<PAGE>
As filed with the Securities and Exchange Commission on May 10, 2000
Registration Statement No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
C-QUENTIAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 8742 04-3510387
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification
jurisdiction of Classification Code Number)
incorporation or Number)
organization)
---------------
c-quential, Inc.
25 Acorn Park
Cambridge, MA 02140-2390
(617) 498-5951
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Rudolf Fischer
Chief Executive Officer
c-quential, Inc.
25 Acorn Park
Cambridge, MA 02140-2390
(617) 498-5951
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
Copies to:
Stuart M. Cable, P.C. Matthew J. Mallow, Esq.
Robert P. Whalen, Jr., P.C. Skadden, Arps, Slate, Meagher & Flom LLP
Goodwin, Procter & Hoar LLP 4 Times Square
Exchange Place, 53 State Street New York, New York 10036
Boston, Massachusetts 02109-2881 (212) 735-3000
(617) 570-1000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<CAPTION>
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Offering Registration
Securities to be Registered Price(1) Fee
- -------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, par value $.01 per share...... $150,000,000 $39,600
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that 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 Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated May , 2000
PROSPECTUS
Shares
[Logo of c-quential, Inc. appears here]
Class A Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of Class A common stock. No
public market currently exists for our shares.
We have filed an application to have our Class A common stock approved for
listing on the Nasdaq National Market under the symbol "CQTL". We anticipate
the initial public offering price to be between $ and $ per share.
Investing in our Class A common stock involves risks. Risk Factors begin on
page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discount.......................................... $ $
Proceeds to c-quential......................................... $ $
</TABLE>
We have granted the underwriters the right to purchase up to additional
shares within 30 days to cover any over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver these shares
on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
Chase H&Q
Thomas Weisel Partners LLC
Fidelity Capital Markets
a division of National
Financial Services
Corporation
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Forward-Looking Statements.......... 13
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Selected Financial Data............. 17
Managment's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 27
Management....................... 40
Our Relationship with ADL........ 46
Principal Stockholder............ 49
Description of Capital Stock..... 49
Shares Eligible for Future Sale.. 53
Underwriting..................... 54
Legal Matters.................... 56
Experts.......................... 56
Additional Information........... 57
Index to Financial Statements.... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. c-
quential, Inc. and the underwriters have not authorized anyone to provide you
with information different from that contained in this prospectus. We are
offering to sell, and seeking offers to buy, shares of Class A common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any
sale of Class A common stock. This preliminary prospectus is subject to
completion prior to this offering.
Unless otherwise specifically stated, all information in this prospectus
assumes the issuance and sale of Class A common stock in the offering at an
assumed initial public offering price of $ per share.
We have filed for trademark protection in the United States for the name "c-
quential, Inc." and our logo. This prospectus also contains the trademarks and
trade names of other entities, including Arthur D. Little, Inc., or ADL, which
are the property of their respective owners.
Until , 2000, all dealers selling our Class A common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
References in this prospectus to "c-quential," with respect to the period
upon and after this offering, mean c-quential, Inc. and its subsidiaries, and
with respect to the period before this offering mean the TIME industries-
focused consulting practice operated as part of ADL. References in this
prospectus to "common stock" mean our Class A and Class B common stock,
collectively.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Except as otherwise indicated, the information in this prospectus
assumes that the over-allotment option granted to the underwriters is not
exercised.
c-quential, Inc.
Our Business
We are a leading global management and technology consulting firm serving
the telecommunications, information technology, media and electronics, or
collectively the TIME industries. Rapid and significant advances in technology,
particularly in wireless and broadband communications, are forcing companies in
the TIME industries to transform their operating models in order to capitalize
on new business opportunities such as mobile commerce, or m-commerce, and the
distribution of content using digital networks. We combine in-depth knowledge
of the TIME industries, technology expertise, strategy-to-implementation
capabilities and software tools in an integrated offering to help our clients
realize opportunities and mitigate risks. Through a network of offices in over
20 countries, our consultants, led by our partner-level professionals who
average approximately 14 years of experience in the TIME industries, serve a
broad range of clients from start-ups to industry leaders.
The following clients are among our top clients, measured by revenue in the
year ended December 31, 1999: KPN Telecom, Mannesmann AG, Orange Plc, Samsung
Group, Siemens AG and Telefonaktiebolaget LM Ericsson. In the year ended
December 31, 1999, 68% of our revenue was derived from clients in Europe, 14%
from clients in North America, 11% from clients in Asia Pacific, and 7% from
clients in Latin America and other regions.
Our Market Opportunity
The development and deployment of new technologies is creating many new
communications-based applications for businesses and consumers. These
technology-driven changes are affecting companies in all four of the TIME
industries, especially telecommunications companies, or telcos, and media
companies. To address the opportunities and challenges presented by these
technology-driven changes, the four TIME industries are converging. TIME
industry companies are entering into new business combinations, strategic
alliances and joint ventures with one another. To be successful, we believe
that companies in each of the TIME industries must be knowledgeable about the
effect of technology-driven changes across all of the TIME industries. The
expertise required by these changes in technologies is outside the core
competencies of many TIME industry companies. The time and expense associated
with the recruitment of specialists with this expertise and their scarcity has
led to a large increase in the demand for consulting services offered by third-
party providers. Kennedy Information Research Group estimates that the
worldwide market for communications, high technology and media, entertainment
and publishing consulting services offered by third-party providers will grow
from $14.7 billion in 1998 to $30.7 billion in 2003, representing a 16%
compound annual growth rate. The growth rate of the use of the Internet is
further spurring demand for consulting services as companies seek to improve
their business practices through Internet-based communications solutions.
International Data Corporation, or IDC, projects that the worldwide demand for
Internet services, which includes Internet consulting services, will grow from
approximately $7.8 billion in 1998 to $78.6 billion in 2003, representing a 59%
compound annual growth rate.
We believe that the successful TIME industries-focused management and
technology consulting firms will be those that combine a global presence with
multiple integrated competencies: industry knowledge, technology
1
<PAGE>
expertise and strategy-to-implementation capabilities. Knowledge across the
TIME industries provides clients with the ability to address complex,
interdisciplinary problems. Technology expertise is required to quickly
identify the opportunities and limits of technological development, so that
they can be factored into strategic planning. Lastly, strategy-to-
implementation capabilities allow companies in the TIME industries to realize
the opportunities created by changes in technologies.
Our Solution
We help our clients realize the opportunities, address the challenges and
mitigate the risks presented by rapid and significant advances in
communications technologies and regulatory changes. We believe that the key
elements of our solution are:
. innovative strategic advice with leading-edge technological expertise
. pragmatic business solutions supported by extensive and comprehensive
operations and industry knowledge
. implementation capabilities combined with business process methodologies
and software tools
Our Strategy
We intend to strengthen our leadership position in providing management and
technology consulting services to the TIME industries. The key elements of our
strategy are:
. attracting and retaining outstanding professionals
. expanding existing and developing new relationships with established and
emerging industry-leading clients
. expanding market share in North America
. building the c-quential brand
. expanding our media and electronics practices
. applying the best expertise and knowledge available globally to
strengthen our offerings
. establishing and fostering relationships with venture capital firms,
start-ups and business incubators
. expanding our existing software tools and developing proprietary software
tools
Our Relationship with ADL
We have operated as part of Arthur D. Little, Inc.'s Global Management
Consulting business since 1995. Concurrently with this offering, ADL will
transfer our business to a newly-formed entity, c-quential, Inc., and we will
assume from ADL approximately $70 million of bank debt. We recently began using
the c-quential name and building our brand. After the completion of this
offering, ADL will own all of the outstanding shares of our unlisted Class B
common stock and % of the outstanding shares of our Class A common stock, or
% of our Class A common stock if the underwriters fully exercise their over-
allotment option. As a result, ADL will own common stock representing % of the
combined voting power of all classes of our common stock, or % if the
underwriters fully exercise their over-allotment option.
Prior to the completion of this offering, we will enter into agreements with
ADL that will provide for:
. the transfer of the TIME industries-focused consulting practice from ADL
to us
. the grant of licenses to us to use ADL intellectual and leased real
property related to our business
2
<PAGE>
. certain administrative and corporate services to be provided by ADL to us
during our transition to an autonomous business
. the allocation of tax liabilities and benefits between ADL and us
. the grant to ADL of registration rights relating to our common stock
The Offering
<TABLE>
<S> <C>
Class A common stock offered................. shares
Common stock outstanding after this offering:
Class A common stock..................... shares
Class B common stock..................... shares
Total common stock........................... shares
Use of proceeds.............................. Repayment of debt assumed from ADL and
related entities, general corporate
purposes and working capital. See "Use
of Proceeds"
Proposed Nasdaq National Market symbol....... "CQTL"
</TABLE>
Holders of Class A common stock and unlisted Class B common stock have
identical rights, except with respect to voting. Holders of Class A common
stock are entitled to one vote per share and holders of Class B common stock
are entitled to ten votes per share. Except as required by law, holders of
Class A common stock and Class B common stock vote together as a single class.
See "Description of Capital Stock."
Common stock outstanding after this offering excludes:
. shares of Class A common stock that may be issued pursuant to the
over-allotment option granted to the underwriters
. shares of Class A common stock issuable upon exercise of stock options
outstanding as of , 2000
. shares of Class A common stock available for future grant under our
2000 Stock Option and Incentive Plan as of , 2000
Additional Information
Our principal executive offices are located at 25 Acorn Park, Cambridge,
Massachusetts 02140-2390 and our telephone number is (617) 498-5951. We are
incorporated in the State of Delaware.
Risk Factors
Purchasers of Class A common stock in the offering should carefully consider
the risk factors set forth under the caption "Risk Factors" and the other
information included in this prospectus prior to making an investment decision.
See "Risk Factors."
3
<PAGE>
Summary Financial Data
The following tables summarize the statement of operations data and balance
sheet data for our business. The statement of operations data for the years
ended December 31, 1997, 1998 and 1999 and the balance sheet data as of
December 31, 1998 and 1999 are derived from our audited financial statements
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 are derived from our unaudited financial
statements that include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods. This data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
financial statements and the notes thereto included elsewhere in this
prospectus. The financial data do not reflect any additional selling, general
and administrative expenses associated with c-quential operating as a stand-
alone, publicly-traded company, including executive management, overhead and
public company costs, insurance and risk management costs, and other costs.
Therefore, the financial data are not necessarily indicative of the results of
operations or financial position that would have resulted if we had been an
independent company during the periods shown. The statement of operations data
for the year ended December 31, 1999 is summarized:
. on an actual basis
. on a pro forma basis to reflect the discontinuance of a trademark license
fee historically allocated to us by ADL and an increase in the provision
for taxes based on the higher taxable income resulting from
discontinuance of the trademark license fee
The balance sheet data as of December 31, 1999 is summarized:
. on an actual basis
. on a pro forma basis to reflect the formation of c-quential, the transfer
from ADL to us of ADL's TIME industries-focused consulting practice, our
assumption of $70 million of bank debt from ADL and ADL's retention of
accounts receivable
. on a pro forma, as adjusted basis to reflect the sale of the shares of
Class A common stock in this offering at an assumed initial public
offering price of $ per share, after the deduction of estimated
underwriting discounts and commissions, the repayment of the $70 million
of bank debt assumed from ADL and the reimbursement of ADL's internal
costs related to this offering as described in "Use of Proceeds"
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999
1995 1996 1997 1998 1999 Pro Forma
------- ------- ------- ------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Professional service
revenue.................. $48,370 $55,483 $61,156 $76,831 $106,580 $106,580
Gross profit.............. 15,748 19,019 22,530 29,560 44,428 44,428
Income before taxes....... 4,403 6,006 8,186 9,815 17,134 18,981
Net income................ $ 2,686 $ 3,664 $ 4,993 $ 6,085 $ 10,794 $ 11,958
======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 304 $ 304 $
Working capital (deficit)...................... (453) (70,453)
Total assets................................... 28,433 4,385
Debt assumed from ADL.......................... -- 70,000 --
TIME Practice/Stockholders' equity (deficit)... 3,595 (66,405)
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before purchasing our Class A common stock. If any
of the following risks occur, our business, results of operations, financial
condition and reputation could be harmed. As a result, the trading price of our
Class A common stock could decline, and you could lose all or part of your
investment.
Risks Related to Our Separation from ADL
The services we obtain from ADL may be inadequate and we may be unable to
replace them satisfactorily
Our business has been a part of ADL's Global Management Consulting business
since 1995. Concurrently with this offering, ADL will transfer our business to
a newly-formed entity, c-quential, Inc. We have not historically operated as a
single division or a subsidiary of ADL, and we have relied on ADL's
infrastructure and facilities to support our operations. Concurrently with the
offering, we will enter into contractual arrangements with ADL pursuant to
which ADL will agree to provide infrastructure and administrative support to
us, including services related to:
. buildings, facilities and equipment
. information technology systems
. human resources administration
. legal, finance and accounting
Though ADL will be contractually obligated to provide these services and
facilities, generally for three to five years following this offering, we
cannot be sure that these arrangements will be sufficient to support our
current operations or growth strategy or that we will be able to find suitable
substitute arrangements after the terms of our arrangements with ADL expire. We
have no experience in operating our business independently from ADL, and our
business will be adversely affected if we do not successfully address the
transition issues relating to our separation from ADL.
Our obligations to ADL limit our ability to issue additional common stock
Upon completion of this offering, ADL will own all of the outstanding shares
of our unlisted Class B common stock and % of the outstanding shares of our
Class A common stock, or % of our Class A common stock if the underwriters
fully exercise their over-allotment option. As a result, ADL will own common
stock representing % of the combined voting power of all classes of our common
stock, or % if the underwriters fully exercise their over-allotment option.
ADL desires to preserve its ability to distribute, or spin-off, the shares of
our common stock that it owns to its shareholders on a tax-free basis, though
ADL has no current plan or arrangement to effect a spin-off of our common
stock. To distribute shares of our common stock on a tax-free basis under
current United States tax law, ADL would be required to distribute to its
shareholders shares representing at least 80% of the voting power of our
outstanding common stock. ADL currently intends to maintain ownership of shares
representing at least 80% of our outstanding shares of common stock and at
least 80% of the voting power of our outstanding common stock.
In addition, in connection with the separation of our business from ADL, we
will agree, absent ADL's consent, not to take any action or fail to take any
action if it would result in ADL owning less than either 80% of our outstanding
shares of capital stock or 80% of the voting power of our outstanding capital
stock. This agreement will limit our ability to issue additional common stock,
including for purposes of attracting additional and motivating our current
professionals, making acquisitions for stock consideration and raising equity
capital. See "Our Relationship With ADL--Tax Allocation Agreement."
5
<PAGE>
Conflicts of interest with ADL may arise that may have a negative impact on our
business
We may encounter conflicts of interest with ADL in some areas relating to
our past and ongoing relationships, including:
. taxation, employee benefit, indemnification and other matters arising
from our separation from ADL
. the licensing of intellectual property from ADL to us
. employee retention and recruiting
. the nature, quality and pricing of transitional services and facilities
that ADL has agreed to provide us
In addition, although we will have entered into an agreement with ADL under
which it has agreed, subject to limited exceptions and for a limited period,
not to compete with us within the TIME industries, we cannot be certain that
the terms of the agreement are broad enough to protect us against future
competition from ADL. Also, we may not be able to amicably resolve any
potential conflicts with ADL. Further, resolutions of any conflicts may be less
favorable to us than if we were dealing with an unaffiliated third party. The
agreements we will enter into with ADL may be amended upon agreement between
the parties with the approval of a majority of the disinterested directors of
each party. While we are controlled by ADL, ADL may effectively be able to
require us to agree to amendments to these agreements that may be less
favorable to us than the current terms of the agreements.
We have potential tax liability as a member of ADL's consolidated group
For all periods in which ADL owns 80% or more of both the voting power and
value of our outstanding capital stock, we will be included in ADL's
consolidated group for United States federal income tax purposes. If ADL or any
other member of ADL's consolidated group fails to pay any required United
States federal income tax payments, we, and each other member of the group,
could be required to pay such taxes because each member of a consolidated group
is liable for the tax obligations of the group. In connection with the
separation of our business from ADL, ADL will incur tax obligations of
approximately $15.0 million. ADL has agreed to pay all of these tax
obligations, subject to subsequent reimbursement by us to ADL of any tax
benefit we receive as a result, as well as all U.S. federal income tax
obligations relating to our business for periods prior to the completion of
this offering. If ADL is unable to pay any of such taxes, we, and each other
member of the group, could be required to pay such taxes as a member of ADL's
consolidated group. See "Our Relationship with ADL--Tax Allocation Agreement."
We have potential liability to ADL for tax indemnification obligations
Although it has no commitment or definitive plan to do so, ADL may in the
future determine to distribute the shares of our Class A and Class B common
stock it owns to its shareholders in a spin-off transaction. In connection with
our separation from ADL, we will agree that we will indemnify ADL for any tax
liability it suffers arising out of our actions, before or after a spin-off by
ADL, that would cause the spin-off to lose its qualification as a tax-free
distribution for United States federal income tax purposes. If, as a result of
our actions, a future spin-off fails to qualify as a tax free distribution to
ADL stockholders, ADL would incur United States federal income tax and possibly
state income tax on any accumulated and unrecognized gain in the distributed
shares, which would be based on the fair market value of the shares of our
Class A common stock at the time of the spin-off. In the event that we are
required to indemnify ADL in respect of this liability, our business would be
immediately and substantially harmed.
ADL's control of our voting stock will reduce the influence of other
stockholders and may affect the trading price of our stock
Upon completion of this offering, ADL will own shares of our common stock
representing approximately % of the voting power of our outstanding common
stock, or % if the underwriters exercise their over-allotment option in full.
ADL currently intends to maintain ownership of at least 80% of the voting power
of our outstanding common stock and we have agreed not to take, or fail to
take, any action that would result in a
6
<PAGE>
reduction in ADL's ownership below that level. As long as ADL owns shares
representing at least a majority of the voting power of our outstanding common
stock, ADL will be able to unilaterally determine the outcome of all
stockholder votes and investors in this offering will not be able to affect the
outcome of any stockholder vote. As a result, ADL will effectively control all
matters affecting us, including:
. the composition of our board of directors and the business strategy and
policies of our company
. our acquisition or disposition of assets and the terms on which we obtain
financing
. determinations with respect to mergers or other business combinations
ADL's control over our business may have an adverse effect on the trading
price of our Class A common stock.
We will depend on services and facilities provided and leased by third parties
to ADL, and we may not have recourse against those third parties
Many of the services and facilities that will be provided by ADL under the
terms of our agreements with ADL are provided or leased to ADL by third
parties. As a result, in the event of a dispute between ADL and a third party
vendor, we could lose access to, or the rights to use, as applicable, office
space, personnel, corporate services and other operating assets. In such a
case, we may have no recourse against the third party vendor. Our inability to
use these services, facilities and operating assets for any reason, including
any termination of the agreements between us and ADL or the agreements between
ADL and third party vendors, could result in interruptions of our operations.
The trading price of our Class A common stock may be adversely affected by
sales or the prospect of sales of our stock by ADL
As long as ADL owns a substantial portion of our outstanding common stock,
there will be a potential for sales of our stock into the public market by ADL.
ADL and its transferees will have the right to require us, on any five
occasions beginning six months after completion of this offering, to register
for sale shares of our common stock held by them. In addition, after expiration
of the 180-day lock-up period, ADL will have the ability to sell shares of our
common stock into the public market pursuant to Rule 144 under the Securities
Act, subject to volume and holding period limitations. Although there is
currently no trading market for our shares of Class B common stock, all of
which are owned by ADL, ADL could effectively require us to arrange for the
shares of Class B common stock to be traded on NASDAQ or another securities
exchange. Upon such an event, ADL's ability to sell shares of our common stock
would be increased. Sales by ADL of our common stock, or the prospect of such
sales in the future, may have an adverse effect on the trading price of our
common stock.
Some of our directors may have conflicts of interest because they are also
directors, officers and stockholders of ADL
Four of our directors are also directors and/or officers of ADL. Members of
our board of directors also hold shares of ADL stock and options to purchase
ADL shares. These individuals may have conflicts of interest with respect to
decisions involving business opportunities, our business relations with ADL and
similar matters that may arise in the course of our business or the business of
ADL. Conflicts, if any, could be resolved in a manner adverse to us and our
stockholders.
Risks Related to Our Business
We do not have an independent operating history and our business may be harmed
if we are unable to adequately address the risks generally encountered by
newly-formed and rapidly growing companies
We have been part of ADL since 1995 and have never operated as an
independent business entity. As a newly-formed company, we will be subject to
risks and uncertainties associated with implementing our business
7
<PAGE>
plan that are not typically encountered by mature companies with management
teams and administrative personnel more experienced in operating an independent
entity. Our business, reputation and the quality of our client service may be
adversely impacted if we are unable to:
. attract, retain and motivate a sufficient number of qualified
professional consultants
. promote awareness of the c-quential brand name
. maintain our existing and establish new client relationships
. address the administrative and facilities issues associated with our
establishment as a stand-alone, publicly-traded company and our recent
rapid and anticipated future growth
Our historical financial information may not be representative of our results
as a separate company
The historical financial information included in this prospectus has been
derived from the consolidated financial statements of ADL using the historical
results of operations and historical bases of the assets and liabilities as
reflected in ADL's consolidated financial statements. This historical financial
information may not accurately reflect what our financial condition, results of
operations and cash flows would have been had we been a separate, stand-alone
company during the periods presented. Our costs and expenses include
allocations from ADL for centralized corporate services and regional
infrastructure costs, including:
. legal
. accounting
. treasury
. facilities
. information technology
. sales and marketing
The adjustments and allocations were determined on bases that we and ADL
considered to be reasonable. However, we cannot assure you that these
adjustments and allocations appropriately reflect our operations as if we had
actually operated as a stand-alone entity during the periods presented. In
addition, the historical financial information is not necessarily indicative of
what our results of operations, financial position and cash flows will be in
the future. We have not made adjustments to our historical financial
information to reflect significant changes that will occur as a result of our
separation from ADL and the implementation of our business plan, including:
. significant increases in compensation expense associated with our
recruiting initiatives
. increased costs relating to reduced economies of scale
. increased marketing expenses associated with building a brand identity
separate from ADL
. increased costs associated with our establishment as a stand-alone,
publicly-traded company
If we are unable to attract, motivate and retain a growing staff of
professionals we will be unable to maintain and grow our business
Our success depends on our ability to make a sufficient number of
professionals available to our clients. The execution of our growth strategy
depends on our increasing the number of our professionals in the future. If we
are unable to maintain and increase our present number of professionals, our
ability to serve our existing clients may be hindered and our growth will be
limited.
The professionals that we desire are highly talented and possess our
targeted mix of industry experience and academic qualifications. Competition to
employ these individuals is intense. We compete not only with other consulting
firms, but also with companies in the TIME industries, financial and academic
institutions and
8
<PAGE>
governments. Some of these competitors are able to offer combinations of
compensation, quality of work and lifestyle that may be more attractive to
potential employees than those we offer. Increased competition for suitable
professionals may also result in higher labor costs, which could have an
adverse effect on our operating results.
In connection with this offering, the ADL professional staff that was
considered a part of the c-quential staff for purposes of creating our
historical financial statements, as well as other ADL professionals will be
offered the opportunity to leave their current employment with ADL and join c-
quential. Although we believe that substantially all of these individuals will
choose to join c-quential, if they do not, it could have an adverse effect on
our business and our operating results.
The loss of key individuals could adversely affect our business and competitive
position
Our future success is dependent upon the efforts, abilities, business
generation capabilities and service-delivery skills of our partner-level
professionals. We particularly depend on these individuals, because personal
relationships are a critical element of obtaining and maintaining our client
engagements. We also depend upon the managerial, operational and administrative
skills of our executive officers. We have experienced attrition among our
partner-level professionals in the first four months of 2000, particularly in
our United Kingdom and United States offices, where an aggregate of five
individuals have resigned during that period. We need to attract and retain
replacements for these departed individuals in addition to hiring other highly
skilled executives. The loss of any key individuals or their failure to perform
at or above historical levels could affect our financial performance.
We may be unable to develop sufficient awareness of the c-quential brand
We believe that establishing and maintaining name recognition and a good
reputation is critical to attracting and expanding our targeted client base, as
well as attracting and retaining professionals. We have no experience in
developing and building a brand name. To promote our brand name, we plan to
increase our marketing expenses, which will negatively impact our
profitability. In addition, our brand may be closely associated with the
business success or failure of some of our high-profile clients, many of whom
are pursuing unproven business models in competitive markets. As a result, the
failure or difficulties of one or more of our high-profile clients may damage
our brand. If we fail to successfully promote and maintain our brand name, our
level of profitability will decline and our growth may be limited.
Our revenues and operating results may fluctuate significantly and these
fluctuations could cause our stock price to decline
Our revenues and operating results are difficult to predict and may vary
significantly from quarter-to-quarter and year-to-year due to a number of
factors. As a result, we believe that period-to-period comparisons of our
operating results may not be meaningful. Occasionally, our operating results
may be below the expectations of investors and, as a result, the price of our
Class A common stock would likely decline. Some factors that could cause
fluctuations include:
. the commencement, completion or termination of major client engagements
during a particular period
. large additions to our professional staff without immediate corresponding
increases in revenues
. competitive factors, including new entrants to the consulting industry
and reductions in the prices of services offered by new or existing
competitors
. changes in utilization rates and billing rates
. fluctuations in the relative values of foreign currencies
. fluctuations in demand for our services resulting from project delays,
economic downturns in any of the regions in which we operate or similar
conditions
9
<PAGE>
Our reported revenues may be negatively affected by currency exchange rates
Exchange rates between the United States dollar, in which our results are
and will be reported, and the local currency in the countries in which we
provide many of our services may fluctuate from quarter-to-quarter. Since we
report our interim and annual results in United States dollars, we are subject
to the risk of translation losses for reporting purposes. When the dollar
appreciates against the applicable local currency in any reporting period, the
actual earnings generated by our services in that country are diminished in the
translation.
For the year ended December 31, 1999, operations outside the United States
accounted for approximately 86% of our revenues. To the extent that our foreign
revenue and expense transactions are not denominated in the local currency
and/or to the extent our foreign earnings are reinvested in a currency other
than their functional currency, we are also subject to the risk of transaction
losses. We have not historically entered into hedging contracts or other
derivative instruments to limit our exposure to currency fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Acquisitions that we complete may not produce the intended benefits for us, and
the integration of acquired entities could disrupt our business
We intend to evaluate acquisition opportunities and we may make strategic
acquisitions in the future. If we were to make an acquisition, we would be
subject to risks common to business acquisitions, including:
. the difficulty associated with integrating the operations, personnel and
culture of an acquired business into our own
. the potential disruption to our existing business and the diversion of
capital and management's attention away from other business issues
. amortization of goodwill and other acquired intangible assets, which
would reduce future reported earnings
. potential loss of clients or key employees of acquired companies
In addition, our management has had no experience in assimilating acquired
organizations into our own. We may not successfully integrate any operations or
personnel that we may acquire in the future into our business. If we complete
acquisitions and fail to successfully integrate the acquired businesses, our
business could be materially harmed.
Risks Related to Our Industry
We focus on serving companies in the TIME industries and changes in these
industries could reduce our customer base or the use of outside consultants by
companies in these industries
We currently derive almost all of our revenues from client engagements
within the TIME industries. Our growth will depend on trends in these
industries, including:
. rapid technological advancements
. increased globalization of markets
. world-wide deregulation of the telecommunications industry
. increased competition
We believe that these trends are creating much of the demand for our
professional services. If these trends slow, our revenues may be less than we
expect and our operating results may suffer.
10
<PAGE>
Competition from both established and new competitors may result in the loss of
market share and reduced profitability
The market for providing professional services to the TIME industries is
intensely competitive. We compete with general management consulting firms, the
consulting practices of major accounting firms, and foreign, local and regional
firms specializing in the TIME industries. Some of our competitors have formed
strategic alliances with telecommunications and technology companies. We also
compete with the internal resources of our clients and potential clients. There
are low barriers of entry into our industry and this will encourage new
competitors to enter our markets from time to time. Many of our competitors
have greater brand name recognition and financial, technical and marketing
resources than we do. We cannot assure you that we will be able to compete
successfully with our existing competitors or new competitors, and our
financial condition and results of operations will be adversely affected if we
are unable to do so.
Actual and perceived conflicts of interest may constrain our growth
Most of our revenue is derived from advising large companies in the TIME
industries. In the course of our engagements, we often obtain sensitive
information about our clients. Many of these clients expect us to demonstrate
loyalty to their interests. When we commence an engagement for a client, we are
often requested to agree not to perform a similar engagement for a direct
competitor of the client within its geographic area for a specified time
period, generally one year. In addition, the regulations governing auctions for
communications licenses often prohibit us from advising more than one bidder
for a particular license. These factors will limit our ability to offer our
services to companies, or parts of companies, that compete directly with
existing clients. The number of large companies in the TIME industries is
limited, and there is a trend towards consolidation through mergers and
alliances that may have the effect of reducing this number further. The need to
avoid actual and potential conflicts of interest may constrain our ability to
obtain new clients or to obtain further work from our existing clients, and
this could inhibit our growth.
Risks Related to the Securities Markets and This Offering
The trading price of our Class A common stock may be volatile and investors in
our Class A common stock may experience substantial losses
The trading price of our Class A common stock may be volatile. Our stock
price could decline or fluctuate in response to a variety of factors,
including:
. variations in our quarterly or annual operating results
. trends in the TIME industries and in general global or regional economic
conditions
. introductions of new service offerings or new pricing models by our
competitors
. acquisitions or strategic alliances by us or other companies in our
industry or related industries
. changes in estimates of our performance by securities analysts or our
failure to meet their estimates
In addition, the stock market as a whole has recently experienced extreme
price and volume fluctuations. General securities market conditions, as well as
public announcements by companies in our industry regarding their performance
or other factors could lower the market price of our Class A common stock,
regardless of our actual operating performance.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs, and a
diversion of management attention and resources.
11
<PAGE>
We will have broad discretion over the use of the proceeds of this offering and
you may not agree with how we use the proceeds of this offering
Our management will have significant flexibility in applying the net
proceeds of this offering and may use the net proceeds in ways with which
stockholders disagree. Management's failure to effectively apply these proceeds
could have an adverse effect on our ability to implement our business strategy.
Risks Related to Legal Uncertainty
We may become subject to claims regarding foreign laws and regulations, which
could subject us to increased expenses
Due to the international concentration of our business, we are subject to
the laws of foreign jurisdictions for violations of their laws. These laws may
change or new, more restrictive laws may be enacted in the future.
International litigation is often expensive, time-consuming and distracting to
management and could have an adverse effect on our business.
Provisions of Delaware law and of our charter and by-laws may make a takeover
more difficult
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which is opposed
by our management and board of directors. Public stockholders who might desire
to participate in such a transaction may not have an opportunity to do so. One
such anti-takeover provision, contained within our certificate of
incorporation, provides for a staggered board of directors, which makes it
difficult for stockholders to change the composition of the board of directors
in any one year. These anti-takeover provisions could substantially impede the
ability of public stockholders to benefit from a change in control or change
our management and board of directors.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," "Our Relationship
with ADL" and elsewhere. These forward-looking statements include statements
about the following:
. implementing our business strategy
. managing our growth
. our relationship with ADL following the offering
. other statements that are not historical facts
In some cases you can identify these statements by forward-looking words
such as "anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "should," "will," and "would" 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 position or state other "forward-looking" information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control and our actual results may differ materially from the
expectations we describe in our forward-looking statements. Before you invest
in our Class A common stock, you should be aware that the occurrence of the
events described under the caption "Risk Factors" and elsewhere in this
prospectus could have an adverse effect on our business, results of operations
and financial position.
13
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of Class A
common stock in this offering will be approximately $ million, at an
assumed initial public offering price of $ per share and after deducting the
estimated underwriting discounts and commissions, our estimated offering
expenses and internal costs of ADL related to this offering, for which we have
agreed to reimburse ADL.
We estimate that approximately $70 million of the net proceeds will be used
to repay bank debt of ADL and its subsidiaries outstanding under several credit
facilities that we will assume from ADL concurrently with the consummation of
this offering. Two of the credit facilities have a maturity date of June 1,
2001 and bear interest at variable rates, which were 9.63% and 10.00%,
respectively, as of May 1, 2000. The other credit facilities have maturity
dates of July 18, 2000 and August 13, 2000 and currently bear interest at
variable rates, which ranged from 4.65% to 4.75% as of May 1, 2000. The
remaining $ million in net proceeds from this offering will be used to
support the working capital requirements and capital expenditures associated
with our anticipated growth, including expenditures related to:
. increased recruiting efforts
. marketing initiatives associated with promoting our brand
. facilities and expansion activities
. research and development
. potential acquisitions or strategic investments
Until allocated for specific use, we will invest these proceeds in
government securities and other short-term, investment-grade securities.
DIVIDEND POLICY
We currently intend to retain our future earnings, if any, to finance the
expansion of our business and do not expect to pay any cash dividends in the
foreseeable future.
Payment of cash dividends after the offering, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
14
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization and our unaudited
pro forma and unaudited pro forma, as adjusted capitalization as of December
31, 1999:
. on an actual basis
. on a pro forma basis to reflect the formation of c-quential, the transfer
from ADL to us of ADL's TIME industries-focused consulting practice, our
assumption of $70 million of bank debt from ADL and ADL's retention of
accounts receivable
. on a pro forma, as adjusted basis to reflect the sale of the shares
of Class A common stock in this offering at an assumed initial public
offering price of $ per share, after the deduction of estimated
underwriting discounts and commissions, the repayment of the $70 million
of bank debt assumed from ADL and the reimbursement of ADL's internal
costs related to this offering as described in "Use of Proceeds"
You should read this information in conjunction with our financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------
Pro Forma,
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 304 $ 304 $
====== ======== ====
Debt assumed from ADL............................. $ -- $ 70,000 $--
TIME Practice/Stockholders' equity (deficit):
Preferred stock, par value $0.01 per share;
shares authorized, no shares issued or
outstanding pro forma or pro forma, as
adjusted....................................... -- -- --
Class A common stock, par value $0.01 per share;
shares authorized, shares issued and
outstanding pro forma; and shares issued
and outstanding pro forma, as adjusted......... --
Class B common stock, par value $0.01 per share;
shares authorized, shares issued and
outstanding pro forma; and shares issued
and outstanding pro forma, as adjusted......... --
Additional paid-in capital...................... --
------ -------- ----
TIME Practice/Stockholders' equity (deficit).. 3,595 (66,405)
------ -------- ----
Total capitalization........................ $3,595 $ 3,595 $
====== ======== ====
</TABLE>
15
<PAGE>
DILUTION
Our pro forma net tangible book value at December 31, 1999 was approximately
$ or $ per share. Pro forma net tangible book value per share is determined
by dividing our pro forma tangible net worth, which is total pro forma tangible
assets less total pro forma liabilities after giving effect to the formation of
c-quential and the transfer from ADL to us of ADL's TIME industries-focused
consulting practice and our assumption of $70 million of ADL bank debt as
though such transactions had occurred as of December 31, 1999, by the number of
shares of common stock outstanding immediately before this offering. Dilution
in pro forma net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our Class A common
stock in this offering and the pro forma net tangible book value per share of
our common stock immediately afterwards. After giving effect to our sale of
shares of Class A common stock in this offering at an assumed initial public
offering price of $ per share and after deducting an assumed underwriting
discount and estimated offering expenses payable by us, our pro forma, as
adjusted net tangible book value at December 31, 1999 would have been
approximately $ , or $ per share.
This represents an immediate increase in pro forma net tangible book value
of $ per share to our existing stockholder and an immediate dilution in pro
forma net tangible book value of $ per share to new investors purchasing
shares of Class A common stock in this offering. The following table
illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
---
Pro forma net tangible book value per share as of December 31,
1999.............................................................. $
---
Increase in pro forma book value per share attributable to new
investors......................................................... $
---
Pro forma, as adjusted net tangible book value per share after this
offering.......................................................... $
---
Dilution in pro forma net tangible book value per share to new
investors......................................................... $
===
</TABLE>
The discussion and table above assume no exercise of options outstanding
under our 2000 Stock Option and Incentive Plan, none of which are exercisable.
As of , there were options outstanding to purchase shares of Class A
common stock. To the extent that any options are granted and exercised, there
will be further dilution to new investors.
The following table sets forth, as of December 31, 1999 on a pro forma, as
adjusted basis described above, the difference between the number of shares of
Class A common stock purchased from us, the total price paid and price per
share of common stock paid by our existing stockholder and by the new investors
in this offering at an assumed initial public offering price of $ per share
before deducting the estimated underwriting discounts and commissions and
offering expenses.
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration
-------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder....... $ $
New investors..............
--- --- ---------- ---------
Total.................... $
=== === ========== =========
</TABLE>
If the underwriters fully exercise their over-allotment option, the
following will occur:
. the number of shares of common stock held by our existing stockholder
will decrease to approximately % of the total number of shares of
common stock outstanding
. the number of shares held by new investors will be increased to
shares, or approximately % of the total number of shares of our common
stock outstanding after this offering
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31,
1998 and 1999 are derived from our audited financial statements included
elsewhere in this prospectus. The selected statement of operations data for the
years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 are derived from our unaudited financial
statements that include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods. The historical results presented are not necessarily indicative of the
results to be expected for any future period. The selected financial data
should be read in conjunction with our financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Professional service revenue........ $48,370 $55,483 $61,156 $76,831 $106,580
Costs of services:
Direct costs of services........... 14,655 15,513 18,515 24,145 36,014
Arthur D. Little, Inc. subcontract
costs............................. 17,967 20,951 20,111 23,126 26,138
------- ------- ------- ------- --------
Total costs of services.......... 32,622 36,464 38,626 47,271 62,152
------- ------- ------- ------- --------
Gross profit........................ 15,748 19,019 22,530 29,560 44,428
Selling, general and administrative
expenses........................... 11,345 13,013 14,344 19,745 27,294
------- ------- ------- ------- --------
Income before taxes................. 4,403 6,006 8,186 9,815 17,134
Provision for income taxes.......... 1,717 2,342 3,193 3,730 6,340
------- ------- ------- ------- --------
Net income.......................... $ 2,686 $ 3,664 $ 4,993 $ 6,085 $ 10,794
======= ======= ======= ======= ========
<CAPTION>
As of December 31,
----------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ -- $ -- $ -- $ -- $ 304
Working capital (deficit)........... -- -- -- -- (453)
Total assets........................ 11,519 12,071 14,040 16,591 28,433
TIME Practice equity ............... -- -- -- -- 3,595
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected Financial
Data," our financial statements and the notes to those financial statements
included elsewhere in this prospectus. The historical financial information
included in this prospectus has been derived from the historical consolidated
financial statements of ADL. In addition to historical information, this
discussion contains forward-looking information that involves risks,
uncertainties and assumptions. Our actual results could differ materially from
those anticipated in such forward-looking information due to competitive
factors, risks associated with our growth strategy and other factors, including
those discussed under "Risk Factors" and elsewhere in this prospectus.
Overview and Arrangements with ADL
We have historically operated as part of ADL's Global Management Consulting
business. Simultaneous with this offering, ADL will transfer its TIME
industries-focused consulting practice to a newly-formed entity, c-quential,
Inc., which will become the successor to this practice. We recently began using
the c-quential name and building our brand. Simultaneous with this offering, we
will enter into agreements related to our future relationship with ADL. These
agreements will provide, among other things, that:
. in the event that we utilize ADL professionals on our client engagements
or ADL utilizes our professionals on ADL client engagements, the party
utilizing such professionals will pay the other party 85% of the
standard billing rate for the services provided by the subcontracted
professionals
. ADL will provide us with a variety of administrative and corporate
services and we will reimburse ADL at a rate generally equal to the
actual cost of providing such services
. ADL will grant us a license to use ADL-leased real property and we will
reimburse ADL at a rate equal to ADL's actual cost of leasing such
property
. we will pay ADL the amount of income taxes that we would have been
obligated to pay, and ADL will pay us any income tax refund that we
would have received, in each case had we not been part of ADL's
consolidated group
The length of the terms of our agreements with ADL will generally range from
three to five years. We may also negotiate new or revised arrangements with
various third parties. We cannot assure you that the terms we will be able to
negotiate with these third parties will be as favorable as those contained in
our agreements with ADL. In addition, as part of ADL, we have historically
benefited from various economies of scale including shared global
administrative functions and facilities. We expect that our costs may increase
as a result of the loss of these economies of scale as we renegotiate and enter
into new arrangements. See "Our Relationship With ADL."
Our Business
Revenue. Our revenue consists of fees for professional services rendered to
our clients. We provide our services on a time and materials basis. Prior to
commencement of a client engagement, we estimate the total fees for the
engagement based on its expected scope, our anticipated staffing requirements
and the expected level of client involvement. We recognize revenue as services
are performed in accordance with the terms of the client engagement. Once
revenue for a particular engagement reaches the amount at which our fees were
originally estimated, we cease recognizing revenue on such engagement unless
and until we are able to receive approval from the client to continue billing.
We include in our revenue revenue attributable to subcontractors working on our
client engagements. Our revenue excludes reimbursable expenses charged to
clients. Provisions are made for estimated uncollectible amounts based on a
monthly case by case review. Although from time to time we have been required
to make revisions to our accounts receivable based on our monthly reviews, to
date none of these revisions has had a material adverse effect on our financial
condition, liquidity or results of operations.
18
<PAGE>
Our revenue is earned in many countries using different currencies, but we
report our revenue in United States dollars. As a result, fluctuations in
currency exchange rates may lead to fluctuations in our reported revenue.
Revenue is assigned to specific geographic regions based on the location of the
office responsible for securing the contract.
We typically invoice for an advance payment from our clients upon
commencement of an engagement, with additional billings on a monthly basis or
upon attainment of engagement milestones. We regularly analyze our fees for
services to ensure that they are competitive within the industry.
Cost Structure. Direct costs of services consist primarily of payroll and
fringe benefits costs for our professionals and independent (non ADL-related)
consultants. ADL subcontract costs consist of the fees we pay to ADL when we
utilize their professionals on our client engagements. Under our agreements
with ADL, we pay ADL 85% of the standard billing rate for the services provided
by the subcontracted professionals. We anticipate that we will continue to use
a material number of ADL professionals on our client engagements in the near
future as we focus on expanding our internal professional staff. As the size of
our professional staff increases, our use of ADL professionals, and thus our
ADL subcontract costs, will decrease, while our direct costs of services will
increase.
Selling, general and administrative expenses have historically consisted of
direct costs and allocations from ADL of costs associated with business
development and support of our client-serving professionals. These costs
include: professional development and recruiting costs; expenses associated
with sales and marketing initiatives; operational, finance and information
systems costs; and facilities and other administrative expenses. After this
offering, selling, general and administrative expenses will also include costs
associated with operating as a public company and amounts payable to ADL under
our agreements with ADL, including the cost of administrative and corporate
services and leasing of real and personal property. See "Our Relationship With
ADL."
In deriving our historical financial statements from ADL's consolidated
financial statements, we considered ADL professionals who charged 70% or more
of their billable hours to TIME industries-related engagements during any year
to be c-quential staff for that year. Direct costs of services represent the
total employment costs of these individuals as well as the cost of independent
subcontractors on TIME industries-related client engagements. ADL subcontract
costs represent 85% of the gross revenue generated on TIME industries-related
client engagements by ADL professionals who were not considered to be c-
quential staff for the applicable year. Bid and proposal costs for TIME
industries-related client engagements as well as overhead costs directly
attributable to those individuals deemed to be c-quential staff were included
in the c-quential financial statements. The remaining ADL overhead and
infrastructure costs were allocated between ADL and c-quential. Specifically, a
portion of ADL's regional infrastructure costs were allocated to c-quential on
the basis of c-quential direct employee compensation in the various
jurisdictions as a percentage of the total ADL consolidated direct employee
compensation in those same jurisdictions. In addition, c-quential was charged a
trademark license fee based on a percentage of revenue basis for use of the
"Arthur D. Little, Inc." name. We will not be charged a trademark license fee
in the future for use of the "Arthur D. Little, Inc." name.
We regularly analyze our costs to determine whether compensation we pay to
our professionals is consistent and competitive with that paid in the industry
and whether our overhead costs are comparable to those of our competitors. We
manage activities of our professionals by closely monitoring engagement
schedules and staffing requirements for new engagements. While the total number
of professional staff must be adjusted to reflect active engagements, we must
maintain a sufficient number of senior professionals to oversee existing client
engagements and participate in our sales efforts to secure new client
assignments.
Simultaneous with this offering, selected ADL professionals will terminate
their employment with ADL and formally become c-quential employees. Selected
ADL administrative staff members may also become our employees. We expect that
ADL will continue to make its professionals available to us on a subcontract
basis as needed, although we will endeavor to reduce our dependence on ADL
through an aggressive recruitment program as well as through selective
potential acquisitions.
19
<PAGE>
Variability of Operating Results. Our revenue and operating results are
difficult to predict and may vary significantly from quarter to quarter and
year to year due to a number of factors. These fluctuations may be significant
since, for example, a substantial portion of our revenues are derived in
Europe, where it is customary to have extended holidays during August and
December. Further, it is difficult for us to forecast accurately the frequency
and duration of our client engagements. We incur expenses, which are mainly
fixed expenses, based on our expectations concerning our future revenue stream.
We may not be able to adjust our spending in a timely manner to compensate for
any shortfall in our projected revenues. In the event of such a shortfall, our
expenses as a percentage of our revenue would increase and thus our gross
margins would decline. Our quarterly operating results may not meet the
expectations of analysts or investors. This may cause a decline in the market
price of our common stock.
Historical Operating Results May Not Reflect Future Operating Results. The
historical financial information presented in this prospectus is not
necessarily indicative of what our financial position, results of operations or
cash flows may be in the future, nor is it necessarily indicative of what our
financial condition, results of operations or cash flows would have been had we
been a separate, stand-alone entity for the periods presented. The financial
information presented in this prospectus does not include adjustments to
reflect the following significant changes that will occur as a result of our
separation from ADL and the implementation of our business plan:
. significant increases in compensation expense associated with our
recruiting and retention initiatives
. increased costs relating to reduced economies of scale
. increased marketing expenses associated with building a brand identity
separate from ADL
. increased costs associated with operating as a stand-alone, publicly-
traded company
We intend to expand our professional staff through an aggressive recruiting
campaign. As the size of our professional staff grows, we expect that our use
of ADL subcontractors on our client engagements will decrease. As a result, we
expect that our ADL subcontract costs will decrease and our direct costs of
services will increase.
