<PAGE>
As filed with the Securities and Exchange Commission on July 25, 2000
Registration Statement No. 333-36652
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
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. [_]
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion, dated July 25, 2000
7,250,000 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 $13.00 and $15.00 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>
Following this offering, Arthur D. Little, Inc., or ADL, will own all of the
outstanding shares of our unlisted Class B common stock and 71% of the
outstanding shares of our Class A common stock, or 68% of our Class A common
stock if the underwriters fully exercise their over-allotment option. As a
result, ADL will own common stock representing 96% of the combined voting power
of all classes of our 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 stock, and we have
agreed that we will not take any action or fail to take any action that would
result in ADL owning less than either 80% of our outstanding shares of capital
stock or 80% of the voting power of our capital stock. ADL will indirectly
receive $42 million from the net proceeds of this offering.
We have granted the underwriters the right to purchase up to 1,088,000
additional shares within 30 days after the date of this prospectus 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.......... 12
Use of Proceeds..................... 13
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Financial Data............. 16
Managment's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 29
Management....................... 43
Our Relationship with ADL........ 49
Principal Shareholders........... 52
Description of Capital Stock..... 53
Shares Eligible for Future Sale.. 57
Underwriting..................... 58
Legal Matters.................... 61
Experts.......................... 61
Additional Information........... 61
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 may not
sell shares of our Class A common stock until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell shares of our Class A common stock and it is not
soliciting an offer to buy shares of our Class A common stock in any state
where the offer or sale is not 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.
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.
<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
industries. Among our clients and competitors, these four industries are
commonly referred to collectively as the TIME industries. We help our clients
realize the opportunities, address the challenges and mitigate the risks
presented by rapid and significant advances in computing and communications
technologies and regulatory changes in the telecommunications sector. We
combine in-depth knowledge of the TIME industries, technology expertise,
strategy development and implementation capabilities to provide an integrated
range of consulting services to our clients. 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.
From 1995 until August 2000, we operated as the TIME industries-focused
consulting segment of Arthur D. Little, Inc., or ADL, a privately-held global
consulting firm. On August , 2000, ADL transferred this business to c-
quential, Inc., which was formed as a wholly-owned subsidiary of ADL in March
2000.
Our services include technology strategy, network and systems roll-out
project management, organizational design and change, and implementation
management. Our revenue consists of fees for professional services rendered to
our clients. We provide substantially all of our services and earn fees on a
time (per-hour) and materials basis. Our costs consist of direct costs, which
are made up of payroll and fringe benefits costs for our professionals and
independent consultants, and subcontracting costs, which include fees we pay to
ADL when we utilize its professionals on our client engagements.
Our top five clients, based on revenue for the year ended December 31, 1999
were: ETG Consortium, KPN Telecom, Telefonaktiebolaget LM Ericsson, Siemens AG
and Hyundai Group. We also serve a broad range of other clients including
Mannesmann AG, Samsung Group, Chase Manhattan Corporation, Orange Plc, British
Broadcasting Corporation and Compaq Computer Corporation. In the three months
ended March 31, 2000, 76% of our revenue was derived from clients in Europe, 9%
from clients in North America, 12% from clients in Asia Pacific, and 3% from
clients in Latin America and other regions.
Our Market Opportunity
The development and deployment of new technologies, such as wireless and
broadband communications and mobile commerce, or m-commerce, is creating many
new communications-based applications for businesses and consumers. To address
the opportunities and challenges presented by technology-driven changes, 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, the time and expense
associated with the recruitment of specialists 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 increasing use of the Internet is further spurring
demand for consulting services as companies seek to improve their business
practices
1
<PAGE>
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 $16.2
billion in 1999 to $99.1 billion in 2004, representing a 44% compound annual
growth rate.
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 and our media and electronics
practices globally
. building the c-quential brand
. establishing and fostering relationships with venture capital firms,
start-ups and business incubators
Risk Factors
The principal risks we face in implementing our strategy are that our
business and its potential for growth will be harmed if:
. we are unable to successfully make the transition to an independent,
publicly-traded company from our status as a part of a large, privately-
held company
. we are unable to attract, motivate and retain a significant number of
professionals
. we lose the services of a substantial number of our partner-level
professionals or executive officers
. we are unable to develop sufficient awareness of the c-quential brand
. we are unable to compete effectively in our highly competitive market
Our History and Relationship with ADL
We operated as part of ADL's Global Management Consulting business from 1995
until August , 2000, when ADL transferred our business to a newly-formed
entity, c-quential, Inc. Prior to this transfer, we were not a separate
subsidiary or division of ADL. After the completion of this offering, we will
operate independently from ADL, although ADL will own all of the outstanding
shares of our unlisted Class B common stock and 71% of the outstanding shares
of our Class A common stock, or 68% of our Class A common stock if the
underwriters fully exercise their over-allotment option. As a result, ADL will
own common stock representing 96% of the combined voting power of all classes
of our common stock. ADL determined to effect this offering in order to raise
capital for c-quential, retire a portion of ADL's debt, create a public market
for c-quential's securities and create value for the shareholders of ADL.
On August , 2000, we entered into agreements with ADL that provide for:
. the transfer of the TIME industries-focused consulting practice of ADL
to us in exchange for shares of our Class A and Class B common stock
. our agreement to repay approximately $40 million of ADL's debt
. the grant to us of the right to use space in ADL-leased real property
for the term of the underlying ADL master lease at a rate equal to ADL's
actual cost of leasing such space
2
<PAGE>
. the grant of licenses to us to use ADL intellectual property related to
our business exclusively for a three-year period following this offering
. certain administrative and corporate services to be provided by ADL to
us, and by us to ADL, for three years following this offering at a rate
equal to the actual cost of providing such services
. the allocation of tax liabilities and benefits between ADL and us for an
unlimited period of time
. the grant to ADL of registration rights relating to our common stock
Trademarks
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 ADL, which are the property of their
respective owners.
The Offering
<TABLE>
<S> <C>
Class A common stock offered................. 7,250,000 shares
Common stock outstanding after this offering:
Class A common stock..................... 25,250,000 shares
Class B common stock..................... 18,000,000 shares
Total common stock........................... 43,250,000 shares
Use of proceeds.............................. Repayment of debt of ADL and related
entities assumed by us prior to the
offering, 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:
. 1,088,000 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 available for future grant under our
2000 Stock Option and Incentive Plan
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.
3
<PAGE>
Summary Financial Data
The following tables summarize the statement of operations data and balance
sheet data for our business operated as the TIME industries-focused consulting
practice of ADL's Global Management Consulting 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 three months ended April 2, 1999 and March
31, 2000 and the balance sheet data as of March 31, 2000 are derived from our
unaudited condensed financial statements included elsewhere in this prospectus.
The statement of operations data for the years ended December 31, 1995 and 1996
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 and the three
months ended March 31, 2000 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 March 31, 2000 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 in exchange for shares of our Class A and Class B common stock,
our assumption of $40 million of debt from ADL and ADL's retention of
accounts receivable
. on a pro forma, as adjusted basis to reflect the sale of the 7,250,000
shares of Class A common stock in this offering at an assumed initial
public offering price of $14.00 per share, after the deduction of
estimated underwriting discounts and commissions, and our estimated
offering expenses and the repayment of the $40 million of debt assumed
from ADL.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
-------------------------------------------------- ------------------
March 31,
1999 April 2, March 31, 2000 Pro
1995 1996 1997 1998 1999 Pro Forma 1999 2000 Forma
------- ------- ------- ------- -------- --------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <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 $26,494 $29,058 $29,058
Gross profit.......... 15,748 19,019 22,530 29,560 44,428 44,428 11,026 14,271 14,271
Income before taxes... 4,403 6,006 8,186 9,815 17,134 18,981 4,107 5,301 5,833
Net income............ $ 2,686 $ 3,664 $ 4,993 $ 6,085 $ 10,794 $ 11,958 $ 2,587 $ 3,181 $ 3,500
======= ======= ======= ======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 49 $ 49 $50,244
Working capital (deficit)...................... (564) (40,564) 49,631
Total assets................................... 30,775 4,016 54,211
Debt assumed from ADL.......................... -- 40,000 --
TIME Practice/Stockholders' equity (deficit)... 3,289 (36,711) 53,484
</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
Our business may be adversely affected if the services we obtain from ADL are
inadequate and we are unable to replace them satisfactorily
The business operated by c-quential has been a part of ADL's Global
Management Consulting business since 1995. On August , 2000, ADL transferred
this business to us, a newly-formed entity, c-quential, Inc. We have no
experience in operating our business independently from ADL, and our business
will be adversely affected if we do not successfully obtain the infrastructure
and administrative support needed to operate independently of ADL. At the time
of the transfer of our business to c-quential, we entered into contractual
arrangements with ADL under which ADL agreed to provide infrastructure and
administrative support to us, including services related to:
. space, facilities and equipment
. information technology systems
. human resources administration
. legal, finance and accounting
Though ADL is contractually obligated to provide these services and
facilities, generally for three to five years following this offering, we can
not be sure that these arrangements will be sufficient to support our current
operations or future growth or that we will be able to find suitable substitute
arrangements after the terms of our arrangements with ADL expire.
