Ended December
31,
|
|
|
1997
|
|
1998
|
|
1999
|
|
|
(In thousands except
share and
per share data) |
Cash flows from operating
activities: |
Net income |
|
$ 1,635 |
|
|
$ 783 |
|
|
$ 3,039 |
|
Net (gain) loss from discontinued operations, net
of provision (benefit) for income taxes |
|
84 |
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of
provision (benefit) for income taxes |
|
1,719 |
|
|
630 |
|
|
3,039 |
|
Adjustments to reconcile net income from
continuing operations, net of provision (benefit) for
income taxes, to net cash flows from operating
activities: |
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options |
|
|
|
|
271 |
|
|
620 |
|
Income tax benefit from disqualifying dispositions |
|
|
|
|
|
|
|
100 |
|
Deferred income taxes |
|
(66 |
) |
|
69 |
|
|
1,166 |
|
Depreciation and amortization |
|
325 |
|
|
593 |
|
|
1,795 |
|
Changes in assets and liabilities, net of assets acquired and
liabilities incurred and
assumed: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
(1,905 |
) |
|
(1,793 |
) |
|
(4,670 |
) |
Income taxes
receivable |
|
|
|
|
|
|
|
(609 |
) |
Prepaid expenses and
other current assets |
|
21 |
|
|
(173 |
) |
|
(354 |
) |
Accounts
payable |
|
303 |
|
|
537 |
|
|
460 |
|
Accrued
liabilities |
|
936 |
|
|
(183 |
) |
|
393 |
|
Unearned
revenue |
|
10 |
|
|
156 |
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from continuing
operations |
|
1,343 |
|
|
107 |
|
|
2,059 |
|
Net cash flows from discontinued
operations |
|
(111 |
) |
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating
activities |
|
1,232 |
|
|
121 |
|
|
2,059 |
|
Cash flows from investing
activities: |
Purchases of marketable securities |
|
|
|
|
|
|
|
(19,235 |
) |
Sales of marketable securities |
|
|
|
|
|
|
|
15,333 |
|
Purchases of equipment, furniture and
software |
|
(697 |
) |
|
(1,503 |
) |
|
(2,632 |
) |
Acquisition of intangibles |
|
(150 |
) |
|
|
|
|
|
|
Payments for acquisitions, net of cash
acquired |
|
|
|
|
|
|
|
(9,106 |
) |
Proceeds from sale of discontinued
operations |
|
|
|
|
138 |
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing
activities |
|
(847 |
) |
|
(1,365 |
) |
|
(15,545 |
) |
Cash flows from financing
activities: |
Borrowings |
|
1,300 |
|
|
1,843 |
|
|
4,891 |
|
Repayments of debt |
|
(401 |
) |
|
(949 |
) |
|
(7,525 |
) |
Net proceeds from initial public
offering |
|
|
|
|
|
|
|
24,493 |
|
Exercise of stock options |
|
|
|
|
43 |
|
|
820 |
|
Distributions paid to stockholders |
|
(452 |
) |
|
(76 |
) |
|
(3,816 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing
activities |
|
447 |
|
|
861 |
|
|
18,863 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
in cash and cash equivalents |
|
832 |
|
|
(383 |
) |
|
5,377 |
|
Cash and cash equivalents
at beginning of period |
|
121 |
|
|
953 |
|
|
570 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
at end of period |
|
$ 953 |
|
|
$ 570 |
|
|
$ 5,947 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information: |
Interest paid |
|
$ 100 |
|
|
$ 140 |
|
|
$
137 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$
|
|
|
$
|
|
|
$
563 |
|
|
|
|
|
|
|
|
|
|
|
For the acquisition of ETCI (Note 3): |
|
|
|
|
|
|
|
|
|
Purchase price of business acquired: |
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
$ 9,169 |
|
Common stock (493,333
shares at $37.50) |
|
|
|
|
|
|
|
18,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,669 |
|
Liabilities incurred and assumed: |
Legal and accounting
fees |
|
|
|
|
$ 331 |
|
|
|
|
Accounts
payable |
|
|
|
|
64 |
|
|
|
|
Notes payable |
|
|
|
|
528 |
|
|
|
|
Other accrued
liabilities |
|
|
|
|
81 |
|
|
|
|
Unearned
revenue |
|
|
|
|
25 |
|
|
1,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 28,698 |
|
|
|
|
|
|
|
|
|
|
|
Assets acquired: |
Cash |
|
|
|
|
$
63 |
|
|
|
|
Accounts
receivable |
|
|
|
|
711 |
|
|
|
|
Prepaid expenses and
other current assets |
|
|
|
|
343 |
|
|
|
|
Fixed assets |
|
|
|
|
266 |
|
|
|
|
Deferred tax
asset |
|
|
|
|
1,080 |
|
|
|
|
Intangible
assets |
|
|
|
|
26,235 |
|
|
$ 28,698 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
BRAUN CONSULTING, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
1. DESCRIPTION OF BUSINESS
Braun
Consulting, Inc. (the Company or Braun Consulting)
delivers eSolutions by combining strategy, business intelligence and
advanced Internet application development skills.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of ConsolidationThe accompanying consolidated
financial statements of Braun Consulting include the accounts of its wholly
owned subsidiaries, Emerging Technologies Consultants, Inc. (ETCI
), Vertex Partners, Inc. (Vertex) and BTG Ltd., and its
majority owned limited liability company, Wincite Systems LLC (see Note 5).
The Company acquired all of the outstanding common stock of Vertex on May
4, 1999 in a transaction accounted for as a pooling-of-interests. The
accompanying consolidated financial statements for the years ended December
31, 1997, 1998 and 1999 have been restated to include the Vertex
information. All intercompany accounts and transactions have been
eliminated in consolidation.
Managements Use of EstimatesThe 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
periods. Actual results could differ from those estimates.
Cash
and Cash EquivalentsCash and cash equivalents include cash
deposits in banks and highly liquid investments with original maturities of
three months or less at the time of purchase.
Marketable SecuritiesMarketable securities represent
available-for-sale securities, which are recorded at fair market value,
which approximate cost as of December 31, 1999. Realized gains and losses
from sales of available-for-sale securities were not material for any
period presented. Interest on marketable securities is included in interest
income.
Equipment, Furniture and SoftwareEquipment and furniture
are stated at cost less accumulated depreciation. Depreciation is provided
over the estimated useful lives of the related assets using the
double-declining balance method. Leasehold improvements are depreciated
over the lives of the leases. Software is stated at cost less accumulated
amortization. The estimated useful lives are:
Computer and office
equipment |
|
35 years |
Office
furniture |
|
7 years |
Software |
|
3 years |
In March
1998, the American Institute of Certified Public Accountants issued
Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1). SOP 98-1 provides guidance on applying generally
accepted accounting principles in addressing whether and under what
conditions the costs of internal-use software should be capitalized. The
Company adopted SOP 98-1 in 1998. The Company capitalized $155 and $156 in
1998 and 1999, respectively, related to the implementation of computer
software obtained for internal use. These costs primarily include licensing
fees and internal labor costs of employees directly associated with the
implementation project.
Intangible AssetsGoodwill and other intangibles are
being amortized on a straight-line basis over lives ranging from one to
three years.