Basis of Presentation
Our historical financial statements have been derived from the consolidated
financial statements of ADL using the historical results of operations and
historical bases of the assets and liabilities as reflected in ADL's
consolidated financial statements. The financial statements also include
allocations to us of ADL regional administrative and corporate expenses,
including human resources, legal, accounting, treasury, facilities, information
technology, marketing and other ADL corporate services and infrastructure
costs. The expense allocations have been determined on bases that we and ADL
considered to be reasonable estimates of the utilization of the services
provided to us or the benefit received by us. Expenses were generally allocated
based on relative compensation. The agreements that we have entered into with
ADL for transitional services have cost allocation terms that we believe are
consistent with these allocation methodologies.
In this section, we discuss revenue by geographical regions. For this
purpose, we refer to the United States and Canada as "North America," and South
America and Central America, including Mexico, as "Latin America."
20
<PAGE>
Results of Operations
The following table sets forth, as a percentage of revenue, selected
statement of operations data for the years ended December 31, 1997, 1998 and
1999:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statement of Operations Data:
Professional service revenue.................................. 100% 100% 100%
Costs of services:
Direct costs of services.................................... 30 31 34
Arthur D. Little, Inc. subcontract costs.................... 33 30 24
---- ---- ----
Gross profit.................................................. 37 39 42
Selling, general and administrative expenses.................. 24 26 26
---- ---- ----
Income before taxes........................................... 13 13 16
Provision for income taxes.................................... 5 5 6
---- ---- ----
Net income.................................................... 8% 8% 10%
==== ==== ====
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Our revenue increased $29.7 million, or 38.7%, to $106.6 million
for the year ended December 31, 1999 from $76.8 million for the year ended
December 31, 1998. The revenue growth resulted in part from a 25.5% increase in
the total number of client engagements. In addition, our Contactica subsidiary,
which ADL acquired at the end of January 1999, generated revenue of $4.3
million for the eleven-month period ended December 31, 1999, representing 14.5%
of the $29.7 million of revenue growth from the year ended December 31, 1998 to
the year ended December 31, 1999.
Revenue from North America increased $1.8 million, or 14.2%, to $14.5
million for the year ended December 31, 1999 from $12.7 million for the year
ended December 31, 1998. As a percentage of total revenue, revenue from North
America was 13.6% for the year ended December 31, 1999, a decrease from 16.5%
for the year ended December 31, 1998. Revenue from outside North America
increased $28.0 million, or 43.7%, to $92.1 million for the year ended December
31, 1999 from $64.1 million for the year ended December 31, 1998. As a
percentage of total revenue, revenue from outside North America was 86.4% for
the year ended December 31, 1999, an increase from 83.5% for the year ended
December 31, 1998. Revenue from European locations increased $24.1 million, or
49.4%, to $72.9 million for the year ended December 31, 1999 from $48.8 million
for the year ended December 31, 1998. As a percentage of total revenue, revenue
from European locations was 68.4% for the year ended December 31, 1999, an
increase from 63.5% for the year ended December 31, 1998. Increases in the
European region were widespread and led by Portugal, the United Kingdom,
Sweden, Switzerland and the Netherlands. Revenue from the Asia Pacific region
increased $6.7 million, or 117.5%, to $12.4 million for the year ended December
31, 1999 from $5.7 million for the year ended December 31, 1998. As a
percentage of total revenue, revenue from the Asia Pacific region was 11.6% for
the year ended December 31, 1999, an increase from 7.4% for the year ended
December 31, 1998. This increase was due to the addition of several new large
client engagements in that region. Revenue from the Latin America region
decreased $3.4 million, or 45.9%, to $4.0 million for the year ended
December 31, 1999 from $7.4 million for the year ended December 31, 1998 due to
the completion of a number of large engagements in the prior year. As a
percentage of total revenue, revenue from the Latin America region was 3.8% for
the year ended December 31, 1999, a decrease from 9.6% for the year ended
December 31, 1998. Revenue from all other international regions increased $0.6
million, or 27.3%, to $2.8 million for the year ended December 31, 1999 from
$2.2 million for the year ended December 31, 1998. As a percentage of total
revenue, revenue from all other international regions was 2.6% for the year
ended December 31, 1999, a slight decrease from 2.9% for the year ended
December 31, 1998.
21
<PAGE>
Costs of Services. Total costs of services increased $14.9 million, or
31.5%, to $62.2 million for the year ended December 31, 1999 from $47.3 million
for the year ended December 31, 1998. Direct costs of services increased $11.9
million, or 49.2%, to $36.0 million for the year ended December 31, 1999 from
$24.1 million for the year ended December 31, 1998. Subcontract costs
attributable to independent contractors increased $2.2 million, or 119.1%, from
$1.9 million to $4.1 million over the same period. ADL subcontract costs
increased $3.0 million, or 13.0%, to $26.1 million for the year ended December
31, 1999 from $23.1 million for the year ended December 31, 1998, although ADL
subcontract costs decreased as a percentage of revenue from 30.1% for the year
ended December 31, 1998 to 24.5% for the year ended December 31, 1999. The
increase in direct costs of services was due to direct employment costs such as
payroll, fringe benefits, bonuses and other employment costs for consulting
staff, which increased 43.3% to $31.9 million for the year ended December 31,
1999 from $22.3 million for the year ended December 31, 1998. This was
attributable to the increase in the number of ADL professionals who charged
more than 70% of their billable hours to TIME industries-related engagements
and were thus deemed to be c-quential professionals. Direct full-time
equivalent staff increased 46.7% to 252 at the end of December 1999 from 172 at
the end of December 1998. Included in the number of full-time equivalent staff
at the end of December 1999 were 19 employees of Contactica, which ADL acquired
in January 1999. The acquisition of Contactica accounted for $3.4 million, or
28.3%, of the increase in direct costs of services. We expect that our direct
costs of services will increase following this offering as our compensation
expenses rise in connection with the planned expansion of our professional
staff. As our professional staff increases, we expect our use of ADL
subcontractors to be reduced, thus decreasing our ADL subcontract costs as a
percentage of revenue.
Gross Profit. Gross profit increased $14.9 million, or 50.3%, to $44.4
million for the year ended December 31, 1999 from $29.6 million for the year
ended December 31, 1998. As a percentage of revenue, gross profit was 41.7% for
the year ended December 31, 1999 compared to 38.5% for the year ended December
31, 1998. The increase in gross profit was principally due to the increase in
the percentage of revenue attributable to professionals who charged more than
70% of their billable hours to TIME industries-related engagements. The
increase was partially offset by a lower profit earned on the use of
independent subcontractors due to the higher cost of specialized technical
expertise.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.5 million, or 38.2%, to $27.3 million for
the year ended December 31, 1999 from $19.7 million for the year ended December
31, 1998. Selling, general and administrative expenses increased primarily as a
result of additional costs allocated to us as a result of increased staffing.
As a percentage of revenues, selling, general and administrative expenses
decreased slightly to 25.6% for the year ended December 31, 1999 from 25.7% for
the year ended December 31, 1998. The primary component of our selling, general
and administrative expenses is the allocation of regional and corporate
infrastructure costs from ADL, which totaled $15.9 million for the year ended
December 31, 1999 and $12.5 million for the year ended December 31, 1998. We
expect that our selling, general and administrative expenses will increase
following this offering as we incur costs associated with our establishment as
a stand-alone, publicly-traded company as well as costs associated with
increasing support necessary for our expanding professional staff.
Provision for Income Taxes. Our tax provision increased $2.6 million, or
70.0%, to $6.3 million for the year ended December 31, 1999 from $3.7 million
for the year ended December 31, 1998. Our effective tax rate for the year ended
December 31, 1999 was 37.0%, a slight decrease from our effective tax rate of
38.0% for the year ended December 31, 1998. Income taxes have been calculated
as if c-quential were a stand-alone entity. The decrease in our effective tax
rate was due to a greater concentration of profitable business in countries
with relatively low tax rates.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Our revenue increased $15.7 million, or 25.6%, to $76.8 million for
the year ended December 31, 1998 from $61.2 million for the year ended December
31, 1997. The revenue increase resulted primarily from higher average billings
per engagement. These higher billings were a result of more complex and labor
intensive engagements.
22
<PAGE>
Revenue from North America increased $1.8 million, or 16.5%, to $12.7
million for the year ended December 31, 1998 from $10.9 million for the year
ended December 31, 1997. As a percentage of total revenue, revenue from North
America was 16.5% for the year ended December 31, 1998, a decrease from 17.8%
for the year ended December 31, 1997. Revenue from locations outside North
America increased $13.9 million, or 27.4%, to $64.2 million for the year ended
December 31, 1998 from $50.3 million for the year ended December 31, 1997. As a
percentage of total revenue, revenue from locations outside North America was
83.6% for the year ended December 31, 1998, a slight increase from 82.2% for
the year ended December 31, 1997. Revenue from European locations increased
$17.6 million, or 56.4%, to $48.8 million for the year ended December 31, 1998
from $31.2 million for the year ended December 31, 1997. As a percentage of
total revenue, revenue from European locations was 63.5% for the year ended
December 31, 1998, an increase from 51.0% for the year ended December 31, 1997.
Increases in the European region were widespread and were led by the German,
French, Spanish, Portuguese and Swiss markets. Revenue from the Asia Pacific
region decreased $3.2 million, or 36.0%, to $5.7 million for the year ended
December 31, 1998 from $8.9 million for the year ended December 31, 1997. As a
percentage of total revenue, revenue from the Asia Pacific region was 7.4% for
the year ended December 31, 1998, a decrease from 14.5% for the year ended
December 31, 1997. Revenue from the Latin America region decreased $1.3
million, or 14.9%, to $7.4 million for the year ended December 31, 1998 from
$8.7 million for the year ended December 31, 1997. As a percentage of total
revenue, revenue from the Latin America region was 9.6% for the year ended
December 31, 1998, a decrease from 14.2% for the year ended December 31, 1997.
This decrease in the Asia Pacific and Latin America region was due to the
completion of a number of large engagements in the prior year. Revenue from all
other international regions increased $0.7 million, or 46.7%, to $2.2 million
for the year ended December 31, 1998 from $1.5 million for the year ended
December 31, 1997. As a percentage of total revenue, revenue from all other
international regions was 2.9% for the year ended December 31, 1998, an
increase from 2.5% for the year ended December 31, 1997.
Costs of Services. Total costs of services increased $8.6 million, or 22.4%,
to $47.3 million for the year ended December 31, 1998 from $38.6 million for
the year ended December 31, 1997. Direct costs of services increased $5.6
million, or 30.4%, to $24.1 million for the year ended December 31, 1998 from
$18.5 million for the year ended December 31, 1997. Direct employment costs
increased $5.2 million, or 30.4%, to $22.3 million for the year ended December
31, 1998, while subcontract costs attributable to subcontractors other than ADL
increased $0.4 million, or 30.2%, to $1.9 million over the same period. ADL
subcontract costs increased $3.0 million, or 15.0%, to $23.1 million for the
year ended December 31, 1998 from $20.1 million for the year ended December 31,
1997. However, ADL subcontract costs decreased as a percent of revenues to
30.1% for the year ended December 31, 1998 from 32.9% for the year ended
December 31, 1997 as a greater number of professionals charged more than 70% of
their billable hours to TIME industries-related engagements. The increase in
direct employment costs was primarily due to a 19.5% increase in direct full-
time equivalent staff to 172 at the end of December 1998 from 144 at the end of
December 31 1997.
Gross Profit. Gross profit increased $7.0 million, or 31.2%, to $29.6
million for the year ended December 31, 1998 from $22.5 million for the year
ended December 31, 1997. As a percentage of revenue, gross profit was 38.5% for
the year ended December 31, 1998 compared to 36.8% for the year ended
December 31, 1997. The increase was principally due to decreased costs, as a
percentage of revenues, attributable to the use of ADL and other
subcontractors.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.4 million, or 37.7%, to $19.7 million for
the year ended December 31, 1998 from $14.3 million for the year ended December
31, 1997. Selling, general and administrative expenses increased primarily as a
result of costs incurred to support our higher revenues. The primary component
of our selling, general and administrative expenses is the allocation of
regional and corporate infrastructure costs from ADL, which totaled $12.5
million for the year ended December 31, 1998 and $9.2 million for the year
ended December 31, 1997. Our rapid growth and that of ADL in markets outside
North America led to the increase in regional costs. Not only did ADL's overall
costs increase in these regions, but our proportional share of such costs
increased as well.
23
<PAGE>
Provision for Income Taxes. Our tax provision increased $0.5 million, or
16.8%, to $3.7 million for the year ended December 31, 1998 from $3.2 million
for the year ended December 31, 1997. Our effective tax rate for the year ended
December 31, 1998 was 38.0%, a slight decrease from our effective tax rate of
39.0% for the year ended December 31, 1997. Income taxes have been calculated
as if c-quential were a stand-alone entity. The decrease in our effective tax
rate was due to greater concentration of profitable business in countries with
relatively low tax rates.
Quarterly Operating Results
The following table presents our unaudited historical quarterly results of
operations. We believe that all necessary adjustments, consisting only of
normal recurring adjustments, have been made in the amounts stated below to
fairly present such quarterly information. The operating results for any
quarter are not necessarily indicative of results for any subsequent period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
Mar. Jun. Sept. Dec.
31, 30, 30, 31,
1999 1999 1999 1999
------- ------- ------- -------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Professional service revenue.............. $26,388 $29,512 $25,172 $25,508
Costs of services:
Direct costs of services................ 8,323 8,749 9,752 9,190
Arthur D. Little, Inc. subcontract
costs.................................. 7,117 7,513 5,714 5,794
------- ------- ------- -------
Gross profit.............................. 10,948 13,250 9,706 10,524
Selling, general and administrative
expenses................................. 6,867 6,334 7,240 6,853
------- ------- ------- -------
Income before taxes....................... 4,081 6,916 2,466 3,671
Provision for income taxes................ 1,510 2,559 913 1,358
------- ------- ------- -------
Net income................................ $ 2,571 $ 4,357 $ 1,553 $ 2,313
======= ======= ======= =======
As a Percentage of Revenue:
Professional service revenue.............. 100% 100% 100% 100%
Costs of services:
Direct costs of services................ 31 30 39 36
Arthur D. Little, Inc. subcontract
costs.................................. 27 25 23 23
------- ------- ------- -------
Gross profit.............................. 42 45 38 41
Selling, general and administrative
expenses................................. 26 21 28 27
------- ------- ------- -------
Income before taxes....................... 16 24 10 14
Provision for income taxes................ 6 9 4 5
------- ------- ------- -------
Net income................................ 10% 15% 6% 9%
======= ======= ======= =======
</TABLE>
Liquidity and Capital Resources
Prior to this offering we operated as part of ADL's business and have relied
upon ADL's capital resources. Although we have generated sufficient cash flow
from operations to fund our growth, ADL has historically used all of our
positive cash flow to help fund the ADL business as a whole. Net cash provided
from our operating activities for the years ended December 31, 1997, 1998 and
1999, before being retained by ADL, was $3.0, $3.5, and $4.7 million,
respectively. Cash provided by operating activities in each of these periods
was primarily the result of net income. Concurrently with this offering, ADL
will transfer approximately $70 million in bank debt to us, which we intend to
repay using a portion of the proceeds from this offering. ADL will retain all
of the billed and unbilled receivables recorded through the date of this
offering. Any accounts receivable and work in process generated after the date
of this offering relating to the TIME industries-focused consulting practice
24
<PAGE>
will belong to c-quential. Because our billing and collection cycle has
historically averaged approximately sixty days, for some period of time
following the offering we will not be generating any cash and will be required
to fund our business from the proceeds of this offering.
Under the Use and Occupancy Agreement, ADL will grant us a license to use
and occupy a portion of ADL's leased real property at its locations worldwide.
We will reimburse ADL on a monthly basis for our proportionate share of ADL's
actual costs of the leased property at each such location. The term of each
individual license granted to us will correspond to the term of the underlying
ADL master lease for the property. These leases have terms of up to ten years.
Based on our staffing levels as of March 31, 2000, our expected annual
commitment under this agreement will be approximately $4.2 million.
We anticipate that the net proceeds of this offering will be sufficient to
pay down the $70 million in debt and leave us with remaining net proceeds to,
at first, (i) fund our working capital, (ii) reimburse ADL for its internal
costs related to this offering, and (iii) fund our fixed costs. In addition, we
will need to use a portion of these funds to begin to build our own
infrastructure. Although ADL will continue to make facilities and
infrastructure available to us, under the Use and Occupancy and Corporate
Services Agreements, these may not be sufficient to support our expansion. We
plan to increase the size of our staff to support our operations and to develop
our own systems and infrastructure. We believe that funds available from this
offering and those generated by ongoing operations will be sufficient to meet
our operating and capital requirements for at least the next 12 months. We are
not currently seeking bank financing and do not intend to have any reliance
upon advances from ADL subsequent to this offering. Thereafter, we may sell
additional equity or debt securities or seek additional credit facilities.
Sales of additional equity or convertible debt securities would result in
additional dilution to our existing stockholders. We may need to raise
additional funds sooner in order to support more rapid expansion, develop new
or enhanced services and products, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unexpected
opportunities. Our future liquidity and capital requirements will depend upon
numerous factors, including the success of our existing and new service
offerings and competing technological and market developments. Additional
financing, if any, may not be available on satisfactory terms. Our ability to
raise equity capital may be limited by our agreement with ADL to preserve its
80% ownership of our common stock. See "Risk Factors--Risks Related to Our
Separation from ADL--Our obligations to ADL limit our ability to issue
additional common stock."
Disclosures About Market Risk
Interest Rate Sensitivity
To date, our cash needs have been funded by ADL. As a result, we have had no
exposure to movements in interest rates. In addition, we have no borrowings
with the exception of the debt that will be assumed just prior to the offering.
A portion of the proceeds from this offering will be used to immediately repay
this debt. We would not expect our operating results or cash flows to be
affected to any significant degree by the effect of a sudden change in market
interest rates.
Foreign Currency Exchange Risk
Although we have a significant presence in many distinct geographic markets,
we do not bear significant foreign currency exchange transaction risk. It has
historically been the practice of each of our locations to bill its customers
in its local currency and fund its operating costs, including working capital,
from these local currency receipts. Therefore, foreign exchange transaction
gains or losses have been minimal and the audited historical financial
statements have not contained charges relative to these foreign exchange
movements. However, because we report our results in United States dollars, we
are subject to translation risk to the extent that the currencies in which we
earn revenues and incur expenses fluctuate against the dollar.
It is also not our intention to engage in the movements of significant
amounts of foreign currency between our subsidiaries. Therefore, foreign
exchange risk is further mitigated.
25
<PAGE>
During the periods presented in the financial statements presented in this
prospectus, we did not have balances of any significance that would contradict
the above-described policies. Should we begin to have exposure, we will manage
it on an enterprise-wide basis as part of our risk management strategy. If that
strategy were to include the use of forward and option contracts, gains and
losses on the forward and option contracts would be largely offset by gains and
losses on the underlying exposure. Consequently, a sudden or significant change
in foreign exchange rates would not have a material impact on future net income
or cash flows. See "Risk Factors--Risks Related to Our Business--Our reported
revenues may be negatively affected by currency exchange rates."
Equity Security Price Risk
We do not own any equity investments. Therefore, we do not currently have
any direct equity price risk. However, in the future, we may selectively take
equity stakes in venture capital funds and business incubators or equity-based
success fees as part of our remuneration for our engagements.
Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 was amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133." These statements
require companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company commencing January 1, 2001. We believe that
adoption of these statements will not have a significant impact on our
financial results.
26
<PAGE>
BUSINESS
Overview
We are a leading global management and technology consulting firm serving
the telecommunications, information technology, media and electronics, or
collectively the TIME industries. Rapid and significant advances in technology,
particularly in wireless and broadband communications, are forcing companies in
the TIME industries to transform their operating models in order to capitalize
on new business opportunities such as m-commerce and the distribution of
content using digital networks. We combine in-depth knowledge of the TIME
industries, technology expertise, strategy-to-implementation capabilities and
software tools in an integrated offering to help our clients realize
opportunities and mitigate risks. Through a network of offices in over 20
countries, our consultants, led by our partner-level professionals who average
approximately 14 years of experience in the TIME industries, serve a broad
range of clients from start-ups to industry leaders.
Industry Background
The development and deployment of new technologies is creating many new
communications-based applications for businesses and consumers. Wireline,
broadband and digital broadcasting technologies will be capable of delivering
high-definition television and video-on-demand, while third generation, or 3G,
digital broadband mobile technology is expected to enable multimedia services
and m-commerce through wireless devices.
These communications services will be delivered to businesses and consumers
under the authority of communications licenses, which provide companies with
the exclusive right to use a specified portion of the communications spectrum
for the transmission of signals and the distribution of information. Licenses
are granted for transmission over wireless, satellite and other networks.
Governments often use an auction process to allocate these licenses. Auction
processes generally consist of the submission of bids for the applicable
license as well as business plans for the development and deployment of the
application to be transmitted over the licensed spectrum. The applications
enabled by many of these new technologies are increasing the value of
communications licenses. This increase in the inherent value of these licenses
encourages new and non-traditional market entrants and incumbents to review
their business models and consider bidding for new licenses in order to provide
these new communications-based services.
These changes in communications technologies are significantly affecting
telcos and media companies. As technology improves and becomes more accessible,
we believe that "any place, any time" will become the dominant paradigm of the
personal communications age. To gain or maintain a competitive advantage,
telcos and media companies must anticipate changes in technology, delivery of
content and applications, and adjust their current operations and business
processes accordingly. Telcos have already started and will increasingly bundle
value-added services with their existing core offerings. They are also creating
new transaction- and content-oriented business models. Many media companies are
transforming their businesses from analog-based to digitally-based distribution
and changing their operating models to address the "any place, any time" and
interactive nature of the personal communications age. Telcos and media
companies are entering new geographic markets for their products and services
as a result of increasing globalization in these industries and deregulation of
telecommunications. Finally, companies in both industries are facing new
competitors entering their sectors with advanced technologies and business
models.
The following technological advancements, applications and trends in
business and personal communications illustrate the opportunities and
challenges confronting telcos and media companies:
. 3G mobile networks are expected to deliver content-rich information and
multimedia services with enhanced functionality compared to existing
mobile networks, while providing universal coverage and global roaming.
We expect these technologies to be introduced in the next three to five
years, with their deployment anticipated first in Japan and Europe, and
subsequently in the United States
27
<PAGE>
. The broad deployment of new broadband access technologies will create
opportunities to provide enhanced access to users. These technologies
include digital subscriber line, or DSL, terrestrial and satellite
digital broadcasting, interactive digital cable and Wireless Local Loop.
These technologies will allow content and service providers to offer
services ranging from voice communications and high-definition television
to video-on-demand. IDC estimates that the number of households with
broadband Internet access worldwide will grow from at least 11.3 million
at the end of 1999 to at least 54.9 million at the end of 2003,
representing a 48% compound annual growth rate
. We believe that media companies will no longer be successful simply
delivering mass communications via a single medium. End-users are
increasingly demanding personalized content. We expect that companies
will provide individuals with customized access to news, information and
entertainment on an "any place, any time" and interactive basis in the
near future
As a result of these technological developments, executives of telcos and
media companies must be prepared to re-evaluate their core strategies and
operating models and, in some cases, build entirely new businesses based on
these emerging technologies. They must sometimes invest heavily in licenses
using commercially unproven technologies, infrastructure and products. Finally,
telcos and media companies must be capable of quickly implementing these new
initiatives while effectively integrating them into their existing businesses.
Electronics and information technology companies are also significantly
affected by the changes in communications technology. These companies must
contend with the evolution of protocols and competing technology standards
while developing new products and systems. Increasingly, their customers are
demanding value-added solutions that require integrated combinations of
products and services. As the rate of technological change increases, the close
collaboration among firms with the expertise required to develop these
integrated offerings, such as equipment manufacturers, software vendors,
service providers and network operators, will become increasingly important,
frequent and complex.
To address the opportunities and challenges presented by these technological
changes, TIME industry companies must be knowledgeable about the effects of
technology-driven change across the TIME industries. The expertise required by
these changes in technology is outside the core competencies of many of these
companies. In addition, TIME industry companies are entering into new business
combinations, strategic alliances and joint ventures with each other. The time
and expense associated with the recruitment of specialists with technological
expertise and their scarcity has led to a large increase in the demand for
third-party service providers. Kennedy Information Research Group estimates
that the worldwide market for communications, high technology and media,
entertainment and publishing consulting services offered by third-party
providers will grow from $14.7 billion in 1998 to $30.7 billion in 2003,
representing a 16% compound annual growth rate. The growth rate of the use of
the Internet is further spurring demand for consulting services as companies
seek to improve their business practices through Internet-based communications
solutions. IDC projects that the worldwide demand for Internet services, which
includes Internet consulting services, will grow from approximately $7.8
billion in 1998 to $78.6 billion in 2003, representing a 59% compound annual
growth rate.
Companies in the TIME industries are among the first to be affected by the
changes in communications technologies and, as a result, we expect that these
companies will be the initial developers of new applications. The changes in
the communications technology landscape will, however, significantly impact
companies in other industries as well. We expect that executives of companies
in other industries will soon be confronted with the same fundamental business
decisions that are currently facing executives of TIME industry companies.
We believe that the successful management and technology consulting firms
focused on the TIME industries will be those that combine a global presence
with multiple, integrated competencies, including comprehensive industry
knowledge, technology expertise and extensive strategy-to-implementation
capabilities. Knowledge across the TIME industries provides clients with the
ability to address complex, interdisciplinary problems. Technology expertise is
required to quickly identify the opportunities and limits of technological
development, so that they can be factored into strategic planning. Lastly,
strategy-to-implementation capabilities allow clients to realize the
opportunities created by changes in technologies.
28
<PAGE>
Our Solution
We help our clients realize the opportunities, address the challenges and
mitigate the risks presented by rapid and significant advances in
communications technologies and regulatory changes. We believe that the key
elements of our solution are:
Innovative strategic advice with leading-edge technological expertise. We
help our clients evaluate their strategies and operating models and develop new
approaches to address technology-driven changes in their industries. Our strong
knowledge base in existing and new technologies combined with our understanding
of business strategies enables us to help our clients complete the
transformations to their businesses that are essential to their success in the
rapidly changing environment of the TIME industries.
Pragmatic business solutions supported by extensive and comprehensive
operations and industry knowledge. We offer practical solutions to our clients'
business problems accompanied by clearly defined steps to achieve desired
business transformations. Many of our professional consultants are former
members of senior management of TIME industry companies. Our more than 43
partner-level professionals average approximately 14 years of professional
experience in the TIME industries. This operations and industry experience
drives our pragmatic business solutions and enables our professionals to assess
trends, help our clients objectively analyze business opportunities, and
develop practical and implementable solutions.
Implementation capabilities combined with business process methodologies and
software tools. We work closely with our clients, sometimes taking leadership
positions in our clients' organizations with project management
responsibilities, as they implement new strategies. We use a proprietary set of
methodologies and tools to help our clients solve complex business problems. We
have also built "Expert Circles," groups of our consultants who build knowledge
in certain key areas, develop new thinking and disseminate their expertise
throughout our organization.
Strategy
We intend to strengthen our leadership position in providing management and
technology consulting services to the TIME industries. The key elements are:
Attracting and retaining outstanding professionals. We intend to continue to
attract professionals through an aggressive recruiting program, including
hiring executives from within the TIME industries and individuals with PhDs in
relevant fields. Consulting professionals have joined c-quential from leading
TIME industry companies, strategic consulting firms, investment banks, venture
capital and private equity investment firms and other institutions. Our culture
of innovation and emphasis on professional development, together with our
exclusive focus on the TIME industries, provide an attractive career option to
candidates with the combination of industry and technology expertise and
managerial skills that we desire.
Expanding existing and developing new relationships with established and
emerging industry-leading clients. We intend to expand the scope and term of
engagements with our existing clients, and to develop new long-term
relationships with other leading companies in the TIME industries. We have
established account management teams which use a systematic client management
process, enabling us to offer tailored solutions to our clients. In addition to
providing better day-to-day service to our clients, our account management
teams are designed to enable us to:
. sell other types of services to our existing clients
. sell our services to other parts of existing clients' organizations
. identify and realize new business opportunities for our clients
In seeking new key clients, we intend to target industry-leading companies.
We currently focus, and intend in the near future to continue to focus, on
companies in the TIME industries. However, as changes in communications
technologies begin to significantly impact other industries, we intend to also
establish
29
<PAGE>
relationships with clients in these other industries. Our focus on industry
leaders gives us the best opportunities to utilize the depth of our expertise,
attract outstanding professional consultants, enhance our reputation and have
an impact on the industries in which our clients operate.
Expanding market share in North America. Our business in North America has
historically been focused on the identification and assessment of the
capabilities, applications, and business opportunities that are continually
being generated by technological innovations in areas such as broadband
communications and wireless data systems, as well as by several enabling
software and networking technologies that lie at the heart of the Internet
infrastructure. We have developed sophisticated knowledge and expertise in
these new technologies and applications, which we intend to combine with the
complementary expertise we have built through our work in Europe and Asia,
particularly in the domain of m-commerce, where several recent applications
have been implemented ahead of North America. In North America in particular we
intend to broaden our practice and strengthen our presence in strategic and
financial advisory services by capitalizing on our existing relationships with
European and Asian clients as they expand into this market. In addition, we may
consider acquiring professional services companies in North America with
complementary skills and key client relationships.
Building the c-quential brand. Historically, we have operated as part of ADL
and we have only recently begun conducting business using the c-quential brand.
In order to enhance our corporate identity, we intend to develop our website
and undertake a global advertising campaign. In addition, we intend to maintain
a regular schedule of:
. hosting events for senior industry leaders and journalists
. participating in conferences, trade shows and other industry events
. publishing proprietary research and analyses
. conducting direct mail campaigns
Since our professionals are frequently sought after by the trade and
financial press for their views on industry trends, we also intend to promote
awareness of our business within the trade and financial press. Finally, we
expect that our relationship with ADL will help to rapidly build global
awareness of our brand.
Expanding our media and electronics practices. As the TIME industries
continue to converge, we intend to expand our media and electronics practices
through:
. leveraging our existing relationships with telcos as they develop
partnerships with media companies
. leveraging our experience and existing relationships with media and
electronics companies in local markets
. aggressive recruiting of media and electronics industry experts,
including two to three partner-level professionals in the electronics
practice
. publishing media-specific industry analyses
. conducting a targeted sales and marketing program
Applying the best expertise and knowledge available globally to strengthen
our offerings in every region. We intend to draw upon the knowledge and
expertise we have acquired globally on client engagements throughout our major
regional markets of Europe, North America, Asia and Latin America to extend the
breadth and enhance the distinctive competitiveness of our offerings worldwide.
In particular, we will share the expertise we have gained in the United States
market in Internet-related technologies, and our European and Asian expertise
in strategy, finance, organizational and network design and implementation, and
content applications. We will achieve this sharing of knowledge and expertise
by staffing internationally on engagements, managing our knowledge management
infrastructure, expanding our "Expert Circles" in key knowledge areas and
enhancing our career-stage training.
30
<PAGE>
Establishing and fostering relationships with start-ups, venture capital
firms and business incubators. We intend to work with early-stage companies,
venture capital firms and business incubators. Our work evaluating new
technologies for these clients will help keep us at the forefront of
technological change. We may in select cases take equity stakes in venture
capital funds and business incubators or equity-based success fees as part of
our remuneration for such engagements.
Enhancing our existing software tools and developing proprietary software
tools. We plan to enhance our software tools and develop new proprietary
software tools to support our process methods from strategy to implementation.
We intend to license our software to our clients as an extension of our service
offerings.
Service Offerings
Our service offerings are based on a number of capabilities, each of which
is underpinned by our knowledge of the TIME industries and our technology
expertise. Each capability consists of a number of tools that are highly
standardized. The following is a representative list of the principal
capabilities that are included in our service offerings, divided into four
categories based on our primary competency areas:
[A chart appears with a graphic depiction of the principal capabilities included
in c-quential's service offerings with boxes above, below and to the right and
left of a circle captioned "Integrated Service Delivery," with each box
connected to the circle with an arrow. The box above the circle is captioned
"Strategy, Organization and Corporate Finance" under which are listed Corporate
and business unit strategy development, Organizational design, Management
control, Cultural integration, Financial strategy and transaction support,
Business planning and financial modeling, Valuation and due diligence and
Mergers and acquisitions. The box to the right of the circle is captioned
"Technology and Innovation Management" under which are listed Technology
strategy, Technology scanning and assessment, Network and systems roll-out
project management and Network and systems architecture and design. The box
below the circle is captioned "Consulting and Knowledge Software" under which
are listed Decision support, Communication and visualization and Process
support. The box to the left of the circle is captioned "Performance Improvement
and Implementation" under which is listed Manufacturing and service provision
strategy, Operational excellence, Supply chain management and Change and
implementation management.]
We use these principal capabilities to tailor consulting solutions to meet
specific client needs. When designing a tailored solution for a client, we
generally combine a number of capabilities, often from more than one of the
four categories set forth above, into a single integrated service offering. Our
principal service offerings are summarized below:
31
<PAGE>
. Ambition-Driven Strategy(TM). This service offering is our key product
for e-business strategy formulation. We guide our clients through
internal and external review, vision and scenario development, strategy
development and strategy implementation, all within the context of
organizational change
. High Performance Business Scorecard. We design and implement a management
and learning process for our clients that helps to ensure the effective
implementation and monitoring of a chosen strategy
. Value Driven Management. We identify the key e-business drivers of value
and define actions to align a client's organization to the identified
value drivers and established value targets. As a result, all employees
and their behavior are directed and aligned to the envisioned value
target
. Knowledge Management. We identify the knowledge that is strategically
relevant to a client and its source (in-house or via a network of
external knowledge resources). After the identification of the relevant
knowledge, we design all processes and systems to manage the relevant
knowledge. Our Knowledge Management process is designed to ensure a
comprehensive approach to intellectual capital management
. Acquisition and Alliance Screening. We screen potential acquisition
targets and alliance partners for our clients using a worldwide network
of industry and finance specialists. We also use this service offering to
help clients develop content partnering arrangements relating to both the
acquisition and distribution of content
. License Winner Framework. We develop winning license bids. Our License
Winner Framework manages the bid development process to ensure that the
bid is focused on the applicable assessment criteria
. OPEX for Operators. We help telcos develop world class operational
processes. Based on our benchmarking database which includes blueprints
of all major business processes for telecommunications operators and the
practical industry experience of our professionals, we help our clients
define and implement business processes for launch, planning, engineering
and execution
. E-Supply Chain Transformation. We plan the appropriate supply chain
strategy and the necessary business transformations to address
fundamental changes in a company's supply chain due to significant
product changes, as well as new business-to-business market mechanics
. Post-Merger Integration. We help our clients fully realize the planned
benefits of mergers. We provide consulting services throughout the entire
merger and integration process, including merger design, integration
planning and business transformation. To address the communication,
culture and change in organizational dynamics issues raised by mergers,
we have developed various tools to give advice in internal and external
communication to stakeholders, to develop and implement a cultural change
strategy and to facilitate conflict resolution
. Technology Audit. We assess a client's technological position in two
stages. The first stage evaluates the status of the client's
technologies, ranging from base to emerging technologies. The second
stage assesses the client's technological position in relation to its
competitors
. Network and Platform Design. We plan and implement new fixed and mobile
networks, review existing and planned systems, design networks, and
optimize existing networks on behalf of telcos and financial
institutions. We use this service offering to take on an operational
role in developing requests for proposals for networks and related
technology requirements
. Program Management. We oversee the implementation of mobile and fixed
telecommunications networks. We have used our Program Management service
offering in connection with many projects, including:
. scheduling the roll-out of mobile networks
32
<PAGE>
. development of Wireless Local Loop and Asynchronous Transfer Mode
broadband networks
. implementation of cabling and telecom support infrastructure and office
automation systems
. development of Voice over Internet Protocol networks
Software Tools. We enhance most of our consulting services with the use of
software tools. Most of the software tools we currently use are proprietary to
ADL and will be licensed to us to be offered to our clients. One of our most
prominent software tools is Gensight(TM), a software package to assess and
graphically present the strategic position of our clients. Another software
tool is Finance Master(TM), a software package to build and analyze complex
financial structures and business plans. We have also developed Internet-based
applications to facilitate post-merger integration and the implementation of
global business processes.
Representative Clients
We serve clients from start-ups to industry leaders across the TIME
industries in many countries. During the fiscal year ended December 31, 1999:
. Clients in Europe accounted for 68% of our revenues
. Clients in North America accounted for 14% of our revenues
. Clients in Asia Pacific accounted for 11% of our revenues
. Clients in Latin America and other global regions accounted for 7% of our
revenues
A representative list of our clients is as follows:
Europe North America Asia Pacific Latin America
Ascom Holding AG Aptus Networks Federation of Compania
Bouygues Telecom Association for Korea Anonima
S.A. Information and Industries Nacional
British Image Management Fuji Xerox Co., Telefonos de
Broadcasting Intl Ltd. Venezuela
Corporation COMPAQ Computer Hyundai Group INTELIG
Cesky Telecom Corporation JSAT Partcon
The Chase Manhattan Inacom Corp. Corporation Administracao
Corporation Lockheed Martin OMRON Participacoes
diAx Corporation Corporation LTDA
Dolphin PSINet Inc. Samsung Group Telet S.A.
Telecommunications Sabre Group Seiko Instruments Unibanco-Uniao
Limited The Readers Digest Telstra de Bancos
Dutchtone NV Association, Inc. Corporation Brasileiros
Electricidade de Siemens Business Limited S.A.
Portugal, S.A. Communications
Hypovereinsbank AG Townsend & Townsend
KPN Telecom and Crew, LLP
Mannesmann AG VHA Inc.
Orange Plc
Radio Telefis
Eireann
Retevision Group
Siemens AG
Telecom Italia
S.p.A.
Telefonaktiebolaget
LM Ericsson
Telia AB
33
<PAGE>
Client Case Studies
diAx: Program Management for a New Wireless Internet and Telephony Provider in
Europe
We were hired by diAx, a consortium of a number of Swiss energy utilities, a
Swiss insurance company and SBC Communications, Inc., to develop a bid strategy
for a GSM license in Switzerland and to project manage the building of diAx's
network systems. Based in part on the bid we developed with diAx, the licensing
authority awarded diAx a dual band 900/1800 MHz license. To meet the terms of
the license, diAx was required to build functional network systems within six
months.
We supervised the overall program management in coordination with diAx's
marketing, sales, information technology, customer service and network
departments. In addition to overall program management, we were directly
responsible for the implementation of the following modules:
. specification and management of the development and testing of an
automated dealer activation system and dealer commissioning system
. management and coordination of all systems suppliers necessary for launch
. support of the design of the network launch promotion and management of
the establishment of the dealer network
diAx succeeded in launching its mobile network and services within the
required time frame. Subsequently, and as a result of the quality of our prior
work, we have been involved in a number of technology and strategy-to-
implementation projects for diAx such as:
. designing and advising on the roll-out of an Internet protocol-based data
network and data services
. evaluating the technology to support prepaid services and designing
diAx's next generation of prepaid mobile services
. project managing the introduction of Wireless Application Protocol
services as part of diAx's mobile Internet offering
. designing and implementing e-business practices for delivery of client
requests received through diAx's call center
Electricidade de Portugal, S.A.: Building an e-business Service Provider in
Europe
We were hired by Electricidade de Portugal, S.A., or EDP, a large utilities
company in Portugal, to identify and evaluate strategic opportunities for its
telecommunications business unit arising from the convergence of the TIME
industries and select those opportunities that would have the greatest positive
impact on shareholder value. EDP also requested that we provide guidelines for
it to use in evaluating new business opportunities outside of its core
operations in fixed and mobile telecommunications.
In the course of developing a strategy for EDP, we:
. simulated and selected potential industry scenarios
. developed strategies to best achieve EDP's ambitions
. evaluated strategic options based on potential value creation
. developed a detailed business and implementation plan, as well as the
organizational structure for the most attractive strategy
We concluded that EDP should take an aggressive approach, focusing on e-
business initiatives, rather than attempt to compete solely based on its
traditional carrier model under which we believed its services would rapidly
become a commodity. Following our recommendation for this approach, EDP
requested that we develop a broad e-business strategy for the organization.
EDP's goal was to extend its operations beyond pure
34
<PAGE>
telecommunications and create an e-business platform in Portugal. In connection
with our recommendation, we were also retained by EDP's subsidiary, Oni, to
project manage the establishment of an Internet Service Provider, or ISP, which
we successfully completed within eight weeks.
PSINet: Winning Three Licenses in Asia
PSINet, which had recently consolidated seven ISPs, hired us to prepare
license bids in Hong Kong. Three licenses were being offered by the regulatory
authority: Local Wireless Fixed Network, External Fixed Network by Satellite
and External Fixed Networks by Cable. The license submissions had to be
developed in less than six weeks with minimal contribution from PSINet due to
its limited available resources.
We developed a strategic plan, which included performance bond studies, a
business and marketing plan and a financial model for each license, based on
our assessment of the most likely decision criteria to be applied by the
regulatory authority. A critical part of our work involved the planning of the
technical requirements for a successful bid. We developed the following:
. a marketing plan including competitor analysis and demand forecast
. a product and service strategy
. a network design including underwater and satellite connections to Japan,
Korea and Taiwan
. a project plan for the implementation of the network roll-out
. a financial model for the various businesses and a set of application
documents
As a result of our work, PSINet won all three licenses. Since winning the
licenses, PSINet has retained us to provide the necessary management resources
to ensure the build-out of the ISP network within the time permitted by the
performance bonds as well as to help it simultaneously build a network and a
business organization.
Consortium of Telcos and Financial Institutions: Bidding for a Broadband Cable
TV Network in Europe
We were hired by a consortium of telcos and financial institutions to
prepare a bid for one of the regions of Deutsche Telekom's cable television
network. Prior to the submission of a bid the client needed to:
. design the overall portfolio of services to be offered by a cable
operator, including telephony, high-speed Internet access and portal,
interactive and digital television applications
. plan a cost effective upgrade to the network that would support all
planned applications
. develop a business plan and a resulting financial valuation
We supported our client with overall project management and our expertise on
financial modeling, network technologies and interactive services. As part of
this engagement we:
. developed telephony, high-speed Internet and cable television services
. planned network upgrade concepts and associated capital expenditure
requirements ultimately able to support all planned applications
. developed a business unit to provide operational support for the new
business
. assisted in the development of the financial model and reviewed the
client's independent model
. established an efficient communication framework to gather internal and
external intelligence
As a result, a successful model of the planned business and network was
developed and a valuation range for the bid established. As a result of our
work, our client's bid has continued to the final selection round and our
client is in exclusive negotiations with the regulatory authority.
35
<PAGE>
Sales and Marketing
We primarily market our services to leading companies in the TIME
industries, emphasizing our technological and industry expertise. Our more than
43 partner-level professionals have primary responsibility for client
development and management. Each partner has a sales target that has been
established in a manner that encourages team sales efforts. Each partner is
also responsible for managing one or more key client relationships, and sales
to those key clients form an integral part of that partner's incentive
compensation. For larger clients, we have dedicated account management teams
that enable us to build in-depth, client-specific knowledge in order to create
more fully-integrated solutions and to develop closer relationships.
We will continue to develop our relationship with journalists in the trade
and financial press who frequently quote our professionals on technological and
industry trends. Further, we intend to capitalize on our relationship with ADL
to assist our marketing efforts.
We also maintain a number of advisors that we refer to as our "Senior
Advisors" to assist our sales and marketing efforts. These Senior Advisors are
experts from the telecommunications, media and corporate finance sectors. They
assist our sales activities using their networks of contacts and skill sets to
market our range of services to their former companies, as well as companies in
the same industry as their former companies. They also participate in client
engagements. We generally enter into rolling six-month or one-year contracts
with these Senior Advisors.
We intend to place significant emphasis on building awareness of the c-
quential brand name. We have hired a marketing manager with primary
responsibility for promoting our brand and we intend to increase our spending
on advertising and other promotional activities. We have also retained a public
relations firm and an advertising agency to assist in our brand-building
efforts.
Our Relationship with ADL
We have operated as part of ADL's Global Management Consulting business
since 1995. Concurrently with this offering, ADL will transfer our business to
a newly-formed entity, c-quential, Inc. We recently began using the c-quential
name and building our brand. After the completion of this offering, ADL will
own all of the outstanding shares of our unlisted Class B common stock and %
of the outstanding shares of our Class A common stock, or % of the Class A
common stock if the underwriters fully exercise their over-allotment option. As
a result, ADL will own common stock representing % of the combined voting
power of all classes of our common stock, or % if the underwriters fully
exercise their over-allotment option.
We will enter into agreements with ADL that provide, among other things,
for:
. the transfer from ADL to us of its TIME industries-focused consulting
practice
. the grant of a license to us to use ADL intellectual property related to
our business
. the grant of a license to us to use and occupy ADL leased real property
. the provision by ADL to us of certain administrative and corporate
services during our transition to an autonomous business
. the allocation of tax liabilities and benefits between ADL and us
. the grant to ADL of registration rights relating to our common stock
The terms of these agreements will generally range from three to five years,
although we may terminate certain of the services provided thereunder at any
time without incurring any penalty.
The agreements regarding the separation of our business operations from ADL
are described more fully in the section entitled "Our Relationship with ADL"
included elsewhere in this prospectus. The terms of these
36
<PAGE>
agreements, which are being negotiated in the context of a parent-subsidiary
relationship, may be less favorable to us than if they were being negotiated
with unaffiliated third parties. The assets and liabilities transferred to us
are described more fully in our financial statements and notes to those
statements included elsewhere in this prospectus.