Our costs may increase as our agreements with ADL expire or the services we
obtain from ADL become inadequate and we are forced to obtain these services
from third parties
Our agreements with ADL under which ADL has agreed to provide us with
services and facilities have limited terms, generally of three to five years.
We may find that the services we obtain from ADL are inadequate to support our
growth. As our arrangements with ADL expire or if they become unsatisfactory to
us, we will be forced to renegotiate with ADL or obtain substitute or
supplementary services from third parties. The terms of these renegotiated or
new arrangements may not be as favorable to us as our existing agreements with
ADL.
We may incur costs under our agreements with ADL that are higher than those we
would incur if we obtained services and facilities from unrelated third parties
The terms of our agreements with ADL for the provision of infrastructure
support and administrative services were not determined through arm's length
negotiations. We can not be sure that the terms of these arrangements are as
favorable to us as the terms that we may have obtained through negotiations
with an unaffiliated third party.
Our ability to issue equity to motivate and retain our professionals, make
acquisitions and raise capital is limited by our obligation to maintain ADL's
ownership percentage and voting power
Following this offering, ADL will own 83% of our outstanding shares of
capital stock, or 81% if the underwriters fully exercise their over-allotment
option. In connection with the separation of our business from ADL, we agreed,
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
5
<PAGE>
outstanding capital stock. This agreement limits 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 capital. See "Our Relationship With ADL--Tax
Allocation Agreement."
This agreement is intended to preserve our membership in ADL's consolidated
group for United States federal income tax purposes, and to preserve ADL's
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.
Our business may suffer if ADL does not refer clients to us
Many of our existing clients were referred to us from divisions or segments
of ADL that will not be part of c-quential following this offering. Our
business may suffer if ADL does not continue to refer its clients and prospects
to us following our separation from ADL.
We only have receivables generated since August , 2000 and we will rely on
cash provided by the offering to fund our operations until we are able to earn
and collect payments from our clients
ADL retained all billed and unbilled receivables recorded through August ,
2000, the date of the transfer of our business to c-quential. Our billing and
collection cycle has historically averaged approximately sixty days. As a
result, we estimate that for approximately thirty to forty-five days following
this offering we will not generate any significant amount of cash from our
operations and we will have to fund our business from the proceeds of this
offering.
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. For example:
. we may be unsatisfied with the services ADL provides to us and we may
dispute the amounts that ADL charges us for these services
. we may compete with ADL for the hiring and retention of professional
consultants and this may harm our relations with ADL
. we may disagree with positions ADL takes on its tax returns relating to
our separation from ADL
In addition, although we 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. 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.
Five of our directors may have conflicts of interest because they are also
directors, officers and stockholders of ADL
Four of our directors, Messrs. Lorenzo C. Lamadrid, Mark A. Brodsky, Arno
Penzias and Gerhard Schulmeyer, are also directors and/or officers of ADL.
These members of our board of directors, in addition to our Chief Executive
Officer, Mr. Rudolf Fischer, also hold shares of ADL stock and options to
purchase ADL
6
<PAGE>
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.
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 fails
to pay any of the group's required United States federal income taxes, we could
be required to pay such taxes because each member of a consolidated group is
liable for the United States federal income tax obligations of the group. In
connection with the separation of our business from ADL, ADL incurred tax
obligations of approximately $15.0 million (substantially all of which was for
taxes other than United States federal income taxes). ADL has agreed to pay all
United States federal income tax obligations relating to our business for
periods prior to the completion of this offering. If ADL is unable to pay any
United States federal income taxes for the year 2000, we 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 plan or arrangement to do so, ADL may in the future
decide to distribute the shares of our capital stock that it owns to its
shareholders in a spin-off transaction. We have agreed to indemnify ADL for any
tax liability that ADL incurs as a result of our actions or omissions, whether
before or after such a spin-off, that cause the spin-off distribution to be
taxable for United States federal income tax purposes. If such a spin-off were
taxable, ADL would incur United States federal income tax and possibly state
income tax on the unrecognized built-in gain in the distributed shares based on
the fair market value of the distributed shares at the time of the spin-off. If
we were 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 lower the trading price of our stock
Upon completion of this offering, ADL will own shares of our common stock
representing approximately 96% of the voting power of our outstanding common
stock. As a result, ADL will effectively control all matters affecting us.
ADL's control over our business may have an adverse effect on the trading price
of our Class A common stock. 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
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.
We 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 are provided to us 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.
7
<PAGE>
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.
Following the offering, we will have 43,250,000 shares of common stock
outstanding. Of these shares, the 7,250,000 shares sold in this offering will
be freely tradeable. The remaining 36,000,000 shares, all of which are owned by
ADL, are subject to a 180-day lock-up agreement. After expiration of the 180-
day lock-up period, ADL will have the ability to sell shares of our Class A
common stock into the public market pursuant to Rule 144 under the Securities
Act, subject to volume and holding period limitations. In addition, 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 any or all
shares of our common stock held by them. 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.
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 only operated as an independent
business entity since August , 2000. As a newly-formed company, we are
subject to risks and uncertainties associated with implementing our business
plan that are not typically encountered by mature companies with management
teams and administrative personnel more experienced in operating an independent
entity.
Our historical financial information may not be representative of our results
as a separate company
The historical financial information included in this prospectus does not
reflect the actual operations of a separate company but 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.
Our historical financial information does not reflect additional costs we will
incur following this offering and our separation from ADL
Our operations will undergo substantial changes as a result of our
separation from ADL. We will incur increased costs associated with our
establishment as a stand-alone, publicly-traded company. In addition, as our
8
<PAGE>
agreements with ADL expire, we will no longer benefit from the economies of
scale we enjoyed as a part of a much larger entity and we may incur additional
costs as a result. These increased costs are not reflected in the historical
financial information contained in this prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 revenue consists of fees for the services our professionals provide to
our clients. As a result, the execution of our growth strategy depends on our
significantly increasing the number of our professionals in the near 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 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.
The loss of partner-level professionals and executive officers could adversely
affect our business and competitive position
We rely on 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. The loss of any key individuals or their failure to perform at or
above historical levels could affect our financial performance. We have
experienced attrition among our partner-level professionals in the first six
months of 2000, particularly in our United Kingdom and United States offices,
where an aggregate of seven individuals have resigned during that period. This
attrition has not had a material adverse effect our business.
Our profitability and growth may be limited if we are 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. If we fail to successfully promote and
maintain our brand name, our level of profitability will decline and our growth
may be limited. 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.
Our quarterly operating results may fluctuate as a result of seasonality
We expect to experience seasonal fluctuations in revenue and expenses which
may contribute to fluctuations in our quarterly operating results. In
particular, we anticipate that our revenue and results of operations will be
adversely affected during the third and fourth fiscal quarters of each year as
a result of the reduction in business activity in Europe during August and
December. In the year ended December 31, 1999, 68% of our revenue was derived
from clients in Europe.
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.
9
<PAGE>
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. If in the future, our foreign
revenue and expense transactions are not denominated in the local currency
and/or our foreign earnings are reinvested in a currency other than their
functional currency, we will also be 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."
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.
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. 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. 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. 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)
Actual and perceived conflicts of interest may constrain our growth
Most of our revenue is derived from advising large companies in the TIME
industries. The need to avoid actual and potential conflicts of interest may
constrain our ability to obtain new clients or to obtain further work
10
<PAGE>
from our existing clients, and this could inhibit our growth. In the course of
our engagements, we often obtain sensitive information about our clients.
This information often includes:
. the clients' business and growth plans
. strategic transactions being considered by our clients, including
acquisitions of or joint ventures with other companies
. competitive analyses prepared by our clients and plans to defeat the
clients' competitors
Many of these clients expect us to demonstrate loyalty to their interests. When
we commence an engagement for a client, we are sometimes 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.
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. 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.
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
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. 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. Additional anti-takeover provisions include
limitations on actions by our stockholders by written consent and the right of
our board of directors to issue preferred stock without stockholder approval,
which would allow the stock ownership of a potential acquiror to be diluted.
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. Delaware law also imposes some restrictions on mergers and
other business combinations between us and any holder of 15% or more of our
common stock.
11
<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
. 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.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 7,250,000 shares of Class
A common stock in this offering will be approximately $90.195 million, at an
assumed initial public offering price of $14.00 per share and after deducting
the estimated underwriting discounts and commissions and our estimated offering
expenses.
We estimate that approximately $40 million of the net proceeds will be used
to repay debt of ADL and its subsidiaries, $40 million of which we have
assumed. This debt matures on June 1, 2001 and bears interest at variable
rates, which ranged from 9.63% to 10.00% as of May 1, 2000. The maturities of
this debt accelerate to December 31, 2000 as a result of this offering.
