<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1998
REGISTRATION NO. 333-63789
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTERA ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8742 95-4697615
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE CRANBERRY HILL
LEXINGTON, MA 02421
(781) 778-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL P. MULDOWNEY
CHIEF FINANCIAL OFFICER
NEXTERA ENTERPRISES, INC.
ONE CRANBERRY HILL
LEXINGTON, MA 02421
(781) 778-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DAVID A. HAHN, ESQ. MARK H. BURNETT, ESQ.
HOWARD L. ARMSTRONG, ESQ. MICHAEL A. CONZA, ESQ.
LATHAM & WATKINS TESTA, HURWITZ & THIBEAULT, LLP
701 "B" STREET, SUITE 2100 HIGH STREET TOWER
SAN DIEGO, CALIFORNIA 92101 125 HIGH STREET
(619) 236-1234 BOSTON, MA 02110
(617) 248-7000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------
Class A Common Stock, $.001 par value............... $87,000,000 $25,665
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 4, 1998
PROSPECTUS
, 1998
[ ] SHARES
[NEXTERA ENTERPRISES, INC. LOGO]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $0.001 per
share (the "Class A Common Stock"), offered hereby (the "Offering") are being
sold by Nextera Enterprises, Inc. ("Nextera" or the "Company"). The Class A
Common Stock and the Company's Class B Common Stock, par value $0.001 per share,
(the "Class B Common Stock" and together with the Class A Common Stock, the
"Common Stock"), are substantially identical except with respect to voting power
and conversion rights. The Class A Common Stock entitles its holders to one vote
per share, and the Class B Common Stock entitles its holders to ten votes per
share, on all matters submitted to a vote of the Company's stockholders,
including in connection with the election of the Board of Directors. Each share
of Class B Common Stock is convertible into one share of Class A Common Stock
under certain circumstances. See "Description of Capital Stock." After the
Offering, Knowledge Enterprises, Inc. ("Knowledge Enterprises") will hold
approximately % of the combined voting power of the outstanding Common
Stock.
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently anticipated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
The Company has applied to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "NXRA."
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $
Total(3)........................ $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters
and a description of the use of a portion of the net proceeds to repay
indebtedness to an affiliate of one of the Underwriters.
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of additional shares at the Price to Public less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the shares will be made in New York, New York, on or
about , 1998.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE> 3
[GRAPHIC]
Graphic entitled "Nextera's Value Proposition" depicts a large triangle in the
center of the graphic with inward-pointing arrows placed along each side of the
center triangle. The top of the large triangle contains the words "Clients
Enhance Business Performance Through..." The center of the large triangle is
divided into three sections. The leftmost section contains the words "Dynamic
Strategic Management." The middle section contains the words "High Performance
Business Processes." The rightmost section contains the words "Organizational
Development." The bottom of the large triangle contains the words "Applying
Emerging Technologies To" with the following three points listed underneath:
"Leverage Human Capital," "Measure Business Performance" and "Develop
Enterprises-wide Solutions" The inward-pointing arrow in the upper left corner
of the graphic has superimposed upon it the heading "Comprehensive Practice
Expertise" with the following four bullet points listed underneath this heading:
"Business Research," "Strategic Management Services," "Human Capital Services"
and "Business Performance Solutions." The inward-pointing arrow in the upper
right corner of the graphic has superimposed upon it the heading "Client-Focused
Results Delivery" with the following four bullet points listed underneath this
heading: "Leading Edge Perspectives," "Proven Track Record," "Integrated Client
Service Teams," and "Flexible and Balanced Approach."The inward-pointing arrow
at the lower center of the graphic has superimposed upon it the heading
"Synergistic Business Model" with the following five bullet points listed
underneath this heading: "Portfolio Style Governance," "Cross-Practice
Opportunity Management," "Shared Best Practices," "Scaleable Infrastructure" and
"Leverage Knowledge-Base."
Nextera helps its clients enhance their business performance by providing
consulting services that enable clients to (i) proactively refine their
strategies to adjust to changing market conditions, (ii) improve business
processes to achieve higher levels of operational performance, (iii) improve the
capabilities of their organization, and (iv) apply technology to support
innovation approaches to conducting business. Nextera brings together
complementary services drawn from its four practice areas and delivers those
services through a client-focused team approach that consists of individuals
with the competencies needed to address all aspects of a client's consulting
needs.
2
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify
forward-looking statements. These forward-looking statements speak only as of
the date of this Prospectus, or, if specified, as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
------------------------
Nextera, Sibson, Pyramid Imaging, Symmetrix, SiGMA, and The Planning
Technologies Group are service marks used by the Company in providing services.
This Prospectus also includes names, trademarks, service marks and registered
trademarks and service marks of companies other than the Company, which names,
trademarks, service marks and registered trademarks and service marks are the
property of such companies.
3
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information, and the Historical Financial Statements and Notes thereto,
and the Unaudited Pro Forma Combined Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Class A Common Stock offered hereby
involves a high degree of risk. See "Risk Factors" beginning on page 6. Unless
otherwise indicated, (i) all references in this Prospectus to Nextera or the
Company mean Nextera Enterprises, Inc., Nextera Enterprises, L.L.C. ("Nextera
LLC") and their respective direct and indirect subsidiaries, including the
operations of, or the successors to, Symmetrix, Inc., SiGMA Consulting, LLC, The
Planning Technologies Group, Inc., Pyramid Imaging, Inc., Sibson & Company, L.P.
and Sibson Canada, Inc. (each an "Acquired Company" and collectively the
"Acquired Companies") prior to their acquisition by the Company, (ii) all
information in this Prospectus assumes the exchange of Class A Common Units and
Class B Common Units of Nextera LLC for shares of Class A Common Stock and Class
B Common Stock of Nextera Enterprises, Inc., respectively (see "The
Company--Exchange Transaction"), (iii) all information in this Prospectus
assumes the exchange of all exchangeable preference shares of a Canadian
subsidiary of the Company (the "Exchangeable Shares") for Class A Common Stock
(see "The Company--Exchangeable Preference Shares"); and (iv) all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Nextera Enterprises, Inc. provides leading-edge consulting services focused
on business strategy, operations improvement, organizational design and
information technology ("IT") primarily to Fortune 500 and other multinational
companies. The Company provides services in four practice areas, which enables
it to offer a broad range of complementary services that assist clients in
achieving enhanced business performance by anticipating and addressing their
complex, multi-disciplinary consulting needs. Nextera helps organizations
redefine the way in which existing work is conducted or new businesses and
markets are entered by redesigning operational processes and business practices,
defining and managing major change initiatives, and using emerging information
technologies (such as web-based technologies and electronic commerce) to support
these new strategic approaches.
The professional consulting services industry is driven by changes in the
business environment, such as increased competition, deregulation,
globalization, technological advances and evolving organizational models. In
response to these changes, many organizations are altering traditional
approaches to overall strategy, business processes, organizational design and
the use of IT. Lacking the skilled personnel, technical capabilities and time
necessary to formulate and implement strategies to benefit from these changes,
many organizations are increasingly retaining third-party service professionals
for help and expertise. According to an industry source, the worldwide market
for professional consulting services is estimated to have been $46.3 billion in
1997, and is projected to increase to $88.5 billion in 2002. Consulting service
providers employing traditional approaches typically do not offer the broad and
balanced perspective and integrated solutions critical to solving the
multi-disciplinary problems organizations are currently facing. In order to
solve such problems, organizations are demanding that third-party providers have
experience in a breadth of practice areas.
The Company's portfolio of practice areas includes Business Research
Services, Strategic Management Services, Human Capital Services, and Business
Performance Solutions. The Business Research Services practice provides in-depth
and forward-looking analyses of business challenges, frameworks, and innovative
business practices. The Strategic Management Services practice helps
organizations set and pursue their goals and develop the ability of senior
management to proactively refine and manage business strategies, action plans,
and core competencies as these goals are implemented throughout the
organization. The Human Capital Services practice assists clients to implement
organizational and strategic changes established by senior management through
all levels of the organization. The Business Performance Solutions practice
helps organizations solve complex operational issues through major business
transformation programs, redesigned business processes, best practices
adaptation, and the use of emerging technologies such as web-based technologies
and electronic commerce for high impact business process support systems and
knowledge management systems.
5
<PAGE> 7
Nextera's flexible delivery model, which is designed to bring together
expertise from its portfolio of practice areas, enables it to provide timely and
unbiased perspectives on clients' enterprise-wide management problems and
cost-effectively implement multi-disciplinary solutions. The Company's breadth
of expertise enables it to deliver services initially in any of its four
practice areas and offers opportunities to expand the scope of its engagements
to include complementary or follow-on services in other practice areas. The
Company provides its services across a broad spectrum of industries, including
communications, consumer products and services, entertainment, financial
services, health care, insurance, manufacturing, professional services, retail
and technology. Representative clients include The Chubb Corporation,
International Business Machines Corporation, Levi Strauss & Co., Mead Johnson &
Company, National Broadcasting Company, Inc. and SmithKline Beecham, PLC.
The Company was founded in February 1997 by executives with extensive
experience at major consulting firms and industry-leading companies. The Company
has focused on building its portfolio of practice areas through selective
acquisitions and internal growth to provide a balanced perspective on the
problems and issues facing its clients in today's competitive environment. Since
inception, the Company has built competencies in its four practice areas
primarily through acquisitions and, to a lesser extent, through internal growth.
Each Acquired Company maintains a business focus which complements the
businesses of the other Acquired Companies, enabling synergies to be realized
across all of Nextera's practice areas.
The Company's objective is to be a leading provider of consulting services
in its four practice areas. Nextera intends to achieve this objective by: (i)
expanding service offerings through selective acquisitions; (ii) leveraging
cross-selling opportunities to expand the scope of engagements; (iii) attracting
and retaining key personnel who will enhance and complement the Company's
service capabilities; (iv) building a common identity for the services the
Company provides by marketing the Nextera brand name; and (v) expanding
Nextera's international presence.
The Company is a Delaware corporation and maintains its principal executive
office at One Cranberry Hill, Lexington, Massachusetts 02421. The Company's
telephone number is (781) 778-4400.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by the Company............ shares
Common Stock to be outstanding after the Offering:(1)
Class A Common Stock.............................. shares(2)
Class B Common Stock.............................. shares
Total Common Stock........................... shares
Use of proceeds........................................ To repay certain outstanding
indebtedness, including indebtedness to
certain affiliates of the Company; to
pay accrued management fees to Knowledge
Universe, L.L.C. ("Knowledge Universe"),
an affiliate of the Company; and for
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol................. NXRA
</TABLE>
- ------------------------------
(1) The Class A Common Stock and the Class B Common Stock are substantially
identical except with respect to voting power and conversion rights. The
Class A Common Stock entitles its holders to one vote per share, and the
Class B Common Stock entitles its holders to ten votes per share, on all
matters submitted to a vote of the Company's stockholders, including in
connection with the election of the Board of Directors. Each share of Class
B Common Stock is convertible into one share of Class A Common Stock under
certain circumstances. See "Risk Factors--Control by Knowledge Enterprises,
Inc." and "Description of Capital Stock."
(2) Excludes shares of Class A Common Stock reserved for issuance
under the Company's 1998 Equity Participation Plan (the "1998 Equity
Participation Plan") pursuant to which options to purchase shares
will be outstanding upon the closing of the Offering. See
"Management--Employee Benefit Plans." Also excludes shares of Class
A Common Stock issuable upon conversion of the outstanding shares
of the Company's Class B Common Stock. Assumes the exchange of all
Exchangeable Shares for shares of Class A Common Stock. See "The
Company--Exchangeable Preference Shares."
6
<PAGE> 8
SUMMARY CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
--------------------------------------- ------------------------------------
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE FOR THE
THROUGH SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................. $ 7,998 $22,095 $75,996 $48,862
Gross profit.................. 3,280 7,157 25,107 16,579
Loss from operations.......... (2,281) (707) (3,728) 2,067
Net loss...................... (3,015) (3,578) (8,108) (2,721)
Net loss per unit, basic and
diluted(2).................. $ (0.74) $ (0.29) $ (0.97) $ (0.18)
Weighted average units
outstanding, basic and
diluted..................... 4,061 12,550 8,342 15,382
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(3) AS ADJUSTED(3)(4)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2,921 $ 3,080
Working capital (deficit)............................... 5,107 (27,002)
Total assets............................................ 57,498 117,433
Total short-term debt................................... 1,390 40,064
Total long-term debt.................................... 51,665 53,915
Total stockholders' equity (deficit).................... (3,905) 5,950
</TABLE>
- ------------------------------
(1) The summary pro forma combined financial data for the year ended December
31, 1997 and for the six months ended June 30, 1998 are presented as if the
acquisitions of the Acquired Companies had been consummated as of January 1,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisitions" and Unaudited Pro Forma Combined
Financial Statements.
(2) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
(3) Pro forma to give effect to the acquisitions (the "Sibson Acquisitions") of
Sibson & Company, L.P. and Sibson Canada, Inc. (collectively, "Sibson") as
if they had been consummated as of June 30, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Unaudited Pro Forma Combined Financial Statements.
(4) Pro forma as adjusted to give effect to (i) the sale of shares of
Class A Common Stock at an assumed initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and Offering expenses payable by the Company, and (ii) the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds" and "Capitalization."
7
<PAGE> 9
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Class A Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Limited Combined Operating History. Nextera was formed in February 1997 and
has grown substantially since its inception, principally through the
acquisitions of the Acquired Companies. Although the Acquired Companies have
been in operation for some time, the Company has a limited history of combined
operations. Consequently, the historical and pro forma information herein may
not be indicative of Nextera's financial condition and future performance. There
can be no assurances that the Company will not encounter financial, managerial
or other difficulties as a result of its lack of combined operating history.
Further, the success of Nextera's acquisitions will depend on a number of
factors, including the Company's ability to integrate the businesses and
operations of the Acquired Companies, to retain certain key employees of the
Acquired Companies and to preserve and expand the businesses and operations of
the Acquired Companies. There can be no assurance that Nextera will be able to
successfully integrate and operate the businesses of the Acquired Companies or
that the Company will not experience losses as a result of these acquisitions.
Failure to achieve the anticipated benefits of these acquisitions or to
successfully integrate the operations of the Acquired Companies could materially
adversely affect the business, operating results and financial condition of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Acquisitions."
Net Losses and Equity Deficit. The Company has been in existence since
February 1997. On an historical basis, for the period from February 26, 1997
through December 31, 1997 and for the six months ended June 30, 1998, Nextera
experienced net losses of $3.0 million and $3.6 million, respectively. On a pro
forma basis, Nextera experienced net losses for the year ended December 31, 1997
and the six months ended June 30, 1998 of $7.4 million and $3.2 million,
respectively. In addition, on an historical basis, the Company had an
accumulated stockholders' equity deficit of $3.9 million as of June 30, 1998.
There can be no assurance that Nextera will achieve or sustain profitability in
the future.
Management of Growth. Nextera has experienced a period of rapid growth that
has challenged, and will likely continue to challenge, the Company's managerial
and other resources. Since the Company's inception in February 1997 through
August 31, 1998, the number of consultants employed by the Company has increased
to 355 and the scope of Nextera's geographic coverage has expanded
significantly. Nextera intends to hire additional consultants through
acquisitions and its own recruiting efforts and expects its geographic coverage
to continue to grow in the future. The Company's success in managing its growth
will depend on its ability to continue to enhance its operating, financial and
management information systems and to recruit, develop, motivate and manage
effectively its expanding work force. For example, Nextera is in the process of
integrating a new financial reporting system, and any failure or significant
delay in achieving the integration of such system or complications with respect
to the change to such system could materially adversely affect the Company. In
addition, Nextera's future success will depend in large part on its ability to
continue to set rates and fees competitively and to maintain high employee
utilization rates and project quality, particularly if the average size or
number of the Company's projects increases. If Nextera is unable to manage
growth or new employees effectively or if its personnel are unable to achieve
anticipated performance or utilization levels, the Company's services, its
ability to retain key personnel, and its business, operating results and
financial condition could be materially adversely affected. There can be no
assurance that Nextera will be able to effectively manage its growth or that the
Company's business will continue to expand. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Growth
Strategy" and "--Human Resources."
Operational, Financial and Accounting Risks of Acquisitions. Since its
inception, Nextera has significantly expanded through acquisitions and expects
to pursue additional acquisitions in order to enhance its
8
<PAGE> 10
service offerings and client base, expand its geographic presence and obtain
experienced consultants. The timing, magnitude and success of the Company's
acquisition efforts and the related capital expenditures and commitments cannot
be predicted. Nextera competes for acquisitions with companies that have
significantly greater financial and management resources than the Company, which
may lead to limited acquisition opportunities for Nextera and may result in
higher purchase prices or transaction costs. There can be no assurance that the
Company will be able to integrate successfully any acquired businesses without
substantial expense, delays or other operational or financial costs or problems,
including costs in pursuing and negotiating with acquisition candidates, or that
it will be able to identify, acquire or profitably manage additional businesses
or acquisitions. Acquisitions may involve certain risks, including significant
diversion of management's attention, failure to retain key acquired personnel,
unanticipated events or circumstances and legal liabilities. Client satisfaction
or performance problems at a single acquired firm could have a material adverse
impact on the reputation of Nextera as a whole. Further, there can be no
assurance that the Company's future acquired businesses will achieve expected
results or generate anticipated revenues or earnings. In order to pursue
additional acquisitions, Nextera may also require debt or equity financing that
may not be available on terms favorable to the Company, if at all, and may
result in dilution to the holders of Class A Common Stock. Nextera will be
unable to account for future acquisitions under the pooling-of-interests method
of accounting. Accordingly, the Company will be required to account for
acquisitions under the purchase method of accounting, which may result in
substantial additional annual non-cash amortization charges for goodwill and
other intangible assets in Nextera's statements of operations. In addition, the
Company could be required to make substantial cash payments related to any such
acquisition. Any of these factors could materially adversely affect Nextera's
business, operating results and financial condition. See "--Substantial Amount
of Goodwill," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Growth Strategy" and "--Acquisitions."
Attraction and Retention of Skilled Consultants. Because Nextera's business
involves the delivery of professional services and is labor-intensive, the
Company's success depends in large part upon its ability to attract, motivate
and retain highly skilled consultants. Qualified business consultants are in
great demand and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that Nextera will be able to attract, motivate
and retain sufficient numbers of highly skilled consultants. Any inability to do
so could impair the Company's ability to effectively manage and complete its
client projects and to secure future client engagements, and as a result could
materially adversely affect Nextera's business, operating results and financial
condition. Because the Company has experienced growth principally through the
acquisitions of the Acquired Companies, substantially all of Nextera's current
consultants were initially hired by one of the Acquired Companies and not the
Company. There can be no assurance that these consultants will continue to be
satisfied with the culture or benefits of the Company or prospects for
advancement within Nextera. Further, even if the Company is able to expand the
number of qualified consultants, the resources required to attract, motivate and
retain such consultants may adversely affect Nextera's operating margins, which
could materially adversely affect the Company's business, operating results and
financial condition. To the extent that Nextera is unable to attract, motivate
or retain qualified consultants from among individuals currently legally
eligible to work in the United States, the Company may need to utilize foreign
labor under H-1B and other employment-related permits and visas granted by the
United States government. In the event that such visas are unavailable, either
due to a change in policy or law or a reduction in the number of such visas
granted, Nextera may be unable to attract or retain additional qualified
consultants or may incur unexpected substantial additional labor costs, any of
which could materially adversely affect the Company's business, operating
results and financial condition. See "Business--Human Resources."
Control by Knowledge Enterprises, Inc. After the Offering, Knowledge
Enterprises will own shares of Class A Common Stock and
shares of Class B Common Stock, which together will represent % of the
voting power of the outstanding Common Stock. The Class A Common Stock entitles
its holders to one vote per share, and the Class B Common Stock entitles its
holders to ten votes per share, on all matters submitted to a vote of Nextera's
stockholders, including in connection with the election of the Board of
Directors. Accordingly, Knowledge Enterprises will be able to elect all of the
Company's directors, except for one director to be elected in accordance with
the terms of a stockholders agreement entered into in connection with the Sibson
Acquisitions, and determine the disposition of all matters submitted to a vote
of
9
<PAGE> 11
Nextera's stockholders, including mergers, transactions involving a change in
control of the Company and other corporate transactions and the terms thereof.
See "Certain Transactions--Stockholders Agreement." Such control by Knowledge
Enterprises could materially adversely affect the market price of the Class A
Common Stock or delay or prevent a change in control of Nextera.
Knowledge Universe was formed by Lawrence J. Ellison, Michael R. Milken and
Lowell J. Milken to build, through a combination of internal development and
acquisitions, leading companies in a broad range of areas relating to career
management, technology and education and the improvement of individual and
corporate performance. Knowledge Enterprises, which is controlled directly or
indirectly by Knowledge Universe, currently holds businesses whose primary
customers are other businesses, including career workforce management, business
consulting and informational meetings and conferences. Knowledge Universe and
Knowledge Enterprises may form, invest in or acquire other businesses which are
involved in these and related areas, among others, which businesses may be
operated under the control of Knowledge Enterprises independently of Nextera.
There can be no assurance that conflicts of interest between Knowledge
Enterprises and the Company will not arise or that any such conflict of interest
will be resolved in a manner favorable to Nextera, including potential
competitive business activities, indemnity arrangements, registration rights,
sales or distributions by Knowledge Enterprises of Nextera's Class A Common
Stock and Class B Common Stock and the exercise by Knowledge Enterprises of its
ability to control the management and affairs of the Company.
The Company was founded in February 1997 by entities which the Company
believes were under the direct or indirect control of Lawrence J. Ellison,
Michael R. Milken and Lowell J. Milken. Subsequent to the formation of the
Company, ownership of the Common Stock originally held by such founding entities
was transferred to Knowledge Enterprises. See "The Company." Knowledge Universe
controls, directly or indirectly, Knowledge Enterprises. Knowledge Universe is
governed by a Board of Directors which consists of Lawrence J. Ellison, Michael
R. Milken and Lowell J. Milken. The Company believes that through their
positions as directors and through ownership or voting control of various
intermediary entities, Lawrence J. Ellison, Michael R. Milken and Lowell J.
Milken may each be deemed to have the power to control Knowledge Universe. As a
result, the Company believes that Lawrence J. Ellison, Michael R. Milken and
Lowell J. Milken may each be deemed to have the power to direct the voting and
disposition of, and to share beneficial ownership of, any shares of Common Stock
owned by Knowledge Enterprises. On February 24, 1998, without admitting or
denying any liability, Michael R. Milken consented to the entry of a final
judgment in the U.S. District Court for the Southern District of New York in
Securities and Exchange Commission v. Michael R. Milken et al., which judgment
was entered on February 26, 1998, restraining and enjoining Michael R. Milken
from associating with any broker, dealer, investment advisor, investment
company, or municipal securities dealer and from violating Section 15(a) of the
Exchange Act. On March 11, 1991, in the action entitled In the Matter of Michael
R. Milken, the Securities and Exchange Commission instituted a proceeding
pursuant to Section 15(b)(6) of the Exchange Act and ordered that Michael R.
Milken be barred from association with any broker, dealer, investment advisor,
investment company, or municipal securities dealer. On April 24, 1990, Michael
R. Milken consented to the entry of a final judgment in the U.S. District Court
for the Southern District of New York in Securities and Exchange Commission v.
Drexel Burnham Lambert Incorporated, et al., restraining and enjoining Michael
R. Milken from engaging in transactions, acts, practices and courses of business
which constitute or would constitute violations of, or which aid and abet or
would aid and abet violations of Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d),
14(e), 15(c)(3) and 17(a)(1) of the Exchange Act, and Regulations T and X and
Rules 10b-5, 10b-6, 13d-1, 13d-2, 14c-3, 15c3-1, 17a-3 and 17a-4 promulgated
thereunder and Section 17(a) of the Securities Act of 1933, as amended. Lowell
J. Milken is the brother of Michael R. Milken.
Any change in Nextera's relationship with Knowledge Enterprises or
Knowledge Universe could materially adversely affect the Company's business,
operating results and financial condition. See "The Company--Transfer to
Knowledge Enterprises," "Management--Board of Directors," "Certain
Transactions," "Principal Stockholders" and "Description of Capital Stock."
Variability and Seasonality of Quarterly Operating Results. Nextera may
experience fluctuations in its future quarterly operating results. Variations in
the Company's net revenues and operating results from
10
<PAGE> 12
quarter-to-quarter may be caused by such factors as the number of active client
projects, termination of major client projects, the number of business days in a
quarter, hiring, integration and utilization of consultants and other employees,
the mix and timing of client projects, re-evaluation of progress on and
completion of client projects, variations in utilization rates and average
billing rates for consultants, the accuracy of estimates of resources required
to complete ongoing projects, the integration of acquired entities, and the
length of Nextera's sales cycle. Because a relatively high percentage of the
Company's expenses is relatively fixed, a variation in the number or timing of
client projects, particularly at or near the end of any quarter, may cause
significant variations in operating results from quarter-to-quarter and could
result in losses to Nextera for any particular fiscal period. Events such as
write-offs of uncollectable accounts, the unanticipated termination of a major
project or the completion during a single quarter of several major client
projects without deploying consultants to new engagements could result in the
Company's underutilization of consultants which could, in turn, materially
adversely affect Nextera's business, operating results and financial condition.
To the extent that increases in the numbers of consultants are not followed by
corresponding increases in net revenues, the operating results of the Company
could be materially adversely affected. In addition, it is difficult for Nextera
to forecast the timing of revenues because project cycles depend on factors such
as the size and scope of consulting projects and circumstances specific to each
client. Because the Company's consultants only generate revenues when they are
engaged on client projects, Nextera's operating results are adversely affected
when its consultants cannot perform services for clients due to vacations, sick
days, holidays, inclement weather, training schedules or other reasons. In
particular, the Company can be expected to generate a smaller proportion of its
net revenues and realize lower operating income during the fourth quarter of the
year due to the number of holidays in that quarter. Given the foregoing factors,
Nextera believes that quarter-to-quarter comparisons of its operating results
are not necessarily meaningful and that the results for one quarter should not
be relied upon as an indication of future performance. Demand for Nextera's
services is significantly affected by the general level of economic activity.
When economic activity slows, clients may delay or cancel plans that involve the
hiring of consultants. The Company is unable to predict the level of economic
activity at any particular time, and fluctuations in the general economy could
materially adversely affect Nextera's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Substantial Amount of Goodwill. As of June 30, 1998, on a pro forma basis
reflecting the Sibson Acquisitions, the Company's intangible assets, net of
accumulated amortization, were approximately $81.2 million, of which
approximately $42.0 million were attributable to the Sibson Acquisitions. As a
result of the acquisitions of the Acquired Companies, intangible assets are
being amortized by Nextera on a straight-line basis over 5 years for intangibles
relating to personnel and over 40 years for all other intangibles, including
goodwill. Future acquisitions by Nextera are expected to result in additional
goodwill and intangible assets. The amount amortized in a particular period
constitutes a non-cash expense that reduces the Company's net income. In
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets to be Disposed Of ("SFAS No. 121"), the
Company periodically evaluates the recoverability of goodwill by reviewing the
anticipated undiscounted future cash flows from operations and comparing such
cash flows to the carrying value of the associated goodwill. If goodwill becomes
impaired, Nextera will be required to write down the carrying value of the
goodwill and incur a related charge to its income. A write down of goodwill
would result in a reduction in net income which could materially adversely
affect Nextera's business, operating results and financial condition. See
"--Risks Related to Acquisitions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Acquisitions."
Concentration of Net Revenues Within a Relatively Limited Number of Clients
and Industries. Nextera has in the past derived, and may in the future derive, a
significant portion of its net revenues from a relatively limited number of
clients. For example, for the year ended December 31, 1997 and for the six
months ended June 30, 1998, on a pro forma basis, the Company's ten largest
clients accounted for approximately 29%, and 36% of its net revenues,
respectively. For the year ended December 31, 1997 and for the six months ended
June 30, 1998, on a pro forma basis, the Company's largest client during such
period accounted for approximately 8% and 7% of Nextera's net revenues,
respectively. There can be no assurance that these significant clients will
continue to engage the Company for additional projects or do so at the same
revenue
11
<PAGE> 13
levels or that the portion of Nextera's net revenues attributable to a
relatively limited number of clients will not increase in the future or that the
Company will not experience concentration of receivables. The loss of any such
client, or a reduction in the scope of engagements undertaken for such client,
could materially adversely affect Nextera's business, operating results and
financial condition. Clients engage the Company on a project-by-project basis,
often without a written contract, and a client can generally terminate an
engagement with little or no notice to Nextera and without penalty. Further,
clients in the financial services, manufacturing and health care industries
accounted for approximately 23%, 17% and 11%, respectively, of Nextera's pro
forma net revenues for the year ended December 31, 1997. Any economic conditions
or other factors adversely affecting any of the foregoing industries or any
increase in the size or number of the Company's competitors within these
industries could materially adversely affect Nextera's business, operating
results and financial condition. See "--Absence of Written Contracts,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Clients and Representative Engagements."
Dependence on Key Personnel. The Company's success is highly dependent upon
the efforts, abilities, business generation capabilities and project execution
skills of its senior consulting executives and other key personnel. The loss of
the services of any of these persons for any reason could materially adversely
affect Nextera's business, operating results and financial condition, including
its ability to secure and complete engagements. There can be no assurance that
the Company will be able to retain these persons or to attract suitable
replacements or additional personnel if required. In addition, if one or more of
Nextera's key personnel resigns from the Company to join a competitor or to form
a competing business, any resulting loss of existing or potential clients to any
such competitor could materially adversely affect Nextera's business, operating
results and financial condition. In the event of the loss of any such personnel,
there can be no assurance that the Company would be able to prevent the
unauthorized disclosure or use of its technical knowledge, practices or
procedures by such personnel. Nextera generally does not maintain key person
life insurance coverage for employees. See "Business--Human Resources" and
"Management."
Project Risks. The Company's client engagements often involve projects that
are critical to the operation of a client's business and provide benefits that
may be difficult to quantify. Nextera's failure or inability to meet a client's
expectations in the performance of its services could result in a client's
refusal to pay or give rise to claims against the Company or damage Nextera's
reputation, any of which could materially adversely affect its business,
operating results and financial condition. There can be no assurance that the
Company will not fail to satisfy certain clients' expectations.
Fixed Price Contracts. Nextera has undertaken and expects in the future to
undertake certain projects under fixed-price or capped-fee billing arrangements,
which are distinguishable from the Company's principal method of utilizing time
and materials billing arrangements. On a pro forma basis, fixed-price or
capped-fee billing arrangement projects accounted for approximately 11% and 19%,
of Nextera's net revenues for the year ended December 31, 1997 and for the six
months ended June 30, 1998, respectively. The failure of Nextera to complete
such fixed-price or capped-fee projects within budget or below the cap would
expose the Company to risks associated with potentially unrecoverable cost
overruns, which could materially adversely affect Nextera's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Absence of Written Contracts. Nextera derives a significant portion of its
net revenues from client projects involving significant dollar values.
Accordingly, the cancellation, delay or significant reduction in the scope of a
large engagement could materially adversely affect the Company's business,
operating results and financial condition. Clients engage the Company on a
project-by-project basis, often without a written contract, and a client can
generally terminate an engagement with little or no notice to Nextera and
without penalty. As a result, Nextera believes that the number of clients or the
number and size of its existing projects are not reliable indicators or measures
of future net revenues. The Company has in the past provided, and is likely in
the future to provide, services to clients without a written contract. When a
client defers, modifies or cancels a project, Nextera must be able to rapidly
deploy its consultants to other projects in order to minimize the
underutilization of employees and the resulting adverse impact on operating
results. In addition, the Company's operating expenses are relatively fixed and
cannot be reduced on short notice to compensate for
12
<PAGE> 14
unanticipated variations in the number or size of projects in progress. As a
result, any termination, significant reduction or modification of its business
relationships with any of its significant clients or with a number of smaller
clients could materially adversely affect Nextera's business, operating results
and financial condition.
Competition. The consulting services industry includes a large number of
competitors, is subject to rapid change and is highly competitive. Nextera
believes that the principal competitive factors in the consulting services
industry are reputation, industry expertise, analytical ability and price.
Nextera also believes that its ability to compete depends in part on a number of
factors outside of its control, including the ability of its competitors to
hire, retain and compensate consultants, offer lower-priced services, respond to
client requirements, and develop advanced services or technology. Nextera's
primary competitors include participants from a variety of market segments,
including general management consulting companies, boutique management
consulting firms that provide specialized services or focus on certain
industries, "Big Five" and other accounting firms, systems consulting and
implementation firms, application software firms, service groups of computer
equipment companies, outsourcing companies, and systems integration companies.
Many of these competitors have significantly greater financial, technical, and
marketing resources, and greater name recognition than Nextera. In addition,
many of these competitors have been operating for a significantly longer period
of time than the Company and have established long-term client relationships.
Nextera also competes with its clients' internal resources, particularly where
the resources represent a fixed cost to the client. Such competition may impose
additional pricing pressures on Nextera. In addition, Nextera faces intense
competition in its efforts to recruit and retain qualified consultants. There
can be no assurance that the Company will be able to compete successfully with
its existing competitors or any new competitors. See "Business--Competition."
Foreign Operations. Nextera derived approximately 8% and 6% of its net
revenues on a pro forma basis from clients outside of the United States for the
year ended December 31, 1997 and the six months ended June 30, 1998,
respectively. The Company has engaged in projects in Canada and the United
Kingdom and intends to continue to seek an increasing number of foreign
engagements. One of the components of Nextera's growth strategy is to expand its
international presence and seek additional business outside the United States.
Nextera's international business operations are and will be subject to a number
of risks, including difficulties in managing foreign operations, enforcing
agreements and collecting receivables through foreign legal systems; longer
payment cycles; fluctuations in the value of foreign currencies; and unexpected
regulatory, economic or political changes in foreign markets. The relationship
between non-dollar denominated revenues and dollar denominated expenses may
subject the Company to significant foreign exchange risks. In addition, Nextera
may in the future acquire an interest in entities that operate in countries
where the repatriation or conversion of currency is restricted. There can be no
assurance that these factors will not materially adversely affect the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Growth Strategy."
Rapid Technological Change. Nextera's success will depend in part on its
ability to develop business consulting and strategic information technology
solutions that keep pace with continuing changes in information processing
technology and the effect of such changes on client needs and preferences. Part
of the Company's strategy is to focus on business performance solutions, which
include strategic/knowledge management systems and enabling technologies. There
can be no assurance that Nextera will be successful in adequately addressing
developments in IT on a timely basis or that, if these developments are
addressed, the Company will be successful in the marketplace. In addition, there
can be no assurance that products or \technologies developed by others or
changing client preferences will not render Nextera's services uncompetitive or
obsolete. The Company's failure to identify or address these developments could
materially adversely affect Nextera's business, operating results and financial
condition.
Year 2000 Risks. Many currently installed computer systems are coded to
accept only two digit entries in the date code field. These date code fields
need to be modified or upgraded to accept four digit entries to distinguish 21st
century dates from 20th century dates. Many organizations are expending
significant resources to modify or upgrade their computer systems for such "Year
2000" compliance. These expenditures may result in reduced funds available to
purchase the types of services offered by the Company as resources that might
otherwise be directed towards the purchase of outside consulting services are
utilized for Year 2000
13
<PAGE> 15
compliance. Any such reduction in the purchase of the types of services offered
by Nextera could materially adversely affect the Company's business, operating
results and financial condition.
The Year 2000 issue affects the Company's internal systems, including IT
and non-IT systems. Nextera has completed an assessment of its IT systems for
Year 2000 compliance. The Company relies upon microprocessor-based personal
computers and commercially available applications software. The Company is in
the process of upgrading its existing computer software and IT systems. The
Company is reviewing its utility systems (heat, light, telephones, etc.) and
other non-IT systems for the impact of Year 2000. Additionally, should the
Company undertake future acquisitions, the Year 2000 risks that affect the
Company can be expected to similarly affect such acquisition candidates. The
Company intends to review the systems of all acquisition candidates for Year
2000 compliance. However, the failure to correct a material Year 2000 problem
either within the Company, within a vendor or supplier or within an acquisition
candidate could result in an interruption in, or a failure of, certain normal
business activities or operations of the Company. Such interruptions or failures
could materially adversely affect the Company's business, operating results and
financial condition.
The Company depends on smooth and timely interactions with its vendors,
clients and other third parties. Any unexpected costs or disruption in the
operations or activities of such vendors, clients or other third parties as a
result of Year 2000 compliance issues within such entities could materially
adversely affect Nextera's business, operating results or financial condition.
The Company intends to take continuous steps to identify Year 2000 problems
related to its vendors and to formulate a system of working with key
third-parties to understand their ability to continue providing services and
products through the change to Year 2000. The Company intends to work directly
with its key vendors, including financial institutions and utility-providers,
and partner with them if necessary, to avoid any business interruptions.
The Company believes the most likely worst case scenario related to Year
2000 risks is a material business interruption that leads to client
dissatisfaction and the termination of a project or projects by dissatisfied
clients. Such an interruption in services could occur due to a breakdown in any
number of the Company's computer systems and applications and non-IT systems, or
the systems of third-parties. Examples are failures in the Company's application
software, computer chips embedded in equipment, supply of materials from its
suppliers, or lack of adequate telecommunications, power, or other utilities.
Any such failure could prevent the Company from being able to deliver its
services as expected, which could materially adversely affect the Company's
business, operating results and financial condition.
The cost of the Company's Year 2000 compliance assessment and upgrade is
being funded from current operations. As of August 31, 1998, the cost to the
Company of its Year 2000 identification, assessment, remediation and testing
efforts, as well as currently anticipated costs to be incurred by the Company
with respect to Year 2000 issues of third parties, was expected to be less than
$100,000. Because of the uncertainty associated with Year 2000 failures, it is
not possible at present to quantify the cost of corrective actions. The Company
will continue to consider the likelihood of a material business interruption due
to the Year 2000 issue, and, if necessary, implement appropriate contingency
plans. Since the Company has adopted a plan to address these Year 2000 issues,
it has not developed a comprehensive contingency plan should these issues fail
to be completed successfully or in their entirety. However, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time. There
can be no assurance that unexpected Year 2000 compliance problems of either the
Company or its vendors, customers and service providers will not materially
adversely affect the Company's business, operating results and financial
condition.
The Company has in the past and may in the future perform services related
to the planning, implementation and testing of Year 2000 compliance work for its
clients. Failure to timely or accurately perform these services could cause a
client to experience failure of one or more key systems or result in
miscalculations causing material disruptions of one or more of a client's
operations, including an inability to process transactions or engage in business
activities. Disruptions in a client's operations and the variability of
definitions of "compliance" with the Year 2000 could lead to lawsuits against
the Company. The outcome of such lawsuits and the impact on the Company are not
estimable at this time. A claim for product or service
14
<PAGE> 16
liability brought against Nextera related to its Year 2000 consulting could
result in substantial cost to the Company and divert management's attention from
Nextera's operations, which could materially adversely affect the Company's
business, operating results and financial condition.
Anti-Takeover Effect of Certain Charter and Bylaw Provisions. The Company's
Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and Bylaws, as well as Delaware corporate law, contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Nextera. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Class
A Common Stock. The Certificate of Incorporation authorizes the Company's Board
of Directors to issue shares of Preferred Stock of Nextera, in one or more
series, and to establish the rights and preferences (including the
convertibility of such shares of Preferred Stock into shares of Class A Common
Stock) of any series of Preferred Stock so issued. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of the
Class A Common Stock. Such provisions also may inhibit fluctuations in the
market price of the Class A Common Stock that could result from takeover
attempts. Additionally, the Certificate of Incorporation provides that any
action required or permitted to be taken by stockholders of Nextera must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of stockholders may be
called only by the Board of Directors, the Chairman of the Board, or the
President of the Company, and stockholders are not permitted to call a special
meeting of stockholders or to require that the Board of Directors call a special
meeting. The Bylaws require stockholders to comply with special advance notice
procedures in order to make a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of stockholders
(the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that only persons who are nominated by, or at the direction of, the Company's
notice of meeting, the Board of Directors or by a stockholder who has given
timely written notice to the Secretary of the Company prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
the Company. The Stockholder Notice Procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Company's notice of meeting, the Board
of Directors or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such business
before such meeting. In addition, under the Stockholder Notice Procedure, a
stockholder's notice to the Company proposing to nominate a person for election
as a director or relating to the conduct of business other than the nomination
of directors must contain a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the nomination or proposal is made. If
the chairman of a meeting determines that business was not properly brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
business shall not be discussed or transacted. The foregoing provisions and
requirements could make it difficult for stockholders to effect certain
corporate actions.
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within the
previous three years, did own) 15% or more of the corporation's voting stock.
This statute contains provisions enabling a corporation to avoid the statute's
restrictions if the stockholders holding a majority of the corporation's voting
stock approve an amendment to the corporation's certificate of incorporation or
bylaws. Neither the Company's Certificate of Incorporation nor Bylaws contain
such a provision, and the Company does not presently intend to submit such a
provision to its stockholders. The Company does not believe that Knowledge
Enterprises or its affiliates should be considered interested stockholders
subject to the provisions of Section 203. See "--Control by Knowledge
Enterprises, Inc." and "Description of Capital Stock."
15
<PAGE> 17
Intellectual Property Rights. Nextera's success is dependent in part upon
certain methodologies and other proprietary intellectual property rights.
Nextera relies upon a combination of nondisclosure, confidentiality (including
confidentiality agreements with employees), license, employment, and client
agreements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom Nextera
licenses intellectual property. In addition, Nextera generally limits the
distribution of its proprietary information. There can be no assurance, however,
that the steps taken by Nextera to protect its intellectual property rights will
be adequate to deter misappropriation of proprietary information or that the
Company will be able to detect unauthorized use and take appropriate steps to
enforce its intellectual property rights or that competitors will not be able to
develop similar or functionally equivalent methodologies. Furthermore, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries, and no assurance can be given that foreign copyright and
trade secret laws will adequately protect the Company's intellectual property
rights. Although Nextera believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, there can be no
assurance that Nextera's employees will not misappropriate the intellectual
property of others. Accordingly, the Company is subject to the risk of claims
alleging infringement of third-party intellectual property rights. Any such
claims could require Nextera to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of asserted infringement, any of which
could materially adversely affect the Company's business, operating results and
financial condition. The Company presently holds no patents or registered
copyrights.
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Class A Common Stock.