Competition
We face strong competition in providing consulting services to the TIME
industries. Our current and potential competitors include the following:
. strategic consulting firms (such as Bain & Company, Boston Consulting
Group, Booz, Allen & Hamilton, Cluster and McKinsey & Co.)
. accounting firms (such as Ernst & Young and PricewaterhouseCoopers)
. information technology consulting firms (such as Andersen Consulting, Cap
Gemini, Diamond Technology Partners and IBM Global Services)
. technology consulting firms (such as PA Consulting, Scientific Generics
and SRI)
. Internet professional services firms (such as Razorfish, Sapient, Scient
and US Interactive)
As barriers to entry are relatively low in our industry, we expect other
market entrants to compete with us in the future. Several of our competitors
have substantially greater financial, technical and marketing resources, as
well as more established relationships in the industry. As a result, these
competitors may be able to develop and expand their service offerings to make
them more competitive. Also, these competitors have entered, and will continue
to enter, into joint ventures and consortiums to provide additional competitive
services.
We believe that the principal factors on which we compete in delivering
services to our TIME industry clients are:
. knowledge of communications technologies
. reputation and experience of professionals and quality of services
delivered
. project management capabilities
. industry expertise and strategic planning capability
Human Resources
To succeed in developing long-term relationships with our current and
prospective clients in the TIME industries we:
. recruit, employ and retain industry experts and qualified technological
talent
. maintain an environment that fosters entrepreneurial spirit, continuous
learning and knowledge acquisition, as well as opportunities to grow
personally, professionally, and financially
. attempt to develop a culture that breeds teamwork, creativity, innovation
and a drive to succeed
. reward performance excellence at all levels
As of March 31, 2000, we had a total professional staff of approximately 310
employees. We intend to increase our professional ranks significantly in the
near future. Our human resources functions have historically been provided by
ADL, and we will have access to ADL's human resources facilities and
professionals following this offering under our agreements with ADL. In
addition, we intend to build our internal human resources department following
this offering.
37
<PAGE>
Recruiting. We have an aggressive plan to recruit senior professionals. The
individuals that we require are industry experts, individuals with Ph.Ds in
relevant fields and business school graduates from leading universities
globally.
Under the direction of a global human resources director, we have regional
human resources specialists covering Europe, Mid-East, Africa, the Americas and
Australia. Through direct contact, specialized and global search firms, and
campus recruiting, we attempt to hire talented and experienced individuals to
ensure our technological advantage and overall success.
Professional Development. In conjunction with ADL, our professional
development programs provide training and knowledge acquisition and are
designed to keep our professionals at the forefront of industry change. From
their first day of employment, our professionals are exposed to a comprehensive
orientation in our culture and processes, career-stage training, technological
development, industry expertise and functional training. Within the first few
months of their hiring, our professionals attend a ten day orientation program
introducing them to general business consulting practices, as well as our
philosophies and methodologies. Additional formal company-wide training
programs are provided to our professionals annually and as they are promoted or
hired for case management or senior business development positions. These
broad-based programs are supplemented by regionally-focused training provided
by the particular home office of each professional. In addition, we are
currently in discussions with external training organizations to form
partnerships to create company specific training programs aimed at developing
the skills in strategy development, technological innovation and project
management that we require of our professionals.
Our formal training and development programs are supplemented by external
programs that we encourage our professionals to attend and the coaching and
mentoring process that we foster and intend to continue to support within the
c-quential organization. Through these programs, we enable our professionals to
develop their skills in areas such as issue analysis, public speaking,
facilitation, research, project management, client relationships, key client
management and strategic sales.
Compensation. We provide base and incentive compensation, as well as
employee benefits that we think are competitive in our industry. Following this
offering, and with the commencement of the 2000 Stock Option and Incentive
Plan, we believe that our compensation package will remain competitive in the
industry. Additionally, we intend to use stock options for eligible employees
to align their interests with those of our shareholders.
Intellectual Property Rights
We will seek to protect our intellectual property rights through a
combination of trademark, service mark, copyright and trade secret laws and
license agreements. We intend to enter into confidentiality agreements with our
employees and clients and otherwise use our best efforts to protect our
proprietary information and that which we license from third parties.
Our efforts to protect our intellectual property rights could be inadequate
to deter misappropriation of proprietary information, and we may not be able in
all cases to detect and terminate unauthorized use of our intellectual
property.
38
<PAGE>
Offices
Our corporate headquarters are located in approximately 5,000 square feet of
an ADL-leased facility in Cambridge, Massachusetts. Our sublease with ADL for
this office space has a term of ten years and expires in 2010. We also have
offices in the following countries where we have similar sublease agreements
with ADL:
. Argentina . France . Netherlands . Spain
. Austria . Germany . Norway . Sweden
. Belgium . Italy . Portugal . Switzerland
. Brazil . Japan . Saudi Arabia . United Kingdom
. China . Mexico . Singapore . Venezuela
. Czech Republic . South Korea
Our largest offices and the associated number of professionals as of March
31, 2000 are as follows:
. Our offices in the United Kingdom are staffed with 70 professionals
. Our office in Spain is staffed with 32 professionals
. Our offices in Sweden are staffed with 26 professionals
. Our offices in the United States are staffed with 25 professionals
. Our office in France is staffed with 22 professionals
. Our office in the Netherlands is staffed with 21 professionals
. Our offices in Germany are staffed with 18 professionals
. Our office in South Korea is staffed with 16 professionals
. Our office in Switzerland is staffed with 16 professionals
39
<PAGE>
MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and the members of our board of
directors, and their respective ages as of May 1, 2000 and positions as of the
initial public offering date, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Executive Officers
Rudolf Fischer...................... 43 President, Chief Executive Officer and Member of
our Board of Directors
Michael Chamberlain................. 51 Executive Vice President, Executive Chairman of
the United Kingdom, Global Head of Media
Practice
G. Roy Davis........................ 44 Executive Vice President, Global Head of
Operations Management Practice and Managing
Director of United Kingdom
Raj Mitta........................... 44 Executive Vice President and Managing Director
of Asia
Robert Broadley..................... 52 Executive Vice President and Chief Financial
Officer
Martyn Roetter...................... 56 Vice President, Global Head of Technology
Practice and Head of North America Operations
Key Employees
Carlos Bartolo...................... 44 Vice President and Managing Director of Portugal
Paul Berriman....................... 43 Director and Global Head of Network Planning and
Implementation Practice
Taesoo Jung......................... 44 Vice President and Managing Director of Korea
Thomas W. Kuehle.................... 41 Director and Head of Palo Alto Operations
Hubertus M. Muhlhauser.............. 30 Associate Director and Global Head of Strategy
Practice
Arno Wilfert........................ 39 Associate Director and Managing Director of
Germany and Austria
Niamh Byrne......................... 30 Manager and Head of Marketing
Fraser Curly........................ 39 Associate Director and Head of Mobile Expert
Group
Members of our Board of Directors
Lorenzo C. Lamadrid................. 49 Chairman of our Board of Directors
Mark A. Brodsky..................... 44 Member of our Board of Directors
Arno Penzias........................ 67 Member of our Board of Directors
Gerhard Schulmeyer.................. 61 Member of our Board of Directors
</TABLE>
Rudolf Fischer. Mr. Fischer serves as our President and Chief Executive
Officer and as a member of our Executive Committee and our Board of Directors.
He joined ADL in 1995 and has served as Vice President, Head of the Global TIME
Practice and a member of ADL's Global Leadership Team since 1999. Prior to
1995, Mr. Fischer served as Managing Director and head of Strategic Planning
for ASCOM Ericsson Transmission AG, and as a Regional Sales Manager for Public
Switching Systems. He also served as Head of Fiber Optic Measurement Systems
Development for Brown Boveri prior to 1988. Presently, he serves as a board
member of Nextrom AG, a public company in Switzerland specializing in machinery
to manufacture telecommunication and energy cables. Mr. Fischer holds a MSc. in
Electrical Engineering from ETH Zurich and an M.B.A. from the Graduate School
of Business Administration in Zurich.
40
<PAGE>
Michael Chamberlain. Dr. Chamberlain serves as our Global Head of Media,
Executive Chairman of our United Kingdom operations and is a member of our
Executive Committee. Since joining ADL in 1998, he has served as Director in
the London office, a member of the European TIME Practice Leadership Team, and
Head of Media, Europe. In 1999 he became a member of the Global TIME Practice
Leadership Team and Global Head of Media. From 1997 to 1998, Dr. Chamberlain
served as the Managing Director of Laurie-Chamberlain Communications Limited
and from 1996 to 1997, he was a Director of Informed Sources International, a
media consultancy. Prior to 1996, he was responsible for 180 international
projects as Director of New Media at United News and Media, plc. Prior to 1994,
Dr. Chamberlain served as a Professor of Communications at Emerson College in
Boston, Massachusetts and as a Managing Director of Centaur Business Publishing
Ltd. in the United Kingdom. He is the Founder, Editor and Publisher of
Marketing Week Magazine and serves as a director of Alpahameric, plc, a public
company in the United Kingdom specializing in satellite communications and
electronic point of sale systems. Dr. Chamberlain holds a Bachelors degree in
Economics and Masters degrees in Social Studies from the University of
Manchester, England. In 1993, he received a Ph.D. in Communications from
Florida State University, with a specialty in new media technologies.
G. Roy Davis. Mr. Davis is Global Head of our Operations Management
Practice, Managing Director of our United Kingdom operations and is a member of
our Executive Committee. Since joining ADL in 1993, he has served as Vice
President since 1998, Director of ADL Europe since 1997, head of the European
Operations Management Practice since 1999 and Global Head of ADL's Operations
Management Practice since the beginning of 2000. Prior to 1993, he was
Operations Director for Tricom, a leading United Kingdom data communications
company and he worked for Wyatts, a trading room telecommunications equipment
subsidiary of Reuters. Mr Davis began his career at Rolls-Royce Motors as a Car
Systems Design Engineer. He then worked with USS Oil Well International, a
division of USX, as a Technical Sales Engineer. Mr. Davis has also been
employed by Molex Inc., a manufacturer of connectors and inter-connection
devices, as Assistant to the Vice President of Global Operations in the U.S.A.,
Production Manager of Molex Taiwan and Technical Operations Manager of Molex
U.K. Mr. Davis has Bachelor of Science Honours Degree in Mechanical Engineering
from Southampton University and an M.B.A. from the London Business School. He
is also a non-executive director of two public companies in the United Kingdom,
Gyrus plc and Osmetech plc both high tech medical device companies.
Raj Mitta. Mr. Mitta serves as our Managing Director of Asian operations and
as a member of our Executive Committee. In 1996, he joined ADL and has served
as Vice President since 1996, as a member of the Global TIME Practice
Leadership Team since 1998 and Managing Director of Asian Operations since
1999. He began his consulting career with Booz, Allen & Hamilton and has spent
in excess of fifteen years consulting clients in North America, Europe and
Asia. His primary area of focus is in competitive restructuring, brand and
marketing effectiveness and customer management. A significant portion of Mr.
Mitta's consulting experience involved consumer goods firms. Mr. Mitta is a
member of the Young Presidents Organisation and holds a bachelor's degree in
Chemical Engineering and an M.B.A. from the Indian Institute of Management
where he was a Bank of America scholar.
Robert Broadley. Mr. Broadley serves as our Chief Financial Officer. From
1997 to March 2000, he served as the Group Finance Director at the Adscene
Group plc, a newspaper publishing and commercial printing group quoted on the
London Stock Exchange. From 1989 to 1996, he served as Group Financial
Controller at United News & Media plc. Prior to 1989, he worked with Reuters
and Brown and Root. Mr. Broadley qualified with Deloitte & Touche as a
Chartered Accountant FCA in 1975. He holds a B.A. Honors degree in Business
Studies from Greenwich University, London.
41
<PAGE>
Martyn Roetter. Dr. Roetter serves as our Global Head of the Technology
Practice, Head of North American Operations and as a member of our Executive
Committee. He has more than twenty years service with ADL, beginning in 1970.
Dr. Roetter has served as Vice President of Communications and Information
Technology in the North American TIME Leadership Team since February 1999. From
April 1992 through February 1996, he was Vice President of Decision Resources
Inc. and from 1980 until 1984 he was Vice President of Telecommunications at PA
Consulting in London, England and Princeton, New Jersey. During Dr. Roetter's
twenty years of experience in business and technological consulting in the
telecommunications, computing, and electronic industries he has worked in North
America, Europe, Asia and Latin America. Presently, he serves on the board of
directors of Allen Telecom, a wireless equipment provider. Dr. Roetter holds a
B.A. and a Ph.D. in Physics from Oxford University.
Carlos Bartolo. Mr. Bartolo serves as Managing Director of our Portuguese
Operations. He has served as Managing Director of the Lisbon office since 1998.
Prior to joining ADL, Mr. Bartolo was a shareholder and member of the board of
more than twenty companies, including Midland Montagu Fininter and Banco
Privado Portugues. He was the president of Fininter, a financial services
company, from 1988 to 1998, and a member of the Executive Board of J Soares
Correia, the leading steel distribution company in Portugal, from 1992 to 1998.
Prior to 1988, Mr. Bartolo worked for McKinsey & Co., where he led cases for
industrial and financial companies in Western Europe and South America. Mr.
Bartolo holds an M.B.A. from IMEDE in Lausanne and a degree in electrical
engineering from the Ecole Politechnique Federal de Lausanne, Switzerland.
Paul Berriman. Mr. Berriman serves as Head of Contactica. He has been with
Contactica (Asia) Ltd. as founder and Managing Director since 1995. Prior to
founding Contactica, Mr. Berriman served as Director of New World Telephone, a
Hong Kong fixed and mobile network operator, from 1993 to 1995. Prior to 1993,
he served as a Director of Wyatts and as an Engineering Manager of Mobile
Services for Cable & Wireless - Hong Kong Telecom. Mr. Berriman is an active
member of a number of Telecommunications Authority advisory bodies in Hong
Kong, including the Office of the Telecommunications Authority (OFTA) Numbering
Advisory Committee, OFTA Radio Spectrum Advisory Committee and OFTA Technical
Standards Advisory Committee. Mr. Berriman is a Chartered Engineer and holds a
Bachelors degree in Electro-Acoustics from the University of Salford in the
United Kingdom, as well as an M.B.A. from the University of Hong Kong. Mr.
Berriman is also a founding Council Member of the Hong Kong Institute of
Directors.
Taesoo Jung. Mr. Jung serves as Head of our Korean operations. He joined ADL
in 1991, where he has served as Vice President since 1996 and as Managing
Director of the Seoul office since 1995. Presently, Mr. Jung is the Chief
Executive Officer of ADL Partners, a venture capital firm in Korea. Prior to
1989, Mr. Jung held marketing positions at IBM, including consultant, account
manager, executive instructor and systems engineer. Mr. Jung has studied
political science at the Yonsei University in Seoul, and holds an M.B.A. from
the International Institute for Management Development in Lausanne,
Switzerland.
Thomas W. Kuehle. Mr. Kuehle is the Head of our Palo Alto, California
operations. Since joining ADL in 1990, he has served as a Director in the TIME
practice since 1997 and as Head of Strategy for Computer Industry Clients in
North America since 1998. Mr. Kuehle has served as a Managing Director of
Global Technology Ventures, an ADL operation located in Palo Alto, dedicated to
servicing clients engaged in new high technology business ventures around the
world. Prior to 1988, Mr. Kuehle worked with Hewlett Packard Company as a
regional sales representative and district sales manager. Mr. Kuehle holds a
B.S. degree in aeronautical engineering from San Jose State University, an
M.B.A. from the University of San Francisco and an M.I.M. degree from Harvard
University.
Hubertus M. Muhlhauser. Mr. Muhlhauser serves as our Global Head of the
Strategy Practice. He joined ADL in 1994, and has served as a member of the
Executive Committee of the Swiss office since 1999, as a member of the Global
Strategy Board since 1998 and as head of the Swiss Strategy and Organization
practice since 1997. He has also been a Global Product Manager for ADL's
strategy development methodologies since 1997. Prior to 1994, he worked as a
Key Client Manager with KHM, a German engineering and manufacturing company.
Mr. Muhlhauser holds a M.B.A. from the European Business School in Oestrich-
Winkel, Germany.
42
<PAGE>
Arno Wilfert. Dr. Wilfert serves as our Managing Director of German
operations. He joined ADL in 1995 and has served as Associate Director in the
Dusseldorf office since 1995, and Head of the German TIME practice and as a
member of the European TIME Practice Board since 1996. From 1992 to 1995, Dr.
Wilfert worked with Detecon, a German consulting company specializing in
telecommunications and, prior to 1992, as a lecturer and researcher at the
University of Bayreuth. He holds a Masters and a Ph. D. in Economics from
University of Bayreuth and regularly publishes articles regarding
telecommunications.
Niamh Byrne. Ms. Byrne serves as a Manager and Head of Marketing. From 1999
to 2000, she was employed at British Telecom (BT) as Marketing Communications
Manager for the banking sector in Global Business Markets. Prior to joining BT,
Ms. Byrne worked for a subsidiary of the Accor Group in Paris from 1998 to
1999. In 1996 and 1997, she was involved with the launch of Esat Digifone,
Ireland's second mobile phone operator. Prior to 1996, she spent three years
with the Jefferson Smurfit Group in the graduate management program. Ms. Byrne
received a Bachelor of Arts (Moderatorship) degree in Business, Marketing &
Political Science from Trinity College in Dublin.
Fraser Curly. Mr. Curly serves as an Associate Director and the Head of the
Mobile Expert Group. Since 1995, he has served as Director of Mobile
Communications at DETECON GmbH, reporting directly to the management board
(Geschaftsfuhrung). From 1998 to 1999, Mr. Curly was President, Chief Executive
Officer and a board member of DETECON Inc. He has also served as a board member
of Tmm Telecomunicacoes Moveis de Mocambique LDA since 1997. Prior to joining
DETECON in 1992, Mr. Curly held a variety of positions in engineering and
defense companies. He holds a Bachelor of Science - Physics from University of
Manchester Institute of Science and Technology, and a Master of Science -
Electrical Engineering from the University of London.
Lorenzo C. Lamadrid. Mr. Lamadrid serves as the Chairman of our Board of
Directors. Since July 1999 he has served as the President and Chief Executive
Officer of ADL. Prior to accepting that position, Mr. Lamadrid was with Western
Resources Inc., serving as President of Western Resources International, Inc.
from 1996 to 1999 and as Managing Director and founding partner of The Wing
Group, a leading international electric power project-development company, from
1992 to 1999. Prior to joining Western Resources, Mr. Lamadrid spent eight
years with the General Electric Company. He was a corporate officer, serving as
Vice President and General Manager with GE Aerospace and head of International
Operations from 1986 to 1992, and a Corporate Staff Executive for strategic
planning and business development from 1984 to 1986. Mr. Lamadrid was also one
of the founders of the Boston Beer Company (Samuel Adams). Prior to working for
GE, Mr. Lamadrid worked for six years at the Boston Consulting Group. Mr.
Lamadrid holds a dual bachelor's degree in Chemical Engineering and
Administrative Sciences from Yale University, a M.S. in Chemical Engineering
from the Massachusetts Institute of Technology and an M.B.A. in Marketing and
International Business from the Harvard Business School.
Mark A. Brodsky. Mr. Brodsky serves as a member of our Board of Directors.
Since July 1999, he has served as the Executive Vice President of Finance and
Development of ADL. Prior to joining ADL, from 1996 to 1999, Mr. Brodsky served
as a Commercial Director at Enron International, where he was involved in
international development and finance ventures in the gas, power, steel, and
water industries. Prior to his work with Enron, from 1992 to 1996, Mr. Brodsky
was Vice President of Finance and a Senior Developer with Merrill
International, a project-development firm that works under contract to U.S. and
international energy and electricity companies developing large-scale power
projects. Previously he had been Manager of Finance, International Operations
for the General Electric Corporation Aerospace Group providing business and
financing support. Mr. Brodsky received a B.S. in Accounting from Drexel
University and an M.B.A. in Finance from the Wharton School at the University
of Pennsylvania.
Arno Penzias. Mr. Penzias serves as a member of our Board of Directors. He
has served as Director of ADL since January 1993. From 1995 to 1998 he was
employed as Vice President and Chief Scientist of Bell Laboratories, Lucent
Technologies. From 1981 to 1995, Mr. Penzias served as Vice President of
Research at AT&T Bell Laboratories.
43
<PAGE>
Gerhard Schulmeyer. Mr. Schulmeyer serves as a member of our Board of
Directors. He has served as Director of ADL since 1998 and as the Chairman of
the Board of Directors of ADL since July 1999. Mr. Schulmeyer has been the
President and Chief Executive Officer of Siemens Corporation, U.S.A. since
January 1999. Prior to 1999, he served as the President and Chief Executive
Officer of Siemens Nixdorf, Munich, Germany.
Board Composition
The number of directors on our board of directors is currently fixed at
five. Prior to the offering, we intend to recruit an additional four directors
so that our Board will consist of nine directors at the time of the offering.
Following the closing of the offering, our board of directors will be divided
into three classes, each of whose members will serve for a staggered three-year
term. Our board of directors will consist of three Class I directors, whose
term of office will continue until the 2001 annual meeting of stockholders,
three Class II directors, whose term of office will continue until the 2002
annual meeting of stockholders, and three Class III directors, whose term of
office will continue until the 2003 annual meeting of stockholders. At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring.
Board Committees
Audit Committee. The members of the audit committee, all of whom will be
independent directors, will be responsible for recommending to the board of
directors the engagement of our outside auditors and reviewing our accounting
controls and the results and scope of audits and other services provided by our
auditors.
Compensation Committee. The members of the compensation committee, a
majority of whom will be independent directors, will be responsible for
reviewing and recommending to the board of directors the amount and type of
consideration to be paid to senior management, administering our equity based
compensation plans and establishing and reviewing general policies relating to
compensation and benefits of employees.
Director Compensation
Directors who are employees of c-quential or ADL receive no additional
compensation for their services as directors. Non-employee directors receive
cash compensation of $12,500 per year, plus $1,000 for each board meeting and
committee meeting attended, plus reimbursement of expenses incurred in
attending each meeting. Committee chairs are paid an additional $2,000 per year
for service in that capacity. Non-employee directors are eligible to
participate in our 2000 Stock Option and Incentive Plan at the discretion of
our Board of Directors. In accordance with a policy approved by our Board of
Directors, upon initial election or appointment to the Board of Directors, non-
employee directors will receive non-qualified stock options to purchase
shares of Class A common stock.
Executive Compensation
We are a recently formed company. Prior to , 2000, we did not conduct
any operations. As a result, we have not previously paid any compensation to
our Chief Executive Officer or other executive officers. For fiscal year 2000,
the base salaries for our Chief Executive Officer and each of our next four
most highly compensated executive officers are: Mr. , $ ; Mr. ,
$ ; Mr. , $ ; Mr. , $ ; and Mr. , $ .
2000 Stock Option and Incentive Plan
Our board of directors and shareholders intend to adopt the 2000 Stock
Option and Incentive Plan, which will permit the issuance of up to shares
of Class A common stock. The plan will permit us to:
44
<PAGE>
. grant incentive stock options
. grant non-qualified stock options
. grant stock appreciation rights
. issue or sell Class A common stock with vesting or other restrictions, or
without restrictions
. grant rights to receive Class A common stock in the future with or
without vesting
. grant common stock upon the attainment of specified performance goals
. grant dividend rights in respect of Class A common stock
These grants may be made to officers, employees, directors, consultants,
advisors and other key persons of c-quential or our affiliates.
Our compensation committee will have the right, in its discretion, to select
the individuals eligible to receive awards, determine the terms and conditions
of the awards granted, accelerate the vesting schedule of any award and
generally administer and interpret the plan. The compensation committee may
authorize our Chief Executive Officer to grant options under the plan at fair
market value to individuals who are not subject to the reporting and other
provisions of Section 16 of the Exchange Act or "covered employees" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986.
The exercise price of options granted under the plan will be determined by
the compensation committee with respect to individuals subject to Section 16
reporting requirements. Under present law, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986 may not be granted at an exercise price less
than the fair market value of the common stock on the date of grant, or less
than 110% of the fair market value in the case of incentive stock options
granted to optionees holding more than 10% of the voting power.
Upon the exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the compensation committee or, in the sole discretion of the committee, by
delivery of shares of common stock that have been owned by the optionee free of
restrictions for at least six months. The exercise price may also be delivered
to us by the optionee in the form of a promissory note if the loan of funds to
the optionee has been authorized by the compensation committee and the optionee
pays so much of the exercise price as represents the par value of the common
stock acquired in a form other than a promissory note and by a broker under
irrevocable instructions to the broker selling the underlying shares from the
optionee.
Non-qualified stock options may be granted at prices which are less than the
fair market value of the underlying shares on the date granted. Options are
typically subject to a vesting schedule pursuant to which 25% are vested one
year after grant and the remaining 75% vests ratably on a monthly basis over
the ensuing thirty-six months. The options generally terminate ten years from
the date of grant and may be exercised for specified periods after the
termination of the optionee's employment or other service relationship with us.
45
<PAGE>
OUR RELATIONSHIP WITH ADL
Since 1995, we have operated as part of ADL's Global Management Consulting
business. ADL developed capabilities and expertise in the TIME industries by
investing capital and resources over the past five years. The development and
growth of our business has been in large part due to the collaborative efforts
of ADL's and our management, and ADL's reputation in the professional services
industry.
Concurrently with this offering, we will enter into a Reorganization
Agreement and several other agreements with ADL and its affiliates in order to
organize and separate our business from ADL's other operations. The other
agreements include a Corporate Services Agreement, a Use and Occupancy
Agreement, an Intellectual Property Agreement, a Tax Allocation Agreement and a
Registration Rights Agreement. In an effort to mitigate any conflicts of
interest between ADL and us under these agreements, we will agree with ADL that
none of these agreements may be amended without the approval of a majority of
our disinterested directors.
Reorganization Agreement. The Reorganization Agreement is the master
agreement setting forth the terms and conditions of our separation from ADL,
pursuant to which ADL and its affiliates will contribute and assign to us
certain assets, including, without limitation, rights under existing client
contracts and bids, certain intellectual property rights and goodwill, in each
case as they relate to our business. In return, we will assume certain
liabilities relating to our business and the assets contributed by ADL and its
affiliates, including the obligations under client contracts and outstanding
bank obligations in an aggregate amount of approximately $70 million under
ADL's credit facilities. In connection with our separation from ADL, we will
also issue to ADL shares of our Class A common stock and shares of our
Class B common stock. ADL will agree to indemnify us with respect to any
liabilities and losses we may suffer which result from the operation of our
business prior to the separation date, as well as for any breaches of its
representations and covenants in the Reorganization Agreement and other
agreements. We, in turn, will agree to indemnify ADL and its affiliates for any
liabilities and losses it may suffer resulting from our business and the
transferred assets after the separation date, any breaches of our
representations and covenants in the Reorganization Agreement and other
agreements, and for any liabilities relating to this offering. We will agree to
pay the costs of this offering and the costs incurred by ADL in allocating its
internal resources to prepare this offering.
ADL will also agree to make reasonable provision in its employee benefits
plans to allow our employees to continue to participate in the ADL plans until
such time as we adopt our own benefits plans, such period not to exceed the
lesser of three years or the maximum period permitted under the applicable plan
or applicable law. We will agree to establish plans that recognize, to the
extent financially practical, employee service, compensation and other benefit
determinations that are consistent with the corresponding ADL plan. ADL will
retain employee benefit plan assets and liabilities relating to c-quential
employees as of the separation.
ADL and its affiliates will also agree not to engage in or provide, directly
or indirectly, to companies in the TIME industries, any consulting services
similar to those we have historically provided. ADL will also agree, on its
behalf and on behalf of its affiliates, not to recruit our professionals or
other employees. We will agree not to solicit the professionals or other
employees of ADL or its affiliates. The non-solicitation and non-competition
covenants in the Reorganization Agreement will survive until the earlier of the
third anniversary of the separation date and such time as ADL ceases to hold
securities representing at least 50% of our outstanding voting power.
Corporate Services Agreement. We will enter into a Corporate Services
Agreement with ADL that states the terms and conditions under which ADL will
provide to us, and we will provide to ADL, on an as-requested basis, certain
administrative and operational management services. The Corporate Services
Agreement will specify that ADL shall make available to us employees and
resources from its tax and accounting, corporate development and legal,
administrative, human resources and internal audit staffs. With limited
exception, these services will be provided at the actual cost of providing such
services, including the costs of third party vendors and providers, and
reimbursement will be made on a monthly basis. The cost of services under the
agreement
46
<PAGE>
may or may not be greater than the cost a third party may charge for such
services. The term of the Corporate Services Agreement is three years, subject
to the right of the recipient of any service to terminate the use of any
specific service contained therein, upon 180 days' notice.
The agreement also provides for certain cross-consulting arrangements
between ADL and us. Each of us will agree to make available to the other party,
on an as-requested basis, the assistance of our respective consultants, subject
to reasonable restrictions on their availability. The cost for such consultant
sharing shall be an amount equal to 85% of the standard billing rate for the
services provided by the subcontracted professionals. This percentage was
chosen in an effort to split the profits between ourselves and ADL as evenly as
possible. The cross-consulting arrangements have a term of three years and may
only be terminated upon the mutual agreement of the parties.
Use and Occupancy Agreement. We will enter into a Use and Occupancy
Agreement with ADL and its affiliates pursuant to which they will agree to
license to us certain leased real property. The space licenses will provide us
with the right to use and occupy a portion of ADL's leased real property at its
locations worldwide. We will reimburse ADL on a monthly basis for our
proportionate share of the costs of the leased property at each such location.
We will agree with ADL to comply with the terms of the master lease agreements
for so long as the license is in effect. Each license will have the same term
as the corresponding master lease, and we will have the option to renew the
license each time the corresponding master lease is renewed. The Use and
Occupancy Agreement runs so long as any license remains in effect.
Intellectual Property Agreement. We will enter into an Intellectual Property
Agreement with ADL pursuant to which ADL will grant us a license to use its
name, marks and other intellectual property related to our operation of our
business, and to promote our business using the licensed intellectual property.
The licenses are fully paid-up, royalty-free, worldwide and perpetual (other
than the license to use the "Arthur D. Little, Inc." name, which has a five-
year term). ADL will agree not to license its intellectual property to anyone
within the TIME industries for a period of three years. Any intellectual
property rights which we develop after the date of our separation from ADL and
which are derived from the licensed intellectual property shall belong to us.
Tax Allocation Agreement. We will enter into a Tax Allocation Agreement with
ADL pursuant to which, for any year during which we are a member of ADL's
consolidated group for United States federal income tax purposes, we will pay
ADL the amount of federal income taxes that we would have been obligated to
pay, and ADL will pay us any federal income tax refund amounts that we would
have received, in each case had we not been part of ADL's consolidated group
during the relevant period. ADL shall be responsible for the filing of the
consolidated tax returns, as well as for any audit response and litigation with
respect thereto, for any year in which we are part of ADL's consolidated group.
State, local and foreign income taxes will be treated in a manner consistent
with that of federal income taxes. ADL will agree to pay the taxes that arise
as a result of the reorganization, subject to reimbursement by us of any tax
benefit that accrues to us as a result of that payment. Any tax obligation,
including the preparation of returns, audits and litigation, incurred by either
party or our respective affiliates which is not calculated on a consolidated,
combined or unitary basis shall be the responsibility of that party. Such party
shall, however, make reasonable efforts to take the other party's tax
objectives into consideration. We will also agree not to take any action, or
fail to take any action, that would result in ADL and its United States
subsidiaries owning less than 80% of our securities, 80% of our voting
securities or 80% of our non-voting securities (if any) without the consent of
ADL.
We will agree with ADL that, in the event ADL determines that it is in the
best interests of its stockholders to transfer the shares of our capital stock
it owns in a spin-off transaction intended to qualify as a tax-free
distribution under Section 355 of the Code, we will enter into an agreement
under which we would indemnify each other for any tax liability attributable to
our respective acts and omissions which result in the spin-off failing to
qualify under Section 355 as a tax-free distribution. We will also agree that
such an agreement would provide that, after the consummation of such a spin-
off, neither party shall participate in any merger, reorganization,
acquisition, equity restructuring or other transaction that results in one or
more persons acquiring a 50% or greater interest in such party within the four-
year period beginning two years prior to such
47
<PAGE>
spin-off. We will also agree that such an agreement would include customary
provisions with respect to cooperation, exchange of information, control of
audits and litigation, and consistency in tax return positions.
Registration Rights. We will enter into a Registration Rights Agreement with
ADL pursuant to which ADL and its transferees have the right to request the
registration shares of our common stock held by them whenever we propose to
register any shares of common stock for our own or another's account under the
Securities Act for a public offering, other than registrations in respect of
shares to be used in connection with a business combination or shares relating
to our employee benefit plans. ADL and its transferees will also have the
right, on up to five occasions beginning six months after the completion of
this offering, to demand that we register under the Securities Act any or all
shares of our common stock held by it. ADL's rights to request registration of
our common stock will remain subject to:
. its agreement with the underwriters not to sell or transfer any shares
for a period of 180 days after the consummation of this offering
. our right, at the request of any underwriter in any proposed offering, to
cut-back the number of shares of common stock to be offered thereby
. our right not to effect any registration of our shares of common stock
within 180 days of any other public offering of our securities
In connection with the registration of any ADL-owned shares, we will agree
to pay all costs and expenses of ADL, other than underwriting discounts and
commissions.
48
<PAGE>
PRINCIPAL STOCKHOLDER
Prior to this offering, all of the outstanding shares of our common stock
will be owned by ADL. After this offering, ADL will own all of the outstanding
shares of our unlisted Class B common Stock and % of the outstanding shares of
our Class A common stock, or % if the underwriters fully exercise their option
to purchase additional shares. As a result, ADL will own common stock
representing % of the combined voting power of all classes of our common
stock, or % if the underwriters fully exercise their option to purchase
additional shares. Except for ADL, no person or group will beneficially own
more than 5% of the outstanding shares of our common stock following this
offering. None of our executive officers or directors currently owns any shares
of our common stock.
DESCRIPTION OF CAPITAL STOCK
Our Authorized and Outstanding Capital Stock
Following the offering, our authorized capital stock will consist of
shares of Class A common stock, of which will be issued and outstanding,
shares of Class B common stock, of which will be issued and
outstanding, and shares of undesignated preferred stock issuable in one or
more series designated by our board of directors, of which no shares will be
issued and outstanding. Following the offering, we will have outstanding
options to purchase shares of Class A common stock. The shares of Class A
and Class B common stock entitle their holders to identical rights in all
respects other than voting rights.
Common Stock
Voting Rights
Holders of Class A common stock are entitled to one vote per share while
holders of Class B common stock are entitled to ten votes per share. Holders of
our Class A and Class B common stock are not entitled to vote cumulatively for
the election of directors. Generally, all matters to be voted on by
stockholders must be approved by a majority, or, in the case of the election of
directors, by a plurality, of the votes cast at a meeting at which a quorum is
present, voting together as a single class, subject to any voting rights
granted to holders of any then outstanding preferred stock.
Dividends
Holders of common stock will share ratably in any dividends declared by our
board of directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock.
Additional Rights
Upon the liquidation, dissolution or winding up of c-quential, all holders
of common stock are entitled to share ratably in any assets available for
distribution to holders of shares of common stock. No shares of common stock
are subject to redemption or have preemptive rights to purchase additional
shares of common stock.
Conversion
Shares of Class B common stock convert into shares of Class A common stock
on a one-for-one basis upon any transfer or other disposition of such shares of
Class B common stock, after the fifth anniversary of the date of this
prospectus, to any person other than ADL or an affiliate of ADL.
49
<PAGE>
Preferred Stock
Our certificate of incorporation provides that shares of preferred stock may
be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. Our board of directors may, without stockholder approval, issue
preferred stock with voting and other rights that could adversely affect the
voting power and other rights of the holders of the common stock and could have
anti-takeover effects, including preferred stock or rights to acquire preferred
stock in connection with implementing a shareholder rights plan. We have no
present plans to issue any shares of preferred stock. The ability of our board
of directors to issue preferred stock without stockholder approval could have
the effect of delaying, deferring of preventing a change of control of c-
quential or the removal of existing management.
Limitations on Liability
We have entered into indemnification agreements with each of our directors.
The form of indemnity agreement provides that we will indemnify our directors
for expenses incurred because of their status as a director, to the fullest
extent permitted by Delaware law, our certificate of incorporation and our
bylaws.
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director
has breached his or her duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our by-laws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by c-quential to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
c-quential. The by-laws also provide for the advancement of expenses to
directors and at the discretion of our board of directors, officers and non-
officer employees. In addition, our by-laws provide that the right of directors
and officers to indemnification shall be a contract right and shall not be
exclusive of any other right now possessed or hereafter acquired under any by-
law, agreement, vote of stockholders or otherwise. We also have directors' and
officers' insurance against certain liabilities. We believe that the
indemnification agreements, together with the limitation of liability and
indemnification provisions of our certificate of incorporation and by-laws and
directors' and officers' insurance will assist us in attracting and retaining
qualified individuals to serve as directors and officers of c-quential.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling c-
quential as described above, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. At
present, there is no pending material litigation or proceeding involving any
director, officer, employee or agent of c-quential in which indemnification
will be required or permitted.
Certain Anti-Takeover Provisions
Certain provisions of our certificate of incorporation and by-laws described
below, as well as the ability of our board of directors to issue shares of
preferred stock and to set the voting rights, preferences and other terms
thereof, may have an anti-takeover effect and may discourage takeover attempts
not first approved by our board of directors, including takeovers which
particular stockholders may deem to be in their best interests. These
provisions also could have the effect of discouraging open market purchases of
our common stock because they may be considered disadvantageous by a
stockholder who desires subsequent to such purchases to participate in a
business combination transaction with us or elect a new director to our board.
50
<PAGE>
Classified Board of Directors
Our board of directors is divided into three classes serving staggered
three-year terms, with one-third of the board being elected each year. Our
classified board, together with certain other provisions of our certificate of
incorporation authorizing the board of directors to fill vacant directorships
or increase the size of the board, may prevent a stockholder from removing, or
delay the removal of, incumbent directors and simultaneously gaining control of
the board of directors by filling vacancies created by such removal with its
own nominees.
Director Vacancies and Removal
Our certificate of incorporation provides that vacancies in our board of
directors shall be filled only by the affirmative vote of a majority of the
remaining directors. Our certificate of incorporation provides that directors
may be removed from office only with cause and only by the affirmative vote of
holders of at least seventy-five percent of the shares then entitled to vote in
an election of directors.
No Stockholder Action by Written Consent
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders at an annual or special meeting of
stockholders must be effected at a duly called meeting and may not be taken or
effected by a written consent of stockholders.
Special Meetings of Stockholders
Our certificate of incorporation and by-laws provide that a special meeting
of stockholders may be called only by our board of directors. Our by-laws
provide that only those matters included in the notice of the special meeting
may be considered or acted upon at that special meeting unless otherwise
provided by law.
Advance Notice of Director Nominations and Stockholder Proposals
Our by-laws include advance notice and informational requirements and time
limitations on any director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders. For the first annual
meeting following the completion of this offering, a stockholder's notice of a
director nomination or proposal will be timely if delivered to the secretary of
c-quential at our principal executive offices not later than the close of
business on the later of the 75th day prior to the scheduled date of such
annual meeting or the 10th day following the day on which public announcement
of the date of such annual meeting is made by c-quential.
Amendment of the Certificate of Incorporation
As required by Delaware law, any amendment to our certificate of
incorporation must first be approved by a majority of our board of directors
and, if required by law, thereafter approved by a majority of the outstanding
shares entitled to vote with respect to such amendment, except that any
amendment to the provisions relating to stockholder action by written consent,
directors, limitation of liability and the amendment of our certificate of
incorporation must be approved by not less than seventy-five percent of the
outstanding shares entitled to vote with respect to such amendment.
Amendment of By-laws
Our certificate of incorporation and by-laws provide that our by-laws may be
amended or repealed by our board of directors or by the stockholders. Such
action by the board of directors requires the affirmative vote of a majority of
the directors then in office. Such action by the stockholders requires the
affirmative vote of at least seventy-five percent of the shares present in
person or represented by proxy at an annual meeting of stockholders or a
special meeting called for such purpose unless our board of directors
recommends that the
51
<PAGE>
stockholders approve such amendment or repeal at such meeting, in which case
such amendment or repeal only requires the affirmative vote of a majority of
the shares present in person or represented by proxy at the meeting.
Statutory Business Combination Provision
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date
such person became an "interested stockholder" unless:
. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination
. upon the closing of the transaction that resulted in the interested
stockholder becoming such, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares held by directors who are also
officers of the corporation and shares held by employee stock plans
. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The term "interested stockholder" generally is defined as a
person who, together with affiliates and associates, owns, or, within the
prior three years, owned, 15% or more of a corporation's outstanding
voting stock
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contain any such exclusion.
Trading on the Nasdaq National Market System
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "CQTL."
No Preemptive Rights
No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be EquiServe
Trust Company.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market
price of our common stock prevailing from time to time. Nonetheless,
substantial sales of common stock in the public market following this offering,
or the perception that such sales could occur, could lower the market price of
our common stock or make it difficult for us to raise additional equity capital
in the future.
All of the shares of our Class A common stock sold in this offering will be
freely tradable without restriction under the Securities Act, except for any
shares which may be acquired by an "affiliate" of us, as that term is defined
in the Securities Act. Persons who may be deemed to be affiliates generally
include individuals or entities that control, are controlled by, or are under
common control with, us and may include our directors and executive officers as
well as our significant stockholders.
Sales of Restricted Securities
The shares of our Class A common stock held by ADL are deemed "restricted
securities" as defined in Rule 144 under the Securities Act, and may not be
sold other than through registration under the Securities Act or under an
exemption from registration, such as the exemption provided by Rule 144. We,
ADL, all of our directors, key employees and executive officers and employees
that hold options exercisable for shares of our capital stock have agreed not
to offer or sell any shares of our common stock for a period of 180 days after
the date of this prospectus without the prior written consent of Lehman
Brothers Inc.
The shares of our super-voting Class B common stock, all of which are held
by ADL, are not currently listed or quoted for trading on any securities
exchange or quotation system.
Stock Options
After completion of this offering, but not prior to 180 days following the
date of this prospectus, we intend to file registration statements on Form S-8
with respect to the aggregate number of shares of common stock issuable under
our stock option and incentive plans. Shares issued upon the exercise of stock
options after the effective date of the Form S-8 registration statement will be
eligible for resale in the public market without restriction, except that
affiliates must comply with Rule 144.
Registration Rights
We will enter into a Registration Rights Agreement with ADL pursuant to
which ADL and its transferees have the right to request the registration of
shares of our common stock held by them whenever we propose to register any
shares of common stock for our own or another's account under the Securities
Act for a public offering, other than registrations in respect of shares to be
used in connection with a business combination or shares relating to our
employee benefit plans. ADL and its transferees will also have the right, on up
to five occasions beginning six months after the completion of this offering,
to demand that we register under the Securities Act any or all shares of our
common stock held by them. ADL's rights to request registration of our common
stock will remain subject to:
. its agreement with the underwriters not to sell or transfer any shares
for a period of 180 days after the consummation of this offering
. our right, at the request of any underwriter in any proposed offering, to
cut-back the number of shares of stock to be offered thereby
. our right not to effect any registration of our shares of common stock
within 180 days of any other public offering of our securities
In connection with the registration of any ADL-owned shares, we will agree
to pay all costs and expenses of ADL, other than underwriting discounts and
commissions.
53
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Chase Securities Inc., Thomas Weisel
Partners LLC and Fidelity Capital Markets, a division of National Financial
Service Corporation, are acting as representatives, have each agreed to
purchase from us the respective number of shares of Class A common stock shown
opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Lehman Brothers Inc..............................................
Chase Securities Inc.............................................
Thomas Weisel Partners LLC.......................................
Fidelity Capital Markets, a division of National Financial
Services Corporation............................................
----
Total..........................................................
====
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of Class A common stock depend on the satisfaction of the
conditions contained in the underwriting agreement, and that if any of the
shares of Class A common stock are purchased by the underwriters under the
underwriting agreement, then all of the shares of Class A common stock which
the underwriters have agreed to purchase under the underwriting agreement must
be purchased. The conditions contained in the underwriting agreement include
the requirement that the representations and warranties made by us to the
underwriters are true, that there is no material change in the financial
markets and that we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of Class A common stock directly to the public at the public
offering price set forth on the cover of this prospectus, and to dealers, who
may include the underwriters, at the public offering price less a selling
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per share to brokers and
dealers. After this offering, the underwriters may change the offering price
and other selling terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of Class A common stock, to cover over-allotments, if
any, at the public offering price less the underwriting discounts and
commissions shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until days after the date of the
underwriting agreement. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of Class A common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table, and we will be obligated under the over-allotment option to
sell the shares of Class A common stock to the underwriters.
The following table shows the underwriting fees to be paid to the
underwriters by us 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 Class A common stock. This underwriting fee is
the difference between the public offering price and the amount the
underwriters pay to us to purchase the shares from us. On a per share basis,
the underwriting fee is 7% of the public offering price.
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting fees to be paid by
us............................... $ $ $
</TABLE>
54
<PAGE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ .
We have agreed that, without the prior consent of Lehman Brothers Inc., we
will not, directly or indirectly, offer, sell or otherwise dispose of any
shares of common stock or any securities that may be, converted into or
exchanged for any shares of common stock for a period of 180 days from the date
of this prospectus. ADL, all of our directors, key employees and executive
officers and employees that hold options convertible into shares of our capital
stock have agreed under lock-up agreements that, without the prior written
consent of Lehman Brothers Inc., they will not, directly or indirectly, offer,
sell or otherwise dispose of any shares of common stock or any securities that
may be converted into or exchanged for any shares of common stock for the
period ending 180 days after the date of this prospectus. These restrictions
will also apply to any shares purchased under the directed share program
described below. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for the shares of
Class A common stock. The public offering price will be negotiated between the
representatives and us. In determining the public offering price of the Class A
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our performance and capital
structure, estimates of our business potential and earning prospects, an
overall assessment of our management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter of this offering and will be
facilitating electronic distribution through the Internet.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the
underwriters and selling group members to bid for and purchase shares of Class
A common stock. As an exception to these rules, the representatives are
permitted to engage in transactions that stabilize the price of the Class A
common stock. These transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Class A common
stock.