Accordingly, these terms are not indicative of the repayment of $40 million of
such debt by c-quential which is expected to occur immediately after closing of
this offering. The remaining $50.195 million in net proceeds from this offering
will be used to reimburse ADL for its internal costs related to this offering
of approximately $2.0 million, and to support the working capital requirements
and capital expenditures associated with our anticipated growth, including:
. approximately $9.2 million for increased recruiting efforts
. approximately $7.0 million for marketing initiatives associated with
promoting our brand
We also intend to apply proceeds of this offering to facilities and
expansion activities and potential acquisitions or strategic investments,
although we can not at this time estimate the amounts to be spent on such
initiatives. 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.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
. the pro forma basis reflects the formation of c-quential, the transfer
from ADL to us of ADL's TIME industries-focused consulting practice in
exchange for shares of our Class A and Class B common stock and our
assumption of $40 million of debt from ADL
. the pro forma, as adjusted basis reflects the sale of the 7,250,000
shares of Class A common stock in this offering at an assumed initial
public offering price of $14.00 per share, after the deduction of
estimated underwriting discounts and commissions, and our estimated
offering expenses and the repayment of the $40 million of debt assumed
from ADL
You should read this information in conjunction with our financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of March 31, 2000
-----------------------------
Pro Forma,
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 49 $ 49 $50,244
====== ======== =======
Debt assumed from ADL............................. $ -- $ 40,000 $ --
TIME Practice/Stockholders' equity (deficit):
Preferred stock, par value $0.01 per share;
25,000,000 shares authorized, no shares issued
or outstanding pro forma or pro forma, as
adjusted....................................... -- -- --
Class A common stock, par value $0.01 per share;
200,000,000 shares authorized, 18,000,000
shares issued and outstanding pro forma; and
25,250,000 shares issued and outstanding pro
forma, as adjusted............................. -- 180 253
Class B common stock, par value $0.01 per share;
50,000,000 shares authorized, 18,000,000 shares
issued and outstanding pro forma; and
18,000,000 shares issued and outstanding pro
forma, as adjusted............................. -- 180 180
Additional paid-in capital (deficit)............ -- (37,071) 53,051
ADL's net equity investment..................... 3,289 -- --
------ -------- -------
TIME Practice/Stockholders' equity (deficit).. 3,289 (36,711) 53,484
------ -------- -------
Total capitalization........................ $3,289 $ 3,289 $53,484
====== ======== =======
</TABLE>
14
<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 2000 was approximately
$(40.5) million or $(1.13) 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 $40 million
of ADL debt as though such transactions had occurred as of March 31, 2000, 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 7,250,000 shares of Class A common stock in this offering at an
assumed initial public offering price of $14.00 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 March 31, 2000 would have
been approximately $49.7 million or $1.15 per share.
This represents an immediate increase in pro forma net tangible book value
of $2.28 per share to our existing stockholder and an immediate dilution in pro
forma net tangible book value of $12.85 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............. $14.00
------
Pro forma net tangible book value per share as of March 31,
2000....................................................... $(1.13)
------
Increase in pro forma book value per share attributable to
new investors.............................................. $ 2.28
------
Pro forma, as adjusted net tangible book value per share
after this offering........................................ $ 1.15
------
Dilution in pro forma net tangible book value per share to
new investors.............................................. $12.85
======
</TABLE>
The discussion and table above assume no options outstanding under our 2000
Stock Option and Incentive Plan. As of , there were shares of Class A
common stock reserved for grant under our 2000 Stock Option and Incentive Plan,
although no options have been granted under this plan. 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 March 31, 2000 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 par value 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 $14.00 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...... 36,000,000 83% $ 360,000 0.4% $ 0.01
New investors............. 7,250,000 17% 101,500,000 99.6% 14.00
---------- ---- ------------ -----
Total................... 43,250,000 100% $101,860,000 100%
========== ==== ============ =====
</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 81% of the total number of shares of
common stock outstanding
. the number of shares held by new investors will be increased to 8,338,000
shares, or approximately 19% of the total number of shares of our common
stock outstanding after this offering
15
<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
three months ended April 2, 1999 and March 31, 2000 and the balance sheet data
as of March 31, 2000, have been derived from our unaudited condensed 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, Three Months Ended
---------------------------------------- -------------------------
April 2, March 31,
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- -------- --------------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Professional service
revenue............... $48,370 $55,483 $61,156 $76,831 $106,580 $26,494 $29,058
Costs of services:
Direct costs of
services............. 14,655 15,513 18,515 24,145 36,014 8,351 11,293
Arthur D. Little, Inc.
subcontract costs.... 17,967 20,951 20,111 23,126 26,138 7,117 3,494
------- ------- ------- ------- -------- ------- -------
Total costs of
services........... 32,622 36,464 38,626 47,271 62,152 15,468 14,787
------- ------- ------- ------- -------- ------- -------
Gross profit........... 15,748 19,019 22,530 29,560 44,428 11,026 14,271
Selling, general and
administrative
expenses.............. 11,345 13,013 14,344 19,745 27,294 6,919 8,970
------- ------- ------- ------- -------- ------- -------
Income before taxes.... 4,403 6,006 8,186 9,815 17,134 4,107 5,301
Provision for income
taxes................. 1,717 2,342 3,193 3,730 6,340 1,520 2,120
------- ------- ------- ------- -------- ------- -------
Net income............. $ 2,686 $ 3,664 $ 4,993 $ 6,085 $ 10,794 $ 2,587 $ 3,181
======= ======= ======= ======= ======== ======= =======
<CAPTION>
As of December 31, As of March 31,
---------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- -------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ -- $ -- $ -- $ -- $ 304 $ 49
Working capital
(deficit)............. -- -- -- -- (453) (564)
Total assets........... 11,519 12,071 14,040 16,591 28,433 30,775
TIME Practice equity .. -- -- -- -- 3,595 3,289
</TABLE>
16
<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
The business to be operated by c-quential following this offering has
historically operated as part of ADL's Global Management Consulting business.
Founded in 1886, ADL is a privately-held global consulting firm with more than
50 offices worldwide. During the year ended December 31, 1999, ADL had
consolidated professional service revenue of $473 million (including
professional service revenue earned by its TIME industries-focused consulting
practice and reflected as professional service revenue of c-quential in the
financial statements contained in this prospectus). We began using the c-
quential name in July 2000. On August , 2000, ADL transferred its TIME
industries-focused consulting practice to a newly-formed entity, c-quential,
Inc., which became the successor to this practice. The practice transferred to
c-quential consists primarily of the consulting professionals who service
clients in the TIME industries and the business relationships of these
professionals as well as the grant of a license to intellectual property rights
used in the c-quential business and work that has been contracted for but not
yet completed. Also on August , 2000, we entered 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, and we will provide ADL, with a variety of
administrative and corporate services for three years following this
offering, subject to the right of each party to terminate the agreement
upon 120 days' notice, at a rate equal to the actual cost of providing
such services
. ADL will grant us a license to use space in ADL-leased real property
related to our business for the term of the underlying ADL master lease
at a rate equal to ADL's actual cost of leasing such space
. we will pay ADL an amount equal to the United States federal income
taxes that we would have been obligated to pay, and ADL will pay us an
amount equal to any United States federal income tax refund that we
would have received, in each case had we not been part of ADL's
consolidated group, and similar payments between ADL and us will be made
with respect to other taxes reported by ADL and us on a consolidated,
combined or unitary basis
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, nor can we assure you that the terms contained in our agreements with
ADL are as favorable as those we may have been able to negotiate with
unaffiliated third parties. 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.
Our Business
Revenue. Our revenue consists of fees for professional services rendered to
our clients. We provide substantially all of 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
17
<PAGE>
our fees were originally estimated, we cease recognizing revenue on that
engagement unless and until we are able to receive approval from the client to
continue billing. We include in our revenue amounts attributable to
subcontractors working on our client engagements. Revenue attributable to
subcontractors was $26.3 million, $30.1 million and $36.7 million,
respectively, in 1997, 1998 and 1999. The most significant subcontractor was
ADL at 90.1%, 90.2 % and 83.7% of total subcontractor revenue in 1997, 1998 and
1999, respectively. ADL subcontractors generated 38.7%, 35.4% and 28.9% of
total revenue for c-quential in 1997, 1998 and 1999, respectively. From a
staffing perspective, c-quential would have needed approximately 115 additional
full-time professionals during 1999 in order to deliver the same amount of
revenue without utilizing ADL subcontractors. Our revenue excludes reimbursable
expenses charged to clients.
We make provisions 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.
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. The agreements that we have
entered into with ADL will result in c-quential incurring expenses
substantially equivalent to those reflected in c-quential's historical
financial statements. 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 at standard billing rates 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
18
<PAGE>
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, although our agreements with ADL permit us to use the Arthur D.
Little, Inc. name for five years following the offering.
As of March 31, 2000 we had a total professional staff of 325 employees. 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.