Long-Lived AssetsThe Company periodically assesses the
recoverability of its long-lived assets based on its expectations of future
profitability and undiscounted cash flow of the related operations. These
factors, along with managements plans with respect to the operations,
are considered in assessing the recoverability of long-lived assets. If the
Company determines, based on such measures, that the carrying amount is
impaired, the long-lived assets will be written down to their recoverable
value with a corresponding charge to earnings. Recoverable value is
calculated as the amount of estimated future cash flows (discounted at a
rate commensurate with the risk involved) for the remaining amortization
period. During the periods presented no such impairment was
incurred.
Revenue RecognitionThe Company maintains agreements with
consulting clients that establish service fees on both a time-and-materials
basis and on a fixed-price basis. Revenue is recognized as services are
performed. Out-of-pocket expenses included in project personnel and
expenses are net of client expense reimbursements in the accompanying
consolidated statements of income. Losses on contracts, if any, are
provided for in full in the period when determined. Revenue from sales of
software is recognized upon delivery of the product and customer
acceptance, when all significant contractual obligations are satisfied and
the collection of the resulting receivables is reasonably
assured.
Stock-Based CompensationThe Company accounts for
stock-based employee compensation arrangements in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of Statement of Financial Accounting Standards (
SFAS) No. 123, Accounting for Stock-Based Compensation.
Under
APB Opinion No. 25, compensation expense is based on the difference, if any,
on the date of the grant, between the fair value of the Companys
stock and the exercise price.
Income TaxesPrior to July 28, 1999, Braun Consulting was
organized as an S corporation. In connection with its initial public
offering (IPO) the Company terminated its status as an S
corporation, and declared and subsequently paid final S corporation
distributions of approximately $2,814 representing certain taxed but
undistributed earnings through that date.
Effective July 29, 1999, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. 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 earnings in the
period of enactment. A valuation allowance is provided for deferred tax
assets whenever it is more likely than not that future tax benefits will
not be realized.
Earnings Per ShareBasic earnings per share is computed
based on the weighted average number of common shares outstanding. Diluted
earnings per share is computed based on the weighted average number of
dilutive potential common shares outstanding. The following summarizes the
effects of dilutive securities for the periods in arriving at diluted
earnings per share:
|
|
1997
|
|
1998
|
|
1999
|
Weighted average common
sharesbasic |
|
10,843,584 |
|
11,572,451 |
|
13,979,808 |
Impact of dilutive
securities: |
|
|
|
|
|
|
Options |
|
1,234,191 |
|
998,082 |
|
1,361,001 |
|
|
|
|
|
|
|
Weighted average common
sharesdiluted |
|
12,077,775 |
|
12,570,533 |
|
15,340,809 |
|
|
|
|
|
|
|
ReclassificationsCertain prior year amounts have been
reclassified to conform to the 1999 presentation.
Recent Accounting PronouncementIn June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000
(January 1, 2001 for the Company).
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 requires the recognition of all derivatives as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair value. The Company expects that
the adoption of SFAS No. 133 will not have a material impact on its
financial position or its results of operations.
3. ACQUISITIONS
Pursuant
to a Stock Purchase Agreement dated May 4, 1999 by and among the Company,
Vertex and the stockholders of Vertex, the Company acquired all of the
outstanding stock of Vertex in exchange for 1,512,373 shares of the Company
s common stock. The Company accounted for the acquisition as a
pooling-of-interests, and the accompanying audited consolidated financial
statements and related notes for the years ended December 31, 1997, 1998
and 1999 have been restated to include the Vertex information.
|
|
Braun
Consulting
|
|
Vertex
|
|
Combined
|
Year ended December 31,
1997 |
|
|
|
|
|
|
Revenues |
|
$13,432 |
|
$6,076 |
|
$19,508 |
Income from continuing
operations |
|
1,179 |
|
621 |
|
1,800 |
Net income |
|
1,095 |
|
540 |
|
1,635 |
Year ended December 31,
1998 |
|
|
|
|
|
|
Revenues |
|
$20,977 |
|
$6,885 |
|
$27,862 |
Income from continuing
operations |
|
557 |
|
70 |
|
627 |
Net income |
|
710 |
|
73 |
|
783 |
Year ended December 31,
1999 |
|
|
|
|
|
|
Revenues |
|
$42,021 |
|
$5,283 |
|
$47,304 |
Income from continuing
operations |
|
3,470 |
|
799 |
|
4,269 |
Net income |
|
2,250 |
|
789 |
|
3,039 |
Pursuant
to a Merger Agreement dated December 1, 1999 by and among the Company, ETCI
Acquisition, Inc., a wholly-owned subsidiary of the Company (
Subsidiary), Emerging Technologies Consultants, Inc. (ETCI
) and Helene O. Amster and John D. Vairo, the Subsidiary merged with
and into ETCI. ETCI survived the merger as a wholly-owned subsidiary of the
Company and the Company acquired all of the outstanding stock of ETCI in
exchange for cash and 493,333 shares of the Companys common stock,
totaling approximately $27,000. The Company accounted for the acquisition
under the purchase method. Accordingly, the purchase price has been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values (see Note 7). The
consolidated statements of income reflect the results of operations of ETCI
since the effective date of the acquisition.
The
following unaudited pro forma summary presents the Companys results
of operations as if the acquisition had occurred at the beginning of each
period. This summary is provided for informational purposes only. It does
not necessarily reflect the actual results that would have occurred had the
acquisition been made as of those dates or of results that may occur in the
future.
|
|
1998
|
|
1999
|
Revenues |
|
$
30,632 |
|
|
$
51,418 |
|
Pro forma net
loss |
|
(8,237 |
) |
|
(5,843 |
) |
|
Pro forma net loss per
sharebasic |
|
$
(0.68 |
) |
|
$
(0.40 |
) |
Pro forma net loss per
sharediluted |
|
(0.68 |
) |
|
(0.40 |
) |
|
Weighted average basic
shares |
|
12,065,784 |
|
|
14,432,030 |
|
Weighted average diluted
shares |
|
13,063,866 |
|
|
15,793,031 |
|
The pro
forma combined company is in a net loss position for both periods
presented. Therefore, common stock equivalents are not considered in
earnings per sharediluted since their effect is
anti-dilutive.
4. PRO FORMA INFORMATION (UNAUDITED)
Prior to
July 28, 1999, the Company was treated as an S corporation for federal and
certain state income tax purposes. The pro forma information is presented
to show what the significant effects on the historical information might
have been had the Company not been treated as an S corporation for tax
purposes.
The pro
forma information presented on the statements of income reflect a provision
for income taxes at an effective rate of 40.9%, 58.6% and 52.7% for the
years ended December 31, 1997, 1998 and 1999, respectively.
5. DISCONTINUED OPERATIONS
On May
28, 1998, the Company sold its interest in Wincite Systems LLC (
Wincite) to the minority owner. The consolidated financial
statements and related notes reflect Wincite as a discontinued operation.
The revenues from this operation, after intercompany eliminations, amounted
to approximately $674 for the year ended December 31, 1997, and $164 for
the period January 1, 1998 through May 28, 1998.
In
connection with the sale of Wincite, Braun Consulting received a principal
payment in the amount of $95 during 1999 and will receive an additional
principal payment in the amount of $114 during 2000.