Consequently, the initial public offering price per share will be determined by
negotiations between Nextera and the representatives of the Underwriters and may
not be indicative of the market price of the Class A Common Stock after the
Offering. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price per share. Application has been
made for quotation of the Class A Common Stock on the Nasdaq National Market;
however, there can be no assurance that an active trading market will develop
and be sustained after the Offering. In the absence of a public trading market,
investors may be unable to liquidate their investments in the Company. The
market price of the Class A Common Stock may fluctuate substantially due to a
variety of factors, including quarterly fluctuations in results of operations,
adverse circumstances affecting the introduction or market acceptance of new
services offered by Nextera, announcements of new services by competitors,
changes in earnings estimates by analysts, changes in accounting principles,
sales of Class A Common Stock or Class B Common Stock by existing holders, the
depth and liquidity of the market for Class A Common Stock, loss of key
personnel, general market conditions and other factors. Equity securities of
entities with businesses similar to the Company's are subject to greater
volatility than the general market. In addition, the stock market from time to
time has experienced broad price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. These broad market fluctuations, as well as shortfalls in operating
results as compared to securities analysts' expectations or changes in such
analysts' projections or recommendations, and general economic market
conditions, may materially and adversely affect the market price of the Class A
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, class action litigation has often been instituted
against such a company. Any such litigation brought against the Company could
result in substantial costs and a diversion of management's attention and
resources, which could materially adversely affect Nextera's business, operating
results and financial condition.
Dilution. Purchasers of shares of Class A Common Stock in the Offering will
experience an immediate dilution of $ per share in the pro forma net
tangible book value per share of Class A Common Stock after the Offering. To the
extent outstanding options to purchase Class A Common Stock are exercised, there
will be further dilution. There can be no assurance that the Company will not
require additional funds to support its working capital requirements or for
other purposes, in which case Nextera may seek to raise such additional funds
through public or private debt or equity financing or from other sources. There
can be no assurance that such additional financing will be available or that, if
available, such financing will be obtained on terms
16
<PAGE> 18
favorable to the Company and would not result in additional dilution of
Nextera's stockholders. See "Dilution."
Shares Eligible for Future Sale. Sales of significant amounts of Common
Stock in the public market after the Offering or the perception that such sales
will occur could materially adversely affect the market price of the Class A
Common Stock or the future ability of the Company to raise capital through an
offering of its equity securities. Of the shares of Common Stock to be
outstanding upon completion of the Offering, the shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless such shares are purchased by "affiliates" of Nextera within
the meaning of Rule 144 ("Rule 144") under the Securities Act.
The remaining shares of Common Stock (including Class A
Common Stock issuable upon exchange of the Exchangeable Shares) held by existing
stockholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Directors, officers and certain
stockholders of the Company holding an aggregate of shares of
Class A Common Stock and shares of Class B Common Stock have
agreed that they will not sell, directly or indirectly, any Common Stock,
subject to certain exceptions, without the prior consent of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") for a period of 180 days from the date
of this Prospectus (the "Lock-up Agreements"). In addition, Nextera's
Certificate of Incorporation provides that each holder of Common Stock, other
than the holders of the shares of Class A Common Stock acquired in the Offering,
agrees not to sell, directly or indirectly, any Common Stock, subject to certain
exceptions, without the prior consent of DLJ for a period of 180 days from the
date of this Prospectus. Subject to these Lock-up Agreements and the foregoing
provisions of the Company's Certificate of Incorporation, additional shares of
Class A Common Stock (including Class A Common Stock issuable upon conversion of
Class B Common Stock and the exchange of the Exchangeable Shares) will be
available for sale in the public market (subject in certain circumstances to
compliance with certain volume and other restrictions under Rule 144) as
follows: (i) shares will be eligible for sale 180 days after the
date of this Prospectus; and (ii) shares will become eligible
thereafter for sale under Rule 144 upon the expiration of the applicable
one-year holding periods. In addition, if the restrictions of the Lock-up
Agreements and the foregoing provisions of the Company's Certificate of
Incorporation were waived in full on the date hereof: (i) shares
of Common Stock would become eligible for sale in the public market from and
after the date of this Prospectus; and (ii) additional shares of
Common Stock would become eligible for sale in the public market 90 days after
the date of this Prospectus.
Following the date of this Prospectus, Nextera intends to register on one
or more registration statements on Form S-8 approximately shares
of Class A Common Stock issuable under the 1998 Equity Participation Plan. Of
the shares of Class A Common Stock issuable under the 1998 Equity
Participation Plan, shares were subject to outstanding options as of
September 1, 1998, of which will be exercisable at the time of
the Offering.
Upon completion of the Offering, the holders of shares of Class A
Common Stock and shares of Class B Common Stock (after conversion to Class A
Common Stock) will be entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares of Class A Common Stock to be registered and sold in the
public market, such sales could materially adversely affect the market price of
the Class A Common Stock. In addition, if the Company is required, pursuant to
such registration rights, to include shares held by such persons in a
registration statement which Nextera files to raise additional capital, the
inclusion of such shares could adversely affect the Company's ability to raise
needed capital. See "Management--Employee Benefit Plans," "Principal
Stockholders" and "Shares Eligible for Future Sale."
17
<PAGE> 19
THE COMPANY
Immediately prior to the Offering, the organizational structure of the
Company and its subsidiaries will be as follows:
[CHART]
Chart indicating the organizational structure of the Company depicts four
boxes. The top box contains the words "Nextera Enterprises, Inc." above the word
"("Nextera")." Below the top box is a line leading to a second box with the
number "100%" next to the line. The second box contains the words "Sibson &
Company, Inc." above the words "SC2, Inc." which is, in turn, above the words
"(the "Sibson Entities")." Below the second box is a line leading to a third box
with the number "14.1%" next to the line. Below the top box is a second line
leading to the third box with the number "85.9%" next to the line. The third box
contains the words "Nextera Enterprises, Inc." above the words "("Nextera
LLC")." Below the third box is a line leading to a fourth box with the number
"100%" next to the line. The fourth box contains the words "Acquired Companies:"
followed by six bullet points: "Symmetrix, Inc.", "SGM Consulting, L.L.C.,
dba SiGMA Consulting", "Pyramid Imaging, Inc.", "The Planning Technologies
Group, L.L.C.", "Sibson & Company, LLC" and "Sibson Canada Co."
The following discussion summarizes the Company's formation and certain
other significant events relating to its capital structure prior to the
Offering. For additional related information see "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources" and "Certain Transactions."
Formation. The Company was formed on February 26, 1997 as Education
Technology Consulting, L.L.C. and renamed Nextera Enterprises, L.L.C. on April
11, 1997. The Company will operate as a Delaware limited liability company until
the consummation of the Exchange Transaction (as defined below), after which it
will operate as a Delaware corporation. The initial members of Nextera LLC were
Nextera Enterprises Holdings, L.L.C. (formerly Education Technology Consulting
Holdings, LLC) ("NEH") and EDU, L.L.C. ("EDU"), each of which was an affiliate
of Knowledge Universe. In connection with the commencement of their respective
employment, Gresham T. Brebach, Jr., the Company's President, Chief Executive
Officer and Chairman of the Board of Directors, Ronald K. Bohlin, the Company's
Chief Operating Officer and Director, Michael P. Muldowney, the Company's Chief
Financial Officer, Debra I. Bergevine, the Company's Vice President, Marketing,
and certain additional individuals became members of NEH. See "Certain
Transactions--Investments in the Company."
18
<PAGE> 20
Recapitalization. Effective as of April 30, 1998, approximately $48.0
million of Nextera LLC's contributed capital was redesignated as debt in the
form of (i) a debenture dated March 20, 1997 with a principal amount of $23.0
million, which matures on May 1, 2002 and bears interest at a rate of 10% per
annum (the "March Debenture") and (ii) a debenture dated January 5, 1998 with a
principal amount of $25.0 million, which matures on May 1, 2002 and bears
interest at a rate of 10% per annum (the "January Debenture" and together with
the March Debenture, the "Debentures"), and NEH was liquidated and dissolved. In
connection with these transactions, the former members of NEH became members of
Nextera LLC and interests in the January Debenture and March Debenture were
distributed to Knowledge Universe, Messrs. Brebach, Bohlin and Muldowney, Ms.
Bergevine and certain other employees of Nextera LLC. The March Debenture is
subordinated to the January Debenture. The interest on the principal amount of
the Debentures is deemed to have begun to accrue on the date the respective
redesignated capital contributions were originally contributed to Nextera LLC.
See "Use of Proceeds" and Note 9 of Notes to the Company's Consolidated
Financial Statements.
Transfer to Knowledge Enterprises. Effective August 5, 1998, Knowledge
Universe contributed all of its Class A Common Units and Class B Common Units of
Nextera LLC to Knowledge Universe, Inc. ("KU, Inc.") in exchange for shares of
its capital stock. Effective August 7, 1998, KU, Inc. and EDU contributed all of
their Class A Common Units and Class B Common Units of Nextera LLC to Knowledge
Enterprises in exchange for capital stock of Knowledge Enterprises (the "KE
Transaction"). See "Principal Stockholders."
Exchangeable Preference Shares. In connection with the Sibson Acquisitions,
Nextera LLC formed Sibson Canada Co., a wholly owned Canadian subsidiary, which
issued the Exchangeable Shares to the holders of capital stock of Sibson Canada,
Inc. The holders of Exchangeable Shares may exchange such shares at any time for
an aggregate of shares of Class A Common Stock. The Exchangeable Shares are
designed to provide an opportunity for the shareholders of Sibson Canada, Inc.
to achieve a Canadian tax deferral in certain circumstances. The holders of
Exchangeable Shares are entitled to dividend and other rights equivalent to
shares of Class A Common Stock but are not entitled to vote on matters submitted
to the holders of Class A Common Stock until such time as the holders of
Exchangeable Shares exchange such shares for Class A Common Stock.
Exchange Transaction. Prior to the Offering, all of the members of Nextera
LLC (the "Members") other than the two entities that owned Sibson & Company,
L.P. prior to its acquisition by Nextera LLC (together, the "Sibson Entities")
will contribute all of their membership interests in Nextera LLC to Nextera in
exchange for Common Stock. The percentage interests and classes of Common Stock
received by each Member (other than the Sibson Entities) will correspond to the
percentage interests and classes of the Nextera LLC membership interests held by
such Member. Each Member that contributes Class A Common Units of Nextera LLC
will receive shares of Class A Common Stock and each member that contributes
Class B Common Units of Nextera LLC will receive shares of Class B Common Stock.
Contemporaneous with the exchange of membership interests of Nextera LLC for
Common Stock, the shareholders of the Sibson Entities will contribute all of the
issued and outstanding common stock of the Sibson Entities to Nextera in
exchange for shares of Class A Common Stock. The aggregate percentage interests
of Class A Common Stock that will be received by the shareholders of the Sibson
Entities will correspond to the percentage interests of Class A Common Units in
Nextera LLC held by the Sibson Entities (the collective contributions of
membership interests in Nextera LLC and capital stock of the Sibson Entities to
Nextera are referred to as the "Exchange Transaction"). After the Exchange
Transaction, the Company will hold directly 85.9% of the membership interests in
Nextera LLC and, indirectly through the Sibson Entities, will hold the remaining
14.1%. See "Principal Stockholders."
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to Nextera from the sale of the shares
offered by the Company pursuant to the Offering are estimated to be
approximately $ million ($ million if the Underwriters' over-allotment
option is exercised in full), at an assumed offering price of $ per share
after deducting the estimated underwriting discounts and commissions and
Offering expenses payable by the Company. The principal purposes of the Offering
are to create a public market for the Class A Common Stock, enhance Nextera's
ability to use its Class A Common Stock as a means of attracting, motivating and
retaining key employees, facilitate the Company's future access to public equity
markets, repay indebtedness, and obtain additional working capital. Nextera
intends to use the net proceeds from the Offering as follows:
(i) approximately $ million to repay outstanding principal and
interest under a $40 million revolving credit facility entered into
effective August 31, 1998 (the "Bridge Loan") which bears interest at the
rate of LIBOR plus 450 basis points (10.2% as of August 31, 1998) per
annum, and matures on February 28, 1999. The Company borrowed $38.0 million
under the Bridge Loan to finance the Sibson Acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Underwriting."
(ii) approximately $ million to repay outstanding principal and
interest on the March Debenture and approximately $ million to repay
outstanding principal and interest on the January Debenture. Each of the
Debentures bears interest at the rate of 10% per annum, and matures on May
1, 2002. All of the interests in the Debentures are held by Knowledge
Universe, Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine, and two
other employees of Nextera, who will receive payments of $ million,
$ thousand, $ thousand, $ thousand, $ thousand, $
thousand and $ thousand, respectively. The indebtedness associated with
the Debentures was incurred to finance acquisitions and for general working
capital purposes. See "The Company--Recapitalization" and "Certain
Transactions--Investments in the Company."
(iii) approximately $ to pay accrued management fees to
Knowledge Universe. See "Certain Transactions--Management Agreement."
(iv) the remaining net proceeds for general corporate purposes.
Pending such uses, Nextera intends to invest the net proceeds from the
Offering in short-term, investment-grade, interest-bearing securities. Although
Nextera examines potential acquisition opportunities from time to time, the
Company has no current plans, commitments, agreements or understandings with
respect to any material acquisitions or investments as of the date of this
Prospectus, and no portion of the net proceeds has been allocated for any
specific material acquisition or investment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DIVIDEND POLICY
Nextera has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain all future earnings, if any, for use in
the operation and development of its business and, therefore, does not expect to
declare or pay any cash dividends on its Common Stock in the foreseeable future.
The payment of dividends in the future, if any, will be at the discretion of the
Board of Directors.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of Nextera as of June 30,
1998 on (i) a pro forma basis to give effect to the Sibson Acquisitions and the
Exchange Transaction and (ii) a pro forma as adjusted basis to give effect to
the sale of shares of Class A Common Stock offered hereby and the
application of the estimated net proceeds of the Offering at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and Offering expenses payable by the Company. See "Use
of Proceeds." The information set forth below should be read in conjunction with
the Company's Consolidated Financial Statements and the related Notes thereto
and the Unaudited Pro Forma Combined Financial Statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Total short-term debt....................................... $40,064 $
Total long-term debt........................................ 53,915
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized, no shares issued and outstanding, pro forma
and pro forma as adjusted.............................. -- --
Class A Common Stock, $0.001 par value; 50,000,000 shares
authorized, shares issued and outstanding,
pro forma, and shares issued and outstanding,
pro forma as adjusted(1)............................... 12,543
Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, shares issued and outstanding,
pro forma and pro forma as adjusted....................
Additional paid-in capital................................ -- --
Accumulated deficit....................................... (6,593)
------- ------
Total stockholders' equity (deficit)................... $ 5,950 $
------- ------
Total capitalization.............................. $99,929 $
======= ======
</TABLE>
- ------------------------------
(1) Excludes shares of Class A Common Stock reserved for issuance
under the 1998 Equity Participation Plan pursuant to which options to
purchase shares will be outstanding upon the closing of the
Offering. See "Management--Employee Benefit Plans." Also excludes
shares of Class A Common Stock issuable upon conversion of the
shares of the Company's Class B Common Stock. See "Description of
Capital Stock." Assumes the exchange of all Exchangeable Shares for
shares of Class A Common Stock. See "The Company--Exchangeable Preference
Shares."
21
<PAGE> 23
DILUTION
As of June 30, 1998, the pro forma net tangible book value of Nextera was
$ , or $ per share of Common Stock. Pro forma net tangible book value
per share gives effect to the Sibson Acquisitions and is equal to the amount of
total pro forma tangible assets less total pro forma liabilities, divided by the
total pro forma number of shares of Common Stock outstanding. After giving
effect to the sale of the shares of Class A Common Stock offered
hereby at an assumed initial public offering price of $ per share, and after
deducting the estimated underwriting discounts and commissions and Offering
expenses payable by the Company, the pro forma net tangible book value of
Nextera as of June 30, 1998 would have been $ , or $ per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $ per share of Common Stock to existing stockholders and an
immediate dilution of $ per share of Common Stock to new stockholders. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
Offering............................................... $
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
Offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the difference between the existing stockholders and new stockholders with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to Nextera and the average price paid per share by
existing stockholders and by new stockholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................... % $ % $
New stockholders
--------- ----- ------ ------
Total......................... 100.0% $ 100.0%
========= ===== ====== ======
</TABLE>
The foregoing tables and calculations assume no exercise of the
Underwriters' over-allotment option and no exercise of options to purchase
shares of Class A Common Stock at a weighted average exercise
price of $ per share granted under the 1998 Equity Participation Plan
outstanding as of June 30, 1998. The issuance of Class A Common Stock upon the
exercise of the options granted under the 1998 Equity Participation Plan will
result in further dilution to new investors. See "Management--Employee Benefit
Plans," and "Shares Eligible for Future Sale."
22
<PAGE> 24
SELECTED CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The Statements of Operations Data presented below for the period from February
26, 1997 (date of inception) through December 31, 1997 and the Balance Sheet
Data as of December 31, 1997 have been derived from the Company's Consolidated
Financial Statements included elsewhere in this Prospectus, which have been
audited by Ernst & Young LLP, whose report with respect thereto is included
elsewhere in this Prospectus. The Statements of Operations Data for the six
months ended June 30, 1998 and the Balance Sheet Data as of June 30, 1998 have
been derived from the unaudited financial statements of Nextera. In the opinion
of management, the unaudited financial statements include all adjustments
(consisting only of normal and recurring adjustments and adjustments related to
the Company's equity recapitalization) necessary for a fair presentation of its
financial position and operating results for such periods. The Statement of
Operations data for the six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the year ending December 31, 1998
or any other future period. See the Company's Consolidated Financial Statements
and the related Notes thereto included elsewhere in this Prospectus.
The unaudited pro forma Statements of Operations Data for the year ended
December 31, 1997 and for the six months ended June 30, 1998 combine the
historical statements of operations of Nextera and the Acquired Companies as if
such acquisitions had been completed on the first day of each period presented.
The unaudited pro forma Balance Sheet Data as of June 30, 1998 combines the
historical balance sheets of the Company and Sibson as if the Sibson
Acquisitions had been consummated as of June 30, 1998. This pro forma data
should be read in conjunction with the respective Historical Financial
Statements of Nextera and the Acquired Companies (including the Notes thereto),
the Unaudited Pro Forma Combined Financial Statements (including the Notes
thereto), Management's Discussion and Analysis of Financial Condition and
Results of Operations, and other financial information of Nextera and the
Acquired Companies appearing elsewhere herein. The pro forma statements may not
be indicative of the results that would have actually been obtained had the
acquisitions reflected therein occurred on the dates indicated or which may be
obtained in the future.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
-------------------------------------- ------------------------------------
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE FOR THE
THROUGH SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues................................. $ 7,998 $22,095 $76,453 $48,502
Cost of revenues............................. 4,718 14,938 54,100 32,353
------- ------- ------- -------
Gross profit................................. 3,280 7,157 22,353 16,149
Selling, general and administrative
expenses................................... 5,306 7,296 18,332 13,116
Compensation expense......................... -- -- 4,126 --
Amortization expense......................... 255 568 2,859 1,419
------- ------- ------- -------
Loss from operations......................... (2,281) (707) (2,964) 1,614
Interest income (expense), net............... (32) (2,671) (4,008) (4,646)
------- ------- ------- -------
Loss before provision for income taxes....... (2,313) (3,378) (6,972) (3,032)
Provision for income taxes................... 702 200 455 142
------- ------- ------- -------
Net loss..................................... $(3,015) $(3,578) $(7,427) $(3,174)
======= ======= ======= =======
Net loss per share, basic and diluted(2)..... $ (0.74) $ (0.29)
Weighted average shares outstanding, basic
and diluted................................ 4,061 12,550
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
AS OF ------------------------------
DECEMBER 31, 1997 HISTORICAL PRO FORMA(3)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 554 $ 2,921 $ 3,080
Working capital (deficit)................................. (335) 5,107 (27,002)
Total assets.............................................. 22,655 57,498 117,433
Total short-term debt..................................... 1,687 1,390 40,064
Total long-term debt...................................... 1,115 51,665 53,915
Total stockholders' equity (deficit)...................... 16,732 (3,905) 5,950
</TABLE>
- ------------------------------
(1) The pro forma selected combined financial data for the year ended December
31, 1997 and for the six months ended June 30, 1998 are presented as if the
acquisitions of the Acquired Companies had been consummated as of January 1,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisitions" and Unaudited Pro Forma Combined
Financial Statements.
(2) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
(3) Pro forma to give effect to the Sibson Acquisitions (including the Bridge
Loan) as if they had been consummated as of June 30, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Unaudited Pro Forma Combined Financial Statements.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
section, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. Nextera's actual results, performance
or achievements could differ materially from the results, performance or
achievements expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Nextera Enterprises, Inc. provides consulting services focused on
leading-edge business strategy, operations improvement, organizational design
and IT primarily to Fortune 500 and other multinational companies. The Company
provides services in four practice areas, which enables it to offer a broad
range of complementary services that assist clients in achieving enhanced
business performance by anticipating and addressing their complex,
multi-disciplinary consulting needs. Nextera helps organizations redefine the
way in which existing work is conducted or new businesses and markets are
entered by redesigning operational processes and business practices, defining
and managing major change initiatives, and using emerging information
technologies (such as web-based technologies and electronic commerce) to support
these new strategic approaches.
Nextera was founded in February 1997 and has focused on building its
portfolio of practice areas primarily through selective acquisitions and, to a
lesser extent, internal growth. The Company has pursued an acquisition strategy
that has resulted in the acquisitions of the Acquired Companies. The Company's
results of operations have been, and will continue to be, affected by
substantial annual non-cash amortization charges for goodwill as a result of
these acquisitions being accounted for under the purchase method of accounting.
Nextera will be unable to account for future acquisitions under the
pooling-of-interests method of accounting. Accordingly, the Company will be
required to account for acquisitions under the purchase method of accounting,
which may result in substantial additional annual non-cash amortization charges
for goodwill and other intangible assets in Nextera's statements of operations.
Intangible assets are being amortized by Nextera on a straight-line basis over 5
years for intangibles relating to personnel and over 40 years for all other
intangibles, including goodwill. In accordance with SFAS No. 121, the Company
will periodically evaluate whether recent events and circumstances have occurred
that indicate the acquired goodwill may warrant revision.
Nextera is affiliated with Knowledge Universe and Knowledge Enterprises and
from time to time has been engaged on an arm's-length basis to provide
consulting services for Knowledge Universe and its affiliates. The Company
expects that it may also be engaged to provide such services in the future. See
"Certain Transactions--Engagement of the Company by Knowledge Universe or its
Affiliates." Knowledge Enterprises and Knowledge Universe are engaged in
acquiring and operating companies in a broad range of areas relating to career
management, technology and education, and the improvement of individual and
corporate performance, including companies which focus on the provision of human
capital, training, educational and advisory services to individuals, companies
and other organizations. Nextera expects to benefit from its association with
Knowledge Universe and Knowledge Enterprises through increased access to
prospective client contacts and other business opportunities and the potential
ability of Knowledge Universe and Knowledge Enterprises to enhance the Company's
market exposure, although there can be no assurance that these expected benefits
will be realized.
The Company generates net revenues by providing business and IT consulting
services primarily under time and materials, fixed-price or capped-fee billing
arrangements. Under time and materials billing arrangements, revenues are
recognized as the services are performed. Revenues on fixed-price and capped-fee
contracts are recognized using the percentage of completion method of accounting
and are adjusted monthly for the cumulative impact of any revision in estimates.
The Company determines the percentage of completion
24
<PAGE> 26
of its contracts by comparing costs incurred to date to total estimated costs.
Contract costs include all direct labor and expenses related to the contract
performance. On a pro forma basis, fixed price or capped-fee billing
arrangements accounted for approximately 11.0% and 19.0% of Nextera's net
revenues for the year ended December 31, 1997 and for the six months ended June
30, 1998, respectively. See "Risk Factors--Project Risks; Fixed Price
Contracts." The Company believes that the majority of its work will continue to
be performed under time and materials billing arrangements. Net revenues exclude
reimbursable expenses charged to clients. The Company typically bills on a
monthly basis to monitor client satisfaction and manage its outstanding accounts
receivable balances. Substantially all of the Company's net revenues are derived
from clients located in the United States and Canada. The Company's 10 largest
clients accounted for approximately 29.1% and 36.1% of pro forma net revenues
for the year ended December 31, 1997 and for the six months ended June 30, 1998,
respectively. For the year ended December 31, 1997 and the six months ended June
30, 1998, none of the Company's clients individually accounted for 10% or more
of the Company's pro forma net revenues. See "Risk Factors--Concentration of
Revenues."
Gross profit is derived from net revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. Nextera's financial
performance is primarily based upon billing margin (billable daily rate less the
consultant's daily cost) and personnel utilization rates (billable days divided
by paid days). The Company monitors its engagements to manage billing and
utilization rates. The Company derives a substantial majority of its net
revenues from engagements billed on a time and materials basis. The Company is
generally able to pass increases in its cost of revenues along to its clients to
the extent that the Company bills engagements on a time and materials basis. The
Company generally is unable to pass along increases in its cost of revenues with
respect to engagements billed on a fixed price or capped-fee basis. Generally,
clients are billed for expenses incurred by Nextera on the clients' behalf. In
addition, Nextera closely monitors and attempts to control expenses that are not
passed through to its clients. Incentive compensation expenses paid to
consultants have a large variable component relating to net revenues and profit
and, therefore, vary based upon the Company's ability to achieve its operating
objectives.
Selling, general and administrative expenses consist of salaries and
benefits of certain senior management and other administrative personnel and
training, marketing and promotional costs. These expenses are associated with
the Company's development of new business and with the Company's management,
finance, recruiting, marketing and administrative activities. Incentive
compensation expenses for certain senior management also have a significant
variable component relating to net revenues and profit and, therefore, vary
based upon the Company's ability to achieve its operating objectives.
The Company's income tax rates may vary from the federal statutory rate of
34% predominately due to nondeductible goodwill amortization, the utilization of
various net operating loss carryforwards, state and local taxes and
nondeductible meal expenses. As of June 30, 1998, Symmetrix, Inc. ("Symmetrix")
had net operating loss carryforwards of approximately $5.8 million which arose
principally as a result of disqualifying dispositions of Symmetrix' previously
outstanding stock options. As a result of the ownership change of Symmetrix due
to its acquisition by the Company, these net operating losses are subject to
limitations under the Internal Revenue Code. See Note 6 of Notes to the
Company's Consolidated Financial Statements.
ACQUISITIONS
All acquisitions completed by Nextera have been accounted for under the
purchase method of accounting. Accordingly, the historical Consolidated
Financial Statements of the Company included in this Prospectus include
operating results of the Acquired Companies only from the effective date of each
respective acquisition and are not necessarily indicative of the future
financial condition or results of operations of the Company.
Effective July 30, 1997, Nextera acquired Symmetrix, a Massachusetts-based
management consulting and technology consulting company. Through Symmetrix, the
Company offers enhanced services in acquisition due diligence, customer
profitability, IT strategy assessment and design, construction, and deployment
of complete business systems. Symmetrix was acquired for $15.5 million in cash.
25
<PAGE> 27
Effective January 5, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of SiGMA Consulting, LLC ("SiGMA"), a New
York-based management consulting firm. Through SiGMA, the Company offers
consulting services focusing on change management and helping organizations
improve core business processes, including product development, manufacturing
and distribution, sales, and enterprise management. SiGMA was acquired for $10.0
million in cash and 669,000 shares of Class A Common Stock.
Effective March 31, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of The Planning Technologies Group, Inc.
("PTG"), a Massachusetts-based strategy and management consulting firm. Through
PTG, the Company offers strategy formulation, strategic planning process design,
and business process assessment and redesign services. PTG was acquired for $6.7
million in cash and 214,000 shares of Class A Common Stock.
Effective March 31, 1998, the Company acquired Pyramid Imaging, Inc.
("Pyramid"), a California-based consulting and technology firm. Through Pyramid,
the Company offers consulting services focused on providing technology-based
solutions within the areas of knowledge management, electronic commerce,
customer management, and human capital management. Pyramid was acquired for $9.2
million in cash and 586,667 shares of Class A Common Stock. In addition, the
Company agreed to an "earn-out" provision providing for the payment of up to an
additional $0.8 million in cash and 53,333 shares of Class A Common Stock upon
the achievement of certain revenue and pre-tax profit targets related to the
performance of Pyramid during the twelve months ending March 31, 1999.
Effective August 31, 1998, Nextera acquired substantially all the assets
and assumed certain liabilities of Sibson & Company, L.P. and acquired Sibson
Canada, Inc., human resources consulting firms based in New Jersey and Toronto,
Canada, respectively. Through Sibson, the Company provides human capital
consulting services offering human resource strategies, outsourcing assessments,
organizational designs, rewards/ incentives programs, performance management
processes and systems, and executive coaching services. Sibson also serves sales
and marketing organizations with sales strategy, selling process, sales channel
and selling effectiveness consulting. Sibson was acquired for $37.4 million in
cash and 2,810,900 shares of Class A Common Stock (including the Exchangeable
Shares).
26
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations for the
periods indicated. This information for quarterly periods has been prepared on
the same basis as the Consolidated Financial Statements and, in the opinion of
the Company's management, reflects all adjustments (consisting only of normal
and recurring adjustments and adjustments related to the Company's equity
recapitalization) necessary for the fair presentation of the information for the
periods presented.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE THREE MONTHS ENDED
THROUGH --------------------------------------------------------------
DECEMBER 31, JUNE 30, SEPTEMBER 30 DECEMBER 31, MARCH 31, JUNE 30,
1997 1997(1) 1997 1997 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 7,998 $ -- $ 3,039 $4,959 $ 8,186 $13,909
Cost of revenues........... 4,718 -- 1,851 2,867 5,623 9,315
------- ----- ------- ------ ------- -------
Gross profit............. 3,280 -- 1,188 2,092 2,563 4,594
Operating expenses:
Selling, general and
administrative
expenses.............. 5,306 987 1,848 2,471 2,886 4,410
Amortization expense..... 255 -- 101 154 224 344
------- ----- ------- ------ ------- -------
Loss from operations..... (2,281) (987) (761) (533) (547) (160)
Interest income
(expense), net........ (32) 3 8 (43) (1,567) (1,104)
------- ----- ------- ------ ------- -------
Loss before provision for
income taxes.......... (2,313) (984) (753) (576) (2,114) (1,264)
Provision for income
taxes................. 702 -- 280 422 125 75
------- ----- ------- ------ ------- -------
Net loss................... $(3,015) $(984) $(1,033) $ (998) $(2,239) $(1,339)
======= ===== ======= ====== ======= =======
</TABLE>
- ------------------------------
(1) During the period from February 26, 1997 (date of inception) through March
31, 1997, the Company incurred expenses of $34,000 which are included in the
three months ended June 30, 1997.
The following table sets forth, for periods indicated, the percentage
relationship to net revenues of the Company's results of operations. This
information for quarterly periods has been prepared on the same basis as the
Consolidated Financial Statements and, in the opinion of the Company's
management, reflects all adjustments (consisting only of normal and recurring
adjustments and adjustments related to the Company's equity recapitalization)
necessary for the fair presentation of the information for the periods
presented.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997 FOR THE THREE MONTHS ENDED
(DATE OF INCEPTION) --------------------------------------------------------------
THROUGH JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
DECEMBER 31, 1997 1997 1997 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C>
Net revenues................. 100% -- 100% 100% 100% 100%
Cost of revenues............. 59 -- 61 58 69 67
---- ---- ---- ---- ---- ---
Gross profit............... 41 39 42 31 33
Selling, general and
administrative
expenses................ 67 61 50 35 32
Amortization expense....... 3 3 3 3 2
---- ---- ---- ---- ---- ---
Loss from operations....... (29) (25) (11) (7) (1)
Interest income (expense),
net........................ 0 0 (1) (19) (8)
---- ---- ---- ---- ---- ---
Loss before provision for
income taxes............ (29) (25) (12) (26) (9)
Provision for income taxes... 9 9 8 1 1
---- ---- ---- ---- ---- ---
Net loss................... (38%) (34%) (20%) (27%) (10%)
</TABLE>
27
<PAGE> 29
In light of the Company's inception on February 26, 1997, the number of
acquisitions completed and the absence of significant operations through June
30, 1997, management has decided to present a comparison of results for the
three months ended June 30, 1998 versus the three months ended March 31, 1998
and for the three months ended March 31, 1998 versus the three months ended
December 31, 1997 because it believes that such comparisons are the most
meaningful presentation of the Company's operating results.
All acquisitions completed by Nextera have been accounted for under the
purchase method of accounting. Accordingly, the historical Consolidated
Financial Statements of the Company included in the Prospectus include operating
results of the Acquired Companies only from the date of each respective
acquisition. As the Sibson Acquisitions were completed after June 30, 1998, the
following period-to-period comparisons do not reflect the Sibson Acquisitions.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND THREE MONTHS ENDED MARCH 31,
1998
Net Revenues. Net revenues increased 69.9% to $13.9 million for the three
months ended June 30, 1998 from $8.2 million for the three months ended March
31, 1998. This increase was due predominately to the net revenues generated by
PTG and Pyramid, which were acquired effective March 31, 1998, and to a lesser
extent from higher utilization rates and greater business levels at Symmetrix.
No net revenues from PTG or Pyramid were recorded by Nextera in the three months
ended March 31, 1998.
Gross Profit. Gross profit increased 79.2% to $4.6 million for the three
months ended June 30, 1998 from $2.6 million for the three months ended March
31, 1998. Gross margin increased to 33.0% for the three months ended June 30,
1998 from 31.3% for the three months ended March 31, 1998. The increase in gross
margin was due primarily to the addition of PTG and Pyramid and, to a lesser
extent, more effective utilization of consultants on billable projects and a
lower utilization of outside contractors, which decreased cost of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 52.0% to $4.4 million for the three months
ended June 30, 1998 from $2.9 million for the three months ended March 31, 1998.
As a percentage of net revenues, such expenses decreased to 31.7% for the three
months ended June 30, 1998 from 35.3% for the three months ended March 31, 1998.
The dollar increase was due primarily to the increase in the number of employees
attributable to the PTG and Pyramid acquisitions, as well as additional hirings.
The decrease as a percentage of net revenues was due primarily to a greater
increase in net revenues in relation to the increase in such expenses.
Interest Income (Expense), Net. Interest expense decreased 29.5% to $1.2
million for the three months ended June 30, 1998 from $1.6 million for the three
months ended March 31, 1998. This decrease was due primarily to the inclusion in
the three months ended March 31, 1998 of $0.8 million related to 1997 interest
on the Debentures, which was accrued in such period due to the recapitalization
of the Company. This decrease was partially offset by increased borrowings to
fund the PTG and Pyramid acquisitions. See "--Liquidity and Capital Resources,"
"Use of Proceeds" and Note 9 of Notes to the Company's Consolidated Financial
Statements.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND THREE MONTHS ENDED
DECEMBER 31, 1997
Net Revenues. Net revenues increased 65.1% to $8.2 million for the three
months ended March 31, 1998 from $5.0 million for the three months ended
December 31, 1997. This increase was due to the net revenues generated from
SiGMA, which was acquired under the purchase method of accounting on January 5,
1998, partially offset by reserves taken on a fixed fee contract which has now
been completed. No net revenues from SiGMA were recorded by Nextera for the
three months ended December 31, 1997.
Gross Profit. Gross profit increased 22.5% to $2.6 million for the three
months ended March 31, 1998 from $2.1 million for the three months ended
December 31, 1997. Gross margin decreased to 31.3% for the three months ended
March 31, 1998 from 42.2% for the three months ended December 31, 1997. The
decrease in gross margin was primarily due to a $0.5 million reserve adjustment
on a fixed-fee contract taken in the three months ended March 31, 1998,
partially offset by increased gross profit generated from SiGMA.
28
<PAGE> 30
The amount of the reserve adjustment was determined using the percentage of
completion method of accounting.
Selling, General and Administrative. Selling, general and administrative
expenses increased 16.8% to $2.9 million for the three months ended March 31,
1998 from $2.5 million for the three months ended December 31, 1997. As a
percentage of net revenues, such expenses decreased to 35.3% for the three
months ended March 31, 1998 from 49.8% for the three months ended December 31,
1997. The dollar increase was due primarily to the increase in the number of
employees attributable to the SiGMA acquisition as well as additional hirings.
The decrease as a percentage of net revenues was due primarily to a greater
increase in net revenues in relation to the increase in such expenses.
Interest Income (Expense), Net. Net interest expense increased to $1.6
million for the three months ended March 31, 1998 from $43,000 for the three
months ended December 31, 1997. This increase was due primarily to interest on
the Debentures which was accrued in the three months ended March 31, 1998, $0.8
million of which related to contributions made in 1997. See "--Liquidity and
Capital Resources," "Use of Proceeds" and Note 9 of Notes to the Company's
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through the
proceeds of equity issuances and borrowings. Nextera LLC initially issued common
and preferred equity units between February 1997 and April 1998 for total
proceeds of approximately $50.0 million. On April 30, 1998, in connection with
the recapitalization of Nextera LLC, the preferred units and a portion of the
common units were converted into the Debentures. The Debentures accrue interest
at 10% per annum, and interest on the principal amount of the Debentures was
deemed to have begun to accrue on the date the respective equity capital
contributions were originally made. The total Debentures outstanding, including
accrued interest, at June 30, 1998 was $50.7 million. The Company intends to
repay the outstanding principal balance of the Debentures plus accrued interest
with a portion of the proceeds of the Offering. See "Use of Proceeds," "Certain
Transactions--Investments in the Company" and Note 12 of Notes to the Company's
Consolidated Financial Statements.
As of June 30, 1998, the Company had utilized $41.1 million in connection
with acquisitions. Cash used by operations totaled $4.5 million and $0.1 million
for the period from February 26, 1997 (date of inception) through December 31,
1997 and the six months ended June 30, 1998, respectively.
On August 31, 1998, the Company entered into the Bridge Loan. The Bridge
Loan is secured by substantially all of the Company's assets and contains
certain restrictive covenants. The Bridge Loan provides for financing in the
amount of $40.0 million, of which $38.0 million was used to finance the Sibson
Acquisitions. The Bridge Loan bears interest at the rate of LIBOR plus 450 basis
points (10.2% as of August 31, 1998) per annum and matures on February 28, 1999.
As of September 1, 1998, $38.0 million was outstanding under the Bridge Loan,
which will be repaid with a portion of the net proceeds of the Offering. See
"Use of Proceeds" and "Underwriting." Principally as a result of the Bridge
Loan, as of June 30, 1998, on a pro forma basis reflecting the Sibson
Acquisitions (including the Bridge Loan) as if they had occurred on June 30,
1998, the Company had a working capital deficit of $27.0 million.
Net cash used in operating activities was $0.1 million for the six months
ended June 30, 1998. The primary components of the net cash used in operations
were a net loss of $3.6 million, an increase in accounts and notes receivable of
$1.7 million, which were partially offset by depreciation and amortization of
$0.9 million, an increase in accounts payable and accrued liabilities of $1.7
million, and an increase in accrued interest related to the Debentures of $2.7
million.
Net cash used in investing activities was $26.2 million for the six months
ended June 30, 1998. The primary components of the net cash used in investing
activities were (i) the acquisition of SiGMA in January 1998, the acquisition of
PTG effective in March 1998, and the acquisition of Pyramid effective in March
1998 totalling $25.8 million, exclusive of $1.5 million of cash acquired and
(ii) expenditures of $0.4 million for
29
<PAGE> 31
furniture, equipment and leasehold improvements. See Note 1 of Notes to the
Company's Consolidated Financial Statements.
Nextera, through the Acquired Companies, had an aggregate of $8.4 million
under credit facilities (collectively, the "Credit Facilities") as of August 31,
1998. Interest rates on the Credit Facilities are based on prime or commercial
paper interest rates plus margins varying from 0% to 3%. The Credit Facilities
are secured by substantially all of the assets of the applicable borrower.
Collectively, on a pro forma basis, $4.3 million was outstanding under the
Company's Credit Facilities at June 30, 1998 and bore interest at a weighted
average rate of 8.8%. Certain of the Credit Facilities contain restrictive
covenants relating to maintenance of financial ratios, operating restrictions,
and restrictions of the payment of dividends from certain Acquired Companies to
Nextera. However, the Credit Facilities do not restrict the incurrence of
indebtedness by Nextera at the parent company level. The Company intends to
consolidate these Credit Facilities in a new credit arrangement, however there
can be no assurances that such new credit arrangement will be obtained, and if
so, when and on what terms.
The Company believes that the working capital generated from the net
proceeds from the Offering, together with available borrowings under the Credit
Facilities and cash flow expected to be generated from operations, will be
sufficient to finance the Company's currently anticipated capital requirements
for at least the next twelve months. There can be no assurance, however, that
the Company's actual needs will not exceed anticipated levels or that the
Company will generate sufficient net revenues to fund its operations in the
absence of other sources. There also can be no assurance that any additional
required financing will be available through additional bank borrowings, debt or
equity offerings or otherwise, or that if such financing is available, that it
will be available on terms favorable to the Company.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are coded to accept only two
digit entries in the date code field. These date code fields need to be modified
or upgraded to accept four digit entries to distinguish 21st century dates from
20th century dates. Many organizations are expending significant resources to
modify or upgrade their computer systems for such "Year 2000" compliance. These
expenditures may result in reduced funds available to purchase the types of
services offered by the Company as resources that might otherwise be directed
towards the purchase of outside consulting services are utilized for Year 2000
compliance. Any such reduction in the purchase of the types of services offered
by Nextera could materially adversely affect the Company's business, operating
results and financial condition.
The Year 2000 issue affects the Company's internal systems, including IT
and non-IT systems. Nextera has completed an assessment of its IT systems for
Year 2000 compliance. The Company relies upon microprocessor-based personal
computers and commercially available applications software. The Company is in
the process of upgrading its existing computer software and IT systems. The
Company is reviewing its utility systems (heat, light, telephones, etc.) and
other non-IT systems for the impact of Year 2000. Additionally, should the
Company undertake future acquisitions, the Year 2000 risks that affect the
Company can be expected to similarly affect such acquisition candidates. The
Company intends to review the systems of all acquisition candidates for Year
2000 compliance. However, the failure to correct a material Year 2000 problem
either within the Company, within a vendor or supplier or within an acquisition
candidate could result in an interruption in, or a failure of, certain normal
business activities or operations of the Company. Such interruptions or failures
could materially adversely affect the Company's business, operating results and
financial condition.