The underwriters may create a short position in the Class A common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing Class A common stock in the open market. The representatives also
may elect to reduce any short position by exercising all or part of the over-
allotment option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of Class A common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the Class A common stock, they may
reclaim the amount of the selling concession from the underwriters and selling
group members that sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A common stock. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
55
<PAGE>
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of Class A common stock offered in this prospectus
may be required to pay stamp taxes and other charges under the laws and
practices of the country of purchase, in addition to the public offering price
listed on the cover page of this prospectus.
The representatives have informed us that they do not intend to confirm
sales of shares of Class A common stock in excess of 5% of the shares offered
by them to any accounts over which they exercise discretionary authority.
At our request, the underwriters have reserved up to shares, or % of
the Class A common stock offered by this prospectus, for sale to our officers,
directors, employees, members of employees' families, customers, vendors,
suppliers and certain friends of our officers, directors and employees and
other persons with whom strategic relationships through a directed share
program at the public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares.
Lehman Brothers Inc. has been engaged by ADL as a financial advisor to
review and evaluate strategic alternatives concerning the development of ADL's
business, including general advice with respect to acquisitions, divestitures,
joint ventures and other corporate transactions. Lehman Brothers Inc. will
receive customary fees for the services that it may provide in connection with
any such transaction.
Due to the fact that one of the representatives of the underwriters was
organized within the last three years, we are providing you the following
information. Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or co-
manager of, or a syndicate member in, numerous public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain
legal matters will be passed upon for the underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for each of
the years in the three year 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.
56
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the Class A
common stock we propose to sell in this offering. This prospectus, which
constitutes part of the registration statement, does not contain all of the
information set forth in the registration statement. For further information
about us and the Class A common stock we propose to sell in this offering, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. Statements contained in this prospectus
as to the contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement, we refer you to the
copy of the contract or document that we have filed. You may inspect the
registration statement, including exhibits, without charge at the principal
office of the Securities and Exchange Commission in Washington, D.C. You may
inspect and copy the same at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Room 1024, Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center,
Suite 1300, New York, New York 10048. You can also obtain copies of this
material at prescribed rates by mail from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Securities and Exchange Commission maintains a website
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Securities and Exchange Commission.
57
<PAGE>
c-quential
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
C-QUENTIAL FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of TIME Practice Equity....................................... F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Balance Sheets....................................... F-13
Unaudited Pro Forma Statements of Operations............................. F-14
Notes to Unaudited Pro Forma Financial Statements........................ F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors of
Arthur D. Little, Inc. and c-quential, Inc.:
We have audited the accompanying balance sheets of c-quential (representing
the TIME industries-focused consulting practice of Arthur D. Little, Inc.,
which serves the telecommunications, information technology, media and
electronics industries) as of December 31, 1999 and 1998, and the related
statements of operations, TIME Practice 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 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 auditing standards generally
accepted in the United States of America. 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 c-quential as of December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
May 5, 2000
F-2
<PAGE>
c-quential
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
1999
Transfer
December 31, Pro Forma
--------------- ------------
1998 1999 (unaudited)
------- ------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ -- $ 304 $ 304
Accounts receivable and unbilled services -
payable on receipt to Arthur D. Little, Inc.... 16,591 24,048 --
Other current assets............................ -- 28 28
Deferred tax assets............................. -- 5 5
------- ------- -------
Total current assets.......................... 16,591 24,385 337
Property and equipment, net....................... -- 79 79
Goodwill.......................................... -- 3,969 3,969
------- ------- -------
Total assets.................................. $16,591 $28,433 $ 4,385
======= ======= =======
LIABILITIES AND TIME PRACTICE EQUITY
Current Liabilities:
Accounts payable to Arthur D. Little, Inc....... $16,591 $24,048 $ --
Trade payable and other accrued expenses........ -- 790 790
Debt assumed from Arthur D. Little, Inc......... -- -- 70,000
------- ------- -------
Total current liabilities..................... 16,591 24,838 70,790
------- ------- -------
Commitments and Contingencies
TIME Practice Equity:
Arthur D. Little, Inc.'s net equity investment.. -- 3,595 (66,405)
------- ------- -------
Total TIME Practice equity.................... -- 3,595 (66,405)
------- ------- -------
Total liabilities and TIME Practice equity.... $16,591 $28,433 $ 4,385
======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
c-quential
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Professional service revenue.......................... $61,156 $76,831 $106,580
------- ------- --------
Costs of services:
Direct costs of services............................ 18,515 24,145 36,014
Arthur D. Little, Inc. subcontract costs............ 20,111 23,126 26,138
------- ------- --------
Total costs of services........................... 38,626 47,271 62,152
------- ------- --------
Gross profit.......................................... 22,530 29,560 44,428
Selling, general and administrative expenses.......... 14,344 19,745 27,294
------- ------- --------
Income before taxes................................... 8,186 9,815 17,134
Provision for income taxes............................ 3,193 3,730 6,340
------- ------- --------
Net income............................................ $ 4,993 $ 6,085 $ 10,794
======= ======= ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
c-quential
STATEMENTS OF TIME PRACTICE EQUITY
(in thousands)
<TABLE>
<CAPTION>
Arthur D. Little, Inc.'s
Net Equity Investment
------------------------
<S> <C>
BALANCE, JANUARY 1, 1997............................... $ --
Net income........................................... 4,993
Earnings retained by Arthur D. Little, Inc........... (4,993)
--------
BALANCE, DECEMBER 31, 1997............................. --
Net income........................................... 6,085
Earnings retained by Arthur D. Little, Inc........... (6,085)
--------
BALANCE, DECEMBER 31, 1998............................. --
Contribution of Contactica........................... 4,175
Net income........................................... 10,794
Earnings retained by Arthur D. Little, Inc........... (11,374)
--------
BALANCE, DECEMBER 31, 1999............................. $ 3,595
========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
c-quential
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 4,993 $ 6,085 $ 10,794
------- ------- --------
Adjustments to reconcile net income to net cash
provided by operating activities prior to
distribution and changes in payable to Arthur D.
Little, Inc.:
Depreciation and amortization.................... -- -- 636
Provision for doubtful accounts.................. 448 259 1,398
Deferred income taxes............................ -- -- (5)
Changes in assets and liabilities, net of effects
of acquisition:
Accounts receivable and unbilled services....... (2,417) (2,810) (8,509)
Other current assets............................ -- -- 467
Trade payables and other accrued expenses....... -- -- (66)
------- ------- --------
Total adjustments.............................. (1,969) (2,551) (6,079)
------- ------- --------
Net cash provided by operating activities prior
to distribution and changes in payable to
Arthur D. Little, Inc.......................... 3,024 3,534 4,715
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payable to Arthur D. Little, Inc................ 1,969 2,551 6,963
Earnings retained by Arthur D. Little, Inc...... (4,993) (6,085) (11,374)
------- ------- --------
Net cash used for the financing activities..... -- -- (4,411)
------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......... -- -- 304
------- ------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... -- -- --
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ -- $ -- $ 304
======= ======= ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
INFORMATION:
Contribution of Contactica business to c-quential
by Arthur D. Little, Inc. ........................ $ -- $ -- $ 4,175
======= ======= ========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
c-quential
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
1.OVERVIEW AND BASIS OF PRESENTATION
The financial statements of c-quential (the "Company") reflect the
operations of the TIME industries-focused consulting practice of Arthur D.
Little, Inc. ("ADL"), which serves the telecommunications, information
technology, media and electronics industries. The c-quential practice was
formed in 1995. For the periods presented, ADL has had the ability to
direct all operations of the Company. The Company is a global provider of
management and technology consulting services principally to the
telecommunications, information technology, media and electronics
industries.
In March 2000, ADL formed a separate wholly owned subsidiary named c-
quential, Inc., a Delaware corporation, which will succeed to the c-
quential operations. Immediately prior to the initial public offering ADL
intends to transfer certain assets (consisting primarily of intangibles
with zero basis and the assets and liabilities of Contactica) and employees
to the Company. In return ADL will receive all the shares of c-quential,
Inc. and c-quential, Inc. will assume approximately $70,000 of ADL's third
party debt. ADL will retain the receivables (billed and unbilled)
attributable to c-quential cases as recorded through the transfer date. Tax
benefits arising as part of this transaction will continue to be allocated
to ADL. These transactions are reflected on the December 31, 1999, pro-
forma balance sheet.
Subsequent to the offering, the third party debt will be repaid with the
proceeds of the offering and ADL plans to retain at least an 80% interest
in c-quential, Inc.
The accompanying financial statements are presented on a carve-out basis
and reflect the historical results of operations, financial position and
cash flows of the Company. For purposes of deriving direct costs of
services, the Company considered ADL professionals who charged 70% or more
of their billable hours to TIME industries-related engagements during any
year to be c-quential staff for that year. For all periods presented,
certain expenses reflected in the financial statements include an
allocation of ADL's corporate expenses and regional infrastructure costs.
Management believes that the methods used to allocate expenses are
reasonable, although the costs of services could be higher if obtained from
other sources. In addition, certain service fee revenue and costs of
service fee revenue have been reflected by c-quential for services
subcontracted to c-quential by ADL. The service fee revenue, cost of
service fee revenue and allocated expenses have been reflected on bases
that ADL and c-quential consider to be a reasonable reflection of the
services provided and revenue earned by c-quential and the utilization of
services provided by ADL and the benefit received by c-quential.
The financial information included herein may not reflect the financial
position, operating results, changes in ADL's net investment and cash flows
of c-quential in the future or what they would have been had c-quential
been a separate, stand-alone entity during the periods presented. Accounts
receivable reflected on the balance sheets are those representing trade
receivables from c-quential cases. c-quential does not have rights to the
receipts on these trade receivables, and accordingly, an offsetting payable
to ADL is reflected on the balance sheets. This payable to ADL does not
represent borrowings from ADL, and, accordingly, no interest expense has
been imputed on the payable balance.
ADL and c-quential, Inc. intend to enter into a series of agreements
that specify services and facilities that ADL will supply in the future and
the basis for the calculation of the costs of services to be provided. The
provisions of the agreements are consistent with the historical
presentation of expenses seen in these financial statements.
F-7
<PAGE>
c-quential
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition--Revenue from substantially all engagements are
recognized, as services are provided based upon hours worked and
contractually agreed-upon hourly rates. The Company may also receive
"incentive revenue" on a contingent basis. Incentive revenue is based upon
agreed upon formulas relating to customer specific measures. Measurements
are performed at time intervals specified in the contract. Both the Company
and the client agree to the measurements and corresponding incentive fees
earned by the Company at these contractual time intervals. Incentive
revenue is recorded at that time. Provision is made for estimated
unbillable and uncollectable amounts. The Company also bills its clients
for expenses, which include travel, other out-of-pocket expenses and other
reimbursable expenses. These billed expenses amounted to $7,421, $9,148,
and $12,938 in 1997, 1998, and 1999, respectively. Such amounts are netted
against the expense amounts in the accompanying income statements.
Foreign Currency--The assets and liabilities of the Company's non-U.S.
operations are translated into U.S. dollars at year-end exchange rates.
Income and expense items are translated at the average of monthly exchange
rates. Revenue and expense transactions generally occur in the local
currency of the transacting office. Gains and losses from foreign currency
transactions have not been material in the periods presented.
Fair Value of Financial Instruments--The Company determines the fair
value of financial instruments and includes this information in the notes
to the financial statements when the fair value is materially different
from the carrying value of those financial instruments. As of December 31,
1999 and 1998, the carrying values of the Company's financial instruments,
which consist primarily of receivables approximated their fair values
because of their short term nature.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
Accounts Receivable--Accounts receivable include outstanding trade
accounts receivable as well as certain unbilled amounts owed to ADL (but
attributable to c-quential cases) by clients in accordance with contracts.
The unbilled amounts at December 31, 1998 and 1999 was approximately $4,019
and $3,192, respectively. The allowance for doubtful accounts amounted to
$1,359 and $2,757, in 1998 and 1999, respectively.
Property and Equipment--Property and equipment is stated at cost.
Depreciation is provided primarily using the straight-line method over the
estimated useful lives of the property and equipment over 3 years. At
December 31, 1999, property and equipment consisted primarily of equipment
and motor vehicles net of accumulated depreciation of $339.
Goodwill--Goodwill represents the excess of costs over the fair value of
net assets acquired. Goodwill is amortized on a straight-line basis over a
period of seven years. Accumulated amortization was $598 as of December 31,
1999.
Impairment of Long Lived Assets--Long-lived assets to be held and used
are reviewed for impairment whenever circumstances indicate that the
carrying amount of an asset may not be recoverable.
F-8
<PAGE>
c-quential
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Long-lived assets to be disposed of are reported at the lower of the
carrying amount or fair value less cost (net realizable value) to sell.
Income Taxes--These historical financial statements reflect the tax
expense of the Company as if it were a stand-alone entity filing its own
tax return. It has, however, historically filed as part of the ADL
consolidated returns.
Recently Issued Accounting Pronouncements--In June 1998 the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 was amended by SFAS No.
137 which requires adoption of the SFAS requirements by the Company
effective January 1, 2001. This statement requires all derivative
instruments to be carried on the consolidated balance sheet at fair value.
It also discusses changes to the requirements for hedge accounting. In the
opinion of management, the effect of adoption of this standard will not
have a material impact on the operating results of the Company.
3.STEP ACQUISITION OF CONTACTICA
Cambridge Consultants Limited, a wholly owned subsidiary of ADL,
purchased a 28% interest in Contactica Limited, a United Kingdom Company,
and Contactica Asia Limited, a Hong Kong Limited Company in 1993. ADL had
recorded its pro-rata portion of Contactica losses to the extent of its
investment. These losses were recorded prior to 1997.
As of January 31, 1999, ADL acquired the remaining 72% of Contactica
Limited, and Contactica Asia Limited, for $4,521 in cash and stock. 50% of
the purchase price was paid in cash at the time of closing with the
remaining 50% to be paid over three years in cash and stock of ADL. The
number of shares to be issued will be determined based on the fair market
value of ADL stock at the time of each subsequent payment as determined by
semi-annual valuations of ADL by an independent appraiser. The transaction
has been accounted for using the purchase method of accounting. Results of
operations of Contactica Limited have been included in the statements of
income for the period beginning January 31, 1999. The aggregate acquisition
price of the shares exceeded the fair value of the net assets at the date
of acquisition by approximately $4,567. The resulting goodwill is being
amortized on a straight-line basis over seven years.
Following are the Company's unaudited pro forma results for 1997, 1998
and 1999 assuming the acquisition occurred on January 1, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Professional service revenue...................... $65,165 $79,723 $107,184
Net income........................................ 4,911 5,047 10,799
</TABLE>
4.SIGNIFICANT GROUP CONCENTRATIONS
All of the receivables attributable to c-quential are obligations of
companies in the telecommunications, information technology, media and
electronics industries. The Company generally does not require collateral
or other security on their accounts receivable. The credit risk on these
accounts is controlled through credit approvals, limits and monitoring
procedures. No customer exceeded 10% of c-quential's revenue for the years
ended December 31, 1997, 1998 and 1999, nor did any customer exceed 10% of
accounts receivable at December 31, 1998 and 1999.
F-9
<PAGE>
c-quential
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Professional service revenue is assigned to specific geographic regions
based on the location of the office responsible for securing the contract.
Revenue was assigned to the following countries and geographic regions:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
United States....................................... $10,695 $12,493 $ 14,393
International:
United Kingdom.................................... 6,357 7,252 11,802
Germany........................................... 5,721 11,137 10,656
Other European.................................... 19,162 30,381 50,459
Asia Pacific...................................... 8,851 5,747 12,350
Latin America..................................... 8,719 7,434 3,983
Other International............................... 1,651 2,387 2,937
------- ------- --------
Total........................................... $61,156 $76,831 $106,580
======= ======= ========
</TABLE>
c-quential currently operates in one segment, management consulting to
the telecommunications, information technology, media and electronics
industries. Segment determination is based on the way management makes
decisions, allocates resources and assesses performance.
5.TRANSACTIONS WITH ADL
The Company's costs and expenses include allocations from ADL for
certain general administrative services including information technology,
financial, treasury, legal, insurance and other corporate functions as well
as certain costs of operations including facility charges. These
allocations have been estimated on bases that ADL and the Company consider
to be a reasonable reflection of the utilization of services provided or
the benefit received by the Company. Total allocated charges were $14,344,
$19,745, and $25,621 in 1997, 1998, and 1999, respectively. The allocation
of expenses from ADL was computed using a ratio of total compensation costs
for c-quential employees to total compensation costs for ADL employees
applied against the pool of expenses incurred by ADL. However, these
allocations of costs and expenses do not necessarily indicate the costs and
expenses that would have been or will be incurred by the Company on a
stand-alone basis. Management estimates that it would have incurred
additional selling, general and administrative expenses if c-quential had
been operating as a stand-alone publicly traded company. Such selling,
general and administrative expenses would likely include, but not be
limited to, executive management costs and related overhead, public company
costs, and insurance and risk management costs. Also included in costs and
expenses is a fee charged by ADL as a trademark license fee based on a
percentage of revenue for use of the Arthur D. Little, Inc. name, which fee
will be discontinued on the date of the transfer. Such fees were $937,
$1,126, and $1,847 in 1997, 1998 and 1999, respectively.
In addition, included in the financial statements is revenue which has
been reflected by c-quential for certain services subcontracted to c-
quential by ADL under ADL's contractual agreements for non-c-quential
engagements. Revenue applicable to these contracts were $2,986, $3,564 and
$4,960 in 1997, 1998, and 1999, respectively. Certain services also have
been subcontracted to ADL by c-quential under c-quential's contractual
agreements and are included in cost of services in the financial
statements. Cost of services applicable to these contracts were $20,111,
$23,126, and $26,138 in 1997, 1998, and 1999, respectively. These costs of
services represent 85% of the professional service revenue recognized
($23,660, $27,207 and $30,751 in 1997, 1998 and 1999, respectively) by c-
quential in the accompanying statements of operations. Management believes
that the terms under which these services are provided or received will not
change materially when ADL and c-quential, Inc. execute final intercompany
service agreements.
F-10
<PAGE>
c-quential
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
6.INCOME TAXES
The Company's operations have been included in the consolidated income
tax returns filed by ADL. If ADL or other members of the consolidated group
fail to make tax payments required by law, the tax authorities would have
the ability to assess any member of the consolidated group including c-
quential's successor, c-quential, Inc. The provision for income taxes
reflected in the statements of operations and the deferred tax assets
reflected in the balance sheets have been computed as if c-quential had
filed a separate tax return.
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
-----------------------
1997 1998 1999
------ ------- ------
<S> <C> <C> <C>
Current
Domestic.......................................... $ 297 $ 557 $ 575
State............................................. 138 70 177
Foreign........................................... 3,037 4,278 6,135
------ ------- ------
Total current................................... $3,472 $ 4,905 $6,887
====== ======= ======
Deferred
Domestic.......................................... $ (279) $ (969) $ (602)
State............................................. -- -- --
Foreign........................................... -- (206) 55
------ ------- ------
Total deferred.................................. $ (279) $(1,175) $ (547)
====== ======= ======
</TABLE>
In connection with the asset transfer, ADL may incur certain tax
obligations relating to the transfer of its businesses. Such transfer may
result in ADL paying taxes. As a result, c-quential, Inc. may have an
increase in its tax bases and will accordingly receive future tax benefits.
ADL and c-quential, Inc. will enter into a Tax Allocation Agreement which
specifies that such tax benefits if they arise will be used by ADL and not
c-quential, Inc.
The Agreement also specifies that should ADL spin-off the remaining
holdings of the Company at some time in the future, the Company has agreed
to indemnify ADL for any tax liability it suffers arising out of actions
taken by the Company, before or after a spin-off by ADL that would cause
the spin-off to lose its qualification as a tax-free distribution for
United States federal income tax purposes.
7.BENEFIT PLANS
ADL has several U.S. and non-U.S. benefit plans that provide benefits to
substantially all employees. Amounts related to c-quential employees have
been included in costs of services in the accompanying financial
statements. Contributions on behalf of c-quential, Inc. employees to both
the Arthur D. Little, Inc. Employee Stock Ownership Plan (the "ESOP") and
the Arthur D. Little Inc. Employees' MDT Retirement Plan (the "MDT Plan")
will be continued by c-quential, Inc., for the remainder of 2000.
Replacement plans have not yet been formulated. New plans will be
established within three years.
Employee Stock Ownership Plan--The ESOP is a defined contribution plan
which is designed to invest primarily in ADL stock. Contributions are made
to participants' accounts based on a percentage of their eligible earnings.
Total contributions on behalf of c-quential employees to this plan were
$221, $428 and $479 for 1997, 1998, and 1999, respectively. Shares of ADL
stock are subject to a put option. Such
F-11
<PAGE>
c-quential
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
option can only be exercised by an employee upon termination of employment
with ADL or its affiliated companies. c-quential, Inc. does not have an
obligation to fund ADL's repurchase of a terminated employee's shares.
MDT Plan--The MDT Plan is a defined contribution plan covering employees
of Arthur D. Little, Inc. and certain affiliated entities. Benefits under
the MDT Plan are based on the amount of ADL contributions and the earnings
on the balances in the members' accounts. The annual contribution is based
on a formula that is applied to each participating employee's compensation,
subject to discretionary adjustments by the Board of Directors of ADL. Only
U.S. employees attributed to c-quential receive benefits under this plan.
Total contributions on behalf of c-quential employees to this plan were
$204, $282, and $194 for 1997, 1998, and 1999, respectively.
Non-U.S. Employee Defined Benefit Plans--ADL sponsors several non-U.S.
employee benefit plans. The Company's funding policy for its defined
benefit plans is to contribute an amount annually based upon actuarial
assumptions designed to achieve adequate funding of projected benefit
obligations. Pension expense applicable to c-quential staff amounted to
$58, $34, and $54 in 1997, 1998, and 1999, respectively. c-quential will
not be responsible for the unfunded status, if any, of the defined benefit
plans.
Non-U.S. Employee Defined Contribution Plans -In addition to the above
plans, ADL also sponsors other defined contribution plans which cover
employees. Contributions are based upon a percentage of the annual eligible
earnings of each employee. Certain plans allow for employee contributions
into the plans. Contributions to these plans on behalf of certain c-
quential designated employees amounted to $396, $790, and $1,085, in 1997,
1998 and 1999, respectively.
8.STOCK PURCHASE AND AWARD PLANS
Stock Purchase Plans--ADL maintains various stock purchase plans
("SPP's") which allow for designated employees and directors to purchase
shares of ADL common stock at its fair market value. ADL also maintains
various stock award plans ("SAP's") which allow for employees to receive
shares of the Company's common stock as a performance award in lieu of
cash. The number of shares issued under the SAP's is determined based upon
the fixed dollar amount of the award at the grant date and the fair market
value at the end of the vesting period. Generally, the awards vest over a
three to five year period. Certain c-quential employees have participated
in such plans. Compensation charges relative to the amortization of the
discounts and awards described above have not been material to these
financial statements.
The shares purchased under these plans are subject to a call by ADL at
the time of an employee's termination from ADL or its affiliated companies.
c-quential, Inc. does not have an obligation to fund ADL's repurchase of an
employee's shares.
F-12
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
c-quential
PRO FORMA BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Transfer IPO
Pro Forma Transfer Pro Forma IPO
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents $ 304 $ -- $ 304 $ B,C $
Accounts receivable
and unbilled
services-- payable on
receipt to Arthur D.
Little, Inc. 24,048 (24,048)A -- --
Other current assets.. 28 -- 28 --
Deferred tax assets... 5 -- 5 --
------- -------- ------- ---- ----
Total current
assets.............. 24,385 (24,048) 337
Property and
equipment, net....... 79 -- 79 --
Goodwill.............. 3,969 -- 3,969 --
------- -------- ------- ---- ----
Total assets.......... $28,433 $(24,048) $ 4,385 $ $
======= ======== ======= ==== ====
LIABILITIES AND TIME
PRACTICE EQUITY
Current Liabilities:
Accounts payable to
Arthur D. Little,
Inc.................. $24,048 $(24,048)A $ -- $-- $
Trade payables and
other accrued
expenses............. 790 -- 790 --
Debt assumed from
Arthur D. Little,
Inc.................. -- 70,000 A 70,000 C
------- -------- ------- ---- ----
Total current
liabilities......... 24,838 45,952 70,790
------- -------- ------- ---- ----
Commitments and
Contingencies
TIME Practice Equity:
Arthur D. Little,
Inc.'s net equity
investment........... 3,595 (70,000)A (66,405) B
------- -------- ------- ---- ----
Total TIME Practice
equity.............. 3,595 (70,000) (66,405)
------- -------- ------- ---- ----
Total liabilities and
TIME Practice
equity............... $28,433 $(24,048) $ 4,385 $
======= ======== ======= ==== ====
</TABLE>
See notes to pro forma financial statements.
F-13
<PAGE>
c-quential
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
<S> <C> <C> <C> <C>
Professional service revenue.............. $106,580 $ -- $106,580
-------- ------- --------
Costs of services:
Direct costs of services................ 36,014 -- 36,014
Arthur D. Little, Inc. subcontract
costs.................................. 26,138 -- 26,138
-------- ------- --------
Total costs of services............... 62,152 -- 62,152
-------- ------- --------
Gross profit.............................. 44,428 -- 44,428
Selling, general and administrative
expenses................................. 27,294 (1,847)D 25,447
-------- ------- --------
Income before taxes....................... 17,134 1,847 18,981
Provision for income taxes................ 6,340 683 E 7,023
-------- ------- --------
Net income................................ $ 10,794 $ 1,164 $ 11,958
======== ======= ========
</TABLE>
See notes to pro forma financial statements.
F-14
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The unaudited pro forma statements of operations of c-quential for the year
ended December 31, 1999 have been prepared based on the financial statements
and related notes presented elsewhere in this prospectus. The unaudited pro
forma statements of operations and the unaudited pro forma balance sheets have
been prepared as if the transactions and events described in the following
paragraphs had occurred as of the beginning of the respective periods
presented, and as of December 31, 1999, respectively.
c-quential based the following pro forma adjustments on available
information and certain estimates and assumptions. Therefore, it is likely that
the actual adjustments will differ from the pro forma adjustments. c-quential
believes that such assumptions provide a reasonable basis for presenting all of
the significant effects of the following transactions and events and that the
pro forma adjustments give appropriate effect to those assumptions and are
properly applied in the unaudited pro forma financial statements.
The unaudited pro forma statements of operations of c-quential for the year
ended December 31, 1999 do not reflect certain estimated incremental selling,
general and administrative expenses associated with c-quential operating as a
stand-alone publicly traded company, including executive management, overhead
and public company costs, insurance and risk management costs, and other costs.
Transfer Adjustments
A. Reflects the assumption of debt from ADL in the amount of $70 million, the
return of accounts receivable to ADL and issuance of c-quential Class A
common shares to ADL.
IPO Adjustments
B. Reflects the issuance of shares of common stock in this offering,
assuming an initial public offering price of $ .00 per share, and the
application of the estimated $ million net proceeds to increase cash.
C. Reflects the repayment of the ADL debt assumed.
D. Reflects the discontinuance of a trademark license fee allocated to c-
quential by ADL.
E. Reflects income taxes determined in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes." The pro forma adjustments to the
provision (benefit) for taxes reflect income taxes as if these transactions
and events had occurred as of the beginning of the respective period
presented. This pro forma blended statutory income tax rate may not be
indicative of performance in future periods.
F-15
<PAGE>
Shares
[c-quential LOGO]
Class A Common Stock
---------------------
PROSPECTUS
, 2000
---------------------
Lehman Brothers
Chase H&Q
Thomas Weisel Partners LLC
Fidelity Capital Markets
a division of National Financial Services Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 12. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by us in
connection with the offering and distribution (excluding underwriting discounts
and commissions):
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- -------
<S> <C>
SEC Registration Fee................................................ $39,600
Federal Taxes....................................................... $ *
NASD Filing Fee..................................................... $15,500
Nasdaq National Market Listing Fee.................................. $ *
Accounting Fees and Expenses........................................ $ *
Legal Fees and Expenses............................................. $ *
Printing Expenses................................................... $ *
State Taxes......................................................... $ *
Blue Sky Qualification Fees and Expenses............................ $ *
Transfer Agent's Fee................................................ $ *
Miscellaneous....................................................... $ *
-------
TOTAL.............................................................
=======
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq
National Market fees, are in each case estimated.
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our certificate of incorporation provides that no director of c-
quential will be personally liable to c-quential or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to c-quential or
its stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) in respect of
unlawful dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, our certificate of incorporation provides that if the Delaware
General Corporation Law is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended.
Article V of our by-laws provides for indemnification by c-quential of its
officers and certain non-officer employees under certain circumstances against
expenses, including attorneys fees, judgments, fines and amounts paid in
settlement, reasonably incurred in connection with the defense or settlement of
any threatened, pending or completed legal proceeding in which any such person
is involved by reason of the fact that such person is or was an officer or
employee of the registrant if such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
c-quential, and, with respect to criminal actions or proceedings, if such
person had no reasonable cause to believe his or her conduct was unlawful.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
c-quential has issued the following securities that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). The shares
of capital stock and other securities issued in the following transactions were
offered and sold in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder relative to sales by an issuer not
involving a public offering.
. We issued and sold 100 shares of common stock to Arthur D. Little
International, Inc., a subsidiary of ADL, as part of the initial
organization of c-quential for a total consideration of $1.00, as of
March 16, 2000
. Concurrent with the closing of this offering and as partial consideration
for the transfer of our business, we will issue to ADL shares of our
Class A common stock and shares of our Class B common stock
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation of
c-quential, Inc.
3.2 Form of Amended and Restated By-laws of c-quential, Inc.
*4.1 Specimen certificate for shares of common stock, $.01 par value, of
c-quential, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered.
10.1 Form of 2000 Stock Option and Incentive Plan.
*10.2 Form of Reorganization Agreement, dated as of , 2000, by and
between the registrant and Arthur D. Little, Inc.
10.3 Form of Corporate Services Agreement, dated as of , 2000, by and
between the registrant and Arthur D. Little, Inc.
10.4 Form of Use and Occupancy Agreement, dated as of , 2000, by and
between the registrant and Arthur D. Little, Inc.
10.5 Form of Intellectual Property Agreement, dated as of , 2000, by and
between the registrant and Arthur D. Little, Inc.
10.6 Form of Tax Allocation Agreement, dated as of , 2000, by and
between the registrant and Arthur D. Little, Inc.
10.7 Form of Registration Rights Agreement, dated as of , 2000, by and
between the registrant and Arthur D. Little, Inc.
10.8 Form of Indemnification Agreement entered into by the registrant and
each of its directors.
*10.9 Amended and Restated Credit Agreement, dated as of April 25, 2000 by
and between Arthur D. Little, Inc., Arthur D. Little International,
Inc. and the Lenders named therein.
*10.10 Amended and Restated Note Purchase Agreement, dated as of April 25,
2000, by and between Arthur D. Little, Inc. and the Purchasers named
therein.
*21.1 Subsidiaries of c-quential
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
hereto).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* to be filed by amendment
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Financial Statements or Notes to those
statements.
II-2
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth
of Massachusetts, on May 9, 2000.
c-quential, Inc.
/s/ Rudolf Fischer
By: _________________________________
Rudolf Fischer
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Rudolf Fischer and Robert Broadley such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, 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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Rudolf Fischer President, Chief Executive May 9, 2000
______________________________________ Officer and Director
Rudolf Fischer (Principal Executive
Officer)
/s/ Robert Broadley Executive Vice President and May 9, 2000
______________________________________ Chief Financial Officer
Robert Broadley (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Lorenzo C. Lamadrid Chairman of the Board of May 9, 2000
______________________________________ Directors
Lorenzo C. Lamadrid
/s/ Mark A. Brodsky Director May 9, 2000
______________________________________
Mark A. Brodsky
/s/ Arno Penzias Director May 9, 2000
______________________________________
Arno Penzias
/s/ Gerhard Schulmeyer Director May 9, 2000
______________________________________
Gerhard Schulmeyer
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------- ----------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation
of c-quential, Inc.
3.2 Form of Amended and Restated By-laws of c-quential, Inc.
*4.1 Specimen certificate for shares of common stock, $.01 par
value, of c-quential, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality
of the securities being offered.
10.1 Form of 2000 Stock Option and Incentive Plan.
*10.2 Form of Reorganization Agreement, dated as of , 2000,
by and between the registrant and Arthur D. Little, Inc.
10.3 Form of Corporate Services Agreement, dated as of ,
2000, by and between the registrant and Arthur D. Little,
Inc.
10.4 Form of Use and Occupancy Agreement, dated as of ,
2000, by and between the registrant and Arthur D. Little,
Inc.
10.5 Form of Intellectual Property Agreement, dated as of
, 2000, by and between the registrant and Arthur D.
Little, Inc.
10.6 Form of Tax Allocation Agreement, dated as of , 2000,
by and between the registrant and Arthur D. Little, Inc.
10.7 Form of Registration Rights Agreement, dated as of ,
2000, by and between the registrant and Arthur D. Little,
Inc.
10.8 Form of Indemnification Agreement entered into by the
registrant and each of its directors.
*10.9 Amended and Restated Credit Agreement dated as of April
25, 2000 by and between Arthur D. Little, Inc., Arthur D.
Little International, Inc. and the Lenders named therein.
*10.10 Amended and Restated Note Purchase Agreement, dated as of
April 25, 2000, by and between Arthur D. Little, Inc. and
the Purchasers named therein.
*21.1 Subsidiaries of c-quential
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in
Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment to the registration statement.
<PAGE>
EXHIBIT 1.1
[INSERT NUMBER OF SHARES]
C-QUENTIAL, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
_____ __, 2000
LEHMAN BROTHERS INC.
CHASE SECURITIES INC.
THOMAS WEISEL PARTNERS LLC
FIDELITY CAPITAL MARKETS,
A DIVISION OF NATIONAL FINANCIAL
SERVICES CORPORATION,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
c-quential, Inc., a Delaware corporation (the "Company"), proposes to sell
________ shares (the "Firm Stock") of the Company's Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"). In addition, the Company
proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional _______ shares of the
Class A Common Stock on the terms and for the purposes set forth in Section 2
(the "Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters named
in Schedule 1 hereto (the "Underwriters").
<PAGE>
The Company is presently a wholly-owned subsidiary of Arthur D. Little,
Inc., a Massachusetts corporation (the "Parent"), and the Parent is presently
the owner of all of the Company's issued and outstanding Class B Common Stock,
par value $.01 per share (the "Class B Common Stock", and together with the
Class A Common Stock, the "Common Stock").
1. Representations, Warranties and Agreements of the Company and the
Parent. The Company and the Parent, jointly and severally, represent, warrant
and agree that:
(a) A registration statement on Form S-1, and ___ amendments
thereto, with respect to the Stock has (i) been prepared by the Company
in conformity with the requirements of the United States Securities Act
of 1933 (the "Securities Act") and the rules and regulations (the "Rule
and Regulations") of the United States Securities and Exchange Commission
(the "Commission") thereunder, (ii) been filed with the Commission under
the Securities Act and (iii) become effective under the Securities Act.
Copies of such registration statement and the amendments thereto have
been delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Preliminary Prospectus"
means each prospectus included in such registration statement, or
amendments thereof, before it became effective under the Securities Act
and any prospectus filed with the Commission by the Company with the
consent of the Representatives pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration statement,
as amended at the Effective Time, including all information contained in
the final prospectus filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations in accordance with Section 5(a) hereof and
deemed to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and Regulations;
and "Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules
and Regulations. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do
not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein, it being understood and agreed that
the only such information is that described in Section 8(e) hereof.
2
<PAGE>
(c) The Company and each of its subsidiaries (as defined in Section
15) have been duly incorporated and are validly existing as corporations
in good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification, and have all power and authority
necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged.
(d) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description thereof contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) The shares of the Stock to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and non-assessable; and the
Stock will conform to the description thereof contained in the
Prospectus.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
nor will such actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets; and except for the
registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state or foreign
securities laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental agency
or body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby.
3
<PAGE>
(h) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act.
(i) The Stock has been approved for listing on The Nasdaq Stock
Market's National Market.
(j) Apart from Common Stock issued to the Parent on the date of the
Company's incorporation as described in the Prospectus, the Company has
not sold or issued any shares of its Common Stock during the six-month
period preceding the date of the Prospectus, including any sales pursuant
to Rule 144A under, or Regulations D or S of, the Securities Act.
(k) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries
or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus.
4
<PAGE>
(l) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(m) Deloitte & Touche LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 7(g) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(n) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries;
and all real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the Company and its subsidiaries.
(o) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in
similar businesses in similar industries.
(p) The Company and each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service
mark registrations, copyrights and licenses necessary for the conduct of
their respective businesses and have no reason to believe that the
conduct of their respective businesses will conflict with, and have not
received any notice of any claim of conflict with, any such rights of
others.
5
<PAGE>
(q) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries; and to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
(r) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which
have not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(s) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is
required to be described in the Prospectus which is not so described.
(t) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which might be expected to
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries.
(u) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined
in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has
not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986,
as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company
would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
6
<PAGE>
(v) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and
has paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor
does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company or any of its subsidiaries, might
have) a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of
the Company and its subsidiaries.
(w) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred in
the ordinary course of business, (iii) entered into any transaction not
in the ordinary course of business or (iv) declared or paid any dividend
on its capital stock.
(x) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(y) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any
of its properties or assets is subject or (iii) is in violation in any
material respect of any law, ordinance, governmental rule, regulation or
court decree to which it or its property or assets may be subject or has
failed to obtain any material license, permit, certificate, franchise or
other governmental authorization or permit necessary to the ownership of
its property or to the conduct of its business.
(z) Neither the Company nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, has used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
7
<PAGE>
(aa) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes,
medical wastes, hazardous wastes or hazardous substances by the Company
or any of its subsidiaries (or, to the knowledge of the Company, any of
their predecessors in interest) at, upon or from any of the property now
or previously owned or leased by the Company or its subsidiaries in
violation of any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit or which would require remedial action under
any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit, except for any violation or remedial action which would not
have, or could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a material
adverse effect on the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; there has been no material spill, discharge, leak,
emission, injection, escape, dumping or release of any kind onto such
property or into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its subsidiaries or
with respect to which the Company or any of its subsidiaries have
knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would not
be reasonably likely to have, singularly or in the aggregate with all
such spills, discharges, leaks, emissions, injections, escapes, dumpings
and releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes"
shall have the meanings specified in any applicable local, state, federal
and foreign laws or regulations with respect to environmental protection.
(bb) Neither the Company nor any of its subsidiaries is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the Commission
thereunder.
8
<PAGE>
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _______ shares of the
Firm Stock to the several Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase the number of shares of the Firm Stock set
opposite that Underwriter's name in Schedule 1 hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option to purchase
up to _______ shares of Option Stock. Such option is granted for the purpose of
covering over-allotments in the sale of Firm Stock and is exercisable as
provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be $_____
per share.
The Company shall not be obliged to deliver any of the Stock to be
delivered on the First Delivery Date or the Second any Delivery Date (as
hereinafter defined), as the case may be, except upon payment for all the Stock
to be purchased on such Delivery Date as provided herein.
3. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of the Firm
Stock, the several Underwriters propose to offer the Firm Stock for sale upon
the terms and conditions set forth in the Prospectus.
It is understood that approximately _______ shares of the Firm Stock
("Directed Shares") will initially be reserved by the Underwriters for offer
and sale to employees and persons having business relationships with the
Company and its subsidiaries ("Directed Share Participants") upon the terms and
conditions set forth in the Prospectus (the "Directed Share Program") and in
accordance with the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD"). Under no circumstances will Lehman Brothers
Inc. or any Underwriter be liable to the Company, the Parent or to any Directed
Share Participant for any action taken or omitted to be taken in good faith in
connection with such Directed Share Program. To the extent that any Directed
Shares are not affirmatively reconfirmed for purchase by any Directed Share
Participant on or immediately after the date of this Agreement, such Directed
Shares may be offered to the public as part of the public offering contemplated
hereby.
9
<PAGE>
The Company and the Parent, jointly and severally, agree to pay all fees
and disbursements incurred by the Underwriters in connection with the Directed
Share Program, including counsel fees and any stamp duties or other taxes
incurred by the Underwriters in connection with the Directed Share Program.
In connection with the offer and sale of the Directed Shares, the Company
and the Parent, jointly and severally, agree, promptly upon a request in
writing, to indemnify and hold harmless Lehman Brothers Inc. and the other
Underwriters from and against any loss, claim, damage, expense, liability or
action which (i) arises out of, or is based upon, any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the approval of the Company for distribution to Directed Share
Participants in connection with the Directed Share Program or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) arises out of
the failure of any Directed Share Participant to pay for and accept delivery of
Directed Shares that the Directed Share Participant agreed to purchase or (iii)
is otherwise related to the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses related thereto) that are finally
judicially determined to have resulted directly from the bad faith or gross
negligence of Lehman Brothers Inc.
4. Delivery of and Payment for the Stock. Delivery of and payment for the
Firm Stock shall be made at the office of Skadden, Arps, Slate, Meagher & Flom
LLP, Four Times Square, New York, New York 10036, at 10:00 A.M., New York City
time, on the [fourth] full business day following the date of this Agreement or
at such other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "First Delivery Date." On the First Delivery Date, the Company shall
deliver or cause to be delivered certificates representing the Firm Stock to
the Representatives for the account of each Underwriter against payment to or
upon the order of the Company of the purchase price by wire transfer in
immediately available funds. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking
and packaging of the certificates for the Firm Stock, the Company shall make
the certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
10
<PAGE>
The option granted in Section 2 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company by the Representatives. Such notice
shall set forth the aggregate number of shares of Option Stock as to which the
option is being exercised, the names in which the shares of Option Stock are to
be registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been
exercised nor later than the fifth business day after the date on which the
option shall have been exercised. The date and time the shares of Option Stock
are delivered are sometimes referred to as a "Second Delivery Date" and the
First Delivery Date and any Second Delivery Date are sometimes each referred to
as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on such
Second Delivery Date. On such Second Delivery Date, the Company shall deliver
or cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Option Stock shall
be registered in such names and in such denominations as the Representatives
shall request in the aforesaid written notice. For the purpose of expediting
the checking and packaging of the certificates for the Option Stock, the
Company shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to such Second Delivery
Date.
11
<PAGE>
5. Further Agreements of the Company and the Parent. Each of the Company,
and for purposes of Section 5(i) below only, the Parent, agrees:
(a) To prepare the Prospectus in a form approved by the Representa-
tives and to file such Prospectus pursuant to Rule 424(b) under the
Securities Act not later than Commission's close of business on the
second business day following the execution and delivery of this
Agreement or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further amendment or any
supplement to the Registration Statement or to the Prospectus except as
permitted herein; to advise the Representatives, promptly after it
receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or the Prospectus, of
the suspension of the qualification of the Stock for offering or sale in
any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement
as originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with
the Commission and each amendment thereto (in each case excluding
exhibits other than this Agreement and the computation of per share
earnings) and (ii) each Preliminary Prospectus, the Prospectus and any
amended or supplemented Prospectus; and, if the delivery of a prospectus
is required at any time after the Effective Time in connection with the
offering or sale of the Stock or any other securities relating thereto
and if at such time any events shall have occurred as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply with
the Securities Act, to notify the Representatives and, upon their
request, to prepare and furnish without charge to each Underwriter and to
any dealer in securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented Prospectus
which will correct such statement or omission or effect such compliance.