6. EQUIPMENT, FURNITURE AND SOFTWARE
Equipment, furniture and software, and the related accumulated
depreciation and amortization consist of the following:
|
|
1998
|
|
1999
|
Computer and office
equipment |
|
$ 2,023 |
|
|
$ 3,802 |
|
Office
furniture |
|
784 |
|
|
1,235 |
|
Software |
|
369 |
|
|
911 |
|
Leasehold
improvements |
|
36 |
|
|
286 |
|
|
|
|
|
|
|
|
|
|
3,212 |
|
|
6,234 |
|
Accumulated depreciation
and amortization. |
|
(1,381 |
) |
|
(2,531 |
) |
|
|
|
|
|
|
|
Total |
|
$ 1,831 |
|
|
$ 3,703 |
|
|
|
|
|
|
|
|
7. INTANGIBLE ASSETS
As
discussed in Note 3, the ETCI acquisition has been accounted for using the
purchase method of accounting. Accordingly, the recognized purchase price
has been allocated, based on preliminary estimates of fair value, to
identifiable tangible and intangible assets acquired and liabilities
assumed. Intangible assets acquired in the ETCI acquisition consist
primarily of goodwill, as well as sales backlog, customer relationship
management software and non-compete agreements. Intangible assets also
consist of a client list acquired by Braun Consulting in 1997. These
intangible assets are amortized using the straight-line method over the
estimated useful life of each asset ranging from one to three
years.
8. NOTES PAYABLE
Notes
payable at December 31, 1998 and 1999 are payable within one year and
consist of the following:
|
|
1998
|
|
1999
|
Notes payable
bank |
|
$2,595 |
|
$554 |
Notes payable
stockholders |
|
150 |
|
85 |
|
|
|
|
|
Total |
|
$2,745 |
|
$639 |
|
|
|
|
|
The
Company entered into a revolving line of credit agreement in the amount of
$5,000 on December 31, 1999 with a maturity date of June 30, 2000.
The line bears interest at the banks prime rate (8.5%
at December 31, 1999). The agreement requires the Company to maintain
certain covenants. The line of credit is secured by all of the Company
s accounts with the bank. The amount drawn on the line was $2,445 and
$0 as of December 31, 1998 and 1999, respectively.
A
subsidiary of the Company maintained a revolving line of credit agreement
in the amount of $950 in 1998. The amount drawn on the line was $150 as of
December 31, 1998. The line of credit was canceled in 1999.
A
subsidiary of the Company maintains a revolving line of credit in the
amount of $750 with a maturity date of January 31, 2002. The line bears
interest at the prime rate (8.5% at December 31, 1999) plus 0.25%. The
agreement requires the Company to maintain certain covenants. The line of
credit is secured by substantially all of the subsidiarys assets and
the personal guarantees of the officers of the subsidiary. The amount drawn
on the line was $480 as of December 31, 1999.
A
subsidiary of the Company obtained a $100 term loan from a bank in February
1999. Under the terms of the loan, the Company is required to make monthly
payments of approximately $3, at a stated interest rate of 7.25%, through
February 2002. The Company expects to repay the outstanding amount in
2000.
Notes
payable to the stockholders consist of advances from certain stockholders
of the Company. Terms of the 1998 notes include a provision for monthly
payments plus interest at a fixed rate of 8%. The 1998 note was repaid by
the Company in January 1999. Terms of the 1999 notes represent non-interest
bearing advances and will mature on December 31, 2000.
9. COMMON STOCK
Prior to
July 28, 1999, Braun Consulting was organized as an S corporation. In
connection with the Companys reincorporation in Delaware in 1999,
Braun Consulting converted its no par value common stock to $0.001 par
value.
On
August 13, 1999, the Company closed its IPO of its common stock and issued
4,000,000 shares of common stock at $7.00 per share. Proceeds to the
Company from its initial public offering, net of underwriting discounts and
costs of the offering, were approximately $24,500.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating lease
agreements through 2005. In addition, the Company also leases equipment and
accessories under an operating lease agreement expiring in
2002.
Future
minimum lease payments under all non-cancelable operating leases are as
follows:
Year Ending
December 31,
|
|
Facilities
|
|
Equipment
|
2000 |
|
$1,969 |
|
$ 43 |
2001 |
|
1,954 |
|
43 |
2002 |
|
1,533 |
|
22 |
2003 |
|
1,215 |
|
|
2004 |
|
1,063 |
|
|
Thereafter |
|
653 |
|
|
|
|
|
|
|
Total |
|
$8,387 |
|
$108 |
|
|
|
|
|
Rent
expense for facilities and equipment was $516, $876 and $1,481 for the
years ended December 31, 1997, 1998 and 1999, respectively.
11. INCOME TAXES
Effective July 28, 1999, the Companys S corporation election
was terminated. In accordance with SFAS No. 109, the Company recorded a net
deferred tax liability of $496 for the tax effect of the differences
between financial statement and income tax bases of assets and liabilities
that existed at the termination date of the S corporation
election.
The
components of the provision for income taxes for fiscal year 1999 since the
termination of the
S corporation status are as follows:
Current: |
|
|
Federal |
|
$ 42 |
State |
|
22 |
|
|
|
Total current |
|
64 |
|
|
|
Deferred: |
Federal |
|
901 |
State |
|
265 |
|
|
|
Total deferred |
|
1,166 |
|
|
|
Total
provision |
|
$1,230 |
|
|
|
The tax
benefit associated with disqualifying dispositions of incentive stock
options increased the current tax receivable by $100 in 1999. Such benefit
was recorded as an increase to additional paid-in capital.
The
following is a reconciliation between the statutory federal income tax rate
and the Companys effective income tax rate which is derived by
dividing the provision for income taxes by income before provision for
income taxes for the fiscal year 1999:
|
|
Percentage
of Pre-Tax
Income
|
Income tax computed at
statutory rate.. |
|
34.0 |
% |
Amortization of
intangible assets |
|
6.7 |
|
Stock
compensation |
|
5.8 |
|
State income taxes, net
of federal benefit |
|
6.0 |
|
Change in tax
status |
|
(24.4 |
) |
Other, net |
|
0.7 |
|
|
|
|
|
Effective income tax
rate |
|
28.8 |
% |
|
|
|
|
At
December 31, 1999, deferred income tax assets and liabilities resulted from
reporting differences in the recognition of income and expense for income
tax and financial reporting purposes. The sources and tax effects of these
temporary differences are presented below:
Deferred tax
assets: |
|
|
Other accruals |
|
$168 |
|
Deferred tax
liabilities: |
|
|
|
Deferred taxes relating to the use of
cash method of accounting for tax purposes prior to
July 28, 1999 |
|
(637 |
) |
Internally developed software,
net |
|
(115 |
) |
|
|
|
|
Total gross deferred tax liabilities |
|
(752 |
) |
|
|
|
|
Net deferred tax liabilities |
|
$(584 |
) |
|
|
|
|
12. EMPLOYEE BENEFIT PLANS
The
Company sponsors three 401(k) plans which cover substantially all of its
employees. Depending on the plan, annual contributions under the plans are
on an employer-matching basis of 20% or 25%, of the participants
eligible contribution, as defined. A participants
eligible contribution is equal to the amount of the participant
s elective deferrals for the plan year which does not exceed 5% of
compensation. During the years ended December 31, 1997, 1998 and 1999, the
Company expensed $86, $144 and $175, respectively, related to the
plans.
13. STOCK OPTION COMPENSATION PLANS
Vertex PlanIn 1994, the Company initiated a Stock Option
Compensation Plan (the 1994 Plan). Under the 1994 Plan, certain
employees were given the right to acquire shares of common stock. The
number of shares, exercise price of shares and vesting conditions were
determined by the directors. Options generally vest over 4 years and have a
maximum term of 10 years. No compensation expense was recognized in 1997.