The Company depends on smooth and timely interactions with its vendors,
clients and other third parties. Any unexpected costs or disruption in the
operations or activities of such vendors, clients or other third parties as a
result of Year 2000 compliance issues within such entities could materially
adversely affect Nextera's business, operating results or financial condition.
The Company intends to take continuous steps to identify Year 2000 problems
related to its vendors and to formulate a system of working with key
third-parties to understand their ability to continue providing services and
products through the change to Year 2000. The
30
<PAGE> 32
Company intends to work directly with its key vendors, including financial
institutions and utility-providers, and partner with them if necessary, to avoid
any business interruptions.
The Company believes the most likely worst case scenario related to Year
2000 risks is a material business interruption that leads to client
dissatisfaction and the termination of a project or projects by dissatisfied
clients. Such an interruption in services could occur due to a breakdown in any
number of the Company's computer systems and applications and non-IT systems, or
the systems of third-parties. Examples are failures in the Company's application
software, computer chips embedded in equipment, supply of materials from its
suppliers, or lack of adequate telecommunications, power, or other utilities.
Any such failure could prevent the Company from being able to deliver its
services as expected, which could materially adversely affect the Company's
business, operating results and financial condition.
The cost of the Company's Year 2000 compliance assessment and upgrade is
being funded from current operations. As of August 31, 1998, the cost to the
Company of its Year 2000 identification, assessment, remediation and testing
efforts, as well as currently anticipated costs to be incurred by the Company
with respect to Year 2000 issues of third parties, was expected to be less than
$100,000. Because of the uncertainty associated with Year 2000 failures, it is
not possible at present to quantify the cost of corrective actions. The Company
will continue to consider the likelihood of a material business interruption due
to the Year 2000 issue, and, if necessary, implement appropriate contingency
plans. Since the Company has adopted a plan to address these Year 2000 issues,
it has not developed a comprehensive contingency plan should these issues fail
to be completed successfully or in their entirety. However, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time. There
can be no assurance that unexpected Year 2000 compliance problems of either the
Company or its vendors, customers and service providers will not materially
adversely affect the Company's business, operating results and financial
condition.
The Company has in the past and may in the future perform services related
to the planning, implementation and testing of Year 2000 compliance work for its
clients. Failure to timely or accurately perform these services could cause a
client to experience failures of one or more key systems or result in
miscalculations causing material disruptions of one or more of a client's
operations, including an inability to process transactions or engage in business
activities. Disruptions in a client's operations and the variability of
definitions of "compliance" with the Year 2000 could lead to lawsuits against
the Company. The outcome of such lawsuits and the impact on the Company are not
estimable at this time. A claim for product or service liability brought against
Nextera related to its Year 2000 consulting could result in substantial cost to
the Company and divert management's attention from Nextera's operations, which
could materially adversely affect the Company's business, operating results and
financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). The Company will adopt
the provisions of Statement 130 during fiscal year 1998. At that time, the
Company will be required to disclose comprehensive income. Comprehensive income
is generally defined as all changes in members' equity (deficit) exclusive of
transactions with owners such as capital investments and dividends.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement 131"), which is required to be adopted for years beginning after
December 15, 1997. Management of the Company believes that they operate in only
one segment and accordingly does not expect the adoption of Statement 131 to
have a material impact on the Company's financial statement disclosures.
31
<PAGE> 33
BUSINESS
THE COMPANY
Nextera Enterprises, Inc. provides leading-edge consulting services focused
on business strategy, operations improvement, organizational design and IT
primarily to Fortune 500 and other multinational companies. The Company provides
services in four practice areas, which enables it to offer a broad range of
complementary services that assist clients in achieving enhanced business
performance by anticipating and addressing their complex, multi-disciplinary
consulting needs. Nextera helps organizations redefine the way in which existing
work is conducted or new businesses and markets are entered by redesigning
operational processes and business practices, defining and managing major change
initiatives, and using emerging information technologies (such as web-based
technologies and electronic commerce) to support these new strategic approaches.
The Company's portfolio of practice areas includes Business Research
Services, Strategic Management Services, Human Capital Services, and Business
Performance Solutions. The Business Research Services practice provides in-depth
and forward-looking analyses of business challenges, frameworks, and innovative
business practices. The Strategic Management Services practice helps
organizations set and pursue their goals and develop the ability of senior
management to proactively refine and manage business strategies, action plans,
and core competencies as these goals are implemented throughout the
organization. The Human Capital Services practice assists clients to implement
organizational and strategic changes established by senior management through
all levels of the organization. The Business Performance Solutions practice
helps organizations solve complex operational issues through major business
transformation programs, redesigned business processes, best practices
adaptation, and the use of emerging technologies such as web-based technologies
and electronic commerce for high impact business process support systems and
knowledge management systems.
Nextera's flexible delivery model, which is designed to bring together
required expertise from its portfolio of practice areas, enables it to provide
timely and unbiased perspectives on clients' enterprise-wide management problems
and to cost-effectively implement multi-disciplinary solutions. The Company's
breadth of expertise enables it to deliver services initially in any of its four
practice areas and offers opportunities to expand the scope of its engagements
to include complementary or follow-on services in other practice areas. The
Company provides its services across a broad spectrum of industries, including
communications, consumer products and services, entertainment, financial
services, health care, insurance, manufacturing, professional services, retail
and technology. Representative clients include The Chubb Corporation,
International Business Machines Corporation, Levi Strauss & Co., Mead Johnson &
Company, National Broadcasting Company, Inc. and SmithKline Beecham, PLC.
The Company was founded in February 1997 by executives with extensive
experience at major consulting firms and industry-leading companies. The Company
has focused on building its portfolio of practice areas through selective
acquisitions and, to a lesser extent, internal growth to provide a balanced
perspective on the problems and issues facing its clients in today's competitive
environment. As of August 31, 1998, Nextera had 496 employees, including 355
consultants.
INDUSTRY BACKGROUND
Change is one of the most important factors driving demand for professional
consulting services. Increased competition, deregulation, globalization,
technological advances, and evolving organizational models are leading to
changes in the business environment. Traditional barriers to competition are
becoming less effective in protecting competitive positions. Regulatory changes
have led to increased competition both from within industries and from new
entrants from other market sectors. Commercial activity is becoming increasingly
global, requiring consideration of both domestic and international operations in
strategic decision-making and resource utilization. With the advent of the
Internet and electronic commerce, technology is increasingly being used in a
variety of innovative, strategic ways to create new products and services, open
new sales and marketing channels, and reduce costs and time-to-market for
products and services. Moreover,
32
<PAGE> 34
business and IT strategies continue to converge as organizations recognize that
technology can create new business opportunities as well as support existing
business. In response to these challenges and opportunities, organizations are
altering traditional approaches to overall strategy, business processes,
organizational design, and the use of IT.
Many organizations lack the skilled personnel, technical capabilities, and
time necessary to formulate strategies and implement changes needed to benefit
from these new challenges and opportunities. In addition, organizations must
continually keep pace with new technological and competitive developments, which
further strain internal resources. Moreover, organizations expect timely and
substantial economic returns from their investments in strategic initiatives and
organizational change. As a result, many organizations are increasingly
retaining third-party professionals for help and expertise.
Demand for professional consulting services is expected to grow rapidly.
According to an industry source, the worldwide market for professional
consulting services is estimated to have been $46.3 billion in 1997, and is
projected to increase to $88.5 billion in 2002. It is estimated that the
worldwide market for strategy and business consulting services will grow at an
annual rate of 12%, from $19.9 billion in 1997 to $34.9 billion in 2002. The
worldwide market for IT consulting is estimated to grow at an annual rate of
14%, from $12.7 billion in 1997 to $24.8 billion in 2002. It is estimated that
the worldwide market for custom application development and integration will
grow at an annual rate of 15%, from $13.7 billion in 1997 to $28.8 billion in
2002. Moreover, the Company believes that the professional consulting services
industry is highly fragmented and will experience consolidation as service
providers seek to expand and enhance service to clients.
Professional consulting services have traditionally been focused on issues
of business strategy, operations improvement, organizational design, and IT
consulting. Historically, consulting service providers have offered services
focusing on one or two of these issues and few providers have had the breadth of
expertise or balanced approach to providing services to address effectively
multi-disciplinary business problems. For example, service providers oriented
around strategy formulation and market assessment often provide some expertise
in addressing operational or organizational issues, but typically do not address
IT issues or opportunities.
Given the rapidly changing nature of today's business environment,
traditional approaches do not provide the broad perspective or range of
expertise required for a comprehensive examination of the causes of business
problems. Consequently, consulting service providers employing traditional
approaches do not offer the types of balanced and integrated solutions critical
to solving the multi-disciplinary problems that organizations currently face. In
order to solve such problems, organizations are demanding that third-party
service providers have experience in a breadth of practice areas. For example,
organizations increasingly seek assistance not only to formulate strategy, but
also to implement strategic processes that support ongoing strategic decision-
making. As a result, organizations now demand highly-participative, fact-driven
strategic management processes that focus on strategic objectives and explicitly
link business processes, human capital, and IT strategies.
NEXTERA ADVANTAGE
Through its portfolio of practice areas, Nextera offers a broad range of
complementary services that assist clients in achieving enhanced business
performance by anticipating and addressing their complex, multi-disciplinary
consulting needs. The Company helps organizations develop dynamic business
strategies, redesign operational processes, and enhance organizational
effectiveness needed to achieve their visions and goals. The Company's flexible
delivery model, which is designed to bring together required expertise in
business strategy, operations improvement, organizational design, and IT
consulting, enables Nextera to solve its clients' enterprise-wide management
problems and deliver results which are timely and cost-effective. The key
elements of Nextera's advantage include:
Portfolio of Complementary Practice Areas. Through its portfolio of four
practice areas--Business Research Services, Strategic Management Services, Human
Capital Services, and Business Performance Solutions--the Company addresses its
clients' needs from varying perspectives and draws on its experience from each
to provide multi-disciplinary services to its clients. Nextera utilizes this
balanced perspective to help clients identify and examine business problems and
to develop and implement the strategic, operational, and
33
<PAGE> 35
organizational responses needed to solve such problems and sustain performance
improvement. As a result, the Company, with its balanced perspective, offers
objective and independent services which are valued by organizations.
Experience and Expertise. Nextera's experience within industries and
practice areas enables its consultants to more fully and rapidly understand
their clients' businesses and the competitive industry environments in which
they operate. The Company's senior consulting executives average more than 20
years of consulting or industry experience and have all held senior level
positions in large organizations with management responsibility for large
numbers of consultants. Of the Company's consultants, 54% have more than 10
years of consulting, technical or industry experience and 52% have either
doctorate or master's degrees.
Long-term Client Relationships. The Company has established long-term
relationships with numerous clients, many of whom are Fortune 500 companies.
Through these relationships, the Company gains in-depth knowledge of its
clients' businesses and industries, which facilitates the Company's
identification of other complementary services and the ability to offer timely
services to these clients. As a result of these long-term relationships, the
Company has amassed significant expertise in a wide range of industries,
including the financial services, health care, utilities, and manufacturing
industries.
Flexible Delivery Model. Nextera's flexible delivery model enables it to
provide timely and unbiased perspectives on client problems and implement
multi-disciplinary solutions. Initially, the Company is able to deliver services
in any of its practice areas and then expand the scope of its engagements to
include complementary or follow-on services in other practice areas. Nextera
delivers its services through Client Service Teams with the support of Affinity
Groups. For each engagement, Nextera establishes a Client Service Team managed
by a senior-level client service director and comprised of consultants who are
selected to provide the appropriate combination of industry experience,
functional expertise, and geographic coverage. Client service teams enhance
overall client satisfaction by enabling the senior-level client service director
to provide a single point of contact for the client and the overall team to take
a multi-disciplinary approach to engagements. Client Service Teams are supported
by Affinity Groups, which are comprised of individuals from across the Company's
practice areas as well as third-party practitioners. Affinity Group members draw
from their respective client work, industry experience, and expertise to share
knowledge and experiences and develop methodologies and tools used in the
delivery of services.
Proprietary Information System and Scaleable Infrastructure. Nextera has
developed and is expanding its proprietary information system that facilitates
synergies across its practice areas. The foundation of the Company's IT
infrastructure, Nextnet, provides the backbone and architecture for a collection
of integrated applications accessed through a common, web-based user interface.
Nextera's information system enables it to share business information and
knowledge among its consultants and to effectively manage its corporate
resources. Nextnet provides an interactive environment through which defined
groups, including Client Service Teams, can collaborate to solve complex client
problems. In addition to its information system, Nextera's infrastructure
incorporates recruiting, staff development and deployment, collaborative
marketing initiatives, sharing of intellectual capital, and enterprise
management systems. The Company believes that this scaleable infrastructure has
the capacity to support the Company's growth plans for the foreseeable future.
Nextera Culture. The Company emphasizes professionalism, independence, and
objectivity among its consultants, and believes that these attributes are
reflected in the quality of the services it provides to its clients. Nextera
encourages teamwork and knowledge sharing to foster the professional growth of
its consultants and enhance the delivery of services to clients. The Company
seeks to sustain high retention rates for consultants achieved by the Acquired
Companies by retaining certain key cultural elements of each Acquired Company.
Toward this end, Nextera's compensation and incentive programs are designed to
give all consultants the ability to become equity participants in the Company.
Stability among the Company's consultants leads to consistency in the
composition of Client Service Teams and a reduced learning curve on new projects
for existing clients.
34
<PAGE> 36
GROWTH STRATEGY
The Company's objective is to be a leading provider of consulting services
in its four practice areas. The key elements of the Company's growth strategy
include:
Expand Service Offerings through Selective Acquisitions. Nextera intends to
continue to take advantage of the highly fragmented nature of the consulting
industry by acquiring select complementary consulting businesses. The Company is
developing its business around its practice areas and intends to broaden and
enhance its substantive expertise, service offerings, and geographic coverage
through strategic acquisitions. For example, to capitalize on the growth in
electronic commerce, the Company intends to evaluate potential acquisitions
designed to strengthen its capabilities in this area. From time to time, the
Company may also evaluate selective potential acquisitions outside these
practice areas if justified by client needs and market demand.
Leverage Cross-selling Opportunities. Nextera intends to provide additional
services and expand the scope of engagements during delivery to include
follow-on complementary activities. The Company believes that its integrated
approach to its portfolio of practice areas and its ability to cross-sell will
significantly enhance its ability to establish, sustain, and expand
relationships with clients. The Company's close working relationship with its
clients affords it the opportunity to become aware of, and to help define,
additional project opportunities and to market additional capabilities to its
clients. Client service opportunities are disseminated and coordinated on-line
through Nextera's Business Development System, a proprietary Nextnet application
providing company-wide access and the identification and sharing of sales,
marketing, and other business data.
Attract and Retain Key Personnel. The Company intends to attract and retain
consultants who will enhance and complement the Company's service capabilities
by fostering a creative, innovative, collaborative work environment and through
competitive compensation and incentive programs. Nextera has a national
recruiting program aimed at hiring entry-level consultants as well as
consultants with experience at major management consulting firms, IT and process
consulting firms, technology companies, and from the industries that the Company
serves. Nextera's broad client base and flexible delivery model provide its
consultants diverse client experiences for professional growth. The Company
offers its consultants the opportunity to become equity participants in the
Company and has implemented policies and programs designed to accommodate
individual needs. For example, Nextera employs a "virtual office" concept to
provide travel and relocation flexibility where appropriate.
Market the Nextera Brand Name. Nextera intends to continue to build a
common identity for the services it provides under the Nextera brand name. The
Company actively promotes its name and capabilities through its sales and
marketing activities. The Company believes that using a common brand name for
its services enhances its visibility and recognition in the market and improves
its ability to compete for new and expanded business. Nextera also believes that
its association with Knowledge Enterprises and Knowledge Universe will increase
the Company's market exposure and provide prospective client contacts and other
business opportunities.
Expand International Presence. The Company intends to expand its
international presence through the growth of existing practices and selective
acquisitions of complementary consulting businesses in international markets.
The Company believes that clients will increasingly demand a global presence
from consulting service providers and Nextera intends to expand internationally
to participate in the market for global consulting services and to generate new
opportunities. Nextera's geographic priority is to expand its service offerings
in Europe within the Company's existing portfolio of practice areas.
SERVICE OFFERINGS
The Company's portfolio of practice areas enables it to provide a breadth
and balance of services to its clients. By offering clients a combination of
business strategy, operations improvement, organizational design, and IT
consulting services, Nextera helps clients identify and examine business
problems and develop and implement the strategic, organizational, and
operational initiatives needed to solve such problems and sustain performance
improvement. Each of the Company's practice areas has a well-articulated
perspective that not
35
<PAGE> 37
only addresses its own particular service offerings, but also promotes the
logical flow of consulting services from research to strategy to implementation
and IT processes.
For example, the Business Research Services practice area provides analyses
which often demonstrate the need for organizations to develop a business
strategy to proactively respond to new competitive challenges. The Strategic
Management Services practice area assists organizations in developing such
business strategy that can be interactively managed throughout the organization.
In order to successfully implement such business strategy, the Human Capital
Services practice area provides innovative services to address the need for
flexible and leverageable organizational structures. Finally, the Business
Performance Solutions practice area develops the creative business processes and
technology-enabled solutions that are designed to yield the desired results.
The Company's four practice areas are as follows:
Business Research Services. The Company provides in-depth and
forward-looking analyses of business challenges, relevant business frameworks,
and innovative business practices. This analysis and commentary gives clients an
early understanding of innovative yet practical ways to increase their
competitive strengths. Nextera combines the expertise of its consultants with
that of clients, third-party practitioners, and academics to provide focused
research on issues of client concern, including strategic management, product
development, demand chain management, supply chain management, customer
relationship management, human capital development, and knowledge management. To
date, the Company has published two research reports and commenced its first
multi-client study. Nextera intends to expand its research services to include
additional publications, multi-client studies, conferences, and electronic
information services.
Strategic Management Services. The Company assists organizations in
developing, refining, and implementing successful business strategies. Nextera
works with the senior management of a client to develop multiple probable
scenarios based on external market conditions as well as current and potential
operational capabilities. Through the use of IT, the Company conducts analyses
of such information, assesses alternative strategies, and provides a basis for
consensus building. For example, a major regional bank, faced with significant
market discontinuity resulting from bank consolidations and the emergence of new
competitors, sought Nextera's assistance to determine strategies for future
growth. Through an analytically rigorous scenario planning process, the Company
helped its client decide to acquire a leading competitor and invest in emerging
business opportunities that could be critical to the client's future growth. As
a result of this new strategy, this client has strengthened its leading regional
market position.
Human Capital Services. Nextera helps clients invest in and gain leverage
from their human capital by identifying the impact on their workforce of various
strategies. The Company also assists in developing new organizational designs by
establishing programs for personnel selection, recruitment, development, and
succession, identifying the drivers of business performance, and helping
organizations achieve critical focus from their workforce through programs to
enhance "business literacy." The Company also helps clients communicate and
implement organizational changes designed to respond to new opportunities or
competitive threats and establish reward programs for broad employee groups,
managers and executives. For example, when a leading defense contractor
transitioned its market focus from government clients to commercial clients, it
experienced uneven earnings across diversified business units. Nextera assisted
in establishing corporate and business unit goals focused on sustaining
profitable growth and enhancing shareholder value. In addition, the Company
helped design short- and long-term incentives for the client's senior managers
that were based on the expected contribution of their individual areas of
responsibility.
Business Performance Solutions. Nextera helps organizations solve complex
operational issues through major business transformation programs, redesigned
business processes, best practices adaptation, and the use of emerging
technologies for high impact business process support systems and knowledge
management systems. The Company develops custom solutions that employ electronic
commerce and web-based technologies to redefine clients' processes for customer
service, new product development, and channel expansion. For example, Nextera
assisted a leading health care insurer in redesigning its process for developing
customized health care benefit plans in order to reduce operating costs while
maintaining or improving product quality and service delivery. As a result of
the Company's analysis, this client implemented Core Knowledge, Nextera's
proprietary automated system, to capture, organize, and process health care
information and provide
36
<PAGE> 38
a framework for the development of new health care plans customized to meet the
specifications of the client's customers. Core Knowledge uses object-oriented
technology to facilitate the creation and reuse of modules which can be easily
accessed and modified in the development and deployment of new health care
plans. The Company believes that these Core Knowledge applications will enable
the client to improve accuracy, enhance product delivery, and significantly
reduce costs.
The following chart illustrates the Company's portfolio of practice areas:
Practice Areas
<TABLE>
<CAPTION>
BUSINESS STRATEGIC HUMAN BUSINESS
RESEARCH MANAGEMENT CAPITAL PERFORMANCE
SERVICES SERVICES SERVICES SOLUTIONS
<S> <C> <C> <C> <C>
Nextera Business Research............ O
Planning Technologies Group.......... O X
Sibson............................... X O X
Symmetrix Consulting Group........... X X O
SiGMA Consulting Group............... X X O
Pyramid Consulting Group............. X O
</TABLE>
O Primary Business Focus X Secondary Business Focus
[Practice Areas Chart]
ACQUISITIONS
Since inception, the Company has made the following acquisitions:
Symmetrix, Inc. Symmetrix was founded in 1985 and acquired by the
Company effective July 30, 1997. Through Symmetrix, the Company offers enhanced
services in acquisition due diligence, customer profitability, IT strategy
assessment, and the design, construction, and deployment of complete business
systems. Symmetrix primarily offers its services to the financial services,
health care, insurance, and utilities industries. Symmetrix is located in
Lexington, Massachusetts.
SiGMA Consulting, LLC. SiGMA commenced operations in 1991 and was
acquired by the Company effective January 5, 1998. Through SiGMA, the Company
offers consulting services focusing on change management and helping
organizations improve core business processes, including product development,
manufacturing and distribution, sales, and enterprise management. SiGMA
primarily offers its services to the manufacturing, high technology,
entertainment, and transportation industries. SiGMA, which employs a "virtual
office" concept for its consultants, maintains an office in Rochester, New York
and a development center in Boston, Massachusetts.
The Planning Technologies Group, Inc. PTG was founded in 1990 and
acquired by the Company effective March 31, 1998. Through PTG, the Company
offers strategy formulation, strategic planning process design, and business
process assessment and redesign services. PTG primarily offers its services to
the health care, insurance, financial services, consumer products,
manufacturing, and high technology industries. PTG is located in Lexington,
Massachusetts.
Pyramid Imaging, Inc. Pyramid was founded in 1993 and acquired by the
Company effective March 31, 1998. Through Pyramid, the Company offers consulting
services focused on providing technology-based solutions within the areas of
knowledge management, electronic commerce, customer management, and human
capital management. Pyramid primarily offers its services to the investment
banking and brokerage, investment management, commercial and retail banking,
insurance, utility, and high technology industries. Pyramid is located in San
Francisco, California and maintains an office in New York, New York.
37
<PAGE> 39
Sibson & Company, L.P. and Sibson Canada, Inc. Sibson & Company, L.P.
and Sibson Canada, Inc. were founded in 1959 and 1993, respectively, and
acquired by the Company effective August 31, 1998. Through Sibson, the Company
provides human capital consulting services offering human resource strategies,
outsourcing assessments, organizational designs, rewards and incentives
programs, performance management processes and systems, and executive coaching
services. The Company also serves sales and marketing organizations with sales
strategy, selling process, sales channel, and selling effectiveness consulting.
Sibson primarily offers its services to the health care, financial services,
professional services, consumer products, and high technology industries. Sibson
is located in Princeton, New Jersey, and Toronto, Canada and maintains offices
in New York, New York, Raleigh, North Carolina, Los Angeles, California,
Chicago, Illinois, and London, England.
CLIENTS AND REPRESENTATIVE ENGAGEMENTS
The Company's clients consist primarily of Fortune 500 and other
multinational companies. On a pro forma basis, the Company's ten largest clients
accounted for approximately 29% and 36% of its net revenues for the year ended
December 31, 1997 and the six months ended June 30, 1998, respectively, and no
clients in either such period accounted for 10% or more of the Company's pro
forma net revenues. Nextera has served a broad range of clients, including the
following:
<TABLE>
<S> <C> <C>
ENTERTAINMENT/TECHNOLOGY/ FINANCIAL SERVICES/INSURANCE PROFESSIONAL SERVICES
COMMUNICATIONS BancBoston Robertson Stephens Inc. Ernst & Young LLP
BellSouth Corporation The Chubb Corporation PricewaterhouseCoopers LLP
GTE Corporation Fleet Financial Group, Inc.
International Business ING Capital Corporation MANUFACTURING
Machines Massachusetts Mutual Life Insurance American Business Products
Corporation Company BE Aerospace
National Broadcasting Metropolitan Life Insurance Company Rockwell International
Company, Inc. NationsBanc Montgomery Securities LLC Corporation
Nelson Information, Inc. PaineWebber Group Inc.
Scientific-Atlanta, Inc. Wells Fargo & Company HEALTH CARE
RETAIL Olsten Corporation
CONSUMER PRODUCTS/SERVICES Levi Strauss & Co. Pfizer Inc
Mead Johnson & Company Polo Ralph Lauren Prudential HealthCare
Qualex, Inc. SmithKline Beecham, PLC
</TABLE>
Recent representative client engagements include the following:
Strategic Management Services. A major global insurance and financial
services company retained Nextera to develop a new corporate strategy for one of
its global businesses and to identify organizational and operational changes
needed to enable the client to pursue such new strategy. The Company's
consultants worked with the client's management team in a scenario based
planning process, which developed multiple probable future scenarios based on
external market factors as well as current and potential operational
capabilities, and then conducted simulations to test the effectiveness of
various strategies against each probable scenario. Using the results of these
simulations, the client's management team worked with Nextera to gain consensus
on their strategic direction. As a result of this process, the client decided to
pursue a strategy of focused growth and diversification, including selective
acquisitions. The client then worked closely with Nextera to conduct an
organizational alignment analysis, a highly structured process designed to
identify opportunities for work reduction and cost savings and to focus an
organization on the activities critical to providing the operational and
financial leverage necessary to execute the new strategy. The client has
estimated that the organizational alignment analysis identified annual cost
savings in excess of $100 million, which are expected to provide a financial
basis for the implementation of the client's new corporate strategy.
Human Capital Services. A leading consumer services company retained
Nextera to assist in addressing productivity and quality issues which the client
believed were hindering customer satisfaction and compressing margins.
Turn-around time demanded by customers had shortened and capital costs required
in this fast-
38
<PAGE> 40
evolving business made cost management critical. Resulting downward pressure on
employee compensation was causing higher employee turnover and the client's
management team believed that its ability to hire better qualified employees was
being undermined by its compensation structure. Nextera studied quality and
productivity performance at 50 of the client's sites and identified the critical
points where the workforce had the most leverage over the process. Nextera then
helped the client develop employee incentive programs tailored to each
facility's process and geared toward the leverage points that could drive
productivity, quality, and cost performance in that facility. In addition,
Nextera developed a comprehensive communication program to introduce and
implement the new programs. The Company believes that the introduction of these
programs contributed to improved quality and productivity, decreased employee
turnover and absenteeism, and reduced overtime costs.
Business Performance Solutions. A subsidiary of a Fortune 500 company
retained Nextera to redesign its finance function by addressing issues of
organizational effectiveness and technology support. Working closely with the
client's financial management, the Company clarified the goals and role of the
finance function and analyzed the organizational factors and systems critical to
achieving such redesign. Nextera initiated a comprehensive solution that
modified the finance processes and standardized the client's general ledger and
financial reporting requirements. These initiatives were followed by the
Company's examination and conversion of the chart of accounts used by various
financial subsystems to conform to the new standardized accounting and reporting
requirements. Nextera also assisted the client in a broad variety of finance
initiatives, including process reengineering and redesign of its enterprise-wide
IT architecture. The Company believes that its services have enabled the client
to realize efficiencies in the finance function's information collection,
analysis and reporting activities.
FLEXIBLE DELIVERY MODEL
Nextera's flexible delivery model provides clients with the full range of
the Company's expertise through a structured multi-disciplinary approach that
focuses on the needs and problems of each individual client. The Company's
breadth of expertise enables it to deliver services initially in any of its four
practice areas and expand the scope of its engagements to include complementary
or follow-on services in other practice areas. Nextera delivers its services
through Client Service Teams with the support of Affinity Groups. The key
elements of Nextera's flexible delivery model are as follows:
Client Service Teams. For each engagement, Nextera establishes a Client
Service Team managed by a senior-level client service director and comprised of
consultants who are selected to provide the appropriate combination of industry
experience, functional expertise, and geographic coverage. Client service teams
enhance overall client satisfaction by enabling the senior-level client service
director to provide a single point of contact for the client and the overall
team to take a multi-disciplinary approach to engagements. In addition, Client
Service Teams increase visibility of potential opportunities and enhance the
Company's ability to establish strong relationships with the client's senior
executives. As a result, the Client Service Team develops an in-depth
understanding of the client's needs and focuses the Company's various service
capabilities to meet such needs, providing substantial value to the client.
Client Service Teams emphasize the Company's diverse capabilities to clients and
regularly cross-market across its practice areas.
Affinity Groups. Client Service Teams are supported by Affinity Groups,
which are comprised of individuals from across the Company's practice areas as
well as independent consultants, specialists and academics. Affinity Group
members draw from their respective client work, industry experience and
expertise to share knowledge and best practices and develop methodologies and
tools used in the delivery of services to clients and in the training of the
Company's consultants. Affinity Groups utilize Nextnet to facilitate the sharing
of information and have formal and informal meetings and discussions. The
Company has established Affinity Groups for the financial services, health care,
and utilities industries and intends to establish Affinity Groups for other key
industry sectors and practice areas as needed.
39
<PAGE> 41
SALES AND MARKETING
Nextera employs a variety of business development and marketing techniques
to reach prospective clients, including industry seminars featuring
presentations by Company personnel, trade press coverage, an Internet site, and
authoring of articles and other publications regarding market trends, emerging
business challenges and the Company's service offerings. Nextera's marketing
leadership team, with members from each of the Acquired Companies, sets the
Company's overall marketing priorities and provides oversight to key marketing
initiatives. The principal buyers of the Company's services are chief executive
officers and other senior executives with organizational policy-making
responsibilities.
Nextera also relies to a significant extent on the efforts of its
employees, particularly its senior consulting executives and consultants, to
market the Company's services. Nextera employs a "selling practitioner" model in
which the Company's senior consulting executives are responsible for identifying
and obtaining new business as well as managing client engagements and
relationships. Consultants are encouraged to generate business from both
existing and new clients and successful efforts are rewarded with increased
compensation and promotions. Nextera's close working relationships with many of
its clients enable the Company's consultants to become aware of, and to help
define, additional project opportunities, thereby facilitating the Company's
ability to market additional capabilities to its clients. In pursuing new
business, the Company's consultants emphasize Nextera's overall capabilities and
experience while also promoting the expertise of the particular employees who
will work on the project. In addition, Nextera's senior consulting executives
meet with prospective clients and senior managers in organizations where Nextera
has worked in the past to make them aware of the Company's capabilities.
MANAGEMENT INFORMATION SYSTEM
Nextera is investing in Nextnet to improve individual and organizational
performance through shared business information and knowledge. Nextnet provides
the backbone and architecture for a collection of integrated applications
accessed through a common web-based user interface. Nextnet facilitates rapid
delivery responsiveness by identifying the most qualified resources available
for each client engagement and encourages collaboration around resolution of
client problems, increasing quality, and expertise. The Company also utilizes
Nextnet to help integrate newly acquired companies into the Company's portfolio
of practice areas and rapidly adopt Nextera's business practices and procedures.
The initial Nextnet application areas are the Nextera Business Development
System, the NextHR Employee Management System, and an integrated financial
system. The Business Development System, which is updated weekly by engagement
managers of each Acquired Company, provides company-wide management of all sales
leads and business opportunities and enhances Nextera's ability to set
priorities and manage future business. The first release of the NextHR Employee
Management System will provide skills and expertise location, staffing requests,
and job posting information. A company-wide, third-party financial management
system is being implemented and will be integrated with other Nextnet
applications.
In addition to its application focus, Nextnet offers an interactive
environment through which user groups can share knowledge throughout the
Company. Using Nextnet, members of Client Service Teams and Affinity Groups
share timely information, tools, methodologies, and insights, which are
delivered to each consultant's personalized home page, creating a focused,
interactive environment.
Nextnet has been developed to have a flexible application architecture
capable of expanding and supporting applications in response to the Company's
growth and changing needs. A high-performance SQL database drives the data
elements of Nextnet, while a full-text search engine enables knowledge
management services. Application logic is built using the latest web-development
tools, and the applications are delivered through an integrated browser
interface.
40
<PAGE> 42
HUMAN RESOURCES
Nextera's ability to attract and retain experienced consultants to work on
client engagements and to generate new business is a key factor to Nextera's
success. As of August 31, 1998, the Company had 496 employees, including 355
consultants.
Consulting Personnel. Nextera's senior consulting executives have an
average of 20 years of consulting or industry experience. Many of these senior
consulting executives are nationally recognized as experts in their respective
fields, having published articles and lectured extensively. Eight of the
Company's senior consulting executives have founded and managed successful
management and IT consulting firms. Of Nextera's consultants, 54% have more than
10 years of consulting, technical or industry experience and 52% have either
doctorate or master's degrees. This flexibility in staffing engagements enhances
Nextera's ability to apply its resources as needed to meet the demands of its
clients.
Recruiting. Nextera seeks to hire consultants who not only have strong
analytical skills but also are creative, intellectually curious, and driven to
develop expertise in new practice areas and industries. The Company has a
national recruiting program aimed at hiring entry-level consultants as well as
consultants with experience at major management consulting, IT and process
consulting firms, technology companies, and from the industries that Nextera
serves. Entry-level consultants are recruited from leading graduate business
administration programs and undergraduate IT programs. In connection with its
hiring efforts, Nextera employs internal recruiters, retains several executive
search firms, and relies on personal and business contacts to recruit
experienced consultants.
Compensation. In order to attract and retain consultants, Nextera offers
what it believes to be attractive compensation and benefits packages. Employee
compensation is a combination of base salary, bonus opportunity, and equity
participation. Consultant bonuses are paid out of bonus pools established for
each of the Acquired Companies through an annual operations planning process. A
consultant's bonus is based on the consultant's individual contributions and the
Acquired Company's performance. See "Management -- Bonus Plans."
Training and Career Development. The Company has a career enhancement
program that offers its consultants career enrichment opportunities and access
to individualized training. Career development programs are specific to the
needs of each Acquired Company and all employees receive a combination of
orientation training, skills enhancement training, mentoring, and periodic
briefings. Nextera's flexible staffing methods are supported by its NextHR
Employee Management System to provide the Company's consultants with diverse and
challenging client experiences.
Independent Contractors. When necessary, the Company supplements its
consultants on certain engagements with independent contractors. The Company
believes that its practice of retaining independent contractors on a
per-engagement basis provides it with greater flexibility in providing
specialized skills and adjusting consultant levels in response to changes in
demand for its services. Nextera's Business Research practice also employs
third-party practitioners and academics to conduct directed research on key
business performance topics.
COMPETITION
The consulting services industry includes a large number of competitors, is
subject to rapid change, and is highly competitive. Nextera believes that the
principal competitive factors in the consulting services industry are
reputation, industry expertise, analytical ability, service, and price. The
Company believes it competes favorably with respect to these factors. Nextera
also believes that its ability to compete depends in part on a number of factors
outside of its control, including the ability of its competitors to hire, retain
and compensate consultants, offer lower-priced services, respond to client
requirements, and develop advanced services or technology. Nextera's primary
competitors include participants from a variety of market segments, including
general management consulting companies, boutique management consulting firms
that provide specialized services or focus on certain industries, "Big Five" and
other accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, outsourcing
companies, and systems integration companies. Many of these competitors have
significantly greater
41
<PAGE> 43
financial, technical, and marketing resources, and greater name recognition than
Nextera. In addition, many of these competitors have been operating for a
significantly longer period of time than the Company and have established
long-term client relationships. Nextera also competes with its clients' internal
resources, particularly where the resources represent a fixed cost to the
client. Such competition may impose additional pricing pressures on Nextera. In
addition, Nextera faces intense competition in its efforts to recruit and retain
qualified consultants. There can be no assurance that the Company will be able
to compete successfully with its existing competitors or any new competitors.
INTELLECTUAL PROPERTY RIGHTS
The Company's success has resulted, in part, from its analytical templates,
application frameworks, software objects and customizable applications. Nextera
relies upon a combination of nondisclosure, confidentiality, license and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. In addition, Nextera generally
limits the distribution of its proprietary information. There can be no
assurance, however, that the steps taken by Nextera to protect its intellectual
property will be adequate to deter misappropriation of proprietary information
or that the Company will be able to detect unauthorized use and take appropriate
steps to enforce its intellectual property rights or that competitors will not
be able to develop similar or functionally equivalent methodologies.
Furthermore, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries, and no assurance can be given that
foreign copyright and trade secret laws will adequately protect the Company's
intellectual property rights. Although Nextera believes that its services do not
infringe on the intellectual property rights of others and that it has all
rights necessary to utilize the intellectual property employed in its business,
there can be no assurance that Nextera's employees will not misappropriate the
intellectual property of others. Accordingly, the Company is subject to the risk
of claims alleging infringement of third-party intellectual property rights. Any
such claims could require the Company to spend significant sums in litigation,
pay damages, develop non-infringing intellectual property or acquire licenses to
the intellectual property that is the subject of asserted infringement. The
Company presently holds no patents or registered copyrights.
FACILITIES
The Company's corporate headquarters is located in Lexington, Massachusetts
in a leased facility consisting of approximately 6,900 square feet, under a
four-year lease that expires in 2002. The Company also occupies leased office
space in Los Angeles, California; San Francisco, California; Chicago, Illinois;
Boston, Massachusetts; Lexington, Massachusetts; Princeton, New Jersey; New
York, New York; Rochester, New York; Raleigh, North Carolina; Toronto, Canada;
and London, England. The Company believes that its existing facilities are
adequate to meet its current requirements and that suitable space will be
available as needed on terms acceptable to the Company.
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings, claims and
litigation arising in the ordinary course of business, the outcome of which, in
the opinion of management, would not have a material adverse effect on the
Company.
42
<PAGE> 44
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR MANAGERS
The directors, executive officers, and other senior managers of the Company
and their respective ages as of November 15, 1998, and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers
Gresham T. Brebach, Jr. ........................ 58 President, Chief Executive Officer,
and Chairman of the Board of Directors
Ronald K. Bohlin................................ 46 Chief Operating Officer and Director
Michael P. Muldowney............................ 35 Chief Financial Officer
Debra I. Bergevine.............................. 48 Vice President, Marketing
Robert F. Staley, Jr............................ 45 Chief Technology Officer
Roger Brossy.................................... 39 Director and Managing Director, Sibson
Ralph Finerman.................................. 63 Director
Steven B. Fink(1)(2)............................ 47 Director
Stanley E. Maron(2)............................. 50 Director
Michael D. Rose(1).............................. 56 Director
Richard V. Sandler(2)........................... 50 Director
Other Senior Managers
Dwight L. Gertz................................. 47 Managing Director, Symmetrix
Michael Martindale.............................. 54 Managing Director, SiGMA
Michael J. Shepherd............................. 35 Managing Director, Pyramid
Mason S. Tenaglia............................... 42 Managing Director, PTG
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Gresham T. Brebach, Jr. currently serves as President, Chief Executive
Officer, and Chairman of the Board of Directors of the Company, positions he has
held since its inception. Prior to founding the Company, Mr. Brebach was
Executive Vice President of Renaissance Solutions, Inc. from January 1995 to
February 1997 and was a self-employed consultant from September 1994 to December
1994. Mr. Brebach was Senior Vice President of Digital Equipment Corporation
from March 1993 to August 1994 and a Director of McKinsey & Co., a management
consulting firm, from December 1989 to March 1993. In 1988, Mr. Brebach founded
ICG, Inc., an IT consulting firm, and operated such firm until it was acquired
by McKinsey & Co. in December 1989. Prior to such time, Mr. Brebach was Managing
Partner of Andersen Consulting, North America, a leading systems integration and
consulting firm, from 1986 to 1988. Mr. Brebach also serves as a director of
Aspen Technology.
Ronald K. Bohlin currently serves as Chief Operating Officer and a Director
of the Company, positions he has held since its inception. Prior to founding the
Company, Mr. Bohlin was Senior Vice President of Renaissance Solutions from
November 1994 to February 1997. Mr. Bohlin was Vice President, Strategic
Services of Digital Equipment Corporation from October 1993 to November 1994,
Vice President, Corporate Marketing of Analog Devices, Inc. from February 1992
to October 1993, and a Principal of McKinsey & Co. from 1981 to 1992.
Michael P. Muldowney joined the Company in May 1997 as Vice President,
Finance and currently serves as Chief Financial Officer, a position he has held
since May 1998. Mr. Muldowney is a certified public accountant and, prior to
joining the Company, Mr. Muldowney was Corporate Controller as well as a
Principal of Mercer Management Consulting, Inc., ("Mercer"), from 1992 to May
1997, and held various other
43
<PAGE> 45
financial management positions with Mercer from 1989 to 1992. Mr. Muldowney was
a Senior Auditor of Marsh & McLennan Companies, Inc. from 1986 to 1989.
Debra I. Bergevine currently serves as Vice President, Marketing of the
Company, a position she has held since April 1997. Prior to joining Nextera, Ms.
Bergevine was Director of Marketing & Investor Relations of Renaissance
Solutions, Inc. from March 1995 to April 1997. Ms. Bergevine served as Director
of Marketing and in various other management capacities with Digital Equipment
Corporation from 1980 to 1995.
Robert F. Staley, Jr. currently serves as Chief Technology Officer of the
Company, a position he has held since April 1997. Prior to joining Nextera, Mr.
Staley was a Managing Consultant of Renaissance Solutions, Inc. from March 1995
to March 1997. Mr. Staley served as the head of the Database Technology Group
of, as well as holding various other managerial and technical positions with,
Lotus Development Corporation from 1986 to March 1995.
Roger Brossy currently serves as a Director of the Company, a position he
has held since August 1998. Mr. Brossy was elected as a Director of the Company
pursuant to a stockholders agreement. See "Certain Transactions--Stockholders
Agreement." Mr. Brossy also serves as Managing Director, Sibson, and has held
various management and consulting positions with Sibson since 1985. From 1981 to
1985, Mr. Brossy was a consultant with Hay Associates, a human resources
consulting firm.
Ralph Finerman currently serves as a Director of the Company, a position he
has held since August 1998. Mr. Finerman is the President of RFG Financial
Group, Inc., a financial consulting firm, a position he has held since 1994.