Prior to this offering, selected ADL professionals terminated their
employment with ADL and formally became c-quential employees. Selected ADL
administrative staff members also became our employees. We expect that ADL will
continue to make its professionals available to us on an as needed basis,
although we will endeavor to reduce our dependence on ADL through an aggressive
recruitment program as well as through selective potential acquisitions.
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 pro forma adjustments
to reflect potential increases in costs that may occur as a result of our
separation from ADL and the implementation of our business plan. Such cost
increases may result from:
. 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.
As of January 31, 1999, ADL acquired the 72% of Contactica Limited and
Contactica Asia Limited which it did not already own for $4.5 million. The
aggregate purchase price of the shares exceeded the fair value of the net
assets at the date of the acquisition by approximately $4.6 million. These
shares of Contactica Limited and Contactica Asia Limited were transferred by
ADL to c-quential on August , 2000. The resulting goodwill is being amortized
by c-quential on a straight-line basis over seven years.
19
<PAGE>
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. Specifically, a portion of ADL's
regional infrastructure costs are allocated to us on the basis of our direct
employee compensation in the various jurisdictions as a percentage of the total
ADL consolidated direct employee compensation in those same jurisdictions. 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."
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 and the three months ended April 2, 1999 and March 31, 2000:
<TABLE>
<CAPTION>
Year Ended Three Months
---------------- Ended
December 31, ----------------
Apr. 2, Mar. 31,
1997 1998 1999 1999 2000
---- ---- ---- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Professional service revenue............... 100% 100% 100% 100% 100%
Costs of services:
Direct costs of services................. 30 31 34 31 39
Arthur D. Little, Inc. subcontract
costs................................... 33 30 24 27 12
---- ---- ---- ---- ----
Gross profit............................... 37 39 42 42 49
Selling, general and administrative
expenses.................................. 24 26 26 26 31
---- ---- ---- ---- ----
Income before taxes........................ 13 13 16 16 18
Provision for income taxes................. 5 5 6 6 7
---- ---- ---- ---- ----
Net income................................. 8% 8% 10% 10% 11%
==== ==== ==== ==== ====
</TABLE>
20
<PAGE>
Three Months Ended March 31, 2000 Compared to Three Months Ended April 2, 1999
Revenue. Our revenue increased $2.6 million, or 9.7%, to $29.1 million for
the three months ended March 31, 2000 from $26.5 million for the three months
ended April 2, 1999. The revenue growth was due to an increase in the number of
active client engagements in European and Asia Pacific locations, partially
offset by period-to-period decline in North America, Latin America and other
international locations.
<TABLE>
<CAPTION>
Three Months
Ended
-----------------
Apr. 2, Mar. 31,
Region 1999 2000 Change Percent Change
------ -------- -------- ------- --------------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
Europe................................ $ 17,380 $ 22,174 $ 4,794 27.6%
Asia Pacific.......................... 2,804 3,392 588 21.0%
North America......................... 4,004 2,475 (1,529) (38.2%)
Latin America......................... 1,133 921 (212) (18.7%)
Other................................. 1,173 96 (1,077) (91.8%)
-------- -------- ------- -----
Total revenue......................... $ 26,494 $ 29,058 $ 2,564 9.7%
======== ======== ======= =====
</TABLE>
Revenue from outside North America increased $4.1 million, or 18.2%, to
$26.6 million for the three months ended March 31, 2000 from $22.5 million for
the three months ended April 2, 1999. As a percentage of total revenue, revenue
from outside North America was 91.5% for the three months ended March 31, 2000,
an increase from 84.9% for the three months ended April 2, 1999. Revenue from
European locations increased $4.8 million, or 27.6%, to $22.2 million for the
three months ended March 31, 2000 from $17.4 million for the three months ended
April 2, 1999. As a percentage of total revenue, revenue from European
locations was 76.3% for the three months ended March 31, 2000, an increase from
65.6% for the three months ended April 2, 1999. The increase in the European
region was primarily attributable to revenue increases of $1.7 million in the
United Kingdom, $1.4 million in each of Austria and France and $0.9 million in
Spain, partially offset by a decrease of $1.0 million in Germany. The number of
active projects in the European region increased by 68, or 45.9%, from 148 to
216.
Revenue from the Asia Pacific region increased $0.6 million, or 21.0%, to
$3.4 million for the three months ended March 31, 2000 from $2.8 million for
the three months ended April 2, 1999. As a percentage of total revenue, revenue
from the Asia Pacific region was 11.7% for the three months ended March 31,
2000, an increase from 10.6% for the three months ended April 2, 1999. The
revenue increase in the Asia Pacific region was attributable to Contactica
Asia, which was acquired at the end of January 1999 and therefore contributed
revenue during just two of the three months ended April 2, 1999 as compared to
the full three months ended in March 31, 2000. Revenue from North America
decreased $1.5 million, or 38.2%, to $2.5 million for the three months ended
March 31, 2000 from $4.0 million for the three months ended April 2, 1999. As a
percentage of total revenue, revenue from North America was 8.5% for the three
months ended March 31, 2000, a decrease from 15.1% for the three months ended
April 2, 1999. The decrease in North America was the result of the completion
of several assignments coupled with the closing of several large contracts for
which work did not commence until after March 31, 2000.
Revenue from the Latin America region decreased $0.2 million, or 18.7%, to
$0.9 million for the three months ended March 31, 2000 from $1.1 million for
the three months ended April 2, 1999. As a percentage of total revenue, revenue
from the Latin America region was 3.2% for the three months ended March 31,
2000, a decrease from 4.3% for the three months ended April 2, 1999. The
decrease in the Latin America region was attributable to the completion of a
$0.3 million client engagement in Brazil during the three months ended April 2,
1999. Revenue from all other international regions decreased $1.1 million, or
91.8%, to $0.1 million for the three months ended March 31, 2000 from $1.2
million for the three months ended April 2, 1999. As a percentage of total
revenue, revenue from all other international regions was 0.3% for the three
months ended March 31, 2000, a decrease from 4.4% for the three months ended
April 2, 1999.
21
<PAGE>
Costs of Services. Total costs of services decreased $0.7 million, or 4.4%,
to $14.8 million for the three months ended March 31, 2000 from $15.5 million
for the three months ended April 2, 1999. Direct costs of services, which
includes direct employment costs and non-ADL subcontract costs, increased $2.9
million, or 35.2%, to $11.3 million for the three months ended March 31, 2000
from $8.4 million for the three months ended April 2, 1999. ADL subcontract
costs decreased $3.6 million, or 50.9%, to $3.5 million for the three months
ended March 31, 2000 from $7.1 million for the three months ended April 2,
1999. The increase in direct costs of services was due to direct employment
costs, which increased $2.5 million, or 32.8%, to $10.3 million for the three
months ended March 31, 2000 from $7.8 million for the three months ended April
2, 1999. 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, as well as to compensation expense related to Contactica. Direct
full-time equivalent staff increased 26.2% to 318 at the end of March 2000 from
252 at the end of December 1999.
Non-ADL subcontract costs increased $0.4 million, or 68.7%, from the three
months ended April 2, 1999 to the three months ended March 31, 2000, comprising
13.3% of the period-to-period increase in direct costs of services. The
increase in professional staff (and to a lesser extent the increase in non-ADL
subcontractors) coupled with the decrease in ADL subcontract costs resulted in
a 7.5% decrease in costs of services as a percentage of revenue for the three
months ended March 31, 2000 when compared to the three months ended April 2,
1999. 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 $3.2 million, or 29.4%, to $14.3
million for the three months ended March 31, 2000 as compared to $11.0 million
for the three months ended April 2, 1999. As a percentage of revenue, gross
profit was 49.1% for the three months ended March 31, 2000 compared to 41.6%
for the three months ended April 2, 1999. 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, which accounted for $3.6 million in increased
gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.1 million, or 29.6%, to $9.0 million for
the three months ended March 31, 2000 from $6.9 million for the three months
ended April 2, 1999. Selling, general and administrative expenses increased as
a result of additional costs allocated to us from increased staffing, an
additional month of Contactica expenses and increased training costs. The
primary component of our selling, general and administrative expenses is the
allocation of regional and corporate infrastructure costs from ADL, which
totaled $5.4 million for the three months ended March 31, 2000 and $4.2 million
for the three months ended April 2, 1999. As a percentage of revenue, selling,
general and administrative expenses increased to 30.9% for the three months
ended March 31, 2000 from 26.1% for the three months ended April 2, 1999. 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 $0.6 million, or
39.5%, to $2.1 million for the three months ended March 31, 2000 from $1.5
million for the three months ended April 2, 1999. Our effective tax rate was
40.0% for the three months ended March 31, 2000, an increase from 37% for the
three months ended April 2, 1999. The increase in the effective tax rate was
due to a greater concentration of profitable business in countries with
relatively high tax rates.