In 1998 and 1999, the Company granted options to certain employees and the
option exercise price per share was less than the fair market value at the
date of grant, thus creating unearned deferred compensation. The difference
between the fair market value and the option price was recorded as unearned
deferred compensation and is being charged to operations over the vesting
periods of the options. Compensation expense was $193 and $30 for the years
ended December 31, 1998 and 1999, respectively. No shares were available
for future grants at December 31, 1999.
Braun
Consulting 1995 PlanIn 1995, the Company adopted the 1995
Director Stock Option Plan (the 1995 Plan). Under the 1995
Plan, certain employees were given the right to acquire shares of common
stock. The number of shares, exercise price of shares, and vesting
conditions were determined by the compensation committee. Options generally
vest over 6 years and have a maximum term of 8 years. In 1997 and 1998, all
shares had a fair value equal to their exercise price. Under the terms of
certain of the option grants, the Company subsidized the exercise price
and, accordingly, recognized compensation expense of $13 in 1997 related to
these subsidies. No compensation expense was recognized in 1998. In 1999,
the exercise price of 8,500 options granted under the 1995 Plan was less
than the fair value at the date of grant, creating unearned deferred
compensation. The difference between the fair market value and the option
price was recorded as unearned deferred compensation and is being charged
to operations over the vesting periods of the options. During the year
ended December 31, 1999, $33 was charged to operations. The number of
shares available for future grants at December 31, 1999 was
268,838.
Braun
Consulting 1998 PlansThe Company adopted the 1998 Employee Long
Term Stock Investment Plan and the 1998 Executive Long Term Stock
Investment Plan (the 1998 Plans) in 1998. Under the 1998 Plans,
certain employees and executives were given the right to acquire shares of
common stock. The number of shares, exercise price of shares and vesting
conditions were determined by the compensation committee. Options generally
vest over 3 years and have a maximum term of 5 years. The exercise price of
432,241 options granted under the 1998 Plans was less than the fair value
at the date of grant, creating unearned deferred compensation. The
difference between the fair market value and the option price was recorded
as unearned deferred compensation and is being charged to operations over
the vesting periods of the options. During the years ended December 31,
1998 and 1999, $78 and $539, respectively, was charged to operations. The
number of shares available for future grants at December 31, 1999 was
1,262,921.
Braun
Consulting 1999 PlanThe Company adopted the 1999 Independent
Director Stock Option Plan (the 1999 Plan) in 1999. Under the
1999 Plan, independent directors were given the right to acquire shares of
common stock. Options generally vest over 1 year and have a maximum term of
10 years. These options have an exercise price equal to the closing market
price of the Companys stock on the date of grant. No compensation
expense was recognized in 1999. The shares available for future grants at
December 31, 1999 was 84,000.
ETCI
PlanIn connection with the acquisition of ETCI in December 1999
(see Note 3), the Company assumed the Non Qualified Stock Option Plan of
ETCI (the ETCI Plan). Under the ETCI Plan, employees of ETCI
who had been employed by ETCI prior to the Companys acquisition of
ETCI were given the right to acquire shares of common stock in ETCI. The
number of shares, exercise price of shares and vesting conditions were
determined by the Board of Directors of ETCI. Options generally vest over
four years and have a maximum life of five years. The exercise price of
23,396 options granted under the ETCI Plan prior to our acquisition of ETCI
was less than the fair value at the date of grant, creating unearned
deferred compensation. The difference between the fair market value and the
option price was recorded as unearned deferred compensation and is being
charged to operations over the vesting periods of the options. During the
year ended December 31, 1999, $18 was charged to operations. No further
grants will be made under the ETCI Plan.
The
following summarizes changes in stock options under the plans for the years
ended
December 31, 1997, 1998 and 1999:
|
|
1997
|
|
1998
|
|
1999
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
Options outstanding,
beginning of year |
|
1,461,619 |
|
$0.05 |
|
1,461,619 |
|
|
$0.05 |
|
1,849,751 |
|
|
$1.64 |
Shares granted |
|
|
|
|
|
1,773,716 |
|
|
1.79 |
|
1,628,051 |
|
|
8.27 |
Options
exercised |
|
|
|
|
|
(1,120,418 |
) |
|
0.07 |
|
(673,448 |
) |
|
1.23 |
Shares
forfeited |
|
|
|
|
|
(265,166 |
) |
|
0.51 |
|
(142,094 |
) |
|
2.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end
of year. |
|
1,461,619 |
|
0.05 |
|
1,849,751 |
|
|
1.64 |
|
2,662,260 |
|
|
5.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end
of year. |
|
388,376 |
|
0.05 |
|
140,208 |
|
|
1.61 |
|
381,726 |
|
|
2.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair
value of options
granted during the year.. |
|
$
|
|
|
|
$
2.15 |
|
|
|
|
$
2.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information for options outstanding and options exercisable
under the plans at
December 31, 1999 is as follows:
Range of
Exercise
Prices
|
|
Outstanding
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life in
Years
|
|
Exercisable
Shares
|
|
Weighted
Average
Exercise
Price
|
$0.05
$3.00 |
|
1,215,872 |
|
$ 2.13 |
|
2.6 |
|
239,559 |
|
$2.28 |
3.957.00 |
|
1,249,256 |
|
5.08 |
|
3.8 |
|
137,992 |
|
3.95 |
7.38
11.23 |
|
33,410 |
|
9.34 |
|
1.3 |
|
4,175 |
|
7.54 |
26.38
37.97 |
|
163,722 |
|
37.02 |
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,662,260 |
|
5.75 |
|
|
|
381,726 |
|
2.94 |
|
|
|
|
|
|
|
|
|
|
|
In
October 1995, SFAS No. 123, Accounting for Stock-Based Compensation,
was issued and is effective for financial statements for fiscal
years beginning after December 15, 1995. As permitted by
SFAS No. 123, the Company will continue to measure the plans cost in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees. Had compensation cost for the Companys plans been
determined consistent with the fair value method prescribed by SFAS No.
123, the impact on the Companys net income and pro forma earnings per
share would have been as follows:
|
|
1997
|
|
1998
|
|
1999
|
Net income: |
|
|
|
|
|
|
As reported |
|
$1,635 |
|
$ 783 |
|
$3,039 |
Pro forma SFAS 123 |
|
1,628 |
|
663 |
|
1,992 |
Earnings per share
basic (Unaudited): |
|
|
|
|
|
|
Pro forma as reported |
|
$ 0.09 |
|
$ 0.03 |
|
$ 0.14 |
Pro forma SFAS 123 |
|
0.09 |
|
0.02 |
|
0.07 |
Earnings per share
diluted (Unaudited): |
|
|
|
|
|
|
Pro forma as reported |
|
0.08 |
|
0.03 |
|
0.13 |
Pro forma SFAS 123 |
|
0.08 |
|
0.02 |
|
0.06 |
The
effects of applying SFAS No. 123 in this pro forma disclosure may not be
indicative of effects on reported net income for future years.