From 1983 to 1994, Mr. Finerman was in private practice as a certified public
accountant and attorney.
Steven B. Fink currently serves as a Director of the Company, a position he
has held since its inception. Mr. Fink is Vice Chairman of Knowledge Universe, a
position he has held since January 1995, and serves as an officer or director of
other privately-held affiliates of Knowledge Universe. From December 1993 to
December 1996, Mr. Fink was Vice President of MC Group, an investment advisory
and business consulting firm. Mr. Fink was President of East West Capital, an
investment advisory firm, from 1989 to December 1993. Mr. Fink is a director of
Spring Group, PLC, a business consulting firm.
Stanley E. Maron currently serves as a Director of the Company, a position
he has held since its inception. Mr. Maron also currently serves as a Director
of Knowledge Universe. Mr. Maron is a senior partner in the law firm of Maron &
Sandler, a Professional Corporation, which was formed in September 1994. Mr.
Maron specializes in corporate and tax law. Prior to forming Maron & Sandler,
Mr. Maron was a senior partner of Buchalter, Nemer, Fields & Younger, a law
firm, which he joined as an associate in 1975.
Michael D. Rose currently serves as a Director of the Company, a position
he has held since October 1998. Mr. Rose also currently serves as a director of
Knowledge Universe. Mr. Rose served as Chairman of the Board of Directors of
Promus Hotel Corporation from April 1995 through December 1997 and has continued
to serve as a Director since December 1997. Mr. Rose was Chairman of the Board
of Directors of Harrah's Entertainment, Inc. from June 1995 to December 1996.
From November 1989 to June 1995, Mr. Rose was Chairman of the Board of Directors
of The Promus Companies, Incorporated and also served as its Chief Executive
Officer from November 1989 to April 1994. Mr. Rose is also a Director of Ashland
Inc., First Tennessee National Corporation, General Mills, Inc., Stein Mart,
Inc., FelCor Lodging Trust, Inc., ResortQuest International, Inc. and Darden
Restaurants, Inc.
Richard V. Sandler currently serves as a Director of the Company, a
position he has held since its inception. Mr. Sandler also currently serves as
President of EDU. Mr. Sandler is a senior partner in the law firm of Maron &
Sandler, a Professional Corporation, which was formed in September 1994. Mr.
Sandler specializes in general securities and business law. Prior to forming
Maron & Sandler, Mr. Sandler was a partner of Victor & Sandler, a law firm.
Dwight L. Gertz currently serves as Managing Director, Symmetrix and has
held various management positions with Symmetrix since October 1, 1996. Prior to
joining Symmetrix, Mr. Gertz served as Vice-President of Mercer from December
1993 through October 1996, where Mr. Gertz managed Mercer's Boston
44
<PAGE> 46
office. From June 1993 through November 1993, Mr. Gertz was a sales and
marketing consultant to Kinetic Dispersion, Inc., an industrial machinery
manufacturer.
Michael Martindale currently serves as Managing Director, SiGMA and has
held various management positions with SiGMA since 1991. Prior to co-founding
SiGMA, Mr. Martindale held various management positions with Rank Xerox and
Xerox Corporation from 1979 to 1991.
Michael J. Shepherd currently serves as Managing Director, Pyramid and has
held various management positions with Pyramid since January 1993. Prior to
co-founding Pyramid, Mr. Shepherd held various management positions with
Andersen Consulting and Booz Allen & Hamilton, a business consulting firm.
Mason S. Tenaglia currently serves as Managing Director, PTG and has held
various management positions with PTG since 1990. Prior to co-founding PTG, Mr.
Tenaglia was Sr. Vice President of MicroMentor, Inc., a consulting and executive
development firm, from 1986 to 1989.
BOARD OF DIRECTORS
The Company's Certificate of Incorporation and its Bylaws provide that the
Company's Board of Directors will consist of not less than seven nor more than
thirteen members, the exact number to be fixed from time to time by resolution
adopted by the directors of the Company. The Board of Directors currently
consists of seven directors. Directors will be elected by the holders of Class A
Common Stock and Class B Common Stock voting together as a class with the
holders of Class A Common Stock entitled to one vote per share and the holders
of the Class B Common Stock entitled to ten votes per share. See "Risk Factors--
Control by Knowledge Enterprises, Inc." and "Description of Capital Stock."
Pursuant to the Stockholders Agreement, dated as of August 31, 1998 (the
"Stockholders Agreement"), the stockholders of the Company prior to the Offering
agreed to vote their shares of Common Stock to elect Sibson's manager or senior
managing principal to the Board of Directors. Mr. Brossy was elected to the
Board of Directors pursuant to the Stockholders Agreement.
BOARD COMMITTEES
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee") consisting of Messrs. Fink, Maron, and Sandler. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees, and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), consisting of Messrs.
Fink and Rose. The Compensation Committee determines compensation for the
Company's senior executive officers and administers the 1998 Equity
Participation Plan.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Fink and Rose. There are no Compensation Committee interlocks.
DIRECTOR COMPENSATION
Directors are reimbursed for all expenses incurred in connection with
attendance at Board of Directors and Committee meetings, but do not otherwise
receive any compensation for services as a director. Following the Offering,
Nextera intends to evaluate director compensation and may implement a more
extensive program for directors who are not employed by the Company.
45
<PAGE> 47
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued for the
period from February 26, 1997 through December 31, 1997 for the Company's Chief
Executive Officer and its four other most highly compensated executive officers
whose compensation exceeded $100,000 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
-------------------- OPTIONS
SALARY BONUS (# OF SHARES)(1)
<S> <C> <C> <C>
Gresham T. Brebach, Jr................................... $611,837(2) $100,000 --
Chief Executive Officer
Ronald K. Bohlin......................................... 362,509(3) 65,000 --
Chief Operating Officer
Michael P. Muldowney..................................... 116,666 24,000 --
Chief Financial Officer
Debra I. Bergevine....................................... 113,333 18,000 --
Vice President, Marketing
Robert F. Staley, Jr..................................... 124,924 20,000 60,000
Chief Technology Officer
</TABLE>
- ------------------------------
(1) All options are for Class A Common Stock.
(2) Includes $ consisting of guaranteed bonus amounts earned in 1997.
(3) Includes $ consisting of guaranteed bonus amounts earned in 1997.
BONUS PLANS
As a key component of the annual compensation program, the Company has
implemented a bonus plan designed to recognize individual and Acquired Company
performance. The bonus plan is funded by the performance of each Acquired
Company (other than Sibson) and is intended to complement base compensation
while providing incentive and recognition for exceptional individual and team
efforts in meeting and exceeding such Acquired Company's operating targets. All
employees with three months or more of service are eligible to participate.
Employee target bonus percentages range from 10% to 50% of the individual's base
salary, dependent on their classification. Bonus calculations are dependent upon
an employee's target bonus percentage, individual performance rating, annualized
service as well as the final performance of the applicable Acquired Company.
Sibson & Company, LLC, a subsidiary of the Company ("Sibson LLC") has
established an Annual Incentive Plan, the principal purpose of which is to
attract and motivate the principals and certain employees of Sibson LLC by
providing them with the opportunity to participate in Sibson LLC's success.
Bonus awards under the plan are distributed semi-annually or annually to the
participants from an award pool based upon the performance of the individual
participant and Sibson LLC during such semi-annual or annual period and the
target bonus award for the participant as established by Sibson LLC management.
This plan provides for an annual award pool based on Sibson LLC's financial
performance and is administered by Sibson LLC management, subject to the
Company's approval with respect to the establishment of performance criteria for
the individual participants and Sibson LLC.
46
<PAGE> 48
OPTION GRANTS
The following table summarizes individual grants of options to purchase
Class A Common Stock granted during the period from February 26, 1997 through
December 31, 1997 to the Named Executive Officers.
STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL 1997 ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gresham T. Brebach, Jr.... -- -- -- -- -- --
Ronald K. Bohlin.......... -- -- -- -- -- --
Michael P. Muldowney...... -- -- -- -- -- --
Debra I. Bergevine........ -- -- -- -- -- --
Robert F. Staley, Jr......
</TABLE>
- ------------------------------
(1) The potential realizable values are based on an assumption that the stock
price of the Company's Class A Common Stock will appreciate at the annual
rate shown (compounded annually) from the date of grant until the end of the
option term. The Board of Directors has determined that the fair market
value of the Company's Class A Common Stock on the date of grant was $0.20
per share. These values do not take into account amounts required to be paid
as income taxes under the Internal Revenue Code and any applicable state
laws or option provisions providing for termination of an option following
termination of employment, non-transferability or vesting. These amounts are
calculated based on the requirements promulgated by the Commission and do
not reflect the Company's estimate of future stock price growth of the
shares of the Class A Common Stock, nor do they give effect to any actual
appreciation in the Class A Common Stock. Actual gains, if any, on stock
option exercises are dependent on the future performance of the Class A
Common Stock and overall stock market conditions.
FISCAL YEAR-END OPTION VALUE TABLE
None of the Named Executive Officers exercised any Company options during
the period from February 26, 1997 to December 31, 1997. The following table sets
forth certain information with respect to the value of the options as of
December 31, 1997 held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS(#) AT FISCAL YEAR END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Gresham T. Brebach, Jr......................... -- -- -- --
Ronald K. Bohlin............................... -- -- -- --
Michael P. Muldowney........................... -- -- -- --
Debra I. Bergevine............................. -- -- -- --
Robert F. Staley, Jr...........................
</TABLE>
- ------------------------------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. This calculation is based on the
fair market value at December 31, 1997 of $0.25 as determined by the Board
of Directors.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Gresham T. Brebach, Jr. dated
March 3, 1997 (the "Brebach Agreement"). The Brebach Agreement provides for a
term of three years. Such term may be extended for an additional period of two
years with 90 days written notice prior to the expiration of the initial term.
Pursuant to the Brebach Agreement, Mr. Brebach is employed as the Company's
Chief Executive
47
<PAGE> 49
Officer and receives a minimum annual base salary of $500,000, a guaranteed
annual bonus of $150,000, and an additional annual bonus of up to one-third of
his base salary, in an amount to be determined by the Board of Directors of the
Company, as well as benefits under the Company's benefit plans. Pursuant to the
Brebach Agreement, Mr. Brebach purchased Class A Common Units of NEH at an
aggregate purchase price of $40,000 (which units were ultimately converted into
shares of Class A Common Stock and shares of Class B Common
Stock), subject to the Company's right to repurchase at original cost up to (i)
80% of such interests in the event Mr. Brebach is terminated or leaves the
employ of the Company prior to one year after commencement of employment, (ii)
60% of such interests in the event Mr. Brebach is terminated or leaves the
employ of the Company after one year but prior to two years after commencement
of employment, (iii) 40% of such interests in the event Mr. Brebach is
terminated or leaves the employ of the Company after two years but prior to
three years after commencement of employment, and (iv) 20% of such interests in
the event Mr. Brebach is terminated or leaves the employ of the Company after
three years but prior to four years after commencement of employment. The
Company's right to repurchase any portion of Mr. Brebach's interests in the
Company shall terminate if Mr. Brebach leaves the employ of the Company prior to
March 3, 2000 for any reason other than death, disability, cause, voluntary
termination, or if the Company elects not to extend the term past March 3, 2000.
The Brebach Agreement also provides that in the event the Company terminates Mr.
Brebach's employment, other than for cause, retirement, disability or death, the
Company shall (i) pay Mr. Brebach the balance of his base salary to which he
would have been entitled to receive through the end of the then applicable term
and (ii) continue to provide benefits upon the same terms and conditions then in
effect on the date of termination through the then applicable term or until Mr.
Brebach is employed elsewhere. The Brebach Agreement provides that a change of
control of the Company shall have no effect on Mr. Brebach's financial interests
pursuant to the Brebach Agreement. Mr. Brebach is also subject to
noncompetition, nondisclosure, post-employment cooperation, and nonsolicitation
covenants.
The Company has an employment agreement with Ronald K. Bohlin dated April
1, 1997 (the "Bohlin Agreement"). The Bohlin Agreement provides for an initial
term of three years. Such initial term may be extended for an additional period
of two years with 90 days written notice prior to the expiration of the initial
term. Pursuant to the Bohlin Agreement, Mr. Bohlin is employed as the Company's
Chief Operating Officer and receives a minimum annual base salary of $350,000, a
guaranteed annual bonus of $100,000, and an additional annual bonus of up to 25%
of his base salary, in an amount to be determined by the Board of Directors of
the Company, as well as benefits under the Company's benefit plans. Pursuant to
the Bohlin Agreement, Mr. Bohlin purchased Class A Common Units of NEH at an
aggregate purchase price of $20,000 (which units were ultimately converted into
shares of Class A Common Stock and shares of Class B Common
Stock), subject to the Company's right to repurchase at original cost up to (i)
80% of such interests in the event Mr. Bohlin is terminated or leaves the employ
of the Company prior to one year after commencement of employment, (ii) 60% of
such interests in the event Mr. Bohlin is terminated or leaves the employ of the
Company after one year but prior to two years after commencement of employment,
(iii) 40% of such interests in the event Mr. Bohlin is terminated or leaves the
employ of the Company after two years but prior to three years after
commencement of employment, and (iv) 20% of such interests in the event Mr.
Bohlin is terminated or leaves the employ of the Company after three years but
prior to four years after commencement of employment. The Company's right to
repurchase any portion of Mr. Bohlin's interests in the Company shall terminate
if Mr. Bohlin leaves the employ of the Company prior to April 1, 2000 for any
reason other than death, disability, cause, voluntary termination, or if the
Company elects not to extend the term past April 1, 2000. The Bohlin Agreement
also provides that in the event the Company terminates Mr. Bohlin's employment
prior to April 1, 2000, other than for cause, retirement, disability or death,
the Company shall (i) pay Mr. Bohlin the balance of his base salary to which he
would have been entitled to receive through the end of the then applicable term
and (ii) continue to provide benefits upon the same terms and conditions then in
effect on the date of termination through the then applicable term or until Mr.
Bohlin is employed elsewhere. The Bohlin Agreement provides that a change of
control of the Company shall have no effect on Mr. Bohlin's financial interests
pursuant to the Bohlin Agreement. Mr. Bohlin is also subject to noncompetition,
nondisclosure, post-employment cooperation, and nonsolicitation covenants.
The Company entered into an employment agreement with Michael P. Muldowney
dated April 25, 1997 (the "Muldowney Agreement"). The Muldowney Agreement
provides for a term of one year, renewable by
48
<PAGE> 50
the Company for additional periods of one year each upon at least 90 days prior
notice to Mr. Muldowney. The Company has renewed the Muldowney Agreement for an
additional one year period. Pursuant to the Muldowney Agreement, Mr. Muldowney
is employed as the Company's Chief Financial Officer and receives a minimum
annual base salary of $182,000 and an annual bonus of up to 30% of his base
salary, in an amount to be determined by the Board of Directors of the Company,
as well as benefits under the Company's benefit plans. Pursuant to the Muldowney
Agreement, Mr. Muldowney purchased Class A Common Units of NEH at an aggregate
purchase price of $5,000 (which units were ultimately converted into
shares of Class A Common Stock and shares of Class B Common Stock),
subject to the Company's right to repurchase such shares at fair market value,
provided that in the event Mr. Muldowney voluntarily terminates his employment
or is dismissed for cause prior to April 25, 2000, the Company has the right to
repurchase such shares at cost. Mr. Muldowney is also subject to noncompetition,
nondisclosure, and nonsolicitation covenants.
The Company entered into an at-will employment agreement with Debra I.
Bergevine dated March 25, 1997 (the "Bergevine Agreement"). Pursuant to the
Bergevine Agreement, Ms. Bergevine is employed as the Company's Vice President,
Marketing and receives a minimum annual base salary of $170,000 and an annual
bonus of up to 20% of her base salary, in an amount to be determined by the
Board of Directors of the Company, as well as benefits under the Company's
benefit plans. Pursuant to the Bergevine Agreement, Ms. Bergevine purchased
Class A Common Units of NEH at an aggregate purchase price of $5,000 (which
units were ultimately converted into shares of Class A Common Stock and
shares of Class B Common Stock), subject to the Company's right to
repurchase such shares at its then fair market value, provided that in the event
Ms. Bergevine voluntarily terminates her employment or is dismissed for cause
prior to March 25, 2000, the Company has the right to repurchase such shares at
cost. Ms. Bergevine is also subject to noncompetition, nondisclosure, and
nonsolicitation covenants.
The Company entered into an at-will employment agreement with Robert F.
Staley, Jr. dated March 25, 1997 (the "Staley Agreement"). Pursuant to the
Staley Agreement, Mr. Staley is employed as the Company's Chief Technology
Officer and receives a minimum annual base salary of $170,000 and an annual
bonus of up to 15% of his base salary, in an amount to be determined by the
Board of Directors of the Company, as well as benefits under the Company's
benefit plans. Pursuant to the Staley Agreement, Mr. Staley received options to
purchase shares Class A Common Stock at an exercise price of per
share. These options vest in equal annual installments over four years. Mr.
Staley is also subject to noncompetition, nondisclosure, and nonsolicitation
covenants.
Sibson LLC entered into an employment agreement with Roger Brossy dated
August 31, 1998 (the "Brossy Agreement"). The Brossy Agreement provides for a
term of two years, as well as automatic renewal on each subsequent anniversary
for subsequent one-year terms unless either Mr. Brossy or Sibson LLC gives
written notice to the other not less than sixty days prior to such anniversary.
Pursuant to the Brossy Agreement, Mr. Brossy receives a minimum annual base
salary of $250,000, an initial annual target bonus equal to 60% of his annual
base salary pursuant to Sibson LLC's Annual Incentive Plan, as well as benefits
under Sibson LLC's benefit plans. Pursuant to the Brossy Agreement, Mr. Brossy
purchased 1,554 shares of Class A Common Stock at a price of $0.14 per share.
The Brossy Agreement also provides that upon Sibson LLC's termination of Mr.
Brossy's employment, other than for cause, retirement, disability or death,
Sibson LLC shall (i) pay Mr. Brossy the balance of his base salary and a
pro-rata share of the applicable bonus to which he would have been entitled to
receive through the end of the then applicable term (ii) cause any options
granted to Mr. Brossy under the Company's 1998 Equity Participation Plan to vest
to the extent of 50% of the remaining unvested portion of such options, and
(iii) continue to provide benefits upon the same terms and conditions then in
effect on the date of termination through the then applicable term. Mr. Brossy
is also subject to a Noncompete, Non-Solicitation, Proprietary Information,
Confidentiality and Inventions Agreement.
EMPLOYEE BENEFIT PLANS
1998 Equity Participation Plan. Nextera's 1998 Equity Participation Plan
provides incentives for officers, key employees and consultants of the Company
and its subsidiaries through granting of options, restricted stock and other
awards ("Awards"). In addition to Awards made to officers, key employees or
49
<PAGE> 51
consultants, the 1998 Equity Participation Plan permits the granting of options
("Director Options") to the Company's independent non-employee directors.
Under the 1998 Equity Participation Plan, not more than
shares of Class A Common Stock (or the equivalent in other equity securities)
are authorized for issuance upon exercise of options, stock appreciation rights
("SARs"), and other Awards, or upon vesting of restricted or deferred stock
awards. The maximum number of shares which may be subject to options or stock
appreciation rights granted under the 1998 Equity Participation Plan to any
individual in any calendar year cannot exceed . As of September
1, 1998, options to purchase shares of Class A Common Stock were
outstanding under the 1998 Equity Participation Plan.
Prior to the closing of the Offering, the Board of Directors of the Company
will administer the 1998 Equity Participation Plan. After the closing of the
Offering, the Compensation Committee of the Board or another committee thereof
(the "Committee") will administer the 1998 Equity Participation Plan with
respect to grants to key employees or consultants of the Company and the full
Board of Directors will administer the 1998 Equity Participation Plan with
respect to Director Options. The Committee will consist of at least two members
of the Board of Directors, each of whom is a "non-employee director" for
purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3") and, with respect to options and SARs which are intended to
constitute performance-based compensation under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), an "outside director" for the
purposes of Section 162(m) of the Code. Subject to the terms and conditions of
the 1998 Equity Participation Plan, the Board of Directors or Committee has the
authority to select the persons to whom Awards are to be made, to determine the
number of shares to be subject thereto and the terms and conditions thereof, and
to make all other determinations and to take all other actions necessary or
advisable for the administration of the 1998 Equity Participation Plan. The
Board of Directors or Committee may delegate to certain officers of the Company
its authority to select the persons to whom Awards are to be made, to determine
the number of shares to be subject thereto and the terms and conditions thereof.
In addition, the Board of Directors has discretion to determine the terms and
conditions of Director Options and to interpret and administer the 1998 Equity
Participation Plan with respect to Director Options. The Committee (and the
Board of Directors) are also authorized to adopt, amend and rescind rules
relating to the administration of the 1998 Equity Participation Plan.
Options, SARs, restricted stock and other Awards under the 1998 Equity
Participation Plan may be granted to individuals who are then officers or other
key employees of the Company or any of its present or future subsidiaries. Such
Awards also may be granted to consultants of the Company selected by the Board
of Directors or Committee for participation in the 1998 Equity Participation
Plan. Independent directors of the Company may be granted NQSOs (as defined
herein) by the Board of Directors. The Committee may grant or issue stock
options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
combination thereof to key employees and consultants. Each Award will be set
forth in a separate agreement with the person receiving the Award and will
indicate the type, terms and conditions of the Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Class A Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than par value), and usually will become exercisable (in the discretion of the
Board of Directors) in one or more installments after the grant date, subject to
the participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Board of Directors and/or the Company. NQSOs may be granted for a term of up to
ten (10) years, as specified by the Board of Directors.
Incentive Stock Options ("ISOs"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Class A Common Stock on the date of
grant, may only be granted to key employees, must expire within a specified
period of time following the Optionee's
50
<PAGE> 52
termination of employment, and must be exercised within the ten years after the
date of grant; but may be subsequently modified to disqualify them from
treatment as ISOs. In the case of an ISO granted to an individual who owns (or
is deemed to own) at least 10% of the total combined voting power of all classes
of stock of the Company, the 1998 Equity Participation Plan provides that the
exercise price must be at least 110% of the fair market value of a share of
Class A Common Stock on the date of grant and the ISO must expire upon the fifth
anniversary of the date of its grant.
Restricted Stock may be sold to any key employee or consultant at various
prices (but not below par value) and made subject to such restrictions as may be
determined by the Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions are
not met. In general, restricted stock may not be sold, or otherwise transferred
or hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and will
receive dividends prior to the time when the restrictions lapse.
Deferred Stock may be awarded to any key employee or consultant, typically
without payment of consideration, but subject to vesting conditions based on
continued employment or on performance criteria established by the Committee.
Like restricted stock, deferred stock may not be sold, or otherwise transferred
or hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested, and recipients of deferred stock generally will have no voting
or dividend rights prior to the time when vesting conditions are satisfied.
SARs may be granted to any key employee or consultant in connection with
stock options or other Awards, or separately. SARs granted by the Committee in
connection with stock options or other Awards will provide for payments to the
holder based upon increases in the price of the Company's Class A Common Stock
over the exercise price of the related option or other Awards. Except as
required by Section 162(m) of the Code with respect to an SAR intended to
qualify as performance-based compensation as described in Section 162(m) of the
Code, there are no restrictions specified in the 1998 Equity Participation Plan
on the exercise of SARs or the amount of gain realizable therefrom, although
restrictions may be imposed by the Board of Directors or Committee in the SAR
agreements. The Committee may elect to pay SARs in cash or in Class A Common
Stock or in a combination of both.
Dividend Equivalents may be granted to any key employee or consultant by
the Board of Directors or the Committee. The amount of the Dividend Equivalents
represent the value of the dividends per share paid by the Company, calculated
with reference to the number of shares covered by the stock options, Deferred
Stock, Performance Awards, SARs or other Awards held by the participant.
Performance Awards may be granted to any key employee or consultant by the
Committee. Generally, these Awards will be based upon specific performance
targets and may be paid in cash or in Class A Common Stock or in a combination
of both. Performance Awards may also include bonuses which may be granted by the
Committee which may be payable in cash or in Class A Common Stock or in a
combination of both.
Stock Payments may be received by any key employee or consultant selected
by the Committee in the manner determined from time to time by the Committee.
The number of shares of Class A Common Stock or an option or other right to
purchase Class A Common Stock shall be determined by the Committee, and may be
based upon performance criteria as determined by the Committee.
The 1998 Equity Participation Plan prohibits any participant in the plan
from, without the prior written consent of the representatives of the
Underwriters and subject to certain exceptions, selling or otherwise disposing
of any shares of Class A Common Stock or options to acquire shares of Class A
Common Stock during the 180-day period following the date of this Prospectus.
Retirement Plans. Nextera and certain subsidiaries sponsor retirement
savings plans (the "Retirement Plans") under Section 401(k) of the Code for the
benefit of employees meeting certain minimum service requirements. Eligible
employees may elect to contribute to the plan subject to limitations established
by the Code. The trustees of the Retirement Plans select investment
opportunities from which participants may choose to contribute. The Company
matches up to 25% of the first 4% of eligible participant contributions for
employees of PTG, Pyramid, SiGMA and the Company's Executive Officers and
administrative personnel.
51
<PAGE> 53
The Company has agreed to match 25% of total contributions (subject to the
limitations of the Code) for individuals who are active employees of Symmetrix
as of December 31, 1998. Other contributions are made at the discretion of the
Company. On a pro forma basis, the Company made contributions to the Retirement
Plans of $139,000 for the year ended December 31, 1997.
Sibson LLC maintains a defined contribution profit-sharing plan (the
"Profit-Sharing Plan") providing retirement benefits to eligible employees of
Sibson LLC. Contributions by the Company to the Profit-Sharing Plan are at the
discretion of the management of Sibson LLC, subject to overall budgetary control
by Nextera. Participants are eligible to make elective deferral contributions,
without matching by Sibson LLC. Sibson LLC may also make qualified non-elective
contributions. For the year ended December 31, 1997 on a pro forma basis, Sibson
LLC contributed $1.5 million to the Profit-Sharing Plan. Sibson LLC intends to
make additional contributions to the Profit-Sharing Plan in the future as
determined by Sibson management.
Other. The Company maintains customary health and benefit plans for its
employees. In addition, Sibson LLC currently provides post-retirement medical
benefits for Sibson LLC employees who retire after age 50 with at least 15 years
of service. Any such Sibson retiree may elect to receive medical coverage under
Sibson LLC's medical program until the earlier of age 65 or the retiree's death.
Sibson LLC pays 75% of the annual cost of the comprehensive medical coverage and
the retiree pays the remaining 25%. In connection with the Sibson Acquisitions,
the Company committed to maintain this post-retirement medical coverage (and all
other Sibson employee benefit programs) through December 31, 1999, subject to
certain limited exceptions, and the termination of applicable employment
agreements.
52
<PAGE> 54
CERTAIN TRANSACTIONS
Loans to Certain Officers. NEH made loans to Gresham T. Brebach, Jr., the
Company's Chief Executive Officer, Michael P. Muldowney, the Company's Chief
Financial Officer and Debra I. Bergevine, the Company's Vice President,
Marketing, the proceeds of which were used to purchase from NEH Preferred Units
of NEH. These loans were evidenced by promissory notes, dated January 2, 1998,
executed by the respective individuals in favor of NEH, and secured by a
security interest in the respective membership units purchased by these
individuals. All of the foregoing promissory notes bear interest at 10% per
annum and mature on January 2, 2003, subject to mandatory prepayment upon the
happening of certain events. The principal amounts of the promissory notes
executed by Messrs. Brebach and Muldowney and Ms. Bergevine are $576,000,
$72,000 and $62,000, respectively. All of the foregoing promissory notes and
security documents were contributed to, and are now held by, the Company. The
foregoing Preferred Units purchased by Messrs. Brebach and Muldowney and Ms.
Bergevine were ultimately converted to a 1.2%, 0.1% and 0.1% interest,
respectively, in the Debentures.
Management Agreement. Effective March 1, 1997, Nextera entered into an oral
agreement with Knowledge Universe whereby Knowledge Universe provided certain
management and advisory services to the Company, for which the Company agreed to
pay a management fee of $10,000 per month to Knowledge Universe. Accrued
management fees of approximately $ will be paid from the proceeds of the
Offering. See "Use of Proceeds." Said agreement was terminated effective as of
the date of this Prospectus.
Engagement of the Company by Knowledge Universe or its Affiliates. The
Company was engaged by Knowledge Universe to perform certain reviews and render
advice in connection with a potential acquisition of a third-party by Knowledge
Universe. The total amount billed to Knowledge Universe by the Company in
connection with this engagement amounted to approximately $100,000 in 1998. In
addition, the Company was engaged by Knowledge Universe at various times to
provide advice relating to general business strategy and human resources. The
amount billed to Knowledge Universe by the Company in connection with these
engagements amounted to approximately $269,000 in 1997 and 1998.
The Company was engaged at various times by Productivity Point
International, LLC ("PPI"), an affiliate of Knowledge Universe, to provide
strategy, business operations and IT advice. The total amount billed to PPI by
the Company in connection with these engagements amounted to approximately
$439,000 from June 1997 to August 1998. In addition, the Company was engaged at
various times by TEC Worldwide, Inc. ("TEC"), an affiliate of Knowledge
Universe, to provide strategy, business operations and IT advice. The total
amount billed to TEC by the Company in connection with these engagements
amounted to approximately $152,000 from January 1998 to August 1998.
Knowledge Universe, PPI, TEC and other affiliates of Knowledge Universe may
engage the Company to provide various consulting services in the future. Such
future transactions will be entered into on an arm's-length basis in accordance
with Delaware law.
Investments in the Company. From February 26, 1997 through April 30, 1998,
Knowledge Universe purchased Class A Common Units of NEH for aggregate
consideration of $ (net of a subsequent redemption), which were ultimately
converted into shares of Class A Common Stock and shares of
Class B Common Stock. Also during this period, EDU purchased Class A Common
Units of NEH for aggregate consideration of $ , which were ultimately
converted into shares of Class A Common Stock and shares of Class B
Common Stock. Pursuant to the KE Transaction, ownership of the Class A Common
Stock and Class B Common Stock arising out of the foregoing transactions was
transferred to Knowledge Enterprises. See "The Company--Transfer to Knowledge
Enterprises." During the same period, Knowledge Universe purchased Class B
Preferred Units of NEH for aggregate consideration of $47.1 million, which were
ultimately converted into a 98.1% interest in the Debentures.
Between January 2, 1998 and April 30, 1998, Messrs. Brebach, Bohlin, and
Muldowney and Ms. Bergevine purchased Class A Common Units of NEH, which
purchases were in addition to the Common Stock purchased pursuant to their
respective employment agreements. Mr. Brebach purchased Class A Common Units of
NEH for aggregate consideration of $ , which units were ultimately
converted into
53
<PAGE> 55
shares of Class A Common Stock and shares of Class B Common Stock.
Mr. Bohlin purchased Class A Common Units of NEH for aggregate consideration of
$ , which units were ultimately converted into shares of Class A
Common Stock and shares of Class B Common Stock. Mr. Muldowney purchased
Class A Common Units of NEH for aggregate consideration of $ , which units
were ultimately converted into shares of Class A Common Stock and shares
of Class B Common Stock. Ms. Bergevine purchased Class A Common Units of NEH for
aggregate consideration of $ , which units were ultimately converted into
shares of Class A Common Stock and shares of Class B Common Stock.
On , EDU contributed $25,000 to Nextera LLC in exchange for
Class A Common Units of Nextera LLC, which were subsequently redeemed for
$25,000.
On December 31, 1997, Nextera LLC issued a warrant to NEH (the "Warrant")
to purchase Class A Common Units at an exercise price of per unit.
Effective April 30, 1998, the Warrant was amended to provide for the issuance of
Class B Common Units. The Warrant was exchanged for Class B Common
Units which were ultimately converted into shares of Class B Common
Stock.
On August 31, 1998, Messrs. Brebach, Bohlin, and Muldowney and Ms.
Bergevine purchased additional Class A Common Units and Class B Common Units of
Nextera LLC. Mr. Brebach purchased units for aggregate consideration of
$ , which units were ultimately converted into shares of Class A
Common Stock and shares of Class B Common Stock. Mr. Bohlin purchased
units for aggregate consideration of $ , which units were ultimately
converted into shares of Class A Common Stock and shares of Class
B Common Stock. Mr. Muldowney purchased units for aggregate consideration of
$ , which units were ultimately converted into shares of Class A
Common Stock and shares of Class B Common Stock. Ms. Bergevine purchased
units for aggregate consideration of $ , which units were ultimately
converted into shares of Class A Common Stock and shares of Class
B Common Stock.
Upon the consummation of the Exchange Transaction, Mr. Brossy will receive
shares of Class A Common Stock in exchange for his equity
interest in the Sibson Entities.
Stockholders Agreement. In connection with the Sibson Acquisitions, the
Company, Nextera LLC and the stockholders of the Company prior to the Offering
entered into the Stockholders Agreement to set forth various agreements among
the stockholders and the Company. The Stockholders Agreement provides that the
stockholders are required to vote their shares of Common Stock to elect Sibson's
manager/senior managing principal to the Company's Board of Directors. This
requirement continues until such time that (i) the Company's consolidated net
revenues generated by Sibson LLC fall below 15% of the Company's total
consolidated net revenues for any fiscal year and (ii) the earnings before
interest, taxes, depreciation and amortization ("EBITDA") generated by Sibson
LLC falls below 15% of the Company's total consolidated EBITDA less corporate
headquarters expense for such fiscal year. Pursuant to this provision, Roger
Brossy was appointed to the Board of Directors.
The Stockholders Agreement also provides that the Company will not enter
into related transactions in excess of $2 million with any affiliate of the
Company without the prior approval of a majority of the Company's Board of
Directors who are not and, within the past five years, have not been directly or
indirectly affiliated with such affiliate and do not receive any compensation
from, or own any equity interest in, such affiliate. The Stockholders Agreement
also provides that Knowledge Enterprises, Messrs. Brebach, Bohlin and Muldowney,
Ms. Bergevine, and certain other individuals will not sell or otherwise dispose
of their shares for a six-month period following the Offering, and that
subsequent to such six-month period, those stockholders will not sell or
otherwise dispose of more than one-third of such shares in the subsequent
12-month period and more than two-thirds of such shares in the subsequent
24-month period. , , , , and shares of
Common Stock held by Knowledge Enterprises, Messrs. Brebach, Bohlin, and
Muldowney and Ms. Bergevine, respectively, are subject to this provision. In
addition, the Stockholders Agreement provides certain registration rights. See
"Shares Eligible for Future Sale--Registration Rights."
54
<PAGE> 56
Retention of Maron & Sandler. The law firm of Maron & Sandler has served as
the Company's general counsel since the Company's inception. Stanley E. Maron
and Richard V. Sandler, Directors of the Company, are partners of Maron &
Sandler.
Retention of RFG Financial Group, Inc. Since June 1997, the Company has
retained RFG Financial Group, Inc. to provide accounting and financial services.
Ralph Finerman, a Director of the Company, is President of RFG Financial Group,
Inc.
55
<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 1, 1998, after giving effect to
the Exchange Transaction, by (i) each person known to the Company to
beneficially own more than five percent of any class of the outstanding Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer of
the Company, and (iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated, all shares are owned directly and the
indicated person has sole voting and investment power. Unless otherwise
indicated, the address of the persons named below is care of Nextera
Enterprises, Inc., One Cranberry Hill, Lexington, MA 02421.
<TABLE>
<CAPTION>
CLASS B BENEFICIAL OWNERSHIP
CLASS A COMMON STOCK COMMON STOCK(1) AFTER THE OFFERING(2)(3)
------------------------------------------ ------------------------- --------------------------
SHARES PERCENT PERCENT OF
BENEFICIALLY OWNED PERCENT SHARES COMMON
NAME OF OWNED PRIOR TO PRIOR TO OWNED AFTER BENEFICIALLY PERCENT OF PERCENT OF STOCK
BENEFICIAL OWNER OFFERING(2) OFFERING(3) OFFERING(3) OWNED CLASS VOTING POWER OUTSTANDING
<S> <C> <C> <C> <C> <C> <C> <C>
Gresham T. Brebach,
Jr................... 3.2% 4.5%
Ronald K Bohlin........ 1.4 2.0
Michael P. Muldowney... * *
Debra I. Bergevine..... * *
Robert F. Staley,
Jr.(4)............... * -- --
Roger Brossy........... 1.4
Ralph Finerman......... -- --
Steven B. Fink......... -- -- -- --
Stanley E. Maron....... -- -- -- --
Michael D. Rose........ -- -- -- --
Richard V. Sandler..... -- -- -- --
Knowledge Enterprises,
Inc.(5).............. 62.0 89.4
All directors and
executive officers as
a group (11
persons)............. 6.9% 7.7% % %
</TABLE>
- ------------------------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Class A
or Class B Common Stock, as applicable.
(1) No shares of Class B Common Stock will be sold in the Offering.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership of
any other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such stockholder.
(3) Based on (i) shares of Class A Common Stock outstanding prior
to the Offering and shares of Class A Common Stock
outstanding after the Offering, (ii) shares of Class B Common Stock
outstanding both prior to and after the Offering, and (iii) in each case,
includes shares of Class A Common Stock issuable upon the exchange of
the Exchangeable Shares.
(4) Represents shares of Class A Common Stock issuable pursuant to
options that were exercisable as of September 1, 1998 or within 60 days of
such date.
(5) The Company believes that through ownership or voting control of various
intermediate entities, Lawrence J. Ellison, Michael R. Milken, and Lowell J.
Milken may each be deemed to have the power to direct the voting and
disposition of, and to share beneficial ownership of, any shares of Common
Stock owned by Knowledge Enterprises. The Company believes that Lawrence J.
Ellison, Michael R. Milken, and Lowell J. Milken may be deemed to be a group
within the meaning of Rule 13d-5 under the
56
<PAGE> 58
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Lawrence
J. Ellison is Chairman and Chief Executive Officer of Oracle Corporation.
Michael R. Milken is a director of Knowledge Universe and the brother of
Lowell J. Milken. On February 24, 1998, without admitting or denying any
liability, Michael R. Milken consented to the entry of a final judgment in
the U.S. District Court for the Southern District of New York in Securities
and Exchange Commission v. Michael R. Milken et al., which judgment was
entered on February 26, 1998, restraining and enjoining Michael R. Milken
from associating with any broker, dealer, investment advisor, investment
company, or municipal securities dealer and from violating Section 15(a) of
the Exchange Act. On March 11, 1991, in the action entitled In the Matter of
Michael R. Milken, the Securities and Exchange Commission instituted a
proceeding pursuant to Section 15(b)(6) of the Exchange Act and ordered that
Michael R. Milken be barred from association with any broker, dealer,
investment advisor, investment company, or municipal securities dealer. On
April 24, 1990, Michael R. Milken consented to the entry of a final judgment
in the U.S. District Court for the Southern District of New York in
Securities and Exchange Commission v. Drexel Burnham Lambert Incorporated,
et al., restraining and enjoining Michael R. Milken from engaging in
transactions, acts, practices and courses of business which constitute or
would constitute violations of, or which aid and abet or would aid and abet
violations of Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d), 14(e), 15(c)(3),
and 17(a)(1) of the Exchange Act, and Regulations T and X and Rules 10b-5,
10b-6, 13d-1, 13d-2, 14c-3, 15c3-1, 17a-3, and 17a-4 promulgated thereunder
and Section 17(a) of the Securities Act of 1933, as amended. Lowell J.
Milken is a director of Knowledge Universe.
57
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Class A Common Stock, par value
$0.001 per share, 4,300,000 shares of Class B Common Stock, par value $0.001 per
share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. As
of September 1, 1998, there were shares of Class A Common Stock issued
and outstanding (including the Exchangeable Shares) which were held by 45
shareholders (including the holders of Exchangeable Shares), of Class B
Common Stock issued and outstanding which were held by 18 shareholders and no
shares of Preferred Stock issued and outstanding. In addition, there were 470
holders of options to acquire an aggregate of shares of Class A Common
Stock. All outstanding shares of Common Stock are, and the shares of Class A
Common Stock offered hereby will be, upon payment therefor, fully paid and
nonassessable.
COMMON STOCK
Voting Rights. The Class A Common Stock entitles its holders to one vote
per share, and the Class B Common Stock entitles its holders to ten votes per
share on all matters submitted to a vote of the Company's stockholders,
including in connection with the election of the Board of Directors. Holders of
Class A Common Stock and Class B Common Stock vote together as a single class on
all matters presented to the stockholders for their vote or approval, except as
may be required by Delaware law or as otherwise expressly specified in the
Certificate of Incorporation. The Company, by action of its Board of Directors
and the affirmative vote of the holders of a majority of the voting power of the
Class A Common Stock and Class B Common Stock, voting together as a class, may
increase or decrease the number of authorized shares of Class A Common Stock or
Preferred Stock. The Company, by action of its Board of Directors and the
affirmative vote of both (i) the holders of a majority of the voting power of
the Class A Common Stock and Class B Common Stock, voting together as a class,
and (ii) the holders of a majority of the voting power of the Class B Common
Stock, voting as a separate class, may increase or decrease the number of
authorized shares of Class B Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate, when and if declared by the
Board of Directors, out of legally available funds. The Company may not make any
dividend or distribution with respect to any class of Common Stock unless at the
same time the Company makes a ratable dividend or distribution with respect to
each outstanding share of Common Stock regardless of class. In the case of a
stock dividend or other distribution payable in shares of a class of Common
Stock, only shares of Class A Common Stock may be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock may be distributed
with respect to Class B Common Stock, and the number of shares of Common Stock
payable per share will be equal for each class.
Split, Subdivision or Combination. None of the Class A Common Stock or the
Class B Common Stock may be subdivided, consolidated, reclassified or otherwise
changed in any manner unless the other class is subdivided, consolidated,
reclassified or otherwise changed in the same proportion.