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
22
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------- Percent
Region 1998 1999 Change Change
------ ------- -------- ------- -------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
Europe....................................... $48,770 $ 72,917 $24,147 49.5%
Asia Pacific................................. 5,747 12,350 6,603 114.9%
North America................................ 12,671 14,527 1,856 14.6%
Latin America................................ 7,434 3,983 (3,451) (46.4%)
Other........................................ 2,209 2,803 594 26.9%
------- -------- ------- -----
Total revenue................................ $76,831 $106,580 $29,749 38.7%
======= ======== ======= =====
</TABLE>
Revenue from North America increased $1.9 million, or 14.6%, 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 $27.9 million, or 43.5%, to $92.1 million for the year ended December
31, 1999 from $64.2 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
49.5%, 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 $6.6 million, or 114.9%, 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 7.5% 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 $3.5 million, or 46.4%, 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 3.7% for
the year ended December 31, 1999, a decrease from 9.7% for the year ended
December 31, 1998. Revenue from all other international regions increased $0.6
million, or 26.9%, 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.
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, which includes
direct employment costs and non-ADL subcontract costs, 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. 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
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
23
<PAGE>
and non-ADL subcontract costs which increased $2.2 million, or 119.1%, from
$1.9 million for the year ended December 31, 1999 to $4.1 million over the same
period in 1998. Direct employment costs increased as the number of ADL
professionals who charged more than 70% of their billable hours to TIME
industries-related engagements increased 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
increase in 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 and 23.8% of the increase in staff size.
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
volume of services delivered by the larger c-quential staff, which accounted
for $12.7 million, or 85.8%, of the change from the prior year and increased
utilization, which accounted for $0.8 million, or 5.2%, of the change.
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 $5.2 million of additional costs allocated to us as a result of
increased staffing and $1.7 million in operating costs incurred by Contactica
since ADL acquired it at the end of January 1999. 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.
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.
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------- Percent
Region 1997 1998 Change Change
------ ------- ------- ------- -------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
Europe........................................ $31,240 $48,770 $17,530 56.1%
Asia Pacific.................................. 8,851 5,747 (3,104) (35.1%)
North America................................. 10,863 12,671 1,808 16.6%
Latin America................................. 8,719 7,434 (1,285) (14.7%)
Other......................................... 1,483 2,209 726 49.0%
------- ------- ------- -----
Total revenue............................... $61,156 $76,831 $15,675 25.6%
======= ======= ======= =====
</TABLE>
24
<PAGE>
Revenue from North America increased $1.8 million, or 16.6%, 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 27.6%, 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
83.5% 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
$17.5 million, or 56.1%, 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 51.1% 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 $3.1 million, or 35.1%, 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 7.5% 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 14.7%, 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 9.7% for the year ended
December 31, 1998, a decrease from 14.3% 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 49.0%, 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 2.4% 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, which include
direct employment costs and non-ADL subcontract costs, 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. This increase was a result of an
increase in direct employment costs of $5.2 million, or 30.4%, to $22.3 million
for the year ended December 31, 1998, while non-ADL subcontract costs 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, which represents $3.3 million of the $5.2 million cost
increase.
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 gross profit increase of $7.0 million was due primarily
to the volume of services delivered by the larger c-quential staff, which
accounted for $5.7 million or 81.7%, of the increase from the prior year.
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. The increase in selling, general and administrative expenses was
primarily attributable to the $3.8 million increase in costs allocated to us as
a result of higher direct employee compensation in relation to ADL consolidated
direct employee compensation costs in various jurisdictions. 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
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<PAGE>
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.
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 when read in conjunction with the
financial statements included elsewhere in this prospectus. The results of
operations may vary substantially from quarter to quarter, accordingly, the
operating results for any quarter are not necessarily indicative of results for
any subsequent quarter or for the full year. This information does provide an
indication of the variability in the business described above.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
Jun. Sept. Dec.
Apr. 2, 30, 30, 31, Mar. 31,
1999 1999 1999 1999 2000
------- ------- ------- ------- --------
(in thousands, unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Professional service revenue..... $26,494 $29,446 $24,916 $25,724 $29,058
Costs of services:
Direct costs of services....... 8,351 9,674 9,030 8,959 11,293
Arthur D. Little, Inc.
subcontract costs............. 7,117 7,513 5,714 5,794 3,494
------- ------- ------- ------- -------
Gross profit..................... 11,026 12,259 10,172 10,971 14,271
Selling, general and
administrative expenses......... 6,919 6,689 6,686 7,000 8,970
------- ------- ------- ------- -------
Income before taxes.............. 4,107 5,570 3,486 3,971 5,301
Provision for income taxes....... 1,520 2,061 1,290 1,469 2,120
------- ------- ------- ------- -------
Net income....................... $ 2,587 $ 3,509 $ 2,196 $ 2,502 $ 3,181
======= ======= ======= ======= =======
As a Percentage of Revenue:
Professional service revenue..... 100% 100% 100% 100% 100%
Costs of services:
Direct costs of services....... 31 33 36 35 39
Arthur D. Little, Inc.
subcontract costs............. 27 25 23 22 12
------- ------- ------- ------- -------
Gross profit..................... 42 42 41 43 49
Selling, general and
administrative expenses......... 26 23 27 27 31
------- ------- ------- ------- -------
Income before taxes.............. 16 19 14 16 18
Provision for income taxes....... 6 7 5 6 7
------- ------- ------- ------- -------
Net income....................... 10% 12% 9% 10% 11%
======= ======= ======= ======= =======
</TABLE>
Liquidity and Capital Resources
Prior to this offering we operated as part of ADL's business and relied upon
ADL's capital resources. Although we have generated sufficient cash flow from
operations to fund our growth, since we were not a distinct subsidiary or unit,
ADL 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
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<PAGE>
1999, before being retained by ADL, was $3.0 million, $3.5 million, and
$4.7 million, respectively. Cash provided by operating activities in each of
these periods was primarily the result of net income. Prior to this offering,
we assumed approximately $40 million of ADL's debt, which we intend to repay
with a portion of the proceeds from this offering.
The ADL debt, $40 million of which we have agreed to repay, consists of the
following obligations:
. An aggregate of $29 million outstanding under the Amended and Restated
Credit Agreement, dated April 25, 2000, among Arthur D. Little, Inc.,
Arthur D. Little International, Inc. and lenders named therein. The debt
bears interest at variable rates and has a maturity date of June 1, 2001.
. An aggregate of $35 million of senior notes outstanding under the Amended
and Restated Note Purchase Agreement, dated April 25, 2000, between ADL
and each of the noteholders named therein. The notes bear interest at a
variable rate and have a maturity date of June 1, 2001.
The maturities of this ADL debt accelerate to December 31, 2000 as a result
of this offering. We expect to repay all of the assumed debt immediately after
the closing of this offering.
ADL retained all of the billed and unbilled receivables recorded through
August , 2000. Any accounts receivable and work in process generated after
August , 2000 relating to the TIME industries-focused consulting practice
belong to c-quential. Because our billing and collection cycle has historically
averaged approximately sixty days, for approximately thirty to forty-five days
following the offering we will not be generating any cash. As a result, we will
be dependent on the proceeds of this offering not only to repay the $40 million
in debt assumed from ADL but also to fund our operations for this thirty to
forty-five day period. Following this period, we expect that our cash from
operations together with the remaining net proceeds of this offering will be
sufficient to meet our operating and capital requirements for at least the
following twelve months.
Under the Use and Occupancy Agreement, ADL has granted 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 corresponds 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 $40 million in debt that we assumed from ADL prior to this
offering 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
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 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 will be
limited by our agreement with ADL to preserve its 80% ownership of our common
stock.
27
<PAGE>
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 prior to the offering. A
portion of the proceeds from this offering will be used to 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 had an immaterial impact on our
financial statements. 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.
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 practices. Consequently, a sudden or significant change in
foreign exchange rates would not have a material impact on future net income
or cash flows.
Equity Security Price Risk
We do not own any equity investments. Therefore, we do not currently have
any direct equity price risk.
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.
In December 1999, the SEC released Staff Accounting Bulletin, or SAB, No.
101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views regarding when a business enterprise should recognize
revenue from transactions with customers. c-quential's revenue practices fall
within, and are in compliance with, AICPA Statement of Position No. 81-1 ("SOP
81-1"), "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts." SAB 101 did not modify the precepts of SOP 81-1.
Accordingly, no changes to either reported revenues or c-quential's accounting
policies are expected.
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BUSINESS
Overview
We are a leading global management and technology consulting firm serving
the telecommunications, information technology, media and electronics
industries. Among our clients and competitors, these four industries are
commonly referred to collectively as the TIME industries. We help our clients
realize the opportunities, address the challenges and mitigate risks presented
by rapid and significant advances in computing and communications technologies
and regulatory changes in the telecommuncation sector. We combine in-depth
knowledge of the TIME industries, technology expertise, strategy development
and implementation capabilities to provide an integrated range of consulting
services 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.
We have operated as part of Arthur D. Little's Global Management Consulting
business since 1995. After this offering, ADL will continue to provide support
services to us at cost, including human resources, accounting, legal and other
administrative support, and will have over an 80% voting and economic interest
in us.
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.