For
purposes of this disclosure, the fair value of each option granted is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
|
|
Years Ended
December 31,
|
|
|
1997
|
|
1998
|
|
1999
|
1994 Plan: |
|
|
|
|
|
|
|
|
|
Expected future dividend
yield |
|
0.0 |
% |
|
0.0 |
% |
|
|
|
Risk-free interest rate |
|
7.9 |
% |
|
6.4 |
% |
|
|
|
Expected life (months) |
|
60 |
|
|
40 |
|
|
|
|
1995, 1998 and ETCI
Plans: |
|
|
|
|
|
|
|
|
|
Expected future dividend
yield |
|
0.0 |
% |
|
0.0 |
% |
|
0.0 |
% |
Risk-free interest rate |
|
7.9 |
% |
|
5.8 |
% |
|
5.6 |
% |
Expected life (months) |
|
55 |
|
|
72 |
|
|
51 |
|
1999 Plan: |
|
|
|
|
|
|
|
|
|
Expected future dividend
yield |
|
|
|
|
|
|
|
0.0 |
% |
Risk-free interest rate |
|
|
|
|
|
|
|
5.4 |
% |
Expected life (months) |
|
|
|
|
|
|
|
12 |
|
As the
Companys stock was not publicly traded in the years ended December
31, 1997 and 1998 and the period prior to the Companys IPO on August
10, 1999, the effects of volatility were ignored given the uncertainty of
future stock prices as allowed by the provisions of SFAS No. 123. Expected
volatility was 19% for options granted after the IPO in 1999.
14. SEGMENT REPORTING AND SIGNIFICANT CLIENTS
The
Company engages in business activities in one operating segment which
provides integrated management consulting services with advanced Internet
application development skills. Senior management is provided information
about the revenues generated in key client industries and service areas.
The resources needed to deliver the Companys services are not
separately reported by industry or service area. The Companys
services are delivered to clients primarily in the United States and the
Companys assets are located in the United States.
One
customer accounted for 19.0% of total revenues in 1997. One customer
accounted for 18.6% and 24.4% of total revenues in 1998 and 1999,
respectively. This summary involves two different clients.
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders of
Emerging Technologies Consultants, Inc.:
We have
audited the accompanying balance sheets of Emerging Technologies
Consultants, Inc.
(the Company) as of December 31, 1998 and September 30, 1999 and
the related statements of income, stockholders equity and cash flows
for the year ended December 31, 1998 and the nine months ended September
30, 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, such financial statements present fairly, in all material
respects, the financial position of Emerging Technologies Consultants, Inc.
as of December 31, 1998 and September 30, 1999 and the results of its
operations and its cash flows for the year ended December 31, 1998 and the
nine months ended
September 30, 1999, in conformity with generally accepted accounting
principles.
/S
/ DELOITTE
& TOUCHE
LLP
Chicago, Illinois
January 10, 2000
EMERGING TECHNOLOGIES CONSULTANTS, INC.
BALANCE SHEETS
|
|
As of
December 31,
1998
|
|
As of
September 30,
1999
|
|
|
(In thousands,
except share data) |
ASSETS |
|
|
|
|
|
|
|
|
Current
assets: |
|
|
Cash |
|
$ 45 |
|
$ 99 |
|
Accounts receivable |
|
335 |
|
754 |
|
Prepaid expenses and other current
assets |
|
6 |
|
152 |
|
|
|
|
|
|
|
Total current assets |
|
386 |
|
1,005 |
|
Equipment, furniture and
softwarenet (Note 3) |
|
92 |
|
240 |
|
Deposits |
|
6 |
|
19 |
|
|
|
|
|
|
|
Total assets |
|
$484 |
|
$1,264 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts payable |
|
$ 49 |
|
$ 78 |
|
Accrued liabilities |
|
22 |
|
84 |
|
Notes payable (Note 4) |
|
158 |
|
182 |
|
Current portion of capital lease
obligations (Note 5) |
|
29 |
|
19 |
|
|
|
|
|
|
|
Total current liabilities |
|
258 |
|
363 |
|
|
Notes payable
stockholders (Note 4) |
|
52 |
|
52 |
|
Long-term obligations,
net of current maturities (Note 4) |
|
|
|
50 |
|
Capital lease
obligations, net of current portion (Note 5) |
|
6 |
|
|
|
|
|
|
|
|
|
Stockholders
equity: |
Common stock, Class A voting, $0.0001
par value in 1998 and in 1999;
authorized, 10,000,000 shares in 1998 and 1999; issued
and outstanding,
10,000,000 in 1998 and 1999 |
|
1 |
|
1 |
|
Common stock, Class B non-voting, no
par value; authorized, 700,000 shares
in 1999; issued and outstanding, 89,750 in
1999 |
|
|
|
729 |
|
Unearned deferred compensation (Note
8) |
|
|
|
(326 |
) |
Retained earnings |
|
167 |
|
395 |
|
|
|
|
|
|
|
Total stockholders equity |
|
168 |
|
799 |
|
|
|
|
|
|
|
Total liabilities and stockholders
equity |
|
$484 |
|
$1,264 |
|
|
|
|
|
|
|
See notes to financial statements.
EMERGING TECHNOLOGIES CONSULTANTS, INC.
STATEMENTS OF INCOME
|
|
Year Ended
December 31,
1998
|
|
Nine Months Ended
September 30,
1999
|
|
|
(In
thousands) |
|
Consulting services
revenues |
|
$2,770 |
|
$3,436 |
Costs and
expenses: |
|
|
|
|
Project personnel and
expenses |
|
2,106 |
|
2,161 |
Selling and marketing
expenses |
|
7 |
|
52 |
General and administrative
expenses |
|
510 |
|
618 |
Stock compensation |
|
|
|
358 |
|
|
|
|
|
Total costs and expenses |
|
2,623 |
|
3,189 |
|
|
|
|
|
Operating
income |
|
147 |
|
247 |
Interest expense
net |
|
33 |
|
19 |
|
|
|
|
|
Net income |
|
$ 114 |
|
$ 228 |
|
|
|
|
|
See notes to financial statements.
EMERGING TECHNOLOGIES CONSULTANTS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
Class A
Shares
|
|
Class B
Shares
|
|
Common
Stock,
Class A
|
|
Common
Stock,
Class B
|
|
Unearned
Deferred
Compensation
|
|
Retained
Earnings
|
|
Total
|
|
|
(In thousands, except
share data) |
|
BALANCE, JANUARY 1,
1998 |
|
10,000,000 |
|
|
|
$1 |
|
|
|
|
|
|
$ 53 |
|
$ 54 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
114 |
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31,
1998 |
|
10,000,000 |
|
|
|
1 |
|
|
|
|
|
|
167 |
|
168 |
Issuance of stock options |
|
|
|
|
|
|
|
$684 |
|
$(684 |
) |
|
|
|
|
Exercise of stock options |
|
|
|
89,750 |
|
|
|
45 |
|
|
|
|
|
|
45 |
Amortization of deferred
compensation expense |
|
|
|
|
|
|
|
|
|
358 |
|
|
|
|
358 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
228 |
|
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30,
1999 |
|
10,000,000 |
|
89,750 |
|
$1 |
|
$729 |
|
$(326 |
) |
|
$395 |
|
$799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
EMERGING TECHNOLOGIES CONSULTANTS, INC.