Conversion Rights. The Class A Common Stock has no conversion rights. Each
share of Class B Common Stock is convertible at any time, at the option of the
holder, into one share of Class A Common Stock. Each share of Class B Common
Stock shall convert automatically into one share of Class A Common Stock upon
its sale, assignment, pledge, gift or other transfer (an "Assignment" or to
"Assign"), other than (a) to a Controlled Affiliate of the transferor; or (b)
pursuant to a Qualified Transfer (as defined below). The term "Controlled
Affiliate" means, with respect to a transferor, any individual or entity that is
controlled directly or indirectly (by ownership of voting securities, contract
or otherwise) by such transferor. "Qualified Transfer" means (i) any transfer of
shares of Class B Common Stock by will or pursuant to the laws of descent and
distribution to any member or members of a stockholder's Family, (ii) any
transfer of shares of Class B Common Stock by a stockholder to a domestic trust
created for the sole benefit of one or more of the stockholder or any member or
members of the stockholder's Family, (iii) any transfer of shares of Class B
Common Stock from a trust described in clause (ii) above to the stockholder (or
former stockholder) who transferred shares of Class B Common Stock to such
trust, (iv) any transfer to a domestic limited partnership or a domestic limited
liability company if there are no partners or members of such limited
partnership or
58
<PAGE> 60
limited liability company other than a stockholder and members of a
stockholder's Family; (v) any transfer of Class B Common Stock from a limited
partnership or limited liability company described in clause (iv) above to a
stockholder (or former stockholder) who transferred Class B Common Stock to such
limited partnership or limited liability company; and (vi) any transfer of
shares of Class B Common Stock from one holder of Class B Common Stock to
another holder of Class B Common Stock as of August 31, 1998. "Family" means a
person's spouse, lineal descendants, parents, siblings, and lineal descendants
of siblings. Any such relationship by legal adoption shall be included.
Upon any Assignment of Class B Common Stock by Knowledge Enterprises, other
than to a Controlled Affiliate or pursuant to a Qualified Transfer, a
proportionate amount of the Class B Common Stock held by the other holders of
Class B Common Stock will also automatically convert into Class A Common Stock.
For example, if Knowledge Enterprises Assigns 25% of its Class B Common Stock to
a third party who is not an Affiliate and not pursuant to a Qualified Transfer,
then those shares of Class B Common Stock will automatically convert into Class
A Common Stock on a one-to-one basis and 25% of the Class B Common Stock held by
each other holder of Class B Common Stock will automatically convert into Class
A Common Stock on a one-to-one basis.
In the event that a group comprised of one or more of Michael R. Milken,
Lawrence J. Ellison or Lowell J. Milken cease to control, directly or indirectly
(through the ownership of voting securities, contract or otherwise), Knowledge
Enterprises or any other person or entity that owns any or all of the shares of
Class B Common Stock owned by Knowledge Enterprises on the date hereof, then all
shares of Class B Common Stock shall automatically convert into shares of Class
A Common Stock.
Notwithstanding the foregoing, (i) these automatic conversion provisions
shall not apply in the case of a merger or similar transaction by the Company in
which all the outstanding shares of Common Stock of the Company regardless of
class are purchased by the acquiror, and (ii) any holder of Class B Common Stock
may pledge his shares of Class B Common Stock to a financial institution (the
"Pledgee") pursuant to a bona fide pledge of such shares as collateral security
for indebtedness due to the Pledgee, and, if the Pledgee forecloses or takes
similar action, such pledged shares of Class B Common Stock shall be converted
automatically into shares of Class A Common Stock.
Merger. Upon the merger or consolidation of the Company, holders of each
class of Common Stock will be entitled to receive equal per share payments or
distributions, except that in any transaction in which shares of capital stock
are distributed, such shares may differ only to the extent that the Class A
Common Stock and the Class B Common Stock differ as provided in the Company's
Certificate of Incorporation.
Liquidation Rights. Upon any dissolution or liquidation of the Company, the
holders of the Class A Common Stock and Class B Common Stock will be entitled to
receive ratably all assets of the Company available for distribution to
stockholders, subject to any preferential rights of any then outstanding shares
of Preferred Stock.
Other Provisions. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. The rights of holders of
Class A Common Stock and Class B Common Stock are subject to the rights of
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.
The Certificate of Incorporation provides that each holder of shares of
Common Stock, other than shares of Common Stock acquired in the Offering,
agrees, subject to certain exceptions, not to (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of DLJ. In addition, during such period, each
holder of shares of Common Stock, other than shares of Common Stock
59
<PAGE> 61
acquired in the Offering, agrees, subject to certain exceptions, not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without DLJ's prior written consent.
PREFERRED STOCK
The Company's Certificate of Incorporation allows the Company to issue
without stockholder approval Preferred Stock having rights senior to those of
the Common Stock. As of the date of this Prospectus, no shares of Preferred
Stock will be outstanding. Therefore, the Board of Directors has the authority,
without further action by the stockholders, to issue up to 10,000,000 shares of
Preferred Stock from time to time in one or more series. Each series of
Preferred Stock will have the number of shares, designations, powers,
preferences, and special or relative rights and privileges as may be determined
by the Board of Directors, which may include dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, and conversion
rights. The authority of the Board of Directors to issue Preferred Stock without
further action by the stockholders provides flexibility in connection with
possible acquisitions and other corporate purposes, but may also result in the
issuance of Preferred Stock with voting, conversion or other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock.
The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock and in some circumstances have the effect of
decreasing the market price of the Common Stock. The Company currently has no
plans to issue any shares of Preferred Stock.
EXCHANGEABLE SHARES
In connection with the Sibson Acquisitions, Nextera LLC formed Sibson
Acquisition Co., a wholly owned Canadian subsidiary, which issued Exchangeable
Shares to the holders of capital stock of Sibson Canada, Inc. The holders of
Exchangeable Shares may exchange such shares at any time for an aggregate of
shares of Class A Common Stock. The Exchangeable Shares are designed
to provide an opportunity for the shareholders of Sibson Canada, Inc. to achieve
a Canadian tax deferral in certain circumstances. The holders of Exchangeable
Shares are entitled to dividend and other rights equivalent to shares of Class A
Common Stock but are not entitled to vote on matters submitted to the holders of
Class A Common Stock until such time as the holders of Exchangeable Shares
exchange such shares for Class A Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE INCORPORATION
The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Company's Certificate of
Incorporation and Bylaws. This summary does not purport to be complete and is
qualified in its entirety by reference to the DGCL, the Certificate of
Incorporation and the Bylaws.
Certain provisions of the Certificate of Incorporation and the Bylaws could
have anti-takeover effects. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the policies
formulated by the Board of Directors. In addition, these provisions are intended
to ensure that the Board will have sufficient time to act in what the Board of
Directors believes to be the best interests of the Company and its stockholders.
These provisions also are designed to reduce the vulnerability of the Company to
an unsolicited proposal for a takeover of the Company that does not contemplate
the acquisition of all of its outstanding shares or an unsolicited proposal for
the restructuring or sale of all or part of the Company. The provisions are also
intended to discourage certain tactics that may be used in proxy fights.
Delaware Anti-Takeover Law. The Company is a Delaware corporation that is
subject to Section 203 of the DGCL. Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its Certificate of Incorporation or Bylaws not to be
60
<PAGE> 62
governed by Section 203 (the Company has not made such an election), (ii) the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder was approved by the board of directors of the
corporation before such stockholder became an interested stockholder, (iii) upon
consummation of the transaction that made such stockholder an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the commencement of the transaction (excluding
voting stock owned by directors who are also officers or held in employee
benefit plans in which the employees do not have a confidential right to tender
stock held by the plan in a tender or exchange offer) or (iv) the business
combination is approved by the board of directors of the corporation and
authorized at a meeting by two-thirds of the voting stock which the interested
stockholder does not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an interested stockholder, transactions with an
interested stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as (i) those stockholders who become beneficial owners of
15% or more of a Delaware corporation's voting stock, (ii) those affiliates or
associates of a Delaware corporation who were owners of 15% or more of such
corporation's voting stock within the three-year period prior to the date on
which it is sought to be determined whether such person is an interested
stockholder, and (iii) the affiliates or associates of such stockholders. The
Company believes that Knowledge Enterprises, which will have % of the combined
voting power of the outstanding Common Stock upon consummation of the Offering,
is not such an "interested stockholder."
No Stockholder Action by Written Consent; Special Meetings. The Certificate
of Incorporation provides that stockholder action can only be taken at an annual
or special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Bylaws provide that special meetings of
stockholders may be called only by the Board of Directors, its Chairman or the
President of the Company. Stockholders are not permitted to call a special
meeting of stockholders or to require that the Board of Directors call a special
meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, the Company's Notice
of Meeting, the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. The Stockholder Notice Procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Company's Notice of Meeting, the Board
of Directors or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such business
before such meeting. Under the Stockholder Notice Procedure, if a stockholder
desires to submit a proposal or nominate persons for election as directors at an
annual meeting, the stockholder must submit written notice to the Company not
less than 60 days nor more than 90 days prior to the first anniversary of the
previous year's annual meeting (or if the date of the annual meeting is not
within 30 days before or after such anniversary date, then, to be timely, notice
must be delivered not more than 90 nor less than 60 days prior to such annual
meeting or the 10th day after the earlier of (i) the date notice of the meeting
was mailed or (ii) the date a public announcement of the date of such meeting is
first made). In addition, under the Stockholder Notice Procedure, a
stockholder's notice to the Company proposing to nominate a person for election
as a director or relating to the conduct of business other than the nomination
of directors must contain a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the nomination or proposal is made. If
the chairman of a meeting
61
<PAGE> 63
determines that business was not properly brought before the meeting, in
accordance with the Stockholder Notice Procedure, such business shall not be
discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The Bylaws provide that
the Company's Board of Directors will consist of between seven and thirteen
members, the exact number to be fixed from time to time by resolution adopted by
the affirmative vote of a majority of the directors of the Company. The Board of
Directors currently consists of eight directors. Further, subject to the rights
of the holders of any series of Preferred Stock then outstanding and the
Stockholders Agreement, the Bylaws authorize the Board of Directors to fill
newly created directorships. A director so elected by the Board of Directors
holds office until his successor is elected and qualified. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, the Bylaws
also provide that directors may be removed only for cause and only by the
affirmative vote of holders of 66 2/3% of the outstanding shares of voting
securities then entitled to vote generally in the election of directors, voting
together as a single class. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Company's Board of Directors by filling the vacancies
created by such removal with its own nominees.
Limitation of Officer and Director Liability and Indemnification
Arrangements. The Company's Certificate of Incorporation provides that an
officer or director of the Company will not be personally liable to the Company
or its stockholders for monetary damages for any breach of his fiduciary duty as
an officer or director, except in certain cases where liability is mandated by
the DGCL. The provision has no effect on any non-monetary remedies that may be
available to the Company or its stockholders, nor does it relieve the Company or
its officers or directors from compliance with federal or state securities laws.
The Bylaws also generally provide that the Company shall indemnify, to the
fullest extent permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses incurred by him
in connection with such Proceeding. An officer or director shall not be entitled
to indemnification by the Company if (i) the officer or director did not act in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the Company, or (ii) with respect to any criminal action or
proceeding, the officer or director had no reasonable cause to believe his
conduct was unlawful.
Bylaws. The Bylaws are subject to adoption, amendment, alteration, repeal
or rescission either by (a) the Board of Directors or (b) the affirmative vote
of the holders of not less than 66 2/3% of the total voting power of all
outstanding securities of the Company then entitled to vote generally in the
election of directors, voting together as a single class, at any regular meeting
of the Board of Directors or of the stockholders or at any special meeting of
the Board of Directors or of the stockholders if notice of such adoption,
amendment, alteration, repeal or rescission is contained in the notice of such
special meeting.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock will be
ChaseMellon Shareholder Services, L.L.C.
62
<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have
shares of Class A Common Stock and shares of Class B Common Stock
outstanding, assuming no exercise of the Underwriters' over-allotment option and
no exercise of outstanding options to purchase Class A Common Stock. Of these
shares, the shares of Class A Common Stock sold in the Offering
are freely tradable without restriction or further registration under the
Securities Act, except that any shares held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act ("Rule 144"), may
generally be sold only in compliance with the limitations of Rule 144 described
below.
SALE OF RESTRICTED SHARES
The remaining shares of Common Stock (including Class A Common Stock
issuable upon exchange of the Exchangeable Shares) are "restricted securities"
as defined under Rule 144. Restricted Securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under the Securities Act. Additionally, Nextera's Certificate of Incorporation
provides that each holder of Common Stock, other than the holders of the shares
of Common Stock acquired in the Offering, agrees not to sell, directly or
indirectly, any Common Stock, subject to certain exceptions, without the prior
consent of DLJ for a period of 180 days from the date of this Prospectus.
Subject to the Lock-up Agreements described below and the foregoing provisions
of the Company's Certificate of Incorporation, additional shares of Class A
Common Stock (including Class A Common Stock issuable upon conversion of Class B
Common Stock and the exchange of the Exchangeable Shares) will be available for
sale in the public market (subject in certain circumstances to compliance with
certain volume and other restrictions under Rule 144) as follows: (i)
shares will be eligible for sale 180 days after the date of this
Prospectus; and (ii) shares will become eligible thereafter for
sale under Rule 144 upon the expiration of the applicable one-year holding
periods. In addition, if the restrictions of the Lock-up Agreements described
below and the foregoing provisions of the Company's Certificate of Incorporation
were waived in full on the date hereof: (i) shares of Common
Stock would be eligible for sale in the public market from and after the date of
this Prospectus, and (ii) additional shares of Common Stock would
become eligible for sale in the public market 90 days after the date of this
Prospectus.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Class A
Common Stock (approximately shares as of the date of this
Prospectus) or (ii) the average weekly trading volume in the Class A Common
Stock during the four calendar weeks preceding the date on which notice of such
sale is filed, subject to certain restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus.
OPTIONS
Upon consummation of the Offering, the Company will have outstanding
options for shares of Class A Common Stock, of which
are exercisable. Following the Offering, the Company intends to
file a Registration Statement on Form S-8 under the Securities Act to register
the shares of Class A Common Stock that are issuable upon the
exercise of stock options either
63
<PAGE> 65
outstanding or available for grant pursuant to the 1998 Equity Participation
Plan. Such Registration Statement will become effective immediately upon filing;
however, consistent with the terms of the 1998 Equity Participation Plan,
holders of options will be unable to sell any shares of Class A Common Stock
received upon the exercise of options granted thereunder until the expiration of
180 days after the date of this Prospectus without the prior written consent of
DLJ. Shares covered by such Registration Statement will be eligible for sale in
the public market after the effective date of such Registration, subject to Rule
144 limitations applicable to affiliates as well as to the limitations on sale
and vesting described above.
REGISTRATION RIGHTS
Stockholders holding an aggregate of shares of Class A
Common Stock (including shares of Class A Common Stock issuable upon conversion
of Class B Common Stock and exchange of the Exchangeable Shares) ("Holders") are
entitled to certain registration rights under the Stockholders Agreement.
Commencing 180 days after the Offering, Knowledge Enterprises or an affiliate
that then owns an equity interest in the Company may make a one-time written
request of the Company for registration with the Securities and Exchange
Commission (a "Demand Registration") of all or part of its Class A Common Stock
of the Company, provided, however, that the Company need not effect a Demand
Registration unless it includes at least 10% of the Company's issued and
outstanding Common Stock. The Company may defer such Demand Registration for a
single period not to exceed 180 days, if the Board of Directors determines in
the exercise of its reasonable judgment that effecting such Demand Registration
at such time would have a material adverse effect on the Company. In addition,
Holders who together hold at least 10% of the issued and outstanding Common
Stock of the Company may make a one-time written request of the Company for a
Demand Registration on the same terms as those applicable to Knowledge
Enterprises as set forth above.
The Stockholders Agreement also provides piggyback registration rights to
Holders for their shares of Class A Common Stock ("Registrable Securities"). The
Company must provide prior written notice to those Holders whenever it proposes
to register any Common Stock (or securities convertible into or exchangeable
for, or options to purchase, Common Stock) with the Securities and Exchange
Commission on a form that would permit the registration of Registrable
Securities. The Company will register in such registration all Registrable
Securities requested to be included, provided that if, in the opinion of the
applicable underwriter, the number of securities proposed to be included is
greater that what could be sold without having a material impact on the
offering, the Company will include securities in the following priority: (i)
first, the Common Stock the Company proposes to sell, and (ii) second, the
Registrable Securities requested to be included in such registration by the
holders of Registrable Securities pro rata based on the number of Registrable
Securities that each such stockholder shall have requested to include therein.
The Stockholders Agreement further provides that the Company will bear all
expenses incident to the Company's performance of its registration obligations,
other than the costs or expenses of any selling stockholders for underwriters'
commissions, brokerage fees or transfer taxes, or the fees and expenses of any
counsel, accountants or other representative retained by any selling
stockholder. The Company is obligated, however, to reimburse the selling
stockholders in each Demand Registration for the reasonable fees of one counsel
up to $25,000.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Class A
Common Stock, and no precise prediction can be made as to the effect, if any,
that market sales of shares of Class A Common Stock or the availability of
shares of Class A Common Stock for sale will have on the market price of the
Class A Common Stock prevailing from time to time. Nevertheless, the sale of
substantial amounts of the Class A Common Stock in the public market could
adversely affect prevailing market prices and could impair the Company's future
ability to raise capital through the sale of its equity securities.
64
<PAGE> 66
LOCK-UP AGREEMENTS
All directors, officers and stockholders of the Company have agreed that
they will not, without the prior written consent of DLJ and subject to certain
exceptions, sell or otherwise dispose of any shares of Common Stock or options
to acquire shares of Common Stock during the 180-day period following the date
of this Prospectus. The Company has agreed not to sell or otherwise dispose of
any shares of Class A Common Stock during the 180-day period following the date
of this Prospectus without the prior written consent of DLJ, except the Company
may (i) issue, and grant options to purchase, shares of Class A Common Stock
under the 1998 Equity Participation Plan and (ii) issue shares of Class A Common
Stock in connection with acquisitions, if the terms of such issuance provide
that such Class A Common Stock shall not be resold prior to the expiration of
such 180-day period. DLJ may release any or all shares from Lock-Up Agreements
at any time or from time to time without notice.
65
<PAGE> 67
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., BT Alex. Brown Incorporated, and NationsBanc
Montgomery Securities LLC (collectively, the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Class A
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
BT Alex. Brown Incorporated.................................
NationsBanc Montgomery Securities LLC.......................
Total.............................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Class A Common Stock offered
hereby (other than those shares covered by the over-allotment option described
below) if any are purchased.
The Underwriters initially propose to offer the shares of Class A Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain dealers
(including the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may re-allow, to
certain other dealers a concession not in excess of $ per share. After the
initial offering of the Class A Common Stock, the public offering price and
other selling terms may be changed by the Representatives at any time without
notice. The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of
Class A Common Stock at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover over-allotments, if any, made in connection with the Offering. To the
extent that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares proportionate to such Underwriter's underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Effective August 31, 1998, the Company and Nextera Funding, Inc., an
affiliate of DLJ, entered into the Bridge Loan, which provides for a $40 million
revolving credit facility which bears interest at the rate of LIBOR plus 450
basis points (10.2% on August 31, 1998) per annum, and matures on February 28,
1999. The Company borrowed $38.0 million under the Bridge Loan to finance the
Sibson Acquisitions. The indebtedness incurred under the Bridge Loan will be
repaid with a portion of the net proceeds from the Offering. As a result of such
arrangements, the Conduct Rules of the National Association of Securities
Dealers, Inc. require that the initial public offering price of the Class A
Common Stock be no higher than that recommended by a qualified independent
underwriter, as defined in Rule 2720 of the Conduct Rules. BT Alex. Brown
66
<PAGE> 68
Incorporated, one of the Representatives of the Underwriters, will serve as the
qualified independent underwriter and has assumed the responsibilities of acting
as qualified independent underwriter in pricing the Class A Common Stock offered
hereby and conducting "due diligence" in respect thereto. BT Alex. Brown
Incorporated will receive a fee of $5,000 from the Company as compensation to
act as qualified independent underwriter.
DLJ and the Company are parties to a letter agreement dated August 31, 1998
(the "Engagement Letter"). Pursuant to the Engagement Letter, DLJ has the right
to act as the Company's lead placement agent, lead initial purchaser or lead
managing underwriter in the event that the Company determines to sell its
securities with the services of an outside financial advisor or investment bank
during the period ending August 31, 1999.
Each of the Company, its executive officers and directors and shareholders
of the Company has agreed, subject to certain exceptions, not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or (ii) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Class A Common Stock (regardless of whether
any of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Class A Common Stock, or such other securities, in cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of DLJ. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to, and each
of its executive officers, directors and certain shareholders of the Company has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Class A Common Stock or any securities convertible
into or exercisable or exchangeable for Class A Common Stock without DLJ's prior
written consent.
Prior to the Offering, there has been no established trading market for the
Class A Common Stock. The initial public offering price for the shares of Class
A Common Stock offered hereby will be determined by negotiation among the
Company and the Representatives. The factors to be considered in determining the
initial public offering price include the history of and the prospects for the
industry in which the Company competes, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Class A
Common Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Class A Common Stock offered hereby may not be offered
or sold, directly or indirectly, nor may this Prospectus or any other offering
material or advertisements in connection with the offer and sale of any such
shares of Class A Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Class A Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the Class
A Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Class A Common Stock in the open market to cover such syndicate short
position or to stabilize the price of the Class A Common Stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed Class A Common
Stock in syndicate covering transactions, in stabilizing transactions or
otherwise. These activities may stabilize or maintain the market price of the
Class A Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
67
<PAGE> 69
LEGAL MATTERS
The legality of the issuance of the Class A Common Stock offered hereby
will be passed upon for the Company by Latham & Watkins, San Diego, California
and certain other matters will be passed upon for the Company by Maron &
Sandler, Los Angeles, California. See "Management--Directors, Executive Officers
and Other Senior Managers," "--Board Committees" and "Certain
Transactions--Retention of Maron & Sandler" for information concerning Maron &
Sandler's relationship with the Company. Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The Consolidated Financial Statements and schedule of Nextera Enterprises,
L.L.C. at December 31, 1997 and for the period from February 26, 1997 to
December 31, 1997, the Consolidated Financial Statements of Symmetrix, Inc. and
Subsidiaries at May 31, 1997, and for the year ended May 31, 1997, and for the
period from June 1, 1997 to July 30, 1997 and the Financial Statements of SiGMA
Consulting, LLC at December 31, 1996 and 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The Consolidated Financial Statements of Symmetrix, Inc. and Subsidiaries
at May 31, 1996 and for the year then ended appearing in this Prospectus and the
Registration Statement have been audited by BDO Seidman, LLP, independent
auditors, as indicated in their reports with respect thereto, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The Consolidated Financial Statements of Symmetrix, Inc. and Subsidiaries
for the year ended May 31, 1995 appearing in this Prospectus and the
Registration Statement have been so included in reliance on the report of
Pricewaterhouse LLP, independent accountants given upon the authority of such
firm as experts in auditing and accounting.
The Financial Statements of PTG at December 31, 1996 and 1997 and the years
then ended appearing in this Prospectus and the Registration Statement have been
audited by Harte Carucci & Driscoll, P.C., independent auditors, as indicated in
their reports with respect thereto, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The Consolidated Financial Statements of Sibson & Company, L.P. and
Subsidiaries at December 31, 1995, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997 appearing in this Prospectus and the
Registration Statement have been audited by Farkouh, Furman & Faccio,
independent auditors, as indicated in their reports with respect thereto, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The Financial Statements of Sibson Canada, Inc. at December 31, 1997 and
for the year then ended appearing in this Prospectus and the Registration
Statement have been audited by Grant Thornton, independent auditors, as
indicated in their reports with respect thereto, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Class A
Common Stock being offered in the Offering. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules thereto. Statements made in this Prospectus as to the
contents of any contract, agreement or any other document referred to herein are
not necessarily complete; with respect to each such
68
<PAGE> 70
contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference to the Registration Statement exhibits filed as a
part thereof. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Commission's principle office at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of either of them or
any part thereof may be obtained from such office upon payment of fees
prescribed by the Commission. The Registration Statement, including the exhibits
and schedules thereto, are also available on the Commission's Web Site at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent accounting firm and
will make available copies of quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
69
<PAGE> 71
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS:
Consolidated Financial Statements of Nextera Enterprises,
L.L.C.
Report of Ernst & Young LLP, Independent Auditors...... F-3
Consolidated Balance Sheets -- December 31, 1997 and
June 30, 1998 (unaudited)............................. F-4
Consolidated Statements of Operations -- For the period
February 26, 1997 (date of inception) through December
31, 1997, for the period February 26, 1997 through
June 30, 1997 (unaudited) and for the six months ended
June 30, 1998 (unaudited)............................. F-5
Consolidated Statements of Members' Equity
(Deficit) -- For the period February 26, 1997 (date of
inception) through December 31, 1997 and for the six
months ended June 30, 1998 (unaudited)................ F-6
Consolidated Statements of Cash Flows -- For the period
February 26, 1997 (date of inception) through December
31, 1997, for the period February 26, 1997 through
June 30, 1997 (unaudited) and for the six months ended
June 30, 1998 (unaudited)............................. F-7
Notes to Consolidated Financial Statements............. F-8
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES:
Consolidated Financial Statements of Symmetrix, Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-17
Consolidated Balance Sheets -- May 31, 1997 and July
30, 1997.............................................. F-18
Consolidated Statements of Operations and Accumulated
Deficit -- For the year ended May 31, 1997 and for the
period June 1, 1997 through July 30, 1997............. F-19
Consolidated Statements of Cash Flows -- For the year
ended May 31, 1997 and for the period June 1, 1997
through July 30, 1997................................. F-20
Notes to Consolidated Financial Statements............. F-21
Consolidated Financial Statements of Symmetrix, Inc.
Independent Auditors' Report........................... F-27
Consolidated Balance Sheet -- May 31, 1996............. F-28
Consolidated Statement of Operations -- For the year
ended May 31, 1996.................................... F-29
Consolidated Statement of Changes in Stockholders'
Equity -- For the year ended May 31, 1996............. F-30
Consolidated Statement of Cash Flows -- For the year
ended May 31, 1996.................................... F-31
Notes to Consolidated Financial Statements............. F-32
Consolidated Financial Statements of Symmetrix, Inc.
Report of PricewaterhouseCoopers LLP, Independent
Accountants........................................... F-39
Consolidated Statement of Operations -- For the year
ended May 31, 1995.................................... F-40
Consolidated Statement of Stockholders' Equity -- For
the year ended May 31, 1995........................... F-41
Consolidated Statement of Cash Flows -- For the year
ended May 31, 1995.................................... F-42
Notes to Consolidated Financial Statements............. F-43
Financial Statements of SiGMA Consulting, LLC
Report of Ernst & Young LLP, Independent Auditors...... F-48
Balance Sheets -- December 31, 1996 and 1997........... F-49
Statements of Operations -- For the years ended
December 31, 1995, 1996 and 1997...................... F-50
Statements of Equity -- For the years ended December
31, 1995, 1996 and 1997............................... F-51
Statements of Cash Flows -- For the years ended
December 31, 1995, 1996 and 1997...................... F-52
Notes to Financial Statements.......................... F-53
</TABLE>
F-1
<PAGE> 72
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES
(CONTINUED):
Financial Statements of The Planning Technologies Group,
Inc.
Report of Independent Auditors......................... F-56
Balance Sheets -- December 31, 1996 and 1997 and March
31, 1998 (unaudited).................................. F-57
Statements of Income and Retained Earnings -- For the
years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998
(unaudited)........................................... F-58
Statements of Cash Flows -- For the years ended
December 31, 1996 and 1997 and for the three months
ended March 31, 1997 and 1998 (unaudited)............. F-59
Notes to Financial Statements.......................... F-60
Financial Statements of Sibson & Company, L.P. and
Subsidiaries
Report of Independent Auditors......................... F-63
Consolidated Balance Sheets -- December 31, 1996 and
1997 and June 30, 1998 (unaudited).................... F-64
Consolidated Statements of Operations and Partners'
Capital -- For the years ended December 31, 1995, 1996
and 1997 and for the six months ended June 30, 1997
and 1998 (unaudited).................................. F-65
Consolidated Statements of Cash Flows -- For the years
ended December 31, 1995, 1996 and 1997 and for the six
months ended June 30, 1997 and 1998 (unaudited)....... F-66
Notes to Consolidated Financial Statements............. F-67
Financial Statements of Sibson Canada, Inc.
Report of Independent Auditors......................... F-73
Balance Sheets -- December 31, 1997 and June 30,
1998.................................................. F-74
Statements of Operations and Retained Earnings -- For
the year ended December 31, 1997 and for the six
months ended June 30, 1997 and 1998 (unaudited)....... F-75
Statements of Changes in Financial Position -- For the
year ended December 31, 1997 and for the six months
ended June 30, 1997 and 1998 (unaudited).............. F-76
Notes to Financial Statements.......................... F-77
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Basis of Presentation.................................. PF-1
Unaudited Pro Forma Combined Balance Sheet -- June 30,
1998.................................................. PF-2
Unaudited Pro Forma Combined Statement of
Operations -- For the period February 26, 1997 (date
of inception) through December 31, 1997............... PF-3
Unaudited Pro Forma Combined Statement of
Operations -- For the six months ended June 30,
1998.................................................. PF-4
Notes to Unaudited Pro Forma Combined Financial
Statements............................................ PF-5
</TABLE>
F-2
<PAGE> 73
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Nextera Enterprises, L.L.C.
We have audited the accompanying consolidated balance sheet of Nextera
Enterprises, L.L.C. (the Company) as of December 31, 1997, and the related
consolidated statements of operations, members' equity and cash flows for the
period from February 26, 1997 (date of inception) through December 31, 1997.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nextera
Enterprises, L.L.C. at December 31, 1997, and the results of its operations and
its cash flows for the period from February 26, 1997 (date of inception) through
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
April 30, 1998, except for Note 12,
as to which the date is August 31, 1998
F-3
<PAGE> 74
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 554 $ 2,921
Accounts receivable, net of allowance for doubtful
accounts of $100 at December 31, 1997 and $617 at June
30, 1998............................................... 2,202 10,434
Costs and estimated earnings in excess of billings........ 856 172
Due from affiliate........................................ 225 135
Due from officers......................................... -- 849
Prepaid expenses and other current assets................. 368 420
Income tax receivable..................................... 414 --
------- -------
Total current assets................................. 4,619 14,931
Long-term receivable........................................ 532 --
Property and equipment, net................................. 1,181 2,049
Intangible assets, net of accumulated amortization of $255
at December 31, 1997 and $823 at June 30, 1998............ 15,762 39,041
Other assets................................................ 561 1,477
------- -------
Total assets......................................... $22,655 $57,498
======= =======
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,284 $ 6,936
Notes payable to bank..................................... 1,687 1,390
Deferred revenue.......................................... 747 1,262
Due to affiliate.......................................... 90 150
Current portion of long-term debt......................... 146 86
------- -------
Total current liabilities............................ 4,954 9,824
Long-term debt.............................................. 969 994
Debentures due to affiliates, including accrued interest
thereon................................................... -- 50,585
Class B Preferred Units, no par value, 25,000,000 units
authorized, no units issued and outstanding............... -- --
Members' equity (deficit):
Class A Common Units, no par value, 15,000,000 units
authorized, 7,898,800 and 11,469,667 units issued and
outstanding at December 31, 1997 and June 30, 1998,
respectively........................................... 19,747 2,688
Class B Common Units, no par value, zero and 4,300,000
units authorized, issued and outstanding at December
31, 1997 and June 30, 1998, respectively............... -- --
Retained earnings (deficit)............................... (3,015) (6,593)
------- -------
Total members' equity (deficit)...................... 16,732 (3,905)
------- -------
Total liabilities and members' equity (deficit)...... $22,655 $57,498
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 75
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 26, 1997 FEBRUARY 26, 1997 FOR THE
(DATE OF INCEPTION) (DATE OF INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER COMMON UNIT DATA)
<S> <C> <C> <C>
Net revenues...................................... $ 7,998 $ -- $22,095
Cost of revenues.................................. 4,718 -- 14,938
------- ------- -------
Gross profit................................. 3,280 -- 7,157
Selling, general and administrative expenses...... 5,306 987 7,296
Amortization expense.............................. 255 -- 568
------- ------- -------
Loss from operations......................... (2,281) (987) (707)
Interest income................................... 37 3 --
Interest expense.................................. (69) -- (2,671)
------- ------- -------
Loss before provision for income taxes....... (2,313) (984) (3,378)
Provision for income taxes........................ 702 -- 200
------- ------- -------
Net loss..................................... $(3,015) $ (984) $(3,578)
======= ======= =======
Net loss per common unit, basic and diluted....... $ (0.74) $ (2.60) $ (0.29)
======= ======= =======
Weighted average common units outstanding, basic
and diluted..................................... 4,061 379 12,550
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 76
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B TOTAL
COMMON UNITS COMMON UNITS PREFERRED UNITS RETAINED MEMBERS'
---------------------- ---------------------- ---------------------- EARNINGS EQUITY
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT (DEFICIT) (DEFICIT)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A Common
Units..................... 7,898,800 $ 19,747 -- $ -- -- $ -- $ -- $ 19,747
Net loss.................... -- -- -- -- -- -- (3,015) (3,015)
----------- -------- ----------- -------- ----------- -------- -------- --------
Balance at December 31,
1997...................... 7,898,800 19,747 -- -- -- -- (3,015) 16,732
Issuance of Class A Common
Units..................... 2,101,200 5,230 -- -- -- -- -- 5,230
Issuance of Class A Common
Units in connection with
acquired businesses....... 1,469,667 688 -- -- -- -- -- 688
Recapitalization of Units... -- (22,977) -- -- 22,977,000 22,977 -- --
Exchange of warrant for
Class B Common Units...... -- -- 4,300,000 -- -- -- -- --
Issuance of Class B
Preferred Units........... -- -- -- -- 24,993,000 24,993 -- 24,993
Redemption of Class B
Preferred Units in
exchange for 10%
Debentures................ -- -- -- -- (47,970,000) (47,970) -- (47,970)
Net loss.................... -- -- -- -- -- -- (3,578) (3,578)
----------- -------- ----------- -------- ----------- -------- -------- --------
Balance at June 30, 1998
(unaudited)............... 11,469,667 $ 2,688 4,300,000 $ -- -- $ -- $ (6,593) $ (3,905)
=========== ======== =========== ======== =========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 77
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 26, 1997 FEBRUARY 26, 1997 FOR THE
(DATE OF INCEPTION) (DATE OF INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (3,015) $(1,015) $ (3,578)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 417 9 931
Deferred income taxes......................... 702 -- --
Change in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable......................... 425 -- (1,877)
Due from affiliate.......................... (225) -- 138
Due to affiliate............................ 90 30 60
Prepaid expenses and other current assets... (272) (213) 111
Income tax receivable....................... -- -- 414
Accounts payable and accrued expenses....... 517 162 3,683
Costs and estimated earnings in excess of
billings................................. (761) -- 726
Deferred revenue............................ (2,403) -- 126
Other....................................... 45 -- (790)
-------- ------- --------
Net cash used in operating
activities.......................... (4,480) (1,027) (56)
-------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............... (955) (162) (426)
Acquisition of businesses, net of cash
acquired...................................... (15,321) -- (25,756)
-------- ------- --------
Net cash used in investing
activities.......................... (16,276) (162) (26,182)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A Common Units... 19,747 1,650 5,230
Proceeds from issuance of Class B Preferred
Units......................................... -- -- 24,993
Due from officers................................ -- -- (849)
Borrowings (repayments) under note payable to
bank.......................................... 1,606 -- (639)
Repayments of long-term debt..................... (43) -- (60)
Other............................................ -- 29 (70)
-------- ------- --------
Net cash provided by financing
activities.......................... 21,310 1,679 28,605
-------- ------- --------
Net increase in cash and cash equivalents........ 554 490 2,367
Cash and cash equivalents at beginning of
period........................................ -- -- 554
-------- ------- --------
Cash and cash equivalents at end of period....... $ 554 $ 490 $ 2,921
======== ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......... $ 113 $ -- $ 134
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 78
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Nextera Enterprises, L.L.C. ("Nextera" or the "Company") provides
leading-edge business strategy, operations improvement, organizational design,
and information technology ("IT") consulting services primarily to Fortune 500
and other multinational companies. The Company provides services in four
practice areas, which enables it to offer a breadth and balance of services that
assist clients in achieving enhanced business performance by anticipating and
addressing their complex, multi-disciplinary consulting needs.
Nextera was formed on February 26, 1997. The Company shall continue to
exist until December 31, 2020, unless earlier dissolved pursuant to Nextera's
Operating Agreement. As of April 30, 1998, the majority member of the Company is
Knowledge Universe, L.L.C.
Acquisitions
Effective July 30, 1997, the Company acquired Symmetrix, Inc.
("Symmetrix"), a management consulting and information technology consulting
company, for cash of approximately $15,500,000. The acquisition was accounted
for under the purchase method of accounting; accordingly, the purchase price was
allocated to the underlying assets and liabilities based on their respective
estimated fair values at the date of the acquisition. Correspondingly,
Symmetrix' results of operations subsequent to the acquisition have been
included in the Company's results of operations.
The following information presents the unaudited pro forma condensed
results of operations for the year ended December 31, 1997 as if the Symmetrix
acquisition had occurred on January 1, 1997. The pro forma adjustments include
additional amortization expense of approximately $357,000. The pro forma results
are presented for information purposes only and are not necessarily indicative
of the future results of operations of the Company or the results of operations
of the Company had the acquisition occurred on January 1, 1997.
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER COMMON UNIT DATA)
<S> <C>
Net revenues........................ $12,328
Net loss............................ (7,529)
Net loss per common unit............ $ (1.85)
</TABLE>
Subsequent to December 31, 1997, the Company acquired the assets or stock
of the following businesses:
<TABLE>
<CAPTION>
EFFECTIVE DATE
ACQUIRED COMPANY OF ACQUISITION
<S> <C>
SiGMA Consulting, LLC....................... January 5, 1998
Pyramid Imaging, Inc. ...................... March 31, 1998
The Planning Technologies Group, Inc. ...... March 31, 1998
</TABLE>
The aggregate purchase price was $26,565,000, which consisted of
$25,877,000 in cash and the issuance of 1,469,667 Class A Common Units valued at
an average of $0.47 per unit, as well as the assumption of certain liabilities.
One of the acquisition agreements contains an earn-out provision providing for
the payment of up to an additional $800,000 in cash and 53,333 Class A Common
Units of the Company upon the achievement of certain revenue and pretax profit
targets. The Company's goodwill will be adjusted for any additional
consideration earned.
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the underlying
assets and liabilities based on their respective estimated fair values at the
date of the acquisition.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
F-8
<PAGE> 79
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Statements (Unaudited)
The balance sheet at June 30, 1998, and the statements of operations,
members' equity (deficit) and cash flows for the period from February 26, 1997
(inception) to June 30, 1997 and the six months ended June 30, 1998 are
unaudited, and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated financial position, results of
operations and cash flows.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed. Deferred
revenue represents billings in excess of revenues recognized. Net revenues
exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5-7 years
Equipment......................................... 3-5 years
Software.......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
Intangible Assets
Intangible assets consist principally of the cost in excess of assets
acquired resulting from acquisitions and are being amortized on a straight-line
basis over 5 years for intangibles relating to personnel and over 40 years for
all other intangibles. The Company periodically evaluates the carrying value of
intangible assets for impairment. Any impairment is charged to expense in the
period in which the impairment is incurred.
F-9
<PAGE> 80
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Goodwill..................................... $14,917
Intangibles related to personnel............. 1,100
-------
16,017
Less: accumulated depreciation............... (255)
-------
Intangible assets, net....................... $15,762
-------
</TABLE>
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Sales to three significant customers accounted for
36%, 20% and 10% of net revenues during 1997. Two significant customers
accounted for 51% and 21% of receivables, net of related deferred revenue, at
December 31, 1997, respectively.
Basic and Diluted Earnings Per Common Unit
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 requires the
presentation of two amounts, basic earnings per common unit and diluted earnings
per common unit. Earnings per common unit excludes any dilutive effects of
options, warrants and convertible securities. For the period ended December 31,
1997, basic and diluted earnings per common unit are the same due to the
antidilutive effect of potential common units outstanding.
Income Taxes
Nextera is treated as a partnership for federal and state income tax
purposes. Therefore, all items of income, expense, and tax credit are passed
through to the individual unit holders. Accordingly, no provision for income
taxes is required for Nextera. Symmetrix, the Company's wholly owned subsidiary,
is subject to income taxes and reports its income tax provision using the
liability method in accordance with Financial Accounting Standards Board
Statement 109, Accounting for Income Taxes ("Statement 109"). Under Statement
109, deferred income taxes are provided for differences between the financial
reporting and tax bases of assets and liabilities at income tax rates expected
to be in effect when the taxes are actually paid or recovered.
Effect of Recent Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). The Company will adopt
the provisions of Statement 130 during fiscal year 1998. At that time, the
Company will be required to disclose comprehensive income. Comprehensive income
is generally defined as all changes in members' equity (deficit) exclusive of
transactions with owners such as capital investments and dividends. Management
of the Company does not expect the adoption of Statement 130 will have a
material impact on the Company's financial statement disclosures.
F-10
<PAGE> 81
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement 131"), which is required to be adopted for years beginning after
December 15, 1997. Management of the Company believes that they operate in only
one segment and accordingly does not expect the adoption of Statement 131 will
have a material impact on the Company's financial statement disclosures.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Equipment............................................ $ 663
Software............................................. 55
Furniture and fixtures............................... 371
Leasehold improvements............................... 222
------
1,311
Less: accumulated depreciation....................... 130
------
Property and equipment, net.......................... $1,181
======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Trade accounts payable............................... $ 720
Accrued payroll...................................... 837
Accrued medical...................................... 94
Compensated absences................................. 156
Other................................................ 477
------
$2,284
======
</TABLE>
5. FINANCING ARRANGEMENTS
Notes Payable to Bank
The Company has a $1,800,000 unsecured line of credit with a bank that
expires on November 30, 1998. Borrowings under the line bear interest at the
bank's prime rate plus 1.0% (9.5% at December 31, 1997) and are limited to a
percentage of specified trade receivables. The agreement provides for an annual
commitment fee of 0.5% of the unused line. At December 31, 1997, the Company had
$1,637,000 outstanding under the line and an additional $163,000 available. On
January 1, 1998, the Company increased its unsecured line of credit with the
bank to $2,000,000. The line contains restrictive covenants relating to
maintenance of financial ratios, operating restrictions and restrictions on the
payment of dividends.
Symmetrix has a $150,000 unsecured line of credit with a bank that expires
on August 31, 1998. Borrowings under the line bear interest at the bank's prime
rate plus 1.0% (9.5% at December 31, 1997). The agreement provides for drawdowns
through August 31, 1998 with the line declining by $6,250 per month beginning on
September 1, 1996. As of December 31, 1997, the Company had borrowings
outstanding of $50,000 under the line of credit.