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<PAGE>
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
. 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 $16.2
billion in 1999 to $99.1 billion in 2004, representing a 44% 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.
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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 competencies, including comprehensive industry knowledge,
technology expertise and extensive strategy development and 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 development and implementation capabilities allow clients 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 computing and
communications technologies and regulatory changes in the telecommunications
sector. We believe that the key elements of the solution we offer to our
clients' business issues are:
Innovative strategic advice combined with 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 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 which include business process methodologies. 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.
Our 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
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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 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
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. 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.
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.
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<PAGE>
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 provisions
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:
. 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
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. 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
. 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. Examples of our
software are tools to assess and graphically present the strategic position of
companies or to build and analyze complex financial structures and business
plans. We also use Internet-based applications to facilitate post-merger
integration and the implementation of global business processes.
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Representative Clients
We serve clients from start-ups to industry leaders across the TIME
industries in many countries. During the three months ended March 31, 2000:
. Clients in Europe accounted for 76% of our revenues
. Clients in North America accounted for 9% of our revenues
. Clients in Asia Pacific accounted for 12% of our revenues
. Clients in Latin America and other global regions accounted for 3% 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
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Client Case Studies
The following case studies provide representative examples of the type of
engagements we perform for our clients:
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
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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.
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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 five 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. The Senior
Advisors 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 in an advisory capacity, for which they are paid on a per
hour or per day basis. 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
From 1995 until August 2000, we operated as part of ADL's Global Management
Consulting business. On August , 2000, ADL transferred our business to a
newly-formed entity, c-quential, Inc. and we entered into agreements with ADL
to facilitate the separation. After the completion of this offering, ADL will
own all of the outstanding shares of our unlisted Class B common stock and 71%
of the outstanding shares of our Class A common stock, or 68% of the Class A
common stock if the underwriters fully exercise their over-allotment option. As
a result, ADL will own stock representing 96% of the combined voting power of
all classes of our stock.
The agreements regarding the separation of our business operations from ADL
are described in the section entitled "Our Relationship with ADL" included
elsewhere in this prospectus. 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)
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. 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, than we do. 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
. strategic planning and project management capabilities
. industry expertise
. global presence
We believe that we currently compete favorably with respect to most of these
factors.
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 325 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.
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 consultant, we have
associations with 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
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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 have filed for trademark protection in the United States for the name "c-
quential, Inc." and our logo. We also have a license from ADL to use the
"Arthur D. Little, Inc." name and other ADL-owned intellectual property that
relates to our business. We will seek to protect these 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, including ADL.
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.
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Offices
Our corporate headquarters are located in approximately 5,000 square feet of
an ADL-leased facility in Cambridge, Massachusetts. Our license from 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 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 78 professionals
. Our office in Spain is staffed with 30 professionals
. Our office in the Netherlands is staffed with 23 professionals
. Our office in France is staffed with 22 professionals
. Our offices in Sweden are staffed with 22 professionals
. Our offices in the United States are staffed with 22 professionals
. Our offices in Germany are staffed with 18 professionals
. Our office in Switzerland is staffed with 16 professionals
. Our office in South Korea is staffed with 12 professionals
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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
G. Roy Davis........................ 44 Executive Vice President, Global Head of
Operations Management Practice and Managing
Director of United Kingdom
Eulogio Naz......................... 50 Executive Vice President and Managing Director
of Spain, France and Latin America
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.
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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.
Eulogio Naz. Mr. Naz serves as our Managing Director of Operations in Spain,
France and Latin America, and is a member of our Executive Committee. He joined
ADL in 1998, during which time he has served as a Vice President, Member of the
Global TIME Practice Leadership Team and Managing Director of Spanish
Operations. From 1996 through 1998, Mr. Naz was the Deputy General Manager of
Information Systems at Telefonica de Espana. Prior to 1996, he served as
Director of Technology & Telecom Subsidiaries and Director of Electronic
Banking at Caja de Madrid beginning in 1994. Mr. Naz holds a B.S. from
Telecommunications Engineering University, Madrid and a P.M.D. from Harvard
Business School.
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.
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
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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.
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.
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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.
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
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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 have adopted the 2000 Stock Option
and Incentive Plan, which permits the issuance of up to shares of Class A
common stock. The plan permits us to:
. 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 has the right, in its discretion, to select the
individuals eligible to receive awards, to determine the terms and conditions
of the awards granted, to accelerate the vesting schedule of any
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award and generally to 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 is 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 of our
outstanding common stock.
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 or 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.
Certain Relationships and Related Transactions
Gerhard Schulmeyer serves as a member of our Board of Directors, and is the
President and Chief Executive Officer of Siemens Corporation, U.S.A. During the
fiscal year ended December 31, 1998, we provided $5,788,000 in services to
Siemens Corporation, U.S.A. and its affiliates. We believe that the terms of
our relationship with Siemens Corporation, U.S.A. and its affiliates were no
less favorable to us than they would have been had they been obtained from
unaffiliated third parties.
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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.
Prior to this offering, we entered 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
included 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 agreed with ADL that none of these
agreements may be amended without the approval of a majority of the directors
of ADL who are not officers, directors or employees of us and a majority of our
directors who are not officers, directors or employees of ADL.
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 contributed and assigned 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 related to our business. In return, we assumed certain liabilities
relating to our business and the assets contributed by ADL and its affiliates,
including the obligations under client contracts and outstanding debt
obligations in an aggregate amount of approximately $40 million. In connection
with our separation from ADL, we also issued to c-quential Holdings, Inc., a
subsidiary of ADL 18,000,000 shares of our Class A common stock and 18,000,000
shares of our Class B common stock. ADL agreed 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, agreed 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 agreed to pay
the costs of this offering and to reimburse ADL for its internal costs and for
certain expenditures made on our behalf, in each case relating to this offering
and our separation from ADL.
ADL also agreed 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 maximum
period permitted under the applicable plan or applicable law. We agreed 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 retained employee benefit plan assets and
liabilities relating to c-quential employees as of the separation.
ADL and its affiliates also agreed 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 also agreed, on its behalf
and on behalf of its affiliates, not to recruit our professionals or other
employees. We agreed not to solicit the professionals or other employees of
ADL. The non-solicitation and non-competition covenants in the Reorganization
Agreement will survive until the earlier of the third anniversary of the
offering date and such time as ADL ceases to hold securities representing at
least 40% of our outstanding voting power.
Until such time as ADL ceases to hold securities representing at least 40%
of our outstanding voting power, ADL has agreed to vote its shares of our stock
to elect individuals to our Board of Directors such that at least a majority of
the members of our Board of Directors are not either directors, officers or
employees of ADL.
Corporate Services Agreement. We entered into a Corporate Services Agreement
with ADL that states the terms and conditions under which ADL provides to us,
and we provide to ADL, on an as-requested basis, certain administrative and
operational management services. The Corporate Services Agreement specifies
that ADL shall provide to us its tax and accounting, corporate development and
legal, administrative, human
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resources and internal audit services. With limited exception, these services
are to be provided at the actual cost of providing such services, including the
costs of third party vendors and providers, and reimbursement is to be made on
a monthly basis. The cost of services under the agreement 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 120 days' notice or upon the bankruptcy or insolvency of ADL.
Each provider of any service may similarly discontinue providing such service
under the Corporate Services Agreement upon 120 days' notice to the receiving
party if such party no longer provides such service for itself.
The agreement also provides for certain cross-consulting arrangements
between ADL and us. Each of us agreed 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 and provided that the
consultants' services are in all material respects limited to the type,
quality, quantity and timeliness of such services that the party supplying such
services provides on its own behalf. The cost for such consultant sharing is 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 entered into a Use and Occupancy Agreement
with ADL and its affiliates pursuant to which they agreed to license to us
certain leased real property. The space licenses 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 agreed with ADL
to comply with the terms of the master lease agreements for so long as the
license is in effect. Each license has the same term as the corresponding
master lease, and we 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 entered into an Intellectual Property
Agreement with ADL pursuant to which ADL granted 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 agreed 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 belong to us.
Tax Allocation Agreement. We entered 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 an amount equal to the amount of federal income taxes that we would have
been obligated to pay, and ADL pays us an amount equal to any federal income
tax refund that we would have received, calculated in each case as if we had
never been part of ADL's consolidated group. However, ADL agreed to reimburse
us for tax benefits generated by us but used to reduce United States federal
income tax on income earned by ADL. ADL is 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 taxes returned on a consolidated, combined, or unitary
basis are treated in a manner consistent with that of United States federal
income taxes. ADL agreed to pay the taxes that arise as a result of the
reorganization. We will reimburse ADL for the tax benefits that we receive as a
result of ADL's payment of such taxes. Our reimbursement payments will be made
as such tax benefits are realized by us. Any tax obligation incurred by either
party or our respective affiliates which is not calculated on a consolidated,
combined or unitary basis is the responsibility of that party, together with
the preparation of returns, audits and litigation relating to that tax
liability. We agreed with ADL that, in the preparation of all tax returns and
in the conduct of all tax-related proceedings, the party responsible for the
return or proceeding shall take into account
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and promote the tax objectives of the other party, provided that, in so doing,
the party responsible for the return or proceeding is not adversely affected.