STATEMENTS OF CASH FLOWS
|
|
Year Ended
December 31,
1998
|
|
Nine Months
Ended
September 30,
1999
|
|
|
(In
thousands) |
Cash flows from operating
activities: |
|
Net income |
|
$114 |
|
|
$ 228 |
|
Adjustments to reconcile net income
to net cash flows from operating activities: |
|
|
|
|
|
|
Compensation expense related to stock
options |
|
|
|
|
358 |
|
Depreciation and amortization |
|
18 |
|
|
39 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
47 |
|
|
(419 |
) |
Prepaid expenses and other current assets |
|
14 |
|
|
(146 |
) |
Deposits |
|
(1 |
) |
|
(13 |
) |
Accounts payable |
|
(15 |
) |
|
29 |
|
Accrued liabilities |
|
(47 |
) |
|
62 |
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
130 |
|
|
138 |
|
Cash flows from investing
activities: |
|
|
|
|
|
|
Purchase of equipment, furniture and
software |
|
(27 |
) |
|
(179 |
) |
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
(27 |
) |
|
(179 |
) |
Cash flows from financing
activities: |
|
|
|
|
|
|
Borrowings |
|
50 |
|
|
100 |
|
Repayments of debt |
|
(86 |
) |
|
(26 |
) |
Principal payments of capital lease
obligations |
|
(22 |
) |
|
(24 |
) |
Exercise of stock options |
|
|
|
|
45 |
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
(58 |
) |
|
95 |
|
|
|
|
|
|
|
|
Net increase in
cash |
|
45 |
|
|
54 |
|
Cash, beginning of
period |
|
|
|
|
45 |
|
|
|
|
|
|
|
|
Cash, end of
period |
|
$ 45 |
|
|
$ 99 |
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
|
|
Interest paid |
|
$ 27 |
|
|
$ 21 |
|
|
|
|
|
|
|
|
Supplemental disclosure
of non-cash investing and financing activities: |
|
|
|
|
|
|
Capital lease equipment additions and
obligations incurred |
|
$ 26 |
|
|
$
8 |
|
|
|
|
|
|
|
|
See notes to financial statements.
EMERGING TECHNOLOGIES CONSULTANTS, INC.
Notes to Financial Statements
Year Ended December 31, 1998 and Nine Months Ended September 30,
1999
(In thousands, except for share data)
1. DESCRIPTION OF BUSINESS
Emerging Technologies Consultants, Inc. (the Company
or ETCI) provides software consulting and training
services to businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Managements Use of EstimatesThe 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
periods. Actual results could differ from those estimates.
Equipment, Furniture and SoftwareEquipment and furniture
are stated at cost less accumulated depreciation. Depreciation is provided
over the estimated useful lives of the related assets using the
double-declining balance method. Software is stated at cost less
accumulated amortization. Equipment under capital leases is depreciated
over the estimated useful lives of the related assets. The estimated useful
lives are:
Computer and office
equipment |
|
35 years |
Office
furniture |
|
7 years |
Software |
|
3 years |
Long-Lived AssetsThe Company periodically assesses the
recoverability of its long-lived assets based on its expectations of future
profitability and undiscounted cash flow of the related operations. These
factors, along with managements plans with respect to the operations,
are considered in assessing the recoverability of long-lived assets. If the
Company determines, based on such measures, that the carrying amount is
impaired, the long-lived assets will be written down to their recoverable
value with a corresponding charge to income. Recoverable value is
calculated as the amount of estimated future cash flows (discounted at a
rate commensurate with the risk involved) for the remaining amortization
period. During the periods presented, no such impairment was
incurred.
Revenue RecognitionThe Company maintains agreements with
consulting clients that establish service fees on a fixed-price basis.
Revenue is recognized as services are performed. Out-of-pocket expenses,
included in project personnel and expenses, are net of client expense
reimbursements in the accompanying statements of income. Advance payments
on future services are recognized as deferred revenue.
Stock-Based CompensationThe Company accounts for
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of Statement of Financial Accounting Standards (
SFAS) No. 123, Accounting for Stock-Based Compensation
as included in Note 8. Under APB Opinion No. 25, compensation
expense is based on the difference, if any, on the date of the grant,
between the fair value of the Companys stock and the exercise
price.
Income TaxesThe Company, with the consent of its
stockholders, has elected to be taxed as an S corporation for federal and
state income tax reporting purposes, which provides that taxable income or
loss of the Company is generally passed through to the individual
stockholders. Accordingly, no provision for such income taxes has been
recorded in the accompanying financial statements.
Recent Accounting PronouncementIn June 1998, the
Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company).
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 requires the recognition of all derivatives as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair value. The Company expects that
the adoption of SFAS No. 133 will not have a material impact on its
financial position or its results of operations.
3. EQUIPMENT, FURNITURE AND SOFTWARE
Equipment, furniture and software, and the related accumulated
depreciation and amortization consist of the following:
|
|
December 31,
1998
|
|
September 30,
1999
|
Computer and office
equipment |
|
$170 |
|
|
$345 |
|
Office
furniture |
|
|
|
|
9 |
|
Software |
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
170 |
|
|
357 |
|
Accumulated depreciation
and amortization |
|
(78 |
) |
|
(117 |
) |
|
|
|
|
|
|
|
Total |
|
$ 92 |
|
|
$240 |
|
|
|
|
|
|
|
|
4. NOTES PAYABLE
In 1997,
the Company entered into a revolving line of credit agreement in the amount
of $400 and was subsequently increased to $750 in 1999 with a maturity date
of January 31, 2002. Borrowings under this line of credit bear interest at
0.25% above the prime rate (8.3% at September 30, 1999). The line of credit
is collateralized by substantially all of the assets of the Company and is
secured by personal guarantees by the Companys officers. The amount
drawn on the line was $158 and $150 as of December 31, 1998 and September
30, 1999, respectively.
In
February 1999, the Company obtained a $100 term loan. Under the terms of
the loan, the Company is required to make monthly payments of approximately
$3, at a stated interest rate of 7.25%, through
February 2002. The current portion of the term loan at September 30, 1999 was
$32.
Notes
payable to stockholders represent non-interest bearing advances from the
principal stockholders and are due on December 31, 2000.
5. LEASE COMMITMENTS
The
Company leases office facilities under operating lease agreements. In
addition, the Company leases computer and office equipment under capital
leases.
Future
minimum lease payments under all non-cancelable operating and capital
leases as of
September 30, 1999 are as follows:
Year Ending September
30,
|
|
Operating
Leases
|
|
Capital
Leases
|
2000 |
|
$230 |
|
|
$21 |
|
2001 |
|
258 |
|
|
|
|
2002 |
|
249 |
|
|
|
|
2003 |
|
50 |
|
|
|
|
|
|
|
|
|
|
|
Total minimum
payments |
|
$787 |
|
|
21 |
|
|
|
|
|
|
|
|
Less: Amount representing
interest |
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
Present value of capital
lease obligations |
|
|
|
|
19 |
|
Less: Current
portion |
|
|
|
|
19 |
|
|
|
|
|
|
|
|
Lease obligations, long
term |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
Equipment recorded under
capital leases is included in equipment, furniture and software as
follows: |
|
|
|
|
December 31,
1998
|
|
September 30,
1999
|
Computers and
equipment |
|
$ 51 |
|
|
$59 |
|
Accumulated
depreciation |
|
(15 |
) |
|
(28 |
) |
|
|
|
|
|
|
|
Total |
|
$ 36 |
|
|
$31 |
|
|
|
|
|
|
|
|
Rent
expense for the office facilities was $40 and $69 for the year ended
December 31, 1998 and the nine months ended September 30, 1999,
respectively.
6. EMPLOYEE BENEFIT PLAN
During
1997, the Company adopted a 401(k) plan covering substantially all
employees. The maximum allowable employee contribution is based upon
applicable Internal Revenue Service regulations. Employer contributions are
funded annually and are at the sole discretion of the Board of Directors.
Employer contributions to the plan for the year ended December 31, 1998 and
for the nine months ended
September 30, 1999 amounted to $34 and $42, respectively.