12
<PAGE>
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and
obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date (it being
understood that the Company shall have until at least 410 or, if the
fourth quarter following the fiscal quarter that includes the Effective
Date is the last fiscal quarter of the Company's fiscal year, 455 days
after the end of the Company's current fiscal quarter), to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the option of
the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Class A Common Stock may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of the
Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Stock
provided that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
13
<PAGE>
(i) For a period of 180 days from the date of the Prospectus, not
to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock (other than the Stock
and shares issued pursuant to employee benefit plans, qualified stock
option plans or other employee compensation plans existing on the date
hereof), or sell or grant options, rights or warrants with respect to any
shares of Common Stock or securities convertible into or exchangeable for
Common Stock (other than the grant of options pursuant to option plans
existing on the date hereof), or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such shares of
Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other securities,
in cash or otherwise, in each case without the prior written consent of
Lehman Brothers Inc.; and to cause each officer and director of the
Company to furnish to the Representatives, prior to the First Delivery
Date, a letter or letters, in form and substance satisfactory to counsel
for the Underwriters, pursuant to which each such person shall agree not
to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or (2) enter into any
swap or other derivatives transaction that transfers to another, in whole
or in part, any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case for a period of 180 days
from the date of the Prospectus, without the prior written consent of
Lehman Brothers Inc.;
(j) Prior to filing with the Commission any report containing
information pursuant to Rule 463 of the Rules and Regulations, to furnish
a copy thereof to the counsel for the Underwriters and receive and
consider its comments thereon, and to deliver promptly to the
Representatives a signed copy of each such report filed by it with the
Commission;
(k) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus;
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company"
within the meaning of such term under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
14
<PAGE>
6. Expenses. The Company and the Parent, jointly and severally, agree to
pay (a) the costs incident to the authorization, issuance, sale and delivery of
the Stock and any taxes payable in that connection; (b) the costs incident to
the preparation, printing and filing under the Securities Act of the
Registration Statement and any amendments and exhibits thereto; (c) the costs
of distributing the Registration Statement as originally filed and each
amendment thereto and any post-effective amendments thereof (including, in each
case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment
or supplement to the Prospectus, all as provided in this Agreement; (d) the
costs of producing and distributing this Agreement and any other related
documents in connection with the offering, purchase, sale and delivery of the
Stock; (e) the filing fees incident to securing any required review by the NASD
of the terms of sale of the Stock; (f) any applicable listing or other fees;
(g) the fees and expenses of qualifying the Stock under the securities laws of
the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); (h) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of shares of the Stock by the
Underwriters pursuant to the Directed Share Program, as described in Section 3;
and (i) all other costs and expenses incident to the performance of the
obligations of the Company under this Agreement; provided that, except as
provided in this Section 6 and in Section 11 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective obligations of
the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company and the
Parent contained herein, to the performance by the Company and the Parent of
their obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 5(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
15
<PAGE>
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains an
untrue statement of a fact which, in the opinion of Skadden, Arps, Slate,
Meagher & Flom, LLP, counsel for the Underwriters, is material or omits
to state a fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) Goodwin, Procter & Hoar, LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which
their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification and have
all power and authority necessary to own or hold their respective
properties and conduct the businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being delivered
on such Delivery Date) have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; and all of the
issued shares of capital stock of each subsidiary of the Company
have been duly and validly autho rized and issued and are fully
paid, non-assessable and (except for directors' qualifying shares)
are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
16
<PAGE>
(iii) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or transfer
of, any shares of the Stock pursuant to the Company's charter or
by-laws or any agreement or other instrument known to such counsel;
(iv) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property owned by them,
in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and all real property
and buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings
by the Company and its subsidiaries;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property or assets of the Company or any
of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, might have a material
adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects
of the Company and its subsidiaries; and, to the best of such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Prospectus was filed with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and no stop
order suspending the effectiveness of the Registration Statement
has been issued and, to the knowledge of such counsel, no
proceeding for that purpose is pending or threatened by the
Commission;
17
<PAGE>
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior
to such Delivery Date (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations;
(viii) The statements contained in the Prospectus under the
captions "Risk Factors - Provisions of Delaware law and of our
charter and by-laws may make a takeover more difficult", "Risk
Factors - We have potential tax liability as a member of ADL's
consolidated group, including tax obligations relating to our
separation from ADL", "Management", "Our Relationship with ADL",
"Description of Capital Stock", "Shares Eligible for Future Sale"
and ["Certain U.S. Federal Income Tax Consequences"], insofar as
they describe charter documents, contracts, statutes, rules and
regulations and other legal matters, constitute a fair summary
thereof;
(ix) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in
the Prospectus or filed as exhibits to the Registration Statement
by the Securities Act or by the Rules and Regulations which have
not been described or filed as exhibits to the Registration
Statement;
(x) This Agreement has been duly authorized, executed and
delivered by the Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and the
consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor
will such actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties
or assets; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state or foreign securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency
or body is required for the execution, delivery and performance of
this Agreement by the Company and the consummation of the
transactions contemplated hereby; and
18
<PAGE>
(xii) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the Commonwealth of Massachusetts and the General
Corporation Law of the State of Delaware and that such counsel is not admitted
in the State of Delaware; (ii) rely (to the extent such counsel deems proper
and specifies in its opinion), as to matters involving the application of the
laws of [insert jurisdictions of subsidiaries] upon the opinion of other
counsel of good standing, provided that such other counsel is satisfactory to
counsel for the Underwriters and furnishes a copy of its opinion to the
Representatives; and (iii) in giving the opinion referred to in Section
7(d)(iv), state that no examination of record titles for the purpose of such
opinion has been made, and that it is relying upon a general review of the
titles of the Company and its subsidiaries, upon opinions of local counsel and
abstracts, reports and policies of title companies rendered or issued at or
subsequent to the time of acquisition of such property by the Company or its
subsidiaries, upon opinions of counsel to the lessors of such property and, in
respect of matters of fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that it believes that both
the Underwriters and it are justified in relying upon such opinions, abstracts,
reports, policies and certificates. Such counsel shall also have furnished to
the Representatives a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as counsel to
the Company on a regular basis and has acted as counsel to the Company in
connection with the preparation of the Registration Statement, and (y) based on
the foregoing, no facts have come to the attention of such counsel which lead
it to believe that the Registration Statement, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The foregoing
opinion and statement may be qualified by a statement to the effect that such
counsel does not assume any responsibil ity for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus except for the statements made in the Prospectus under the captions
identified in Section 7(d)(viii).
19
<PAGE>
(e) _______________ shall have furnished to the Representatives its
written opinion, as counsel to the Parent, addressed to the Underwriters
and dated such Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered by the Parent;
(ii) The compliance by the Parent with all of the provisions
of this Agreement and the consummation of the transactions contem-
plated hereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to
which the Parent or any of its subsidiaries is a party or by which
the Parent or any of its subsidiaries is bound or to which any of
the property or assets of the Parent or any of its subsidiaries is
subject, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Parent or any of its
subsidiaries or any statute or any order, rule or regulation known
to such counsel of any court or governmental agency or body having
jurisdiction over the Parent or any of its subsidiaries or any of
their properties or assets; and no consent, approval, authorization
or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Parent and the
consummation of the transactions contemplated hereby.
Such counsel shall also have furnished to the Representatives a written
statement, addressed to the Underwriters and dated such Delivery Date, in form
and substance satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Parent on a regular basis and has acted as
counsel to the Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the attention
of such counsel which lead it to believe that the Registration Statement, as of
the Effective Date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to the effect
that such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus.
20
<PAGE>
(f) The Representatives shall have received from Skadden, Arps,
Slate, Meagher & Flom, LLP counsel for the Underwriters, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and sale
of the Stock, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
(g) At the time of execution of this Agreement, the Representatives
shall have received from Deloitte & Touche, LLP a letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as
of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date hereof), the
conclusions and findings of such firm with respect to the financial
information and other matters ordinarily covered by accountants' "comfort
letters" to underwriters in connection with registered public offerings.
(h) With respect to the letter of Deloitte & Touche, LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial letter"),
the Company shall have furnished to the Representatives a letter (the
"bring-down letter") of such accountants, addressed to the Underwriters
and dated such Delivery Date (i) confirming that they are independent
public accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the qualification
of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates as
of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial letter and
(iii) confirming in all material respects the conclusions and findings
set forth in the initial letter.
21
<PAGE>
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating
that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein;
and the conditions set forth in Sections 7(a) and 7(j) have been
fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective
Date, the Registration Statement and Prospectus did not include any
untrue statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, and (B) since the Effective
Date no event has occurred which should have been set forth in a
supplement or amendment to the Registration Statement or the
Prospectus.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus or (ii) since such date there shall not have been any change
in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is, in the judgment of the Representatives, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(k) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market, or trading in any securities
of the Company on any exchange or in the over-the-counter market, shall
have been suspended or minimum prices shall have been established on any
such exchange or such market by the Commission, by such exchange or by
any other regulatory body or governmental authority having jurisdiction,
(ii) a banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the
financial markets in the United States shall be such) as to make it, in
the judgment of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock being delivered on such Delivery Date on the terms
and in the manner contemplated in the Prospectus.
22
<PAGE>
(l) The Nasdaq Stock Market shall have approved the Stock for
listing on its National Market.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company and the Parent, jointly and severally, shall indemnify
and hold harmless each Underwriter, its officers and employees and each person,
if any, who controls any Underwriter within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in (A) any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any materials or information provided to
investors by, or with the approval of, the Company in connection with the
marketing of the offering of the Stock ("Marketing Materials"), including any
roadshow or investor presentations made to investors by the Company (whether in
person or electronically), (ii) the omission or alleged omission to state in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Marketing Materials, any
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the Stock or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or action arising
out of or based upon matters covered by clause (i) or (ii) above (provided that
the Company and the Parent shall not be liable under this clause (iii) to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its gross negligence or willful misconduct),
and shall reimburse each Underwriter and each such officer, employee or
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that Underwriter, officer, employee or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company and the Parent shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
such amendment or supplement, in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein, which information consists solely of the information specified in
Section 8(e). The foregoing indemnity agreement is in addition to any liability
which the Company or the Parent may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
23
<PAGE>
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, its officers and employees, each of its directors
(including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company), and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or (ii)
the omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of that Underwriter specifically for inclusion
therein, which information consists solely of the information specified in
Section 8(e), and shall reimburse the Company and any such director, officer or
controlling person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Underwriter may
otherwise have to the Company or any such director, officer, employee or
controlling person.
24
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure
to notify the indemnifying party shall not relieve it from any liability which
it may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify
the indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 8. If any such
claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out
of any claim in respect of which indemnity may be sought by the Underwriters
against the Company or the Parent under this Section 8 if, in the reasonable
judgment of the Representatives, it is advisable for the Representatives and
those Underwriters, officers, employees and controlling persons to be jointly
represented by separate counsel, and in that event the fees and expenses of
such separate counsel shall be paid by the Company or the Parent. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with the consent of the indemnifying party or if
there be a final judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment.
25
<PAGE>
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and the Parent on the one hand and the Underwriters on the other
from the offering of the Stock or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Parent on the one hand and the
Underwriters on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Parent on the one hand and the
Underwriters on the other with respect to such offering shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Stock
purchased under this Agreement (before deducting expenses) received by the
Company and the Parent, on the one hand, and the total underwriting discounts
and commissions received by the Underwriters with respect to the shares of the
Stock purchased under this Agreement, on the other hand, bear to the total
gross proceeds from the offering of the shares of the Stock under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Parent or the Underwriters, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. For purposes of the preceding two sentences, the
net proceeds deemed to be received by the Company shall be deemed to be also
for the benefit of the Parent and information supplied by the Company shall
also be deemed to have been supplied by the Parent. The Company, the Parent and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 8 shall be deemed to include, for
purposes of this Section 8(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 8(d) are several in proportion to
their respective underwriting obligations and not joint.
26
<PAGE>
(e) The Underwriters severally confirm and the Company acknowledges that
the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, and the concession and reallowance
figures appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the performance
of its obligations under this Agreement, the remaining non-defaulting
Underwriters shall be obligated to purchase the Stock which the defaulting
Underwriter agreed but failed to purchase on such Delivery Date in the
respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 2. If the foregoing maximums are
exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Stock to be purchased on such Delivery Date. If
the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery
Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company, except that the Company and the
Parent will continue to be liable for the payment of expenses to the extent set
forth in Sections 6 and 11. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Firm Stock which a defaulting Underwriter agreed but
failed to purchase.
27
<PAGE>
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or counsel
for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(j) or 7(k), shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company shall
fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled, the Company and the Parent, jointly and severally, agree to
reimburse the Underwriters for all reasonable out-of- pocket expenses
(including fees and disbursements of counsel) incurred by the Underwriters in
connection with this Agreement and the proposed purchase of the Stock, and upon
demand the Company or the Parent shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 9 by
reason of the default of one or more Underwriters, neither the Company nor the
Parent shall be obligated to reimburse any defaulting Underwriter on account of
those expenses.
28
<PAGE>
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., Three World Financial Center, 10th
Floor, New York, New York 10285;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: [_________] (Fax: _________);
(c) if to the Parent, shall be delivered or sent by mail, telex or
facsimile transmission to Arthur D. Little, Inc., Acorn Park, Suite 2500,
Cambridge, MA 02140, Attention: [Office of the General Counsel] (Fax:
[617-498-7116]);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and the
Parent shall be entitled to act and rely upon any request, consent, notice or
agreement given or made on behalf of the Underwriters by Lehman Brothers Inc. on
behalf of the Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the Underwriters, the Company, the Parent
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company and the
Parent contained in this Agreement shall also be deemed to be for the benefit
of the person or persons, if any, who control any Underwriter within the
meaning of Section 15 of the Securities Act and (B) the indemnity agreement of
the Underwriters contained in Section 8(b) of this Agreement shall be deemed to
be for the benefit of directors of the Company, officers of the Company who
have signed the Registration Statement and any person controlling the Company
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 13, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
29
<PAGE>
14. Survival. The respective indemnities, representations, warranties and
agreements of the Company, the Parent and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary". For purposes
of this Agreement, (a) "business day" means each Monday, Tuesday, Wednesday,
Thursday or Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close and
(b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpreta tion of, this Agreement.
30
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Parent and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
C-QUENTIAL, INC.
By
----------------------------------
Name:
Title:
ARTHUR D. LITTLE, INC., The Parent
By
----------------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
CHASE SECURITIES, INC.
THOMAS WEISEL PARTNERS, INC.
FIDELITY CAPITAL MARKETS,
A DIVISION OF NATIONAL FINANCIAL
SERVICES CORPORATION,
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
---------------------------------
Authorized Representative
31
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
- ------------ ---------
Lehman Brothers Inc. ........................................
Chase Securities Inc. .......................................
Thomas Weisel Partners LLC ..................................
Fidelity Capital Markets, a division of National
Financial Services Corporation ............................
--------------
Total
==============
32
<PAGE>
LOCK-UP LETTER AGREEMENT
_____ __, 2000
LEHMAN BROTHERS INC.
CHASE SECURITIES INC.
THOMAS WEISEL PARTNERS LLC
FIDELITY CAPITAL MARKETS,
A DIVISION OF NATIONAL FINANCIAL
SERVICES CORPORATION,
As Representatives of the
several Underwriters
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares
(the "Shares") of Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), of c-quential (the "Company") and that the Underwriters
propose to reoffer the Shares to the public (the "Offering"). Arthur D. Little,
Inc. is presently the owner of all of the Company's issued and outstanding
Class B Common Stock, par value $.01 per share (the "Class B Common Stock", and
together with the Class A Common Stock, the "Common Stock").
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of Lehman
Brothers Inc., the undersigned will not, directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any transaction or
device that is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Common Stock
(including, without limitation, shares of Common Stock that may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common
Stock that may be issued upon exercise of any option or warrant) or securities
convertible into or exchangeable for Common Stock (other than the Shares) owned
by the undersigned on the date of execution of this Lock-Up Letter Agreement or
on the date of the completion of the Offering, or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or other securities, in cash or
otherwise, for a period of 180 days after the date of the final Prospectus
relating to the Offering.
<PAGE>
In furtherance of the foregoing, the Company and its Transfer Agent are
hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Lock-Up Letter
Agreement.
It is understood that, if the Company notifies you that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, we will be released from our
obligations under this Lock-Up Letter Agreement.
The undersigned understands that the Company, the Underwriters and the
stockholders selling shares in the Offering will proceed with the Offering in
reliance on this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and that,
upon request, the undersigned will execute any additional documents necessary
in connection with the enforcement hereof. Any obligations of the undersigned
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned.
Very truly yours,
By
-------------------------------
Name:
Title:
Dated:
------------------------
2
<PAGE>
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
C-QUENTIAL, INC.
c-quential, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is c-quential, Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was March 16, 2000 (the "Original Certificate").
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") was duly adopted in accordance with the provisions of Sections
242 and 245 of the Delaware General Corporation Law (the "DGCL").
3. The text of the Amended and Restated Certificate is hereby
amended and restated in its entirety to provide as herein set forth in full.
ARTICLE I
The name of the Corporation is c-quential, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
<PAGE>
ARTICLE IV
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation
shall have authority to issue is [number spelled out] ([number]) shares, of
which (i) [number spelled out] ([number]) shares shall be class A common stock,
par value $___ per share (the "Class A Common Stock"), [number spelled out]
([number]) shares shall be class B common stock, par value $ per share (the
"Class B Common Stock," and collectively with the Class A Common Stock, the
"Common Stock") and (iii) [number spelled out] ([number]) shares shall be a
class designated as undesignated preferred stock, par value $___ per share (the
"Undesignated Preferred Stock").
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Undesignated Preferred Stock (except as otherwise provided in any
certificate of designations of any series of Undesignated Preferred Stock).
The powers, preferences and rights of, and the qualifications,
limitations and restrictions upon, each class or series of stock shall be
determined in accordance with, or as set forth below in, this Article IV.
A. COMMON STOCK
------------
1. Dividends. Subject to the prior rights and preferences, if any,
---------
applicable to shares of the Undesignated Preferred Stock or any series thereof
and except as provided by law or in this Article IV, the holders of shares of
the Class A Common Stock and the Class B Common Stock shall be entitled to
receive dividends (payable in cash, stock or otherwise), and the Corporation
shall pay dividends on the Class A Common Stock and the Class B Common Stock, as
and when declared by the Board of Directors out of any assets or funds of the
Corporation legally available for the payment of dividends, in such amount and
in such form as the Board of Directors may from time to time determine. Except
as hereinafter provided with respect to dividends consisting of shares of Class
A Common Stock and Class B Common Stock, all dividends that the Board of
Directors may declare from time to time on the Class A Common Stock and the
Class B Common Stock shall be declared and paid in an equal amount per share on
all shares of Class A Common Stock and Class B Common Stock then outstanding.
Dividends consisting of shares of Class A Common Stock and Class B Common Stock
shall be declared by the Board of Directors and shall be paid by the Corporation
only as follows: (i) dividends consisting of shares of Class A Common Stock
shall only be declared and paid to holders of shares of Class A Common Stock and
dividends consisting of shares of Class B Common Stock shall only be declared
and paid to holders of shares of Class B Common Stock; and (ii) the number of
shares of Class B Common Stock declared and paid as a dividend with respect to
each
2
<PAGE>
outstanding share of Class B Common Stock shall be equal to the number of shares
of Class A Common Stock declared and paid as a dividend with respect to each
outstanding share of Class A Common Stock.
2. Voting Rights. The holders of shares of Class A Common Stock and
-------------
the holders of shares of Class B Common Stock shall be entitled to receive
notice of and to attend all meetings of the stockholders of the Corporation and
to vote together at all such meetings, except meetings at which only the holders
of one class or series of shares of the Corporation's capital stock are entitled
to vote separately as a class or series, as the case may be; [provided, however,
-------- -------
that, except as otherwise required by law, holders of Class A Common Stock and
the Class B Common Stock, as such, shall not be entitled to vote on any
amendment to this Certificate (or on any amendment to a certificate of
designations of any series of Undesignated Preferred Stock) that alters or
changes the powers, preferences, rights or other terms of one or more
outstanding series of Undesignated Preferred Stock if the holders of such
affected series are entitled to vote, either separately or together with the
holders of one or more other such series, on such amendment pursuant to this
Certificate (or pursuant to a certificate of designations of any series of
Undesignated Preferred Stock) or pursuant to the DGCL]. At any meeting at which
the holders of shares of Class A Common Stock and the holders of shares of Class
B Common Stock are entitled to vote together, the shares of Class A Common Stock
shall carry one vote per share and the shares of Class B Common Stock shall
carry ten (10) votes per share. The holders of shares of Class B Common Stock
shall be entitled to one vote per share held at any meeting of holders of shares
of Class B Common Stock at which they are entitled to vote separately as a
class. The holders of shares of Class A Common Stock shall be entitled to one
vote per share at any meeting of holders of shares of Class A Common Stock at
which they are entitled to vote separately as a class.
3. Conversion of Shares of Class B Common Stock. Each share of Class
--------------------------------------------
B Common Stock shall automatically convert into Class A Common Stock on a share
for share basis (subject to adjustment in the event of any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction) upon a Disposition (as hereinafter defined)
of such share of Class B Common Stock which (i) occurs after [the fifth
anniversary of the date of the consummation of the Corporation's initial public
offering of Common Stock] and (ii) is made to a party (whether a natural person
or an entity) other than (x) an ADL Stockholder (as hereinafter defined), (y) a
party related to an ADL Stockholder in a manner described in Section 267(b) or
707(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or (z) a
party whose ownership of stock could be attributed to an ADL Stockholder under
Section 318 of the Code. Except as provided in the preceding sentence, shares of
Class B Common Stock shall not convert into shares of Class A Common Stock. For
purposes of this paragraph (i) the term "ADL Shareholder" means (x) Arthur D.
Little, Inc. ("ADL") or (y) any party that owns stock of ADL, and (ii) the term
"Disposition" means any sale, exchange, gift or other disposition other than (w)
a distribution by a corporation to a shareholder, (x) a distribution by a
partnership to a partner, (y) a distribution by a trust to a beneficiary or (z)
a distribution by an employee stock ownership plan to a plan participant or
beneficiary.
3
<PAGE>
4. Modification, Subdivision and Consolidation. Any modification to
-------------------------------------------
the provisions attaching to the Class A Common Stock or the Class B Common
Stock, respectively, shall require the separate affirmative vote of two-thirds
of the votes cast by the holders of shares of Class A Common Stock and Class B
Common Stock, respectively, voting as a separate class. The Corporation may not
subdivide or consolidate the shares of Class A Common Stock or the shares of
Class B Common Stock without at the same time proportionately subdividing or
consolidating the shares of the other class.
5. Rights on Dissolution. In the event of the liquidation,
---------------------
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
or any other distribution of the assets of the Corporation among its
stockholders for the purpose of winding up its affairs, subject to the prior
rights and preferences, if any, of the holders of the Undesignated Preferred
Stock, the holders of shares of the Class A Common Stock and Class B Common
Stock then outstanding shall be entitled to receive the remaining property and
assets of the Corporation ratably in proportion to the number of shares of both
classes of Common Stock held by each holder.
B. UNDESIGNATED PREFERRED STOCK
----------------------------
The Board of Directors or any authorized committee thereof is
expressly authorized, to the fullest extent permitted by law, to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares of
each such series, and to fix the designations, powers, including voting powers,
full or limited, or no voting powers, preferences and the relative,
participating, optional or other special rights of the shares of each series and
any qualifications, limitations and restrictions thereof.
ARTICLE V
STOCKHOLDER ACTION
------------------
1. Action without Meeting. Except as otherwise provided herein, any
----------------------
action required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof.
2. Special Meetings. Except as otherwise required by statute and
----------------
subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
4
<PAGE>
ARTICLE VI
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be
-------
managed by or under the direction of the Board of Directors except as otherwise
provided herein or required by law.
2. Election of Directors. Election of Directors need not be by
---------------------
written ballot unless the By-laws of the Corporation (the "By-laws") shall so
provide.
3. Number of Directors; Term of Office. The number of Directors of
-----------------------------------
the Corporation shall be fixed solely and exclusively by resolution duly adopted
from time to time by the Board of Directors. The Directors, other than those who
may be elected by the holders of any series of Undesignated Preferred Stock,
shall be classified, with respect to the term for which they severally hold
office, into three classes, as nearly equal in number as reasonably possible.
The initial Class I Directors of the Corporation shall be [names]; the initial
Class II Directors of the Corporation shall be [names]; and the initial Class
III Directors of the Corporation shall be [names]. The initial Class I Directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in 2001, the initial Class II Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 2002, and the initial Class III
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2003. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms expire shall be elected for a term of office
to expire at the third succeeding annual meeting of stockholders after their
election. Notwithstanding the foregoing, the Directors elected to each class
shall hold office until their successors are duly elected and qualified or until
their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Undesignated Preferred Stock shall have the right, voting separately as a series
or together with holders of other such series, to elect Directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificate of designations applicable
thereto.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series of Undesignated Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely and
exclusively by the affirmative vote of a majority of the remaining Directors
then in office, even if less than a quorum of the Board of Directors, and not by
the stockholders. Any Director appointed in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
Directors in which the new directorship was created or the vacancy occurred and
5
<PAGE>
until such Director's successor shall have been duly elected and qualified or
until his or her earlier resignation or removal. Subject to the rights, if any,
of the holders of any series of Undesignated Preferred Stock to elect Directors,
when the number of Directors is increased or decreased, the Board of Directors
shall, subject to Article VI.3 hereof, determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
--------
however, that no decrease in the number of Directors shall shorten the term of
- -------
any incumbent Director. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, shall exercise the
powers of the full Board of Directors until the vacancy is filled.
5. Removal. Subject to the rights, if any, of any series of
-------
Undesignated Preferred Stock to elect Directors and to remove any Director whom
the holders of any such stock have the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office (i) only with cause and (ii) only by the affirmative vote of
the holders of 75% or more of the shares then entitled to vote at an election of
Directors. At least forty-five (45) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal and the alleged grounds thereof shall be sent to the
Director whose removal will be considered at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of Directors, then
the liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
6
<PAGE>
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the
----------------------
By-laws of the Corporation may be amended or repealed by the Board of Directors
by the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least 66 2/3% of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class; provided, however, that if the Board
-------- -------
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Certificate
in the manner now or hereafter prescribed by statute and this Certificate, and
all rights conferred upon stockholders herein are granted subject to this
reservation. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, and in addition to any other
vote of holders of voting stock that is required by this Certificate or by law,
such amendment or repeal shall require the affirmative vote of the majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of the majority of the outstanding shares of each class
entitled to vote thereon as a class, at a duly constituted meeting of
stockholders called expressly for such purpose; provided, however, that the
-------- -------
affirmative vote of not less than 66 2/3% of the outstanding shares entitled to
vote on such amendment or repeal, and the affirmative vote of not less than 66
2/3% of the outstanding shares of each class entitled to vote thereon as a
class, shall be required to amend or repeal any provision of Article V, Article
VI, Article VII or Article IX of this Certificate.
[End of Text]
7
<PAGE>
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as
of this ____ day of ________, 2000.
c-quential, Inc.
By:_______________________
Name:________________
Title:_______________
<PAGE>
Exhibit 3.2
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
C-QUENTIAL, INC.
(the "Corporation")
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders (any such
--------------
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the Board of Directors, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no Annual Meeting has
been held for a period of thirteen months after the Corporation's last Annual
Meeting, a special meeting in lieu thereof may be held, and such special meeting
shall have, for the purposes of these By-laws or otherwise, all the force and
effect of an Annual Meeting. Any and all references hereafter in these By-laws
to an Annual Meeting or Annual Meetings also shall be deemed to refer to any
special meeting(s) in lieu thereof.
SECTION 2. Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Annual Meetings of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an Annual Meeting (a)
pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of
notice provided for in this By-law, who is entitled to vote at the
meeting, who is present (in person or by proxy) at the meeting and who
complies with the notice procedures set forth in this By-law. In
addition to the other requirements set forth in this By-law, for any
proposal of business to be considered at an Annual Meeting, it must be
a proper subject for action by stockholders of the Corporation under
Delaware law.
(2) For nominations or other business to be properly brought
before an Annual Meeting by a stockholder pursuant to clause (c) of
paragraph (a)(1) of this By- law, the stockholder must have given
timely notice thereof in writing to the Secretary of
<PAGE>
the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor
earlier than the close of business on the 120th day prior to the first
anniversary of the preceding year's Annual Meeting; provided, however,
that in the event that the date of the Annual Meeting is advanced by
more than 30 days before or delayed by more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior
to such Annual Meeting and not later than the close of business on the
later of the 90th day prior to such Annual Meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made. Notwithstanding anything to the contrary
provided herein, for the first Annual Meeting following the initial
public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of
business on the later of the 90th day prior to the scheduled date of
such Annual Meeting or the 10th day following the day on which public
announcement of the date of such Annual Meeting is first made or sent
by the Corporation. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting, any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made, and
the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and
number of shares of the Corporation's capital stock beneficially owned
by such other stockholders; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination
or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner,
and (ii) the class and number of shares of the Corporation which are
owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased
Board of Directors made by the Corporation at least 85 days prior to
the first anniversary of the preceding year's Annual Meeting, a
stockholder's notice required by this By-law shall
2
<PAGE>
also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on
which such public announcement is first made by the Corporation.
(b) General.
-------
(1) Only such persons who are nominated in accordance with
the provisions of this By-law shall be eligible for election and to
serve as directors and only such business shall be conducted at an
Annual Meeting as shall have been brought before the meeting in
accordance with the provisions of this By-law. The Board of Directors
or a designated committee thereof shall have the power to determine
whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the provisions of this By-law. If
neither the Board of Directors nor such designated committee makes a
determination as to whether any stockholder proposal or nomination was
made in accordance with the provisions of this By-law, the presiding
officer of the Annual Meeting shall have the power and duty to
determine whether the stockholder proposal or nomination was made in
accordance with the provisions of this By-law. If the Board of
Directors or a designated committee thereof or the presiding officer,
as applicable, determines that any stockholder proposal or nomination
was not made in accordance with the provisions of this By-law, such
proposal or nomination shall be disregarded and shall not be presented
for action at the Annual Meeting.
(2) For purposes of this By-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
(3) Notwithstanding the foregoing provisions of this By-law,
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this By-law. Nothing in this By-law shall be
deemed to affect any rights of (i) stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act or (ii) the holders of any series of
Undesignated Preferred Stock to elect directors under specified
circumstances.
SECTION 3. Special Meetings. Except as otherwise required by statute
----------------
and subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
3
<PAGE>
SECTION 4. Notice of Meetings; Adjournments. A written notice of each
--------------------------------
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given not less than 10 days nor more than 60 days before the Annual Meeting, to
each stockholder entitled to vote thereat by delivering such notice to such
stockholder or by mailing it, postage prepaid, addressed to such stockholder at
the address of such stockholder as it appears on the Corporation's stock
transfer books. Such notice shall be deemed to be given when hand delivered to
such address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 2 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate of Incorporation of the Corporation (as the same
may hereafter be amended and/or restated, the "Certificate") or these By-laws,
is entitled to such notice.
4
<PAGE>
SECTION 5. Quorum. A majority of the shares entitled to vote, present
------
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one vote for
------------------
each share of stock entitled to vote owned by them of record according to the
stock ledger of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either (i) in person, (ii) by written proxy
or (iii) by a transmission permitted by ss.212(c) of the Delaware General
Corporation Law ("DGCL"). Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission permitted by ss.212(c) of
the DGCL may be substituted for or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission. Proxies shall be filed in accordance with the
procedures established for the meeting of stockholders. Except as otherwise
limited therein or as otherwise provided by law, proxies authorizing a person to
vote at a specific meeting shall entitle the persons authorized thereby to vote
at any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them.
SECTION 7. Action at Meeting. When a quorum is present at any meeting
-----------------
of stockholders, any matter before any such meeting (other than an election of a
director or directors) shall be decided by a majority of the votes properly cast
for and against such matter, except where a larger vote is required by law, by
the Certificate or by these By-laws. Any election of directors by stockholders
shall be determined by a plurality of the votes properly cast on the election of
directors. The Corporation shall not directly or indirectly vote any shares of
its own stock; provided, however, that the Corporation may vote shares which it
holds in a fiduciary capacity to the extent permitted by law.
SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary
-----------------
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares
5
<PAGE>
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the hour, date and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
SECTION 9. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
SECTION 10. Inspectors of Elections. The Corporation shall, in advance
-----------------------
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation
------
shall be managed by or under the direction of the Board of Directors except as
otherwise provided by the Certificate or required by law.
6
<PAGE>
SECTION 2. Number and Terms. The number of directors of the Corporation
----------------
shall be fixed solely and exclusively by resolution duly adopted from time to
time by the Board of Directors. The directors shall hold office in the manner
provided in the Certificate.
SECTION 3. Qualification. No director need be a stockholder of the
-------------
Corporation.
SECTION 4. Vacancies. Vacancies in the Board of Directors shall be
---------
filled in the manner provided in the Certificate.
SECTION 5. Removal. Directors may be removed from office in the
-------
manner provided in the Certificate.
SECTION 6. Resignation. A director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 7. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine and publicize by means of reasonable notice given to
any director who is not present at the meeting at which such resolution is
adopted.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 9. Notice of Meetings. Notice of the hour, date and place of
------------------
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, electronic mail or other form of electronic communication, sent
to his or her business or home address, at least 24 hours in advance of the
meeting, or by written notice mailed to his or her business or home address, at
least 48 hours in advance of the meeting. Such notice shall be deemed to be
delivered when hand delivered to such address, read to such director by
telephone, deposited in the mail so addressed, with postage thereon prepaid if
mailed, dispatched or transmitted if faxed, telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
7
<PAGE>
A written waiver of notice signed before or after a meeting by a
director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate or
by these By-laws, neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Directors need be specified in the notice or waiver
of notice of such meeting.
SECTION 10. Quorum. At any meeting of the Board of Directors, a
------
majority of the total number of directors shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 9 of this Article II. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present. For purposes of this section, the total number of
directors includes any unfilled vacancies on the Board of Directors.
SECTION 11. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, the vote of a majority of the directors present
shall constitute action by the Board of Directors, unless otherwise required by
law, by the Certificate or by these By-laws.
SECTION 12. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 13. Manner of Participation. Directors may participate in
-----------------------
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 14. Committees. The Board of Directors, by vote of a majority
----------
of the directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by
8
<PAGE>
these By-laws for the Board of Directors. All members of such committees shall
hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors.
SECTION 15. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors, or a designated committee thereof, provided that directors
who are serving the Corporation as employees and who receive compensation for
their services as such, shall not receive any salary or other compensation for
their services as directors of the Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist
-----------
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors, a Chief Executive
Officer and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board of
--------
Directors following the Annual Meeting, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by the
Board of Directors at such regular annual meeting of the Board of Directors or
at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a
-------------
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or
------
by these By- laws, each of the officers of the Corporation shall hold office
until the regular annual meeting of the Board of Directors following the next
Annual Meeting and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
9
<PAGE>
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. President. The President shall, subject to the direction of
---------
the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all meetings of
stockholders and of the Board of Directors. The President shall have such other
powers and perform such other duties as the Board of Directors may from time to
time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. Chief Executive Officer. The Chief Executive Officer, if
-----------------------
one is elected, shall have such powers and shall perform such duties as the
Board of Directors may from time to time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
10
<PAGE>
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to
-----------------------
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled
---------------------
to a certificate of the capital stock of the Corporation in such form as may
from time to time be prescribed by the Board of Directors. Such certificate
shall be signed by the Chairman of the Board of Directors, the President or a
Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
---------
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of
11
<PAGE>
the Corporation by the surrender to the Corporation or its transfer agent of the
certificate theretofore properly endorsed or accompanied by a written assignment
or power of attorney properly executed, with transfer stamps (if necessary)
affixed, and with such proof of the authenticity of signature as the Corporation
or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law,
--------------
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
SECTION 4. Record Date. In order that the Corporation may determine
------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date: (a) in the case of determination of stockholders entitled to vote at any
meeting of stockholders, shall, unless otherwise required by law, not be more
than sixty nor less than ten days before the date of such meeting and (b) in the
case of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
12
<PAGE>
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Corporate Status" describes the status of a person who is serving
or has served (i) as a Director of the Corporation, (ii) as an Officer of the
Corporation, or (iii) as a director, partner, trustee, officer, employee or
agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
request of the Corporation. For purposes of this Section 1(a), an Officer or
Director of the Corporation who is serving or has served as a director, partner,
trustee, officer, employee or agent of a Subsidiary shall be deemed to be
serving at the request of the Corporation;
(b) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation;
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as
an employee or agent of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors of the Corporation;
(g) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative; and
13
<PAGE>
(h) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other entity of which the Corporation
owns (either directly or through or together with another Subsidiary of the
Corporation) either (i) a general partner, managing member or other similar
interest or (ii) (A) 50% or more of the voting power of the voting capital
equity interests of such corporation, partnership, limited liability company,
joint venture or other entity, or (B) 50% or more of the outstanding voting
capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other entity.
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V of these By-laws, each Director and
Officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification or, in the case of Directors, advancement of Expenses under
these By-laws in accordance with the provisions set forth herein.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V of these By-laws, each Non-Officer
Employee may, in the discretion of the Board of Directors of the Corporation, be
indemnified by the Corporation to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended, against any or all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any threatened, pending or completed Proceeding, or any
claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such
Non-Officer Employee's Corporate Status, if such Non-Officer Employee acted in
good faith and in a manner such Non-Officer Employee reasonably believed to be
in or not opposed to the best interests of the Corporation and, with
14
<PAGE>
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The rights of indemnification provided by this Section
3 shall exist as to a Non- Officer Employee after he or she has ceased to be a
Non-Officer Employee and shall inure to the benefit of his or her heirs,
personal representatives, executors and administrators. Notwithstanding the
foregoing, the Corporation may indemnify any Non-Officer Employee seeking
indemnification in connection with a Proceeding initiated by such Non-Officer
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
----------
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no such
Disinterested Directors, or if a majority of Disinterested Directors so directs,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition.
- -----------
(a) The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within ten (10) days
after the receipt by the Corporation of a written statement from such Director
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by such Director and shall be preceded
or accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
(b) If a claim for advancement of Expenses hereunder by a Director is
not paid in full by the Corporation within 10 days after receipt by the
Corporation of documentation of Expenses and the required undertaking, such
Director may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and if successful in whole or in part,
such Director shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such advancement of Expenses
under this Article V shall not be a defense to the action and shall not create a
presumption that such advancement is not permissible. The
15
<PAGE>
burden of proving that a Director is not entitled to an advancement of expenses
shall be on the Corporation.
(c) In any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that the Director
has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 6. Advancement of Expenses to Officers and Non-Officer
---------------------------------------------------
Employees Prior to Final Disposition.
- ------------------------------------
(a) The Corporation may, at the discretion of the Board of Directors of
the Corporation, advance any or all Expenses incurred by or on behalf of any
Officer and Non-Officer Employee in connection with any Proceeding in which
such is involved by reason of the Corporate Status of such Officer or
Non-Officer Employee upon the receipt by the Corporation of a statement or
statements from such Officer or Non-Officer Employee requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Officer and Non-Officer Employee and shall be preceded or
accompanied by an undertaking by or on behalf of such to repay any Expenses so
advanced if it shall ultimately be determined that such Officer or Non-Officer
Employee is not entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that the Officer or
Non-Officer Employee has not met any applicable standard for indemnification set
forth in the DGCL.
SECTION 7. Contractual Nature of Rights.
----------------------------
(a) The foregoing provisions of this Article V shall be deemed to be a
contract between the Corporation and each Director and Officer entitled to the
benefits hereof at any time while this Article V is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
(b) If a claim for indemnification of Expenses hereunder by a Director
or Officer is not paid in full by the Corporation within 60 days after receipt
by the Corporation of a written claim for indemnification, such Director or
Officer may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim, and if successful in whole or in part, such
Director or Officer shall also be entitled to be paid the expenses of
prosecuting
16
<PAGE>
such claim. The failure of the Corporation (including its Board of Directors or
any committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such indemnification under this
Article V shall not be a defense to the action and shall not create a
presumption that such indemnification is not permissible. The burden of proving
that a Director or Officer is not entitled to indemnification shall be on the
Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to
indemnification hereunder, it shall be a defense that such Director or Officer
has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by the Board of Directors.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
--------------------
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy
17
<PAGE>
or attorney in fact for this Corporation with or without discretionary power
and/or power of substitution, at any meeting of stockholders or shareholders of
any other corporation or organization, any of whose securities are held by this
Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a
--------------
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate. All references in these By-laws to the
-----------
Certificate shall be deemed to refer to the Amended and Restated Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
SECTION 8. Amendment of By-laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
----------------------
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
-------------------------
at any Annual Meeting, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least 66 2/3% of the shares present in
person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class; provided, however, that
if the Board of Directors recommends that stockholders approve such amendment or
repeal at such meeting of stockholders, such amendment or repeal shall only
require the affirmative vote of the majority of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class. Notwithstanding the foregoing,
stockholder approval shall not be required unless mandated by the Certificate,
these By-laws, or other applicable law.
Adopted __________________, 2000 and effective as of ___________, 2000.
18
<PAGE>
Exhibit 10.1
FORM OF
C-QUENTIAL, INC.
2000 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the _____________________ 2000 Stock Option and
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Independent Directors and other key persons (including
consultants) of _____________________ (the "Company") and its Subsidiaries upon
whose judgment, initiative and efforts the Company largely depends for the
successful conduct of its business to acquire a proprietary interest in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock
Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 17.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Covered Employee" means an employee who is a "Covered Employee" within
the meaning of Section 162(m) of the Code.
<PAGE>
"Deferred Stock Award" means Awards granted pursuant to Section 8.
"Dividend Equivalent Right" means Awards granted pursuant to Section
12.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 19.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Fair Market Value" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that if the Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), NASDAQ
National System or a national securities exchange, the determination shall be
made by reference to market quotations. If there are no market quotations for
such date, the determination shall be made by reference to the last date
preceding such date for which there are market quotations[; provided further,
however, that if the date for which Fair Market Value is determined is the first
day when trading prices for the Stock are reported on NASDAQ or on a national
securities exchange, the Fair Market Value shall be the "Price to the Public"
(or equivalent) set forth on the cover page for the final prospectus relating to
the Company's Initial Public Offering].
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
["Initial Public Offering" means the consummation of the first fully
underwritten, firm commitment public offering pursuant to an effective
registration statement under the Act, other than on Forms S-4 or S-8 or their
then equivalents, covering the offer and sale by the Company of its equity
securities, or such other event as a result of or following which the Stock
shall be publicly held.]
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 10.
"Performance Cycle" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or
2
<PAGE>
more performance criteria will be measured for the purpose of determining a
grantee's right to and the payment of a Performance Share Award, Restricted
Stock Award or Deferred Stock Award.
"Restricted Stock Award" means Awards granted pursuant to Section 7.
"Stock" means the Common Stock, par value $___ per share, of the
Company, subject to adjustments pursuant to Section 3.
"Stock Appreciation Right" means any Award granted pursuant to Section
6.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section
9.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES
------------------------------------------------------------------
AND DETERMINE AWARDS
--------------------
(a) Committee. The Plan shall be administered by either the Board or a
---------
committee of not less than two Independent Directors (in either case, the
"Administrator")./1/
(b) Powers of Administrator. The Administrator shall have the power
-----------------------
and authority to grant Awards consistent with the terms of the Plan, including
the power and authority:
(i) to select the individuals to whom Awards may from time to
time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights,
- -----------------
/1/ It is always preferable for the plan to be administered by the
Committee rather than by the Board. To avoid the $1 million cap on compensation
deduction imposed by Section 162(m) of the Code with respect to the top five
executives, option grants must be made by a Committee of outside directors. If
the plan is to be administered by the Committee rather than the Board, then for
Section 16 purposes, the members of the Committee should also be "non-employee
directors" within the meaning of Rule 16b-3(b)(3)(i). While the plan no longer
requires that a member of the Committee must qualify as a "non-employee
director" under Rule 16b-3(b)(3)(i) and an outside director under Section 162(m)
of the Code, we should always advise the client to meet these requirements
operationally. The reason that we have dropped the plan provisions is the
concern that if the Committee is not comprised of the right directors, an
argument can be made that the awards have not been validly granted.
3
<PAGE>
Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights, or any
combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered
by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and grantees, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend
at any time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and
under what circumstances distribution or the receipt of Stock and other
amounts payable with respect to an Award shall be deferred either
automatically or at the election of the grantee and whether and to what
extent the Company shall pay or credit amounts constituting interest
(at rates determined by the Administrator) or dividends or deemed
dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards./2/ The Administrator, in
------------------------------------------
its discretion, may delegate to the Chief Executive Officer of the Company all
or part of the Administrator's authority and duties with respect to the granting
of Awards at Fair Market Value, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Exchange Act or "covered
employees" within the meaning of Section 162(m) of the Code.
- -------------------
/2/ Check the applicable state business code to determine whether it is
appropriate to delegate authority to issue stock to the CEO. If client is a
Massachusetts corporation, it is advisable to set forth in the corporate vote
that the CEO is a committee of the Board. The corporate vote should also place
limitations on the CEO's authority to grant awards.
4
<PAGE>
Any such delegation by the Administrator shall include a limitation as to the
amount of Awards that may be granted during the period of the delegation and
shall contain guidelines as to the determination of the exercise price of any
Stock Option or Stock Appreciation Right, the conversion ratio or price of other
Awards and the vesting criteria. The Administrator may revoke or amend the terms
of a delegation at any time but such action shall not invalidate any prior
actions of the Administrator's delegate or delegates that were consistent with
the terms of the Plan.
(d) Indemnification. Neither the Board nor the Committee, nor any
---------------
member of either or any delegatee thereof, shall be liable for any act,
omission, interpretation, construction or determination made in good faith in
connection with the Plan, and the members of the Board and the Committee (and
any delegatee thereof) shall be entitled in all cases to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or expense
(including, without limitation, reasonable attorneys' fees) arising or resulting
therefrom to the fullest extent permitted by law and/or under any directors' and
officers' liability insurance coverage which may be in effect from time to time.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved
--------------
and available for issuance under the Plan shall be _________ shares, subject to
adjustment as provided in Section 3(b) [; provided that not more than [ ] shares
shall be issued in the form of Unrestricted Stock Awards, Restricted Stock
Awards, or Performance Share Awards except to the extent such Awards are granted
in lieu of cash compensation or fees.]/3/ For purposes of this limitation, the
shares of Stock underlying any Awards which are forfeited, canceled, reacquired
by the Company, satisfied without the issuance of Stock or otherwise terminated
(other than by exercise) shall be added back to the shares of Stock available
for issuance under the Plan. Subject to such overall limitation, shares of Stock
may be issued up to such maximum number pursuant to any type or types of Award;
provided, however, that Stock Options or Stock Appreciation Rights with respect
to no more than _____ shares of Stock may be granted to any one individual
grantee during any one calendar year period./4/ The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company and held in its treasury.
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result
----------------
of any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in the Company's capital
stock, the outstanding shares of Stock are increased or decreased or are
exchanged for a different number or kind of shares or other
- --------------
/3/ This provision is optional and is often used to placate institutional
shareholders who wish to limit the use of stock grants other than options.
/4/ This limitation is imposed so that stock options can qualify as
performance-based compensation under Section 162(m) of the Code and therefore
avoid the $1 million cap on compensation deduction for the top five executives.
5
<PAGE>
securities of the Company, or additional shares or new or different shares or
other securities of the Company or other non-cash assets are distributed with
respect to such shares of Stock or other securities, or, if, as a result of any
merger or consolidation, sale of all or substantially all of the assets of the
Company, the outstanding shares of Stock are converted into or exchanged for a
different number or kind of securities of the Company or any successor entity
(or a parent or subsidiary thereof), the Administrator shall make an appropriate
or proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, [including the maximum number of shares that may be
issued in the form of Unrestricted Stock Awards, Restricted Stock Awards or
Performance Share Awards,] (ii) the number of Stock Options or Stock
Appreciation Rights that can be granted to any one individual grantee and the
maximum number of shares that may be granted under a Performance-based Award,
(iii) the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, (iv) the repurchase price per share subject
to each outstanding Restricted Stock Award, and (v) the price for each share
subject to any then outstanding Stock Options and Stock Appreciation Rights
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options and Stock Appreciation
Rights) as to which such Stock Options and Stock Appreciation Rights remain
exercisable. The adjustment by the Administrator shall be final, binding and
conclusive. No fractional shares of Stock shall be issued under the Plan
resulting from any such adjustment, but the Administrator in its discretion may
make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the grantee, if it would constitute a modification, extension or
renewal of the Option within the meaning of Section 424(h) of the Code.