F-11
<PAGE> 82
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Unsecured notes payable to former stockholders and employees
of Symmetrix, issued in connection with the acquisition of
common stock of Symmetrix. Interest accrues at the lower
of 10.0% or prime (8.5% at December 31, 1997), payable in
bi-annual installments with principal ranging from $1,152
to $7,560, through July 2002.............................. $ 172
Unsecured note payable to a former stockholder of Symmetrix
issued in connection with a non-compete agreement. Annual
payments of $120,000 are due through May 2010. Interest
accrues annually at 8.7%.................................. 915
Other....................................................... 28
------
1,115
Less: current portion....................................... 146
------
Long-term debt.............................................. $ 969
======
</TABLE>
Annual maturities of long-term debt for the years ending after December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $ 146
1999................................................ 100
2000................................................ 79
2001................................................ 57
2002 and thereafter................................. 733
------
$1,115
======
</TABLE>
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Deferred:
Federal................................... $596
State..................................... 106
----
Total deferred tax provision...... $702
====
</TABLE>
F-12
<PAGE> 83
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Deferred tax asset:
Reserves........................................... $ 60
Other accrued liabilities.......................... 363
Net operating loss carryforwards................... 2,327
------
Deferred tax asset.............................. 2,750
Valuation allowance................................ 2,716
------
Net deferred tax asset............................. 34
Deferred tax liability: depreciation............... (34)
------
Total deferred tax asset................... $ 0
======
</TABLE>
Symmetrix has approximately $5,819,000 of pre-acquisition net operating
loss carryforwards which expire through the year 2012. The net operating loss
carryforwards arose principally as a result of disqualifying dispositions of
Symmetrix' previously outstanding stock options. As a result of ownership
changes, these net operating losses are subject to limitations under the
Internal Revenue Code.
The reconciliation of the consolidated effective tax rate of the Company is
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1997
<S> <C>
Tax (benefit) at statutory rate...................... (34)%
State taxes (benefit), net of federal benefit........ (6)
Permanent differences................................ 3
Loss treated as partnership flow-through for tax
purposes........................................... 54
Other................................................ 13
---
Income tax provision................................. 30%
===
</TABLE>
7. RELATED PARTY TRANSACTIONS
During 1997, the Company entered into a professional services contract with
Productivity Point International, Inc. ("PPI"), a subsidiary of Knowledge
Universe, L.L.C. Revenues from PPI were $225,000 through December 31, 1997. At
December 31, 1997, $225,000 was due from PPI.
On July 31, 1995, Symmetrix entered into a four year non-compete agreement
("Agreement") with its then majority stockholder ("Stockholder") in conjunction
with the Stockholder's sale of his holdings in Symmetrix' common stock to a
non-affiliated third party. Symmetrix capitalized the value of the Agreement,
$986,000, and is amortizing the amount on a straight-line basis over the life of
the Agreement. At December 31, 1997, the carrying amount was $390,000 and was
included in other assets on the consolidated balance sheet.
In connection with an equity recapitalization, $47,970,000 was recorded as
debentures due to affiliates (see Note 9).
Management fees of $90,000 and $60,000 due to Knowledge Universe, L.L.C.
were incurred, but remain unpaid, for the period ended December 31, 1997 and the
six months ended June 30, 1998, respectively.
F-13
<PAGE> 84
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
The Company leases its office facility under an operating lease which
expires in April 2002 and has a 5-year renewal option. The lease requires
payments for additional expenses such as taxes, maintenance and utilities. Total
facility rent expense for the period from February 26, 1997 (date of inception)
through December 31, 1997 was approximately $449,000.
Future minimum lease payments under noncancelable operating leases
consisted of the following (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1998.............................................. $ 887
1999.............................................. 887
2000.............................................. 887
2001.............................................. 887
2002 and thereafter............................... 296
------
Total minimum lease payments.............. $3,844
======
</TABLE>
9. MEMBERS' EQUITY
The accompanying financial statements reflect the Company's historical
equity structure which is described below. As of April 30, 1998, the Company
amended and restated its capital structure (see Recapitalization below).
Historical
As of December 31, 1997, the Company was authorized to issue two classes of
Units: Class A Common Units and Class B Preferred Units, to be owned by unit
holders of the limited liability company ("Members"). Each Class A Common Member
had one vote per Class A Common Unit owned by such Member. The Class B Preferred
Units were non-voting. At December 31, 1997, the Company had a warrant
outstanding to purchase 5,000,000 Class A Common Units at an exercise price of
$2.50 per unit, with an expiration date of August 1, 2002 (the "Warrant"). At
any time after May 1, 2002, or upon the exercise of the Warrant, the Class B
Preferred Members have the right to require the Company to redeem all of their
Class B Preferred Units for an amount equal to their adjusted capital balances.
The Class B Preferred Units also had a liquidation preference equal to their
Undistributed Return, as defined in the amended and restated Nextera operating
agreement. The Company had a right to approve or disapprove any proposed
transfer of Units.
Recapitalization
During the period from January 1, 1998 through April 30, 1998, $30,223,000
of additional capital was contributed, bringing the total contributed capital to
$49,970,000. As of April 30, 1998, the Company undertook a recapitalization,
which was unanimously approved by all of the Members of the Company. The net
result of the recapitalization was the redesignation of $47,970,000 of capital
as debentures. As a result of the recapitalization transactions, the Company
issued two debentures with principal amounts of $24,970,000 and $23,000,000,
respectively. Both debentures are due on May 1, 2002. The debentures accrue
interest at a rate of 10% retroactive to the date the initial capital was
funded. Accordingly, for the six months ended June 30, 1998, the Company
incurred approximately $793,000 of interest expense pursuant to the
recapitalization related to the period ended December 31, 1997. The stated value
of the 10,000,000 Class A Common Units was reduced to $0.20 per unit from $2.50
per unit.
In addition, pursuant to the recapitalization, the warrant to acquire
5,000,000 Class A Common Units was amended to provide that the units subject to
the warrant were changed to a new class of authorized Class B Common Units. The
Class B Common Units have the same economic characteristics as the Class A
Common Units, except that each Class B Common Member has ten votes per Class B
Common Unit owned
F-14
<PAGE> 85
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by such member. The warrant was contributed to the Company in exchange for
4,300,000 Class B Common Units on April 30, 1998.
Employee Equity Participation Plan
In 1997, the Company established its Employee Equity Participation Plan
("EPP"), whereby the Board of Directors may make discretionary awards of stock
appreciation rights ("SAR") to employees of the Company. At the exercise date,
the Company may settle its SAR obligations by making either cash payments or
issuing Class A Common Units equal to the amount of the underlying appreciated
value of the Company's Class A Common Unit from the initial grant date. The
exercise of the SAR is limited by the provisions of each applicable employee
agreement, however, the exercise period cannot exceed seven years. For the
period ended December 31, 1997, 450,000 SARs were granted under the EPP, at an
initial price of $5.00. The Company recognized no compensation expense relating
to the SARs during the period ended December 31, 1997. Pursuant to the EPP,
4,500,000 SARs have been reserved for issuance.
Subsequent to December 31, 1997, the Board of Directors approved the
conversion of all existing SARs into options pursuant to the provisions of the
EPP. The exercise price of the options was $5.00, which was equal to or exceeded
the fair value on the date of the conversion.
10. BASIC AND DILUTED EARNINGS PER COMMON UNIT
The following table sets forth the reconciliation of the numerator and
denominator of the net loss per common unit computation:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER COMMON UNIT DATA)
<S> <C> <C>
Net loss................................. $(3,015) $(3,578)
Weighted average common units
outstanding............................ 4,061 12,550
Net loss per common unit................. $ (0.74) (0.29)
======= =======
</TABLE>
11. RETIREMENT SAVINGS PLAN
The Company's subsidiary sponsors a Retirement Savings Plan (the
"Retirement Plan") under Section 401(k) of the Internal Revenue Code for the
benefit all of its employees meeting certain minimum service requirements.
Eligible employees may elect to contribute to the Retirement Plan subject to
limitations established by the Internal Revenue Code. The trustees of the plan
select investment opportunities from which participants may choose to
contribute. Matching contributions are made at the discretion of the Company.
There were no contributions to the Retirement Plan by the Company for the period
from February 26, 1997 (date of inception) through December 31, 1997.
12. SUBSEQUENT EVENTS
Effective August 31, 1998, the Company acquired the assets and assumed
certain liabilities of Sibson & Company, L.P. and Sibson Canada, Inc.
(collectively, "Sibson") for cash of $37,375,000 and 2,810,900 Class A Common
Units (including the Exchangeable Shares, defined below). The acquisition of
Sibson was accounted for under the purchase method of accounting; accordingly,
the purchase price was allocated to the underlying assets and liabilities based
on their respective estimated fair values at the date of the acquisition. In
accordance with an agreement entered into in connection with the Sibson
Acquisitions, the Company is required to operate in corporate form prior to the
effectiveness of a Registration Statement, but in any event prior to March 31,
1999.
F-15
<PAGE> 86
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the acquisition of Sibson, the Company formed a wholly
owned Canadian subsidiary, Sibson Acquisition Co., which issued 197,813
Exchangeable Preference Shares ("Exchangeable Shares") to the holders of capital
stock of Sibson Canada, Inc. The Exchangeable Shares are exchangeable at any
time by the holders thereof for Class A Common Units. The holders of
Exchangeable Shares are entitled to dividend and other rights equivalent to
holders of Class A Common Units but are not entitled to vote on matters
submitted to the holders of Class A Common Units until such time as the holders
of Exchangeable Shares exchange such shares for Class A Common Units.
Also, in connection with the acquisition of Sibson, the Company secured a
$40,000,000 revolving credit facility (the "Bridge Loan"), which bears interest
at the rate of LIBOR plus 450 basis points per annum (10.2% at August 31, 1998)
and matures on February 28, 1999. The Bridge Loan is secured by substantially
all of the Company's assets and contains certain restrictive covenants. As of
August 31, 1998, $38,000,000 was outstanding under the Bridge Loan.
F-16
<PAGE> 87
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Symmetrix, Inc.
We have audited the accompanying consolidated balance sheets of Symmetrix,
Inc. and subsidiaries as of May 31, 1997 and July 30, 1997, and the related
consolidated statements of operations and accumulated deficit and cash flows for
the year ended May 31, 1997 and for the period from June 1, 1997 through July
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Symmetrix,
Inc. and subsidiaries at May 31, 1997 and July 30, 1997, and the results of
their operations and their cash flows for the year ended May 31, 1997 and for
the period from June 1, 1997 through July 30, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
April 30, 1998
F-17
<PAGE> 88
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 838 $ 543
Accounts receivable, net of allowance for doubtful
accounts of $100 at May 31, 1997 and July 30, 1997..... 2,919 2,560
Costs and estimated earnings in excess of billings........ 471 95
Prepaid expenses and other current assets................. 174 97
Refundable income taxes................................... 416 416
------- -------
Total current assets.............................. 4,818 3,711
Long-term receivable........................................ 600 600
Property and equipment, net................................. 411 387
Other assets................................................ 654 607
------- -------
Total assets...................................... $ 6,483 $ 5,305
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,595 $ 6,773
Notes payable to bank..................................... 114 81
Due to affiliate.......................................... 1 3
Deferred revenue.......................................... 3,802 3,150
Current portion of long-term debt......................... 128 128
------- -------
Total current liabilities......................... 6,640 10,135
Long-term debt.............................................. 1,048 1,030
Stockholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized,
1,216,921 shares issued and outstanding................ 12 12
Additional paid-in capital................................ 995 995
Accumulated deficit....................................... (2,212) (6,867)
------- -------
Total stockholders' equity (deficit).............. (1,205) (5,860)
------- -------
Total liabilities and stockholders' equity
deficit......................................... $ 6,483 $ 5,305
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 89
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
YEAR ENDED JUNE 1, 1997
MAY 31, THROUGH
1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Net revenues................................................ $15,052 $ 2,381
Cost of revenues............................................ 13,529 1,994
------- -------
Gross profit........................................... 1,523 387
Selling, general and administrative expenses................ 6,584 887
Compensation expense--repurchase of stock options........... -- (4,126)
------- -------
Loss from operations................................... (5,061) (4,626)
Gain on sale of investment.................................. 1,884 --
Interest income............................................. 53 8
Interest expense............................................ (116) (37)
------- -------
Net loss............................................... (3,240) (4,655)
Accumulated deficit at beginning of period.................. 1,028 (2,212)
------- -------
Accumulated deficit at end of period........................ $(2,212) $(6,867)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 90
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE JUNE 1, 1997
YEAR ENDED THROUGH
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,240) $(4,655)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investment............................. (1,884) --
Depreciation........................................... 261 38
Amortization........................................... 246 53
Change in operating assets and liabilities:
Accounts receivable.................................. (541) 359
Costs and estimated earnings in excess of billings... (13) 376
Long-term receivable................................. (600) --
Due to affiliate..................................... 1 2
Prepaid expenses and other current assets............ 210 77
Refundable taxes..................................... (14) --
Accounts payable and accrued expenses................ 720 4,178
Deferred revenue..................................... 3,541 (652)
Other................................................ (60) (6)
------- -------
Net cash used in operating activities............. (1,373) (230)
------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (245) (14)
Proceeds from sale of investment.......................... 2,259 --
------- -------
Net cash provided by (used in) investing
activities...................................... 2,014 (14)
------- -------
Cash flows from financing activities:
Borrowings under line of credit........................... 114 --
Repayments of long-term debt.............................. (100) (18)
Repayments under line of credit........................... (164) (33)
------- -------
Net cash used in financing activities............. (150) (51)
------- -------
Net increase (decrease) in cash and cash equivalents...... 491 (295)
Cash and cash equivalents at beginning of period.......... 347 838
------- -------
Cash and cash equivalents at end of period................ $ 838 $ 543
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 118 $ 23
======= =======
Income taxes........................................... $ 314 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 91
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND JULY 30, 1997
1. THE COMPANY
Symmetrix, Inc. ("Symmetrix" or the "Company") offers enhanced services in
acquisition due diligence, customer profitability, information technology
strategy assessment and design, construction, and deployment of complete
business systems. Symmetrix primarily offers its services to the financial
services, health care and insurance industries.
On May 26, 1994, Symmetrix Capital Partners I Limited Partnership ("the
Partnership") was formed for the purpose of making investments in entities that
could benefit from the Company's management services. In the absence of any
dissolution events, as defined in the Partnership agreement, the Partnership
shall continue in existence until December 31, 2009, unless otherwise extended.
The Company is the general partner and a Class B Limited Partner. As of May 31,
1996, the Company had provided 74% of the Partnership's capital. During the year
ended May 31, 1995, certain Class B Limited Partners were admitted in place of a
portion of the Company's investment as a Class B Limited Partner. A total of
$125,000 was paid to the Company in return for this portion of the Company's
Class B Limited Partnership interest. To date, the Partnership has not generated
any revenues or expenses. Management intends to dissolve the Partnership.
2. 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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee, and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed. Deferred
revenue represents billings in excess of revenues recognized. Net revenues
exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
F-21
<PAGE> 92
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5-7 years
Equipment......................................... 3-5 years
Software.......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. For the year ended May 31, 1997, revenues to three
significant customers accounted for 69% of net revenues. Three customers
accounted for 84% of receivables, net of related deferred revenue at May 31,
1997.
Stock Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price not less than the fair value of the shares at the date of
grant and accounts for stock options granted to employees in accordance with the
provisions of Accounting Principle Board Opinion No. 25, Accounting for Stock
Issued to Employees.
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carryforwards. Deferred tax expense represents the change in the deferred tax
asset or liability balances.
3. INVESTMENT
The Company held an 8.5% investment in Olympic Manufacturing Group, Inc.
("Olympic"), a privately-held manufacturing company. The Company did not have a
controlling interest in Olympic and the investment was valued at cost. The
investment was sold during the year ended May 31, 1997 at a gain of $1,883,927.
F-22
<PAGE> 93
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment.......................................... $1,319 $1,321
Software........................................... 250 262
Furniture and fixtures............................. 230 230
Leasehold improvements............................. 69 69
------ ------
1,868 1,882
Less: accumulated depreciation..................... 1,457 1,495
------ ------
Property and equipment, net........................ $ 411 $ 387
====== ======
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable............................. $ 365 $ 175
Accrued payroll.................................... 320 463
Compensated absences............................... 220 258
Accrued compensation............................... -- 4,126
Profit sharing..................................... 1,234 1,234
Other.............................................. 456 517
------ ------
$2,595 $6,773
====== ======
</TABLE>
6. FINANCING ARRANGEMENTS
Notes Payable to Bank
The Company has a $1,800,000 unsecured line of credit with a bank that
expires on November 30, 1998. Borrowings under the line bear interest at the
bank's prime rate plus 1.0% (9.5% at July 30, 1997) and are limited to a
percentage of specified trade receivables. The agreement provides for an annual
commitment fee of 0.5% of the unused line. The Company had $1,000,000 available
under the line of credit at May 31, 1997 and July 30, 1997. On January 1, 1998,
the Company increased its unsecured line of credit with the bank to $2,000,000.
The line contains restrictive covenants relating to maintenance of financial
ratios, operating restrictions and restrictions on the payment of dividends.
The Company had a $220,000 unsecured declining demand line that expired on
July 1, 1997. The Company also has a $150,000 unsecured line of credit with a
bank that expires on August 31, 1998. Borrowings under the lines bear interest
at the bank's prime rate plus 1.0% (9.5% at May 31, 1997 and July 30, 1997). The
agreement provides for drawdowns through August 31, 1998, with the line
declining by $6,250 per month beginning on September 1, 1996.
F-23
<PAGE> 94
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Unsecured notes payable to former stockholders and
employees, issued in connection with the repurchase of the
Company's stock. Interest accrues at the lower of 10.0% or
prime (8.5% at May 31, 1997 and July 31, 1997), payable in
bi-annual installments with principal ranging from $1,152
to $8,960, through July 2002.............................. $ 191 $ 175
Unsecured note payable to a former stockholder issued in
connection with a non-competition agreement. Annual
payments of $120,000 are due through May 2010. Interest
accrues annually at 8.7%.................................. 951 951
Other....................................................... 34 32
------ ------
1,176 1,158
Less: current portion....................................... 128 128
------ ------
Long-term debt.............................................. $1,048 $1,030
====== ======
</TABLE>
Annual maturities of long-term debt for the fiscal years ending after July
30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $128
1999........................................................ 135
2000........................................................ 85
2001........................................................ 72
2002 and thereafter......................................... 738
------
$1,158
======
</TABLE>
7. INCOME TAXES
Deferred tax assets reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Reserves................................... $ 180 $ 40
Other accrued liabilities.................. 1,000 1,107
Net operating loss carryforwards........... 120 1,996
------- -------
Total............................ 1,300 3,143
Valuation allowance........................ (1,252) (3,114)
------- -------
Net deferred tax asset..................... 48 29
Deferred liability: depreciation........... (48) (29)
------- -------
Total net deferred tax asset..... $ 0 $ 0
======= =======
</TABLE>
The Company has approximately $5,819,000 of net operating loss
carryforwards which expire through the year 2012. The net operating loss
carryforwards arose principally as a result of disqualifying dispositions of the
Company's previously outstanding stock options. As a result of ownership
changes, these net operating losses are subject to limitations under the
Internal Revenue Code.
F-24
<PAGE> 95
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
8. RELATED PARTY TRANSACTIONS
On July 31, 1995, the Company entered into a non-compete agreement
("Agreement") with the then majority stockholder ("Stockholder") in conjunction
with the Stockholder's sale of his holdings in the Company's common stock to a
non-affiliated third party. The Company capitalized the value of the Agreement,
$986,000, and is amortizing the amount on a straight-line basis over the life of
the Agreement. At May 31, 1997 and July 30, 1997, the carrying amounts were
$546,000 and $493,000, respectively, and were included in other assets on the
balance sheet.
9. LEASES
The Company leases its office facility under an operating lease which
expires in April 2002 and has a 5-year renewal option. The lease requires
payments for additional expenses such as taxes, maintenance and utilities. Total
facility rent expense for the year ended May 31, 1997 and for the period June 1,
1997 through July 30, 1997 was approximately $751,000 and $148,000,
respectively.
Future minimum lease payments under noncancelable operating leases, for the
fiscal years ending after July 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $887
1999................................................ 887
2000................................................ 887
2001................................................ 887
2002 and thereafter................................. 665
------
Total minimum lease payments................. $4,213
======
</TABLE>
10. STOCKHOLDERS' EQUITY
Stock Option Plan
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees. The Plan provided for a maximum of 1,415,298 shares of
common stock of the Company to be granted over ten years from the date the Plan
was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for the stockholders having ownership in excess of 10%). The non-qualified
options are exercisable in accordance with the terms agreed for each option
granted.
During the year ended May 31, 1997, the Company granted 112,000 options
with exercise prices equal to or exceeding the fair market value at the date of
grant of the Company's common stock, ranging from $2.55 to $5.05. There were
1,025,558 stock options outstanding at May 31, 1997. No stock options were
granted during the two months ended July 30, 1997.
In July 1997, the Board of Directors approved a stock option repurchase
plan whereby all of the outstanding stock options were canceled. The repurchase
amount was accrued at July 30, 1997 at a cost of $4,126,000, which was charged
to operations in the two months ended July 30, 1997. As a result, no stock
F-25
<PAGE> 96
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
options were outstanding at July 30, 1997. Accordingly, the disclosure of pro
forma net loss required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation has not been presented because such
information is not deemed to be meaningful. The Plan will expire by its own
terms on September 20, 1998.
11. RETIREMENT SAVINGS PLAN
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit of all
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the Retirement Plan subject to limitations established by
the Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. The Company made
contributions to the Retirement Plan of $139,000 for the year ended May 31,
1997. There were no contributions to the Retirement Plan by the Company for the
period from June 1, 1997 through July 30, 1997.
12. SUBSEQUENT EVENT
Effective July 30, 1997, all of the outstanding stock of the Company was
acquired by Nextera Enterprises, L.L.C. for cash of $15,500,000.
F-26
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Symmetrix, Inc.
Lexington, Massachusetts
We have audited the accompanying consolidated balance sheet of Symmetrix,
Inc. and subsidiaries as of May 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Symmetrix, Inc.
and subsidiaries at May 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO SEIDMAN
Boston, Massachusetts
July 19, 1996
F-27
<PAGE> 98
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 347
Accounts receivable, net of allowance for doubtful
accounts of $62........................................ 2,837
Refundable income taxes................................... 402
Other receivables......................................... 198
Prepaid expenses.......................................... 186
Investment................................................ 500
Deferred income taxes..................................... 44
------
Total current assets.............................. 4,514
Property and equipment, net................................. 427
Covenant not to compete, net of accumulated amortization of
$192...................................................... 794
Deposits.................................................... 47
------
Total assets...................................... $5,782
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank..................................... $ 164
Accounts payable.......................................... 341
Accrued expenses.......................................... 1,550
Deferred revenue.......................................... 261
Current maturities of long-term debt...................... 122
------
Total current liabilities......................... 2,438
Long-term debt, less current maturities..................... 1,152
Deferred income taxes....................................... 32
------
Total liabilities................................. 3,622
Minority interest in consolidated subsidiary................ 125
Commitments (Notes 9 and 11)
Stockholders' equity:
Common stock, $0.01 par value, 10,000,000 shares
authorized,
1,216,921 shares outstanding........................... 12
Additional paid-in capital................................ 995
Retained earnings......................................... 1,028
------
Total stockholders' equity........................ 2,035
------
Total liabilities and stockholders' equity........ $5,782
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 99
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Net revenues................................................ $19,237
Cost of revenues............................................ 9,015
-------
Gross profit........................................... 10,222
Selling, general and administrative expenses................ 10,547
-------
Loss from operations................................... (325)
Interest income............................................. 46
Interest expense............................................ (102)
-------
Net loss before income tax benefit..................... (381)
Income tax benefit.......................................... 247
-------
Net loss............................................... $ (134)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 100
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
---------------------- CAPITAL IN CURRENCY TOTAL
NUMBER OF EXCESS OF RETAINED TREASURY TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE PAR EARNINGS STOCK ADJUSTMENT EQUITY
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1995... 1,877,215 $ 18 $ 1,345 $1,162 $(318) $ 12 $2,219
Shares contributed by
shareholder............. (595,294) (6) 6 -- -- -- 0
Purchase and retirement of
shares.................. (15,000) -- (38) -- -- -- (38)
Retirement of treasury
stock................... (50,000) -- (318) -- 318 -- --
Foreign currency
translation
adjustment.............. -- -- -- -- -- (12) (12)
Net loss.................. -- -- -- (134) -- -- (134)
---------- ---- ------- ------ ----- ---- ------
Balance at May 31, 1996... 1,216,921 $ 12 $ 995 $1,028 -- -- $2,035
========== ==== ======= ====== ===== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 101
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (134)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on disposal of property and equipment............. (48)
Provision for doubtful accounts........................ 214
Depreciation and amortization.......................... 153
Deferred income taxes.................................. 225
Changes in operating assets and liabilities:
Accounts receivables................................. (1,003)
Refundable income taxes.............................. (381)
Other receivables.................................... (83)
Prepaid expenses..................................... (140)
Other assets......................................... 14
Accounts payable..................................... 78
Accrued expenses..................................... (183)
Deferred revenue..................................... (45)
--------
Net cash used in operating activities............. (1,333)
--------
Cash flows from investing activities:
Proceeds from disposal of property and equipment.......... 69
Purchase of property and equipment........................ (227)
--------
Net cash used in investing activities............. (158)
--------
Cash flows from financing activities
Repayment of obligations under capital lease.............. (16)
Borrowings under line of credit........................... 589
Repayments of line of credit.............................. (425)
Proceeds from issuance of notes payable................... 94
Repayments of notes payable............................... (73)
Purchase of treasury stock................................ (7)
--------
Net cash provided by financing activities......... 162
Effect of exchange rate fluctuations on cash and cash
equivalents............................................ (12)
--------
Net decrease in cash and cash equivalents................. (1,341)
Cash and cash equivalents at beginning of year............ 1,688
--------
Cash and cash equivalents at end of year.................. $ 347
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 102
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
1. THE COMPANY
Symmetrix, Inc. ("Symmetrix" or the "Company") offers enhanced services in
acquisition due diligence, customer profitability, information technology
strategy assessment and design construction, and deployment of complete business
systems. Symmetrix primarily offers its services to the financial services,
health care and insurance industries.
On May 26, 1994, Symmetrix Capital Partners I Limited Partnership ("the
Partnership") was formed for the purpose of making investments in entities that
could benefit from the Company's management services. In the absence of any
dissolution events, as defined in the Partnership agreement, the Partnership
shall continue in existence until December 31, 2009, unless otherwise extended.
The Company is the general partner and a Class B Limited Partner. As of May 31,
1996, the Company had provided 74% of the Partnership's capital. During the year
ended May 31, 1995, certain Class B Limited Partners were admitted in place of a
portion of the Company's investment as a Class B Limited Partner. A total of
$125,000 was paid to the Company in return for this portion of the Company's
Class B Limited Partnership interest. To date, the Partnership has not generated
any revenues or expenses.
On January 1, 1995, Symmetrix European Holdings, Inc. ("Symmetrix
Holdings") (a Delaware corporation) and Symmetrix Europe, SA ("Symmetrix
Europe") (a French corporation) were formed for the purpose of conducting
business in Europe. The Company holds 80% of the outstanding stock of Symmetrix
Holdings, which holds 99.9% of the outstanding stock of Symmetrix Europe.
Activity for these subsidiaries has been consolidated into the Company's
financial statements for the year ended May 31, 1996. In November 1995, the
Board of Directors approved the abandonment of the operating activities of
Symmetrix Holdings and Symmetrix Europe.
The Partnership, Symmetrix Holdings and Symmetrix Europe have calendar
year-ends and thus for purposes of consolidation, the accounts of these
subsidiaries are based on a period which corresponds with the fiscal period of
the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates and assumptions.
Foreign Currency Translation and Transaction Gains and Losses
Assets and liabilities of the Company's foreign operation are translated
into U.S. dollars at the exchange rate in effect as of the balance sheet date
and revenue and expenses are translated at average exchange rates during the
period. The resultant translation adjustment is reflected as a separate
component of stockholders' equity. Transaction gains and losses are reflected in
the consolidated statement of operations.
F-32
<PAGE> 103
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues earned. Revenues include reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposit
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost which approximates market value. The Company's cash equivalents
consist of an overnight repurchase agreement that is managed by a financial
institution with a strong credit rating. Accordingly, management believes the
investment is subject to minimal credit and market risk.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures........................... 5-7 years
Equipment........................................ 3-5 years
Software......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair values based on short-term maturities of these instruments. The carrying
value of long-term debt approximates its fair value based on references to
similar instruments.
Concentration of Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Sales to four significant customers accounted for
14%, 14%, 13% and 13%, respectively, of revenues for the year ended May 31,
1996.
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carryforwards. Deferred tax expense represents the change in the deferred tax
asset or liability balances.
F-33
<PAGE> 104
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
3. INVESTMENT
The Partnership has an investment in Olympic Manufacturing Group, Inc.
("Olympic"), a privately held manufacturing company. The Company does not have a
controlling interest in Olympic and the investment is carried at cost. The value
of $499,966 does not necessarily represent an amount which would be realized
upon the sale or other disposition of the investment.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Equipment...................................... $ 1,083
Computer software.............................. 248
Furniture and fixtures......................... 223
Leasehold improvements......................... 68
--------------
1,622
Less: accumulated depreciation and
amortization................................. 1,195
--------------
Property and equipment, net.................... $ 427
==============
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Accrued profit sharing......................... $ 710
Accrued compensation........................... 380
Other.......................................... 460
------
$1,550
======
</TABLE>
For the year ended May 31, 1996, the Company made distributions to
employees under a discretionary profit-sharing plan amounting to $723,499.
6. FINANCING ARRANGEMENTS
Short-term Borrowings -- Lines of Credit
The Company has a $220,000 unsecured declining demand line of credit that
expires on July 1, 1997. Borrowing under the line bear interest at the bank's
prime rate plus 1% (9.25% at May 31, 1996). The agreement provides for drawdowns
through September 30, 1995 with the line declining by $10,000 per month
beginning on October 1, 1995. As of May 31, 1996, the Company had borrowings
outstanding of $164,025.
In addition, the Company has a $1,000,000 unsecured line of credit with a
bank. Borrowing under the line bear interest at the bank's prime rate plus 1%
(9.25% at May 31, 1996) and are limited to an advance rate of specified trade
receivables. The agreement provides for a commitment fee of 0.5% of unused line.
The maximum borrowings outstanding during the year were $374,129. There were no
borrowings outstanding at May 31, 1996.
F-34
<PAGE> 105
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Secured installment note, interest at 8.69%. Principal and
interest payments are payable in equal annual installments
of $120,000 through August 2010. As security, the Company
pledged and granted the stockholder a security interest in
all of its rights, title and interest in all the shares of
capital stock of another entity in which the stockholder
has an equity interest (See Note 12)...................... $ 985
Secured installment note, interest at 13.3%. Principal and
interest payments are payable in equal monthly
installments of $1,106 through March, 2000. The note is
secured by a copier with a net book value of $55,638 at
May 31, 1996.............................................. 42
Unsecured note payable to a former stockholders issued in
connection with the repurchase of the Company's stock.
Principal payments range from $3,600 to $7,560 bi-annually
and are payable through July, 2000. Interest accrues at
the lower of 10% or prime (8.25% at May 31, 1996)......... 148
Unsecured note payable to a former employee issued in
connection with a bonus. Principal of $8,960 plus accrued
interest is payable semi-annually in January and July with
final payment due in January, 1999. Interest accrues at
the lower of 10 percent or prime (8.25% at May 31,
1996)..................................................... 54
Unsecured note payable to a former employee issued in
connection with a non-compete agreement. Semi-annual
principal payments of $5,000 are due through July, 2000.
Interest accrues at the lower of 10 percent or prime
(8.25% at May 31, 1996)................................... 45
------
1,274
Less: current maturities.................................... 122
------
Long-term debt.............................................. $1,152
======
</TABLE>
Annual maturities of long-term debt for the fiscal years ending after May
31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................... $ 122
1998........................................... 127
1999........................................... 116
2000........................................... 72
2001........................................... 56
Thereafter..................................... 781
------
$1,274
======
</TABLE>
F-35
<PAGE> 106
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
CURRENT:
Federal...................................... $ (434)
State........................................ (38)
------
(472)
------
DEFERRED:
Federal...................................... 172
State........................................ 53
------
225
------
Income tax benefit............................. $ (247)
======
</TABLE>
The difference between the effective tax rate and the statutory tax rate of
34% relates primarily to the worthlessness of Symmetrix Europe stock.
Deferred tax assets relate to receivable and liability reserves. The
deferred tax liability relates to the basis difference of property and
equipment.
8. RELATED PARTY TRANSACTION
The Company entered into a contract with Olympic and provided services
through February 1996. The Company bills Olympic on a monthly basis at cost for
the time and materials incurred on the project. The total costs reimbursed on
the project were approximately $95,000 for the year ended May 31, 1996.
9. LEASES
The Company leases its office facility under an operating lease which
expires in April 2002 and has a 5-year renewal option. The lease requires
payments for additional expenses such as taxes, maintenance and utilities. Total
facility rent expense for the year ended May 31, 1996 was approximately
$783,000. Future minimum lease payments under this noncancelable operating lease
for the fiscal years ending after May 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................... $ 824
1998........................................... 824
1999........................................... 824
2000........................................... 824
2001........................................... 824
Thereafter..................................... 755
------
Total minimum lease payments......... $4,875
======
</TABLE>
10. STOCKHOLDERS' EQUITY
On July 31, 1995, a stockholder contributed 595,294 shares of common stock
in conjunction with his sale of an equivalent number of shares of capital stock.
In addition, on July 31, 1995, the Board of Directors authorized an increase in
the authorized shares of common stock from 2,352,020 shares to 10,000,000
shares.
F-36
<PAGE> 107
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
During the year ended May 31, 1996, the Company purchased 15,000 shares of
its common stock from a former employee for $38,250. Notes payable in the amount
of $30,600 were issued in connection with the purchase of the shares. In
addition, during the year ended May 31, 1996 the 15,000 shares purchased above,
and the 50,000 shares of common stock held as treasury stock at May 31, 1995, as
well as the 595,294 shares contributed above, were canceled and common stock and
additional paid-in capital were accordingly reduced by $6,604 and $349,439,
respectively.
Stock Option Plan
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees. The plan provided for a maximum of 1,415,298 shares of
common stock of the Company to be granted over ten years from the date the Plan
was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for the stockholders having ownership in excess of 10%). The non-qualified
options are exercisable in accordance with the terms agreed for each option
granted.
During the year ended May 31, 1996, the Company amended the Plan. Stock
option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE
<S> <C> <C> <C> <C>
Outstanding, May 31, 1995................. 311,600 $2.80 - $6.85
Granted................................... 1,010,408 2.55
Canceled.................................. (251,600) 2.80-6.85
Redeemed.................................. (77,350) 2.55
------------- ---------------
Outstanding, May 31, 1996................. 993,058 $2.80 - $2.90
============= ===============
</TABLE>
With respect to the redemption of 77,350 stock options during the year
ended May 31, 1996, the Company recognized $197,243 of compensation expense.
At May 31, 1996, 473,379 options were exercisable and 142,041 shares were
available for future grant. In addition, an additional 280,199 shares are
available for grant if the Company meets certain growth targets in accordance
with a Preemptive Rights Agreement.
11. RETIREMENT SAVINGS PLAN
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit of all
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the Retirement Plan subject to limitations established by
the Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. There were no
contributions to the plan by the Company during the year ended May 31, 1996.
F-37
<PAGE> 108
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
12. COVENANT NOT TO COMPETE
On July 31, 1995, the Company entered into a noncompete agreement (the
"Noncompete Agreement") with the then majority stockholder (the "Stockholder")
in conjunction with the Stockholder selling a portion of his holdings of the
Company's common stock to a non-affiliated third party. The Noncompete Agreement
provides for, among other things, that the Stockholder not compete, as defined
with the Company through August 22, 1999. In consideration of the covenants and
agreements contained within the Noncompete Agreement, the Company agreed to pay
an aggregate of $1,800,000 in equal annual installments of $120,000 through May
2010. The Company capitalized the value of the Noncompete Agreement at $985,000
and is amortizing the amount on a straight-line basis over the life of the
Noncompete Agreement. As security for the payment and performance of all payment
obligations under the Noncompete Agreement, the Company pledged and granted the
Stockholder a security interest in all of its rights, title and interest in all
of its shares of capital stock of another entity in which the Stockholder has an
equity interest.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Payments for interest and income taxes amounted to $31,526 and $21,484,
respectively, for the year ended May 31, 1996.
During the year ended May 31, 1996, the Company issued notes payable in
exchange for the purchase of treasury stock for $30,600.
14. SUBSEQUENT EVENTS
On July 1, 1996, the Company obtained a $150,000 unsecured declining demand
line of credit for acquiring equipment that expires on August 31, 1998.
Borrowings under the line bear interest at the bank's prime rate plus 1%. The
agreement provides for drawdowns through August 31, 1996 with the line declining
by $6,250 per month beginning on September 1, 1996.
F-38
<PAGE> 109
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Symmetrix, Inc.
In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all material respects,
the results of operations and the cash flows of Symmetrix, Inc. and Subsidiaries
for the year ended May 31, 1995 in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 21, 1995
F-39
<PAGE> 110
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C>
Revenues.................................................... $20,080
Cost of revenues............................................ 9,942
-------
Gross profit.............................................. 10,138
Selling, general and administrative expenses................ 10,115
-------
Income from operations................................. 23
Interest expense............................................ (24)
Interest income............................................. 51
-------
Income before provision for income taxes............... 50
Provision for income taxes.................................. 222
-------
Net loss............................................... $ (172)
=======
Net loss per share, basic and diluted....................... $ (0.10)
=======
Weighted average shares outstanding, basic and diluted...... 1,785
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 111
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
-------------------- CAPITAL IN CURRENCY TOTAL
NUMBER PAR EXCESS OF RETAINED TREASURY TRANSLATION STOCKHOLDERS'
OF SHARES VALUE OF PAR EARNINGS STOCK ADJUSTMENT EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1994.......... 1,832,215 $ 19 $ 1,344 $ 1,334 $ (284) $ -- $ 2,413
Acquisition of treasury
stock........................ -- -- -- -- (34) -- (34)
Foreign currency translation... -- -- -- -- -- 12 12
Net loss....................... -- -- -- (172) -- -- (172)
--------- -------- ---------- ---------- --------- -------- ----------
Balance at May 31, 1995.......... 1,832,215 $ 19 $ 1,344 $ 1,162 $ (318) $ 12 $ 2,219
========= ======== ========== ========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 112
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (172)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 206
Deferred income taxes.................................. (4)
Change in operating assets and liabilities:
Accounts receivable.................................. 116
Other current assets................................. 52
Income taxes receivable.............................. 123
Other assets......................................... (14)
Accounts payable and accrued expenses................ 197
Deferred revenue..................................... (287)
------
Net cash provided by operating activities......... 217
Cash flows from investing activities:
Purchase of fixed assets.................................. (64)
------
Net cash used in investing activities............. (64)
Cash flows from financing activities:
Repayments under capital leases........................... (46)
Repayments of notes payable............................... (63)
Purchase of treasury stock................................ (34)
Proceeds from transfer of partnership interests........... 125
------
Net cash used in financing activities............. (18)
Effect of exchange rate fluctuations on cash and cash
equivalents............................................... 12
------
Net increase in cash and cash equivalents......... 147
Cash and cash equivalents, beginning of year.............. 1,541
------
Cash and cash equivalents, end of year.................... $1,688
======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 39
======
Taxes.................................................. $ 104
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 113
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. THE COMPANY
Symmetrix, Inc. ("Symmetrix" or the "Company"), offers enhanced services in
acquisition due diligence, customer profitability, information technology
strategy assessment and design, construction, and deployment of complete
business systems. Symmetrix primarily offers its services to the financial
services, health care and insurance industries.
On May 26, 1994, Symmetrix Capital Partners I Limited Partnership (the
"Partnership") was formed for the purpose of making investments in entities that
could benefit from the Company's management services. In the absence of any
dissolution events, as defined in the partnership agreement, the Partnership
shall continue in existence until December 31, 2009, unless otherwise extended.
The Company is the general partner and a Class B Limited Partner. As of May 31,
1995, the Company had provided 74% of the Partnership's capital. During fiscal
year 1995, certain Class B Limited Partners were admitted in place of a portion
of the Company's investment as a Class B Limited Partner. A total of $125,000
was paid to the Company in return for this portion of the Company's Class B
Limited Partnership interest. To date, the Partnership has not generated any
income, loss or expenses.
On January 1, 1995, Symmetrix European Holdings, Inc. ("Symmetrix
Holdings") (a Delaware corporation company) and Symmetrix Europe, SA ("Symmetrix
Europe") (a French corporation) were formed for the purpose of conducting
business in Europe. The Company holds 80% of the outstanding stock of Symmetrix
Holdings, which holds 99.9% of the outstanding stock of Symmetrix Europe.
Activity for these subsidiaries has been consolidated into the Company's
financial statements for the year ended May 31, 1995.
The Partnership, Symmetrix Holdings and Symmetrix Europe have calendar
year-ends and thus for purposes of consolidation, the accounts of these
subsidiaries are based on a period which corresponds with the fiscal period of
the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Foreign Currency Translation and Transaction Gains and Losses
Assets and liabilities of the Company's foreign operation are translated
into U.S. dollars at the exchange rate in effect as of the balance sheet date
and revenues and expenses are translated at average exchange rates during the
period. The resultant translation adjustment is reflected as a separate
component of stockholders' equity on the balance sheet. Transaction gains and
losses are reflected in the consolidated statement of operations.
F-43
<PAGE> 114
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues recognized. Revenues include reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposit
accounts. The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost which approximates market value. The Company's investments
consist of an overnight repurchase agreement that is managed by a financial
institution with a strong credit rating. Accordingly, the investment is subject
to minimal credit and market risk.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 5-7 years
Equipment................................................... 3-5 years
Software.................................................... 3 years
</TABLE>
Amortization expense related to equipment under capital leases was $18,934
for the year ended May 31, 1995.
Concentration of Credit Risk and Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Sales to two significant customers accounted for 26%
and 12%, respectively, of revenues for the year ended May 31, 1995.