7. COMMON STOCK
In
connection with the adoption of the Companys non-qualified stock
option employee benefit plan dated May 28, 1999 (the Plan), the
Company authorized issuing common voting Class A stock in the amount of
10,000,000 shares and common non-voting Class B stock in the amount of
700,000 shares. In addition, the shareholders exchanged their existing
shares of common voting stock on a 100-for-1 basis (the Exchange
) for common voting Class A stock. The common non-voting Class B
shares are designated to be issued to employees under the Plan. All common
voting Class A shares and related par value per share included in the
financial statements have been adjusted to reflect the effects of the
Exchange.
8. STOCK OPTION COMPENSATION PLAN
In May
1999, the Company initiated a Non Qualified Stock Option Plan (the
Plan). Under the Plan, certain employees were given the right
to acquire shares of common non-voting Class B stock of the Company. The
number of shares, exercise price of shares and vesting conditions were
determined by the Companys officers. Since June 1999, the Company
granted options to certain employees and the option exercise price per
share was less than the fair market value at the date of grant, thus
creating unearned deferred compensation.
10. SUBSEQUENT EVENT
On
December 2, 1999, pursuant to a Merger Agreement dated as of December 1,
1999 by and among Braun Consulting, Inc., ETCI Acquisition, Inc., a wholly
owned subsidiary of Braun Consulting, Inc., Emerging Technologies
Consultants, Inc. and Helene O. Amster and John D. Vairo, ETCI Acquisition,
Inc. merged with and into ETCI, with ETCI surviving the merger as a wholly
owned subsidiary of Braun Consulting, Inc. In connection with the merger,
the stockholders of ETCI received an aggregate of approximately $27,000 in
cash and common stock of Braun Consulting, Inc.
[LOGO OF BRAUN CONSULTING]
Building customer loyalty in the Internet economy
Some of our clients include:
Ameren
American Home Products
Ameritech
AT&T
Aventis
BidBuyBuild.com
Blue Cross/Blue Shield
BP Amoco
Chase
Cintas
Clinical Reference Laboratory
CNA Insurance
Coregis
Cummins Engine
Eaton
|
|
Eisai
Eli Lilly
Embratel
Employers Reinsurance
General Electric
General Motors
Honeywell
Kemper Insurance
Kraft
MCI WorldCom
Marathon Oil
MatchLogic
Mastercard
Media One
Medtronic
|
|
Motorola
New Century Energies
Novartis
Quaker Oats
Qwest
Pharmacia & Upjohn
Ralston Purina
S.C. Johnson
Steelcase
The CIT Group
Thomson Consumer Electronics
TMP Worldwide
(Monster.com owner)
Trane
Ty Inc.
Xerox
|
|
www.braunconsult.com
4,000,000 Shares
[LOGO OF BRAUN CONSULTING APPEARS HERE]
Common Stock
PROSPECTUS
,
2000
Salomon Smith Barney
Deutsche Banc Alex. Brown
Adams, Harkness & Hill, Inc.
ING Barings
PaineWebber Incorporated
SG Cowen
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The
following table sets forth the expenses (other than underwriting discounts
and commissions) expected to be incurred in connection with issuance and
distribution of the securities being registered, all of which shall be paid
by Braun Consulting. All of such amounts (except the Securities and
Exchange Commission Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Listing Fee) are estimated.
Securities and Exchange
Commission Registration Fee |
|
$
69,373 |
NASD Filing
Fee |
|
26,778 |
Nasdaq National Market
Listing Fee |
|
17,500 |
Printing
Expenses |
|
200,000 |
Legal Fees and
Expenses |
|
300,000 |
Accounting Fees and
Expenses |
|
300,000 |
Blue Sky Fees and
Expenses |
|
5,000 |
Transfer Agent and
Registrar Fees and Expenses |
|
5,000 |
Travel and Miscellaneous
Expenses |
|
176,349 |
|
|
|
Total |
|
$1,100,000 |
|
|
|
Item 14. Indemnification of Directors and
Officers.
Delaware General Corporation
Law
Section
145(a) of the Delaware General Corporation Law (DGCL) provides
that any person made a party to any action by reason of the fact that he is
or was a director, officer, employee or agent of Braun Consulting may and,
in certain cases, must be indemnified by Braun Consulting against, in the
case of a non-derivative action, judgments, fines, amounts paid in
settlement and reasonable expenses (including attorneys fees)
incurred by him as a result of such action, and in the case of a derivative
action, against expenses (including attorneys fees), if in either
type of action he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of Braun Consulting.
This indemnification does not apply, in a derivative action, to matters as
to which it is adjudged that the director, officer, employee or agent is
liable to Braun Consulting, unless upon court order it is determined that,
despite such adjudication of liability, but in view of all the
circumstances of the case, he is fairly and reasonably entitled to
indemnity for expenses, and, in a non-derivative action, to any criminal
proceeding in which such person had reasonable cause to believe his conduct
was unlawful.
Certificate of
Incorporation
The
certificate of incorporation of Braun Consulting provides that a director
of Braun Consulting shall not be personally liable to Braun Consulting or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the directors
duty of loyalty to Braun Consulting or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the DGCL or (4) for any
transaction from which the director derived an improper personal benefit.
Additionally, the certificate of incorporation provides that Braun
Consulting will indemnify its officers and directors to the fullest extent
permitted by the DGCL. However, if the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of Braun Consulting, in addition to the limitation
on personal liability described above, shall be limited to the fullest
extent permitted by the amended DGCL. Further, any repeal or modification
of such provision of the certificate of incorporation by the stockholders
of Braun Consulting shall be prospective only, and shall not adversely
affect any limitation on the personal liability of a director of Braun
Consulting existing at the time of such repeal or modification.
Bylaws
Braun
Consultings Bylaws generally provide for indemnification of officers,
directors, employees and agents of Braun Consulting and persons serving at
the request of Braun Consulting in such capacities for other business
organizations against certain losses, costs, liabilities, and expenses
incurred by reason of their positions with Braun Consulting or such other
business organizations. In the case of non-derivative actions, Braun
Consulting will indemnify such persons against expenses, including attorney
s fees, judgments, fines and amounts paid in settlement incurred by
such person as long as they acted in good faith and in a manner they
believed to be in or not opposed to the best interests of Braun Consulting.
In the case of derivative actions, Braun Consulting will indemnify such
persons against expenses, including attorneys fees, incurred by them
as long as they acted in good faith and in a manner they believed to be in
or not opposed to the best interests of Braun Consulting. Braun Consulting
also has policies insuring its officers and directors and certain officers
and directors of its wholly owned subsidiaries against certain liabilities
for actions taken in such capacities, including liabilities under the
Securities Act of 1933, as amended.
Underwriting Agreement
The
underwriting agreement will provide for the indemnification of the
directors and officers of Braun Consulting in certain
circumstances.
Insurance
Braun
Consulting maintains a policy of liability insurance to insure its officers
and directors and certain directors and officers of its wholly owned
subsidiaries against losses resulting from certain acts committed by them
in their capacities as officers and directors of Braun Consulting or its
subsidiaries.
Item 15. Recent Sales of Unregistered Securities.