(c) Mergers and Other Transactions. In the case of and subject to the
------------------------------
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the outstanding shares of Stock are converted into or
exchanged for a different kind of securities of the successor entity and the
holders of the Company's outstanding voting power immediately prior to such
transaction do not own a majority of the outstanding voting power of the
successor entity immediately upon completion of such transaction, or (iv) the
sale of all of the Stock of the Company to an unrelated person or entity (in
each case, a "Sale Event"), all Options and Stock Appreciation Rights that are
not exercisable immediately prior to the effective time of the Sale Event shall
become fully exercisable as of the effective time of the Sale Event and all
other Awards with conditions and restrictions relating solely to the passage of
time and continued employment shall become fully vested and nonforfeitable as of
the effective time of the Sale Event, except
6
<PAGE>
as the Administrator may otherwise specify with respect to particular Awards./5/
Upon the effective time of the Sale Event, the Plan and all outstanding Awards
granted hereunder shall terminate, unless provision is made in connection with
the Sale Event in the sole discretion of the parties thereto for the assumption
or continuation of Awards theretofore granted by the successor entity, or the
substitution of such Awards with new Awards of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise prices, as such parties shall agree (after
taking into account any acceleration hereunder). In the event of such
termination, each grantee shall be permitted, within a specified period of time
prior to the consummation of the Sale Event as determined by the Administrator,
to exercise all outstanding Options and Stock Appreciation Rights held by such
grantee, including those that will become exercisable upon the consummation of
the Sale Event; provided, however, that the exercise of Options and Stock
Appreciation Rights not exercisable prior to the Sale Event shall be subject to
the consummation of the Sale Event.
Notwithstanding anything to the contrary in this Section 3.2(c), in the
event of a Sale Event pursuant to which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the Sale Event, the Company shall have the right, but not the obligation, to
make or provide for a cash payment to the grantees holding Options and Stock
Appreciation Rights, in exchange for the cancellation thereof, in an amount
equal to the difference between (A) the value as determined by the Administrator
of the consideration payable per share of Stock pursuant to the Sale Event (the
"Sale Price") times the number of shares of Stock subject to outstanding Options
and Stock Appreciation Rights (to the extent then exercisable at prices not in
excess of the Sale Price) and (B) the aggregate exercise price of all such
outstanding Options and Stock Appreciation Rights.
Alternate Provision:
(c) Mergers and Other Transactions./6/ Notwithstanding any other
----------------------------------
provisions of the Plan, in the event that a transaction occurs that results in
the Stock not being registered under Section 12 of the Exchange Act, all Awards
shall terminate upon the completion of the transaction. If the transaction is
intended to be treated as a pooling of interests for accounting purposes, the
Board shall cause the acquiring or surviving corporation or one of its
affiliates to grant replacement Awards to the grantees. In all other
transactions, the Board may either arrange for replacement Awards, accelerate
the exercisability and vesting of all outstanding Awards (subject to
consummation of the transaction) or terminate all Awards in exchange for payment
in cash or in kind.
(d) Substitute Awards. The Administrator may grant Awards under the
-----------------
Plan in substitution for stock and stock based awards held by employees,
directors or other key
- -------------------
/5/ Should be discussed with clients. Some clients do not want to provide
for full vesting even if Company is sold.
/6/ This is a simplified version of Section 3(c). It does not provide for
automatic full vesting of outstanding Awards.
7
<PAGE>
persons of another corporation in connection with the merger or consolidation of
the employing corporation with the Company or a Subsidiary or the acquisition by
the Company or a Subsidiary of property or stock of the employing corporation.
The Administrator may direct that the substitute awards be granted on such terms
and conditions as the Administrator considers appropriate in the circumstances.
Any substitute Awards granted under the Plan shall not count against the share
limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
-----------
Grantees under the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons (including consultants
and prospective employees) of the Company and its Subsidiaries as are selected
from time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS/7/
----------------
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non- Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after
_______, 200__ [(10 years from the date plan is approved by Board of
Directors)].
(a) Stock Options Granted to Employees and Key Persons. The
--------------------------------------------------
Administrator in its discretion may grant Stock Options to eligible employees
and key persons of the Company or any Subsidiary. Stock Options granted pursuant
to this Section 5(a) shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Administrator shall deem desirable. If the
Administrator so determines, Stock Options may be granted in lieu of cash
compensation at the optionee's election, subject to such terms and conditions as
the Administrator may establish.
(i) Exercise Price. The exercise price per share for the Stock
--------------
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but shall not
be less than 100 percent of the Fair Market Value on the date of grant
in the case of Incentive Stock Options, or 85 percent
- --------------
/7/ Stock options are subject to fixed accounting and therefore do not
result in charges to earnings so long as they are granted at fair market value
and there is no performance-based vesting.
8
<PAGE>
of the Fair Market Value on the date of grant,/8/ in the case of
Non-Qualified Stock Options (other than options granted in lieu of cash
compensation). If an employee owns or is deemed to own (by reason of
the attribution rules of Section 424(d) of the Code) more than 10
percent of the combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation and an Incentive Stock
Option is granted to such employee, the option price of such Incentive
Stock Option shall be not less than 110 percent of the Fair Market
Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed
-----------
by the Administrator, but no Stock Option shall be exercisable more
than 10 years after the date the Stock Option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10 percent of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to such
employee, the term of such Stock Option shall be no more than five
years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options
---------------------------------------
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date. The Administrator may at any time accelerate the
exercisability of all or any portion of any Stock Option. An optionee
shall have the rights of a stockholder only as to shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in
------------------
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods to
the extent provided in the Option Award agreement:
(A) In cash, by certified or bank check or other
instrument acceptable to the Administrator;
(B) Through the delivery (or attestation to the
ownership) of shares of Stock that have been purchased by the
optionee on the open market or that have been beneficially owned
by the optionee for at least six months and are not then subject
to restrictions under any Company plan./9/ Such surrendered
shares shall be valued at Fair Market Value on the exercise date;
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly
- -------------
/8/ Discount options result in accounting charges. Institutional
shareholders generally do not approve of discount options. Additionally, to
avoid the $1 million cap on compensation deduction imposed by Section 162(m) of
the Code with respect to the top five executives, option grants must be at fair
market value.
/9/ This six-month rule is required to avoid negative accounting
implications.
9
<PAGE>
deliver to the Company cash or a check payable and acceptable to the
Company for the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee and the
broker shall comply with such procedures and enter into such agreements
of indemnity and other agreements as the Administrator shall prescribe
as a condition of such payment procedure; or
(D) By the optionee delivering to the Company a promissory note
if the Board has expressly authorized the loan of funds to the optionee
for the purpose of enabling or assisting the optionee to effect the
exercise of his Stock Option; provided that at least so much of the
exercise price as represents the par value of the Stock shall be paid
other than with a promissory note if otherwise required by state law.10
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Option Award agreement or applicable provisions of laws. In the event
an optionee chooses to pay the purchase price by previously-owned shares of
Stock through the attestation method, the number of shares of Stock
transferred to the optionee upon the exercise of the Stock Option shall be
net of the number of shares attested to.
(v) Annual Limit on Incentive Stock Options. To the extent required
---------------------------------------
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000. To the extent that any Stock
Option exceeds this limit, it shall constitute a Non-Qualified Stock
Option.
(b) Reload Options. At the discretion of the Administrator, Options
--------------
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the sum of (i) the number delivered to exercise the original Option and (ii)
the number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original
- --------------
/10/ This provision should not be used without further consideration of the
legal implications, including tax consequences, Regulation U, Truth-in-Lending
and state corporate law.
10
<PAGE>
Option term unless the Administrator otherwise determines in the Award agreement
for the original Option grant.
(c) Stock Options Granted to Independent Directors.
----------------------------------------------
(i) Automatic Grant of Options.
--------------------------
[(A) Each person who is an Independent Director on the
effective date of the Initial Public Offering shall be granted a
Non-Qualified Stock Option to acquire _______ shares of Stock.
(B) Each Independent Director who is first elected to serve
as a Director after the Initial Public Offering shall be granted,
on the fifth business day after his election, a Non-Qualified
Stock Option to acquire _____ shares of Stock.]
(Note: Delete A and B if plan is not adopted in connection with
IPO.)
(C) Each Independent Director who is serving as Director of
the Company on the fifth business day after each annual meeting
of shareholders, beginning with the 19__ annual meeting, shall
automatically be granted on such day a Non-Qualified Stock Option
to acquire _____ shares of Stock.
(D) The exercise price per share for the Stock covered by a
Stock Option granted under this Section 5(c) shall be equal to
the Fair Market Value of the Stock on the date the Stock Option
is granted.
(E) The Administrator, in its discretion, may grant
additional Non- Qualified Stock Options to Independent Directors.
Any such grant may vary among individual Independent Directors.
(ii) Exercise; Termination.
---------------------
(A) Unless otherwise determined by the Administrator, an
Option granted under Section 5(c) shall be [exercisable in full
as of the grant date] [or exercisable after the ___ anniversary
of the grant date]. An Option issued under this Section 5(c)
shall not be exercisable after the expiration of ten years from
the date of grant.
(B) Options granted under this Section 5(c) may be
exercised only by written notice to the Company specifying the
number of shares to be purchased. Payment of the full purchase
price of the shares to be purchased may be made by one or more of
the methods specified in Section 5(a)(iv). An optionee shall
11
<PAGE>
have the rights of a stockholder only as to shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock
Options.
(d) Non-transferability of Options. No Stock Option shall be
------------------------------
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee, or by the optionee's legal
representative or guardian in the event of the optionee's incapacity.
Notwithstanding the foregoing, the Administrator, in its sole discretion, may
provide in the Award agreement regarding a given Option that the optionee may
transfer his Non-Qualified Stock Options to members of his immediate family, to
trusts for the benefit of such family members, or to partnerships in which such
family members are the only partners, provided that the transferee agrees in
writing with the Company to be bound by all of the terms and conditions of this
Plan and the applicable Option.
SECTION 6. STOCK APPRECIATION RIGHTS./11/
-------------------------
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right
-----------------------------------
is an Award entitling the recipient to receive an amount in cash or shares of
Stock or a combination thereof having a value equal to the excess of the Fair
Market Value of the Stock on the date of exercise over the exercise price Stock
Appreciation Right, which price shall not be less than [85 percent] [100
percent] of the Fair Market Value of the Stock on the date of grant (or more
than the option exercise price per share, if the Stock Appreciation Right was
granted in tandem with a Stock Option) multiplied by the number of shares of
Stock with respect to which the Stock Appreciation Right shall have been
exercised, with the Administrator having the right to determine the form of
payment.
(b) Grant and Exercise of Stock Appreciation Rights. Stock
-----------------------------------------------
Appreciation Rights may be granted by the Administrator in tandem with, or
independently of, any Stock Option granted pursuant to Section 5 of the Plan. In
the case of a Stock Appreciation Right granted in tandem with a Non-Qualified
Stock Option, such Stock Appreciation Right may be granted either at or after
the time of the grant of such Option. In the case of a Stock Appreciation Right
granted in tandem with an Incentive Stock Option, such Stock Appreciation Right
may be granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in
tandem with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock
-------------------------------------------------
Appreciation Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Administrator, subject to the following:
_______________________
/11/ Stock appreciation rights are subject to variable accounting and result
in charges to earnings which must be periodically adjusted.
12
<PAGE>
(i) Stock Appreciation Rights granted in tandem with Options
shall be exercisable at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the applicable
portion of any related Option shall be surrendered.
(iii) All Stock Appreciation Rights shall be exercisable
during the grantee's lifetime only by the grantee or the grantee's
legal representative.
SECTION 7. RESTRICTED STOCK AWARDS/12/
-----------------------
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
---------------------------------
Award entitling the recipient to acquire, at such purchase price as determined
by the Administrator, shares of Stock subject to such restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other service
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Restricted Stock Award is contingent on the grantee
executing the Restricted Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon execution of a written instrument
-----------------------
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a grantee shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 7(d) below, and the grantee shall be required,
as a condition of the grant, to deliver to the Company a stock power endorsed in
blank.
(c) Restrictions. Restricted Stock may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement. If a
grantee's employment (or other service relationship) with the Company and its
Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the grantee or the grantee's legal
representative.
_______________________
/12/ Restricted stock awards with time-based vesting are subject to fixed
accounting and therefore the earnings charges are fixed as the time of grant.
Restricted stock awards with performance-based vesting are subject to variable
accounting and the earnings charges must be periodically adjusted to reflect the
change in stock prices.
13
<PAGE>
(d) Vesting of Restricted Stock. The Administrator at the time of
---------------------------
grant shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the non-
transferability of the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be deemed "vested." Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a grantee's rights in any shares of
Restricted Stock that have not vested shall automatically terminate upon the
grantee's termination of employment (or other service relationship) with the
Company and its Subsidiaries and such shares shall be subject to the Company's
right of repurchase as provided in Section 7(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted
----------------------------------------------
Stock Award agreement may require or permit the immediate payment, waiver,
deferral or investment of dividends paid on the Restricted Stock.
SECTION 8. DEFERRED STOCK AWARDS
---------------------
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an
-------------------------------
Award of phantom stock units to a grantee, subject to restrictions and
conditions as the Administrator may determine at the time of grant. Conditions
may be based on continuing employment (or other service relationship) and/or
achievement of pre-established performance goals and objectives. The grant of a
Deferred Stock Award is contingent on the grantee executing the Deferred Stock
Award agreement. The terms and conditions of each such agreement shall be
determined by the Administrator, and such terms and conditions may differ among
individual Awards and grantees. At the end of the deferral period, the Deferred
Stock Award, to the extent vested, shall be paid to the grantee in the form of
shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of
----------------------------------------------------
Compensation. The Administrator may, in its sole discretion, permit a grantee to
- ------------
elect to receive a portion of the cash compensation or Restricted Stock Award
otherwise due to such grantee in the form of a Deferred Stock Award. Any such
election shall be made in writing and shall be delivered to the Company no later
than the date specified by the Administrator and in accordance with rules and
procedures established by the Administrator. The Administrator shall have the
sole right to determine whether and under what circumstances to permit such
elections and to impose such limitations and other terms and conditions thereon
as the Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a grantee
-----------------------
shall have no rights as a stockholder; provided, however, that the grantee may
be credited with Dividend Equivalent Rights with respect to the phantom stock
units underlying his Deferred Stock Award, subject to such terms and conditions
as the Administrator may determine.
14
<PAGE>
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Termination. Except as may otherwise be provided by the
-----------
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a grantee's right in all Deferred
Stock Awards that have not vested shall automatically terminate upon the
grantee's termination of employment (or cessation of service relationship) with
the Company and its Subsidiaries for any reason.
SECTION 9. UNRESTRICTED STOCK AWARDS/13/
-------------------------
Grant or Sale of Unrestricted Stock. The Administrator may, in its sole
-----------------------------------
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any grantee pursuant to
which such grantee may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
in respect of past services or other valid consideration, or in lieu of cash
compensation due to such grantee.
SECTION 10. PERFORMANCE SHARE AWARDS
------------------------
(a) Nature of Performance Share Awards./14/ A Performance Share Award
----------------------------------
is an Award entitling the recipient to acquire shares of Stock upon the
attainment of specified performance goals. The Administrator may make
Performance Share Awards independent of or in connection with the granting of
any other Award under the Plan. The Administrator in its sole discretion shall
determine whether and to whom Performance Share Awards shall be made, the
performance goals, the periods during which performance is to be measured, and
all other limitations and conditions.
(b) Rights as a Stockholder. A grantee receiving a Performance Share
-----------------------
Award shall have the rights of a stockholder only as to shares actually received
by the grantee under the Plan and not with respect to shares subject to the
Award but not actually received by the grantee. A grantee shall be entitled to
receive a stock certificate evidencing the acquisition of shares of Stock under
a Performance Share Award only upon satisfaction of all conditions specified in
the Performance Share Award agreement (or in a performance plan adopted by the
Administrator).
(c) Termination. Except as may otherwise be provided by the
-----------
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a grantee's rights in all
Performance Share Awards shall automatically terminate
_______________________
/13/ Fixed accounting applies to unrestricted stock awards. The charge to
earnings is equal to the value of the stock at the time of grant.
/14/ Variable accounting applies to performance share awards and the charge
to earnings is determined when the performance goals are met.
15
<PAGE>
upon the grantee's termination of employment (or cessation of service
relationship) with the Company and its Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc. At any time prior to the grantee's
-------------------------
termination of employment (or other service relationship) by the Company and its
Subsidiaries, the Administrator may in its sole discretion accelerate, waive or,
subject to Section 15, amend any or all of the goals, restrictions or conditions
applicable to a Performance Share Award.
SECTION 11. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES15
---------------------------------------------
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code and the regulations promulgated thereunder (a
"Performance-based Award"), such Award shall comply with the provisions set
forth below:
(a) Performance Criteria. The performance criteria used in
--------------------
performance goals governing Performance-based Awards granted to Covered
Employees may include any or all of the following: (i) the Company's return on
equity, assets, capital or investment, (ii) pre-tax or after-tax profit levels
of the Company or any Subsidiary, a division, an operating unit or a business
segment of the Company, or any combination of the foregoing; (iii) cash flow,
funds from operations or similar measure; (iv) total shareholder return; (v)
changes in the market price of the Stock; (vi) sales or market share; or (vii)
earnings per share.
(b) Grant of Performance-based Awards. With respect to each
---------------------------------
Performance-based Award granted to a Covered Employee, the Committee shall
select, within the first 90 days of a Performance Cycle (or, if shorter, within
the maximum period allowed under Section 162(m) of the Code) the performance
criteria for such grant, and the achievement targets with respect to each
performance criterion (including a threshold level of performance below which no
amount will become payable with respect to such Award). Each Performance-based
Award will specify the amount payable, or the formula for determining the amount
payable, upon achievement of the various applicable performance targets. The
performance criteria established by the Committee may be (but need not be)
different for each Performance Cycle and different goals may be applicable to
Performance-based Awards to different Covered Employees.
(c) Payment of Performance-based Awards. Following the completion of
-----------------------------------
a Performance Cycle, the Committee shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for
_______________________
/15/ This Section 11 is included to ensure that any award that is tied to
performance factors qualifies as "performance-based" compensation under Section
162(m) of the Code. The performance criteria should be modified after discussion
with the client.
16
<PAGE>
the Performance Cycle. The Committee shall then determine the actual size of
each Covered Employee's Performance-based Award, and, in doing so, may reduce or
eliminate the amount of the Performance-based Award for a Covered Employee if,
in its sole judgment, such reduction or elimination is appropriate.
(d) Maximum Award Payable. The maximum Performance-based Award
---------------------
payable to any one Covered Employee under the Plan for a Performance Cycle is
_______ Shares (subject to adjustment as provided in Section 3(b) hereof).
SECTION 12. DIVIDEND EQUIVALENT RIGHTS/16/
--------------------------
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an
--------------------------
Award entitling the grantee to receive credits based on cash dividends that
would have been paid on the shares of Stock specified in the Dividend Equivalent
Right (or other award to which it relates) if such shares had been issued to and
held by the grantee. A Dividend Equivalent Right may be granted hereunder to any
grantee as a component of another Award or as a freestanding award. The terms
and conditions of Dividend Equivalent Rights shall be specified in the Award
agreement. Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional
shares of Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if any. Dividend Equivalent Rights may be settled in cash or shares
of Stock or a combination thereof, in a single installment or installments. A
Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement,
or payment of, or lapse of restrictions on, such other award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled
--------------------
in whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
(c) Termination. Except as may otherwise be provided by the
-----------
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a grantee's rights in all Dividend
Equivalent Rights or interest equivalents shall automatically terminate upon the
grantee's termination of employment (or cessation of service relationship) with
the Company and its Subsidiaries for any reason.
_______________________
/16/ Dividend equivalent rights result in charges to earnings.
17
<PAGE>
SECTION 13. TAX WITHHOLDING
---------------
(a) Payment by Grantee. Each grantee shall, no later than the date as
------------------
of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the grantee for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the grantee. The Company's obligation to deliver stock certificates to
any grantee is subject to and conditioned on tax obligations being satisfied by
the grantee.
(b) Payment in Stock. Subject to approval by the Administrator, a
----------------
grantee may elect to have the minimum required tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Stock to be issued pursuant to any Award a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Stock owned by the grantee with an aggregate Fair Market Value (as of
the date the withholding is effected) that would satisfy the withholding amount
due.
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code[ or to ensure that compensation
earned under Awards qualifies as performance-based compensation under Section
162(m) of the
18
<PAGE>
Code]/17/, if and to the extent intended to so qualify, Plan amendments shall be
subject to approval by the Company stockholders entitled to vote at a meeting of
stockholders. Nothing in this Section 15 shall limit the Administrator's
authority to take any action permitted pursuant to Section 3(c).
SECTION 16. STATUS OF PLAN
--------------
With respect to the portion of any Award that has not been exercised
and any payments in cash, Stock or other consideration not received by a
grantee, a grantee shall have no rights greater than those of a general creditor
of the Company unless the Administrator shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Administrator
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 17. CHANGE OF CONTROL PROVISIONS/18/
----------------------------
Upon the occurrence of a Change of Control as defined in this Section
17:
(a) Except as otherwise provided in the applicable Award agreement,
each outstanding Stock Option and Stock Appreciation Right shall automatically
become fully exercisable.
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award, Deferred
Stock Award and Performance Share Award which relate solely to the passage of
time and continued employment will be removed. Performance or other conditions
(other than conditions and restrictions relating solely to the passage of time
and continued employment) will continue to apply unless otherwise provided in
the applicable Award agreement.
_______________________
/17/ Include the clause in parentheses only if awards granted under the
plan are designed to qualify as performance-based compensation under Section
162(m) of the Code.
/18/ This Section 17 as well as Section 3(c) should be modified or deleted
after discussion with client. Client may not wish to provide across the board
full vesting or full vesting at all. In some instances, client may wish to
provide for full vesting only if Company is sold, but not as a result of events
described in Section 17(c)(i) or (ii). In addition, definition of "change of
control" may need to be modified. Client should be informed that the pooling of
interest accounting rules do not permit discretionary acceleration of vesting
upon a Change of Control. Automatic acceleration of vesting will not affect
pooling if plan provision has been in place for at least two years.
19
<PAGE>
(c) "Change of Control" shall mean the occurrence of any one of the
following events :
(i) any "Person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, or
any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing [25] percent or more of the combined voting power of the
Company's then outstanding securities having the right to vote in an
election of the Company's Board of Directors ("Voting Securities") (in
such case other than as a result of an acquisition of securities
directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to the Effective Date shall be considered an
Incumbent Director if such person's election was approved by or such
person was nominated for election by either (A) a vote of at least a
majority of the Incumbent Directors or (B) a vote of at least a
majority of the Incumbent Directors who are members of a nominating
committee comprised, in the majority, of Incumbent Directors; but
provided further, that any such person whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of members of the Board of Directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened
contest or solicitation, shall not be considered an Incumbent Director;
or
(iii) the approval by the stockholders of the Company of a
consolidation, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (a "Corporate
Transaction") or if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent
of any government or governmental agency, obtaining of such consent
(either explicitly or implicitly by consummation); excluding , however,
a Corporate Transaction in which the stockholders of the Company
immediately prior to the Corporate Transaction, would, immediately
after the Corporate Transaction, beneficially own (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, shares
representing in the aggregate more than [50] percent of the voting
shares of the corporation issuing cash or securities in the Corporate
Transaction (or of its ultimate parent corporation, if any); or
20
<PAGE>
(iv) the approval by the stockholders of any plan or proposal
for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Voting Securities outstanding, increases the proportionate
number of shares of Voting Securities beneficially owned by any person to [25]
percent or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any person referred to in this sentence
-------- -------
shall thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company) and immediately thereafter beneficially owns [25] percent or more of
the combined voting power of all then outstanding Voting Securities, then a
"Change of Control" shall be deemed to have occurred for purposes of the
foregoing clause (i).
SECTION 18. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The
---------------------------------------------------
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees
------------------------------
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the grantee, at the grantee's last known
address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards
---------------------------
under the Plan shall be subject to such Company's insider trading policy, as in
effect from time to time.
21
<PAGE>
(e) Loans to Grantees. The Company shall have the authority to make
-----------------
loans to grantees of Awards hereunder (including to facilitate the purchase of
shares) and shall further have the authority to issue shares for promissory
notes hereunder.
(f) Designation of Beneficiary. Each grantee to whom an Award has
--------------------------
been made under the Plan may designate a beneficiary or beneficiaries to
exercise any Award or receive any payment under any Award payable on or after
the grantee's death. Any such designation shall be on a form provided for that
purpose by the Administrator and shall not be effective until received by the
Administrator. If no beneficiary has been designated by a deceased grantee, or
if the designated beneficiaries have predeceased the grantee, the beneficiary
shall be the grantee's estate.
SECTION 19. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present. Subject to such approval by the stockholders and to the requirement
that no Stock may be issued hereunder prior to such approval, Stock Options and
other Awards may be granted hereunder on and after adoption of this Plan by the
Board./19/
SECTION 20. GOVERNING LAW
-------------
This Plan and all Awards and actions taken thereunder shall be governed
by, and construed in accordance with, the laws of the State of _____________,
applied without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS:
DATE APPROVED BY STOCKHOLDERS:
DOCSC\63218.2
______________________
/19/ There may be negative accounting implications if grants are made
contingent on stockholder approval.
22
<PAGE>
EXHIBIT 10.3
FORM OF CORPORATE SERVICES AGREEMENT
------------------------------------
This Agreement is dated as of ________, 2000, between Arthur D. Little,
Inc., a Massachusetts corporation ("Parent"), and c-quential, Inc., a Delaware
corporation ("Sub").
WHEREAS, Parent, Sub and certain Affiliates of Parent and Sub have entered
into a Reorganization Agreement dated as of ___________, 2000 (the
"Reorganization Agreement") pursuant to which Parent, together with the other
members of the Parent Group, is assigning and transferring to Sub and the other
members of the Sub Group certain assets associated with the Sub Business in
exchange for the assumption by Sub and the other members of the Sub Group of
certain liabilities and obligations associated with such Sub Business and the
issuance by Sub to Arthur D. Little, International, Inc., a Delaware corporation
and the parent of Sub, the shares of the capital stock of Sub on such terms and
conditions as are contained therein; and
WHEREAS, the Reorganization Agreement provides that Parent and Sub shall
enter into an agreement relating to certain transition services to be provided
by the parties to the other parties and the members of their Group with respect
to the Sub Business after the Effective Date as well as certain other
arrangements, and this Agreement is entered into in order to fulfill that
provision.
NOW, THEREFORE, in consideration of the foregoing and the other agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
-----------
Section 1.1 Defined Terms. For purposes of this Agreement, the following
-------------
terms shall have the following meanings:
"Additional Services" shall mean Additional Sub Services and Additional
Parent Services, collectively.
"Additional Parent Services" shall have the meaning set forth in Section
2.2 hereof.
"Additional Sub Services" shall have the meaning set forth in Section 2.2
hereof.
"Ancillary Agreements" shall have the meaning given to such term in the
Reorganization Agreement.
"Cross-Consulting Services" shall have the meaning set forth in Section 5
hereof.
"Cross-Consulting Services Fee" shall mean, with respect to any specific
matter in which a party receives Cross-Consulting Services hereunder, an amount
which is equal to eighty-five
<PAGE>
percent (85%) of the gross professional service revenues received by the
recipient of such Cross-Consulting Services from a client in respect of such
matter.
"Effective Date" shall have the meaning given to such term in the
Reorganization Agreement.
"Group" shall have the meaning given to such term in the Reorganization
Agreement.
"Parent" shall mean Arthur D. Little, Inc., a Massachusetts corporation.
"Parent Group" shall have the meaning given to such term in the
Reorganization Agreement.
" Parent Services" shall mean the services set forth on Schedule A attached
----------
hereto from time to time.
"Provider" shall mean the provider of Services hereunder.
"Recipient" shall mean the recipient of any Services hereunder.
"Reorganization Agreement" shall have the meaning set forth in the
recitals.
"Services" shall mean the Parent Services and Sub Services, collectively.
"Sub" shall mean c-quential, Inc., a Delaware corporation.
"Sub Business" shall have the meaning given to such term in the
Reorganization Agreement.
"Sub Group" shall have the meaning given to such term in the Reorganization
Agreement.
"Sub Services" shall mean the services set forth on Schedule B attached
----------
hereto from time to time.
"Term" shall have the meaning set forth in Section 7.1 hereof.
Section 1.2 Capitalized Terms. All other capitalized terms used herein
-----------------
and not defined shall have the meanings given to them in the Reorganization
Agreement.
SECTION 2. SERVICES TO BE PROVIDED.
-----------------------
Section 2.1 Scope of Services.
-----------------
(a) During the Term of this Agreement, upon the written request
from time to time made by Sub, Parent agrees to provide, and agrees to
cause the members of the Parent Group to provide, to Sub and the members of
the Sub Group, and Sub agrees to purchase from Parent, on its behalf and on
behalf of the other members of the Sub Group, the Parent Services described
in Schedule A attached hereto, on the terms and conditions
----------
2
<PAGE>
set forth herein. Subject to the provisions of Section 7.2(b) hereof, Sub
may elect to discontinue any Parent Service at any time in accordance with
Section 7.2(a) hereof.
(b) During the Term of this Agreement, upon the written request from
time to time made by Parent, Sub agrees to provide, and agrees to cause the
members of the Sub Group to provide, to Parent and the members of the
Parent Group, and Parent agrees to purchase form Sub, on its behalf and on
behalf of the other members of the Parent Group, the Sub Services described
in Schedule B attached hereto, on the terms and conditions set forth
herein. Subject to the provision of Section 7.2 (b) hereof, Parent may
elect to discontinue any Sub Service at any time in accordance with section
7.2(a) hereof.
Section 2.2 Additional Services.
-------------------
(a) From time to time after the Effective Date, Sub may request that
Parent provide additional administrative and support services (the "Additional
Parent Services") to Sub until such time as Sub is able to otherwise contract
or arrange for such services.
(b) From time to time after the Effective Date, Parent may request
that Sub provide additional administrative and support services (the
"Additional Sub Services") to Parent until such time as Parent is able to
otherwise contract or arrange for such services.
(c) Upon a request for such Additional Services, Parent and Sub shall
negotiate in good faith as to the scope of such Additional Services and the
terms and conditions under which such Additional Services may be provided by
the Provider; provided that, unless otherwise agreed to by the parties, such
Additional Services will be provided only to the extent, and on a basis
comparable to that, provided by the Provider with respect to its own
operations. Any mutually agreed-upon Additional Services to be provided by a
Provider or another member of the Provider's Group will be added to the
applicable service schedule, and such Additional Services will be deemed to be
a "Parent Service" or "Sub Parent Service," as applicable, and a "Service" for
all purposes under this Agreement unless expressly stated otherwise in this
Agreement.
Section 2.3 Limitations on Services.
-----------------------
(a) Each Service furnished pursuant to this Agreement shall be in all
material respects equivalent to and limited to the same type, quality, quantity
and timeliness of such service that the Provider provides to its own
organization and personnel, and to those of the other members of the Provider's
Group. Each party acknowledges that the other may make changes from time to
time in the manner of performing the Services if such Provider is making similar
changes for itself, any member of its Group, or its respective business. Each
party further acknowledges that such Services will be performed by those
employees of such Provider who perform similar services for such Provider in the
normal course of their employment. Accordingly, except as otherwise agreed upon
by the parties, neither party shall be obligated to make available any
incremental Services to the extent that doing so would unreasonably interfere
with the performance of any employee of such party in connection with his or her
responsibilities to the other, require additional staff or otherwise cause an
unreasonable burden to the other, any member of the its Group, or their
respective business. Each party acknowledges and agrees that
3
<PAGE>
duly authorized agents of the other shall have the right to enter their premises
to the extent reasonably necessary or convenient to provide the Services.
(b) If a Provider ceases to provide any of the Services to its own
business units or if the level of such Services is reduced for any reason, such
Provider may also cease to provide or reduce the level of such Services provided
to the Recipient under this Agreement. Each party agrees to provide the other
as promptly as practicable notice of any substantial change in the level of such
Services provided under this Agreement, but in no event shall such Provider
provide less than ninety (90) days advance notice of such date of any Service
discontinuance.
(c) Neither party shall be required to provide any Service to the
extent the performance of such Service becomes "impracticable" as a result of a
cause or causes outside the reasonable control of such party, including
unfeasible technological requirements, or to the extent the performance of such
Services would require such party to violate any applicable laws, rules or
regulations or would result in the breach of any license, lease or other
applicable contract.
SECTION 3. CHARGES AND PAYMENTS.
--------------------
Section 3.1 Charges for Services. Except as specifically set forth on
--------------------
Schedule A and Schedule B attached hereto, it is the intention of the parties
hereto that the charges for Services to be provided pursuant to this Agreement
shall be determined and allocated according to methods consistent with past
practices and procedures observed by Parent and Sub prior to the Effective Date
concerning intercompany services and accounts, with a view in every case toward
providing the Provider with a reimbursement of fully allocated direct and
indirect costs of providing Services but without any profit to such Provider.
Charges for each Service shall be determined on a monthly basis. With
respect to any Services which are provided for a period which is less than a
full calendar month, or where the scope of such services is changed in
accordance with Section 2.3(b) during such period, the charges with respect to
such Service shall be appropriately pro-rated.
Section 3.2 Payments for Services.
---------------------
(a) As soon as practicable, but in no event more than fifteen (15)
days, following the last business day of a calendar month during which this
Agreement is in effect, Provider shall submit to Recipient a written invoice for
the aggregate amount to be charged to Recipient for Services rendered during the
month prior to the just completed month; provided, that each such invoice shall
--------
indicate the amount of charges being assessed for each Service provided and
shall include such documentation as is reasonably necessary to substantiate such
amounts. Recipient shall pay to Provider the invoiced amount within thirty (30)
days after receipt of an invoice.
(b) Whenever the provision of any Service pursuant to this Agreement
is terminated for any reason, Provider shall, as promptly as practicable, but in
no event more than fifteen (15) business days, after the termination of such
Service, submit to Recipient a written invoice for the aggregate amount still
owed to Provider with respect to such Service, together
4
<PAGE>
with such documentation as is reasonably necessary to substantiate such amounts.
Recipient shall pay to Provider the invoiced amount within thirty (30) days
after receipt of an invoice.
Section 3.3 Taxes or Other Governmental Charges. All federal, state and
-----------------------------------
local taxes, charges, fees and similar liabilities, except taxes based on
Provider's net income, which are levied on either party in connection with the
provision of any Services hereunder, shall be for Recipient's account and paid
directly by Provider or, if required to be paid by Recipient, shall be added to
the next invoice. Provider shall provide Recipient with evidence of the payment
of any such taxes by Provider with such invoice. Notwithstanding the foregoing,
the provisions of the Tax Allocation Agreement shall govern with respect to the
matters covered this Section 3.3.
Section 3.4 Out-Of-Pocket/Direct Expenses. To the extent it is not
-----------------------------
duplicative of Recipient's payment obligations set forth in Section 3.1 above,
Recipient agrees to pay directly or to reimburse Provider for all reasonable
out-of-pocket and direct expenses incurred by Provider in respect of the
provision of any Services, including, without limitation, all reasonable
expenses for outside accounting, legal, recruiting, consulting, marketing and
other professional services. All payments or reimbursements to be made under
this Section 3.4 by Recipient shall, except as otherwise provided herein, be
made not later than thirty (30) days following receipt by Recipient of an
invoice therefor.
Section 3.5 Performance under Other Agreements. Notwithstanding anything
----------------------------------
to the contrary contained herein, neither party shall be charged under this
Agreement for any obligations that are specifically required to be performed
under the Reorganization Agreement or any other Ancillary Agreement and any such
other obligations shall be performed and charged for (if applicable) in
accordance with the terms of the Reorganization Agreement or such other
Ancillary Agreement.
SECTION 4. INDEPENDENT CONTRACTOR STATUS.
-----------------------------
In carrying out the provisions of this Agreement, each party is and shall
be deemed to be for all purposes a separate and independent entity, and no
partnership, joint venture or other arrangement shall be deemed to have been
created hereunder. Provider shall select its employees and agents, and such
employees and agents shall be under the exclusive and complete supervision and
control of Provider. Provider hereby acknowledges responsibility for full
payment of wages and other compensation to all employees and agents engaged in
the performance of the Services hereunder. It is the express intent of this
Agreement that Provider shall render and perform the Services as an independent
contractor in accordance with its own standards, subject to its compliance with
the provisions of this Agreement.
SECTION 5. AGREEMENTS REGARDING CROSS-CONSULTING.
-------------------------------------
In addition to the other Services provided herein, Parent shall make
available to Sub, at the request of Sub, the services of Parent's management
consultants and other professionals, and Sub shall make available to Parent, at
the request of Parent, the services of Sub's management consultants and other
professionals (in either case, "Cross-Consulting Services"). The Cross-
Consulting Services shall be in all material respects limited to the type,
quality, quantity and timeliness of such services that the party providing such
Cross-Consulting Services provides on
5
<PAGE>
behalf of itself and the other members of its Group, and shall be limited as to
the general availability of the party (and its employees and consultants)
providing such Cross-Consulting Services. The recipient of such Cross-Consulting
Services shall pay the provider of such Cross Consulting Services, within thirty
(30) days of receipt of payment therefor from the client in respect of the
performance of such Cross-Consulting Services, the Cross-Consulting Services
Fee.
SECTION 6. LIMITED LIABILITY; INDEMNIFICATION.
----------------------------------
Section 6.1 Limited Liability. Neither party shall be liable to the other
-----------------
party for any special, indirect, incidental, exemplary or consequential damages,
or for loss of profits or revenues, whether arising in contract, tort (including
negligence), under any warranty or otherwise, arising out of its performance or
non-performance under this Agreement or the termination of this Agreement, even
if Parent or Sub, as the case may be, has been advised of the possibilities of
such damages.
Section 6.2 Disclaimer of Warranty. NEITHER PARENT NOR SUB MAKES ANY
----------------------
REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE SERVICES TO BE PROVIDED BY IT UNDER THIS AGREEMENT.
In the event the performance or non-performance of any Service to be provided
hereunder results in direct damages to the Recipient, Provider shall be liable
only to the extent such performance or non-performance was the result of
Provider's gross negligence or willful misconduct, and Provider's maximum,
cumulative and sole liability to Recipient for such direct damages shall be
limited to an amount up to the aggregate amount actually paid by the Recipient
to Provider for such Service up to the date of the performance or non-
performance giving rise to the direct damages. Recipient acknowledges that such
payment constitutes fair and reasonable compensation for any direct damages.
Notice of any claim for direct damages must be made within one (1) year of the
date of the event giving rise to such claim and such claim must specify the
damage amount claimed and a description of the Service and the act or omission
giving rise to the claim.
Section 6.3 Indemnification. Recipient, on its behalf and on behalf of
---------------
the other members of its Group, agrees to indemnify and hold harmless Provider
and the other members of its Group, and each of their respective directors,
officers, employees, agents, representatives, shareholders, transferees,
successors and assigns against any claims, actions, demands, judgments, losses,
costs, expenses, damages and liabilities (including reasonable attorneys' fees
and disbursements) related to or arising out of or connected with such Services,
regardless of the legal theory asserted. The foregoing indemnity applies to
claims, actions and demands for which Provider may be, or may be claimed to be,
partially or solely liable; provided that the foregoing indemnity will not apply
with respect to any claim for direct damages asserted by Recipient against
Provider as provided in Section 6.2 above.
SECTION 7. TERM OF AGREEMENT
Section 7.1 Term. This Agreement shall become effective on the Effective
----
Date and shall remain in effect until the earlier of (a) the discontinuance or
termination of all Services to
6
<PAGE>
be provided hereunder in accordance with the Section 7.2 of this Agreement and
(b) _______, 2003 (such period, the "Term"), unless earlier terminated by the
mutual agreement of the parties.
Section 7.2 Discontinuation or Termination of Services.
------------------------------------------
(a) A Recipient may discontinue its use of any such Service upon
written notice given to Provider of such Service not less than one hundred
eighty (180) days prior to the proposed date of Service discontinuance. In
addition, upon the occurrence and continuance of a breach or default by
either party in connection with the provision of, or payment for, any
Service hereunder for a period of ten (10) days after written notice
thereof has been given to the defaulting party, the non-defaulting party
may terminate such Service and shall have no further obligation to the
other party with respect thereto. Upon termination of this Agreement or
any Service to be provided hereunder, all unpaid fees with respect to
Services provided prior to the date of termination of this Agreement or
such Services, as applicable, shall be due and payable within thirty (30)
days of the date of termination. Notwithstanding any termination of this
Agreement or any Services to be provided hereunder, the provisions of
Sections 3, 5, 6 and 8 shall remain in effect indefinitely or until such
time as the obligations of both parties hereunder shall have been fully
discharged.
(b) Once a Service is discontinued or terminated in accordance
with the terms of this Agreement, Provider shall, upon the request of
Recipient, not again be obligated to later reinstate such Service;
provided, however, that to the extent Provider is thereafter requested to
-------- -------
provide any discontinued or terminated Service to Recipient, including any
transition-related assistance necessary for any other organization to
perform the discontinued or terminated Service, and Provider consents to
provide such Service, the obligation of Provider to provide such service
shall be subject to the limitations set forth in Section 2.3 hereof, and
Provider shall be entitled to compensation reflecting the actual costs
incurred by Provider with respect thereto consistent with the general
payment terms contained herein.
SECTION 8. MISCELLANEOUS.
-------------
Section 8.1 Force Majeure. Anything contained in this Agreement to the
-------------
contrary notwithstanding, Provider's performance of its duties and obligations
hereunder shall be excused to the extent that failure of performance is caused
by any act of force majeure, including, but not limited, to acts of God or the
public enemy, acts of the government in its sovereign capacity, fires, floods,
epidemics, quarantine restrictions, freight embargoes, strikes, unusually severe
weather, sabotage or any other or similar event or casualty beyond the
reasonable control of Provider; provided, however, that Recipient shall not be
--------- --------
obligated to pay Provider for such Services to the extent that Provider is
unable to perform as a result of a force majeure condition. Provider shall
promptly notify Recipient of such events and make every reasonable effort to
restore such Services. Notwithstanding the foregoing, Recipient shall be
responsible for making its own alternative arrangements with respect to
interrupted Services during the pendency of any force majeure condition.
7
<PAGE>
Section 8.2 Access to Information; Confidentiality. The provisions of
--------------------------------------
Section 8 of the Reorganization Agreement relating to the access to information
and confidentiality shall apply with respect to any information obtained or
learned by either party from the other party in connection with the parties'
performance of their respective obligations hereunder. This Section shall
survive the termination of this Agreement.
Section 8.3 Dispute Resolution. All disputes, controversies or claims
------------------
between Parent and Sub arising out of or relating to this Agreement, including,
without limitation, the breach, interpretation or validity of any term or
condition hereof, shall be resolved in accordance with the provisions of the
Reorganization Agreement relating to dispute resolution.
Section 8.4 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement, including Schedule A and Schedule B attached hereto, shall in any
---------- ----------
event be effective unless the same shall be in writing and signed by the parties
hereto. Any failure of any party to comply with any obligation, agreement or
condition hereunder may only be waived in writing by the other party but such
waiver shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. No failure by any party to take any action against
any breach of this Agreement or default by the other party shall constitute a
waiver of such party's right to enforce any provisions hereof or to take any
such action.
Section 8.5 Notices. Any notice to any party hereto given pursuant to
-------
this Agreement shall be in writing and shall be given by the means, and to the
addresses, set forth in the "Notices" section of the Reorganization Agreement.
Section 8.6 Successors and Assigns. This Agreement may not be assigned by
----------------------
either party without the prior written consent of the other party, and any
attempt to assign any rights or obligations hereunder without such consent shall
be void; provided, however, that either party may assign or transfer this
-------- -------
Agreement without the consent of the non-assigning party to an entity that
succeeds to all or substantially all of the business, assets or capital stock of
such party. This Agreement shall inure to the benefit of, and be binding upon
and enforceable against the respective successors and assigns of the parties
hereto.
Section 8.7 Entire Agreement; Parties in Interest. This Agreement
-------------------------------------
(including the Schedules hereto and the applicable provisions of the
Reorganization Agreement and other Ancillary Agreements) comprises the entire
agreement between the parties hereto as to the subject matter hereof and
supersedes all prior agreements and understandings between them relating thereto
and, except as provided in Section 6.3 above, is not intended to confer upon any
person other than the parties hereto (including their successors and permitted
assigns) any rights or remedies hereunder.
Section 8.8 Severability. If any term or provision of this Agreement or
------------
the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable shall not be affected thereby and each term
and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
8
<PAGE>
Section 8.9 Captions. Captions and headings are supplied herein for
--------
convenience only and shall not be deemed a part of this Agreement for any
purpose.
Section 8.10 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal substantive laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of laws
thereof.
Section 8.11 Counterparts. This Agreement may be executed in several
------------
counterparts, and all counterparts so executed shall constitute one agreement,
binding upon the parties hereto, notwithstanding that the parties are not
signatory to the same counterpart.
[Signature page follows next]
9
<PAGE>
IN WITNESS WHEREOF, Parent and Sub have caused this Agreement to be duly
executed by their authorized representatives as an agreement under seal as of
the day and year first written above.
PARENT:
ARTHUR D. LITTLE, INC., a
Massachusetts corporation
By:_________________________________
Name:
Title:
SUB:
C-QUENTIAL, INC., a Delaware
corporation
By:_________________________________
Name:
Title:
10
<PAGE>
SCHEDULE A
PARENT SERVICES
1. Payroll.
-------
Services to include preparation of payroll checks for Sub employees,
maintenance of Sub employee payroll records, and any other ancillary
payroll functions required.