We also agreed not to take any action, or fail to take any action, that would
result in ADL owning less than 80% of our outstanding capital stock by vote or
value, or less than 80% of any class of our non-voting capital stock (if any)
without the consent of ADL.
We agreed with ADL that, in the event ADL determines that it is in the best
interests of its stockholders to distribute the shares of our capital stock
that it owns to its shareholders 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 will 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 also agreed
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 spin-off. We also agreed 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 entered 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 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 remains 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 agreed to
pay all costs and expenses of ADL, other than underwriting discounts and
commissions.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of c-quential common stock by:
. all persons known by us to own beneficially 5% or more of c-quential's
common stock
. our directors and executive officers as a group
<TABLE>
<CAPTION>
Percentage of Common Stock
Number of Shares Beneficially Owned Beneficially Owned
------------------------------------------- -------------------------------
Prior to After
Prior to Offering After Offering Offering Offering(2)
Name of Beneficial --------------------- --------------------- --------------- ---------------
Owner(1) Class A Class B Class A Class B Class A Class B Class A Class B
------------------ ---------- ---------- ---------- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5% Shareholder
c-quential Holdings,
Inc.(3)
Acorn Park, Suite 2500
Cambridge, MA
02140-2390............. 18,000,000 18,000,000 18,000,000 18,000,000 100% 100% 71% 100%
All directors and
executive officers as a
group.................. 0 0 0 0 0% 0% 0% 0%
</TABLE>
--------
(1) The Class A common stock is entitled to one vote per share and the Class B
common stock is entitled to ten votes per share.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) c-quential Holdings, Inc. is a subsidiary of Arthur D. Little
International, Inc., which is a subsidiary of Arthur D. Little, Inc.
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DESCRIPTION OF CAPITAL STOCK
Our Authorized and Outstanding Capital Stock
Following the offering, our authorized capital stock will consist of
195,000,000 shares of Class A common stock, of which 25,250,000 will be issued
and outstanding, 50,000,000 shares of Class B common stock, of which 18,000,000
will be issued and outstanding, and 5,000,000 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. 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.
For example, if the results of voting on a particular matter at a meeting of
stockholders at which a quorum is present are as follows:
Votes in favor:
5,000 shares of Class A common stock and 5,000 shares of Class B
common stock
Votes against:
50,000 shares of Class A common stock and no shares of Class B
common stock
A single tally will result, with each share of Class B common stock counting
for ten votes. Thus, the matter would be approved by a vote of 55,000 in favor
to 50,000 against.
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 that occurs after the fifth anniversary of the completion
of this offering, to any person other than ADL, a stockholder of ADL, a party
related to ADL or to a stockholder of ADL under Section 267(b) or Section
707(b) of the Code, or a party whose ownership of stock could be attributed to
ADL or to a stockholder of ADL under Section 318 of the Code.
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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.
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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
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stockholders or a special meeting called for such purpose unless our board of
directors recommends that the 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.
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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 a registration statement on Form S-8
with respect to the aggregate number of shares of common stock issuable under
our stock option and incentive plan. 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 entered 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 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 remains
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 agreed to
pay all costs and expenses of ADL, other than underwriting discounts and
commissions.
57
<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.......................................................... 7,250,000
=========
</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 1,088,000 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 1,088,000 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. The amount of these
fees has been determined by negotiations between the underwriters and us.
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting fees to be paid by
us............................... $ $ $
</TABLE>
58
<PAGE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $4.2 million. The following
table details these expenses. All amounts shown are estimates, with the
exception of the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Listing Fee:
<TABLE>
<S> <C>
SEC Registration Fee................................................ $ 39,600
NASD Filing Fee..................................................... $ 15,500
Nasdaq National Market Listing Fee.................................. $ 95,000
Accounting Fees and Expenses........................................ $1,500,000
Legal Fees and Expenses............................................. $1,500,000
Printing Expenses................................................... $ 500,000
Blue Sky Qualification Fees and Expenses............................ $ 12,000
Transfer Agent's Fee................................................ $ 25,000
Miscellaneous....................................................... $ 513,000
----------
TOTAL............................................................. $4,200,100
==========
</TABLE>
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.
59
<PAGE>
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.
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.
60
<PAGE>
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.
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. This prospectus identifies
all provisions of the exhibits to the registration statement that are material
to an understanding of c-quential or this offering. 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.
61
<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
</TABLE>
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Interim Condensed Balance Sheets......................................... F-13
Interim Condensed Statements of Operations............................... F-14
Interim Condensed Statements of Cash Flows............................... F-15
Notes to Unaudited Interim Condensed Financial Statements................ F-16
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Balance Sheets............................. F-17
Unaudited Pro Forma Condensed Statements of Operations................... F-18
Notes to Unaudited Pro Forma Condensed Financial Statements.............. F-20
</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 (predecessor
to c-quential, Inc.)- (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
(predecessor to c-quential, Inc.)
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......... -- -- 40,000
------- ------- -------
Total current liabilities..................... 16,591 24,838 40,790
------- ------- -------
Commitments and Contingencies
TIME Practice Equity:
Arthur D. Little, Inc.'s net equity investment.. -- 3,595 (36,405)
------- ------- -------
Total TIME Practice equity.................... -- 3,595 (36,405)
------- ------- -------
Total liabilities and TIME Practice equity.... $16,591 $28,433 $ 4,385
======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Professional service revenue:
Direct professional service revenue................. $58,170 $73,267 $101,620
Subcontracted from Arthur D. Little, Inc............ 2,986 3,564 4,960
------- ------- --------
Total 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
(predecessor to c-quential, Inc.)
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
(predecessor to c-quential, Inc.)
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
(predecessor to c-quential, Inc.)
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
1.OVERVIEW AND BASIS OF PRESENTATION
The financial statements of c-quential (predecessor to c-quential, Inc.)
(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. Prior to the initial public offering ADL intends to
transfer certain assets (consisting primarily of intangibles - specifically
workforce in place and intellectual property - with zero basis and the
assets and liabilities of Contactica, a wholly-owned subsidiary of ADL) and
employees to the Company. In return ADL will receive all the shares of c-
quential, Inc. and c-quential, Inc. will assume approximately $40,000 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. Because c-quential, Inc. had neither assets
nor operations prior to the transfer from ADL of the TIME industries-
focused consulting practice to c-quential, Inc., the financial statements
of c-quential, Inc.'s predecessor have been provided in this registration
statement.
Subsequent to the offering, the third party debt will be repaid with the
proceeds of the offering. Management does not anticipate that c-quential
will incur any significant amount of interest charge relative to the debt
since it will be repaid immediately. 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.
F-7
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
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.
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 functional currency for most of the Company's non-
U.S. operations is the local currency. The assets and liabilities of these
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 and, accordingly, do not result in
transaction gains or losses. Transaction gains or losses in currencies
other than the functional currency have not been material in the periods
presented. The U.S. dollar is used as the functional currency for
operations in highly inflationary economies. Gains or losses from
translation are included in operations.
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.
Unbilled amounts represent that portion of revenues earned and expenses
incurred on client contracts which have not yet been billed. 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
F-8
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
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. 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.
In December 1999, the SEC released Staff Accounting Bulletin, or SAB,
No. 101, "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the SEC's views regarding when a business enterprise should
recognize revenue from transactions with customers. c-quential's revenue
practices fall within, and are in compliance with, AICPA Statement of
Position No. 81-1 ("SOP 81-1"), "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." SAB 101 did not
modify the precepts of SOP 81-1. Accordingly, no changes to either reported
revenues or c-quential's accounting policies are expected.
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:
<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>
F-9
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
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.
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. Our agreements
with ADL permit us to use the Arthur D. Little, Inc. name for five years
following the offering.
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,
F-10
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
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 at standard billing rates 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.
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
F-11
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
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 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>
c-quential
(predecessor to c-quential, Inc.)
INTERIM CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31,
2000
December 31, March 31, Transfer
1999 2000 Pro Forma
------------ ----------- -----------
(unaudited) (unaudited)
----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 304 $ 49 $ 49
Accounts receivable and unbilled
services -- payable on receipt to
Arthur D. Little, Inc. ................ 24,048 26,759 --
Other current assets.................... 28 40 40
Deferred tax assets..................... 5 74 74
------- ------- --------
Total current assets.................. 24,385 26,922 163
Property and equipment, net............... 79 47 47
Goodwill.................................. 3,969 3,806 3,806
------- ------- --------
Total assets.......................... $28,433 $30,775 $ 4,016
======= ======= ========
LIABILITIES AND TIME PRACTICE EQUITY
Current Liabilities:
Accounts payable to Arthur D. Little,
Inc. .................................. $24,048 $26,759 $ --
Trade payable and other accrued
expenses............................... 790 727 727
Debt assumed from Arthur D. Little,
Inc. .................................. -- -- 40,000
------- ------- --------
Total current liabilities............. 24,838 27,486 40,727
------- ------- --------
Commitments and Contingencies
TIME Practice Equity:
Arthur D. Little, Inc.'s net equity
investment............................. 3,595 3,289 (36,711)
------- ------- --------
Total TIME Practice equity............ 3,595 3,289 (36,711)
------- ------- --------
Total liabilities and TIME Practice
equity............................... $28,433 $30,775 $ 4,016
======= ======= ========
</TABLE>
See notes to unaudited interim condensed financial statements.