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carryforwards. Deferred tax expense represents the change in the deferred tax
asset or liability balances.
F-44
<PAGE> 115
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
3. PROFIT SHARING PLAN
Commencing in 1990, the Company made distributions to employees under a
discretionary profit sharing plan. Profit sharing expense was $396,716 in 1995.
4. TREASURY STOCK
During 1995, the Company purchased 5,000 shares of its common stock from a
former employee for $34,262. During 1994, the Company purchased 45,000 shares of
its common stock from three former employees (the "1994 shares") for $283,500.
Notes payable in the amount of $226,800 were issued in connection with the
purchase of the 1994 shares. The shares have been held in treasury at cost and
it is the Company's intention that these shares be available for issuance under
the 1988 Stock Option Plan.
5. STOCK OPTIONS
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees of the Company. The Plan currently provides for a maximum
of 516,800 shares of common stock of the Company to be granted over ten years
from the date the Plan was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for stockholders having ownership in excess of 10%). The non-qualified options
are exercisable in accordance with the terms agreed for each option granted.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE
<S> <C> <C>
Outstanding, May 31, 1994.................... 318,700 $2.80-$6.80
Granted.................................... 4,000 6.85
Forfeited.................................. (11,100) 6.30
------- -----------
Outstanding, May 31, 1995.................... 311,600 $2.80-$6.85
======= ===========
</TABLE>
At May 31, 1995, 205,000 options were exercisable and 205,200 shares were
available for future grant.
F-45
<PAGE> 116
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
6. INCOME TAXES
The provision (benefit) for federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS)
<S> <C>
Current:
Federal.............................................. $173
State................................................ 53
Deferred:
Federal.............................................. (3)
State................................................ (1)
----
$222
====
</TABLE>
The Company has gross deferred tax assets at May 31, 1995 of approximately
$401,000, net of a valuation reserve of $156,500 described below. The Company
has gross deferred tax liabilities at May 31, 1995 of approximately $8,000.
Deferred income taxes reflect the effect of temporary differences between
the tax basis of assets and liabilities and the reported amounts of assets and
liabilities for financial reporting purposes net of any valuation allowances.
The components of deferred taxes consist primarily of temporary differences
arising from accrued expenses and deferred revenue that are deductible or
taxable in future tax reporting periods.
The following is a reconciliation between the amount of reported income tax
expense and the amount computed using the statutory rate of 35% for fiscal 1995:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS)
<S> <C>
Statutory federal rate................................. $ 18
State taxes, net of federal benefit.................... 34
Valuation allowance.................................... 156
Permanent differences.................................. 14
----
$222
====
</TABLE>
Symmetrix Europe reported a net operating loss of approximately $447,000
which expires in the year 2000. The Company has recorded a full valuation
allowance at May 31, 1995 on the deferred tax asset, and therefore no benefit
for the loss carryforward has been recognized since realization of these future
benefits is not sufficiently assured.
7. RELATED PARTY TRANSACTIONS
The Company entered into a contract with Olympic Manufacturing Group, Inc.
("Olympic"), in which the Company has an investment as of May 31, 1995. The
Company bills Olympic on a monthly basis at cost for the time and materials
incurred on the project. The total costs reimbursed on the project were
approximately $80,000 for the year ended May 31, 1995.
Interest expense of $24,215 was related to loans from former shareholders.
F-46
<PAGE> 117
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
8. LEASES
The Company leases office space under a noncancelable operating lease. The
Company amended the lease on January 11, 1994 for additional space. The lease
expired in 1995 and the Company exercised an option to extend the lease for two
years. The lease requires the Company to pay a proportionate share of the
building operating costs and real estate taxes that exceed a base amount as
additional rent. Rental expense under the operating leases was approximately
$734,300 for the year ended May 31, 1995. Future minimum lease payments under
the operating lease as of May 31, 1995 consist of approximately $778,000 due in
fiscal year 1996 and approximately $713,000 due in fiscal year 1997.
Additionally, the Company leases certain office and computer equipment under
capital leases. At May 31, 1995, capital lease obligations, including interest,
are $17,591.
F-47
<PAGE> 118
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SiGMA Consulting, LLC
We have audited the accompanying balance sheets of SiGMA Consulting, LLC
(the Company) as of December 31, 1996 and 1997, and the related statements of
income, members' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SiGMA Consulting, LLC at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
August 31, 1998
F-48
<PAGE> 119
SIGMA CONSULTING, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1996 1997
(IN THOUSANDS, EXCEPT
UNIT DATA)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $0 and $314 at December 31, 1996 and 1997,
respectively........................................... $1,831 $2,931
Costs and estimated earnings in excess of billings........ 25 42
Due from affiliates....................................... 34 48
------ ------
Total current assets.............................. 1,890 3,021
Property and equipment, net................................. 55 164
Other assets................................................ 13 40
------ ------
Total assets...................................... $1,958 $3,225
====== ======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Overdraft liability....................................... $ 212 $ 267
Accounts payable and accrued expenses..................... 192 1,091
Note payable to bank...................................... 375 --
Due to affiliates......................................... 130 --
Deferred revenue.......................................... -- 389
Distributions payable..................................... -- 114
------ ------
Total current liabilities......................... 909 1,861
Other liabilities........................................... -- 98
Members' equity:
Member units, no par value, 100,503 units authorized,
100,503 and 88,137 units issued and outstanding at
December 31, 1996 and 1997, respectively............... 206 207
Retained earnings......................................... 843 1,059
------ ------
Total members' equity............................. 1,049 1,266
------ ------
Total liabilities and members' equity............. $1,958 $3,225
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 120
SIGMA CONSULTING, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $5,617 $7,455 $10,051
Cost of revenues............................................ 4,946 5,431 7,552
------ ------ -------
Gross profit...................................... 671 2,024 2,499
Selling, general and administrative expenses................ 780 1,092 1,151
------ ------ -------
Income (loss) from operations..................... (109) 932 1,348
Interest income............................................. (2) (4) (7)
Interest expense............................................ 19 37 34
------ ------ -------
Net income (loss)................................. $ (126) $ 899 $ 1,321
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 121
SIGMA CONSULTING, LLC
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK MEMBER UNITS
---------------- ----------------- RETAINED TOTAL
SHARES AMOUNT UNITS AMOUNT EARNINGS EQUITY
(IN THOUSANDS, EXCEPT SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... 9,500 $ 1 -- $ -- $ 326 $ 327
Net loss......................... -- -- -- -- (121) (121)
------ --- ------- ---- ------ ------
Balance at December 31, 1995....... 9,500 1 -- -- 205 206
Reorganization as an LLC......... (9,500) (1) 100,503 206 (205) --
Dividends........................ -- -- -- -- (56) (56)
Net income....................... -- -- -- -- 899 899
------ --- ------- ---- ------ ------
Balance at December 31, 1996....... -- -- 100,503 206 843 1,049
Redemption of member units....... -- -- (12,366) (2) (312) (314)
Dividends........................ -- -- -- -- (790) (790)
Net income....................... -- -- -- -- 1,321 1,321
------ --- ------- ---- ------ ------
Balance at December 31, 1997....... 0 $ 0 88,137 $204 $1,062 $1,266
====== === ======= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 122
SIGMA CONSULTING, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $(126) $ 899 $ 1,321
Adjustments to reconcile net (loss) income to net cash
provided by
(used in) operating activities:
Depreciation........................................... 17 21 43
Change in operating assets and liabilities:
Accounts receivable.................................. (392) (607) (1,100)
Costs and estimated earnings in excess of billings... 36 48 (17)
Overdraft liability.................................. (231) 102 55
Accounts payable and accrued expenses................ 172 (149) 899
Due from affiliate................................... (48) 14 (14)
Deferred revenue..................................... 218 (368) 389
Other................................................ (13) 7 (27)
----- ----- -------
Net cash provided by (used in) operating
activities...................................... (367) (33) 1,549
----- ----- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (33) (15) (53)
----- ----- -------
Net cash used in investing activities............. (33) (15) (53)
----- ----- -------
Cash flows from financing activities:
Redemption of members' units.............................. -- -- (315)
Due to affiliate.......................................... -- 130 (130)
Proceeds from (repayments of) note payable................ 400 (26) (375)
Dividends................................................. -- (56) (676)
----- ----- -------
Net cash provided by (used in) financing
activities...................................... 400 48 (1,496)
----- ----- -------
Net change in cash........................................ -- -- --
Cash at beginning of year................................. -- -- --
----- ----- -------
Cash at end of year....................................... $ -- $ -- $ --
===== ===== =======
Non-cash transactions:
Capital lease obligations................................. $ -- $ -- $ 98
===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 123
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
SiGMA Consulting, LLC ("SiGMA" or the "Company") offers consulting services
focusing on change management and helping organizations improve core business
processes, including product development, manufacturing and distribution, sales,
and enterprise management. SiGMA primarily offers its services to the
manufacturing, high technology, entertainment, and transportation industries.
Effective January 1, 1996, SiGMA was formed as a successor company to SiGMA
Consulting, Inc. The results of operations for the twelve month period ended
December 31, 1995 are for SiGMA Consulting, Inc. Upon formation, the assets and
liabilities previously held by SiGMA Consulting, Inc. were assumed by SiGMA.
2. 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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company primarily derives its revenues from consulting services under
time and materials, capped-fee and fixed-price billing arrangements. Under time
and material arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenue recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues recognized. Net revenues exclude reimbursable expenses charged to
clients.
Property and Equipment
Property and equipment are stated at cost. Depreciation has been provided
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures........................... 5-7 years
Equipment........................................ 3-5 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property, whichever is shorter.
Financial Instruments
The carrying value of financial instruments such as accounts receivable,
accounts payable and accrued expenses and notes payable to bank approximate
their fair values based on the short-term maturities of these instruments.
F-53
<PAGE> 124
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Revenues from three significant customers accounted
for 62%, 49% and 49% of net revenues for the years ended December 31, 1995, 1996
and 1997, respectively. Two customers accounted for 31% and 52% of total
receivables, as of December 31, 1996 and 1997, respectively.
Income Taxes
The Company is treated as a partnership for federal and state income tax
purposes. Therefore, all items of income, expense, and tax credit are passed
through to the individual unit holders. Accordingly, no provision for income
taxes is required. No tax provision was recorded for the year ended December 31,
1995 for SiGMA Consulting, Inc. as the Company was in a net loss position.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment.................................................. $101 $ 250
Furniture and fixtures..................................... 9 12
Leasehold improvements..................................... 2 2
---- -----
112 264
Less: accumulated depreciation............................. 57 100
---- -----
Property and equipment, net................................ $ 55 $ 164
==== =====
</TABLE>
Equipment includes an asset acquired under a capital lease for $98,000 in
1997.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable.................................... $ 49 $ 37
Accrued pension........................................... 125 162
Accrued bonuses........................................... -- 664
Accrued contractor fees................................... 10 201
Other..................................................... 8 27
---- ------
$192 $1,091
==== ======
</TABLE>
5. FINANCING ARRANGEMENTS
Note Payable to Bank
The Company had a line of credit with a bank, providing the lesser of
$1,000,000 or 75% of eligible trade receivables. The line of credit was secured
by substantially all of the assets of the Company and expired in
F-54
<PAGE> 125
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
February 1998. Borrowings under the line bear interest at the bank's prime rate
plus 0.75% (9.25% at December 31, 1996 and 1997).
In February 1998, the Company renewed its line of credit with the bank
("New Line"), which will provide the lesser of $1,000,000 or 65% of eligible
trade receivables. The New Line is secured by substantially all of the assets of
the Company and has no expiration date. Borrowings under the line bear interest
at the bank's prime rate plus 0.75%.
6. EMPLOYEE BENEFITS
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit all employees
meeting certain minimum service requirements. Eligible employees may elect to
contribute to the Retirement Plan subject to limitations established by the
Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. The total cost
recognized under the Retirement Plan during the years ended December 31, 1995,
1996 and 1997 amounted to approximately $177,000, $224,000 and $303,000,
respectively.
7. RELATED PARTY TRANSACTIONS
During 1997, the Company paid legal fees totaling $34,000 on the behalf of
certain members of the Company. At December 31, 1997, this amount was included
on the balance sheet as due from affiliate.
During 1996, the Company received advances totaling $130,000 from certain
members of the Company. At December 31, 1996, this amount was included on the
balance sheet as a due to affiliate. The advances were non-interest bearing and
were repaid in 1997.
During 1995, the Company made a non-interest bearing $40,000 loan to a
shareholder. At December 31, 1996, $34,000 was outstanding, which was repaid in
1997.
8. SUBSEQUENT EVENT
Effective January 5, 1998, the Company agreed to be acquired by Nextera
Enterprises, L.L.C. for cash of $10,000,000 and 669,000 Class A Common Units, as
well as the assumption of certain liabilities.
F-55
<PAGE> 126
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
The Planning Technologies Group, Inc.
Lexington, Massachusetts
We have audited the accompanying balance sheets of The Planning
Technologies Group, Inc. as of December 31, 1996 and 1997 and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Planning Technologies
Group, Inc. at December 31, 1996 and 1997, and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
HARTE CARUCCI & DRISCOLL, P.C.
Woburn, Massachusetts
February 19, 1998, except for Note 8,
which is April 4, 1998.
F-56
<PAGE> 127
THE PLANNING TECHNOLOGIES GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
------------------ -----------
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 262 $ 92 $ 959
Accounts receivable....................................... 662 1,663 855
Accounts receivable-other................................. -- 78 36
Interest receivable....................................... -- 1 3
Prepaid expenses.......................................... 34 29 25
------ ------ ------
Total current assets.............................. 958 1,863 1,878
Property and equipment, net................................. 225 226 230
Security deposits........................................... 108 78 78
------ ------ ------
Total assets...................................... $1,291 $2,167 $2,186
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1 $ 6 $ 150
Accrued expenses.......................................... 196 564 775
Deferred revenue.......................................... 209 506 143
------ ------ ------
Total current liabilities......................... 406 1,076 1,068
Commitments and contingencies............................... -- -- --
Stockholders' equity:
Common stock, no par value, $1.00 stated value, 200,000
shares authorized, 126, 136 and 136 shares issued and
126, 136 and 126 shares outstanding at December 31,
1996, December 31, 1997 and March 31, 1998,
respectively........................................... 0 0 0
Additional paid-in-capital................................ 86 140 140
Retained earnings......................................... 799 951 1,278
Less: 10 shares held in treasury, at cost................. -- -- (300)
------ ------ ------
Total stockholders' equity........................ 885 1,091 1,118
------ ------ ------
Total liabilities and stockholders' equity........ $1,291 $2,167 $2,186
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 128
THE PLANNING TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues............................................ $4,534 $5,244 $1,398 $1,700
Cost of revenues........................................ 3,579 4,036 1,029 1,125
------ ------ ------ ------
Gross profit.................................. 955 1,208 369 575
General and administrative expense...................... 887 941 231 259
------ ------ ------ ------
Income from operations........................ 68 267 138 316
Loss on disposal of equipment........................... (3) (21) -- (1)
Interest income......................................... 36 42 4 12
------ ------ ------ ------
Net income.................................... 101 288 142 327
Retained earnings, beginning of period.................. 698 799 799 951
Distributions to stockholders........................... -- (136) (136) --
------ ------ ------ ------
Retained earnings, end of period........................ $ 799 $ 951 $ 805 $1,278
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 129
THE PLANNING TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 101 $ 288 $ 142 $ 327
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of equipment..................... 3 21 -- 1
Depreciation...................................... 58 69 15 19
Changes in operating assets and liabilities:
Accounts receivable............................... 402 (1,001) (672) 808
Accounts receivable-other......................... -- (78) -- 42
Interest receivable............................... -- (2) -- (1)
Advance to employees and shareholders............. 15 -- -- --
Prepaid expenses.................................. (15) 5 15 4
Security deposits................................. -- 30 -- --
Accounts payable.................................. (53) 6 130 143
Accrued expense................................... (211) 368 411 211
Deferred revenue.................................. 40 297 (54) (363)
----- ------- ----- ------
Net cash provided by (used in) operating
activities................................. 340 3 (13) 1,191
----- ------- ----- ------
Cash flows from investing activities:
Proceeds from disposition of equipment............... -- 2 -- 1
Purchase of property and equipment................... (96) (93) (16) (25)
----- ------- ----- ------
Net cash used in investing activities........ (96) (91) (16) (24)
----- ------- ----- ------
Cash flows from financing activities:
Distributions to stockholders........................ -- (136) (126) --
Proceeds from issuance of stock...................... -- 54 54 --
Purchase of treasury stock........................... -- -- -- (300)
----- ------- ----- ------
Net cash used in financing activities........ -- (82) (72) (300)
----- ------- ----- ------
Net (decrease) increase in cash and cash equivalents... 244 (170) (101) 867
Cash and cash equivalents at beginning of period....... 18 262 262 92
----- ------- ----- ------
Cash and cash equivalents at end of period............. $ 262 $ 92 $ 161 $ 959
===== ======= ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 130
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
The Planning Technologies Group, Inc. ("PTG" or the "Company") offers
strategy formulation, strategic planning process design, and business process
assessment and redesign services. PTG primarily offers its services to the
health care, insurance, financial services, consumer products, manufacturing and
high technology industries.
2. SIGNIFICANT ACCOUNTING POLICIES
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Interim Financial Statements (Unaudited)
The balance sheet at March 31, 1998 and the statements of income and
retained earnings, and cash flows for the three months ended March 31, 1997 and
1998 are unaudited, and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated financial position, results of
operations and cash flows.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials billing arrangements. Revenues are recognized as the services are
provided. Deferred revenue represents billings in excess of revenues recognized.
Net revenues exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
The Company considers all highly liquid investments and other short-term
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are stated at cost which approximates market
value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives of the assets
as follows:
<TABLE>
<S> <C>
Equipment........................................... 5 years
Furniture and fixtures.............................. 7 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property, whichever is shorter.
F-60
<PAGE> 131
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments.
Concentration of Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. Sales to three
significant customers accounted for 32%, 29% and 20%, respectively, of net
revenues for the year ended December 31, 1997.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter "S"
of the Internal Revenue Code. Accordingly, no provision for federal income taxes
has been provided in the financial statements as all income of the Company is
taxed directly to the shareholders.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment................................................... $240 $291
Furniture and fixtures...................................... 89 90
---- ----
329 381
Less: accumulated depreciation.............................. 104 155
---- ----
Property and equipment, net................................. $225 $226
==== ====
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued profit sharing contribution......................... $ 100 $ 116
Accrued bonuses............................................. 92 441
Other....................................................... 4 7
----- -----
$ 196 $ 564
===== =====
</TABLE>
5. COMMITMENTS
The Company leases its facilities under an operating lease, which expires
in the year 2001. Rent expense charged to operations for the years ended
December 31, 1996 and 1997 was $163,264 and $176,618, respectively.
The Company is currently leasing vehicles under operating leases expiring
September 2000. Lease expense charged to operations for the years ended December
31, 1996 and 1997 was $18,950 and $21,843, respectively. Also, the Company has
an operating lease for certain equipment. Lease expense for this
F-61
<PAGE> 132
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equipment charged to operations for the years ended December 31, 1996 and 1997,
was $0 and $2,500, respectively.
Minimum future payments under the operating leases having remaining terms
in excess of one year as of December 31, 1997 for each of the next five years
and in the aggregate are (in thousands):
<TABLE>
<S> <C>
Year ended December 31:
1998............................................ $ 194
1999............................................ 191
2000............................................ 183
2001............................................ 148
2002............................................ --
--------
$ 716
========
</TABLE>
6. STOCKHOLDER'S EQUITY
During 1997, the Company issued ten shares of common stock to an employee
of the company. Accordingly, common stock has been increased by $10.00 per share
and additional paid-in-capital has been increased by $53,600, representing the
excess of the cost over the stated value of the common stock issued.
At December 31, 1996 and 1997, the Company had 126 and 136 shares of no par
value common stock issued and outstanding, respectively. Common shares are
voting and dividends are paid at the discretion of the Board of Directors. All
common shares are restricted from transfer with the Company being offered the
first right to repurchase all of the shares proposed, but not less than all, at
the book value per share, as defined by the Company. Within one (1) year of
termination, the stockholder may elect to require the Company to purchase all
(but not less than all) of the shares of the stock.
7. PROFIT SHARING PLAN
The Company sponsors a combination profit sharing 401(k) plan that covers
all eligible employees. The 401(k) provision allows the employee to make
contributions to the plan based on the percent of pre-tax earnings chosen by the
employee up to a maximum of 15% of gross wages. Any Company contributions to the
profit sharing plan are at the discretion of the Board of Directors. The Company
contributed $99,607 and $116,854 to the profit sharing plan in 1996 and 1997,
respectively.
8. SUBSEQUENT EVENTS
Effective March 31, 1998, the Company sold substantially all of its assets
to and certain liabilities were assumed by Nextera Enterprises, L.L.C.
("Nextera") in exchange for cash of $6,710,000 and 214,000 Class A Common Units
of Nextera.
F-62
<PAGE> 133
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Sibson & Company, L.P.
We have audited the accompanying consolidated balance sheets of Sibson &
Company, L.P. and Subsidiaries as of December 31, 1996 and 1997 and the related
consolidated statements of operations and partners' capital and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sibson &
Company, L.P. and Subsidiaries as at December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ FARKOUH, FURMAN & FACCIO
New York, New York
February 10, 1998, except for Note 13,
which is August 31, 1998
F-63
<PAGE> 134
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ JUNE 30,
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,030 $ 1,633 $ 474
Accounts receivable (less allowance for doubtful accounts
of $194 in 1996 and $483 in 1997)...................... 9,166 9,610 12,537
Notes receivable from affiliates.......................... 315 464 280
Prepaid expenses and other current assets................. 545 344 634
------- ------- -------
Total current assets.............................. 11,056 12,051 13,925
Fixed assets, at cost (less depreciation of $790 in 1996 and
$1,168 in 1997)........................................... 961 1,607 2,783
Notes receivable from affiliates, less current portion...... 13 -- --
Other assets, net of amortization of $359 in 1996 and $413
in 1997................................................... 268 313 376
------- ------- -------
Total assets...................................... $12,298 $13,971 $17,084
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Cash overdraft............................................ $ 738 $ 14 $ 468
Accounts payable, accrued expenses and taxes.............. 306 626 648
Commissions payable....................................... 387 139 211
Fee advances payable...................................... 1,293 1,302 726
Profit sharing plan payable............................... 1,399 1,552 1,239
Accrued compensation...................................... 2,478 3,597 4,309
Other current liabilities................................. 222 421 504
------- ------- -------
Total current liabilities......................... 6,823 7,651 8,105
Loans payable--bank......................................... -- -- 2,250
Accrued compensation and benefits........................... 1,110 951 436
Other long-term liabilities................................. 226 288 645
------- ------- -------
Total liabilities................................. 8,159 8,890 11,436
------- ------- -------
Partners' capital........................................... 4,139 5,082 5,652
Minority interest........................................... -- (1) (4)
------- ------- -------
Total partners' capital........................... 4,139 5,081 5,648
------- ------- -------
Total liabilities and partners' capital........... $12,298 $13,971 $17,084
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 135
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- --------------------------
1995 1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $24,833 $29,178 $34,650 $16,102 $21,179
Cost of revenues........................ 18,569 21,674 25,629 11,818 15,310
------- ------- ------- ------- -------
Gross profit.................. 6,264 7,504 9,021 4,284 5,869
Selling, general and administrative
expenses.............................. 5,444 6,769 7,575 3,599 4,237
------- ------- ------- ------- -------
Income from operations........ 820 735 1,446 685 1,632
Interest income......................... 68 65 95 32 46
Interest expense........................ (133) (94) (86) (52) (84)
Post retirement healthcare cost......... (137) (135) (140) (70) (75)
Other income (expense).................. 8 33 8 4 (10)
------- ------- ------- ------- -------
Net income.................... 626 604 1,323 599 1,509
Partners' capital at beginning of
period................................ 2,774 3,650 4,139 4,139 5,082
Partners' capital contributions......... 294 118 334 334 93
Partners' capital withdrawals........... (44) (233) (714) (668) (1,032)
------- ------- ------- ------- -------
Partners' capital at end of period...... $ 3,650 $ 4,139 $ 5,082 $ 4,404 $ 5,652
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 136
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- ---------------------------
1995 1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 626 $ 604 $1,323 $ 599 $1,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 366 470 505 210 376
Minority interest in net (loss) of
consolidated subsidiary................... -- -- (1) -- (3)
(Gain) or loss on sale of furniture, fixtures
and equipment............................. (8) (53) (8) (4) 10
Changes in operating assets and liabilities:
Accounts receivable....................... (809) (2,178) (444) 498 (2,927)
Prepaid expenses and other current
assets.................................. 164 155 206 110 (310)
Accounts payable, accrued expenses and
taxes................................... (40) 36 320 (9) 22
Commissions payable....................... 85 32 (628) (652) (9)
Accrued postretirement healthcare
benefit................................. 134 128 131 70 75
Fee advances payable...................... 241 709 9 (150) (576)
Profit sharing plan payable............... 294 205 153 (555) (313)
Accrued compensation...................... 3 1,013 1,212 (300) 207
Other current liabilities................. (110) 4 (4) (1) --
------- ------- ------ ----- ------
Net cash provided by (used in) operating
activities............................ 946 1,125 2,774 (184) (1,939)
------- ------- ------ ----- ------
Cash flows from investing activities:
Purchase of fixed assets......................... (193) (409) (704) (405) (852)
Proceeds from sale of furniture, fixtures and
equipment...................................... 8 53 8 4 75
Other............................................ -- (47) (104) (52) (71)
------- ------- ------ ----- ------
Net cash used in investing activities... (185) (403) (800) (453) (848)
------- ------- ------ ----- ------
Cash flows from financing activities:
(Decrease) or increase in cash overdraft......... $ 278 $ 172 $ (724) $(204) $ 454
Notes receivable from affiliates, net............ 199 246 (36) (10) 79
Proceeds from limited partners' capital
contributions.................................. 20 -- -- -- --
Proceeds from general partner capital
contributions.................................. 165 -- 109 109 93
Partners' capital withdrawals.................... (44) (233) (513) (297) (1,032)
Payment of capitalized lease obligations......... (170) (203) (207) (89) (216)
Proceeds from revolving line of credit........... 3,100 3,850 2,350 950 4,150
Repayment of revolving line of credit............ (4,100) (3,850) (2,350) (750) (1,900)
------- ------- ------ ----- ------
Net cash provided by (used in) financing
activities............................ (552) (18) (1,371) (291) 1,628
------- ------- ------ ----- ------
Net increase (decrease) in cash and cash
equivalents...................................... 209 704 603 (928) (1,159)
Cash and cash equivalents, at beginning of
period........................................... 117 326 1,030 1,030 1,633
------- ------- ------ ----- ------
Cash and cash equivalents, at end of period........ $ 326 $ 1,030 $1,633 $ 102 $ 474
======= ======= ====== ===== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 133 $ 92 $ 79 $ 52 $ 84
======= ======= ====== ===== ======
Supplemental schedule of noncash investing and
financing activities:
Employees purchase of limited partnership interests
funded through notes receivable.................. $ 19 $ 66 $ 24 $ 24 $ --
======= ======= ====== ===== ======
General partners' capital contributions funded
through note receivable.......................... $ 90 $ 52 $ 201 $ 201 $ --
======= ======= ====== ===== ======
Capital lease obligations incurred for fixed
assets........................................... $ 327 $ 116 $ 393 $ -- $ 757
======= ======= ====== ======
Note payable on redemption of general partners'
partnership interest............................. $ -- $ -- $ 201 $ 371 $ --
======= ======= ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE> 137
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Sibson & Company, L.P. (the "Company"), a limited partnership, provides
human capital consulting services offering human resource strategies,
outsourcing assessments, organizational designs, rewards/incentives programs,
performance management processes and systems, and executive coaching services.
The Company also serves sales and marketing organizations with sales strategy,
selling process, sales channel and selling effectiveness consulting.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Sibson &
Company, L.P. and its 99% owned subsidiary, Sibson Europe, LLC and its 100%
owned subsidiary Sibson UK Limited. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Interim Financial Statements (Unaudited)
The balance sheet at June 30, 1998, and the statements of operations and
partners' capital, and cash flows for the six months ended June 30, 1997 and
1998 are unaudited, and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated financial position, results of
operations and cash flows.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services primarily under
time and materials billing arrangements. Under time and materials arrangements,
revenues are recognized as the services are provided. Revenues exclude
reimbursable expenses charged to clients.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less when purchased to be cash equivalents.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
accelerated methods over estimated useful lives of five to seven years.
Leasehold improvements are amortized over the lesser of the lease term or the
estimated life of the improvements, whichever is shorter.
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
F-67
<PAGE> 138
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Since the partnership is not subject to income taxes, the results of
partnership operations are included in the income tax returns of the partners.
Taxes, if any, are payable directly by the partners, accordingly, no provision
for income taxes is included in the attached financial statements. The
partnership files its tax returns on the cash basis of accounting.
3. ESCROW ACCOUNT
In accordance with an employment agreement with a partner, the Company is
required to escrow unpaid commissions totaling $139,039 as of December 31, 1997.
The funded escrow amount is not available for use by the Company other than for
the payment of these commissions.
4. NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates consist of:
Limited Partners
The notes receivable from limited partners ($123,000 and $111,000 at
December 31, 1996 and 1997, respectively) bear interest at rates ranging from
8.75% to 10% and are due in 1998.
Shareholder of Sibson Canada, Inc.
The note receivable from a shareholder of Sibson Canada, Inc. ($15,000 at
December 31, 1996 and 1997) bears interest at 10% and is due April 1, 1998.
Sibson Canada, Inc. (a Licensee Company)
The note receivable from Sibson Canada, Inc. ($60,000 at December 31, 1996)
was repaid in 1997.
Sibson South Africa (a Licensee Company)
The note receivable from Sibson South Africa ($50,000 at December 31, 1997)
bears interest at 10.5% and is due on demand.
General Partner
The notes receivable from the general partner ($130,000 and $288,000 at
December 31, 1996 and 1997, respectively) bear interest at rates ranging from
8.75% to 10% and are due in 1998.
F-68
<PAGE> 139
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Furniture and office equipment........................... $ 572 $1,030
Telephone equipment...................................... 195 253
Computer equipment....................................... 742 1,094
Leasehold improvements................................... 227 379
Artwork.................................................. 15 19
------ ------
1,751 2,775
Less: accumulated depreciation........................... 790 1,168
------ ------
Fixed assets, net........................................ $ 961 $1,607
====== ======
</TABLE>
6. NOTE PAYABLE TO BANK
As of December 31, 1997, the Company had a revolving $3,000,000 line of
credit with a bank with interest at the prime rate. In addition, the Company
shall pay a fee equal to 0.25% per annum on the amount of the unused line of
credit, if any. The agreement expires on August 31, 1998. All tangible and
intangible property of the Company has been pledged to secure any outstanding
bank debt, which is also guaranteed by the general partner. The line of credit
contains covenants regarding various financial statement amounts, ratios and
activities of the Company. Advances under the revolving credit agreement are
subject to adequate collateral.
As part of the revolving line of credit, the bank has made available a
maximum of $1,500,000, which the Company may utilize in the form of letters of
credit or to finance leases. Outstanding letters of credit or lease obligations
under the agreement will proportionately reduce the maximum revolving line
available. As of December 31, 1997, letters of credit outstanding were
$1,164,558.
7. CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under capital leases expiring in
various years through September 20, 1999. Obligations under capital leases have
been recorded in the accompanying financial statements at the present value of
future minimum lease payments, discounted at interest rates ranging from 8.5% to
15.5%.
Obligations under capital leases consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Current portion............................................. $178 $275
Long-term portion........................................... 199 288
---- ----
Total............................................. $377 $563
==== ====
</TABLE>
F-69
<PAGE> 140
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under the capital leases and the net
present value of the future minimum lease payments are as follows (in
thousands):
<TABLE>
<S> <C>
Years ending December 31:
1998........................................................ $313
1999........................................................ 198
2000........................................................ 112
----
Total future minimum lease payments......................... 623
Less amount representing interest........................... 60
----
Present value of future minimum lease payments.............. $563
====
</TABLE>
8. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Company maintains a Profit Sharing and Salary Reduction Plan (the
"Plan") which covers all eligible employees. Employees may defer a portion of
their annual compensation up to the maximum amount permitted under the Internal
Revenue Code.
Under the terms of the Plan, the Company may contribute an amount equal to
the maximum amount, which is deductible for federal income tax purposes.
Employer contributions to the Plan were $1,210,306, $1,390,965, and $1,546,641
for the years ended December 31, 1995, 1996 and 1997, respectively. In addition,
the Company pays a supplemental profit sharing contribution, as wages, to those
employees whose compensation is in excess of the maximum amount permitted under
the Internal Revenue Code.
Post-retirement Healthcare Benefit
The Company presently provides a post-retirement healthcare benefits plan
which provides for 75% of the annual cost of medical coverage for a retiree with
at least 15 years of service and who is between 50 and 64 years of age. Coverage
ceases once the retiree reaches age 65.
Effective January 1, 1995, the Company adopted SFAS No. 106, Employers
Accounting for Post-retirement Benefits Other Than Pensions ("SFAS No. 106").
This statement requires the Company to accrue, during the employee's years of
service, the expected cost of providing benefits. The cost of providing these
benefits was previously recognized in the period in which the benefits were
paid.
The Company adopted SFAS No. 106 on a prospective basis. The net transition
obligation represents the difference between the Company's January 1, 1995
accrued post-retirement healthcare costs prior to the adoption of SFAS No. 106
and the unfunded liability for these costs as of that date. The Company does not
fund these costs. The net transition liability at January 1, 1995 was $684,766
and will be amortized over 20 years.
The components of net periodic post-retirement healthcare benefit cost are
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................... $ 46 $ 47 $ 46
Interest cost......................................... 57 54 59
Amortization of net transition liability over 20
years............................................... 34 34 35
---- ---- ----
Net post-retirement healthcare benefit cost........... $137 $135 $140
==== ==== ====
</TABLE>
F-70
<PAGE> 141
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the accumulated post-retirement healthcare benefit
obligation to the accrued post-retirement healthcare benefit liability
recognized in the balance sheet is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement healthcare benefit obligations:
Active participants....................................... $ 395 $ 414
Fully eligible participants............................... 86 60
Retirees.................................................. 321 299
----- -----
802 773
Unrecognized transition obligation........................ (616) (582)
----- -----
186 191
Unrecognized net gain..................................... 76 202
----- -----
Accrued post-retirement healthcare benefit liability...... $ 262 $ 393
===== =====
</TABLE>
The assumed healthcare cost trend rate used in measuring the accumulated
post-retirement obligation was 7% with subsequent annual decrements of 0.15% to
an ultimate trend rate of 3.5%. A 1.0% increase in the assumed healthcare cost
trend rate for each year would increase the accumulated post-retirement
healthcare benefit obligation by approximately 11% and the net post-retirement
cost by approximately 15%. The discount rate used in determining the accumulated
post-retirement healthcare benefit liability was 7%.
9. EMPLOYMENT AGREEMENT
The Company has an employment agreement with a partner under which the
partner is entitled to compensation based upon the collections from business
specifically generated by the partner. In addition, the partner is entitled to
compensation based upon certain other business. The employment agreement expires
April 30, 2000.
10. OPERATING LEASES
The Company leases office space in six locations under leases expiring at
various times through August 2007. The leases provide for escalations based upon
increases in real estate taxes, operating expenses and cost of living increases.
The future minimum annual lease payments are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1998......................................... $1,211
1999......................................... 1,474
2000......................................... 1,411
2001......................................... 1,002
2002......................................... 796
Thereafter................................... 3,539
------
$9,433
======
</TABLE>
Total minimum future annual lease payments have not been reduced by $55,620
of sublease rentals to be received in the future under non-cancelable subleases.
Rent expense included in the attached statement of operations was
$1,576,053 net of sublease income of $37,830 in 1997 and $1,654,229 net of
sublease income of $180,123 in 1996.
F-71
<PAGE> 142
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's obligation under two of the leases is secured by letters of
credit totaling $650,000.
The Company leases various equipment on operating leases with terms through
2002. Monthly rental payments on these leases is approximately $21,717.
11. LICENSING AGREEMENTS
The Company has granted licenses to companies in South Africa, Canada,
Australia, New Zealand and the United Kingdom to use the name "Sibson &
Company". These licenses provide for royalties payable to the Company equal to
5% of their respective revenues.
12. UNINSURED CASH BALANCES
The Company maintains its cash in several banks. The bank balances on
deposit which are in excess of the FDIC insurance limits was approximately
$2,300,000 at December 31, 1997.
13. SUBSEQUENT EVENT
Effective August 31, 1998, the Company sold substantially all of its assets
and certain liabilities were assumed by Sibson & Co., LLC for cash of
$34,764,000 and 2,613,087 Class A Common Units of Nextera Enterprises, L.L.C.
F-72
<PAGE> 143
AUDITORS' REPORT
To the Directors of
Sibson Canada, Inc.
We have audited the balance sheet of Sibson Canada, Inc. as at December 31,
1997 and the statements of operations and retained earnings and changes in
financial position for the year then ended. 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 audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and the
results of its operations and changes in its financial position for the year
then ended in accordance with accounting principles generally accepted in Canada
which differ in certain respects from accounting principles generally accepted
in the United States (See Note 10).
/s/ GRANT THORNTON
Chartered Accountants
Toronto, Canada
September 1, 1998
F-73
<PAGE> 144
SIBSON CANADA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 63 $ --
Receivables............................................... 1,145 1,314
Prepaids.................................................. 26 105
------ ------
Total current assets.............................. 1,234 1,419
Equipment, net.............................................. 46 51
------ ------
Total assets...................................... $1,280 $1,470
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness......................................... $ -- $ 302
Payables and accruals..................................... 80 336
Bonus payable............................................. 506 91
License fee payable....................................... 160 10
Income taxes payable...................................... 30 61
Deferred income........................................... 51 51
------ ------
Total current liabilities......................... 827 851
Due to shareholders......................................... 93 93
Shareholders' equity:
Capital stock............................................. 137 137
Retained earnings......................................... 223 389
------ ------
Total shareholders' equity........................ 360 526
------ ------
Total liabilities and shareholders' equity........ $1,280 $1,470
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE> 145
SIBSON CANADA, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX MONTHS ENDED JUNE 30,
YEAR ENDED ------------------------------------
DECEMBER 31, 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Net revenues.............................. $4,077 $2,025 $2,045
Cost of revenues.......................... 2,864 1,131 1,213
------ ------ ------
Gross profit......................... 1,213 894 832
Selling, general and administrative....... 1,054 524 582
------ ------ ------
Income before income taxes........... 159 370 250
Income taxes.............................. 51 120 84
------ ------ ------
Net income........................... $ 108 $ 250 $ 166
====== ====== ======
Retained earnings, beginning of period.... $ 115 $ 115 $ 223
Retained earnings, end of period.......... $ 223 $ 365 $ 389
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 146
SIBSON CANADA, INC.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE SIX MONTHS ENDED JUNE 30,
DECEMBER 31, 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 108 $ 250 $ 166
Depreciation........................... 16 9 7
Change in operating assets and
liabilities:
Trade receivables.................... (385) (594) (7)
Shareholders receivables............. (61) -- (25)
Other receivables.................... (26) -- (137)
Prepaids............................. 3 (13) (80)
Payables and accruals................ (98) 107 256
Bonus payable........................ 506 232 (415)
License fee payable.................. 84 89 (150)
Income taxes payable................. 51 91 32
Deferred income...................... 51 -- --
----- ----- -----
Net cash provided by (used in)
operating activities............ 249 171 (353)
----- ----- -----
Cash flows from investing activities:
Purchase of equipment.................. (9) (5) (12)
----- ----- -----
Net cash used in investing
activities...................... (9) (5) (12)
----- ----- -----
Net increase (decrease) in cash............. 240 166 (365)
Cash (bank indebtedness), beginning of
period.................................... (177) (177) 63
----- ----- -----
Cash (bank indebtedness), end of period..... $ 63 $ (11) $(302)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 147
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
Sibson Canada, Inc. (the "Company") provides human capital consulting
services including human resource strategies, outsourcing assessments,
organizational designs, rewards and incentives programs, performance management
processes and systems, and executive coaching services. The Company also serves
sales and marketing organizations with sales strategy, selling process, sales
channel and selling effectiveness consulting.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada. See Note 10 for
differences between these principles and those generally accepted in the United
States. All amounts in the financial statements are expressed in Canadian
dollars.
Interim Financial Statements (Unaudited)
The balance sheet at June 30, 1998, and the statements of operations and
retained earnings and changes in financial position for the six months ended
June 30, 1998 and 1997 are unaudited, and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Company's financial position, results of operations
and cash flows.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The company derives its revenues from consulting services under time and
materials billing arrangements. Revenues are recognized as services are
provided. Deferred income relates to funds received from clients for future
projects.
Depreciation
Rates and bases of depreciation applied to write-off the cost less
estimated salvage value of property and equipment over their estimated lives are
as follows:
<TABLE>
<S> <C>
Furniture and
fixtures.............. 20%, declining balance
Office equipment........ 20%, declining balance
Computer hardware....... 30%, declining balance
Computer software....... 30%, declining balance
</TABLE>
Translation of Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are
translated at year-end exchange rates and revenue and expenses are translated at
average rates. Translation gains and losses are included in earnings.
F-77
<PAGE> 148
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
The carrying values of the financial assets and liabilities approximate
their fair values based on the short-term maturities of these instruments.
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
----------------------------------
(IN THOUSANDS OF
CANADIAN DOLLARS)
<S> <C>
Trade.................................................... $ 1,039
Shareholders............................................. 74
Income taxes............................................. --
Other.................................................... 32
--------
$ 1,145
========
</TABLE>
4. EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
----------------------------------
(IN THOUSANDS OF
CANADIAN DOLLARS)
<S> <C>
Furniture and fixtures................................. $ 8
Office equipment....................................... 14
Computer hardware...................................... 89
Computer software...................................... 32
-------
143
Less: accumulated depreciation......................... 97
-------
Property and equipment, net............................ $ 46
=======
</TABLE>
5. BANK INDEBTEDNESS
As of December 31, 1997, the Company has an authorized bank line of credit
of $289,000 of which there have been no drawdowns. Any loan balance outstanding
bears interest at the bank prime rate plus 1% per annum and is payable on
demand. As security, the Company has provided a registered general assignment of
book debts, a registered general security agreement, an assignment of fire
insurance and key man life insurance.