2. Accounting and Treasury.
-----------------------
Services to include assisting Sub's accounting department and auditors with
general and specific accounting services, including preparation of
financial and regulatory statements, filings with the Securities and
Exchange Commission, such as Forms 10-K, 10-Q and 8-K, proxy statements and
annual reports to stockholders, internal audit support services, and review
of compliance with financial and accounting procedures. Treasury services
shall include assisting Sub in establishing bank accounts, managing cash
accounts and currency exchange matters.
3. Corporate Records.
-----------------
Services to include maintenance of corporate records and minute books,
coordination with stock transfer agent, administration of option plans and
issuances and stock repurchase programs.
4. Tax Preparation.
---------------
Services include assisting Sub in the preparation and filing of all tax
returns, including federal, state and local corporate income taxes, state
franchise taxes, local property taxes, state and local withholding taxes,
value added tax returns, preparing for meetings with tax authorities and
audits, and tax research and planning.
5. Human Resources and Benefits Administration.
-------------------------------------------
Services include arranging and procuring general liability, property and
casualty and other business insurance coverage, workers' compensation
coverage, assistance with human resources functions, including maintaining
personnel records, compliance with applicable laws and regulations
regarding employees and labor in general, adoption of employee handbook and
procedures for recruiting, hiring, promoting and terminating employees.
6. Training.
--------
Services to include the provision and coordination of professional training
for Sub's employees and consultants, including internal and external
seminars and educational conferences and retreats, including, without
limitation, training through the engagement of APDI; provided, however, the
-------- -------
cost of Sub of such APDI services shall equal the cost Parent charges to
the other members of the Parent Group.
<PAGE>
7. Risk Management
---------------
Services to include assisting Sub with minimizing exposure to liabilities
and to maintain contacts with insurance brokers and carriers.
8. Legal Services.
--------------
Services to include access to Parent's in-house counsel staff for legal
advice and assistance in general corporate affairs and business
transactions, compliance with regulatory matters (including, without
limitation, matters in respect of federal and state securities laws),
advice and services with respect to intellectual property matters, and
coordinating contact and use of outside counsel.
9. Information and Technology and other Administrative Support.
-----------------------------------------------------------
Services to include data processing and telecommunications assistance,
secretarial and administrative assistance and support, graphics,
photocopying and general office services.
10. Personal Property and Vehicles.
------------------------------
Services to include the use of telecommunications equipment, including
voice and data transmission equipment, photocopying equipment, computer
hardware and peripherals and miscellaneous office furniture, including
desks, chairs, filing cabinets and storage units, as well as the use of
motor vehicles.
11. Miscellaneous.
-------------
Such other services as may be reasonably necessary from time to time in the
operation of the Sub Business during the Term.
12
<PAGE>
SCHEDULE B
SUB SERVICES
A-1
<PAGE>
EXHIBIT 10.4
FORM OF USE AND OCCUPANCY AGREEMENT
-----------------------------------
This Agreement is dated as of __________, 2000, between Arthur D. Little,
Inc., a Massachusetts corporation ("Parent"), and c-quential Inc., a Delaware
corporation ("Sub").
WHEREAS, Parent, Sub and certain Affiliates of Parent and Sub have entered
into a Reorganization Agreement dated as of ___________, 2000 (the
"Reorganization Agreement") pursuant to which Parent, together with the other
members of the Parent Group, is assigning and transferring to Sub and the other
members of the Sub Group certain assets associated with the Sub Business in
exchange for the assumption by Sub and the other members of the Sub Group of
certain liabilities and obligations associated with such Sub Business and the
issuance by Sub to Arthur D. Little International, Inc., a Delaware corporation
and the parent of Sub of shares of capital stock of Sub on such terms and
conditions as are contained therein;
WHEREAS, Parent and certain members of the Parent Group currently lease the
Leased Premises; and
WHEREAS, the Reorganization Agreement provides that Parent and Sub shall
enter into an agreement relating to the continued use and occupancy of a portion
of the Leased Premises by Sub for a transition period following the Effective
Date, and this Agreement is entered into in order to fulfill that provision.
NOW, THEREFORE, in consideration of the foregoing and the other agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
-----------
Section 1.1 Defined Terms. For purposes of this Agreement, the following
-------------
terms shall have the following meanings:
"Ancillary Agreements" shall have the meaning given to such term in the
Reorganization Agreement.
"Common Areas" shall have the meaning set forth in Section 2.1 hereof.
"Effective Date" shall have the meaning given to such term in the
Reorganization Agreement.
"Group" shall have the meaning given to such term in the Reorganization
Agreement.
"Leased Premises" shall mean the premises leased by Parent and the other
members of the Parent Group as set forth in Schedule A attached hereto.
----------
"License Fee" shall have the meaning set forth in Section 3 hereof.
<PAGE>
"Master Lease" shall mean, with respect to any Leased Premise, the lease
agreement between Parent or the applicable member of the Parent Group and the
landlord thereunder.
"Parent" shall mean Arthur D. Little, Inc., a Massachusetts corporation.
"Parent Group" shall have the meaning given to such term in the
Reorganization Agreement.
"Reorganization Agreement" shall have the meaning set forth in the
recitals.
"Related Services" shall have the meaning set forth in Section 2.3 hereof.
"Space" shall have the meaning set forth in Section 2.1 hereof.
"Space License" shall have the meaning set forth in Section 2.1 hereof.
"Sub" shall mean c-quential, Inc., a Delaware corporation.
"Sub Business" shall have the meaning given to such term in the
Reorganization Agreement.
"Sub Group" shall have the meaning given to such term in the Reorganization
Agreement.
"Term" shall have the meaning set forth in Section 6.1 hereof.
Section 1.2 Capitalized Terms. All other capitalized terms used herein
and not defined shall have the meanings given to them in the Reorganization
Agreement.
SECTION 2. LICENSES.
--------
Section 2.1 License of Space. Parent hereby grants, and agrees to cause
----------------
the applicable members of the Parent Group to grant, Sub and the applicable
members of the Sub Group a license (the "Space License") to use and occupy the
office space at the Leased Premises as indicated on Schedule B attached hereto
----------
(collectively, the "Space"), including the right to utilize all rest rooms,
cafeteria and fitness center facilities, outdoor facilities generally available
to employees of Parent and/or the applicable member of the Parent Group,
sidewalks, driveways, parking lots and any other common areas available to
Parent or another member of the Parent Group under the applicable Master Lease
(as the same is available, the "Common Areas"), subject in all cases to the
provisions of this Agreement. In order to effect the Space License granted
hereunder, each of Sub and Parent agrees to cause the applicable member of its
Group to execute and deliver herewith an executed counterpart of Schedule B
----------
hereto. Sub hereby acknowledges and agrees that the Space is being licensed "as
is," and that neither Parent nor any Parent Group member makes any warranty,
covenant or representation that the Space shall be other than in its present
condition. The parties expressly acknowledge that this Agreement does not
constitute a demise by Parent or a Parent Group member of any real
2
<PAGE>
property interest in the Leased Premises (including, without limitation, the
Space) and, consequently, neither Sub nor any Sub Group member shall be entitled
to any rights or remedies to which a subtenant may be entitled at law or in
equity, unless such party shall have been expressly afforded such rights and
remedies pursuant to the provisions of this Agreement. This Agreement is subject
and subordinate to the Master Leases and, consequently, if any Master Lease
expires or terminates for any reason whatsoever, the Space License with respect
to the Leased Premises thereunder shall expire.
Section 2.2 Related Services. During the term of this Agreement, Parent
----------------
will provide, or cause to be provided, the following services (the "Related
Services") related to Sub's use and occupancy of the Space:
(a) all utilities consumed on or in connection with the use and
occupancy of the Space, including but not limited to water, sewer, gas,
electricity, heat, ventilation and air conditioning;
(b) maintenance services for the applicable building (e.g.,
janitorial/custodial, repairs, elevators, plants) and for the grounds on
the Leased Premises (e.g., landscaping, snow removal, paving) with respect
to the Space (including all rest rooms located in the building and all
parking lots and walkways, sidewalks, and driveways providing for access to
and from the Space);
(c) receipt and distribution of Sub's incoming and outgoing mail
and other shipments and deliveries; and
(d) reception and security services.
Parent will provide, or cause a member of the Parent Group to provide, each of
the Related Services with respect to the Space and Sub's operations conducted
thereat to the extent required to accommodate Sub's reasonable needs, and in the
same manner of quality, quantity and timeliness as such services are provided to
the rest of the building and the Leased Premises and the operations conducted
therein, but in no event in a materially lesser manner than such services were
provided prior to the date hereof.
Section 2.3 Consents. Parent and Sub shall cooperate and use reasonable
--------
efforts to obtain, and cause the members of their respective Group to obtain,
any required consents of Landlords or other Persons with respect to the Space
License granted hereunder. All fees and expenses incurred by the parties
(including the reasonable fees and expenses of counsel to the parties) in
connection with obtaining third party consents shall be paid by Sub.
SECTION 3. LICENSE FEE. Sub agrees to pay to Parent a monthly license fee (the
-----------
"License Fee") for the use and occupancy of the Space, including the Common
Areas and the provision of the Related Services, in the aggregate amount as set
forth on any Schedule B attached hereto, in each case payable on the first
----------
business day of each calendar month during the term of this Agreement. Sub shall
pay the License Fee with respect to a particular Leased Premise until the
termination of the License for such Leased Premise. The parties
3
<PAGE>
acknowledge and agree that the License Fee with respect to the Space shall be
based on the applicable rent for such Leased Premises and Sub's proportionate
use and occupancy of Space at such Leased Premises, and shall be computed in
accordance with the parties' past practices in respect of similar facilities
fees relating to the Leased Premises prior to the Effective Date. With respect
to any period of use or occupancy of the Space, which is less than a full
calendar month, the License Fee with respect to such period shall be
appropriately pro-rated.
SECTION 4. LIMITATION OF LIABILITY INDEMNIFICATION.
---------------------------------------
IN NO EVENT SHALL ANY MEMBER OF THE PARENT GROUP OR SUB GROUP BE LIABLE TO
ANY OTHER MEMBER OF THE PARENT GROUP OR SUB GROUP FOR ANY SPECIAL,
CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY
OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. Notwithstanding the foregoing, each of Parent and Sub shall
indemnify and hold harmless the other against any claims, liability, loss,
damage or expense (including reasonable attorneys' fees and disbursements)
incurred or sustained by such other party arising out of any personal injury or
property damage caused by the fault of the invitees, agents, servants or
employees of such party in connection with their activities under or related to
this Agreement.
SECTION 5. TERM OF AGREEMENT.
-----------------
Section 5.1 Term. This Agreement shall become effective on the Effective
----
Date and shall remain in effect until the latest date of expiration of any Space
License granted hereunder, unless earlier terminated in accordance with Section
5.2 below. The term of any Space License with respect to a particular Leased
Premise shall be identical to the term of the Master Lease for such Leased
Premise, including any extensions or renewal of such Master Lease pursuant to
any specific extension or renewal provision contained in such Master Lease as of
the date of this Agreement, unless earlier terminated in accordance with Section
5.2 below.
Section 5.2 Termination. This Agreement may be terminated, either in
-----------
whole or with respect to specific portions of the Licenses granted hereunder, by
the non-defaulting party, upon the occurrence and continuance of a default by
either party hereunder, including the defaulting party's failure to keep,
observe or perform any covenant, agreement, term or provision of this Agreement,
for a period of thirty (30) days after written notice thereof has been given to
the defaulting party. In the event of any termination of this Agreement or of
any portion of the Licenses granted hereunder, neither party shall have any
further obligation to the other party hereunder or for that portion of the
Licenses (other than for any License Fees or other monies owed in respect of
such License). Notwithstanding any termination of this Agreement, the provisions
of Sections 4 and 7 shall remain in effect indefinitely or until such time as
the obligations of both parties hereunder shall have been fully discharged.
4
<PAGE>
SECTION 6. ADDITIONAL COVENANTS.
--------------------
Section 6.1 No Alterations; Surrender. Sub may not make any physical
-------------------------
alterations to the Space (including, without limitation, structural alterations,
construction or removal of interior walls, painting or other decoration) without
the prior written consent of Parent, which consent shall not be unreasonably
withheld or delayed and the consent of the landlord under the applicable Master
Lease, if required. Sub shall surrender the Space upon termination of this
Agreement (or the applicable Space License in the same condition as it now
exists, except for normal wear and tear, damage caused by fire or other
casualty, and other alterations made with Parent's approval (or the approval of
the landlord under the applicable Master Lease, if required).
Section 6.2 Access to Space. Parent, its agents and representatives shall
---------------
have the right to enter the Space without prior notice to inspect the same, to
exercise such rights as Parent may have under any Master Lease or this Agreement
with respect to such Space, to permit the landlord, its agents or
representatives to access such space to the extent permitted under the Master
Lease, or for any other purpose which Parent may reasonably determine to be
necessary or desirable; provided, however, that Parent shall not unreasonably
-------- -------
interfere with Sub's use and enjoyment of the Space. Sub shall not be entitled
to any abatement of any portion of the License Fee by reason of the exercise of
any such right of entry.
Section 6.3 Fire, Casualty and Eminent Domain. In the event of a fire,
---------------------------------
casualty or taking that affects the Space to the extent that Sub is unable to
operate its business therein without unreasonable interference or additional
expense, but that does not result in termination of the Lease, Sub may elect to
terminate this Agreement by giving written notice to Parent within fifteen (15)
days of said event.
Section 6.4 Performance of Master Lease; Property. Sub agrees, and shall
-------------------------------------
cause each of the members of the Sub Group, to use its best efforts to observe
and perform the tenant's obligations contained in the applicable Master Lease
during the period of occupancy thereunder.
SECTION 7. MISCELLANEOUS.
-------------
Section 7.1 Access to Information; Confidentiality. The provisions of the
--------------------------------------
Reorganization Agreement relating to the access to information and
confidentiality shall apply with respect to any information obtained or learned
by either party from the other party in connection with the parties' performance
of their respective obligations hereunder. This Section shall survive the
termination of this Agreement.
Section 7.2 Dispute Resolution. All disputes, controversies or claims
------------------
between Parent and Sub arising out of or relating to this Agreement, including
without limitation the breach, interpretation or validity of any term or
condition hereof, shall be resolved in accordance with the provisions of the
Reorganization Agreement relating to dispute resolution.
5
<PAGE>
Section 7.3 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall in any event be effective, unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
the other party but such waiver shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action against any breach of this Agreement or default by the other
party shall constitute a waiver of such party's right to enforce any provisions
hereof or to take any such action.
Section 7.4 Notices. Any notice to any party hereto given pursuant to
-------
this Agreement shall be in writing and shall be given by the means, and to the
addresses, set forth in the "Notices" section of the Reorganization Agreement.
Section 7.5 Successors and Assigns. This Agreement may not be assigned by
----------------------
either party without the prior written consent of the other party, and any
attempt to assign any rights or obligations hereunder without such consent shall
be void provided, however, either party may assign or transfer this Agreement is
-------- -------
a whole to any Person who succeeds to the business, assets or capital stock such
party. This Agreement shall inure to the benefit of, and be binding upon and
enforceable against the respective successors and assigns of the parties hereto.
Section 7.6 Entire Agreement; Parties in Interest. This Agreement, the
-------------------------------------
Schedules hereto, the Reorganization Agreement and any applicable provision of
the Ancillary Agreements comprise the entire agreement between the parties
hereto as to the subject matter hereof and supersedes all prior agreements and
understandings between them relating thereto and is not intended to confer upon
any person other than the parties hereto (including their successors and
permitted assigns) any rights or remedies hereunder.
Section 7.7 Severability. If any term or provision of this Agreement or
------------
the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable shall not be affected thereby and each term
and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
Section 7.8 Captions. Captions and headings are supplied herein for
--------
convenience only and shall not be deemed a part of this Agreement for any
purpose.
Section 7.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal substantive laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of laws
thereof.
Section 7.10 Counterparts. This Agreement may be executed in several
------------
counterparts, and all counterparts so executed shall constitute one agreement,
binding upon the parties hereto, notwithstanding that the parties are not
signatory to the same counterpart.
[Signature page follows next]
6
<PAGE>
IN WITNESS WHEREOF, Parent and Sub have caused this Agreement to be duly
executed by their authorized representatives as an agreement under seal as of
the date first written above.
PARENT:
ARTHUR D. LITTLE, INC.,
a Massachusetts corporation
By:_________________________________
Name:
Title:
SUB:
C-QUENTIAL, INC., a Delaware
corporation
By:_________________________________
Name:
Title:
7
<PAGE>
SCHEDULE A
LEASED PREMISES
[By Location]
8
<PAGE>
SCHEDULE B
[By Location]
MASTER LEASE LOCATION:
SPACE:
LICENSE FEE: $
TERM:
Each of the undersigned hereby acknowledges and agrees to be bound by the terms
and conditions of the Use and Occupancy Agreement to which this Schedule is
attached.
MEMBER OF PARENT GROUP MEMBER OF SUB GROUP
[ ] [ ]
9
<PAGE>
EXHIBIT 10.5
FORM OF INTELLECTUAL PROPERTY AGREEMENT
---------------------------------------
This Agreement is dated as of __________, 2000, between Arthur D. Little,
Inc., a Massachusetts corporation ("Parent"), and c-quential, Inc., a Delaware
corporation ("Sub").
WHEREAS, Parent, Sub and certain Affiliates of Parent and Sub have entered
into a Reorganization Agreement dated as of ___________, 2000 (the
"Reorganization Agreement") pursuant to which Parent, together with the other
members of the Parent Group, is assigning and transferring to Sub and the other
members of the Sub Group certain businesses and assets associated with the Sub
Business in exchange for the assumption by Sub and the other members of the Sub
Group (except for members that are classified as foreign corporations for U.S.
tax purposes) of certain liabilities and obligations associated with such Sub
Business and the issuance by Sub to Arthur D. Little International, Inc., a
Delaware corporation and the parent of sub, of shares of capital stock of Sub on
such terms and conditions as are contained therein;
WHEREAS, in connection with the transactions contemplated by the
Reorganization Agreement, Parent is entering into this Agreement pursuant to
which Parent is granting to Sub certain licenses covering the use of certain
intellectual property rights, all as more particularly set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the other agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement, the following terms
-------------
shall have the following meanings:
"Covered Intellectual Property" shall mean the Covered Marks, the Parent
Name and Technology in which certain property rights are being granted by a
royalty-free license pursuant to this Agreement.
"Covered Marks" shall mean the Marks set forth on Schedule A attached
----------
hereto.
"Designated Industry" shall have the meaning set forth in the
Reorganization Agreement.
"Effective Date" shall have the meaning given to such term in the
Reorganization Agreement.
"Exclusivity Period" shall mean the period of time commencing on the
Effective Date and ending on the third anniversary thereof.
<PAGE>
"Group" shall have the meaning given to such term in the Reorganization
Agreement.
"Licenses" shall mean, collectively, the Marks License, the Name License
and the Technology License.
"Mark" shall mean any trademark, service mark, trade name, domain name, and
the like, or other word, name, symbol or device, or any combination thereof,
used or intended to be used by a Person to identify and distinguish the products
or services of that Person from the products or services of others and to
indicate the source of such goods or services, including, without limitation,
the goodwill associated therewith, all registrations and applications therefor
throughout the world and all common law and other rights therein throughout the
world.
"Marks License" shall mean the license granted by Parent to Sub in Section
2.2 hereof.
"Name License" shall mean the license granted by Parent to Sub in Section
2.4 hereof.
"Name License Term" shall have the meaning set forth in Section 2.4 hereof.
"Parent" shall mean Arthur D. Little, Inc., a Massachusetts corporation.
"Parent Group" shall have the meaning given to such term in the
Reorganization Agreement.
"Parent Name" shall consist of the name "Arthur D. Little" and any similar
name, and all derivatives thereof in any form which a consumer would be
reasonably likely to associate with Arthur D. Little, but shall not include the
Covered Marks.
"Reorganization Agreement" shall have the meaning set forth in the
recitals.
"Sub" shall mean c-quential, Inc., a Delaware corporation.
"Sub Business" shall have the meaning given to such term in the
Reorganization Agreement.
"Sub Group" shall have the meaning given to such term in the Reorganization
Agreement.
"Technology" shall mean technological models, algorithms, manufacturing
processes, design processes, behavioral models, logic diagrams, schematics, test
vectors, know-how, computer and electronic data processing and other apparatus
programs and software (object code and source code), databases and documentation
thereof, trade secrets, copyrights, technical information, specifications,
drawings, records, documentation, works of authorship or other creative works,
websites, ideas, knowledge, data or the like, which are related in any way to
the Sub Business, and any improvements or modifications to any of the foregoing.
The term Technology includes trade secrets and any other intellectual property
rights, including, without
2
<PAGE>
limitation, the rights set forth on Schedule B attached hereto, but expressly
----------
does not include any Mark or (ii) _______.
"Technology License" shall mean the license granted by Parent to Sub in
Section 2.3 hereof.
"Term" shall have the meaning set forth in Section 4 hereof.
1.2 Capitalized Terms. All other capitalized terms used herein and not
-----------------
defined shall have the meanings given to them in the Reorganization Agreement.
2. OWNERSHIP; LICENSES
2.1 Ownership of Licensed Intellectual Property. The parties hereby
-------------------------------------------
confirm that Parent and the members of the Parent Group own all right, title and
interest in and to the Covered Intellectual Property, and that other than the
Licenses granted to Sub hereunder, Parent and the members of the Parent Group
retain all right, title and interest in the Covered Intellectual Property. At
all times during the Term, Sub shall, and shall cause the other members of the
Sub Group to, at Parent's request, assist Parent in the procurement and
maintenance of Parent's rights in the Covered Intellectual Property, including,
without limitation, the execution and delivery of all documents and instruments
that Parent deems reasonably necessary to protect its rights in the Covered
Intellectual Property, and any legends or notices on Sub materials and products
as may be required by applicable law or reasonably requested by Parent. In
addition, Sub shall not, and shall cause the other members of the Sub Group not
to, grant any Person a security interest in the Covered Intellectual Property,
or record any such security interest in the United States Patent and Trademark
Office or elsewhere.
2.2 Marks License. Subject to the terms and conditions of this Agreement,
-------------
Parent, as licensor, does hereby grant to Sub, as licensee, commencing on the
Effective Date, a perpetual, irrevocable, fully paid-up, royalty-free, world-
wide license to use and display the Covered Marks in any medium in connection
with the promotion, marketing, advertising, publicity and operation of the Sub
Business (the "Marks License"). The Marks License shall be exclusive to Sub with
respect to the Designated Industry during the Exclusivity Period, and thereafter
shall be non-exclusive for all purposes.
2.3 Technology License.
------------------
(a) Subject to the terms and conditions of this Agreement, Parent, as
licensor, does hereby grant to Sub, as licensee, a perpetual, irrevocable, fully
paid-up, royalty-free, world-wide license to use, publicly perform, display,
copy, have copied, modify, have modified, market, distribute and sublicense the
Technology in connection with any aspect of the operation of the Sub Business
(the "Technology License"). Sub may exercise the Licenses set forth in this
Section 2.3 directly or indirectly through resellers, distributors, sales
representatives or remarketers. The Technology License shall be exclusive to Sub
with respect to the Designated Industry during the Exclusivity Period, and
thereafter shall be non-exclusive for all purposes.
3
<PAGE>
(b) Derivative Works. Sub shall own any derivative works of the
----------------
Technology created or developed by Sub, subject to Parent's underlying rights in
the Technology.
2.4 Name License. Subject to the terms and conditions of this Agreement,
------------
Parent, as licensor, does hereby grant to Sub, as licensee, commencing on the
Effective Date and continuing until the date which is the fifth anniversary of
the Effective Date, subject to earlier termination as provided herein (the "Name
License Term"), a fully paid-up, royalty-free, world-wide license to use and
display the Parent Name in connection with the operation of the Sub Business
(the "Name License"). The Name License shall be exclusive to Sub with respect
to the Designated Industry during the Exclusivity Period, and thereafter shall
be non-exclusive for all purposes.
2.5 Prohibited Uses. All rights not specifically granted hereunder shall
---------------
be considered specifically excluded from the grant of the Licenses. Without
limiting the generality of the foregoing, Sub shall not, and shall cause each
other member of the Sub Group not to:
2.5.1 sub-license the use of the Covered Intellectual Property to any
Person other than a member of the Sub Group; and
2.5.2 use the Covered Intellectual Property in a manner which is
inconsistent with its use by Parent and Sub on the Effective Date.
2.6 DISCLAIMER OF WARRANTIES. NOTHING IN THIS AGREEMENT SHALL BE DEEMED
------------------------
TO BE A REPRESENTATION OR WARRANTY BY PARENT, AS LICENSOR, OF THE SCOPE,
VALIDITY, ENFORCEABILITY, VALUE OR FREEDOM FROM INFRINGEMENT OF THIRD PARTY
INTELLECTUAL PROPERTY RIGHTS OF ANY OF THE COVERED INTELLECTUAL PROPERTY.
PARENT, AS LICENSOR, SHALL NOT HAVE ANY LIABILITY WHATSOEVER TO SUB, AS
LICENSEE, OR TO ANY OTHER PERSON ON ACCOUNT OF ANY INJURY, LOSS OR DAMAGE, OF
ANY KIND OR NATURE, SUSTAINED BY, OR ANY DAMAGE ASSESSED OR ASSERTED AGAINST, OR
ANY OTHER LIABILITY INCURRED BY OR IMPOSED UPON SUB, AS LICENSEE, OR ANY OTHER
PERSON, ARISING OUT OF OR IN CONNECTION WITH OR RESULTING FROM (a) THE
PRODUCTION, USE OR SALE OF ANY APPARATUS OR PRODUCT THROUGH THE USE OR PRACTICE
OF ANY OF THE COVERED INTELLECTUAL PROPERTY, (b) THE OTHER USE OF ANY OF THE
COVERED INTELLECTUAL PROPERTY OR (c) ANY ADVERTISING OR OTHER PROMOTIONAL
ACTIVITIES WITH RESPECT TO ANY OF THE FOREGOING.
2.7 Reorganization. The Licenses granted herein are part of the
--------------
contribution by Parent to Sub of the Sub Business in a transaction described in
Section 351 of the Code, and as such, the consideration given by Sub in exchange
for the rights granted hereunder consists solely of the Sub Shares and the
assumption of the Assumed Liabilities as described in the Reorganization
Agreement.
4
<PAGE>
2.8 Infringement of Covered Intellectual Property. In the event that
---------------------------------------------
either Parent or Sub learns that any entity is or may be infringing in any way
on any of the Covered Intellectual Property licensed hereunder, or is engaged in
conduct which is liable to cause deception or confusion to the public, or is
diluting or infringing any right of the parties hereto, such party shall notify
the other party. Parent shall have the sole initial right to determine whether
or not any action shall be taken against such unauthorized use or infringement.
Parent shall promptly notify Sub of its determination and shall briefly describe
the action, if any, which it shall take. In the event that Parent initiates
litigation against any entity, Parent shall choose the attorneys, control the
litigation, pay the litigation expenses, and retain any settlement amount or
damages recovered as a result of any judgment in favor of Parent. In the event
that Parent takes no action to stop such alleged unauthorized use or
infringement within sixty (60) days following notice by Sub or Parent, as the
case may be (or such earlier date as Sub reasonably determines is necessary to
avoid prejudicing the parties' ability to bring an action with respect to such
alleged unauthorized use or infringement), of such unauthorized use or
infringement, then Sub may either (i) initiate litigation or such other action
with respect to protesting its rights granted hereunder against such
unauthorized use or infringement, or (ii) by written notice to Parent, request
that Parent bring an action with respect to such alleged unauthorized use or
infringement at the expense of Sub, in which event Parent shall promptly
commence such action, but only if Sub certifies to Parent that in Sub's good
faith judgment failure to take action against the unauthorized use or
infringement in question is likely to have a material adverse effect on the Sub
Business. Any settlement amount or damages awarded in any such suit referenced
in the preceding sentence shall, after payment of expenses incurred by the
parties, be paid to Sub.
In any action taken pursuant to this Section 2.8, Sub shall reasonably
cooperate with Parent in all respects, to have the appropriate employees of Sub
assist in the preparation of the suit and testify if requested by Parent, and to
make available any records, papers, information, specimens and the like.
Except as expressly provided herein, all expenses incurred in connection
with actions taken pursuant to this Section 2.8 shall be borne independently by
each of the parties, with each party being liable solely for the fees and
expenses it incurs in connection with such action.
3. NON-DISCLOSURE AGREEMENTS
Sub shall, and shall cause the other members of the Sub Group to, cause
their respective employees, promptly after the Effective Date, to enter into and
execute non-disclosure agreements, in form and substance reasonably satisfactory
to Parent and on terms not least as restrictive as the confidentiality
provisions in the Reorganization Agreement, governing the use by such employees
of confidential information relating to Parent, including, without limitation,
confidential information relating to the Technology, and shall take all
reasonable steps necessary to enforce each such non-disclosure agreement after
its execution.
5
<PAGE>
4. TERM
Except for the Name License, which shall continue in effect until
expiration of the Name License Term, this Agreement shall continue in effect in
perpetuity from the Effective Date, unless earlier terminated by agreement among
the parties; provided, however, that the provisions of Sections [____] shall
-------- -------
remain in effect indefinitely or until such time as the obligations of both
parties hereunder shall have been fully discharged.
5. MISCELLANEOUS
5.1 Confidentiality. The provisions of Section 8 of the Reorganization
---------------
Agreement relating to confidentiality shall apply with respect to any
information obtained or learned by either party from the other party in
connection with the assignments and licenses contemplated hereby. This Section
shall survive the termination of this Agreement.
5.2 Dispute Resolution. All disputes, controversies or claims between
------------------
Parent and Sub arising out of or relating to this Agreement, including without
limitation the breach, interpretation or validity of any term or condition
hereof, shall be resolved in accordance with the provisions of the
Reorganization Agreement relating to dispute resolution.
5.3 Amendment and Waiver. No amendment of any provision of this Agreement
--------------------
shall in any event be effective unless the same shall be in writing and signed
by the parties hereto. Any failure of any party to comply with any obligation,
agreement or condition hereunder may only be waived in writing by the other
party but such waiver shall not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure. No failure by any party to take any action
against any breach of this Agreement or default by the other party shall
constitute a waiver of such party's right to enforce any provisions hereof or to
take any such action.
5.4 Notices. Any notice to any party hereto given pursuant to this
-------
Agreement shall be in writing and shall be given by the means, and to the
addresses, set forth in the "Notices" section of the Reorganization Agreement.
5.5 Successors and Assigns. This Agreement may not be assigned by either
----------------------
party without the prior written consent of the other party, and any attempt to
assign any rights or obligations hereunder without such consent shall be void;
provided, however, that either party may assign or transfer this Agreement
- -------- -------
without the consent of the non-assigning party to an entity that succeeds to all
or substantially all of the business, assets or capital stock of such party or
to another member of such party's Group (until such time as such Person is no
longer a member of such Group). This Agreement shall inure to the benefit of,
and be binding upon and enforceable against the respective successors and
assigns of the parties hereto.
5.6 Entire Agreement; Parties in Interest. This Agreement (including the
-------------------------------------
Schedules hereto and the provisions of the Reorganization Agreement incorporated
herein by reference) comprises the entire agreement between the parties hereto
as to the subject matter hereof and supersedes all prior agreements and
understandings between them relating thereto and is not
6
<PAGE>
intended to confer upon any person other than the parties hereto (including
their successors and permitted assigns) any rights or remedies hereunder.
5.7 Severability. If any term or provision of this Agreement or the
------------
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
terms or provisions to persons or circumstances other than those as to which it
is invalid or unenforceable shall not be affected thereby and each term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.
5.8 Captions. Captions and headings are supplied herein for convenience
--------
only and shall not be deemed a part of this Agreement for any purpose.
5.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of laws
thereof.
5.10 Counterparts. This Agreement may be executed in several counterparts,
------------
and all counterparts so executed shall constitute one agreement, binding upon
the parties hereto, notwithstanding that the parties are not signatory to the
same counterpart.
[Signature page follows next]
7
<PAGE>
IN WITNESS WHEREOF, Parent and Sub have caused this Agreement to be duly
executed by their authorized representatives as an agreement under seal, all as
of the day and year first written above.
PARENT:
ARTHUR D. LITTLE, INC., a Massachusetts
corporation
By: _______________________________________
Name:
Title:
SUB:
C-QUENTIAL, INC., a Delaware corporation
By: _______________________________________
Name:
Title:
8
<PAGE>
SCHEDULE A
----------
COVERED MARKS
-------------
9
<PAGE>
SCHEDULE B
----------
TECHNOLOGY
----------
10
<PAGE>
EXHIBIT 10.6
FORM OF TAX ALLOCATION AGREEMENT
--------------------------------
This Tax Allocation Agreement (this "Agreement") is entered into as of
______________, 2000 by and between Arthur D. Little, Inc., a Massachusetts
corporation, and c-quential, Inc., a Delaware corporation.
WHEREAS, the execution and delivery of this Agreement is a condition to the
transactions contemplated by the Reorganization Agreement dated as of
_______________, 2000 by and among Arthur D. Little, Inc., c-quential, Inc. and
other parties thereto (the "Reorganization Agreement");
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
-----------
Section 1.1 Defined Terms. For purposes of this Agreement, the following
-------------
terms shall have the following meanings.
"Affiliated Group" means an affiliated group within the meaning of Section
1504(a) of the Code.
"Ancillary Agreement" shall have the meaning given to such term in the
Reorganization Agreement, excluding this Agreement.
"ADL Affiliated Group" means Parent and all other corporations that may now
or from time to time hereafter constitute an Affiliated Group with Parent as the
Common Parent.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Return" means any Return (other than a Consolidated Return) that
is filed on a consolidated, combined or unitary basis (including any state,
local, or foreign Return filed on such basis) that includes at least one Parent
Subsidiary and one Sub Subsidiary.
"Combined Tax" means any Tax reported on a Combined Return.
"Common Parent" means the common parent, within the meaning of Section
1504(a) of the Code, of an Affiliated Group.
"Consolidated Return" means the Federal Income Tax Return of the ADL
Affiliated Group for any Consolidated Return Year.
"Consolidated Return Year" means any taxable year (i) during any part of
which Sub is a member of the ADL Affiliated Group, and (ii) with respect to
which the ADL Affiliated Group files a consolidated Federal Income Tax Return
under Section 1501 of the Code.
<PAGE>
"Effective Date" shall have the meaning given to such term in the
Reorganization Agreement.
"Estimated Payment Date" means any date in a Consolidated Return Year upon
which the ADL Affiliated Group is required to make a payment of estimated
Federal Income Tax.
"Federal Income Tax" means any Tax imposed by Subtitle A of the Code.
"Federal Income Tax Return" means a Return filed with respect to Federal
Income Taxes.
"Hypothetical Combined Tax" and "Hypothetical Combined Refund" are defined
in Section 5.
"Hypothetical Federal Tax" and "Hypothetical Federal Refund" are defined in
Section 4.
"Parent" means Arthur D. Little, Inc., a Massachusetts corporation, or any
successor thereto.
"Parent Group" means the ADL Affiliated Group excluding the Sub Group.
"Parent Subsidiary" means Parent or any entity in which Parent holds a
direct or indirect interest, excluding all Sub Subsidiaries.
"Reorganization Agreement" is defined in the recitals to this Agreement.
"Reorganization Tax" means any Tax imposed upon any Parent Subsidiary or
Sub Subsidiary with respect to the Reorganization Transaction, including but not
limited to any transfer Tax and any Tax imposed on realized gain.
"Reorganization Tax Benefit" means the excess of (i) the Total Sub Taxes
that would be incurred if the Reorganization Transaction were treated as giving
rise to no Reorganization Tax over (ii) the Total Sub Taxes actually incurred.
Whenever the Reorganization Tax Benefit is calculated, each of the amounts
referred to in clauses (i) and (ii) of the preceding sentence shall be such
amounts as of the date of the calculation.
"Reorganization Transaction" means all of the transactions contemplated in
the Reorganization Agreement and Ancillary Agreements considered collectively,
excluding transactions contemplated in the Corporate Services Agreement or the
Use and Occupance Agreement.
"Return" means any Tax return, statement, report, form or election
(including, without limitation, estimated Tax returns and reports, extension
requests and forms, and information returns and reports) required to be filed
with any Taxing Authority, in each case as amended.
"Return Due Date" means, with respect to any Return, the earlier of (i) the
due date (including extensions) of such Return, or (ii) the date such Return is
filed.
2
<PAGE>
"Spin-Off" means a distribution of stock of Sub that is intended to qualify
as a transaction described in Section 355 of the Code.
"Spin-Off Tax" means any Tax incurred by the Parent Group or the Sub Group
as a result of a Spin-Off failing to qualify as a transaction described in
Section 355 of the Code, or through the application of Section 355(d) or (e) of
the Code.
"Sub" means c-quential, Inc., a Delaware corporation, or any successor
thereto.
"Sub Group" means the group of corporations that would constitute a
separate Affiliated Group with Sub as the Common Parent if Sub were not a member
of the ADL Affiliated Group.
"Sub Subsidiary" means Sub or any entity in which Sub holds a direct or
indirect interest.
"Tax" means any tax imposed by the Code, and any net income, capital gains,
alternative or add-on minimum, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, license, withholding (as
payor or recipient), payroll, employment, excise, severance, stamp, capital
stock, occupation, property, real property gains, environmental, windfall,
premium, custom, duty or other tax, recording fee, governmental fee or other
like assessment or charge of any kind whatsoever imposed by any domestic or
foreign jurisdiction, together with any related interest, penalties, additions
to tax and related costs and expenses (including but not limited to legal and
accounting fees).
"Taxing Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof, or any quasi-governmental or private
body having jurisdiction over the assessment, determination, or imposition of
any Tax.
"Taxing Authority Adjustment" means any adjustment (whether positive or
negative) required by a Taxing Authority to any Tax liability or item reflected
(or which should have been reflected) in any Return.
"Tax Advisor" means an attorney, law firm, accountant, accounting firm or
other person designated by a party as its tax advisor.
"Tax Dispute" means any dispute, controversy or claim between any Parent
Subsidiary and any Sub Subsidiary arising out of or relating to this Agreement,
including without limitation the breach, interpretation or validity of any term
or condition hereof.
"Tax Proceeding" means any Tax audit, dispute or proceeding (whether
administrative or judicial).
"Total Sub Taxes" means the sum of (i) Taxes paid by Sub Subsidiaries, (ii)
Hypothetical Federal Taxes and (iii) Hypothetical Combined Taxes, less the sum
of (x) Tax refunds received by Sub Subsidiaries, (y) Hypothetical Federal
Refunds and (z) Hypothetical Combined Refunds. Whenever Total Sub Taxes are
calculated, each of the amounts referred to in clauses (i), (ii), (iii), (x),
(y) and (z) of the preceding sentence shall be the total of all such amounts
(with Taxing Authority Adjustments taken into account) for all periods beginning
on or after the Effective Date (or, with respect to any period beginning before
and ending after the Effective Date, the
3
<PAGE>
portion of such period beginning on the day after the Effective Date) and ending
on or before the date of the calculation. Total Sub Taxes may be either positive
or negative.
SECTION 2. TAX RETURNS, PAYMENTS AND PROCEEDINGS.
-------------------------------------
Section 2.1 Consolidated Returns.
--------------------
(a) Parent shall be responsible for the preparation and filing of
all Consolidated Returns; provided, however, that Sub shall have the right to
review, at least 10 days prior to the Return Due Date of any Consolidated
Return, a draft of the portion of such Return that reflects the operations and
tax items of the Sub Group.
(b) Parent shall be responsible for the payment of all Federal
Income Taxes attributable to Consolidated Return Years, and shall be entitled to
all Federal Income Tax refunds attributable to Consolidated Return Years.
Section 2.2 Combined Returns.
----------------
(a) Parent shall be responsible for the preparation and filing of
all Combined Returns; provided, however, that Sub shall have the right to
review, at least 10 days prior to the Return Due Date of any Combined Return, a
draft of the portion of such Return that reflects the operations and tax items
of the Sub Subsidiaries included in such Return.
(b) Parent shall be responsible for the payment of all Taxes
attributable to periods and items reflected (or which should have been
reflected) in any Combined Return, and shall be entitled to all Tax refunds
attributable to periods and items reflected (or which should have been
reflected) in any Combined Return.
Section 2.3 Tax Proceedings Respecting Consolidated and Combined Returns.
------------------------------------------------------------
Tax Proceedings respecting any Consolidated Return or Combined Return shall be
controlled by Parent.
Section 2.4 Other Party's Tax Objectives Taken Into Account. In the
-----------------------------------------------
preparation of all Returns and in the conduct of all Tax Proceedings--
(a) the Parent Subsidiaries shall take into account and promote
the Tax objectives of the Sub Subsidiaries, provided that, in so doing, the
Parent Subsidiaries are not adversely affected; and
(b) the Sub Subsidiaries shall take into account and promote the
Tax objectives of the Parent Subsidiaries, provided that, in so doing, the Sub
Subsidiaries are not adversely affected.
SECTION 3. REORGANIZATION TAXES; TAX BENEFITS
----------------------------------
Section 3.1 Parent Responsible for Pre-Effective Date Taxes.
-----------------------------------------------
(a) Parent shall be responsible for the payment of all Taxes of
all Sub Subsidiaries incurred with respect to periods ending on or before the
Effective Date.
4
<PAGE>
(b) With respect to any period that begins before and ends after
the Effective Date, Parent shall be responsible for the payment of all Taxes of
all Sub Subsidiaries incurred with respect to the portion of such period ending
on the Effective Date.
Section 3.2 Parent Responsible for Reorganization Taxes. Parent shall be
-------------------------------------------
responsible for the payment of all Reorganization Taxes (including
Reorganization Taxes reported on Returns filed by Sub Subsidiaries).
Section 3.3 Reimbursement for Tax Benefits.
------------------------------
(a) The amount of the Reorganization Tax Benefit shall be
calculated at such times as Parent may reasonably request, provided, however,
that it be calculated at least annually.
(b) Promptly upon the approval by Sub and Parent of the
calculation referred to in Section 3.3(a)--
(I) Sub shall pay to Parent the excess (if any) of the
Reorganization Tax Benefit over the total of all payments previously made by Sub
under this Section 3.3 (net of the total of all payments previously made by
Parent under this Section 3.3), and
(II) Parent shall pay to Sub the excess (if any) of the
total of all payments previously made by Sub under this Section 3.3 (net of the
total of all payments previously made by Parent under this Section 3.3) over the
Reorganization Tax Benefit.
(c) Notwithstanding any other provision of this Section 3.3, the
total of all payments made by Sub under this Section 3.3 (net of the total of
all payments made by Parent under this Section 3.3) shall not exceed the total
of all Reorganization Taxes.
SECTION 4. INTERCOMPANY PAYMENTS RESPECTING FEDERAL INCOME TAXES.
-----------------------------------------------------
Section 4.1 Hypothetical Federal Taxes and Refunds. For each Consolidated
--------------------------------------
Return Year--
(a) Sub shall pay to Parent an amount equal to the amount of any
Federal Income Tax for which Sub would have been liable (including interest for
which Sub would have been liable, but excluding Tax penalties for which Sub
would have been liable) had Sub filed consolidated Federal Income Tax Returns
for the Sub Group, separate and apart from the Parent Group, for all periods
beginning on or after Effective Date (the "Hypothetical Federal Tax");
(b) Parent shall pay to Sub an amount equal to the amount of any
refund of Federal Income Tax that Sub would have received (including interest
that Sub would have received) had Sub filed consolidated Federal Income Tax
Returns for the Sub Group, separate and apart from the Parent Group, for all
periods beginning on or after the Effective Date (the "Hypothetical Federal
Refund");
5
<PAGE>
(c) the calculation of the Hypothetical Federal Tax or
Hypothetical Federal Refund shall be made by assuming that Sub made such Tax
elections and choices of methods as would most benefit the Sub Group;
(d) the calculation of the Hypothetical Federal Tax or
Hypothetical Federal Refund shall be made by Parent and submitted to Sub for
review and approval at least 10 days prior to the Return Due Date of the
Consolidated Return for the Consolidated Return Year, and Sub's approval of such
calculation shall not be unreasonably withheld; and
(e) except as provided in Section 4.3, all payments required by
this Section 4.1 shall be paid promptly upon the approval referred to in Section
4.1(d); provided, however, that (except as provided in Section 4.3) no such
payment shall be due prior to 3 days before the Return Due Date of the
Consolidated Return for the Consolidated Return Year.
Section 4.2 Sub Not a Member for Entire Consolidated Return Year. If Sub
----------------------------------------------------
is a member of the ADL Affiliated Group for less than the entire Consolidated
Return Year, the Hypothetical Federal Tax or Hypothetical Federal Refund shall
be calculated by hypothetically closing the books of the Sub Group as of the day
before the first day and as of the last day that Sub is a member of the ADL
Affiliated Group and taking into account only those items that accrue in that
portion of the Consolidated Return Year during which Sub is a member of the ADL
Affiliated Group, unless Sub and Parent agree otherwise.
Section 4.3 Estimated Payments. For each Estimated Payment Date in any
------------------
Consolidated Return Year--
(a) Parent shall calculate for the Sub Group an estimated
Hypothetical Federal Tax in a manner that is similar to and consistent with the
Hypothetical Federal Tax calculations set out in Sections 4.1 and 4.2;
(b) Sub shall assist and cooperate with Parent in good faith and
to the extent necessary for Parent to make the calculation referred to in
Section 4.3(a) reasonably accurately;
(c) the calculation referred to in Section 4.3(a) shall be
submitted to Sub for review and approval at least 10 days prior to the related
Estimated Payment Date, and Sub's approval of such calculation shall not be
unreasonably withheld; and
(d) promptly upon the approval referred to in Section 4.3(c), Sub
shall pay to Parent the approved amount; provided, however, that no such payment
shall be due prior to 3 days before the related Estimated Payment Date.
Section 4.4 Adjustments for Estimated Payments. Amounts paid under
----------------------------------
Section 4.3 shall be taken into account when calculating the payments due under
Sections 4.1 and 4.2.