F-13
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
INTERIM CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 2, March 31,
1999 2000
-------- ---------
<S> <C> <C>
Professional service revenue:
Direct professional service revenue........................ $24,976 $28,341
Subcontracted from Arthur D. Little, Inc. ................. 1,518 717
------- -------
Total professional service revenue....................... 26,494 29,058
------- -------
Costs of services:
Direct costs of services................................... 8,351 11,293
Arthur D. Little, Inc. subcontract costs................... 7,117 3,494
------- -------
Total costs of services.................................. 15,468 14,787
------- -------
Gross Profit................................................. 11,026 14,271
Selling, general and administrative expenses................. 6,919 8,970
------- -------
Income before taxes.......................................... 4,107 5,301
Provision for income taxes................................... 1,520 2,120
------- -------
Net income................................................... $ 2,587 $ 3,181
======= =======
</TABLE>
See notes to unaudited interim condensed financial statements.
F-14
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
April 2, March 31,
1999 2000
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 2,587 $ 3,181
------- -------
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............................. 111 195
Provision for doubtful accounts........................... (7) (495)
Deferred income taxes..................................... -- (69)
Changes in assets and liabilities, net of effects of
acquisition:
Accounts receivable and unbilled services................ (9,356) (2,216)
Other current assets..................................... 527 (12)
Trade payables and other accrued expenses................ (75) (63)
------- -------
Total adjustments....................................... (8,880) (2,660)
------- -------
Net cash provided by (used for) operating activities
prior to distribution and changes in payable to Arthur
D. Little, Inc. ........................................ (6,213) 521
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payable to Arthur D. Little, Inc. ....................... 9,709 2,711
Earnings retained by Arthur D. Little, Inc. ............. (3,384) (3,487)
------- -------
Net cash provided by (used for) the financing
activities............................................. 6,325 (776)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 112 (255)
------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ -- 304
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 112 $ 49
======= =======
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 unaudited interim condensed financial statements.
F-15
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
(dollars in thousands)
1. OVERVIEW AND BASIS OF PRESENTATION
The interim condensed 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 - specifically
workforce in place and intellectual property - 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 $40,000 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
March 31, 2000, pro-forma balance sheet.
Subsequent to the offering, the third party debt will be repaid with the
proceeds of the offering. Management does not anticipate that c-quential will
incur any significant amount of interest charge relative to the debt since it
will be repaid immediately. ADL plans to retain at least an 80% interest in c-
quential, Inc.
The interim condensed financial statements as of March 31, 2000, and for the
three months ended April 2, 1999 and March 31, 2000, respectively have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and are unaudited. The accompanying interim condensed 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 interim
condensed 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-16
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
PRO FORMA CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, 2000
(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 $ 49 $ -- $ 49 $50,195B,C $50,244
Accounts receivable
and unbilled
services-- payable on
receipt to Arthur D.
Little, Inc. 26,759 (26,759)A -- -- --
Other current assets.. 40 -- 40 -- 40
Deferred tax assets... 74 -- 74 -- 74
------- -------- ------- ------- -------
Total current
assets.............. 26,922 (26,759) 163 50,195 50,358
Property and
equipment, net...... 47 -- 47 -- 47
Goodwill............. 3,806 -- 3,806 -- 3,806
------- -------- ------- ------- -------
Total assets.......... $30,775 $(26,759) $ 4,016 $50,195 $54,211
======= ======== ======= ======= =======
LIABILITIES AND TIME
PRACTICE EQUITY
Current Liabilities:
Accounts payable to
Arthur D. Little,
Inc.................. $26,759 $(26,759)A $ -- $ -- $ --
Trade payables and
other accrued
expenses............. 727 -- 727 -- 727
Debt assumed from
Arthur D. Little,
Inc.................. -- 40,000A 40,000 (40,000)C --
------- -------- ------- ------- -------
Total current
liabilities......... 27,486 13,241 40,727 (40,000) 727
------- -------- ------- ------- -------
Commitments and
Contingencies
TIME
Practice/Stockholders'
equity................. 3,289 (40,000)A (36,711) 90,195B 53,484
------- -------- ------- ------- -------
Total liabilities and
TIME
Practice/Stockholders'
equity............... $30,775 $(26,759) $ 4,016 $50,195 $54,211
======= ======== ======= ======= =======
</TABLE>
See notes to pro forma financial statements.
F-17
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
PRO FORMA CONDENSED 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:
Direct professional service revenue..... $101,620 $ -- $101,620
Subcontracted from Arthur D. Little,
Inc. .................................. 4,960 -- 4,960
-------- ------- --- --------
Total 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-18
<PAGE>
c-quential
(predecessor to c-quential, Inc.)
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- -------
<S> <C> <C> <C>
Professional service revenue:
Direct professional service revenue........... $28,341 $ -- $28,341
Subcontracted from Arthur D. Little, Inc. .... 717 -- 717
------- ----- -------
Total professional service revenue.......... 29,058 -- 29,058
------- ----- -------
Costs of services:
Direct costs of services...................... 11,293 -- 11,293
Arthur D. Little, Inc. subcontract costs...... 3,494 -- 3,494
------- ----- -------
Total costs of services..................... 14,787 -- 14,787
------- ----- -------
Gross profit.................................... 14,271 -- 14,271
Selling, general and administrative expenses.... 8,970 (532)D 8,438
------- ----- -------
Income before taxes............................. 5,301 532 5,833
Provision for income taxes...................... 2,120 213 E 2,333
------- ----- -------
Net income...................................... $ 3,181 $ 319 $ 3,500
======= ===== =======
</TABLE>
See notes to pro forma financial statements.
F-19
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited pro forma statements of operations of c-quential for the year
ended December 31, 1999 and the three months ended March 31, 2000 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 March 31, 2000,
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 and the three months ended March 31, 2000 do not
include pro forma adjustments to reflect potential increases in costs that may
occur as a result of our separation from ADL and the implementation of our
business plan. Such cost increases may result from:
. 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.
Transfer Adjustments
A. Reflects the assumption of debt from ADL in the amount of $40 million, the
retention of accounts receivable by ADL and issuance to ADL of 18,000,000
shares of Class A common stock and 18,000,000 shares of Class B common
stock of c-quential.
IPO Adjustments
B. Reflects the issuance of 7,250,000 shares of common stock in this offering,
assuming an initial public offering price of $14.00 per share, and the
application of the estimated $90.195 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-20
<PAGE>
7,250,000 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
NASD Filing Fee.................................................. $ 15,500
Nasdaq National Market Listing Fee............................... $ 95,000
Accounting Fees and Expenses..................................... $1,500,000
Legal Fees and Expenses.......................................... $1,500,000
Printing Expenses................................................ $ 500,000
Blue Sky Qualification Fees and Expenses......................... $ 12,000
Transfer Agent's Fee............................................. $ 25,000
Miscellaneous.................................................... $ 513,000
----------
TOTAL.......................................................... $4,200,100
==========
</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
. On August , 2000 as partial consideration for the transfer of our
business, we issued to c-quential Holdings, Inc., a subsidiary of ADL,
18,000,000 shares of our Class A common stock and 18,000,000 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.
27.1 Financial Data Schedule.
</TABLE>
--------
* to be filed by amendment
+ previously filed
(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 Amendment to this the City of
Cambridge, Commonwealth of Massachusetts, on July 25, 2000.
c-quential, Inc.
By: /s/ Rudolf Fisher
----------------------------------
Rudolf Fischer
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to 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 Fisher President, Chief Executive July 25, 2000
______________________________________ Officer and Director
Rudolf Fischer (Principal Executive
Officer)
/s/ Robert Broadley Executive Vice President and July 25, 2000
______________________________________ Chief Financial Officer
Robert Broadley (Principal Financial
Officer and Principal
Accounting Officer)
* Chairman of the Board of July 25, 2000
______________________________________ Directors
Lorenzo C. Lamadrid
* Director July 25, 2000
______________________________________
Mark A. Brodsky
* Director July 25, 2000
______________________________________
Arno Penzias
* Director July 25, 2000
______________________________________
Gerhard Schulmeyer
* By: /s/ Rudolf Fischer July 25, 2000
------------------------------
Rudolf Fischer
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------- ----------- --------
<C> <S> <C>
+1.1 Form of Underwriting Agreement.
Form of Amended and Restated Certificate of Incorporation
+3.1 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.
Consent of Goodwin, Procter & Hoar LLP (included in
23.1 Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
+24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment to the registration statement.
+ previously filed