6. LICENSE FEE
The Company has entered into an agreement with Sibson & Co., L.P., to pay
5% of its revenues in exchange for support services and the right to use the
name. The agreement is automatically renewed on an annual basis unless written
notice is provided by either party indicating they wish to terminate the
agreement. The license fee expense for the year ended December 31, 1997 is
$175,892 of which $160,410 remains payable at year-end.
F-78
<PAGE> 149
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. DUE TO SHAREHOLDERS
Amounts due to shareholders are non-interest bearing and due on demand. The
amounts are classified as long-term as it is not the intention of the
shareholders to demand repayment in the upcoming year.
8. CAPITAL STOCK
Common shares, unlimited number authorized, 1,307 issued for proceeds of
$104,001; Class A common shares, unlimited number authorized, 230 issued for
proceeds of $32,890.
Holders of Class A common shares are entitled to a dividend per share equal
to the amount of any declared common share dividend per share, convertible to
common shares at the option of the holder upon approval by the Board of
Directors and upon payment to the company of additional amounts of money, if
any, as specified in the resolution approving the conversion.
9. COMMITMENTS
The Company has entered into agreements to lease its premises and various
pieces of office and computer equipment. The current premises lease expires
October 1998, and a new lease has been entered into subsequent to year end for a
further 10 year period. The equipment leases are for various periods to 2001.
Minimum commitments for each of the next five years and thereafter are as
follows (in thousands of Canadian dollars):
<TABLE>
<S> <C>
1998........................................... $249
1999........................................... 181
2000........................................... 180
2001........................................... 149
2002........................................... 119
Thereafter..................................... 708
</TABLE>
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The accounting principles utilized in the preparation of these financial
statements conform in all material respects with those generally accepted in the
United States ("US GAAP"), except as indicated below.
The statement of changes in financial position included herein was prepared
in accordance with Canadian generally accepted accounting principles. Under US
GAAP, the bank indebtedness position would be reported as a financing item
rather than being included in the cash position. The 1997 statement of changes
in financial position would disclose a decrease in financing of $177,391, and
cash at the beginning of the year at $0.
11. SUBSEQUENT EVENTS
On August 17, 1998, the Company and one of its corporate shareholders
continued as Nova Scotia corporations. Subsequently, the Company, the corporate
shareholder and a newly incorporated unlimited liability company, were
amalgamated under the laws of Nova Scotia and continued operating as Sibson
Canada Co.
Effective August 31, 1998, all of the Company's Shareholders sold all of
their stock to Nextera Enterprises, L.L.C. in exchange for cash of US$2,611,000
and 197,813 Exchangeable Preference Shares. The Exchangeable Preference Shares
are exchangeable at any time by the holders thereof for Class A Common Stock of
Nextera Enterprises, L.L.C.
F-79
<PAGE> 150
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems, which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-80
<PAGE> 151
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Combined Financial Statements assume the
exchange of (the "Exchange Transaction") Class A Common Units and Class B Common
Units of Nextera Enterprises, L.L.C. ("Nextera LLC") and certain other
securities for shares of Class A Common Stock and Class B Common Stock of
Nextera Enterprises, Inc. ("Nextera" or the "Company"). After the Exchange
Transaction, the Company will hold, directly or indirectly, all of the
membership interests in Nextera LLC. See "The Company -- Exchange Transaction."
The following Unaudited Pro Forma Combined Financial Statements give effect
to the Company's acquisitions of (i) Symmetrix, Inc. ("Symmetrix") effective
July 30, 1997, (ii) SiGMA Consulting, LLC ("SiGMA") effective January 5, 1998,
(iii) The Planning Technologies Group, Inc. ("PTG") effective March 31, 1998,
(iv) Pyramid Imaging, Inc. ("Pyramid") effective March 31, 1998, and (v) Sibson
& Company, L.P. and Sibson Canada, Inc. (collectively, "Sibson") effective
August 31, 1998 (the "Sibson Acquisitions"). Symmetrix, SiGMA, PTG, Pyramid and
Sibson are referred to collectively as the "Acquired Companies." Each of these
acquisitions is being accounted for under the purchase method of accounting.
Each of the Acquired Companies other than Symmetrix, which had a May 31 fiscal
year end for periods prior to its acquisition by the Company, has a December 31
fiscal year end.
The following Unaudited Pro Forma Combined Balance Sheet of the Company at
June 30, 1998 has been prepared to give effect to the Sibson Acquisitions as if
they had occurred on June 30, 1998. The Unaudited Pro Forma Combined Balance
Sheet is also adjusted to reflect the Offering and the application of the
estimated net proceeds therefrom, including the repayment of certain
indebtedness, as if the Offering had occurred on June 30, 1998.
The following Unaudited Pro Forma Combined Statements of Operations of the
Company for the year ended December 31, 1997 and the six months ended June 30,
1998 have been prepared to give effect to (i) the acquisitions of the Acquired
Companies as of January 1, 1997 and (ii) the Offering and the application of the
estimated net proceeds therefrom, including the repayment of certain
indebtedness, as if such transactions had occurred as of January 1, 1997.
The Unaudited Pro Forma Combined Financial Statements may not be indicative
of the results that would have been obtained if the transactions reflected
therein had occurred on the dates indicated or which may be realized in the
future. The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the Historical Financial Statements of Nextera LLC and the
Acquired Companies included elsewhere in this Prospectus.
PF-1
<PAGE> 152
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ----------------------------------------------------
ACQUISITION
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA OFFERING PRO FORMA
(A) (B) (C) COMBINED ADJUSTMENTS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 2,921 $ 474 $ (315) $ 3,080 $ (D) $
Accounts receivable, net................. 10,434 13,432 23,866
Costs and estimated earnings in excess of
billings.............................. 172 -- 172
Due from affiliates...................... 135 280 415
Due from officers........................ 849 -- 849
Prepaid expenses and other current
assets................................ 420 706 1,126
------- ------- ------- -------- -------- --------
Total current assets.................. 14,931 14,892 (315) 29,508
Property and equipment, net................ 2,049 2,818 4,867
Intangible assets, net of accumulated
amortization............................. 39,041 -- 42,164 81,205
Other assets............................... 1,477 376 1,853
------- ------- ------- -------- -------- --------
Total assets.......................... $57,498 $18,086 $41,849 $117,433 $ $
======= ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.... $ 6,936 $ 8,012 $ $ 14,948 $ $
Notes payable to bank.................... 1,390 674 38,000 40,064 (D)
Deferred revenue......................... 1,262 -- 1,262
Due to affiliate......................... 150 -- 150 (D)
Current portion of long-term debt........ 86 -- 86
------- ------- ------- -------- -------- --------
Total current liabilities............. 9,824 8,686 38,000 56,510
Long-term debt............................. 994 2,250 3,244
Other long-term liabilities................ -- 1,081 1,081
Affiliated long-term payables.............. -- 63 63
Debentures due to affiliates, including
accrued interest thereon................. 50,585 -- 50,585 (D)
Stockholders' equity:
Equity................................... 2,688 4,232 5,623 12,543 (D)
Retained earnings (deficit).............. (6,593) 1,774 (1,774) (6,593)
------- ------- ------- -------- -------- --------
Total stockholders' equity
(deficit)........................... (3,905) 6,006 3,849 5,950
------- ------- ------- -------- -------- --------
Total liabilities and stockholders'
equity (deficit).................... $57,498 $18,086 $41,849 $117,433 $ $
======= ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-2
<PAGE> 153
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------- ----------------------------------------------------
PRO FORMA
COMPANY ACQUISITIONS ACQUISITION PRO FORMA OFFERING AS ADJUSTED
(E) (F) ADJUSTMENTS COMBINED ADJUSTMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 7,998 $67,498 $ $75,496 $ $
Cost of revenues........... 4,718 48,632 (2,961)(G) 50,389
------- ------- ------- ------- --- -------
Gross profit.......... 3,280 18,866 2,961 25,107
------- ------- ------- ------- --- -------
Selling, general and
administrative
expenses................. 5,306 16,544 21,850
Compensation expense --
repurchase of stock
options.................. -- 4,126(H) 4,126
Amortization expense....... 255 -- 2,604(I) 2,859
------- ------- ------- ------- --- -------
Loss from
operations.......... (2,281) (1,804) 357 (3,728)
------- ------- ------- ------- --- -------
Interest income (expense),
net...................... (32) (76) (3,876)(J) (3,966) (K)
------- ------- ------- ------- --- -------
Loss before income tax
expense (benefit)... (2,313) (1,882) (3,519) (7,714)
------- ------- ------- ------- --- -------
Income tax expense
(benefit)................ 702(L) (308)(L) 394
------- ------- ------- ------- --- -------
Net loss.............. $(3,015) $(1,575) $(3,519) $(8,108) $ $
======= ======= ======= ======= === =======
Net loss per common share,
basic and diluted........ $ (0.74) $ -- $ (0.97) $
======= ======= ======= =======
Weighted average common
shares outstanding, basic
and diluted.............. 4,061 8,342
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-3
<PAGE> 154
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ----------------------------------------------------
ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
(M) (N)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.............. $22,095 $26,767 $ $48,862 $ $
Cost of revenues.......... 14,938 18,606 (1,261)(G) 32,283
------- ------- ------- ------- ------- -------
Gross profit......... 7,157 8,161 1,261 16,579
------- ------- ------- ------- ------- -------
Selling, general and
administrative
expenses................ 7,296 5,797 -- 13,093
Amortization expense...... 568 -- 851(O) 1,419
------- ------- ------- ------- ------- -------
Income (loss) from
operations......... (707) 2,364 410 2,067
------- ------- ------- ------- ------- -------
Interest income (expense),
net..................... (2,671) (37) (1,938)(J) (4,646) (K)
------- ------- ------- ------- ------- -------
Income (loss) before
income tax expense
(benefit).......... (3,378) 2,327 (1,528) (2,579)
------- ------- ------- ------- ------- -------
Income tax expense
(benefit)............... 200(L) (58)(L) 142
------- ------- ------- ------- ------- -------
Net income (loss).... $(3,578) $ 2,385 $(1,528) $(2,721) $ $
======= ======= ======= ======= ======= =======
Net income (loss) per
common share, basic and
diluted................. $ (0.29) $ $ (0.18) $
======= ======= ======= =======
Weighted average common
shares outstanding,
basic and diluted....... 12,550 15,382
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-4
<PAGE> 155
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) Represents the historical consolidated balance sheet of the Company as
of June 30, 1998.
(B) Represents the historical consolidated balance sheets of Sibson as of
June 30, 1998. Assets and liabilities of Sibson Canada, Inc. have been
translated from Canadian dollars into U.S. dollars at the exchange rate of $0.68
per Canadian dollar in effect as of June 30, 1998.
(C) Represents the adjustments to record the purchase price of the Sibson
Acquisitions. The purchase price consisted of $37,375,000 in cash, 2,810,900
shares of common stock at an assumed value of $9,855,650, and $940,000 in
related acquisition costs. The excess purchase price over net assets acquired
was allocated as $1,100,000 million to intangibles related to personnel and
$41,064,000 million as goodwill.
(D) Represents the adjustments to record the Offering and the application
of the estimated net proceeds therefrom, including the repayment of certain
indebtedness. See "Use of Proceeds."
(E) Represents the historical consolidated statement of operations of the
Company for the period from February 26, 1997 (date of inception) through
December 31, 1997.
(F) Represents historical statement of operations data of Symmetrix from
January 1, 1997 until the Company's acquisition of Symmetrix was completed
effective July 30, 1997, and the historical statements of operations of SiGMA,
Pyramid, PTG, and Sibson for the year ended December 31, 1997. The Company's
statement of operations for the period ended December 31, 1997 reflects the
results of operations of Symmetrix for periods after July 30, 1997. Revenues and
expenses of Sibson Canada, Inc. have been translated from Canadian dollars to
U.S. dollars at the average exchange rate in effect for the period.
(G) In connection with the Sibson Acquisitions and the acquisition of PTG,
written agreements were entered into which governed the calculations of
management bonuses. In each case, the bonus calculation was changed from a
discretionary amount to a formula based on revenue and operating income
performance. The new bonus provision was documented and the revenue and
operating income targets and bonuses percentages were specified. The pro forma
adjustment represents the difference between the actual bonuses paid or accrued
for the year ended December 31, 1997 (and the interim period ended June 30,
1998) and the amount that would have been based on the new formulas set forth in
the respective employment agreements.
(H) Compensation expense -- repurchase of stock options resulted from the
cancellation and repurchase of all of outstanding options to purchase Symmetrix
stock in connection with its acquisition by the Company.
(I) Represents the adjustments to amortization expense to reflect the
allocation of the purchase price for the Symmetrix acquisition for the seven
months ended July 30, 1997 and the acquisitions of the other Acquired Companies
for the year ended December 31, 1997, in each case using 5 years for intangibles
related to personnel and 40 years for goodwill.
(J) Represents the adjustments to record the interest expense for the year
ended December 31, 1997 and the six months ended June 30, 1998, resulting from
the $38,000,000 million borrowing incurred in connection with the Sibson
acquisitions. The borrowing bears interest at the rate of LIBOR plus 450 basis
points per annum (10.2% at August 31, 1998) and matures on February 29, 1999.
(K) Represents the adjustments to eliminate the interest expense for the
indebtedness repaid with a portion of the estimated net proceeds from the
Offering.
(L) The pro forma tax provisions for the year ended December 31, 1997 and
the six months ended June 30, 1998 are recorded for Symmetrix and Pyramid, which
are taxable operating units, and are based upon pro forma income for the year
ended December 31, 1997 and the six months ended June 30, 1998, applied to the
effective tax rate of both entities.
(M) Represents the historical consolidated statement of operations of the
Company for the six months ended June 30, 1998.
(N) Represents the historical statements of operations of Pyramid and PTG
for the three months ended March 31, 1998 and the historical consolidated
statements of operations of Sibson for the six months ended
PF-5
<PAGE> 156
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998. The Company's statement of operations for the six months ended
June 30, 1998 reflects the results of operations of Symmetrix and SiGMA for the
entire period and of Pyramid and PTG for periods after March 31, 1998, the
effective date of their acquisition by the Company. Revenues and expenses of
Sibson Canada, Inc. have been translated from Canadian dollars to U.S. dollars
at the average exchange rate in effect for the period.
(O) Represents the adjustments to amortization expense to reflect the
allocation of the purchase price for the PTG and Pyramid acquisitions for the
three months ended March 31, 1998 and the Sibson Acquisitions for the six months
ended June 30, 1998, in each case using 5 years for intangibles related to
personnel and 40 years for goodwill.
PF-6
<PAGE> 157
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE
UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY, TO ANY PERSON IN ANY JURISDICTION WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 5
Risk Factors............................... 8
The Company................................ 18
Use of Proceeds............................ 20
Dividend Policy............................ 20
Capitalization............................. 21
Dilution................................... 22
Selected Consolidated and Pro Forma
Combined Financial Data.................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 24
Business................................... 32
Management................................. 43
Certain Transactions....................... 53
Principal Stockholders..................... 56
Description of Capital Stock............... 58
Shares Eligible for Future Sale............ 63
Underwriting............................... 66
Legal Matters.............................. 68
Experts.................................... 68
Available Information...................... 68
Index to Financial Statements.............. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, 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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
SHARES
NEXTERA ENTERPRISES, INC. LOGO
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Class A Common Stock.
All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing and engraving expenses.............................
Blue Sky fees and expenses..................................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
--------
TOTAL............................................. $
========
</TABLE>
- ------------------------------
All of the above items are estimates, except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its directors and officers to the fullest extent
permitted by Delaware law. Delaware law permits, but does not require, a
corporation to indemnify officers, directors, employees or agents and expressly
provides that the indemnification provided for under Delaware law shall not be
deemed exclusive of any indemnification right under any bylaw, vote of
stockholders or disinterested directors, or otherwise. Delaware law permits
indemnification against expenses and certain other liabilities arising out of
legal actions brought or threatened against such persons for their conduct on
behalf of the Company, provided that each such person acted in good faith and in
a manner that he or she reasonably believed was in or not opposed to the
Company's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Delaware law does
not allow indemnification of directors in the case of an action by or in the
right of the Company (including stockholder derivative suits) unless the
directors successfully defend the action or indemnification is ordered by the
court.
The Company is a party to indemnification agreements with each of its
directors and officers. In addition, the form of Underwriting Agreement filed as
Exhibit 1.1 hereto provides for the indemnification of the Company and its
directors and officers against certain liabilities, including liabilities under
the Securities Act.
The Company maintains directors' and officers' liability insurance covering
its executive officers and directors. The policies have limits of up to
$ in the aggregate, subject to retentions of up to $ in the
aggregate.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On March 20, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This
II-1
<PAGE> 159
transaction was undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the Securities
Act.
(b) On March 20, 1997, Nextera LLC issued Class A Common Units to
EDU for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(c) On April 9, 1997, Nextera LLC issued a warrant to NEH (the "Warrant")
to purchase Class A Common Units of Nextera LLC at an exercise price
of $ per unit in connection with the initial capitalization of Nextera LLC.
The Warrant had an expiration date of August 1, 2002. On April 30, 1998, Nextera
LLC amended the Warrant to provide for the issuance of Class B Common Units upon
exercise of the Warrant rather than Class A Common Units. On April 30, 1998, the
Warrant was exchanged for Class B Common Units. These transactions were
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(d) On April 18, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(e) On May 19, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(f) On June 17, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(g) On July 23, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(h) On July 23, 1997, Nextera LLC issued Class A Common Units to
EDU for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(i) On August 15, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(j) On September 9, 1997, Nextera LLC issued to NEH Class A
Common Units for consideration of $ and Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(k) On September 30, 1997, Nextera LLC issued to NEH Class A
Common Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(l) On October 14, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
II-2
<PAGE> 160
(m) On November 4, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(n) On November 21, 1997, Nextera LLC issued to NEH Class A
Common Units for consideration of $ and Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(o) On January 5, 1998, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(p) On January 5, 1998, Nextera LLC issued Class A Common Units
to SiGMA Consulting, LLC in exchange for all of the issued and outstanding
ownership units of SiGMA Consulting, LLC. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Rule 506 of Regulation D promulgated under the Securities Act.
(q) On January 29, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(r) On February 11, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(s) On February 13, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(t) On February 26, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(u) Effective March 31, 1998, Nextera LLC issued Class A Common
Units to The Planning Technologies Group, Inc. as a part of the purchase price
for the assets of The Planning Technologies Group, Inc. This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Rule 506 of Regulation D under the Securities
Act.
(v) Effective March 31, 1998, Nextera LLC issued an aggregate of
Class A Common Units to the former stockholders of Pyramid Imaging,
Inc. as a part of the purchase price for all of the issued and outstanding
capital stock of Pyramid Imaging, Inc. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(w) On April 7, 1998, Nextera LLC issued to NEH Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(x) On April 8, 1998, Nextera LLC issued to NEH Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(y) On April 10, 1998, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This
II-3
<PAGE> 161
transaction was undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the Securities
Act.
(z) On April 30, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(aa) Effective as of April 30, 1998, approximately $48.0 million of Nextera
LLC's contributed capital was redesignated as debt in the form of two debentures
issued to NEH. The first debenture is dated March 20, 1997 with a principal
amount of $23.0 million, which matures on May 1, 2002 and bears interest at a
rate of 10% per annum. The second debenture is dated January 5, 1998 with a
principal amount of $25.0 million, which matures on May 1, 2002 and bears
interest at a rate of 10% per annum. This transaction was undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Section 4(2) of the Securities Act.
(bb) On August 31, 1998, Nextera LLC issued to Gresham T. Brebach, Jr.
Class A Common Units and Class B Common Units for aggregate
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(cc) On August 31, 1998, Nextera LLC issued to Ronald K. Bohlin
Class A Common Units and Class B Common Units for aggregate
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(dd) On August 31, 1998, Nextera LLC issued to Michael P. Muldowney
Class A Common Units and Class B Common Units for aggregate
consideration of $800. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(ee) On August 31, 1998, Nextera LLC issued to Debra I. Bergevine
Class A Common Units and Class B Common Units for aggregate
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(ff) On August 31, 1998, Nextera LLC issued to David Fritts Class
A Common Units and Class B Common Units for aggregate consideration of
$ . This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(gg) On August 31, 1998, Nextera LLC issued to Belden Menkus Class A Common
Units and Class B Common Units for aggregate consideration of
$ . This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(hh) Effective August 31, 1998, Nextera LLC issued an aggregate of Class A
Common Units to Sibson & Company, Inc. and SC2, Inc. as a part of the purchase
price for the assets of Sibson & Company, L.P.
(ii) Effective August 31, 1998, Nextera LLC issued an aggregate of Class A
Common Units to certain employees pursuant to employment agreements between
SC/NE, LLC and such employees, each dated as of August 31, 1998, for aggregate
consideration of $ . These transactions were undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Rule 506 of Regulation D under the Securities Act.
(jj) Effective Nextera Enterprises, Inc. issued
shares of Class A Common Stock to certain members of Nextera LLC in exchange for
Class A Common Units of
II-4
<PAGE> 162
Nextera LLC. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(kk) Effective Nextera Enterprises, Inc. issued
shares of Class A Common Stock to the stockholders of the Sibson Entities in
exchange for all of the issued and outstanding capital stock of the Sibson
Entities. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(ll) From April 1, 1997, through June 1, 1998, Nextera LLC granted to
certain employees options to purchase Class A Common Units at an
exercise price of $ per unit under the Amended and Restated Employee Equity
Participation Plan of Nextera LLC (the "Nextera LLC Equity Participation Plan").
From January 7, 1998 through September 14, 1998, Nextera LLC granted to certain
employees options to purchase Class A Common Units at an exercise
price of $ per unit under the Nextera LLC Equity Participation Plan. Each of
the options vest 25% each year over a four-year period. These transactions were
undertaken in reliance upon the exemptions from the registration requirements of
the Securities Act afforded by Rule 701 under the Securities Act or Section 4(2)
of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
1.1(3) Form of Underwriting Agreement.
3.1(1) Form of Amended and Restated Certificate of Incorporation.
3.2(1) Form of Amended and Restated Bylaws.
4.1(3) Form of Class A Common Stock Certificate.
4.2(3) Form of Class B Common Stock Certificate.
4.3(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A.
5.1(3) Opinion of Latham & Watkins.
10.1(1) Form of 1998 Equity Participation Plan.
10.2(1) Stock Purchase Agreement dated as of July 30, 1997 by and
among Nextera Enterprises, L.L.C., Symmetrix, Inc. and the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto.
10.3(1) Escrow Agreement dated as of July 30, 1997 by and among
Nextera Enterprises, L.L.C., Symmetrix, Inc., the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto and State Street Bank
and Trust Company.
10.4(1) Purchase Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, and the
members of SiGMA Consulting, LLC listed on the signature
pages thereto.
10.5(1) Escrow Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, the
members of SiGMA Consulting, LLC listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.6(1) Purchase Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc. and the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto.
</TABLE>
II-5
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.7(2) First Amendment to Purchase Agreement dated as of September
30, 1998 by and among Nextera Enterprises, L.L.C., Pyramid
Imaging, Inc., the former shareholders of Pyramid Imaging,
Inc. listed on the signature pages thereto and Nextera
Enterprises, Inc.
10.8(1) Escrow Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc., the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto and Chase Manhattan Trust Company.
10.9(1) Asset Purchase Agreement dated as of March 31, 1998 by and
among The Planning Technologies Group, Inc., the
shareholders of The Planning Technologies Group, Inc. listed
on the signature pages thereto, The Planning Technologies
Group, L.L.C., Nextera Enterprises, L.L.C. and Nextera
Enterprises Holdings, L.L.C.
10.10(1) Escrow Agreement dated as of March 31, 1998 by and among The
Planning Technologies Group, LLC, Nextera Enterprises,
L.L.C., Nextera Enterprises Holdings, L.L.C., The Planning
Technologies Group, Inc., the shareholders of The Planning
Technologies Group, Inc. listed on the signature pages
thereto and Chase Manhattan Trust Company.
10.11(1) Asset Purchase Agreement dated as of August 31, 1998 by and
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc., SC2, Inc., and the
shareholders of Sibson & Company, Inc. and SC2, Inc. listed
on the signature pages thereto.
10.12(1) First Amendment to Asset Purchase Agreement dated as of
August 31, 1998 by and among SC/NE, LLC, Nextera
Enterprises, L.L.C., Sibson & Company, L.P., Sibson &
Company, Inc. and SC2, Inc.
10.13(1) Escrow Agreement dated as of August 31, 1998 by and among
SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson & Company,
L.P., Sibson & Company, Inc., SC2, Inc., the shareholders of
Sibson & Company, Inc. and SC2, Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.14(1) Share Purchase Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Sibson Acquisition Co.
and the shareholders of Sibson Canada Inc. listed on the
signature pages thereto.
10.15(1) Escrow Agreement dated as of August 31, 1998 by an among
Nextera Enterprises, L.L.C., Sibson Acquisition Co., the
shareholders of Sibson Canada Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.16(1) Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., and the shareholders of
Sibson & Company, Inc., SC2, Inc. and Sibson Canada, Inc.
listed on the signature pages thereto.
10.17(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc.
10.18(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc.
10.19(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr.
10.20(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin.
10.21(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney.
</TABLE>
II-6
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.22(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C.
10.23(1) Employment Agreement dated as of March 25, 1997 by and
between Robert F. Staley and Education Technology
Consulting, L.L.C.
10.24(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC.
10.25(1) Noncompete, Non-solicitation, Proprietary Information,
Confidentiality and Inventions Agreement dated as of August
31, 1998 between Roger Brossy and Nextera Enterprises,
L.L.C.
10.26(1) Promissory Note of Gresham Brebach, Jr. dated January 2,
1998 in the principal amount of $576,000 in favor of Nextera
Enterprises Holdings, L.L.C.
10.27(1) Promissory Note of Michael Muldowney dated January 2, 1998
in the principal amount of $72,000 in favor of Nextera
Enterprises Holdings, L.L.C.
10.28(1) Promissory Note of Debra Bergevine dated January 2, 1998 in
the principal amount of $62,000 in favor of Nextera
Enterprises Holdings, L.L.C.
23.1.1(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.2(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.3(2) Consent of BDO Seidman, LLP, Independent Certified Public
Accountants.
23.1.4(2) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.1.5(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.6(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors.
23.1.7(2) Consent of Farkouh, Furman & Faccio, Independent Auditors.
23.1.8(2) Consent of Grant Thornton.
23.2(3) Consent of Latham & Watkins (contained in Exhibit 5.1).
24.1(1) Power of Attorney.
24.2(2) Power of Attorney.
27.1(2) Financial Data Schedule.
</TABLE>
- ------------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(b) Financial Statements.
All required Financial Statements are included in the Prospectus.
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
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or
II-7
<PAGE> 165
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lexington, State of Massachusetts, on December 4,
1998.
NEXTERA ENTERPRISES, INC.
By: /s/GRESHAM T. BREBACH, JR.
------------------------------------
Gresham T. Brebach, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ GRESHAM T. BREBACH, JR. President, Chief Executive December 4, 1998
- ----------------------------------------------------- Officer and Chairman of the
Gresham T. Brebach, Jr. Board of Directors
(Principal Executive
Officer)
/s/ MICHAEL P. MULDOWNEY Chief Financial Officer December 4, 1998
- ----------------------------------------------------- (Principal Financial and
Michael P. Muldowney Accounting Officer)
/s/ RONALD K. BOHLIN Chief Operating Officer and December 4, 1998
- ----------------------------------------------------- Director
Ronald K. Bohlin
ROGER BROSSY* Director December 4, 1998
- -----------------------------------------------------
Roger Brossy
RALPH FINERMAN* Director December 4, 1998
- -----------------------------------------------------
Ralph Finerman
STEVEN B. FINK* Director December 4, 1998
- -----------------------------------------------------
Steven B. Fink
STANLEY E. MARON* Director December 4, 1998
- -----------------------------------------------------
Stanley E. Maron
RICHARD V. SANDLER* Director December 4, 1998
- -----------------------------------------------------
Richard V. Sandler
MICHAEL D. ROSE* Director December 4, 1998
- -----------------------------------------------------
Michael D. Rose
</TABLE>
*By: /s/ GRESHAM T. BREBACH,
JR.
Gresham T. Brebach,
Jr.
Attorney-in-Fact
II-9
<PAGE> 167
SCHEDULE II
NEXTERA ENTERPRISES, L.L.C.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Period ended December 31, 1997
Reserves and allowances deducted from asset
accounts..................................
Allowance for uncollectible accounts... $ -- $100,000 $ -- $100,000
</TABLE>
S-1
<PAGE> 168
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
1.1(3) Form of Underwriting Agreement. ............................
3.1(1) Form of Amended and Restated Certificate of
Incorporation. .............................................
3.2(1) Form of Amended and Restated Bylaws. .......................
4.1(3) Form of Class A Common Stock Certificate. ..................
4.2(3) Form of Class B Common Stock Certificate. ..................
4.3(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A. ...............
5.1(3) Opinion of Latham & Watkins. ...............................
10.1(1) Form of 1998 Equity Participation Plan. ....................
10.2(1) Stock Purchase Agreement dated as of July 30, 1997 by and
among Nextera Enterprises, L.L.C., Symmetrix, Inc. and the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto. .....................
10.3(1) Escrow Agreement dated as of July 30, 1997 by and among
Nextera Enterprises, L.L.C., Symmetrix, Inc., the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto and State Street Bank
and Trust Company. .........................................
10.4(1) Purchase Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, and the
members of SiGMA Consulting, LLC listed on the signature
pages thereto. .............................................
10.5(1) Escrow Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, the
members of SiGMA Consulting, LLC listed on the signature
pages thereto and Chase Manhattan Trust Company. ...........
10.6(1) Purchase Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc. and the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto. ...................................
10.7(2) First Amendment to Purchase Agreement dated as of September
30, 1998 by and among Nextera Enterprises, L.L.C., Pyramid
Imaging, Inc., the former shareholders of Pyramid Imaging,
Inc. listed on the signature pages thereto and Nextera
Enterprises, Inc.
10.8(1) Escrow Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc., the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto and Chase Manhattan Trust
Company. ...................................................
10.9(1) Asset Purchase Agreement dated as of March 31, 1998 by and
among The Planning Technologies Group, Inc., the
shareholders of The Planning Technologies Group, Inc. listed
on the signature pages thereto, The Planning Technologies
Group, L.L.C., Nextera Enterprises, L.L.C. and Nextera
Enterprises Holdings, L.L.C. ...............................
</TABLE>
<PAGE> 169
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.10(1) Escrow Agreement dated as of March 31, 1998 by and among The
Planning Technologies Group, LLC, Nextera Enterprises,
L.L.C., Nextera Enterprises Holdings, L.L.C., The Planning
Technologies Group, Inc., the shareholders of The Planning
Technologies Group, Inc. listed on the signature pages
thereto and Chase Manhattan Trust Company. .................
10.11(1) Asset Purchase Agreement dated as of August 31, 1998 by and
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc., SC2, Inc., and the
shareholders of Sibson & Company, Inc. and SC2, Inc. listed
on the signature pages thereto. ............................
10.12(1) First Amendment to Asset Purchase Agreement dated as of
August 31, 1998 by and among SC/NE, LLC, Nextera
Enterprises, L.L.C., Sibson & Company, L.P., Sibson &
Company, Inc. and SC2, Inc. ................................
10.13(1) Escrow Agreement dated as of August 31, 1998 by and among
SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson & Company,
L.P., Sibson & Company, Inc., SC2, Inc., the shareholders of
Sibson & Company, Inc. and SC2, Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company. ...........
10.14(1) Share Purchase Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Sibson Acquisition Co.
and the shareholders of Sibson Canada Inc. listed on the
signature pages thereto. ...................................
10.15(1) Escrow Agreement dated as of August 31, 1998 by an among
Nextera Enterprises, L.L.C., Sibson Acquisition Co., the
shareholders of Sibson Canada Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company. ...........
10.16(1) Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., and the shareholders of
Sibson & Company, Inc., SC2, Inc. and Sibson Canada, Inc.
listed on the signature pages thereto. .....................
10.17(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc. .......................................................
10.18(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc. ......
10.19(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr. ....................................
10.20(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin. ....................................................
10.21(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney. .................................................
10.22(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C. .....................................................
10.23(1) Employment Agreement dated as of March 25, 1997 by and
between Robert F. Staley and Education Technology
Consulting, L.L.C. .........................................
10.24(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC. .......................
10.25(1) Noncompete, Non-solicitation, Proprietary Information,
Confidentiality and Inventions Agreement dated as of August
31, 1998 between Roger Brossy and Nextera Enterprises,
L.L.C. .....................................................
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.26(1) Promissory Note of Gresham Brebach, Jr. dated January 2,
1998 in the principal amount of $576,000 in favor of Nextera
Enterprises Holdings, L.L.C. ...............................
10.27(1) Promissory Note of Michael Muldowney dated January 2, 1998
in the principal amount of $72,000 in favor of Nextera
Enterprises Holdings, L.L.C. ...............................
10.28(1) Promissory Note of Debra Bergevine dated January 2, 1998 in
the principal amount of $62,000 in favor of Nextera
Enterprises Holdings, L.L.C.................................
23.1.1(2) Consent of Ernst & Young LLP, Independent Auditors. ........
23.1.2(2) Consent of Ernst & Young LLP, Independent Auditors. ........
23.1.3(2) Consent of BDO Seidman, LLP, Independent Certified Public
Accountants. ...............................................
23.1.4(2) Consent of PricewaterhouseCoopers LLP, Independent
Accountants. ...............................................
23.1.5(2) Consent of Ernst & Young LLP, Independent Auditors. ........
23.1.6(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors. ..................................................
23.1.7(2) Consent of Farkouh, Furman & Faccio, Independent
Auditors. ..................................................
23.1.8(2) Consent of Grant Thornton. .................................
23.2(3) Consent of Latham & Watkins(contained in Exhibit 5.1). .....
24.1(1) Power of Attorney. .........................................
24.2(2) Power of Attorney. .........................................
27.1(2) Financial Data Schedule. ...................................
</TABLE>
- ------------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 10.7
FIRST AMENDMENT TO PURCHASE AGREEMENT
This First Amendment to Purchase Agreement (the "First
Amendment") dated as of September 30, 1998, is by and among Nextera Enterprises,
L.L.C., a Delaware limited liability company, ("Nextera"), Pyramid Imaging,
Inc., a California corporation ("Pyramid"), the Holders (as defined in the
Purchase Agreement as hereinafter defined) and Nextera Enterprises, Inc., a
Delaware corporation ("Newco").
W I T N E S S E T H
WHEREAS, by that Purchase Agreement (the "Purchase Agreement")
dated as of March 31, 1998 by and among Nextera, Pyramid and the Holders, the
parties thereto agreed, among other things, that Nextera would purchase all of
the issued and outstanding capital stock of Pyramid from the Holders as more
particularly described in the Purchase Agreement;
WHEREAS, Nextera and its members intend to cause the business
of Nextera to be incorporated; and
WHEREAS, Nextera, Pyramid and the Holders desire to modify and
amend the Purchase Agreement and a certain exhibit to the Purchase Agreement as
provided herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and in the Purchase Agreement, and of other good and valuable
consideration, the mutual receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto, for themselves and their respective successors
and assigns, hereby agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms used herein shall have the meanings ascribed to them in the
Purchase Agreement.
2. Purchase Price. The provisions of Section 1.7 of the
Purchase Agreement are modified as follows:
(a) A new subsection (f) is hereby inserted as follows:
"(f) Incorporation Transaction. From and after such
time as the business of Nextera is incorporated (the "Incorporation
Transaction") pursuant to Section 11 of the First Amendment to Second
Amended and Restated Limited Liability Company Agreement of Nextera
Enterprises, L.L.C. effective as of August 31, 1998 to which each of
the Holders is a party, (i) all references in this Section 1.7 to Buyer
Class A Units shall be deemed to mean the Class A Common Stock of
Nextera Enterprises, Inc., a Delaware corporation, and (ii) each share
of the Class A Common Stock to be issued as Additional Consideration
following the Incorporation Transaction shall correspond to the
percentage membership interest
<PAGE> 2
represented by one Buyer Class A Common Unit to be issued as Additional
Consideration immediately prior to the Incorporation Transaction."
3. Exhibit D to Purchase Agreement. The Revenue Earn-Out
Schedule attached as Exhibit D to the Purchase Agreement is hereby modified as
follows: All references to "Buyer Class A Units" following the Incorporation
Transaction shall be deemed to mean Class A Common Stock.
4. Full Force and Effect of Agreement. As modified and amended
by this First Amendment, all of the terms, covenants and conditions of the
Purchase Agreement are hereby ratified and confirmed and shall continue to be
and remain in full force and effect.
5. Nextera Enterprises, Inc. By signing below, Newco agrees to
issue Class A. Common Stock subject to and in accordance with the terms and
conditions of Section 1.7 of the Purchase Agreement, as amended hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first above written.
NEXTERA:
NEXTERA ENTERPRISES, L.L.C., a Delaware
limited liability company
By: /s/ MICHAEL P. MULDOWNEY
Name: Michael P. Muldowney
Title: Chief Financial Officer
NEWCO:
NEXTERA ENTERPRISES, INC., a Delaware
corporation
By: /s/ MICHAEL P. MULDOWNEY
Name: Michael P. Muldowney
Title: Chief Financial Officer
PYRAMID:
PYRAMID IMAGING, INC., a California
corporation
By: /s/ MICHAEL P. MULDOWNEY
Name: Michael P. Muldowney
Title: Chief Financial Officer
3
<PAGE> 4
HOLDERS:
/s/ RAVINDER BHASKARAN
Ravinder Bhaskaran
/s/ MICHAEL J. SHEPHERD
Michael J. Shepherd
/s/ RAMESH VASUDEVAN
Ramesh Vasudevan
/s/ PADMINI VASUDEVAN
Padmini Vasudevan
/s/ CHARLES J. BLACKBURN
Charles J. Blackburn
/s/ DOUGLAS F. STEIN
Douglas F. Stein
/s/ GLENN F. VAN STRAATUM
Glenn F. Van Straatum
/s/ IAIN R. MCNEIL
Iain R. McNeil
4
<PAGE> 1
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated April
30, 1998, except for Note 12, as to which the date is August 31, 1998, in the
Pre-effective Amendment No. 1 to the Registration Statement (Form S-1) and
related Prospectus of Nextera Enterprises, Inc. for the registration of shares
of its Class A common stock.
Our audits also included the financial statement schedule of Nextera
Enterprises, L.L.C. included in the Pre-effective Amendment No. 1 to the
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the schedule based on
our audit. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 30, 1998, with respect to the 1997 financial
statements of Symmetrix, Inc., included in the Pre-effective Amendment No. 1 to
the Registration Statement (Form S-1) and related Prospectus of Nextera
Enterprises, Inc., for the registration of shares of its Class A common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Pre-effective Amendment No. 1 to the Registration Statement of our report
dated July 19, 1996, relating to the May 31, 1996 consolidated financial
statements of Symmetrix, Inc. and Subsidiaries, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ B.D.O. SEIDMAN LLP
Boston, Massachusetts
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Pre-effective Amendment No. 1 to the Registration Statement on Form S-1 of our
report dated July 21, 1995. We also consent to the reference to us under the
headings "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, MA
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 31, 1998, with respect to the financial
statements of SiGMA Consulting, LLC, included in the Pre-effective Amendment
No. 1 to the Registration Statement (Form S-1) and related Prospectus of Nextera
Enterprises, Inc., for the registration of shares of its Class A common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 19, 1998, except for Note 8 which is April 4,
1998, with respect to the financial statements of The Planning Technologies
Group, Inc., included in the Pre-effective Amendment No. 1 to the Registration
Statement (Form S-1) and related Prospectus of Nextera Enterprises, Inc., for
the registration of shares of its Class A common stock.
/s/ HARTE CARUCCI & DRISCOLL, P.C.
Woburn, Massachusetts
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 10, 1998, except for Note 13, which is August
31, 1998, with respect to the financial statements of Sibson & Company, L.P.,
and Subsidiaries, included in the Pre-effective Amendment No. 1 to the
Registration Statement (Form S-1) and related Prospectus of Nextera Enterprises,
Inc., for the registration of shares of its Class A common stock.
/s/ FARKOUH, FURMAN & FACCIO
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
December 3, 1998
<PAGE> 1
EXHIBIT 23.1.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 1, 1998 with respect to the financial
statements of Sibson Canada, Inc., included in the Pre-effective Amendment No. 1
to the Registration Statement (Form S-1) and related Prospectus of Nextera
Enterprises, Inc., for the registration of shares of its Class A common stock.
/s/ GRANT THORNTON
Chartered Accountants
Toronto, Ontario
December 3, 1998
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Gresham T. Brebach, Jr., the true and lawful attorney-in-fact, with
full power of substitution and resubstitution, for him and in his name, place
and stead, to sign on his behalf as a director of Nextera Enterprises, Inc. (the
"Corporation") a Registration Statement on Form S-1 (and any abbreviated
registration statement relating thereto permitted pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "Securities Act")), for the purpose
of registering under the Securities Act, shares of the Corporation's Common
Stock, par value $.001 per share, and to sign any or all amendments and any or
all post-effective amendments to such Registration Statement (and any such
abbreviated registration statement) and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Dated: November 18, 1998 /s/ MICHAEL D. ROSE
-----------------------------------
Michael D. Rose
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, AND NOTES THERETO, INCLUDED IN THE
COMPANY'S REGISTRATION STATEMENT, TO WHICH THIS SCHEDULE IS AN EXHIBIT, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> FEB-26-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 554 2,921
<SECURITIES> 0 0
<RECEIVABLES> 2,302 11,051
<ALLOWANCES> 100 617
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,619 14,931
<PP&E> 1,311 2,542
<DEPRECIATION> 130 493
<TOTAL-ASSETS> 22,655 57,498
<CURRENT-LIABILITIES> 4,954 9,824
<BONDS> 0 0
0 0
0 0
<COMMON> 19,747 2,688
<OTHER-SE> (3,015) (6,593)
<TOTAL-LIABILITY-AND-EQUITY> 16,732 57,498
<SALES> 7,998 22,095
<TOTAL-REVENUES> 7,998 22,095
<CGS> 4,718 14,938
<TOTAL-COSTS> 5,561 7,864
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32 2,671
<INCOME-PRETAX> (2,313) (3,378)
<INCOME-TAX> 702 200
<INCOME-CONTINUING> (3,015) (3,978)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,015) (3,978)
<EPS-PRIMARY> (0.74) (0.29)
<EPS-DILUTED> (0.74) (0.29)
</TABLE>