6
<PAGE>
Section 4.5 Taxing Authority Adjustments. When any Taxing Authority
----------------------------
Adjustment made with respect to any Consolidated Return becomes final--
(a) Parent shall promptly recalculate the Hypothetical Federal Tax
or Hypothetical Federal Refund for all affected Consolidated Return Years taking
such Taxing Authority Adjustment into account;
(b) the recalculation referred to in Section 4.5(a) shall be
promptly submitted to Sub for review and approval, and Sub's approval of such
recalculation shall not be unreasonably withheld; and
(c) promptly upon the approval referred to in Section 4.5(b), Sub
shall pay to Parent or Parent shall pay to Sub (as appropriate), an amount equal
to the difference between the recalculated Hypothetical Federal Tax or
recalculated Hypothetical Federal Refund and the Hypothetical Federal Tax or
Hypothetical Federal Refund, together with interest thereon at the rate interest
would be paid on a Federal Income Tax overpayment (in the case of a payment by
Parent to Sub) or on a Federal Income Tax underpayment (in the case of a payment
by Sub to Parent) paid at the time of such payment.
Section 4.6 Estimated Federal Income Tax Underpayment Penalties. For each
---------------------------------------------------
Consolidated Return Year--
(a) Parent shall calculate for the Sub Group the amount (if any)
of the penalty for underpayment of Federal Income Taxes for which Sub would have
been liable had Sub filed consolidated Federal Income Tax Returns for the Sub
Group, separate and apart from the Parent Group, for all periods beginning on or
after the Effective Date. Such calculation shall be made in a manner that is
consistent with the Hypothetical Federal Tax calculations set out in Sections
4.1 and 4.2;
(b) the calculation referred to in Section 4.6(a) shall be
submitted to Sub for review and approval, and Sub's approval of such calculation
shall not be unreasonably withheld; and
(c) promptly upon the approval referred to in Section 4.6(b), Sub
shall pay to Parent the approved amount (if any).
SECTION 5. INTERCOMPANY PAYMENTS RESPECTING COMBINED TAXES.
-----------------------------------------------
Section 5.1 Payments and Calculations. Payments between Parent and Sub
-------------------------
shall be made with respect to all Combined Taxes, and the calculation and
recalculation of the amounts of such payments, and the review, approval and
timing of such payments, shall be similar to and consistent with the procedures
set out in Section 4.
Section 5.2 Estimated Combined Tax Underpayment Penalties. No
---------------------------------------------
intercompany payments shall be made with respect to Combined Tax penalties
except for penalties arising from the underpayment of estimated Combined Taxes.
The calculation and payment of any hypothetical estimated Combined Tax
underpayment penalty shall be similar to and consistent with the procedures set
out in Section 4.6.
7
<PAGE>
Section 5.3 Definitions. For purposes of this Agreement, the term
-----------
"Hypothetical Combined Tax" means an amount calculated under this Section 5 that
is payable by Sub, and the term "Hypothetical Combined Refund" means an amount
calculated under this Section 5 that is payable by Parent.
SECTION 6. MEMBERSHIP IN AFFILIATED GROUP; CONTROL.
---------------------------------------
Section 6.1 Sub Covenants. Sub hereby covenants and agrees that it shall
-------------
not without Parent's consent (which may be withheld for any reason) take any
action that could result in, or fail to take any action where such failure could
result in--
(a) Sub no longer being a member of the ADL Affiliated Group;
(b) the Parent Group no longer being in "control" of Sub within
the meaning of Section 368(c) of the Code; or
(c) the Parent Group including in income any "excess loss account"
in the stock of Sub under Treasury Regulations Section 1.1502-19.
Section 6.2 Sub Indemnification Sub shall be responsible for, and shall
-------------------
indemnify and hold the Parent Group harmless from, any increase in Taxes caused
by any breach of the covenants set out in Section 6.1.
SECTION 7. COOPERATION.
-----------
Section 7.1 Cooperation Generally. Parent and Sub agree to cooperate
---------------------
fully with each other in connection with all matters subject to this Agreement.
Such cooperation includes but is not limited to--
(a) making personnel and records available within 10 days (or such
other period as may be reasonable under the circumstances) after a request for
such personnel or records is made by the other party;
(b) retaining all records which may contain information or provide
evidence relevant to any open taxable period;
(c) executing, acknowledging and delivering any instrument or
document that may be necessary or helpful in connection with (i) any Return that
the other party has the authority to prepare and file, (ii) any Tax Proceeding
that the other party has the authority to control, or (iii) the carrying out of
any obligation of the other party under this Agreement;
(d) using best efforts to obtain any documentation from any Taxing
Authority, governmental authority or other third party that may be necessary or
helpful in connection with the foregoing; and
(e) keeping the other party fully informed with respect to any
material developments relating to any matter subject to this Agreement.
8
<PAGE>
Section 7.2 Indemnities. Parent agrees to indemnify and hold harmless
-----------
each Sub Subsidiary (and their officers and employees), and Sub agrees to
indemnify and hold harmless each Parent Subsidiary (and their officers and
employees) from any Tax attributable to the negligence or misconduct of a Parent
Subsidiary or Sub Subsidiary, as the case may be, in supplying inaccurate or
incomplete information under Section 7.1.
SECTION 8. SPIN-OFF PROVISIONS.
-------------------
Section 8.1 Prior to the Parent Group engaging in a Spin-Off of Sub,
Parent and Sub shall enter into an agreement that shall include customary
provisions, covenants and indemnities, including but not limited to--
(a) Sub's indemnity of the Parent Group for any Spin-Off tax
attributable to any act or omission of the Sub Group;
(b) Parent's indemnity of the Sub Group for any Spin-Off tax
attributable to any act or omission of the Parent Group;
(c) Sub's covenant not to participate in any merger,
reorganization, acquisition, equity restructuring or other transaction that
results in one or more persons acquiring in Sub a 50% or greater interest,
within the meaning of Section 355(e) of the Code, within the 4 year period
beginning 2 years prior to the Spin-Off;
(d) Parent's covenant not to participate in any merger,
reorganization, acquisition, equity restructuring or other transaction that
results in one or more persons acquiring in Parent a 50% or greater interest,
within the meaning of Section 355(e) of the Code, within the 4 year period
beginning 2 years prior to the Spin-Off;
(e) customary provisions regarding cooperation, exchange of
information, and control of audits and litigation respecting Taxes; and
(f) customary provisions regarding consistency in tax return
positions.
SECTION 9. MISCELLANEOUS.
-------------
Section 9.1 Survival. No provision of the Reorganization Agreement shall
--------
operate so as to terminate the operation of any provision of this Agreement.
This Agreement shall survive a Spin-Off or other separation transaction except
to the extent amended by an agreement described in Section 8.1 or an amendment
described in Section 9.4.
Section 9.2 Confidentiality. The provisions of the Reorganization
---------------
Agreement relating to confidentiality shall apply with respect to any
information obtained or learned by either party from the other party in
connection with the parties' performance of their respective obligations
hereunder.
Section 9.3 Tax Dispute Resolution. All Tax Disputes shall be resolved by
----------------------
the Tax Advisors of the disputing parties, but if with respect to any Tax
Dispute the Tax Advisors of the disputing parties cannot reach an agreement,
then the disputing parties shall appoint a mutually
9
<PAGE>
agreeable Tax Advisor to resolve the Tax Dispute, and if the disputing parties
cannot agree on a Tax Advisor to so appoint, then the Tax Dispute shall be
resolved in accordance with the provisions of the Reorganization Agreement
relating to dispute resolution.
Section 9.4 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall in any event be effective, unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
the other party but such waiver shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action against any breach of this Agreement or default by the other
party shall constitute a waiver of such party's right to enforce any provisions
hereof or to take any such action.
Section 9.5 Notices. Any notice to any party hereto given pursuant to
-------
this Agreement shall be in writing and shall be given by the means, and to the
addresses, set forth in the "Notices" section of the Reorganization Agreement.
Section 9.6 Successors and Assigns. This Agreement may not be assigned by
----------------------
either party without the prior written consent of the other party, and any
attempt to assign any rights or obligations hereunder without such consent shall
be void. This Agreement shall inure to the benefit of, and be binding upon and
enforceable against the respective successors and permitted assigns of the
parties hereto.
Section 9.7 Entire Agreement; Parties in Interest. This Agreement, the
-------------------------------------
schedules hereto (if any) and any applicable provisions of the Reorganization
Agreement and the Ancillary Agreements comprise the entire agreement between the
parties hereto as to the subject matter hereof and supersede all prior
agreements and understandings between them relating to the subject matter
hereof, and, except as explicitly provided, are not intended to confer upon any
person other than the parties hereto (including their successors and permitted
assigns) any rights or remedies.
Section 9.8 Overlap with Other Agreements. If both (i) the provisions of
-----------------------------
this Agreement and (ii) the provisions of the Reorganization Agreement or any
Ancillary Agreement are by their terms applicable, then both the provisions of
this Agreement and such other agreement shall apply, but if the provisions of
this Agreement and such other agreement are in conflict, then (with respect to
matters subject to this Agreement) the provisions of this Agreement shall
control.
Section 9.9 Severability. If any term or provision of this Agreement or
------------
the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable shall not be affected thereby and each term
and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
Section 9.10 Captions. Captions and headings are supplied herein for
--------
convenience only and shall not be deemed a part of this Agreement for any
purpose.
10
<PAGE>
Section 9.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal substantive laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of laws
thereof.
Section 9.12 Counterparts. This Agreement may be executed in several
------------
counterparts, and all counterparts so executed shall constitute one agreement,
binding upon the parties hereto, notwithstanding that the parties are not
signatory to the same counterpart.
IN WITNESS WHEREOF, Parent and Sub have caused this Agreement to be duly
executed by their authorized representatives as an agreement under seal as of
the date first written above.
PARENT:
Arthur D. Little, Inc., a Massachusetts
corporation
By:________________________________________
Name:
Title:
SUB:
c-quential, Inc., a Delaware corporation
By:________________________________________
Name:
Title:
11
<PAGE>
EXHIBIT 10.7
FORM OF REGISTRATION RIGHTS AGREEMENT
-------------------------------------
This Registration Rights Agreement (this "Agreement") is entered into as of
____________, 2000 by and between c-quential, Inc., a Delaware corporation (the
"Company"), and Arthur D. Little, Inc., a Massachusetts corporation ("ADL").
WHEREAS, ADL owns shares of the class B common stock, par value $.01 per
share, of the Company; and
WHEREAS, the execution and delivery of this Agreement is a condition to the
transactions contemplated by the Reorganization Agreement dated as of _____,
2000 by and among the Company, ADL and the other parties named therein.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions.
-----------
As used in this Agreement, the following terms have the following meanings:
"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
"Class A Stock" means the class A common stock, par value $.01 per share,
-------------
of the Company and any securities into which the Class A Stock shall have been
changed or any securities resulting from any reclassification or
recapitalization of the Class A Stock.
"Class B Stock" means the class B common stock, par value $.01 per share,
-------------
of the Company and any securities into which the Class B Stock shall have been
changed or any securities resulting from any reclassification or
recapitalization of the Class B Stock.
"Commission" means the United States Securities and Exchange Commission.
----------
"Common Stock" means, collectively, the Class A Stock and the Class B
------------
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Holder" means each holder of record of Registrable Securities.
------
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
<PAGE>
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, and by all other
amendments and supplements to the prospectus.
"Registrable Securities" means the Shares and any shares of Common Stock
----------------------
issued or issuable with respect to the Shares by reason of a stock dividend or
stock split, recapitalization or similar transaction, or a conversion of shares
from Class B Stock to Class A Stock, until such time as (i) a Registration
Statement covering such Registrable Securities has been declared effective and
---
such Registrable Securities have been disposed of pursuant to such effective
Registration Statement and the transferee receives certificates from such
securities not bearing a restrictive Securities Act legend, and (ii) such
Registrable Securities are transferred to any Person other than a Holder
pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A)
under the Securities Act, including a sale pursuant to the provisions of Rule
144(k) and the transferee receives certificates from such securities not bearing
a restrictive Securities Act legend.
"Registration Statement" means any registration statement of the Company
----------------------
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, and all amendments and supplements to any such registration
statement, including post-effective amendments, in each case including the
Prospectus, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"Shares" means the ________ shares of Class B Stock held by ADL.
------
Section 2. Demand Registration.
-------------------
(a) At any time after the date which is six months after the closing of the
initial underwritten public offering of the Common Stock registered under the
Securities Act, Holders holding at least 50% of the Registrable Securities then
outstanding propose to dispose of all or part of such Registrable Securities,
then such Holders may request the Company in writing to effect such registration
under the Securities Act, stating the number of shares of Registrable Securities
to be disposed of and the intended method(s) of disposition of such shares.
Holders of Registrable Securities which request registration pursuant to this
Section 2(a) are referred to herein as the "Initiating Holders". In connection
with any registration under this Section 2 involving an underwriting (an
"Underwritten Offering"), the Initiating Holders will have the right to select
an investment banker(s) and manager(s) for such Underwritten Offering, which
investment banker(s) and manager(s) shall be reasonably satisfactory to the
Company. Upon receipt of a request from the Initiating Holders, the Company
shall give prompt written notice thereof to all other Holders and shall use
commercially reasonable efforts to promptly effect the registration under the
Securities Act of all Registrable Securities specified in the requests of the
<PAGE>
Initiating Holders and the written requests (stating the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of such shares) of all other Holders given within 20 days after receipt of such
notice from the Company, all to the extent requisite to permit the disposition
(in accordance with the intended methods of disposition) of the Registrable
Securities to be registered.
(b) Notwithstanding the foregoing, the Company may postpone taking action
with respect to a registration requested pursuant to Section 2(a) (a "Demand
Registration") for a reasonable period of time after receipt of the request (not
exceeding 60 days) if, in the good faith opinion of the Company's Board of
Directors, effecting the registration would adversely affect a material
financing, acquisition, disposition of assets or stock, merger or other
comparable transaction or would require the Company to make public disclosure of
information the public disclosure of which could have a material adverse effect
upon the Company; provided that Company shall not delay such action pursuant to
--------
this sentence more than twice in any twelve (12) month period.
(c) If the managing underwriter(s) of an Underwritten Offering under this
Section 2 advises the Company that the number of securities to be sold in such
Underwritten Offering, is greater than the number which can be offered without
adversely impacting such Underwritten Offering, including, without limitation,
the price range or probability of success of such Underwritten Offering, then
the Company will include in such Underwritten Offering the number of securities
which the managing underwriter(s) advises the Company may be included in such
Underwritten Offering without such adverse impact in the following priority: (i)
first, Registrable Securities requested to be included in such registration by
the Holders (including the Initiating Holders) and (ii) second, other securities
of the Company proposed to be included in such registration, allocated among the
holders thereof in accordance with the priorities then existing among the
Company and the holders of such other securities.
Section 3. Piggyback Registration.
----------------------
(a) If at any time or times after the date hereof while any
Registrable Securities are outstanding the Company proposes to register under
the Securities Act any shares of Common Stock (other than (i) a registration on
Form S-8 or any successor form or in connection with any employee or director
welfare, benefit or compensation plan, (ii) a registration on Form S-4 or any
successor form or in connection with an exchange offer, (iii) a registration in
connection with a securities or rights offering exclusively to the Company's
securityholders, (iv) a registration in connection with an offering solely to
employees of the Company or its affiliates, (v) a registration relating to a
transaction pursuant to Rule 145 or any other similar rule of the Commission
under the Securities Act or (vi) a shelf registration), then the Company will
give written notice of such proposed registration to the Holders at least twenty
(20) days before the filing of any Registration Statement with respect thereto.
If within ten (10) days after such notice is given, the Company receives a
written request from any Holder for the inclusion in such Registration Statement
of some or all of the Registrable Securities held by such Holder (which request
will specify the number of Registrable Securities intended to be disposed of by
such Holder and the intended method of distribution thereof), the Company will
(subject to the provisions of paragraphs (b) and (c) of this Section 3) include
such Registrable Securities in
<PAGE>
such Registration Statement. The Company may withdraw a Registration Statement
filed under this Section 3 at any time prior to the time it becomes effective,
provided that the Company will give prompt notice of such withdrawal to the
Holders which requested to be included in such Registration Statement.
(b) In connection with any Underwritten Offering under this Section 3, the
Company will not be required to include a Holder's Registrable Securities in
such Underwritten Offering unless such Holder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
the Company. If the managing underwriter(s) of an Underwritten Offering under
this Section 3 advises the Company that the number of securities to be sold in
such Underwritten Offering, including by Persons other than the Company
(including the Holders) (collectively, the "Selling Stockholders"), is greater
than the number which can be offered without adversely impacting such
Underwritten Offering, including, without limitation, the price range or
probability of success of such Underwritten Offering, then the Company will
include in such Underwritten Offering the number of securities which the
managing underwriter(s) advises the Company may be included in such Underwritten
Offering without such adverse impact in the following priority:
(i) if such registration as initially proposed by the Company
was solely a primary registration of its securities, (A) first, all
securities the Company proposes to sell, (B) second, Registrable Securities
proposed to be sold by the Holders and (C) third, securities proposed to be
sold by all Selling Stockholders other than the Holders, allocated among
such Selling Stockholders in accordance with the priorities then existing
among the Company and such Selling Stockholders.
(ii) if such registration as initially proposed by the Company
was in whole or in part requested by holders of securities of the Company
(other than Holders) pursuant to demand registration rights, (A) first,
such securities held by the holders initiating such registration and, if
applicable, any securities proposed by the Company to be sold for its own
account, allocated in accordance with the priorities then existing among
the Company and such holders, (B) second, any Registrable Securities
requested to be included in such registration by the Holders, and (C)
third, any other securities of the Company proposed to be included in such
registration, allocated among the holders thereof in accordance with the
priorities then existing among the Company and such holders.
(d) Each Holder hereby agrees that such Holder may not participate in any
Underwritten Offering unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in the underwriting arrangements
applicable to such Underwritten Offering and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of the underwriting
arrangements for such Underwritten Offering.
<PAGE>
Section 4. Registration Procedures.
-----------------------
(a) The Company shall prepare promptly, and file with the
Commission as required by Section 2(a), a Registration Statement with respect to
the number of Registrable Securities specified as provided in Section 2(a), and
thereafter shall use commercially reasonable efforts to cause such Registration
Statement relating to Registrable Securities to become effective as soon as
possible after such filing, and keep the Registration Statement effective at all
times until the earlier of (i) which is 180 days after the effective date of the
Registration Statement, or (ii) the date on which all Holders with Registrable
Securities included in the Registration Statement have sold such Registrable
Securities. Each Holder shall give notice to the Company when it has sold all of
its Registrable Securities covered by a Registration Statement.
(b) The Company will notify each Holder whose Registrable
Securities are included in a Registration Statement of the effectiveness of such
Registration Statement and will furnish to each such Holder and the
underwriters, if any, without charge, such number of conformed copies of such
Registration Statement and any post-effective amendment thereto and such number
of copies of the Prospectus (including each preliminary Prospectus) and any
amendments or supplements thereto, as such Holder may reasonably request in
order to facilitate the sale of such Holder's Registrable Securities.
(c) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to each Registration Statement as
may be necessary to keep such Registration Statement effective for as long as
such registration is required to remain effective pursuant to the terms hereof;
shall cause the Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the
Securities Act; and shall comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all Registrable Securities
covered by such Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders set forth in
such Registration Statement or supplement to the Prospectus;
(d) The Company will use commercially reasonable efforts to
register or qualify the Registrable Securities covered by any Registration
Statement under such other securities or "blue sky" laws of such states of the
United States as any Holder or underwriter reasonably requests; provided,
--------
however, that the Company will not be required (i) to qualify as a foreign
- -------
corporation to do business in any jurisdiction in which it is not then
qualified, (ii) to file any general consent to service of process, or (iii) to
subject itself to taxation in any jurisdiction where it would not otherwise be
subject to taxation.
(e) The Company shall promptly notify each Holder and any
underwriter in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement or the initiation or threatening of
any proceedings for that purpose, (iv) of the issuance by any state
<PAGE>
securities commission or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, (v) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects, and (vi) of the happening of any event which makes any
statement made in a Registration Statement or related Prospectus untrue or which
requires the making of any changes in such Registration Statement or Prospectus
so that they will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Immediately following expiration of any Suspension Period (as
defined in Section 5), the Company shall prepare and file with the Commission
and furnish a supplement or amendment to such Prospectus so that, as thereafter
deliverable to the purchasers of such Registrable Securities, such Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) The Company shall make generally available to the Holders an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act no later than 45 days (90 days in the event it relates to a fiscal year)
after the end of the 12-month period beginning with the first day of the
Company's first fiscal quarter commencing after the effective date of a
Registration Statement, which earnings statement shall cover said 12-month
period, and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on forms 10-Q, 10-K and 8-K under
the Exchange Act and otherwise complies with Rule 158 under the Securities Act.
(g) The Company shall promptly use commercially reasonable efforts
to prevent the issuance of any order suspending the effectiveness of a
Registration Statement, and if one is issued use commercially reasonably to
obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement at the earliest possible moment.
(h) The Company shall, if requested by the managing underwriter or
underwriters, if any, Holders' counsel, or any Holder promptly incorporate in a
Prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters reasonably requests, or Holders' counsel
reasonably requests, to be included therein, including, without limitation, with
respect to the Registrable Securities being sold by such Holder to such
underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of an
underwritten offering of the Registrable Securities to be sold in such offering,
and promptly make all required filings of such Prospectus supplement or post-
effective amendment.
(i) In the case of any underwritten public offering, the Company
shall furnish to each Holder and to each underwriter a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion or opinions of
counsel to the Company, and (ii) a comfort letter or comfort letters from the
Company's independent public accountants, each in customary form and
<PAGE>
covering such matters of the type customarily covered by opinions or comfort
letters, as the case may be, as the managing underwriter therefor reasonably
requests.
(j) The Company shall cause the shares of Common Stock included in a
Registration Statement to be listed on each securities exchange (or quoted on
each interdealer quotation system), if any, on which similar securities issued
by the Company are then listed.
Section 5. Suspension Period.
-----------------
Each Holder, upon receipt of any notice (a "Suspension Notice") from the
Company of the happening of any event of the kind described in Section 4(e)(vi),
shall forthwith discontinue disposition of the Registrable Securities pursuant
to the Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(f) or until it is advised in writing (the "Advice") by
the Company that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings which are incorporated by
reference in the Prospectus, and, if so directed by the Company, such Holder
will, or will request the managing underwriter or underwriters, if any, to,
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice; provided, however, that (x) the Company shall not give a Suspension
-------- -------
Notice until after a Registration Statement has been declared effective, (y) the
Company shall not give more than two Suspension Notices during any period of
twelve consecutive months and (z) in no event shall the period from the date on
which any Holder receives a Suspension Notice to the date on which any Holder
receives either the Advice or copies of the supplemented or amended Prospectus
contemplated by Section 4(e) (the "Suspension Period") exceed 60 days. In the
event that the Company shall give any Suspension Notice, the Company shall use
commercially reasonable efforts and take such actions as are reasonably
necessary to render the Advice and end the Suspension Period as promptly as
practicable.
Section 6. Registration Expenses. Any and all expenses incident to the
---------------------
Company's performance of or compliance with this Agreement, including without
limitation all Commission and securities exchange, NASDAQ or NASD registration
and filing fees, all fees and expenses incurred in connection with compliance
with state securities or "blue sky" laws (including reasonable fees and
disbursements of counsel for any underwriters in connection with "blue sky"
qualifications of the Registrable Securities), printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of the Company's officers and employees performing legal
or accounting duties), all expenses for word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, the fees and expenses incurred in connection with the listing of the
Registrable Securities, the fees and disbursements of counsel for the Company
and of the independent certified public accountants of the Company (including
the expenses of any special audit or comfort letters Securities Act liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of any
<PAGE>
special experts or other Persons retained by the Company in connection with any
registration, the reasonable fees and disbursements of no more than one firm of
legal counsel for the Holders and any reasonable out-of-pocket expenses of the
Holders and their agents (other than their counsel) including any reasonable
travel costs (all such expenses being herein called "Registration Expenses"),
will be borne by the Company whether or not the Registration Statement to which
such expenses relate becomes effective provided, however, that Registration
-------- -------
Expenses shall not include underwriting fees, discounts or commissions
attributable to the sale or disposition of Registrable Securities.
Section 7. Indemnification and Contribution.
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, each Holder, its officers,
directors, employees and agents and each Person, if any, which controls such
Holder within the meaning of either Section 15 of the Securities Act or Section
20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(collectively, "Controlling Persons"), from and against all losses, claims,
damages, liabilities and expenses (including without limitation any legal or
other fees and expenses reasonably incurred by any Holder or any such
Controlling Person in connection with defending or investigating any action or
claim in respect thereof) (collectively, "Damages") to which any of them may
become subject under the Securities Act or otherwise, insofar as such Damages
arise out of or are based upon (i) any untrue or alleged untrue statement of
material fact contained in any Registration Statement (including any related
preliminary or final Prospectus) pursuant to which Registrable Securities of
such Holder were registered under the Securities Act, (ii) any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"), except insofar as and to the extent that
such Violation arose out of or was based upon information regarding such Holder
or its plan of distribution which was furnished to the Company by such Holder
for use therein, provided, further that the Company will not be liable to any
person who participates as an underwriter in the offering or sale of Registrable
Securities or any Controlling Person of such underwriter, in any such case to
the extent that any such Damages arise out of or are based upon (A) an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement (including any related preliminary or final
Prospectus) in reliance upon and in conformity with information furnished to the
Company for use in connection with the Registration Statement or the Prospectus
contained therein by such underwriter or Controlling Person or (B) the failure
of such underwriter or Controlling Person to send or give a copy of the final
Prospectus furnished to it by the Company at or prior to the time such action is
required by the Securities Act to the person claiming an untrue statement or
alleged untrue statement or omission or alleged omission if such statement or
omission was corrected in such final prospectus. The obligations of the Company
under this Section 7(a) shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Agreement
or otherwise and shall survive the termination of this Agreement.
<PAGE>
(b) Indemnification by the Holders. Each Holder agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, the Company, its directors,
officers, employees and agents and each Controlling Person of the Company, from
and against any and all Damages to which any of them may become subject under
the Securities Act or otherwise to the extent such Damages arise out of or are
based upon any Violation, in each case to the extent that such Violation occurs
as a result of (i) any untrue statement or alleged untrue statement of material
fact contained in any Registration Statement (including any related preliminary
or final Prospectus), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, if and to the extent that such statement or omission arose out of or
was based upon information regarding such Holder or its plan of distribution
which was furnished to the Company by such Holder for use therein, or (ii) the
failure by such Holder to deliver or cause to be delivered to any purchaser of
the shares covered by the Registration Statement the Prospectus contained in the
Registration Statement (as amended or supplemented, if applicable) furnished by
the Company to such Holder. Notwithstanding the foregoing, (A) in no event will
a Holder have any obligation under this Section 7(b) for amounts the Company
pays in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld) and (B) the total amount for which a Holder shall
be liable under this Section 7(b) shall not in any event exceed the aggregate
net proceeds received by such Holder from the sale of the Holder's Registrable
Securities in such registration. The obligations of the Holders under this
Section 7(b) shall survive the completion of any offering of Registrable
Securities pursuant to a Registration Statement under this Agreement or
otherwise and shall survive the termination of this Agreement.
(c) Contribution. To the extent that the indemnification provided for in
------------
paragraph (a) or (b) of this Section 7 is held by a court of competent
jurisdiction to be unavailable to an indemnified party in respect of any
Damages, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, will contribute to the amount
paid or payable by such indemnified party as a result of such Damages (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand, and each Holder on the other, from the offering of
the Registrable Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, on the one hand, and the Holders, on the
other, in connection with the statements or omissions which resulted in such
Damages, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Holders on the other hand will
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, however,
-------- -------
that in no event shall the obligation of any indemnifying party to contribute
under this Section 7(c) exceed the amount that such indemnifying party would
have been obligated to pay by way of indemnification if the indemnification
provided for under paragraph (a) or (b) of this Section 7 had been available
under the circumstances.
<PAGE>
If indemnification is available under paragraph (a) or (b) of this Section
7, the indemnifying parties will indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative benefits to or
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 7(c).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 7(c) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
(d) Notice. Promptly after receipt by an indemnified party under this
------
Section 5 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to made against any indemnifying party under this Section 7, deliver
to the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the indemnified party, as
the case may be; provided, however, that an indemnified party shall have the
-------- -------
right to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the indemnified party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The Company shall pay
reasonable fees for only one separate legal counsel for the Holders. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the indemnified party under this Section 7, except to
the extent that the indemnifying party is prejudiced in its ability to defend
such action.
Section 8. Rule 144. The Company will use its best efforts to file in a
--------
timely manner all reports and other documents required to be filed by it under
the Securities Act and the Exchange Act and will use its best efforts to make
and keep public information available (as defined under Rule 144 under the
Securities Act) at all times from and after 90 days following the effective date
of the Initial Public Offering. Upon the request of any Holder, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
Section 9. Covenants of Holders.
--------------------
(a) Each Holder will furnish to the Company such information regarding such
Holder and such Holder's intended method of distribution of the Registrable
Securities as the Company may from time to time reasonably request in writing in
order to comply with the Securities Act and the provisions of this Agreement.
<PAGE>
(b) Each Holder will, to the extent required by the Securities Act, deliver
or cause delivery of the Prospectus contained in a Registration Statement to any
purchaser of such Holder's Registrable Securities covered by such Registration
Statement.
(c) Each Holder will notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by the Holder to the
Company or of the occurrence of any event, in either case as a result of which
any Prospectus contains or would contain an untrue statement of a material fact
regarding the Holder or the Holder's intended method of distribution of the
Registrable Securities or omits or would omit to state any material fact
regarding the Holder or the Holder's intended method of distribution of the
Registrable Securities required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and promptly furnish to the Company any additional information required to
correct and update any previously furnished information or required so that the
Prospectus will not contain, with respect to the Holder or the Holder's intended
method of distribution of the Registrable Securities, an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.
(d) Each Holder whose Registrable Securities are covered by a Registration
Statement filed pursuant to Section 2 or 3 hereof will, if requested by the
Company in the case of a nonunderwritten offering (a "Nonunderwritten Offering"
and, together with an Underwritten Offering, an "Offering") or if requested by
the managing underwriter(s) in an Underwritten Offering, not effect any public
sale or distribution of any of any securities of the Company of any class
included in such Offering, including a sale pursuant to Rule 144 or Rule 144A
under the Securities Act (except as part of such Offering), during the 15-day
period prior to, and during the 180-day period (or such longer period as may be
required by the managing underwriter(s)) beginning on, the date of pricing of
each Offering, to the extent timely notified in writing by the Company or the
managing underwriter(s).
Section 10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement, including
----------------------
this Section 10(a), may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof will not be effective, unless
approved in writing by the Company and Holders of a majority in interest of the
Registrable Securities then outstanding. The failure of any party to enforce
any of the provisions of this Agreement will in no way be construed as a waiver
of such provisions and will not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by facsimile, registered or certified mail
(return receipt requested), postage prepaid or courier or overnight delivery
service to the Company at the following address and to each Holder at the
address set forth below such Holder's signature to this Agreement (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof),
and further provided that in case of directions to
<PAGE>
amend the Registration Statement pursuant to Section 9, a Holder must confirm
such notice in writing by overnight express delivery with confirmation of
receipt:
If to the Company: c-quential, Inc.
Seestrasse 185
CH-8800 Thalwil, Zurich
Attention: President
Facsimile No.:
with a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Robert P. Whalen, Jr., P.C.
Facsimile No. (617) 523-1231
If to any Holder, to: The last address (or facsimile number)
for such Person set forth in the records
of the Company.
All such notices and other communications will (i) if delivered personally
to the address as provided in this Section 10(b), be deemed given upon delivery,
(ii) if delivered by facsimile transmission to the facsimile number as provided
in this Section 10(b), be deemed given upon receipt of confirmation, (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 10(b), be deemed given on the earlier of the third full Business
Day following the day of mailing or upon receipt, and (iv) if delivered by
overnight courier to the address provided in this Section 10(b), be deemed given
on the earlier of the first Business Day following the date sent by such
overnight courier or upon receipt.
In addition to the manner of notice permitted above, notices given pursuant to
Sections 1 and 6 hereof may be effected telephonically and confirmed in writing
thereafter in the manner described above.
(c) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors, assigns and transferees of each of the
parties from ADL or a subsequent Holder shall be entitled to the benefits of and
bound by the obligations under this Agreement only upon execution and delivery
by such transferee to the Company of a joinder agreement reasonably satisfactory
to the Company stating that such transferee agrees to be bound by the terms of
this Agreement as a "Holder."
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed will be deemed to be an original and all of which taken
together will constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and will not limit or otherwise affect the meaning hereof.
<PAGE>
(f) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
(g) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein will not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
will be enforceable to the fullest extent permitted by law.
(h) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and is intended to be the complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(i) Dispute Resolution. All disputes, controversies or claims between ADL
------------------
and the Company arising out of or relating to this Agreement shall be resolved
in accordance with the provisions of the Reorganization Agreement relating to
dispute resolution.
(j) Remedies. In the event of a breach by any party of its obligations
--------
under this Agreement, any party injured by such breach, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense in any action for specific
performance that a remedy at law would be adequate is waived.
[End of Text]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first set forth above.
C-QUENTIAL, INC.
____________________________________
Name:
Title:
ARTHUR D. LITTLE, INC.
_____________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.8
FORM OF DIRECTOR INDEMNIFICATION AGREEMENT
This Agreement made and entered into this ____ day of ____________ 2000,
(the "Agreement"), by and between c-quential, Inc., a Delaware corporation (the
"Company," which term shall include, where appropriate, any Entity (as
hereinafter defined) controlled directly or indirectly by the Company) and
____________ (the "Indemnitee"):
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's By-laws (the "By-laws") require it to indemnify its
directors to the fullest extent permitted by law and permit it to make other
indemnification arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the By-laws or any change in the ownership of the Company or
the composition of its Board of Directors);
WHEREAS, the Company intends that this Agreement provide Indemnitee with
greater protection than that which is provided by the Company's By-laws; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in becoming a director of the Company.
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
(a) "Corporate Status" describes the status of a person who is
serving or has served (i) as a director of the Company, (ii) in any
capacity with respect to any employee benefit plan of the Company, or
(iii) as a director, partner, trustee, officer, employee, or agent of
any other Entity at the request of the Company. For purposes of
subsection (iii) of this Section 1(a), if Indemnitee is serving or has
served as a director, partner, trustee, officer, employee or agent of
a
<PAGE>
Subsidiary, Indemnitee shall be deemed to be serving at the request of
the Company.
(b) "Entity" shall mean any corporation, partnership, limited
liability company, joint venture, trust, foundation, association,
organization or other legal entity.
(c) "Expenses" shall mean all fees, costs and expenses incurred by
Indemnitee in connection with any Proceeding (as defined below),
including, without limitation, attorneys' fees, disbursements and
retainers (including, without limitation, any such fees, disbursements
and retainers incurred by Indemnitee pursuant to Sections 10 and 11(c)
of this Agreement), fees and disbursements of expert witnesses,
private investigators and professional advisors (including, without
limitation, accountants and investment bankers), court costs,
transcript costs, fees of experts, travel expenses, duplicating,
printing and binding costs, telephone and fax transmission charges,
postage, delivery services, secretarial services, and other
disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those
terms in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed
claim, action, suit, arbitration, alternate dispute resolution
process, investigation, administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, whether formal or informal, including a proceeding
initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other Entity of which the
Company owns (either directly or through or together with another
Subsidiary of the Company) either (i) a general partner, managing
member or other similar interest or (ii) (A) 50% or more of the voting
power of the voting capital equity interests of such corporation,
partnership, limited liability company, joint venture or other Entity,
or (B) 50% or more of the outstanding voting capital stock or other
voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.
2
<PAGE>
2. Services of Indemnitee. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director of the Company. However, this Agreement shall not impose any obligation
on Indemnitee or the Company to continue Indemnitee's service to the Company
beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee as
follows:
(a) Proceedings Other Than By or In the Right of the Company. Subject
--------------------------------------------------------
to the exceptions contained in Section 4(a) below, if Indemnitee was
or is a party or is threatened to be made a party to any Proceeding
(other than an action by or in the right of the Company) by reason of
Indemnitee's Corporate Status, Indemnitee shall be indemnified by the
Company against all Expenses and Liabilities incurred or paid by
Indemnitee in connection with such Proceeding (referred to herein as
"Indemnifiable Expenses" and "Indemnifiable Liabilities,"
respectively, and collectively as "Indemnifiable Amounts").
(b) Proceedings By or In the Right of the Company. Subject to the
---------------------------------------------
exceptions contained in Section 4(b) below, if Indemnitee was or is a
party or is threatened to be made a party to any Proceeding by or in
the right of the Company by reason of Indemnitee's Corporate Status,
Indemnitee shall be indemnified by the Company against all
Indemnifiable Expenses.
(c) Conclusive Presumption Regarding Standard of Care. In making any
-------------------------------------------------
determination required to be made under Delaware law with respect to
entitlement to indemnification hereunder, the person, persons or
entity making such determination shall presume that Indemnitee is
entitled to indemnification under this Agreement if Indemnitee
submitted a request therefor in accordance with Section 5 of this
Agreement, and the Company shall have the burden of proof to overcome
that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
4. Exceptions to Indemnification. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than with respect to any specific claim, issue or matter involved in the
Proceeding out of which Indemnitee's claim for indemnification has arisen, as
follows:
(a) Proceedings Other Than By or In the Right of the Company. If
--------------------------------------------------------
indemnification is requested under Section 3(a) and it has been
finally adjudicated by a court of competent jurisdiction that, in
connection with such specific claim, issue or matter, Indemnitee
failed to act (i) in good faith and (ii) in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding,
3
<PAGE>
Indemnitee had reasonable cause to believe that Indemnitee's conduct
was unlawful, Indemnitee shall not be entitled to payment of
Indemnifiable Amounts hereunder.
(b) Proceedings By or In the Right of the Company. If
---------------------------------------------
indemnification is requested under Section 3(b) and
(i) it has been finally adjudicated by a court of competent
jurisdiction that, in connection with such specific claim,
issue or matter, Indemnitee failed to act (A) in good faith
and (B) in a manner Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company,
Indemnitee shall not be entitled to payment of Indemnifiable
Expenses hereunder; or
(ii) it has been finally adjudicated by a court of competent
jurisdiction that Indemnitee is liable to the Company with
respect to such specific claim, no Indemnifiable Expenses
shall be paid with respect to such claim, issue or matter
unless the Court of Chancery or another court in which such
Proceeding was brought shall determine upon application
that, despite the adjudication of liability, but in view of
all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnification for such
Indemnifiable Expenses which such court shall deem proper;
or
(iii) it has been finally adjudicated by a court of
competent jurisdiction that Indemnitee is liable to the
Company for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, the rules and regulations
promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law.
(c) Insurance Proceeds. To the extent payment is actually made to the
------------------
Indemnitee under a valid and collectible insurance policy in respect
of Indemnifiable Expenses in connection with such specific claim,
issue or matter, Indemnitee shall not be entitled to payment of
Indemnifiable Expenses hereunder except in respect of any excess
beyond the amount of payment under such insurance.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
----------------------------------------------
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company
4
<PAGE>
shall pay such Indemnifiable Amounts to Indemnitee within sixty (60) calendar
days of receipt of the request. At the request of the Company, Indemnitee shall
furnish such documentation and information as are reasonably available to
Indemnitee and necessary to establish that Indemnitee is entitled to
indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, by
reason of settlement, judgment, order or otherwise, shall be deemed to be a
successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create a presumption that
Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
8. Agreement to Advance Expenses; Undertaking. The Company shall advance
all Expenses incurred by or on behalf Indemnitee in connection with any
Proceeding, including a Proceeding by or in the right of the Company, in which
Indemnitee is involved by reason of such Indemnitee's Corporate Status within
ten (10) calendar days after the receipt by the Company of a written statement
from Indemnitee requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. To the extent required
by Delaware law, Indemnitee hereby undertakes to repay any and all of the amount
of Indemnifiable Expenses paid to Indemnitee if it is finally determined by a
court of competent jurisdiction that Indemnitee is not entitled under this
Agreement to indemnification with respect to such Expenses. This undertaking is
an unlimited general obligation of Indemnitee.
9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable
5
<PAGE>
Expenses under Section 8 shall be made no later than ten (10) calendar days
after the Company's receipt of such request.
10. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee makes a
-----------------------
request for payment of Indemnifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under
Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this
Agreement, Indemnitee may petition the Court of Chancery to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under Section
---------------
10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in full for
--------
any Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any action brought by
Indemnitee under Section 10(a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith,
whether or not Indemnitee is successful in whole or in part in
connection with any such action.
(d) Failure to Act Not a Defense. The failure of the Company
----------------------------
(including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination
concerning the permissibility of the payment of Indemnifiable Amounts
or the advancement of Indemnifiable Expenses under this Agreement
shall not be a defense in any action brought under Section 10(a)
above, and shall not create a presumption that such payment or
advancement is not permissible.
11. Defense of the Underlying Proceeding.
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company
--------------------
promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any
Proceeding which may result in the payment of Indemnifiable Amounts or
the advancement of Indemnifiable Expenses hereunder; provided,
however, that the failure to give any such notice shall not disqualify
Indemnitee from the right, or otherwise affect in any manner any right
of Indemnitee, to receive payments of Indemnifiable Amounts or
advancements of Indemnifiable Expenses unless the Company's ability to
defend in such Proceeding is materially and adversely prejudiced
thereby.
6
<PAGE>
(b) Defense by Company. Subject to the provisions of the last
------------------
sentence of this Section 11(b) and of Section 11(c) below, the Company
shall have the right to defend Indemnitee in any Proceeding which may
give rise to the payment of Indemnifiable Amounts hereunder; provided,
however that the Company shall notify Indemnitee of any such decision
to defend within ten (10) calendar days of receipt of notice of any
such Proceeding under Section 11(a) above. The Company shall not,
without the prior written consent of Indemnitee, consent to the entry
of any judgment against Indemnitee or enter into any settlement or
compromise which (i) includes an admission of fault of Indemnitee or
(ii) does not include, as an unconditional term thereof, the full
release of Indemnitee from all liability in respect of such
Proceeding, which release shall be in form and substance reasonably
satisfactory to Indemnitee. This Section 11(b) shall not apply to a
Proceeding brought by Indemnitee under Section 10(a) above or pursuant
to Section 19 below.
(c) Indemnitee's Right to Counsel. Notwithstanding the provisions of
-----------------------------
Section 11(b) above, if in a Proceeding to which Indemnitee is a party
by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably
concludes that he or she may have separate defenses or counterclaims
to assert with respect to any issue which may not be consistent with
the position of other defendants in such Proceeding, (ii) a conflict
of interest or potential conflict of interest exists between
Indemnitee and the Company, or if the Company fails to assume the
defense of such proceeding in a timely manner, Indemnitee shall be
entitled to be represented by separate legal counsel of Indemnitee's
choice at the expense of the Company. In addition, if the Company
fails to comply with any of its obligations under this Agreement or in
the event that the Company or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any
action, suit or proceeding to deny or to recover from Indemnitee the
benefits intended to be provided to Indemnitee hereunder, Indemnitee
shall have the right to retain counsel of Indemnitee's choice, at the
expense of the Company, to represent Indemnitee in connection with any
such matter.
12. Representations and Warranties of the Company. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
---------
enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated
by this Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by
--------------
the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by
7
<PAGE>
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the enforcement of creditors' rights generally.
13. Insurance. The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with a reputable insurance company
providing the Indemnitee with coverage for losses from wrongful acts, and to
ensure the Company's performance of its indemnification obligations under this
Agreement. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. Contract Rights Not Exclusive. The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's Certificate of
Incorporation or By-laws, or any other agreement, vote of stockholders or
directors (or a committee of directors), or otherwise, both as to action in
Indemnitee's official capacity and as to action in any other capacity as a
result of Indemnitee's serving as a director of the Company.
15. Successors. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This Agreement
shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. Subrogation. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. Change in Law. To the extent that a change in Delaware law (whether by
statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the By-laws and this
Agreement, Indemnitee shall be
8
<PAGE>
entitled to such broader indemnification and advancements, and this Agreement
shall be deemed to be amended to such extent.
18. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless the Board
of Directors of the Company has consented to the initiation of such Proceeding.
This Section shall not apply to counterclaims or affirmative defenses asserted
by Indemnitee in an action brought against Indemnitee.
20. Modifications and Waiver. Except as provided in Section 17 above with
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. General Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
9
<PAGE>
(i) If to Indemnitee, to:
______________________________
______________________________
______________________________
______________________________
(ii) If to the Company, to:
______________________________
______________________________
______________________________
______________________________
or to such other address as may have been furnished in the same manner by any
party to the others.
22. Governing Law; Consent to Jurisdiction; Service of Process. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to its rules of conflict of laws. Each of the
Company and the Indemnitee hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the Court of Chancery of the State of
Delaware and the courts of the United States of America located in the State of
Delaware (the "Delaware Courts") for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts
and agrees not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in an inconvenient forum. Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to service
of process in the State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of legal process, and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as if served upon such party
personally within the State of Delaware. For purposes of implementing the
parties' agreement to appoint and maintain an agent for service of process in
the State of Delaware, each such party does hereby appoint The Corporation Trust
Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, as
such agent and each such party hereby agrees to complete all actions necessary
for such appointment.
[signature page follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
C-QUENTIAL, INC.
By:_________________________________
Name:
Title:
INDEMNITEE
____________________________________
11
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of c-quential, Inc. on
Form S-1 of our report dated May 5, 2000, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 304
<SECURITIES> 0
<RECEIVABLES> 24,048
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,385
<PP&E> 79
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,433
<CURRENT-LIABILITIES> 24,838
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,595
<TOTAL-LIABILITY-AND-EQUITY> 28,433
<SALES> 106,580
<TOTAL-REVENUES> 106,580
<CGS> 62,152
<TOTAL-COSTS> 27,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,134
<INCOME-TAX> 6,340
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,794
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