Since
January 1, 1997, Braun Consulting has sold and issued the following
securities:
|
(1) Pursuant to the 1995 Director
Stock Option Plan, 1,636,114 shares of common stock have been issued
pursuant to the exercise of options by nine employees at a weighted
average exercise price of $0.06 per share. Pursuant to the 1998 Employee
Long Term Stock Investment Plan, 418,105 shares of common stock have been
issued pursuant to the exercise of options by 155 employees at a weighted
average exercise price of $2.99 per share. Pursuant to the 1998 Executive
Long Term Stock Investment Plan, 125,003 shares of common stock have been
issued pursuant to the exercise of options by two employees at a weighted
average exercise price of $3.00 per share. These issuances of securities
were made in reliance on Rule 701.
|
|
(2) On May 4, 1999, Braun Consulting
issued to the stockholders of Vertex Partners, Inc. 1,512,373 shares in
connection with the acquisition of Vertex Partners, Inc. by Braun
Consulting. The stockholders of Vertex Partners, Inc. receiving shares of
common stock of Braun Consulting consisted of Michael J. Evanisko and
certain trusts for his children (690,401), James M. Kalustian (493,144),
and Paul J. Bascobert (328,828). This issuance of shares was made in
reliance on Section 4(2).
|
|
(3) As of December 2, 1999, Braun
Consulting issued 493,333 shares in connection with the acquisition of
Emerging Technologies Consultants, Inc. by Braun Consulting. The persons
receiving shares of common stock of Braun Consulting consisted of Helene
O. Amster (244,873), Randy Dieterle (43,200), John D. Vairo (200,351) and
14 holders of the Class B Common Stock of Emerging Technologies
Consultants, Inc. This issuance of shares was made in reliance on Section
4(2).
|
None of
the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offerings.
Item 16. Exhibits and Financial Statement
Schedules.
(a)
Exhibits
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
*1.1 |
|
Form of Underwriting
Agreement. |
|
|
|
2.1 |
|
Merger Agreement dated as
of December 1, 1999 by and among Braun
Consulting, Inc., ETCI Acquisition, Inc., Emerging Technologies Consultants,
Inc. and Helene O. Amster and John D. Vairo (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed December 16,
1999). |
|
|
|
3.1 |
|
Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (Reg. No. 333-79251) (the Form S-1
)
filed by Braun Consulting). |
|
|
|
3.2 |
|
Form of Bylaws
(incorporated by reference to Exhibit 3.2 to the Form S-1). |
|
|
|
4.1 |
|
Specimen Certificate
representing Common Stock (incorporated by reference to
Exhibit 4.1 to the Form S-1). |
|
|
|
4.2 |
|
Registration Rights
Agreement dated as of May 4, 1999 by and among Braun
Consulting, Inc., Michael J. Evanisko, James M. Kalustian and Paul J.
Bascobert
(incorporated by reference to Exhibit 4.2 to the Form S-1). |
|
|
|
*4.3 |
|
First Amended and
Restated Registration Rights Agreement dated as of
December 5, 1999 by and among Braun Consulting, Inc., Helene O. Amster,
John D. Vairo and Randy Dieterle. |
|
|
|
*5.1 |
|
Opinion of Locke Liddell
& Sapp LLP. |
|
|
|
9.1 |
|
Voting Trust Agreement
dated February 1, 1998 by and between Wayne L.
Schneider, Josephine L. Schneider, Amos W. Braun, LaVerne M. Braun, Michael
K. Braun, Maureen B. Braun, Janet M. Ostendorf, Gregory A. Ostendorf and
Steven J. Braun (incorporated by reference to Exhibit 9.1 to the Form
S-1). |
|
|
|
10.1 |
|
Employment Agreement
dated effective as of May 5, 1999 between Braun
Consulting, Inc. and Paul J. Bascobert (incorporated by reference to
Exhibit 10.1
to the Form S-1). |
|
|
|
10.2 |
|
Employment Agreement
dated effective as of May 5, 1999 between Braun
Consulting, Inc. and Michael J. Evanisko (incorporated by reference to
Exhibit
10.2 to the Form S-1). |
|
|
|
10.3 |
|
Employment Agreement
dated effective as of May 5, 1999 between Braun
Consulting, Inc. and James M. Kalustian (incorporated by reference to
Exhibit
10.3 to the Form S-1). |
|
|
|
10.4 |
|
Executive Employment
Agreement dated November 1, 1998 between Braun
Technology Group, Inc. and Thomas J. Duvall (incorporated by reference to
Exhibit 10.4 to the Form S-1). |
|
|
|
10.5 |
|
Agreement dated September
1, 1998 between Steven J. Braun and Stephen J.
Miller (incorporated by reference to Exhibit 10.5 to the Form
S-1). |
|
|
|
*10.6 |
|
Amended and Restated 1995
Director Stock Option Plan. |
|
|
|
10.7 |
|
1998 Employee Long-Term
Stock Investment Plan (incorporated by reference to
Exhibit 10.7 to the Form S-1). |
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
10.8 |
|
1998 Executive Long-Term
Stock Investment Plan (incorporated by reference to
Exhibit 10.8 to the Form S-1). |
|
|
|
10.9 |
|
1999 Independent Director
Stock Option Plan (incorporated by reference to
Exhibit 10 to the Quarterly Report on Form 10-Q for the quarterly period
ended
September 30, 1999). |
|
|
|
10.10 |
|
Non Qualified Stock
Option Plan of Emerging Technologies Consultants, Inc.
(incorporated by reference to Exhibit 99.5 to the Registration Statement on
Form S-8 (Reg. No. 333-30788) filed by Braun Consulting). |
|
|
|
*23.1 |
|
Consent of Deloitte &
Touche LLP. |
|
|
|
*23.2 |
|
Consent of Locke Liddell
& Sapp LLP (contained in Exhibit 5.1). |
|
|
|
*24.1 |
|
Power of Attorney
(included on the signature page of this registration
statement). |
|
|
|
*27.1 |
|
Financial Data
Schedule. |
|
|
*Filed
herewith.
(b)
Financial Statement Schedules.
All
schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements
or Notes thereto.
Item 17. Undertakings.
Insofar
as indemnification for liabilities arising under the Securities Act 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 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 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 Act and will be governed by the final adjudication of such
issue.
The
undersigned registrant hereby undertakes that:
|
(1) For the purposes of determining
any liability under the Securities Act the information omitted from the
form of prospectus filed as a 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.
|
|
(2) For the purpose of determining
any liability under the Securities Act 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.
|
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on March 6, 2000.
|
President,
Chief Executive Officer
and Chairman of the Board
|
Dated: March 6, 2000
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints STEVEN J. BRAUN, JOHN C. BURKE and GREGORY A.
OSTENDORF, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for him, and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this registration statement (including, without limitation,
post-effective amendments), and any and all registration statements for the
same offering filed pursuant to Rule 462 under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on March 6, 2000.
Signature
|
|
Title
|
|
|
/S
/ STEVEN
J. BRAUN
Steven J. Braun
|
|
President, Chief Executive Officer and
Chairman of
the Board (Principal Executive Officer) |
|
|
/S
/ JOHN
C. BURKE
John C. Burke
|
|
Chief Financial Officer and Treasurer
(Principal
Financial Officer and Principal Accounting
Officer) |
|
|
/S
/ THOMAS
J. DUVALL
Thomas J. Duvall
|
|
Director |
|
|
/S
/ STEPHEN
J. MILLER
Stephen J. Miller
|
|
Director |
|
|
/S
/ MICHAEL
J. EVANISKO
Michael J. Evanisko
|
|
Director |
|
|
/S
/ JAMES
M. KALUSTIAN
James M. Kalustian
|
|
Director |
|
Signature
|
|
Title
|
|
|
/S
/ NORMAN
R. BOBINS
Norman R. Bobins
|
|
Director |
|
|
/S
/ WILLIAM
M. CONROY
William M. Conroy
|
|
Director |
|
|
/S
/ WILLIAM
H. INMON
William H. Inmon
|
|
Director |
|
|
/S
/ ERIC
V. SCHULTZ
Eric V. Schultz
|
|
Director |